1 1 2 TRANSCRIPT OF PROCEEDINGS 3 BEFORE THE 4 TEXAS LOTTERY COMMISSION 5 AUSTIN, TEXAS 6 7 8 REGULAR MEETING OF THE § 9 TEXAS LOTTERY COMMISSION § TUESDAY, MAY 7, 2013 § 10 11 12 13 14 COMMISSION MEETING 15 TUESDAY, MAY 7, 2013 16 17 BE IT REMEMBERED THAT on Tuesday, the 7th 18 day of May 2013, the Texas Lottery Commission meeting 19 was held from 10:03 a.m. until 12:15 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 COMMISSIONER J. WINSTON KRAUSE. The 23 following proceedings were reported via machine 24 shorthand by Aloma J. Kennedy, a Certified Shorthand 25 Reporter. 2 1 APPEARANCES 2 CHAIRMAN: Ms. Mary Ann Williamson 3 COMMISSIONERS: 4 Mr. J. Winston Krause 5 GENERAL COUNSEL: Mr. Robert F. Biard 6 EXECUTIVE DIRECTOR: 7 Mr. Gary N. Grief 8 CHARITABLE BINGO OPERATIONS DIRECTOR Ms. Sandra K. Joseph 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS - TUESDAY, MAY 7, 2013 ................. 6 4 AGENDA ITEM NO. I - Meeting Called to Order ........ 6 5 AGENDA ITEM NO. II - Report, possible discussion and/or action on lottery sales 6 and revenue, game performance, new game opportunities, advertising, market research, 7 trends, and game contracts, agreements, and procedures ..................................... 6 8 AGENDA ITEM NO. III - Report, possible 9 discussion and/or action on transfers to the State and the agency’s budget status ............... 11 10 AGENDA ITEM NO. IV - Consideration of and 11 possible discussion and/or action, including adoption, on amendments to 16 TAC § 401.307 12 “Pick 3” On-Line Game Rule, and 16 TAC § 401.316 “Daily 4” On-Line Game Rule .............. 13 13 AGENDA ITEM NO. V - Report, possible 14 discussion and/or action on the 83rd Legislature ........................................ 34 15 AGENDA ITEM NO. VI - Consideration of and 16 possible discussion and/or action, including proposal, on amendments to 16 TAC 17 § 402.404 License Fees ............................. 43 18 AGENDA ITEM NO. VII - Consideration of and possible discussion and/or action on external 19 and internal audits and/or reviews relating to the Texas Lottery Commission, and/or on the 20 Internal Audit Division’s activities, including the Internal Audit of Transfers to the State ....... 15 21 AGENDA ITEM NO. VIII - Report, possible 22 discussion and/or action on GTECH Corporation ...... 17 23 AGENDA ITEM NO. IX - Report by the Executive Director and/or possible discussion and/or 24 action on the agency’s operational status, agency procedures, awards, and FTE status .......... 17 25 4 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 AGENDA ITEM NO. X - Report by the Charitable Bingo Operations Director and possible 4 discussion and/or action on the Charitable Bingo Operations Division’s activities, including 5 updates on licensing, accounting and audit activities, pull-tab review, and special 6 projects ........................................... 29 7 AGENDA ITEM NO. XI - Consideration of the status and possible entry of orders in: 8 A. Docket No. 362-13-0690 – Sunmart #352 B. Docket No. 362-13-2215 – Woodforest 9 Chevron C. Docket No. 362-13-2217 – Garcia’s 10 Market D. Docket No. 362-13-2218 – Candy Hill 11 Convenience Store E. Docket No. 362-13-2506 – Sunglo #36 12 F. Docket No. 362-13-2796 – Laredo Mini Mart 13 G. Docket No. 362-13-2797 – First Stop H. Case No. 2013-219 – American Legion 14 Unit 208, Aux ......................... 74 15 AGENDA ITEM NO. XII - Public comment ............... 32 16 AGENDA ITEM NO. XIII - Commission may meet in Executive Session: 17 A. To deliberate the duties and evaluation of the Executive Director pursuant to 18 Section 551.074 of the Texas Government Code. 19 B. To deliberate the duties and evaluation of the Charitable Bingo Operations 20 Director pursuant to Section 551.074 of the Texas Government Code. 21 C. To deliberate the duties and evaluation of the Internal Audit Director pursuant 22 to Section 551.074 of the Texas Government Code. 23 D. To deliberate the duties of the General Counsel pursuant to Section 551.074 of 24 the Texas Government Code. 25 5 1 TABLE OF CONTENTS (CONTINUED) 2 PAGE 3 E. To deliberate the duties of the Human Resources Director pursuant to Section 4 551.074 of the Texas Government Code. F. To receive legal advice regarding pending 5 or contemplated litigation pursuant to Section 551.071(1)(A) and/or to receive 6 legal advice regarding settlement offers pursuant to Section 551.071(1)(B) of the 7 Texas Government Code and/or to receive legal advice pursuant to Section 551.071(2) 8 of the Texas Government Code, including but not limited to: 9 Department of Texas, Veterans of Foreign Wars et al. v. Texas Lottery 10 Commission et al. Willis Willis v. Texas Lottery 11 Commission, GTECH Corporation, BJN Sons Corporation d/b/a Lucky Food 12 Store #2, Barkat N. Jiwani and Pankaj Joshi 13 Employment law, personnel law, procurement and contract law, 14 evidentiary and procedural law, and general government law .................. 76 15 AGENDA ITEM NO. XIV - Return to open session 16 for further deliberation and possible action on any matter discussed in Executive Session ....... 77 17 AGENDA ITEM NO. XV - Adjournment ................... 77 18 REPORTER'S CERTIFICATE ............................. 79 19 20 21 22 23 24 25 6 1 P R O C E E D I N G S 2 TUESDAY, MAY 7, 2013 3 (10:06 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN WILLIAMSON: Good morning. I 6 would like to call this meeting of the Texas Lottery 7 Commission to order. Today is May 7, 2013. The time is 8 10:03 a.m. Commissioner Krause is present, so we do 9 have a quorum. 10 AGENDA ITEM NO. II 11 CHAIRMAN WILLIAMSON: The first item is 12 report, possible discussion and/or action on lottery 13 sales and revenue, game performance, new game 14 opportunities, advertising, market research, trends, and 15 game contracts, agreements and procedures. 16 Kathy and Robert, please, this is your 17 item. 18 MS. PYKA: Good morning, Commissioners. 19 My name is Kathy Pyka. I'm the Controller for the 20 Commission. And with me to my right this morning is 21 Robert Tirloni, our Products Manager. 22 Commissioners, our first slide that we 23 have for you this morning reflects sales through the 24 week ending April 27, 2013. Our total Fiscal Year 2013 25 sales through this 35-week period are $2,876,000,000, 7 1 which is an increase of $74 million over the 2 $2,802,000,000 figure for the previous fiscal year. 3 Our Fiscal Year 2013 instant ticket sales 4 reflected on the second blue bar are at $2,134,000,000, 5 which is an $89.3 million increase over Fiscal Year 6 2012. And, Commissioners, we continue to see 7 exceptional week-over-week instant ticket sales, with a 8 cumulative increase of 4.4 percent through this period, 9 Fiscal Year '13. 10 Our Fiscal Year 2013 draw sales, as 11 reflected on the red bar, are at $741.8 million, which 12 is a $15 million decline as compared to the 13 $756.8 million figure for the previous fiscal year. 14 And, Commissioners, as we noted last meeting, this 15 decline is attributed to the record-setting Mega 16 Millions jackpot that we had last fiscal year in the 17 month of March. 18 So moving to the next slide, this includes 19 our average daily sales comparison, including Fiscal 20 Years '11, '12 and '13. Our overall daily average sales 21 value for Fiscal Year '13 is $12.1 million. This is a 22 $466,000 growth per day over Fiscal Year 2012, and it's 23 a daily increase or daily average increase of just under 24 $1.5 million as compared to Fiscal Year 2011 sales. 25 Our jackpot games are highlighted in 8 1 white, at the very top of the graph, and reflect a daily 2 average total of $1.79 million for the fiscal year, 3 which is a $209,000 decline from last fiscal year, and 4 it's a $213,000 increase over Fiscal Year 2011. 5 Included on the graph for the first time 6 this period are our lotto extra daily sales, 7 $54 million, so that add-on feature has certainly 8 started off with exceptional sales year to date. 9 And then moving down to our daily games, 10 which are highlighted in green, we have a daily average 11 of $1.36 million for the current year, with more than a 12 $200,000 growth over the previous two fiscal years. 13 The new game, All or Nothing, at the 14 bottom of the slide, is at $242,000 per day, which is a 15 cumulative sales value of $56 million. And we've 16 already exceeded our year to date -- our fiscal year -- 17 fiscal projection on that game through this point in the 18 fiscal year, and we still have 17 weeks to go in the 19 fiscal year. 20 And then I would like to note the Daily 4 21 game sales of $201,000 per day, which is a 13 percent 22 increase over prior year sales. 23 Last but not least, we have instants at 24 $8.9 million. This is an increase of $444,000 per day 25 over prior fiscal year and more than a million dollars 9 1 over Fiscal Year 2011. 2 So with that, Robert will now move over 3 onto actual sales. 4 MR. TIRLONI: Good morning, Commissioners. 5 For the record, Robert Tirloni, Products and Drawings 6 Manager. 7 So this slide is our Fiscal '13 compared 8 to Fiscal '12, and this is through not this past 9 Saturday but the previous Saturday, April 27th. 10 Same format as the previous slide. Our 11 jackpot games are up at the top. We are experiencing 12 decline, as Kathy mentioned. The majority of that 13 decline is coming from Mega Millions. And again, that's 14 due to the fact that in Fiscal '12, we had that 15 humongous $600 million plus jackpot, and we've not 16 experienced jackpot levels like that in this current 17 fiscal year. 18 We are seeing good growth on Powerball, 19 almost $70 million surplus this fiscal. And again, 20 Lotto Extra is our new add-on feature to our Lotto Texas 21 game, and that's coming in at $800,000 so far for this 22 fiscal year. It's only a few weeks old. It started on 23 April 14th, so that is new. 24 The daily games are in the middle in 25 green. Again, good growth from Daily 4. We've talked 10 1 about that. We believe we are seeing players move from 2 the Pick 3 game to the Daily 4 game. It seems to be an 3 industry trend. And all of the sales for All or Nothing 4 are again new, as that game started in September, which 5 was at the beginning of Fiscal '13. So that's 6 $56 million in new sales. 7 All told, the daily games are up just over 8 $51 million. If you look at the draw game category as a 9 whole, we are down $15 million. That's the same 10 decrease we had last month when we were sitting here. 11 But I do want to point out, we've got very strong 12 jackpots right now. So we have $139 million Mega 13 Millions jackpot advertised for tonight, $222 million 14 for Powerball tomorrow. And even our smaller in-state 15 game, Texas Two Step, we have an advertised jackpot of 16 $1.3 million, which for that game is a very good 17 jackpot. 18 So what's happened between the time all of 19 this data was compiled for this presentation and now, 20 due to those jackpots, that $15 million has actually 21 decreased by about $3 million, because of the sales that 22 we're experiencing from those jackpots. So we've 23 already put a dent in that 15, and we're closer to 12. 24 If we can keep some of those jackpots rolling, we expect 25 to be able to catch up and make more ground on that 11 1 deficit. 2 Our instant games continue to do very well 3 week over week. And so far we are up this fiscal year 4 over last fiscal year by just under $90 million. So all 5 told, if you look at the portfolio draw games and 6 instants combined, we're up $74 million for the fiscal 7 year. 8 And that's our presentation for today on 9 sales. We're happy to answer any questions that you 10 might have. 11 CHAIRMAN WILLIAMSON: Thank you. 12 Commissioner, do you have any questions? 13 COMMISSIONER KRAUSE: I do not. 14 Keep up the good work. 15 AGENDA ITEM NO. III 16 CHAIRMAN WILLIAMSON: All right. Let's go 17 on to the next item, then. Report, possible discussion 18 and/or action on transfers to the State and the agency's 19 budget status. 20 Kathy. 21 MS. PYKA: Thank you, Madam Chair. 22 Again for the record, my name is Kathy 23 Pyka. I'm the Controller for the Commission. 24 Commissioners, Tab III of your notebook 25 includes the transfer and allocations to the Foundation 12 1 School Fund, the Texas Veterans Commission and the 2 allocation of unclaimed prizes for the period ending 3 March 31, 2013. Our total cash transfers to the State 4 amounted to $624.7 million for the first seven months of 5 the fiscal year. And on the second page of your 6 notebook, we have the detailed information for the 7 monthly transfers. 8 Of the $624.7 million transferred to the 9 State, $596 million was the amount transferred to the 10 Foundation School Fund. $3.4 million was transferred to 11 the Texas Veterans Commission, with the balance of 12 $25.3 million transferred from unclaimed lottery prizes. 13 Commissioners, this represents a 4.4 14 percent decrease, or $27.4 million from the amount that 15 was transferred to the Foundation School Fund through 16 March of 2012. 17 I wanted to note that our total cumulative 18 transfers to the Foundation School Fund now through 19 March are at $50.3 billion. 20 Commissioners, the final item under this 21 tab is our Fiscal Year 2013 method of finance summary. 22 For the second quarter ended February 28th, our 23 Commission's lottery account budget for Fiscal Year 2013 24 is $199.6 million. Of this amount, 78.6 percent was 25 encumbered and expended through the end of the second 13 1 quarter. And our Bingo Operations budget funded by 2 general revenue is $14.7 million, with 55.5 percent 3 expended and encumbered through the end of the second 4 quarter. 5 I would be happy to answer any questions. 6 CHAIRMAN WILLIAMSON: Thank you, Kathy. 7 Commissioner, do you have any questions? 8 COMMISSIONER KRAUSE: I do not. Thank 9 you. 10 MS. PYKA: Thank you, Commissioners. 11 AGENDA ITEM NO. IV 12 CHAIRMAN WILLIAMSON: All right. Let's go 13 on to the next item, consideration of and possible 14 discussion and/or action, including adoption, on 15 amendments to 16 TAC Section 401.307, pick 3 on-line 16 game rule and 16 TAC Section 401.316, Daily 4 on-line 17 game rule. 18 James, I believe this is your item. 19 MR. PERSON: Yes, ma'am. Good morning, 20 Commissioners. My name is James Person. I'm an 21 attorney here at the Commission. 22 Back on the February 20th meeting of the 23 Commission, y'all voted to propose amendments to the 24 Pick 3 and Daily 4 on-line game rules. The amendments 25 would increase the frequency of drawings from two per 14 1 day to four per day and increase the number of 2 consecutive drawing plays a player may purchase from 12 3 to 24. 4 There were also some minor edits that 5 deleted some obsolete language and corrected a spelling 6 error, and those amendments were proposed in the 7 March 8th issue of the Texas Register. 8 We received one written comment which 9 opposed increasing the frequency of drawings per day. 10 The commenter just expressed his personal preference to 11 keep it at two per day and then suggests an alternative 12 of adding Sunday draw days. 13 We reviewed the comment, and staff does 14 not recommend any changes to the proposed language; 15 rather, we recommend that y'all adopt the proposed rules 16 without any changes. 17 CHAIRMAN WILLIAMSON: All right. Thank 18 you, James. 19 Commissioner, do you have any questions? 20 COMMISSIONER KRAUSE: I've got a motion. 21 CHAIRMAN WILLIAMSON: Would you like to 22 make a motion? 23 COMMISSIONER KRAUSE: I would love to. I 24 make a motion that we adopt the amendments to Rules 16 25 TAC Section 401.307 and 16 TAC 401.316. 15 1 CHAIRMAN WILLIAMSON: I second. 2 All in favor? 3 COMMISSIONER KRAUSE: Aye. 4 CHAIRMAN WILLIAMSON: Aye. 5 Motion passes 2-0. 6 Thank you. 7 MR. BIARD: Thank you, Commissioners. I 8 have two orders for you to sign. 9 AGENDA ITEM NO. VII 10 CHAIRMAN WILLIAMSON: Okay. We will skip 11 down now to Item VII, which is the consideration of and 12 possible discussion and/or action on external and 13 internal audits and/or reviews relating to the Texas 14 Lottery Commission, and/or on the Internal Audit 15 Division's activities, including Internal Audit, the 16 transfers to the State. 17 Catherine, this is your item, please. 18 MS. MELVIN: Thank you, Madam Chair. Good 19 morning, Commissioner. For the record, Catherine 20 Melvin, Director of the Internal Audit Division. 21 This morning I would like our lead auditor 22 on this project, Nancy Walden, to present a recently 23 issued Internal Audit report. 24 MS. WALDEN: Good morning, Chairman 25 Williamson, Commissioner Krause. My name is Nancy 16 1 Walden of the Internal Audit Division. Internal Audit 2 has completed review of transfer of lottery proceeds to 3 the State of Texas. As transfers of lottery proceeds is 4 a core function of this agency, our review was designed 5 to verify the accuracy and timeliness of transfers made 6 to the state. 7 In addition, Internal Audit evaluated the 8 effectiveness and adequacy of controls in place to 9 ensure that transfers are processed in accordance with 10 applicable requirements. 11 Accordingly, our audit included an 12 analysis and review of all transfers made in Fiscal Year 13 2010, 2011 and 2012. Transfer data from Fiscal Years 14 1998 through 2009 was also analyzed but not tested. 15 Based on our review, Internal Audit found 16 that transfers in Fiscal Years 2010 through 2012 have 17 been processed accurately and timely. Appropriate 18 internal controls are in place to ensure transfers are 19 processed in accordance with applicable requirements. 20 We did make one recommendation in the 21 report relating to cross-training to which management 22 has indicated agreement. You have our report in front 23 of you, and I'm happy to answer any questions. 24 CHAIRMAN WILLIAMSON: All right. Thank 25 you. 17 1 Commissioner, do you have any questions? 2 COMMISSIONER KRAUSE: I do not. 3 CHAIRMAN WILLIAMSON: All right. Thank 4 you for that report. 5 MS. WALDEN: Thank you. 6 MS. MELVIN: Thank you. 7 AGENDA ITEM NO. VIII 8 CHAIRMAN WILLIAMSON: Our next item is 9 report, possible discussion and/or action on GTECH 10 Corporation. 11 Gary? 12 MR. GRIEF: Commissioners, other than 13 what's in your notebook this morning, I have nothing 14 further to report on that item. 15 CHAIRMAN WILLIAMSON: All right. 16 Commissioner, do you have any questions? 17 COMMISSIONER KRAUSE: I don't. 18 CHAIRMAN WILLIAMSON: Do you have any 19 questions for GTECH? 20 COMMISSIONER KRAUSE: I do not. 21 CHAIRMAN WILLIAMSON: All right. 22 AGENDA ITEM NO. IX 23 CHAIRMAN WILLIAMSON: Our next item, then, 24 is report by the Executive Director and/or possible 25 discussion and/or action on the agency's operational 18 1 status, agency procedures, awards, and FTE status. 2 Gary, this is your item. 3 But before we do that, our new hopefully 4 soon-to-be-confirmed commissioner, Veronica Edwards, 5 has joined us in the audience today. She's right there. 6 I want everybody to see who she is. 7 And thank you for coming in today. 8 MS. EDWARDS: Thank you. 9 CHAIRMAN WILLIAMSON: All right. Sorry 10 about that. 11 Gary, go ahead. 12 MR. GRIEF: Certainly. Commissioners, as 13 you know, I attend a number of conferences and meetings 14 around the country each year, all related to the lottery 15 industry and focused on developing ideas and concepts on 16 how increased revenue can be achieved, not just for 17 Texas but for all 44 lottery jurisdictions that have 18 lotteries. I want to recap for you some special events 19 and some discussions that have occurred at the last two 20 conferences that I attended. 21 The first conference I want to touch on is 22 the Smart-Tech conference which was hosted by Public 23 Gaming Research Institute. This conference was held in 24 New York the week of April the 8th. During this 25 conference, I served on a panel representing the Mega 19 1 Millions game. The subject of this particular panel was 2 to discuss the near and long-term futures of both the 3 Mega Millions and the Powerball games. And as the lead 4 director for the Mega Millions consortium, I was able to 5 share my vision with the attendees for some ideas for 6 potentially changes to that particular game. 7 With California having joined the 8 Powerball game in April, just last April, and with 9 Florida set to come on board with Mega Millions in just 10 a couple of weeks, both of these games, Powerball and 11 Mega Millions, will now include every single lottery 12 jurisdiction in the United States that has a lottery. 13 This opens up some very interesting possibilities for us 14 to explore some truly national marketing initiatives. 15 But the highlight of the conference at the 16 meeting in New York was the very last panel that 17 participated in that conference. Several states in the 18 lottery industry -- and you've heard me talk about this 19 before -- including Illinois, Indiana, Pennsylvania, 20 New Jersey -- are in various stages of privatization. 21 And there are several other states who are starting to 22 have discussions about that as well. 23 Texas has been the true pioneer in the 24 public/private partnership model for the lottery 25 industry, with us having contracted out a wide variety 20 1 of services to GTECH, our lottery operator since the 2 Texas Lottery started back in 1992. So for this 3 particular session at this conference, I worked with our 4 conference director to try to develop a subject matter 5 that could be discussed that was narrowly focused on the 6 issue of outsourcing in the lottery industry. And I 7 narrowed that focus to the outsourcing of the sales 8 force. GTECH has provided the sales force for us here 9 in Texas since Day One, and this arrangement by any 10 measure has been very successful. 11 So serving as the moderator for this 12 panel, I hosted a group that consisted of our very own 13 Michael Anger, our Lottery Operations Director; Robert 14 Tirloni, who you just heard a moment ago, is our 15 Products and Drawings Manager; as well as Joe Lapinski, 16 our Account Development Manager for GTECH Texas; and Tom 17 Stanek, our Senior Director for Sales And marketing for 18 GTECH Texas. 19 Now, Commissioners, I'm obviously very 20 biased, but I thought that this panel gave the best and 21 most beneficial presentation of the entire conference. 22 It really brought some balance and some real world 23 experience to all of this talk about privatization 24 that's been popping up all over the country. Since it 25 was the very last session of that conference, it was 21 1 difficult for me to gauge the reaction of the audience 2 immediately following the presentation. 3 Now I want to fast-forward to just last 4 week where I attended the LaFleur's conference in 5 Washington, D.C. At the very beginning of this 6 conference, I was approached by many of my colleagues 7 from around the country and actually around the world. 8 Several of them wanted to come up and tell me that they 9 thought that that particular panel with those gentlemen 10 that I named was the best panel they saw at the previous 11 conference. But some of them even said it was the best 12 panel and most productive one they've ever seen at any 13 lottery conference. And that served as a great kick-off 14 to last week's conference, hearing that kind of praise. 15 So to start off last week's meetings, I 16 served on a couple of different panels. One was focused 17 on the Mega Millions game. And I was able to share some 18 details about some changes that will ultimately come to 19 your attention as a rule proposal, changes to the Mega 20 Millions game that will keep that game viable, relevant 21 and profitable in the face of the $2.00 success with the 22 Powerball game. 23 I was also able to take credit for Texas 24 being a leader and continuing to push for innovation and 25 change to our overall game portfolio. And I want to 22 1 keep that momentum going as I become the president of 2 the North American Association of State and Provincial 3 Lotteries in October. That will be one of my main 4 agendas. 5 Another highlight for Texas on this panel 6 was a discussion of our recent transition to dual 7 jackpot billboards for our multi-state games. I don't 8 know if you've seen any of our newly transitioned 9 billboards. We have approximately 130 outdoor 10 billboards that are focused on our multi-state games, 11 Powerball and Mega Millions. And when we first started 12 selling both games, we had about half of those dedicated 13 to Mega Millions and half of them dedicated to 14 Powerball. 15 That was a big marketing problem for us, 16 because there were times when the Mega Millions jackpot 17 was at 12 million and Powerball was at 300, and you 18 would see the wrong billboard in certain locations. So 19 we moved quickly, and we are now the first state that 20 has gone completely statewide with the dual billboards 21 for both jackpot amounts, making sure that we capture 22 and that we market the highest jackpot that's available 23 in the market at the current time. Right now, as we 24 said earlier, those billboards look very attractive, 25 with 139 and 222 up on them. 23 1 The second panel that I participated in 2 during last week's conference was a discussion on daily 3 draw games, like Pick 3 and Daily 4. That discussion 4 focused on how lotteries could keep those games relevant 5 and viable in today's market. And I will tell you that 6 during that discussion, the Texas Lottery All or Nothing 7 game became the star of that entire discussion. All or 8 Nothing, quite frankly, is the best draw game innovation 9 in the last several years in the lottery industry. The 10 game itself has attributes that have never before been 11 utilized in a day draw game. 12 Many months ago, I challenged Michael 13 Anger and his team to come up with a new draw game and 14 not feel shackled by the traditional parameters that 15 were placed on daily draw games; and that is, limiting 16 ourself to two drawings a day or limiting ourself to a 17 50 percent payout. And Michael went back, and he worked 18 very closely with Robert Tirloni and the rest of our 19 products staff, as well as our GTECH marketing team, and 20 that's how All or Nothing was born. 21 The sales and revenue for that game have 22 exceeded our wildest expectations. We have already 23 matched the full year sales projection just -- how many 24 months into the year are we? 25 MS. PYKA: We're only 35 weeks. 24 1 MR. GRIEF: 35 weeks into the fiscal year. 2 So that game has proven to be extremely successful for 3 us. The four draws a day has proven to be a home run 4 for us as well. And you're going to -- you've already 5 voted to approve a rule that's going to change our Daily 6 4 and Pick 3 games to four draws a day. So that tells 7 you how much additional revenue we believe we can 8 achieve by going to four draws a day. 9 Both of those opening panels that I served 10 on caused my colleagues to have many questions of the 11 Texas team that was there over the next several days. 12 All of those questions focused on: What's your secret? 13 What are you doing right in Texas? 14 The second day of the conference, Pollard 15 Banknote -- Pollard is one of the three instant ticket 16 print vendors that prints tickets for the Texas Lottery. 17 They were given their opportunity, as a vendor, to make 18 a presentation, and they chose to focus their 19 presentation on the launch of the Texas Lottery Star 20 Trek game in Dallas, which we showed you-all the video 21 of last week. That caused a great buzz at the 22 conference, in particular the focus on the younger 23 demographic, the under 30 crowd that attended that event 24 and the opportunity to market lottery products to that 25 particular age group. 25 1 The next thing that occurred, our very own 2 Dale Bowersock -- I know, Madam Chair, you know Dale. 3 Commissioner Krause, I'm not sure you're familiar with 4 Dale. Dale is our instant products coordinator here at 5 the lottery. And I will tell you, he -- is he in the 6 audience? He's not in the audience. 7 CHAIRMAN WILLIAMSON: No, I haven't seen 8 him. 9 MR. GRIEF: He is the best in the industry 10 at what he does, and that's designing and working with 11 our printers and with GTECH Texas to come up with all 12 these fantastic scratch-off games that you see and that 13 you see the revenue results every month when we have our 14 meetings. 15 Dale gave his first presentation ever at 16 an industry conference, and that's a daunting task if 17 you've never done it before. There's hundreds of people 18 there, there's people from around the globe, the leaders 19 from lotteries and vendors alike. Dale's focus was on: 20 What have the Texas Lottery scratch-off sales done over 21 the last three years? What kind of growth have we 22 achieved? 23 Of course, that was a great story to tell, 24 the sheer numbers and the percentage gains that we've 25 seen for scratch-off sales. It really made Dale a rock 26 1 star for the rest of the conference. He was inundated 2 with people from other states wanting to talk to him 3 about our instant ticket strategy. 4 And when Dale, during his presentation, he 5 interspersed some of our TV commercials within his 6 presentation. And when he played our Broadway-themed 7 all-that-cash commercial from a couple of years ago, the 8 conference attendees actually applauded. Now, this is 9 an audience that sees every lottery commercial in the 10 world. And I have never seen that kind of reaction from 11 a group of conference attendees at seeing a lottery 12 commercial. But it was that kind of excitement. And 13 again Dale, in his very first appearance at making a 14 presentation, he hit it out of the park. He did a great 15 job in representing us in that presentation. 16 And, finally, the icing on the cake for us 17 in Texas. As I said before, privatization, it's a big 18 deal in the industry. Many states engaged in it 19 actively and others in discussion. 20 GTECH and Scientific Games, the two 21 biggest lottery vendors in the world, have recently won 22 a partnership to operate the Indiana lottery, and they 23 will soon be taking over all the day-to-day management 24 of Indiana. I had the pleasure of meeting their CEO of 25 their Indiana lottery, as well as their Vice President 27 1 of Marketing, at a luncheon during this conference. And 2 what they asked was if their senior management team 3 could come down this month or in June -- they're on a 4 very tight timeline -- and spend a few days with the 5 Texas Lottery and the GTECH Texas staff, because they 6 said they understand that we do it right and we're the 7 best and they know where to go when they want to get 8 advice -- 9 Now, I'm sharing all this information with 10 you today because this is very similar to what I shared 11 with the staff in a staff meeting last week. And it's 12 in an effort to keep our lottery team positive and 13 focused on doing the great job that they do each and 14 every day and try not to get caught up or concerned with 15 any statewide policy debates or discussions that may be 16 going on regarding the Texas lottery. 17 As Rep. Dennis Bonnen, who is also 18 chairman of the Sunset Commission, said on the floor of 19 the House during the debate on our sunset bill recently, 20 "The Texas Lottery Commission is an A-plus agency." He 21 said that on the mic in the debate. 22 So with that, Commissioners, I will tell 23 you, like I told the staff last week, I am very proud to 24 be associated with the Texas Lottery Commission. And 25 with that, that concludes my report. And I'm happy to 28 1 answer any questions that you might have. 2 CHAIRMAN WILLIAMSON: Thank you, Gary. 3 Commissioner, do you have any comments or 4 questions? 5 COMMISSIONER KRAUSE: Well, I do, but 6 ladies first. 7 CHAIRMAN WILLIAMSON: Well, I had asked 8 Gary to share all of this here with -- you know, the 9 staff, I know, has heard this. But for the rest of you 10 and on the record, I wanted just to be out there, just 11 how good this agency is. You know, Gary is only 12 successful because of the staff that he has and the 13 support we get from our lottery operator. And so, 14 obviously, it's a team effort. But I just thought this 15 was a real important message to be out there in the 16 public, so I asked him to share that. 17 COMMISSIONER KRAUSE: You know, when a 18 team wins the championship -- football, basketball, 19 baseball -- in the off season, all their starters are 20 looked at and people come try to hire them away, all the 21 free agents. And so, anyway, we've got some great 22 esprit de corps and ought to keep them together here. 23 You know, you've got some superstars on your staff, 24 Gary. 25 MR. GRIEF: Absolutely. Thank you. 29 1 CHAIRMAN WILLIAMSON: Thank you. Thank 2 you for sharing that report with us. 3 AGENDA ITEM NO. X 4 CHAIRMAN WILLIAMSON: All right. Our next 5 item is the report by the Charitable Bingo Operations 6 Director and possible discussion and/or action on the 7 Charitable Bingo Operations Division's activities, 8 including updates on licensing, accounting and audit 9 activities, pull-tab review and special projects. 10 Sandy. 11 MS. JOSEPH: Good morning, Commissioners. 12 In addition to what's in your notebook, I 13 wanted to mention just a few of the activities that 14 we've been engaged in in the past month. 15 First of all, we conducted the first 16 on-site training here in Austin for operators to attend, 17 since 2011. We had a dozen people sign up, and nine 18 attend, which is a small group, but they all gave very 19 positive feedback. And we feel good to have been able 20 to offer that and plan to do so periodically in the 21 future. 22 Secondly, we've been reviewing our 23 internal processes to simplify, ensure consistency and 24 eliminate unnecessary steps so that we can be more 25 effective and efficient with our resources. 30 1 Something else that occurred, I feel like 2 we moved somewhat out of the Dark Ages by converting 3 from microfilm to scanning incoming mail. We had a very 4 dinosaurish microfilm machine. And along the 5 information lines, technically, as a result of numerous 6 legislative requests and work that's going on here, 7 we've spent quite a bit of time finding out what 8 information we have available and how to access it. 9 We had lost some of the staff from the 10 past who were the division's experts on finding 11 information, so we've been on a steep learning curve on 12 that. And I would like to say we've been assisted, you 13 know, hugely, in those last two efforts, going to 14 scanning and also obtaining information by the IR 15 division and also the Controller's division. And I'm 16 grateful to them for their help. 17 CHAIRMAN WILLIAMSON: All right. Thank 18 you. 19 Commissioner, do you have any questions? 20 COMMISSIONER KRAUSE: On our on-site 21 training, which I'm glad we're doing, we heard from a 22 lady from Waco that basically told us it was really hard 23 to learn about how to operate a bingo event. So, 24 anyway, my question is, of the attendees, were they 25 primarily people from charities or were they from 31 1 lessors? 2 MS. JOSEPH: Charities. 3 COMMISSIONER KRAUSE: Do we limit it to 4 just charities? 5 MS. JOSEPH: Anyone can attend. It's 6 required for the operators of charities to have 7 training, but we do allow other folks to attend. 8 COMMISSIONER KRAUSE: Because I feel like 9 that the charities need all the help they can get. You 10 know, the lessors seem to have competent staff, because 11 they're doing their job every day. But the charities 12 that maybe have, you know, one or two bingo occasions a 13 week never seem to be able to develop that competence. 14 So this is a revenue thing, and I hope it catches on. 15 MS. JOSEPH: I do, too. And we're going 16 to -- you know, we're kicking it off, you know, slowly a 17 bit, just to get back in the groove. But we're going to 18 be looking for ways to improve that, and we're listening 19 to the feedback we get. 20 COMMISSIONER KRAUSE: Good work. 21 CHAIRMAN WILLIAMSON: All right. Thank 22 you. 23 All right. At this time we'll take a 24 10-minute break. It is 10:35, and we'll be back at 25 10:45. 32 1 (Recess 10:35 a.m. to 10:46 a.m.) 2 CHAIRMAN WILLIAMSON: The Texas Lottery 3 Commission is back in session. The time is 10:46 a.m. 4 AGENDA ITEM NO. XII 5 CHAIRMAN WILLIAMSON: We're going on down 6 to Item XII, which the public comment. We have one 7 public comment from Greg Hoelk. 8 MR. HOELK: Good morning, Commissioners. 9 My name is Greg Hoelk. I'm with Pollard Banknote. 10 Actually, I really hadn't thought about speaking this 11 morning. But I talked to Gary on the way coming down, 12 and I think Gary had briefed you-all on the event that 13 took place up in Dallas, the Star Trek event. A couple 14 of comments I wanted to make. 15 Since that time, we've heard both from 16 Paramount and CBS Entertainment, and they couldn't have 17 been more happy with the way the event went. They 18 thought it was a very class event, and they were very 19 happy to be associated with it. 20 We also heard through William Shatner, 21 through his agent, and he was very proud to be part of 22 an outstanding event itself and wanted to extend the 23 congratulations to the Texas Lottery. 24 Third is, I've talked to a number of 25 lottery directors, which I do in my travels with 33 1 Pollard. I call on almost all the state lotteries, and 2 I will tell you, the lotteries out there are very 3 envious of Texas pulling that off, and that certainly 4 goes to Gary and his staff. Robert, Dale, Kelly do a 5 magnificent job. 6 And the last thing I want to mention was 7 to say that we also kind of co-promoted this with the 8 GTECH sales force up in Dallas. I have gone on record 9 before, about 10 years ago, I consider the GTECH sales 10 force the best sales force of any state lottery sales 11 force in the nation. I base that on a couple of things, 12 having worked very close with them over the years, and 13 also I call on all the state lotteries, and I work a lot 14 out in the field with their sales reps. 15 So I was kind of dovetailing what Gary 16 said also is, it's an outstanding sales team. They had 17 their own booth up there. They helped co-promote it. 18 So GTECH should be very proud of what they did and what 19 they contributed. So all in all, it was a really 20 worthwhile event. 21 The feedback that we're getting, whether 22 it's through lottery channels, the entertainment 23 industry, et cetera, et cetera -- not to beat a dead 24 horse here -- but everything was extremely positive 25 about it. So to CBS, Paramount and lottery directors, 34 1 to extend congratulations to Gary and his staff and 2 GTECH for a job well done. 3 CHAIRMAN WILLIAMSON: All right. 4 COMMISSIONER KRAUSE: Thank you. 5 CHAIRMAN WILLIAMSON: Thank you. Thank 6 you for sharing that. 7 AGENDA ITEM NO. V 8 CHAIRMAN WILLIAMSON: All right. Our next 9 item is report, possible discussion and/or action on the 10 83rd Legislature. 11 Nelda. 12 MS. TREVINO: Good morning, Commissioners. 13 For the record, I'm Nelda Trevino. I'm the Director of 14 Governmental Affairs. 15 The last day of the regular legislative 16 session is May 27th, and deadlines for actions on 17 legislation are coming into play under the House and 18 Senate rules. We've continued to provide you with 19 legislative bill tracking reports of the bills that 20 impact the agency, and there are several bills I would 21 like to highlight today for you. 22 As you are aware, and as Gary mentioned, 23 the agency sunset bill, House Bill 2197 by Rep. Rafael 24 Anchia was considered by the full House on April the 25 23rd and on April the 24th. Numerous House floor 35 1 amendments were considered. 2 And for the record, I want to note those 3 substantive floor amendments that were adopted and are 4 now currently included in the sunset bill. These 5 include the following amendments: 6 An amendment by Rep. Mike Villarreal that 7 creates a legislative committee composed of five members 8 of the Senate appointed by the Lieutenant Governor, five 9 members of the House of Representatives appointed by the 10 Speaker, to review the Texas Lottery. This committee is 11 charged with studying the potential time frames, the 12 consequences and any other concerns with winding up the 13 state lottery. The committee will be required to 14 provide a report of its findings and recommendations to 15 the Legislature no later than December 1, 2014; 16 An amendment by Rep. Trey Martinez Fischer 17 and Rep. Abel Herrero that would require the portion of 18 the unclaimed prizes currently going to the General 19 Revenue Fund to go to the Foundation School Fund; 20 An amendment by Rep. Armando Walle to 21 require the Commission -- to require by Commission rule 22 that a lottery ticket that contains a number or words in 23 a language other than English must include disclosures 24 in that language; 25 And, lastly, an amendment by Rep. Byron 36 1 Cook that will require licensed bingo conductors to use 2 at least 5 percent of gross revenue for all bingo games 3 for charitable purposes. 4 In response to these amendments being 5 added to the bill, the agency has provided its fiscal 6 note analysis to the Legislative Budget Board and to the 7 bill authors. The bill is now in the Senate for its 8 consideration, and we anticipate the bill will be 9 scheduled for hearing before the Senate State Affairs 10 Committee, and that possibly could occur later this 11 week. 12 The next bill I want to mention is House 13 Bill 394 by Rep. Senfronia Thompson. And this is the 14 bill that would exempt bingo prizes of $50 or less from 15 the $2,500 prize cap. This bill was voted favorably out 16 of the House on April the 30th on a vote of 139 to zero. 17 The bill is now in the Senate, and it is also 18 anticipated that it will be scheduled for a hearing 19 before the Senate State Affairs Committee. 20 Senate Bill 871 by Sen. Wendy Davis. This 21 is the bill that would require the Lottery Commission to 22 spend an equivalent amount of its marketing and 23 advertising budget to promote the veterans game as the 24 Commission spends on any other instant ticket. This 25 bill was voted favorably out of the Senate and has been 37 1 considered by the House Licensing and Administrative 2 Procedures Committee. 3 The appropriations bill, which includes 4 the agency's budget for the 2014-2015 biennium is before 5 a conference committee composed of Senate and House 6 members who are charged with working out the differences 7 between the House version and the Senate versions of the 8 bill. 9 And Kathy has joined me here to provide a 10 status of the agency's budget request. 11 Lastly, we anticipate Commissioner Krause 12 and, newly appointed to the Commission, Veronica 13 Edwards, to appear before the Senate Nominations 14 Committee next week, on May the 13th, to have their 15 appointments considered by the Senate. 16 This concludes my report. I will be glad 17 to answer any questions now, at the conclusion of 18 Kathy's comments. 19 CHAIRMAN WILLIAMSON: Okay. Kathy, why 20 don't you give us your comments, and then we'll go from 21 there. 22 MS. PYKA: Certainly. Commissioners, I've 23 provided you a memorandum today that provides a detailed 24 overview of the budget status, but I would like to 25 highlight several key points of that memorandum. 38 1 As Nelda mentioned, Senate Bill 1, budget 2 deliberations continue on the Commission's 3 appropriations bill for the '14-15 budget. There is 4 presently a $3.12 million difference between the House 5 version of the budget as well as compared to the Senate 6 version of the budget, as well as a method of finance 7 difference for the automated charitable bingo system 8 redesign project. 9 There's three rider revisions that are 10 pending action by the conference committee, and I wanted 11 to specifically note each of those three. So, again, 12 the funding of the ACBS system is still pending with the 13 conference committee. While both versions of the budget 14 include two and a half million dollars in total funding, 15 the Senate version of the bill includes a funding 16 provision that is one-half general revenue funding and 17 one-half funding that is required to be supported by 18 fees generated against the bingo industry, amounting to 19 $1.25 million. The House committee substitute version 20 of the budget bill includes the entire project funded 21 out of general revenue funding. 22 Another item that's still pending is the 23 new rider in the amount of $3 million that transfers 24 bingo receipts to the general revenue lottery dedicated 25 account, and that funds the cost of indirect support 39 1 provided to the bingo program out of lottery proceeds. 2 The rider is included in the Senate version of the bill 3 but is not included in the House version of the bill at 4 this time. 5 And then finally, the third-party 6 reimbursement rider in the amount of $120,000 is 7 included in the Senate version of the bill but not 8 included in the House version of the bill. 9 Commissioners, we also did receive funding 10 for our three exceptional items amounting to 11 $4.9 million. Those are included in both versions of 12 the bill, and so that includes $1.2 million in new 13 funding for new draw games. That includes three FTEs as 14 well as renovation to our draw studio. 15 We received the restoration of funding for 16 14 additional FTEs in the Bingo Division, at a cost of 17 $1.2 million. The increase for that is contingent again 18 upon the Commission generating revenue to cover the cost 19 of those FTEs. 20 And then last, our third exceptional item 21 was the ACBS redesign project in the amount of two and a 22 half million. And again, it was included in both 23 versions of the budget, but it does have a different 24 method of finance. Again, the Senate version of the 25 bill will require us to generate revenue to cover 40 1 one-half of the cost, or $1.25 million, while the House 2 version of the budget includes funding 100 percent of 3 general revenue. 4 There's several rider revisions that the 5 Commission requested that we did receive approval on. 6 Those are outlined in your memo. I won't go into the 7 details of those today but just wanted to highlight 8 those key points of the budget differences. 9 I would be happy to answer any questions. 10 CHAIRMAN WILLIAMSON: Okay. So on the 11 three items you mentioned -- and those will be resolved 12 within -- whatever, the finance, Senate Finance and the 13 House, whoever is appointed to that group to resolve 14 those three items. Is that correct? 15 MS. PYKA: That is correct. And we expect 16 that to be resolved within this week. 17 CHAIRMAN WILLIAMSON: Okay. 18 MS. PYKA: We had received an original 19 target date of last week, and now we understand that it 20 looks like it will be sometime this week and which we'll 21 receive notice that clearly identifies if we're required 22 to do any fee recovery on the ACBS system as well as if 23 they're going to fund the other two items, the one on 24 bingo indirect recovery and the one on third-party 25 reimbursements. At this point we definitely know we 41 1 have fee recovery in both versions of the bill for the 2 FTE restoration. 3 CHAIRMAN WILLIAMSON: Okay. So basically 4 they would require us to go out to the industry to get 5 that -- make up that difference? 6 MS. PYKA: That is correct. 7 CHAIRMAN WILLIAMSON: Okay. And that's a 8 whole different thing than what's going on in Sunset -- 9 MS. PYKA: That is correct. 10 CHAIRMAN WILLIAMSON: -- in terms of what 11 that's requiring or what it may or may not require, that 12 5 percent? 13 MS. PYKA: Required distribution for -- 14 CHAIRMAN WILLIAMSON: It's required 15 distribution for the charitable entities? 16 MS. TREVINO: That's correct. 17 CHAIRMAN WILLIAMSON: Okay. 18 Commissioner, do you have any -- 19 COMMISSIONER KRAUSE: Depending on what 20 the Legislature does, don't we have kind of a short 21 timeline to implement any rules that would effectuate 22 legislative changes -- 23 MS. PYKA: We do. 24 COMMISSIONER KRAUSE: -- from now until 25 September 1st? 42 1 MS. PYKA: We do. The contingent revenue 2 fee recovery riders, the FTE restoration and possibly 3 the ACBS project, requires that we adopt a rule which, 4 of course, would require a rule proposal, followed by 5 adoption, and then submission of minutes noting that 6 rule adoption to the Comptroller of Public Accounts so 7 that they may issue a finding of fact to certify that 8 that new rule will, in fact, recover the required fees 9 as set forth in the appropriations bill. 10 So we've got a lot of steps with regard to 11 fee rule proposal, fee rule adoption, finding of fact 12 submission to the Comptroller, finding of fact approval 13 hopefully from the Comptroller, and then adoption of the 14 '14 operating budget. 15 CHAIRMAN WILLIAMSON: From a timeline 16 perspective, how long does that take generally? 17 MS. PYKA: Well, we have plotted it 18 through the end of the summer, knowing that we can get 19 it done by mid-August, with still allowing about a 20 20-day period for the Comptroller to review the finding 21 of fact and provide us feedback. 22 COMMISSIONER KRAUSE: Do they act that 23 quickly? 24 MS. PYKA: They do generally. And they 25 know that we're starting early in order to meet all of 43 1 these required timelines. So we're kind of -- today we 2 don't have the final decision on the budget, but we feel 3 like we need to move forward on these fee rules in order 4 to have adequate time for rule adoption and finding of 5 fact, prior to beginning the fiscal year. 6 COMMISSIONER KRAUSE: Any idea what occurs 7 if we don't make it? 8 MS. PYKA: If we don't make it, our 9 general revenue appropriation for the FTEs, as well as 10 half of the ACBS, will not be granted to the Commission. 11 COMMISSIONER KRAUSE: Ever or delayed? 12 MS. PYKA: Delayed. It's contingent on 13 the Senate version with regard to ACBS but on both 14 versions for the FTEs. 15 COMMISSIONER KRAUSE: But just delayed if 16 we don't make the deadline. Some of this is not in our 17 control. 18 MS. PYKA: Correct. 19 AGENDA ITEM NO. VI 20 CHAIRMAN WILLIAMSON: All right. Then we 21 shall -- Kathy's, why don't you just stay here in case 22 we have questions, and we'll go on to the next item, 23 which is the consideration of and/or possible discussion 24 and/or action, including proposal, on amendments to 25 16 TAC 402.404, license fees. 44 1 James, this is your item, please. 2 MR. PERSON: Thank you, Chairman. Again, 3 my name, for the record, is James Person. I'm an 4 attorney here. 5 Following up on Kathy and Nelda's 6 presentation, staff is proposing to amend Title 16, 7 Section 402.404 of the Administrative Code, which is the 8 license fee rule. The amendments would impose a new fee 9 for bingo worker registry applications and renewals and 10 would also increase license fees for conductors and 11 commercial lessors. 12 The funds generated from these fees would 13 be used to redesign the ACBS and the 14 FTEs, as Kathy 14 stated. The proposal is completely dependent on the 15 appropriation, the final Appropriations Act containing 16 that specific rider, talking about half the funds from 17 general revenue and then the rest must be raised by 18 fees. If the Appropriations Act doesn't end up having 19 that, then we don't foresee going forward with adopting 20 these rules. 21 MS. PYKA: Or the rule with the ACBS 22 provision. 23 MR. PERSON: Yes, yes. Thank you. 24 There is also another contingency 25 regarding the bingo worker registry application fee. 45 1 Currently we do not have that authority to raise that. 2 But in the sunset bill, there is an express grant of 3 that authority, so that portion of the fee, that 4 application fee, would be also dependent on the sunset 5 bill containing that specific grant of authority. 6 CHAIRMAN WILLIAMSON: Okay. 7 COMMISSIONER KRAUSE: Now, that's not 8 before us, though, that last one? 9 MR. PERSON: The bingo worker registry 10 fee? Yes, sir, it's all contained in the fees. 11 COMMISSIONER KRAUSE: 402.404? 12 MR. PERSON: Yes, sir. We're going to go 13 ahead and retitle that section to call it license and 14 registry fees in this proposal. 15 And moving on to the actual substance of 16 the amendments, the new registry application fee would 17 be set at $25, and that would be for applications 18 submitted to the Commission after September 1st of this 19 year. 20 And for the license fee increase, I think 21 we had an across-the-board percentage increase for all 22 license classes, and that increase would apply to 23 licenses becoming effective after September 1, 2013. 24 Now, licenses that become effective 25 between 2013 -- or September 1, 2013 but before 46 1 September 1, 2015 are going to have a higher fee under 2 this proposal than licenses executed after September 1, 3 2015, and that's because the ACBS redesign is 4 anticipated to be completed before September 1, 2015, 5 and we'll no longer need funding for that. But the 14 6 FTEs will need continuing funding, so that's why there's 7 that disparity between the 2014-15 years and then after 8 2015. 9 I will note that because these proposals 10 are based on legislation that is not final, the numbers 11 could end up being different, based on whatever finally 12 passes from the Legislature and is signed by the 13 Governor. 14 In the event that the appropriations bill 15 contains the rider that we need but the sunset bill does 16 not contain the grant of authority for the bingo worker 17 registry application fee, the license fees are going to 18 have to jump up approximately 7 percent to cover the $25 19 application fee money that we would have gained, because 20 we would still need to meet the amount threshold set in 21 the appropriations bill, but we could not obtain that 22 through the application fee, we would just have to shift 23 it all over to license fee increase. 24 And before I close, I wanted to make sure 25 everybody was aware that we had a minor change this 47 1 morning, and all your notebooks have been updated. But 2 there was a minor glitch in the Class 1 money range in 3 the rules, and we've corrected that. And with that, 4 staff recommends the Commission initiate the rulemaking 5 process. And I would be happy to answer any other 6 questions. 7 CHAIRMAN WILLIAMSON: Okay. I know Bob 8 had something he wanted to add. 9 MR. BIARD: I just wanted to add a request 10 before you vote. And I think that if you wanted more 11 discussion, there may be some people here to talk about 12 this as well. 13 This proposal is a little unusual, because 14 it's contingent on pending legislation. So I would like 15 to ask, if you approve to vote to publish this proposal, 16 to direct staff to add a couple of things to the first 17 paragraph of the preamble, just to sort of clarify why 18 the Commission is doing this at this time. 19 One item would be to add a specific 20 reference to the provision of the sunset bill that would 21 grant the Commission the authority to charge a fee for 22 the bingo registry workers. That's section 32 of House 23 Bill 2197. That would be a specific reference. And 24 that's really just to make -- put the public on notice 25 of exactly where that authority would lie. 48 1 And the second would be to add a sentence 2 explaining what Kathy explained earlier, that the reason 3 for doing this at this time -- making the proposal at 4 this time is because under the appropriations bill as 5 it's currently drafted, the Comptroller has to make a 6 finding of fact that the fees that would be generated 7 from the rule would meet the required amount. 8 The Comptroller has to make that finding 9 before making available the contingent appropriation for 10 the next fiscal year, which starts September 1st, so 11 that's why we're doing that now. So that would just 12 be one sentence sort of explaining that we would have to 13 get the Comptroller finding of fact prior to the next 14 fiscal year. 15 CHAIRMAN WILLIAMSON: Okay. So I 16 understand it correctly, we have two issues. We have 17 the budget bill and we have a sunset bill that requires 18 certain things of us, or allows us to do certain things? 19 MR. PERSON: Yes, ma'am. 20 CHAIRMAN WILLIAMSON: And, obviously, 21 those are independent. And then within the budgetary 22 side of that, then we have to come up with a certain 23 amount of money if we want to fund FTEs and finally fund 24 our ACBS system. You know, I know they gave us 25 authority two years ago. And, because of pushback, we 49 1 didn't do that. And, you know, I did get a little 2 feedback from legislators about that. So, you know, I 3 guess I'm grateful that they're allowing us to do this 4 again. 5 All right. At this time, then, we'll 6 have -- we have several people who would like to discuss 7 this or talk about this. And, Ms. Thompson, Jane 8 Thompson, if you would like to come up and just share 9 with us your comments, please. 10 MS. THOMPSON: Good morning. I'm Jane 11 Thompson. I'm president and owner of Thompson Allstate 12 Bingo Supply. And before I start off anything, I want 13 to make it clear, I'm speaking only on my behalf, 14 Thompson Allstate, as a bingo distributor, and I don't 15 represent any other distributors or manufacturers of 16 anything. I'm speaking strictly for myself. 17 I feel like that the fees, raising the 18 fees to the charitable licenses is something that needs 19 to be shared with all the licensed entities, including 20 the charities, the lessors, the distributors and the 21 manufacturers. If you're going to -- if this proposed 22 amendment is going to increase those fees, well, I feel 23 like it's really only fair to spread it across the 24 board. 25 To quote Commissioner Krause a while ago, 50 1 he said the charities need all the help they can get, 2 and I couldn't agree more. And I think by sharing that 3 increase, if it does have to be done, sharing it with 4 distributors and manufacturers is the only way to make 5 this fair. 6 Since we, as distributors and 7 manufacturers, haven't all been able to get together and 8 discuss this at length and come up with a plan or a 9 solution, I would request that we put the proposal to 10 amend this rule off until we have a chance to get our 11 heads together and hopefully come up with some solutions 12 to help. 13 Thank you. 14 CHAIRMAN WILLIAMSON: All right. Thank 15 you. 16 Roy Grona. If I mispronounce that, I 17 apologize. 18 MR. GRONA: Good morning, Chairman 19 Williamson and Commissioner Krause. My name is Roy 20 Grona. I served as the Chief Executive Officer of the 21 Texas Veterans and Foreign Wars, the oldest veterans 22 organization in Texas. Before I started, I want to give 23 you the thanks of every veteran in Texas for that 24 veterans scratch ticket. I see it every day, the marked 25 improvement in services to our veterans in this state, 51 1 and it's made a dramatic improvement in the lives of our 2 veterans. 3 CHAIRMAN WILLIAMSON: And on that comment, 4 then, I would ask you to share that with your veterans 5 committees in the House and the Senate -- 6 MR. GRONA: I will do that. 7 CHAIRMAN WILLIAMSON: -- the members of 8 that. 9 MR. GRONA: Yes, ma'am. 10 The Texas VFW is comprised of 110,000 11 members and 348 posts across the great State of Texas. 12 Many of these posts are totally reliant on fund-raising 13 efforts, including bingo. Increasing the licensing fees 14 for these posts, in addition to the possible passage of 15 the Cook amendment to 2197, would have a drastic effect 16 on our VFW posts being able to stay in business. 17 I would ask that the Commission delay the 18 decision on this until the legislative process completes 19 at the capitol building. But even assuming that the 20 Commission -- or excuse me. We think it's premature to 21 begin the rulemaking process until the general 22 appropriations act has been finalized. 23 We understand that SB 1 is in conference 24 now. But even assuming that the GAA riders and the 25 Commission's bill pattern are adopted by the 52 1 Legislature, the VFW thinks the Commission shouldn't 2 engage in collaborative rulemaking processes with the 3 bingo industry in order to arrive at the best approach 4 for all. 5 Moving forward now to proposed rule 6 amendment, it's premature. The bingo industry has not 7 been included in the process, and we think it should be 8 included before the amendments are proposed. 9 Chairman Williamson and Commissioner 10 Krause, the VFW respectfully requests that it be 11 included in the rulemaking process and discussions 12 regarding increasing licensing fees. We look forward to 13 working with the Commission, as we have in the past. 14 Thank you. 15 CHAIRMAN WILLIAMSON: Thank you. 16 All right. Now at this time I'm going to 17 bring up Steve Fenoglio and Phil, if you both would 18 just -- you can sit or whatever, because I'm sure we'll 19 have a lot of questions. So we'll get the -- 20 MR. FENOGLIO: For the record, my name is 21 Stephen Fenoglio. Thank you, Madam Chair and 22 Commissioner Krause. Phil said for me to go first. 23 CHAIRMAN WILLIAMSON: Okay. 24 MR. FENOGLIO: Okay. I represent a 25 variety of licensees, including distributors, K&B Sales 53 1 and Danny Moore, and all three of us have had a 2 discussion about this. The distributors are totally 3 comfortable with raising their fees from 1,000 to 10,000 4 a year, pay more than their share. 5 They also suggest, although I don't 6 represent any manufacturers -- and, by the way, between 7 Jane Thompson, K&B Sales, d/b/a Goodtime Action Games, 8 and Daniel Moore, Moore Supplies, they represent about 9 80 percent of the distributor market, so they're 10 stepping forward. 11 I do not represent any manufacturers, but 12 at least Mr. Moore, on behalf of Daniel Moore and 13 Knowles Cornwell on behalf of Goodtime, suggests a 14 $10,000 fee increase for manufacturers as well. Their 15 license fee is currently at $3,000 a year. 16 The rule doesn't mention license fee 17 increases for manufacturers or distributors, and I 18 believe you would be in violation of the APA if you 19 didn't amend the rule, if your intent is -- which we 20 hope it will be -- to throw the manufacturers and 21 distributors into a fee increase. 22 The other thing that is interesting in the 23 draft rule, we do agree it will have a negative impact. 24 What we don't know, because of the Cook amendment that 25 was placed on the lottery sunset bill, we don't know if 54 1 that will be included. We're working to try to strip it 2 off. But if it is included, we do know for a fact there 3 will be many lessors and hundreds of charities that will 4 be de-licensed by the effect of that rule. 5 Right now you're looking at a 56, 6 57 percent increase on charities and I believe about a 7 40 percent increase on commercial lessors. You can 8 figure those numbers will increase substantially, 9 perhaps another 30 or 40 percent. 10 The staff did just a calculation, Sandra 11 Joseph, just apply the Cook amendment, assume nothing 12 else changes, and 823 of your 1,039 charities don't make 13 the cut. It's my belief that at least some of those 823 14 charities will find a way to meet the new standard, 15 assuming it's the Cook amendment, which is a 5 percent 16 mandatory distribution on gross numbers at a bingo hall, 17 which is a fiction if you want to get into that detail. 18 But bottom line, this is premature. We 19 don't know what the Legislature will do. As I tell my 20 clients, the zoo or the circus is in session, and we 21 don't know -- and the zookeepers or the circus managers 22 are not there all the time. So we don't know what's 23 going to happen, but we think it's premature. And we 24 would agree, if you postpone it, we'll be here whenever 25 your staff says comes down and talk. We have been 55 1 responsive in the past. 2 Thank you for your -- 3 CHAIRMAN WILLIAMSON: Yes, you have. 4 Phil. 5 MR. SANDERSON: Philip Sanderson, Director 6 of Government Relations for Texas Charity Advocates, 7 representing Texas Charity Advocates. 8 And Texas Charity Advocates -- good 9 morning, Commissioners, Chairman Williamson and 10 Commissioner Krause, and hopefully newly Commissioner 11 Edwards -- the Texas Charity Advocates respectfully 12 requests that the Commission postpone the proposal of 13 this rule amendment, and it goes with what has been said 14 before. There's a lot of assumptions. Even the 15 preamble mentions all the assumptions. 16 Nobody knows what's going to happen at the 17 capitol. They don't know what is going to happen with 18 the sunset bill, they don't know what's going to happen 19 with the Cook amendment or with appropriations. There's 20 definitely going to be probably some changes from what 21 we see today to what is finally passed. And all we ask 22 is that you look at postponing the adoption of this or 23 proposal of this rule until that plays out. 24 Like Mr. Fenoglio just mentioned, the 25 sunset bill talks about the fees for bingo workers, 56 1 which you've included in this amendment. But the sunset 2 bill also talks about fees for manufacturers and 3 distributors, which is not included. It also talks 4 about fees for amendments, to amend a license, setting 5 up a pay schedule to amend a license, for a fee to amend 6 a license, and that's not included in here. So there is 7 part of what's in the sunset bill included, there's part 8 of what's in the sunset bill that's not included. 9 Once again, the Cook amendment in the 10 sunset bill, if it stays in -- and, you know, as 11 mentioned earlier, if it stays status quo and those 823 12 organizations cannot continue to operate, two things: 13 One, that would knock the license fees 14 that those organizations pay of about $1.7 million 15 annually down off the revenue collections, along with 16 the $19 million in prize fees that they collect that 17 would not be going to the state; and, thus, you would in 18 reality probably not even need 14 additional FTEs to 19 cover regulation if that number of charities drop off. 20 So I think it's premature. I understand 21 there is a timeline. And you have a very capable 22 controller that can, you know, work with that timeline. 23 I think if you just postpone it for a couple of weeks, 24 until the first of June, you would still have plenty of 25 time to publish, receive comment and then meet the 57 1 timeline of getting it turned into the Comptroller's 2 office for the certification process. 3 And with that, I'll be glad to answer any 4 questions. 5 CHAIRMAN WILLIAMSON: Okay. I guess the 6 first obvious question is, when you say if we were to 7 push it or extend it for 30 more days, tell us what the 8 impact would be. You said it would delay. You know, 9 what would happen? So we say, "Okay. Yes, we'll delay 10 it for 30 days or whatever, until our next Commission 11 meeting," what would the net effect be for the budgetary 12 process side of this? 13 MS. PYKA: If we were to delay it -- and 14 we certainly met and looked at the calenders for the 15 remainder of the months, up until August 31st. If we 16 were not able to receive the finding of fact 17 certification prior to September 1, the appropriation 18 for the restoration of the FTE, the 14 FTEs, as well as 19 if the ACBS appropriation is included, would be delayed 20 to the Commission. We would not have access to those 21 funds at the beginning of Fiscal Year 2014. 22 CHAIRMAN WILLIAMSON: So is that for a 23 one-year period? Is that for a two-year period? Is 24 that for a three-month period? 25 MS. PYKA: No. I think you could look at 58 1 it being by month. I mean, it just depends on how long. 2 CHAIRMAN WILLIAMSON: So if goes month-by- 3 month? 4 MS. PYKA: Sure. 5 CHAIRMAN WILLIAMSON: Okay. So we might 6 delay it a month or -- okay. 7 COMMISSIONER KRAUSE: Well, how about 8 this: What if we just go ahead and publish, with all of 9 our caveats, about explaining ourselves with the 10 Legislature, saying it's contingent and all that, then 11 we just extend the comment period? I mean, we're just 12 opening it up for public comments. It's all we're doing 13 to try to meet a timeline. And so what would be the 14 harm in that, if any? 15 MS. PYKA: From my perspective, there 16 would not be any harm. I would like to defer to Bob and 17 let him provide the legal perspective. I know he looked 18 at the calendar with regard to the allowed time for 19 public comment. 20 MR. BIARD: You could certainly allow as 21 much time as you want for public comment. And there is 22 a public hearing already scheduled for this rule on -- 23 well, we have that built into the schedule on June 12th. 24 So there is a public hearing scheduled for it. But 25 there's no legal obligation for you to come back at any 59 1 particular date to adopt. 2 I think according to the timeline that 3 Kathy has worked out, we would be bringing the rule back 4 in July -- 5 MS. PYKA: In July, that's correct. 6 MR. BIARD: -- for approval. But that is 7 on a projected timeline to get it to the Comptroller in 8 time to get a finding of fact well before the next 9 fiscal year starts. So that's what that timeline is 10 based on. 11 CHAIRMAN WILLIAMSON: Okay. 12 MR. BIARD: But there is no legal 13 obligation for you-all to cut off the comment period at 14 any particular time or to adopt on July 11th. 15 CHAIRMAN WILLIAMSON: Okay. So if we 16 delay it two months, from a funding perspective, what 17 does that mean for the Bingo Division? 18 MS. PYKA: We would be looking at the 19 delay in hiring the 14 FTEs for audit inspection that is 20 included, obviously, in the legislative appropriations 21 request and in the sunset report, as well as if the 22 Senate version of the budget were adopted, we would be 23 looking at potentially a delay in ACBS. 24 CHAIRMAN WILLIAMSON: For how long? 25 MS. PYKA: Madam Chair, I would want to 60 1 visit with the Comptroller of public accounts on that, 2 to make certain we clearly understand what the delay and 3 the finding of fact might have on that funding. I think 4 the FTEs is very clear. But because the ACBS funding is 5 one-half general revenue and one-half fee money, I think 6 we would be cutting into the fee recovery for ACBS and 7 potentially having a certification issue there. 8 The further we delay it, the fewer fees we 9 can collect, which means increased fees. I don't want 10 to lose that in this big picture. These fee schedules 11 have been built on a September 1 effective date. And 12 anything we push, the fee amounts will need to go up in 13 order to cover some certain requirement of the 14 appropriate bill. 15 CHAIRMAN WILLIAMSON: Okay. So, in other 16 words, instead of spreading it over 24 months at 10 17 bucks, then we're spreading it over 20 months at 12 18 bucks, is what you're saying -- 19 MS. PYKA: Correct. 20 CHAIRMAN WILLIAMSON: -- for an example? 21 MS. PYKA: Correct. I want to make 22 certain, too, the finding of fact provision of the 23 rider, it's not a partial appropriation, it is a full 24 recovery. If the Comptroller does not certify the 25 recovery, we don't get the appropriation. So we need to 61 1 be very clear on the fee recovery when we go over for 2 the finding of fact. That's my caution in doing any 3 form of a delay at this point. 4 CHAIRMAN WILLIAMSON: So, in other words, 5 instead of sending it to them July or whatever -- "This 6 is what it is" -- we're not going to start this until 7 October rather than -- or November, rather than 8 September the 1st, then that may skew their decision on 9 the finding of fact. In other words, we're at risk of 10 that happening. Is that what you're trying to say? 11 MS. PYKA: Yes. And I'm saying that 12 that's two months of lost fees that are not in this 13 analysis as we presented it here. The number is no 14 longer total -- the required -- on the House version, 15 we're required to recover 1.56 million and, on the 16 Senate version, 2.8 million. The further you delay it, 17 we're not recovering those amounts. 18 MR. GRIEF: Kathy, could I ask a question? 19 MS. PYKA: Yes. 20 MR. GRIEF: I'm stepping out of my box a 21 little bit. 22 So the further you delay it, the bigger 23 the percentage increase in fees will have to be? 24 MS. PYKA: That is correct. 25 COMMISSIONER KRAUSE: What if we schedule 62 1 a meeting for May the 23rd, the day after the 2 Legislature ends their session -- 3 CHAIRMAN WILLIAMSON: The 27th. 4 COMMISSIONER KRAUSE: -- the 27th, 28th. 5 We'll do it on the 28th, make sure they're gone. 6 CHAIRMAN WILLIAMSON: That really won't 7 matter. I mean -- 8 COMMISSIONER KRAUSE: Okay. 9 CHAIRMAN WILLIAMSON: -- we can extend the 10 comment period if we need to. 11 COMMISSIONER KRAUSE: Well, that's all 12 we're doing anyway, is starting comment period. 13 CHAIRMAN WILLIAMSON: Again, if we go in 14 and substantively change the rule proposal, then we 15 start the comment period over again, if I understand. 16 Is that correct, Bob? 17 MR. BIARD: The proposal is to receive 18 comments for 30 days. 19 CHAIRMAN WILLIAMSON: Okay. 20 COMMISSIONER KRAUSE: We can extend. 21 MR. BIARD: So you can extend that. We 22 should say that when we publish it. 23 CHAIRMAN WILLIAMSON: Or if we come in and 24 we change the rule, then we would have to put a new rule 25 in place and have another comment period. Right? 63 1 MR. BIARD: It depends on how big the 2 change is. 3 CHAIRMAN WILLIAMSON: Okay. 4 MR. BIARD: If the change is 5 contemplated -- and that's why we have tried to build in 6 many caveats, you know, into this preamble. If the 7 changes are contemplated by what's published and if what 8 is ultimately adopted is within sort of a reasonable 9 range, sort of within the contemplation of the people 10 who are affected by the fees and in response to any 11 comments that might have been filed, then there may not 12 be a need to republish it. 13 CHAIRMAN WILLIAMSON: Okay. 14 MR. BIARD: It's a matter of degree. 15 CHAIRMAN WILLIAMSON: Okay. Now, the 16 issue has been brought up by some of our speakers that 17 there's no fee changes on manufacturers and -- 18 COMMISSIONER KRAUSE: Yes, I want to get 19 into that. 20 CHAIRMAN WILLIAMSON: Is there another 21 group that wasn't having fee changes and -- 22 MR. FENOGLIO: Distributor. 23 CHAIRMAN WILLIAMSON: Distributor. 24 MR. SANDERSON: Manufacturer, distributor 25 and then the amendment license fee. 64 1 CHAIRMAN WILLIAMSON: And is that because 2 that's not allowed in statute that we can do that right 3 now? 4 MR. SANDERSON: Correct. You cannot do 5 that -- right -- but you can't do it with the worker 6 registry either right now, and you've got a -- 7 CHAIRMAN WILLIAMSON: Okay. So in the 8 statute right not, we are not allowed to raise fees, and 9 they are fixed in statute, on distributors? 10 MR. SANDERSON: The distributors, 11 manufacturers. 12 CHAIRMAN WILLIAMSON: Manufacturers? 13 MR. SANDERSON: And the amendment fee is 14 set in statute at $10,00, and Sunset recommends that it 15 be a scaled fee, based on the complications of the 16 amendment. 17 CHAIRMAN WILLIAMSON: Okay. So whoever 18 brought up that issue about the fees being spread, we're 19 not allowed to do that by statute. So we have 20 absolutely no control over that, that's not by rule. 21 And that needs to be dealt with up the hill. 22 MS. PYKA: And, Madam Chair, might I speak 23 to that as well? 24 CHAIRMAN WILLIAMSON: Sure. 25 MS. PYKA: The rider provision is very 65 1 clear in which particular revenue code we are to 2 increase the fees on. The rider, it states the 3 Commission is assessing or increasing fees sufficient to 4 generate during the 2014-15 biennium -- and this is the 5 Senate version I'm quoting -- $2,813,912 in excess of 6 5,913,000 which is Object Code 3152 contained in the 7 Comptroller of Public Accounts biennial revenue estimate 8 for Fiscal Years 2014 and '15. 9 And for those that are not familiar with 10 that object code, 3152, that is the specific object code 11 for license fees for lessors and operators. So we have 12 followed the direction of the rider in developing the 13 fee increase schedule. 14 CHAIRMAN WILLIAMSON: Okay. So then I go 15 back to, based upon -- now, who determines what revenue 16 code is used? 17 MS. PYKA: This is the rider provision 18 included in the General Appropriation Act drafts by the 19 Senate and the House. This is also consistent with the 20 rider provision that was included in our legislative 21 appropriations request that was submitted last August. 22 So this form of revenue recovery is 23 consistent with what we have proposed for some very long 24 time. It's also consistent with the rule proposal that 25 was developed two years ago for the original ACBS 66 1 system. There has been no changes in the fee recovery 2 schedule. 3 COMMISSIONER KRAUSE: So that object code 4 is what keeps us from broadening it to something besides 5 charities and the corporate lessors. 6 CHAIRMAN WILLIAMSON: Well, not only that, 7 but the statute has set out specifically a fixed fee for 8 those distributors, manufacturers -- 9 COMMISSIONER KRAUSE: And amendments. 10 CHAIRMAN WILLIAMSON: -- and amendments. 11 We cannot do anything about those fees within this 12 rulemaking authority. That has to be either, one, give 13 us authority to do that by statute or, two, remove that 14 out of the statute, one of the two. So we can't do 15 anything about that one. That is not within our scope 16 or purview. That is a statutorily designated amount. 17 So we couldn't -- you know, Steve, even to your thing, 18 we can't do that -- 19 MS. PYKA: Madam Chair, I want to -- 20 CHAIRMAN WILLIAMSON: -- from what I 21 understand from what you're telling me. 22 MS. PYKA: I want to stay away from -- I'm 23 going to speak to my knowledge -- I'm going to stay away 24 from statute, because I recognize that the manufacturers 25 and the distributors are currently in House Bill 2197. 67 1 I am speaking specifically to the rider. The rider is 2 giving us the direction as to the revenue increases, 3 unrelated to the public comment that was made about 4 looking at those other revenue objects. Our direction 5 is in the rider. 6 CHAIRMAN WILLIAMSON: Right. So since 7 it's -- 8 MS. PYKA: The sunset legislation -- and I 9 might want to have some help from Ms. Nelda -- the 10 sunset legislation includes increases to the 11 manufacturers and the distributors. 12 CHAIRMAN WILLIAMSON: Okay. 13 MS. PYKA: But I don't know the dollar 14 value. Help me on the dollar value. 15 CHAIRMAN WILLIAMSON: Okay. Now, is that 16 included in the rider, the revenue code -- 17 MS. PYKA: No, no. 18 CHAIRMAN WILLIAMSON: -- that was quoted 19 in that? 20 MS. PYKA: No. 21 CHAIRMAN WILLIAMSON: So we couldn't do 22 that regardless? 23 MS. PYKA: Correct. 24 CHAIRMAN WILLIAMSON: So it doesn't matter 25 what we may want to do, it may not matter what they want 68 1 us to do, it's not allowed? 2 MS. PYKA: Correct. 3 CHAIRMAN WILLIAMSON: Is that correct, 4 what I'm hearing? 5 MS. PYKA: That is what you're hearing. 6 CHAIRMAN WILLIAMSON: So a distributor, a 7 manufacturer and the other fee that Phil mentioned, the 8 desire may be on both sides of the house to do this, all 9 parties, but we cannot do that, based upon how -- 10 MS. PYKA: The -- 11 CHAIRMAN WILLIAMSON: -- that's written? 12 MS. PYKA: -- rider. Correct. 13 CHAIRMAN WILLIAMSON: And whoever needs to 14 answer this -- I don't know whether Nelda does, if it's 15 a legislative thing, a budget thing -- is that possible 16 to be changed within this budgetary conference situation 17 or is this just something we have absolutely no control 18 over and we can't do anything about, regardless, at all? 19 MS. TREVINO: Madam Chair, I think as far 20 as the rider is concerned, I think we're at a point 21 where no other changes can be made. They are 22 literally -- as Kathy mentioned, they are finalizing 23 their decisions on each of the agencies. 24 CHAIRMAN WILLIAMSON: Okay. 25 MS. TREVINO: There is also -- and I don't 69 1 have the calendar in front of me, but there is also a 2 deadline of when the House and the Senate have to act on 3 the appropriations bill. So as far as making an 4 amendment to the rider at this point, I don't believe 5 the agency is in a position to have that accomplished. 6 In regards to the sunset -- 7 CHAIRMAN WILLIAMSON: What about anybody 8 that's on those committees, I mean, the actual senator 9 or House member that participates in that? 10 MS. TREVINO: Yes, they can. But again, 11 since those conference committee discussions are not 12 necessarily occurring in public, it's very hard to 13 determine where they are in their decisionmaking. 14 CHAIRMAN WILLIAMSON: Okay. So basically 15 it's pretty much a slim to none chance to even have that 16 change, even if we wanted to go back and try to raise 17 money from these specific classifications, we just 18 couldn't do it, period. That's what I'm hearing. If 19 I'm wrong, somebody say, "No, you've got this all 20 wrong." 21 MR. SANDERSON: Madam Chair, I don't 22 disagree with the methodology that was used, and the 23 industry I don't think disagrees with the methodology. 24 Our concern is moving forward with the proposal that we 25 feel is premature, simply because, as mentioned, there 70 1 could be changes to the riders that include all license 2 fees that are collected. There could be changes that, 3 you know, indicate that they already collect enough 4 license fees to cover the appropriation, and the rider 5 comes completely out. 6 You know, there's too many other variables 7 involved at this point in time. We just ask that you 8 postpone. If you had a commission meeting two days 9 after the legislative session, on Wednesday, May the 10 29th, it could be published in the June 15th or 14th 11 edition and still be eligible for adoption in late July. 12 CHAIRMAN WILLIAMSON: True. But then I 13 would say to me that's no different than publishing it 14 now. We still have a comment period that we will 15 certainly take every single person from today or 16 whenever it's published, you know, whether it's written 17 or you want to come in in person and provide your 18 comments. 19 You know, we're kind of like you guys. 20 This was kind of like in our face at the last minute, so 21 we're trying to deal with it as best we can, as you are 22 on your side. And I understand that, and I'm 23 sympathetic to do that, but I'm also very sensitive to 24 the fact of what has happened within the Bingo Division 25 in the last two years. The huge cut in budget, as you 71 1 well know, has been devastating to the performance of 2 that division. 3 And the fact, as you well know, that how 4 desperately we need to change that automated system. We 5 did not take advantage of that last time when they 6 provided us that opportunity, for various and assorted 7 reasons, which you are also aware of. And I'm just 8 concerned that if we decline to take advantage of that 9 again, then those of you that have dealt with the 10 Legislature would certainly understand what sort of 11 push-back in comments we would likely get if we tried to 12 run at them for a third time with this. 13 So that's kind of where I'm coming from 14 here. And, yes, this is not a good situation for all of 15 us, but we just kind of have to deal with it and try to 16 work this out as best we can. I believe. 17 MR. SANDERSON: And I appreciate your 18 comments, and I do understand the history a little bit. 19 So -- 20 CHAIRMAN WILLIAMSON: Yes, I thought you 21 probably did. 22 MR. SANDERSON: You know, I do think that 23 it's just -- you know, we're not advocating or opposing 24 necessarily a fee increase, requesting a fee increase. 25 It's just we think the timing is just a little bit too 72 1 soon, and we just request that you just think about the 2 timing of the proposal. 3 CHAIRMAN WILLIAMSON: And I understand 4 that, and I appreciate it. And, unfortunately, none of 5 us have that luxury, I don't believe, right now at this 6 point. Three weeks, we may be in a whole different 7 place, depending on what they do up there. 8 COMMISSIONER KRAUSE: I'm ready to make a 9 motion. 10 MR. SANDERSON: Thank you. 11 MR. BIARD: I'll just say one thing before 12 you do, just to repeat that there will be a public 13 hearing scheduled for this on June 12th, which will be 14 after the session has concluded and that, you know, 15 comments at that point can be the basis for making 16 changes to what is proposed. 17 CHAIRMAN WILLIAMSON: Yes, because, you 18 know, generally this Commission I think is pretty 19 responsive to comments -- there again, as you well know. 20 MR. SANDERSON: I believe they are. And I 21 think also it's just -- I don't want to see potentially 22 significant changes that may impact the rule having to 23 be republished again, which then would push you farther 24 into the deadline. 25 CHAIRMAN WILLIAMSON: And, you know, that 73 1 may be something we'll just have to consider at the time 2 and we'll take care of that. And I would certainly 3 encourage everyone to communicate with those people that 4 have the policy decisions on how this works and the 5 statutory decisions on these various issues and the 6 impact that it's had, you know, because in a lot of 7 ways, once again, as you well know, our hands are tied 8 in a lot of situations on this. 9 MR. SANDERSON: Thank you. 10 CHAIRMAN WILLIAMSON: Okay. 11 So at this time, are you interested in 12 making a motion? 13 COMMISSIONER KRAUSE: I'm ready to make a 14 motion that we initiate the rulemaking process in 15 connection with amending 16 TAC 402.404, in connection 16 with the publication notice that publicizes the 17 rulemaking or the public comment hearing, that I want 18 there to be sufficient disclosures to explain why we're 19 doing this, that it's contingent on the action of the 20 Legislature that can change anything and everything that 21 they are, you know, doing up there that might make us do 22 this and that it anticipates, you know, anything that 23 the Legislature could do, which is a lot. 24 MR. BIARD: We'll try; we'll try to word 25 it that way. 74 1 CHAIRMAN WILLIAMSON: All right. I'll 2 second the motion. 3 All in favor? 4 COMMISSIONER KRAUSE: Aye. 5 CHAIRMAN WILLIAMSON: Aye. 6 The motions passes 2-0. 7 MR. BIARD: Thank you, Commissioners. I 8 have a T-bar memo for you to sign. 9 AGENDA ITEM NO. XI 10 CHAIRMAN WILLIAMSON: Okay. And the next 11 item is consideration of the status and possible entry 12 of orders in cases posted on the open meeting notice. 13 Bob, this is your item. 14 MR. BIARD: Yes, Commissioners. We have 15 eight enforcement cases today. Tabs A through G are 16 lottery retailer matters I would like to take up 17 together. Tab H is the bingo agreed order involving a 18 licensed bingo conductor. Tabs A through G are license 19 revocation recommendations. These are all cases that 20 were presented at the State Office of Administrative 21 Hearings for revocation on the grounds the licensee 22 failed to have sufficient funds available to cover 23 electronic funds transfers to the Lottery Commission's 24 account. 25 The SOAH Administrative Law Judge 75 1 recommends revocation in each of these cases. And staff 2 recommends that you vote to approve the order in each 3 case revoking the license. If you approve, I have a 4 single order that covers all eight of these cases. 5 CHAIRMAN WILLIAMSON: Commissioner, do you 6 have any questions? 7 COMMISSIONER KRAUSE: No. 8 CHAIRMAN WILLIAMSON: Would you like to 9 make a motion? 10 COMMISSIONER KRAUSE: I make a motion that 11 we adopt all the recommendations of the staff on all 12 these cases. 13 CHAIRMAN WILLIAMSON: I second. 14 All in favor? 15 COMMISSIONER KRAUSE: Aye. 16 CHAIRMAN WILLIAMSON: Aye. 17 Motion passes 2-0. 18 MR. BIARD: Thank you. I have a mass 19 order here for you. 20 Tab H is an agreed order, the bingo agreed 21 order with the American Legion Unit 208 Auxiliary in 22 Kerrville, Texas, agreeing to a $200 penalty for failure 23 to have a representative of a licensed conductor present 24 at the beginning of a bingo occasion. The parties have 25 agreed to settle the matter, and staff recommends that 76 1 you vote to approve the agreed order in this case. 2 CHAIRMAN WILLIAMSON: Commissioner, do you 3 have any questions? 4 COMMISSIONER KRAUSE: I do not. 5 CHAIRMAN WILLIAMSON: Is there a motion? 6 COMMISSIONER KRAUSE: I make a motion that 7 we approve the agreed order. 8 CHAIRMAN WILLIAMSON: I second. 9 All in favor? 10 COMMISSIONER KRAUSE: Aye. 11 CHAIRMAN WILLIAMSON: Aye. 12 The motions pass 2-0. 13 MR. BIARD: Thank you, Commissioners. I 14 have one order. 15 AGENDA ITEM NO. XIII 16 CHAIRMAN WILLIAMSON: Okay. I don't 17 believe there is any other business at this time, so at 18 this time I move the Texas Lottery Commission go into 19 executive session to deliberate the duties and 20 evaluation of the Executive Director, Charitable Bingo 21 Operations Director and Internal Audit Director and to 22 deliberate the duties of the General Counsel and Human 23 Resources Director pursuant to Section 551.074 of the 24 Texas Government Code and to receive legal advice 25 regarding pending or contemplated litigation in our 77 1 settlement offers pursuant to Section 551.071(1)(A) and 2 (B) and to receive legal advice pursuant to Section 3 551.071(2) of the Texas Government Code, including but 4 not limited to those items posted on the open meeting 5 notice for the purposes of receiving legal advice. 6 Is there a second? 7 COMMISSIONER KRAUSE: Second. 8 CHAIRMAN WILLIAMSON: All in favor? 9 COMMISSIONER KRAUSE: Aye. 10 CHAIRMAN WILLIAMSON: Aye. 11 Motion passes 2-0. The Texas Lottery 12 Commission will go into executive session. The time is 13 11:42 a.m. Today is May 7, 2013. 14 (Off the record for executive session: 15 11:42 a.m. to 12:15 p.m.) 16 AGENDA ITEM NO. XIV 17 CHAIRMAN WILLIAMSON: The Texas Lottery 18 Commission is out of executive session. The time is 19 12:15 p.m. 20 There is no action as a result of 21 executive session. 22 AGENDA ITEM NO. XV 23 CHAIRMAN WILLIAMSON: So is there a motion 24 to adjourn? 25 COMMISSIONER KRAUSE: I move we adjourn 78 1 immediately. 2 CHAIRMAN WILLIAMSON: Second. 3 All in favor? 4 COMMISSIONER KRAUSE: Aye. 5 CHAIRMAN WILLIAMSON: Aye. 6 The Lottery Commission is out of session 7 as of 12:15 p.m. on May 7, 2013. 8 (Meeting adjourned: 12:15 p.m.) 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 79 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 14th day of May 2013. 15 16 17 ________________________________ 18 Aloma J. Kennedy Certified Shorthand Reporter 19 CSR No. 494 - Expires 12/31/14 20 Firm Registration No. 276 Kennedy Reporting Service, Inc. 21 1016 La Posada Drive, Suite 294 Austin, TX 78752 22 512.474.2233 23 Job No. 109480 24 25