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 § THURSDAY, JULY 11, 2013 § 9 10 11 COMMISSION MEETING 12 Thursday, July 11, 2013 13 14 15 16 BE IT REMEMBERED THAT on Tuesday, the 11th 17 day of July 2013, the Texas Lottery Commission meeting 18 was held from 10:00 a.m. until 11:41 a.m., at 19 the Offices of the Texas Lottery Commission, 611 East 20 6th Street, Austin, Texas 78701, before CHAIRMAN MARY 21 ANN WILLIAMSON and COMMISSIONERS J. WINSTON KRAUSE and 22 VERONICA ANN EDWARDS; that the following proceedings 23 were reported via machine shorthand by Lou Ray, a 24 Certified Shorthand Reporter. 25 2 1 APPEARANCES 2 CHAIRMAN: Ms. Mary Ann Williamson 3 COMMISSIONERS: 4 Mr. J. Winston Krause Ms. Veronica Ann Edwards 5 GENERAL COUNSEL: 6 Mr. Robert F. Biard 7 EXECUTIVE DIRECTOR: Mr. Gary N. Grief 8 CHARITABLE BINGO OPERATIONS DIRECTOR 9 Ms. Sandra K. Joseph 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 - THURSDAY, JULY 11, 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 ............... 12 10 AGENDA ITEM NO. IV - Report, possible 11 discussion and/or action on the 83rd Legislature, including implementation of 12 legislation ........................................ 14 13 AGENDA ITEM NO. V - Consideration of and possible discussion and/or action, including 14 adoption, on amendments to 16 TAC §402.404 License and Registry Fees .......................... 16 15 AGENDA ITEM NO. VI - Report, possible 16 discussion and/or action on the Request for Finding of Fact for Rider 14. Contingent 17 Revenue, Bingo Law Compliance Field Operations, 83rd Legislature, Regular Session .................. 22 18 AGENDA ITEM NO. VII - Consideration of and 19 possible discussion and/or action on the Proposal for Decision in SOAH Docket 20 Nos. 362-12-4672.B, et al.: Texas Lottery Commission versus Nathan Bullard d/b/a Golden 21 Belle Bingo Hall, et al ............................ 25 22 AGENDA ITEM NO. VIII - Consideration of and possible discussion and/or action on external 23 and internal audits and/or reviews relating to the Texas Lottery Commission, and/or 24 on the Internal Audit Division’s activities ........ 26 25 4 1 TABLE OF CONTENTS 2 PAGE 3 AGENDA ITEM NO. IX - Report, possible discussion and/or action on GTECH Corporation ...... 26 4 AGENDA ITEM NO. X - Report by the Executive 5 Director and/or possible discussion and/or action on the agency’s operational status, 6 agency procedures, awards, and FTE status .......... 27 7 AGENDA ITEM NO. XI - Report by the Charitable Bingo Operations Director and possible 8 discussion and/or action on the Charitable Bingo Operations Division’s activities, 9 including updates on licensing, accounting and audit activities, pull-tab review, 10 and special projects ............................... 31 11 AGENDA ITEM NO. XII - Consideration of the status and possible entry of orders in: ............ 36 12 A. Docket No. 362-13-3660 – Robles Corner Store 13 B. Docket No. 362-13-3662 – Chevron & Subway 14 C. Docket No. 362-13-3829 – RDL Liquor D. Docket No. 362-13-3830 – A1 Food Mart 15 E. Case No. 2013-418 – Padaana LLC D/B/A Get N Go 16 AGENDA ITEM NO. XIII- Public comment ............... 39 17 AGENDA ITEM NO. XIV - Commission may meet 18 in Executive Session: .............................. 39 A. To deliberate personnel matters, including 19 the appointment, employment, evaluation, reassignment duties, discipline, or dismissal 20 of the Executive Director, the Charitable Bingo Operations Director, and/or the Internal 21 Audit Director pursuant to Section 551.074 of the Texas Government Code. 22 B. To deliberate the duties of the General 23 Counsel and/or the Human Resources Director pursuant to Section 551.074 of the Texas 24 Government Code. 25 5 1 TABLE OF CONTENTS 2 PAGE 3 C. To receive legal advice regarding pending or contemplated litigation pursuant to 4 Section 551.071 (1) (A) and/or to receive legal advice regarding settlement offers 5 pursuant to Section 551.071 (1) (B) of the Texas Government Code and/or to receive 6 legal advice pursuant to Section 551.071(2) of the Texas Government Code, including but 7 not limited to the following items: Department of Texas, Veterans of Foreign Wars 8 et al. v. Texas Lottery Commission et al Willis Willis v. Texas Lottery Commission, 9 GTECH Corporation, BJN Sons Corporation d/b/a Lucky Food Store #2, Barkat N. Jiwani 10 and Pankaj Joshi The State Lottery Act, Texas Government Code 11 Chapter 467, the Bingo Enabling Act, employment law, personnel law, procurement 12 and contract law, evidentiary and procedural law, and general government law. 13 Any item on this open meeting agenda. 14 AGENDA ITEM NO. XV - Return to open session for further deliberation and possible action on 15 any matter discussed in Executive Session .......... 40 16 AGENDA ITEM NO. XVI - Adjournment .................. 41 17 REPORTER'S CERTIFICATE ............................. 42 18 19 20 21 22 23 24 25 6 1 P R O C E E D I N G S 2 (THURSDAY, JULY 11, 2013) 3 (10:00 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN WILLIAMSON: Good morning. I'd 6 like to call this meeting of the Texas Lottery 7 commission to order. Today is July the 11th, 2013. The 8 time is 10:00 a.m. 9 Commissioners Krause and Edwards are 10 present, so we have a quorum. 11 AGENDA ITEM NO. II 12 CHAIRMAN WILLIAMSON: The first item is 13 the report, possible discussion and/or action on lottery 14 sales and revenue game performance, new game 15 opportunities, advertising, market research, trends and 16 game contracts, agreements and procedures. 17 Kathy and Michael? 18 MS. PYKA: Good morning, Commissioners. 19 My name is Kathy Pyka. I'm the Controller for the 20 Commission. With me to my right this morning is Michael 21 Anger, our Director of Lottery Operations. 22 Commissioners, this morning we've got our 23 chart for you that includes sales through the week of 24 July 6, 2013. Our fiscal year 2013 sales through this 25 45th week of our fiscal year are $3,074,000,000, which 7 1 is an increase of $143 million over the same period last 2 fiscal year. This is a 4 percent increase in total 3 sales as compared to last fiscal year as well. Our 4 fiscal year 2013 instant ticket sales reflected on the 5 second blue bar are at 2,754,000,000, which is $109.1 6 million increase over the sales figure for fiscal year 7 2012. 8 Commissioners, we wanted to note that we 9 continue to see exceptional year-over-year sales 10 increases within the instant ticket product. And last 11 week we had our highest week of July sales in the 12 history of the Commission. Our weekly sales, for 13 instance, were at $63.5 million last week. 14 So then moving on to -- go back just 15 one -- thanks. So moving on to our draw sales, which 16 are the second red bar there, for fiscal year 2013 17 they're at $982 million, which is a $34.7 million 18 increase over last fiscal year. 19 Now we'll move on to the next slide. This 20 slide includes the cumulative average daily sales for 21 fiscal years 2011, '12 and '13. The overall daily 22 average sales value for 2013 is now at $12.2 million. 23 This is a $604,000 per-day increase over last fiscal 24 year, and is a million-six-dollar increase over fiscal 25 year 2011. 8 1 Looking first at our jackpot games, which 2 are highlighted in the white font, they reflect an 3 average daily total of $1.88 million. This is a $21,000 4 decline from last fiscal year, and it's a $337,000 5 increase over fiscal year 2011. 6 Within this category we see Powerball at 7 $796,000 per day. And that's an increase of $358,000 8 over last fiscal year, which is certainly attributed to 9 two high Powerball jackpots that we've had this year. 10 We had one jackpot roll up to $550 million and another 11 jackpot roll up to $600 million. 12 Daily games are included in the green font 13 with a total daily average of $1.36 million per day. 14 That's more than a $200,000 per-day increase over the 15 previous fiscal years. We'd like to highlight under 16 this category Daily 4, with $204,000 per-day as a daily 17 average, continuing to see year-over-year increases for 18 this game. We're still at 11 percent above and beyond 19 the previous fiscal year. 20 And then wrapping up this slide, we've got 21 our average daily for instant tickets at $8.9 million. 22 That's a $408,000 increase over last fiscal year, and 23 just over $1 million per-day above and beyond fiscal 24 year 2011. 25 So with that Michael will now go through 9 1 the slide that includes actual sales by product. 2 MR. ANGER: Good morning, Commissioners. 3 For the record, my name is Michael Anger, and I'm the 4 Lottery Operations Director for the Commission. 5 Commissioners, the slide before you is a 6 continuation of information from the slide previously 7 that showed daily sales totals. This slide is fiscal 8 year '12 and fiscal year '13 sales by product category 9 through the week ending July 6th of this year. And 10 orientated the same as the slide previously, the jackpot 11 games are up at the top of the slide in the white font. 12 There's a couple of things that I'll highlight for you 13 here. 14 Our Lotto Texas Extra Game, which is our 15 add-on feature to Lotto Texas, that's an add-on feature 16 that you approved earlier this year in the rule change 17 for Lotto Texas Game. We introduced that in April of 18 this year, and that game is performing very well for us. 19 That game is coming in at about 10 percent of base Lotto 20 Texas Game sales on a weekly basis. So we're very 21 pleased with the performance of Lotto Texas. 22 Kathy talked a little bit about the 23 jackpot's impact on our multijurisdictional games, but 24 specifically it's very easy to see it on this slide. I 25 wanted to point out to you Mega Millions currently is 10 1 down $96.9 million this year on a year-over-year basis. 2 That's largely attributable to the record $640 million 3 jackpot that we experienced spring of last year for that 4 game. 5 And then correlating to that and showing 6 exactly the opposite picture, as Kathy noted, we had two 7 very large jackpots for the Powerball Game this fiscal 8 year resulting in just under $110 million in increased 9 Powerball sales this year. And the largest of those was 10 the $600 million jackpot that we had in May. 11 Moving on to the green font games, those 12 are our daily drawing games. Just a couple of 13 highlights here for you. Kathy mentioned this; the 14 Daily Four Game continues to perform well and is up well 15 over 10 percent this fiscal year and has continued to 16 grow since its inception when we introduced it in 2007. 17 And then the other thing that I wanted to 18 highlight for you here is our All or Nothing Game at 19 $62.7 million in sales. We launched All or Nothing in 20 September. As you know, we ceased sales on that game on 21 June 3rd and currently have a rule out for public 22 comment that you adopted, and we are out receiving 23 public comment at this time. And staff will be working 24 to bring that comment back to you for your 25 consideration, along with that rule, at the August 11 1 Commission meeting. 2 So wrapping up that category, we are up 3 $55.5 million year-over-year in the daily game category. 4 And as you'll see, that is carrying the draw game sales 5 overall to an increase of $34.7 million year-over-year. 6 I also wanted to talk just briefly about 7 the instant product categories. As Kathy noted earlier, 8 we're up just under $110 million in instant ticket sales 9 year-over-year, so we're experiencing very strong growth 10 in our instant products category. 11 As Kathy mentioned, we had a fantastic 12 week last week and did set our July sales record. One 13 thing I wanted to note about that is the record that we 14 broke for weekly July sales was last year's record, 15 which was just over $60 million. So we're actually -- 16 we're up about $3.1 million in instant ticket sales over 17 the record from last year. So we're very pleased with 18 that. We think we have good products in the 19 marketplace. 20 And summer is traditionally our slow time 21 for lottery ticket sales. It's our slowest season as 22 far as sales. So we're very pleased to be seeing these 23 kinds of numbers. We think we have good products in the 24 marketplace that the players appreciate and are 25 participating in. 12 1 So to wrap everything up, our total sales 2 increase year to date is $143.9 million. And that 3 concludes our presentation. Kathy and I would be happy 4 to answer any questions that you may have. 5 CHAIRMAN WILLIAMSON: Thank you. 6 Commissioners, do you have any questions? 7 COMM. EDWARDS: No. 8 COMM. KRAUSE: No. 9 CHAIRMAN WILLIAMSON: All right. Thank 10 you. 11 MS. PYKA: Thank you, Commissioners. 12 AGENDA ITEM NO. III 13 CHAIRMAN WILLIAMSON: We'll go on to the 14 next item. It's report, possible discussion and/or 15 action on transfers to the State and the agency's budget 16 status. 17 Kathy? 18 MS. PYKA: Thank you, Madam Chair. Again 19 for the record my name is Kathy Pyka, controller for the 20 Commission. 21 The first report under this item, 22 Commissioners, includes the transfers and allocations to 23 the Foundation School Fund, the Texas Veterans 24 Commission and the allocation of unclaimed prizes for 25 the period ending May 31, 2013. 13 1 Commissioners, our total cash transfers to 2 the State amounted to $863.7 million for the first nine 3 months of fiscal year 2013. And of this $863.7 million 4 transferred to the State, 817.5 million was the amount 5 transferred to the Foundation School Fund, 4.3 million 6 was transferred to the Texas Veterans Commission, with a 7 balance of 41.9 million transferred from unclaimed 8 lottery prizes. This represents a 1.3 percent increase, 9 or just over $10 million as compared to the amount of 10 transfers to the Foundation School Fund last fiscal 11 year. 12 Commissioners, this brings our cumulative 13 transfers to the Foundation School Fund through May at 14 $15.5 billion. 15 The final item under this tab is the 16 agency's fiscal year 2013 method of finance summary. 17 For the third quarter ending May 31, 2013, the 18 Commission's lottery budget for fiscal year 2013 is 19 199.8 million. Of this amount, 87.8 percent was 20 expended and encumbered through the third quarter. 21 Our bingo operations budget funded by 22 general revenue is $14.7 million, with 78.6 percent 23 encumbered and expended through the end of the third 24 quarter. 25 Commissioners, this concludes my 14 1 presentation. I'd be happy to answer any questions. 2 CHAIRMAN WILLIAMSON: Thank you, Kathy. 3 Commissioners, do you have any questions? 4 COMM. KRAUSE: No. 5 MS. PYKA: Thank you. 6 AGENDA ITEM NO. IV 7 CHAIRMAN WILLIAMSON: Thank you. The next 8 item is report, possible discussion and/or action on the 9 83rd Legislature, including implementation of 10 legislation. 11 MS. VILLASENOR: Good morning, Madam Chair 12 and Commissioners. For the record my name is Melissa 13 Villasenor, Governmental Affairs representative for the 14 Texas Lottery Commission. 15 In your notebooks we provide you a list of 16 the bills from the regular legislative session that are 17 included in the agency's legislative implementation 18 project. The list also identifies the agency division 19 responsible for coordinating any required actions. 20 Bills were assigned to division directors on the basis 21 of subject matter, and the review process continues to 22 determine what action by the agency, if any, is needed 23 to implement the bill. 24 With regard to the agency sunset bill, 25 HB2197, we have identified the division or divisions 15 1 responsible for implementing each section of the bill. 2 Work is in progress and appropriate actions will be 3 taken to ensure the agency's implementation of each 4 bill's bill provision. 5 Additionally, as reported last Commission 6 meeting, the sunset bill requires the Lottery Commission 7 to adopt all rules, policies and procedures required by 8 law, made by the bill, to be made no later than 9 January 1, 2014. In order to comply with this 10 requirement, staff anticipates bringing forward at the 11 next several Commission meetings a variety of proposed 12 administrative rulemakings for your consideration. 13 This concludes my report, and I'll be glad 14 to answer any questions you may have. 15 CHAIRMAN WILLIAMSON: All right. Thank 16 you. 17 MS. VILLASENOR: Thank you. 18 CHAIRMAN WILLIAMSON: Staff is going to be 19 really busy the next few months. 20 MS. VILLASENOR: Most definitely. Thank 21 you. 22 CHAIRMAN WILLIAMSON: Any questions? 23 (No response) 24 CHAIRMAN WILLIAMSON: All right. Thank 25 you. 16 1 MS. VILLASENOR: Thank you. 2 AGENDA ITEM NO. V 3 CHAIRMAN WILLIAMSON: Item 5 is 4 consideration of and/or possible discussion and/or 5 action including adoption on amendments to 16 TAC 6 402.404, License and Registry Fees. 7 James, please? 8 MR. PERSON: Good morning, Commissioners. 9 For the record, my name is James Person, and I'm an 10 Assistant General Counsel here. 11 Back at the May 7th meeting, the 12 Commission voted to propose amendments to the bingo 13 license fee rule, which is Section 402.404 of the 14 Administrative Code. Those amendments would accomplish 15 two things, principally. One, it would create a new 16 bingo worker registry fee of $25; and, two, it would 17 increase the fees for bingo conductors and commercial 18 lessors. 19 Staff recommends that you adopt the 20 amendments with some changes to the text from that which 21 was proposed, and I'll go into those now. As you may 22 remember, we proposed these amendments before the 23 regular legislative session ended and the appropriations 24 act was finalized. Because of this, we had to propose 25 these amendments under the assumption that the 17 1 appropriations act would contain a certain provision 2 that would make funding for our ACBS redesign and the 3 restoration of 14 FTEs to the Bingo Division contingent 4 on the Commission raising a certain amount of revenue 5 through fees. 6 Ultimately, the final appropriations act 7 did contain a provision that made the restoration of the 8 14 FTEs contingent on us raising the revenue through 9 these fees. The Legislature decided to fund the ACBS 10 redesign completely through general revenue. For that 11 reason, we did not need to raise fees as much as we 12 originally proposed. 13 We proposed the fee increase originally a 14 little over a 56 percent increase for the conductors and 15 the lessors. Now we're only increasing the fees by 16 32 percent. And the change in the text is -- reflects 17 that change in the fee increase. 18 The new bingo worker registry fee was also 19 proposed under the assumption that the Commission be 20 given the authority to charge that fee. We originally 21 did not have that authority. With the passage of lour 22 sunset legislation, that authority was conferred on the 23 Commission, so we're good with that fee. 24 We held a public comment hearing on these 25 rules on May 29th, and we had four members of the public 18 1 come and testify. All were opposed to at least some or 2 all of the amendments. We also received four written 3 comments, all opposed to some or all of the amendments. 4 Staff has responded to each one of those 5 comments in the preamble to the adoption order that's 6 before you. I did want to go through -- or highlight at 7 least three of them for the record. First, several 8 commenters stated that the new bingo worker registry fee 9 of $25 was too high and would hurt bingo workers, 10 especially those who volunteer their time. 11 And we understand that this fee is 12 going -- may have a negative fiscal impact on some of 13 these bingo workers and we're not unsympathetic to that. 14 I do want to stress that the new bingo fee was 15 explicitly recommended by the Sunset Advisory 16 Commission, and the Legislature ultimately decided to 17 authorize us to charge that fee. We set the fee at $25 18 because we felt that was a reasonable amount to cover 19 the processing of these applications and renewals. 20 I also want to stress that the $25 covers 21 a three-year license period. So ultimately the fee is a 22 little over $8 per year. And if the individual 23 charities wish to do so for their workers, we believe 24 the law allows them to reimburse them the cost of this 25 $25 fee as a reasonable or necessary bingo expense. 19 1 One of the other comments we received was 2 a request that after some time is gone by we review this 3 rule and, if possible, adjust the fees. We didn't think 4 that putting such a formal review or stipulating that in 5 the text of the rule was necessary. We're going to 6 review -- likely review all our rules. We'll review 7 this rule as required by the Administrative Procedures 8 Act. 9 And also I note this rule will come up for 10 review internally next summer when we are going through 11 our legislative appropriations request. So we felt 12 those reviews were sufficient. And if at any time we 13 believe the fees need to be adjusted, we can go through 14 that process through the rulemaking process at that 15 time. 16 And finally, several commenters requested 17 that we increase the fees for manufacturers and 18 distributors and, therefore, we wouldn't have to 19 increase the conductors and the lessors' fees quite as 20 much. In our sunset legislation the Commission is given 21 the authority to raise fees for manufacturers and 22 distributors. We did not have that authority before it 23 was set in statute. 24 However, the way the relevant general 25 appropriations act provision is written, fees from 20 1 manufacturers and distributors cannot be counted toward 2 the amount of revenue we need to raise in order to fund 3 the 14 FTEs in the bingo division. Only fees in object 4 code 3152 can be counted, and bingo conductor and lessor 5 fees fall within that category. We were recently 6 informed that our new bingo worker registry fee will 7 fall within that category. Manufacturer and distributor 8 fees do not fall within that category, and the 9 Comptroller has indicated that they're not in position 10 to change that at this time. So raising manufacturer 11 and distributor fees at this time will not result in 12 lower fees for the conductors and the lessors. 13 And with that I believe I've covered kind 14 of the major comments that were given to us, but I'll be 15 happy to answer any questions y'all have. 16 CHAIRMAN WILLIAMSON: Okay. Thank you. 17 Commissioners, do you have any questions. 18 COMM. KRAUSE: I guess not. 19 MR. PERSON: Okay. Well, staff recommends 20 adoption. 21 CHAIRMAN WILLIAMSON: Okay. And, 22 Mr. Fenoglio, we have you as a witness. Do you -- would 23 you like to say anything? 24 MR. FENOGLIO: For the record, my name is 25 Stephen Fenoglio. We're opposed. Thank you. 21 1 CHAIRMAN WILLIAMSON: All right. Thank 2 you. 3 And I know we've discussed this in prior 4 Commission meetings in great detail about the why's and 5 the wherefor's of why we're having to do this. And I 6 did inquire about the manufacturer -- increasing that 7 fee, and that's where we came to it wouldn't make any 8 difference. So I guess I would encourage the 9 manufacturers and commercial lessors to maybe 10 renegotiate their contracts with their participants and 11 maybe help them out a little bit, not that that's 12 anything I would interfere in. But, you know, maybe 13 that would help offset some of this. 14 COMM. KRAUSE: I do have one comment. 15 CHAIRMAN WILLIAMSON: Go ahead. 16 COMM. KRAUSE: Well, you know, if the 17 sunset legislation tells us to do it, you know, then the 18 budget is adopted by the Legislature that includes it, 19 then we feel compelled to do what they say. Because, 20 you know, surprise surprise, they're our boss. So... 21 CHAIRMAN WILLIAMSON: All right. Any 22 comments? 23 COMM. EDWARDS: No. 24 CHAIRMAN WILLIAMSON: Is there a motion? 25 COMM. KRAUSE: I make a motion that we 22 1 adopt the proposed amendments to 16 TAC Section 402.404 2 pertaining to license and registry fees. 3 CHAIRMAN WILLIAMSON: Is there a second? 4 COMM. EDWARDS: Second. 5 CHAIRMAN WILLIAMSON: All in favor? 6 (All those voting in favor so responded) 7 CHAIRMAN WILLIAMSON: Motion passes 8 three/zero. 9 Thank you. 10 MR. BIARD: Thank you, Commissioners. I 11 have an order for you to sign. 12 AGENDA ITEM NO. VI 13 CHAIRMAN WILLIAMSON: Okay. The next item 14 is report, possible discussion and/or action on the 15 request for finding of fact for Rider 14 contingent 16 revenue bingo law compliance field operations, 83rd 17 Legislature regular session. 18 Kathy? 19 MS. PYKA: Thank you, Madam Chair. Again 20 for the record, my name times Kathy Pyka, Controller for 21 the Lottery Commission. 22 Commissioners, this morning I'm seeking 23 your approval to submit a finding of fact from the 24 Comptroller for the bingo contingency appropriation. As 25 James mentioned, Article 7, Rider 14 of the General 23 1 Appropriations Act provides for contingency 2 appropriation to increase funding in the bingo 3 compliance field operations department to restore the 4 FTEs within that department by 14 positions. 5 The contingency appropriation is subject 6 to the Commission assessing or increasing fees 7 sufficient to generate $1,563,912 in excess of the fees 8 outlined within Object Code 3152 of the biennial revenue 9 estimate. 10 And the Commission is also required to 11 obtain a finding of fact from the Comptroller of Public 12 Accounts. To obtain the finding of fact from the 13 Comptroller, the Commission is required to furnish 14 copies of the Commission minutes and other information 15 to support these revenue collections. 16 Commissioners, bingo fees collected 17 presently, as well as new fees projected for collection 18 in the '14 and '15 biennium under Object Code 3152, are 19 anticipated to generate $7,501,321. Based on the fee 20 projection developed by the Office of the Comptroller, 21 it's expected that sufficient revenue will be collected 22 in excess of the BRE amount of $5,913,000 to meet the 23 revenue targets outlined in Rider 14. 24 Specifically, the excess collections are 25 for the bingo rule amendments that you just adopted this 24 1 morning that impose a new fee on bingo worker registry 2 applications, as well as increases to fees for licenses 3 to conduct bingo and commercial licenses to leased bingo 4 premises. It is recommended that the Commission request 5 a finding of fact from the Comptroller of Public 6 Accounts, based on the bingo fee revenue projection. 7 Commissioners, a copy of the proposed 8 letter to the Comptroller is included in your notebook. 9 If the Comptroller finds sufficient evidence to support 10 this increased fee projection, the Commission will be 11 appropriated an additional $612,000 for -- $612,438 as 12 well as 14 FTEs in each year of the next biennium. 13 Commissioners, I'd be happy to answer any 14 questions that you might have on this item. 15 CHAIRMAN WILLIAMSON: Thank you, Kathy. 16 Commissioners, do you have any questions? 17 COMM. KRAUSE: Does this take a 18 resolution -- 19 MR. BIARD: Yeah, you just need to vote on 20 the record. There's nothing to sign. 21 CHAIRMAN WILLIAMSON: Oh, okay. So just a 22 motion. 23 COMM. KRAUSE: I make a motion that we 24 request a finding of fact from the Comptroller of Public 25 Accounts pertaining to the matter described in the 25 1 agenda. 2 CHAIRMAN WILLIAMSON: Is there a second? 3 COMM. EDWARDS: Second. 4 CHAIRMAN WILLIAMSON: All in favor? 5 (All those voting in favor so responded) 6 CHAIRMAN WILLIAMSON: Motion passes -- 7 MS. PYKA: Thank you, Commissioners. 8 CHAIRMAN WILLIAMSON: -- three-zero. 9 AGENDA ITEM NO. VII 10 CHAIRMAN WILLIAMSON: All right. Item 7. 11 Bob? 12 MR. BIARD: Good morning, Commissioners. 13 For the record, I'm Bob Biard, General Counsel. 14 With your permission, staff would like to 15 pass this item. This is the Golden Belle bingo 16 enforcement case. It was litigated at the State Office 17 of Administrative Hearings. The Respondents have 18 approached the staff about settling the case, so we're 19 in the process of trying to resolve this matter through 20 agreed orders with the bingo hall owner and the 21 charities that were involved. We were hoping to bring 22 you agreed orders today, but they're not quite ready 23 yet. So we'd like to continue to work on settling this 24 matter and, hopefully, bring you back agreed orders at a 25 future Commission meeting. So with your permission, 26 1 we'd like to pass this item. 2 CHAIRMAN WILLIAMSON: Okay. I'm fine. 3 Commissioners, do you have any objections? 4 COMM. EDWARDS: No. 5 CHAIRMAN WILLIAMSON: Okay. That's fine. 6 AGENDA ITEM NO. VIII 7 CHAIRMAN WILLIAMSON: All right. The next 8 item is the consideration of and possible discussion 9 and/or action on external and internal audits and/or 10 reviews relating to the Texas Lottery Commission and/or 11 on the Internal Audit Division's activities. 12 Catherine? 13 MS. MELVIN: Thank you, Commissioners. 14 For the record, Catherine Melvin, Director of the 15 Internal Audit Division. This morning I have no 16 specific items to update. 17 CHAIRMAN WILLIAMSON: All right. Thank 18 you. 19 AGENDA ITEM NO. IX 20 CHAIRMAN WILLIAMSON: All right. The next 21 item is report, possible discussion and/or action on 22 GTECH Corporation. 23 Gary, this is your item. 24 MR. GRIEF: Commissioners, I have nothing 25 further to report other than what's in your notebook. 27 1 CHAIRMAN WILLIAMSON: All right. Does 2 anybody from GTECH want to share anything with us today? 3 (No response) 4 AGENDA ITEM NO. X 5 CHAIRMAN WILLIAMSON: Okay. The next item 6 is report by the Executive Director and/or possible 7 discussion and/or action on the agency's operational 8 status, agency procedures, awards and FTE status. 9 Gary? 10 MR. GRIEF: Commissioners, I do have a few 11 items to share with you other than what's in your 12 notebook on this item. Last month I reported to you on 13 the Texas Lottery's application for membership into the 14 Powerball group of the Multi-State Lottery Association 15 or MUSL as it's known. The MUSL vote on the Texas 16 application did occur in Seattle two weeks ago at the 17 North American Association of State Lotteries -- or 18 NASPL, as it's known -- annual spring directors' 19 meeting. With the vote being very positive, 28 to 5 in 20 favor of allowing Texas membership into both MUSL and 21 Powerball. That would make Texas the first and the only 22 state lottery to be a voting member of both multistate 23 game groups, Mega Millions and Powerball. 24 But that said, there is still one 25 outstanding issue regarding our membership invitation, 28 1 and I detailed that in a letter to MUSL, which you 2 should have a copy of in front of you this morning. 3 This issue involves some past litigation that MUSL was 4 involved in, in which a financial agreement was reached 5 between the parties and in which Texas was not a party 6 to, but which MUSL initially indicated a desire for 7 Texas to share in that expense. I believe I'm making 8 good progress at negotiating that issue out of the 9 invitation to join MUSL, and I will keep you apprised as 10 the developments unfold in that. 11 Regarding All Or Nothing, you heard 12 earlier today in the testimony that the suspension of 13 sales for the All Or Nothing Game continues as we work 14 through the rulemaking process to make the needed 15 modifications to that game. Necessary software changes 16 to the system are being worked on by GTECH as we speak, 17 and all the other steps necessary to relaunch that game 18 will be complete and ready when the Commission considers 19 that rule change for adoption in the August meeting. 20 If that vote were to occur and you were to 21 adopt a revised rule change for All Or Nothing, we'll be 22 ready to resume sales for that game shortly thereafter. 23 Although the suspension of sales for the All Or Nothing 24 Game was very unfortunate and we hated to see that 25 occur, I am extremely confident that the Texas Lottery 29 1 will nevertheless reach an all-time sales record when we 2 close the books on this fiscal year August 31st. 3 Also I want to make you aware of an 4 industry development in the State of New Jersey. The 5 New Jersey lottery, like Texas, is one of the more 6 successful lotteries in the country. That said, two 7 weeks ago, the New Jersey lottery signed a 15-year 8 multi-million-dollar contract with North Star, which is 9 primarily a GTECH controlled entity, for the outsourcing 10 of several of their lottery functions that had 11 previously been performed in-house, including the field 12 sales and marketing function. 13 This new management structure in 14 New Jersey is remarkably similar to the Texas model, 15 which demonstrates, in my opinion, once again that our 16 approach here in Texas, which involves outsourcing all 17 those functions better suited to be performed by the 18 private sector, is the most efficient and effective 19 approach, and one that enables a state lottery to 20 generate the maximum amount of revenue. 21 And finally I want to update you on a 22 couple of industry developments and events. Also 23 occurring in Seattle two weeks ago at the NASPL spring 24 directors' conference, my term as lead director for the 25 Mega Millions consortium came to an end. I served in 30 1 that capacity for the last two years, and my colleague 2 in Virginia, Paula Otto, has assumed that role. 3 In October, I'll be taking over as 4 president of the NASPL organization. My term will begin 5 at the annual NASPL conference occurring this year in 6 Providence, Rhode Island on October 1st through the 4th. 7 The NASPL organization includes all 43 US 8 state lotteries, the Ontario, Atlantic, British 9 Columbia, Quebec and Western Canada lotteries, Loteria 10 Nacional in Mexico, the Puerto Rico and the Virgin 11 Islands lotteries. It will be an honor for me to serve 12 in that capacity, and I believe it shows very well for 13 the amount of respect that the Texas Lottery has in our 14 industry. 15 I visited with each of you individually 16 about that conference in Rhode Island. It is the 17 premier lottery conference in the industry, and I think 18 it's a wonderful opportunity for commissioners to gain a 19 deeper and better understanding of the lottery industry. 20 You should have a handout in front of you 21 this morning that gives you more details about that 22 conference, and I would invite each of you to attend, 23 schedules permitting. 24 And, Madam Chair, that concludes my report 25 this morning. I'd be happy to answer any questions. 31 1 CHAIRMAN WILLIAMSON: All right. Thank 2 you. 3 Commissioners, do you have any questions 4 or comments? 5 COMM. EDWARDS: Congratulations, Gary. 6 MR. GRIEF: Thank you. 7 CHAIRMAN WILLIAMSON: Right. And all the 8 people that support you, because, as we know, you 9 wouldn't be where you are without them. 10 MR. GRIEF: Absolutely. 11 AGENDA ITEM NO. XI 12 CHAIRMAN WILLIAMSON: All right. Let's go 13 on to the -- thank you. 14 The next item is a report by the 15 Charitable Bingo Operations director and possible 16 discussion and/or action on the Charitable Bingo 17 Operations Division's activities, including updates on 18 licensing, accounting, and audit activities, pull-tab 19 review and special projects. 20 Sandy? 21 MS. JOSEPH: Good morning, Commissioners. 22 In addition to what's in your notebook, I'd like to just 23 briefly describe some of the other things that bingo is 24 currently heavily involved in. 25 First of all, regarding the Automated 32 1 Charitable Bingo System redesign, the statement of work 2 for procurement has been completed, and it's expected to 3 be issued on August 5th for work to begin September 1st 4 on that project. 5 Legislative implementation, we're working 6 on approximately a dozen rules right now to implement 7 provisions of HB2197. Those are required by the statute 8 to be in effect by January 1st, so we're planning to 9 bring a batch of rules to you in the September meeting. 10 In addition, we're working on a rule to 11 clarify and help implement the provisions of HB394. 12 That was the statute which exempts bingo games that 13 award prizes of less than $50 from the $2500 cap. That 14 statute is currently in effect. We're advising folks, 15 since we do not yet have a formal guidance for them, 16 that they need to maintain records to support and show 17 what they're doing as far as playing any of those games 18 of $50 or less. But we will be providing more specific 19 guidance to them soon. 20 Furthermore, we are in the process of -- 21 beginning the hiring process for those 14 additional 22 staff members, hopefully to begin work September 1st or 23 shortly thereafter. 24 We're continuing to work on our scanning 25 project where we're going to scan all of our existing 33 1 files in the file room, get rid of those old paper 2 files, as well as scan incoming documents, moving toward 3 becoming paperless eventually. 4 And finally I wanted to mention that we 5 did conduct another on-site training here in Austin on 6 Monday. 22 people signed up. We were very excited 7 about that. Seven showed up. So we were a little 8 disappointed about that, but they all were very 9 appreciative of that training. 10 And Bruce Miner conducted that training. 11 I would like to mention -- I don't think Bruce is in 12 here -- but that will be the last training he conducts 13 for us because he is planning -- has given notice of his 14 retirement. July 26 will be his last day. We'll be 15 losing 20 years of experience here with the Bingo 16 Division in losing Bruce. So that's going to be a gap, 17 but we're -- we'll meet the task. 18 So with that, that's some of what we're 19 working on, and appreciate all the other divisions' 20 support as we work through all these projects. 21 CHAIRMAN WILLIAMSON: Thank you. 22 Commissioners, do you have any components 23 or questions? 24 COMM. EDWARDS: No. 25 COMM. KRAUSE: Welt, you know, Sandy when 34 1 we hired you, you know, we didn't think this was going 2 to be an easy job. And so, you know, I frankly thought 3 it would be like the Sisyphus, you know, the legendary 4 Greek who rolled the stone up the hill, only to have it 5 roll back down. But apparently you have figured out a 6 way to keep that from happening. So I want to tell you 7 you've done a good job. 8 MS. JOSEPH: Well, thank you. We're 9 working at it. 10 CHAIRMAN WILLIAMSON: What's the 11 anticipated time line on the software implementation and 12 upgrade? 13 MS. JOSEPH: For the scanning project? 14 CHAIRMAN WILLIAMSON: No, for the -- 15 MS. JOSEPH: Oh, ACBS? 16 CHAIRMAN WILLIAMSON: Yes. 17 MS. JOSEPH: My understanding in working 18 with Joan Kotal and her staff, the plan is to -- first 19 we're going to contract with somebody to come in and do 20 a plan, an assessment, work very closely with our staff 21 on what we need. It's felt that's very important -- an 22 important step to get down very clearly what we want, 23 how it's going to work, all that. So that is 24 anticipated to take -- take perhaps as much as a year. 25 The second phase will be implementation of 35 1 that plan and putting that into place and testing it. 2 So, of course, we have two years to get it done. We're 3 hoping -- you know, we're going to get it done within 4 two years and, hopefully, a little bit sooner. But we 5 want to be very careful in the design of it. 6 CHAIRMAN WILLIAMSON: Yes, I would 7 encourage you to get it implemented as efficiently but 8 as quickly as you can. 9 MS. JOSEPH: Yeah. Well, we're, of 10 course, very anxious to do so. 11 CHAIRMAN WILLIAMSON: I think it will be a 12 benefit for the agency as well as our bingo charitable 13 people that participate, so I'm looking forward to that. 14 MS. JOSEPH: You'll be hearing about it. 15 CHAIRMAN WILLIAMSON: Great. And I know 16 you've got a lot on your plate right now and you're -- 17 y'all are going to be very busy for the next few months. 18 MS. JOSEPH: Well, thank you. And I want 19 to say I am enjoying it. I like problem solving. I'm 20 just a little nervous that, you know, I may drop the 21 ball somewhere, but I'm doing my best not to. 22 CHAIRMAN WILLIAMSON: Well, I'm sure 23 someone around you will let you know if you do. 24 MS. JOSEPH: I'm sure. 25 (Laughter) 36 1 CHAIRMAN WILLIAMSON: And I see Bruce is 2 hiding out in the hallway and he's waving at me on the 3 camera. 4 You will be missed. And we understand, 5 though, why you're leaving, but you will be missed. 6 AGENDA ITEM NO. XII 7 CHAIRMAN WILLIAMSON: All right. The next 8 item is consideration of the status and possible entry 9 of orders in cases posted on the Open Meeting's agenda. 10 Bob? 11 MR. BIARD: Thank you, Commissioners. We 12 have five enforcement cases today. Tabs A through D are 13 lottery retailer revocations I'd like to take up 14 together. Tab E is a lottery agreed order involving a 15 licensed retailer. 16 Tabs A through D are license revocations. 17 These cases were presented at the State Office of 18 Administrative Hearings for revocation on the grounds 19 the licensee failed to have sufficient funds available 20 to cover electronic fund transfers to the Lottery 21 Commission's account. 22 The SOAH Administrative Law Judge 23 recommends revocation in each of these cases, and staff 24 recommends that you vote to approve the order in each 25 case revoking the license. If you approve, I have a 37 1 single mass order that covers all of these cases. 2 CHAIRMAN WILLIAMSON: All right. 3 Commissioners, do you have any questions? 4 COMM. EDWARDS: No. 5 CHAIRMAN WILLIAMSON: Is there a motion? 6 COMM. KRAUSE: I make a motion that we 7 adopt -- I make a motion that we adopt the staff 8 recommendation for the orders presented -- proposed 9 orders presented in Items A through E of the Agenda Item 10 No. XII. 11 CHAIRMAN WILLIAMSON: Okay. 12 MR. BIARD: This is just A through D. It 13 just covers the -- 14 COMM. KRAUSE: Okay, A through D. I meant 15 that, A through D. 16 CHAIRMAN WILLIAMSON: All right. Is there 17 a second? 18 COMM. EDWARDS: I second. 19 CHAIRMAN WILLIAMSON: All in favor? 20 (All those voting in favor so responded) 21 CHAIRMAN WILLIAMSON: Motion passes 22 three-zero. 23 MR. BIARD: Thank you, Commissioners. 24 Tab E is an agreed order with lottery 25 licensee Get N Go. Get N Go submitted an application 38 1 for retail license in 2012 and failed to notify the 2 Commission that one of its officers was convicted in 3 2005 of unlawful use of food stamps, which is a crime of 4 moral turpitude, and was fined and sentenced to one-day 5 confinement. 6 Due to this conviction and because 10 7 years haven't passed since determination of this 8 sentence, Get N Go is not eligible to hold a retailer 9 sales agent's license. However, the parties -- the 10 Commission and the retailer have entered into a consent 11 order, and the officer has been removed from his 12 position and any control of this organization in lieu of 13 revocation of the retailer's license. 14 And staff recommends that you approve the 15 agreed order. 16 CHAIRMAN WILLIAMSON: All right. Is there 17 any questions or comments? 18 COMM. EDWARDS: No. 19 CHAIRMAN WILLIAMSON: A motion, please? 20 COMM. KRAUSE: I make a motion that we 21 approve the agreed order in this case. 22 CHAIRMAN WILLIAMSON: Is there a second? 23 COMM. EDWARDS: Second. 24 CHAIRMAN WILLIAMSON: All in favor? 25 (All those voting in favor so responded) 39 1 CHAIRMAN WILLIAMSON: Motion passes 2 three-zero. 3 MR. BIARD: Thank you, Commissioners. 4 AGENDA ITEM NO. XIII 5 CHAIRMAN WILLIAMSON: All right. The next 6 item is public comments, and we have no public comments. 7 AGENDA ITEM NO. XIV 8 CHAIRMAN WILLIAMSON: So at this time I 9 move the Texas Lottery Commission go into Executive 10 Session to deliberate personnel matters, including the 11 appointment, employment, evaluation, reassignment 12 duties, discipline or dismissal of the Executive 13 Director, the Charitable Bingo Operations Director 14 and/or the Internal Audit Director pursuant to Section 15 551.074 of the Texas Government Code; to deliberate the 16 duties of the General Counsel and our Human Resources 17 Director pursuant to Section 551.074 of the Texas 18 Government Code; and to receive legal advice regarding 19 any pending or contemplated litigation, settlement 20 offers, pursuant to Section 551.071n(1)(a) and (b) and 21 pursuant to Section 551.071(2) of the Texas Government 22 Code, including but not limited to those items posted on 23 the Open Meetings notice for purposes of receiving legal 24 advice. 25 Is there a second? 40 1 COMM. EDWARDS: Second. 2 CHAIRMAN WILLIAMSON: All in favor? 3 (All those voting in favor so responded) 4 CHAIRMAN WILLIAMSON: The vote is 5 three-zero. The Lottery Commission will go into 6 Executive Session. The time is 10:42 a.m. and today is 7 January (sic) 11, 2013, and we'll take a 15-minute break 8 before we start. 9 (Recess: 10:42 a.m. to 11:40 a.m.) 10 AGENDA ITEM NO. XV 11 CHAIRMAN WILLIAMSON: The Texas Lottery 12 Commission is out of Executive Session. The time is 13 11:40 a.m., and there is an action as a result of the 14 Executive Session. 15 Winston? 16 COMM. KRAUSE: I make a motion that we 17 accept the resignation of Catherine Melvin effective 18 August the 1st and authorize the Chairman to handle all 19 transitional matters relating to the internal audit 20 position. 21 COMM. EDWARDS: I second. 22 CHAIRMAN WILLIAMSON: Is there -- well, 23 you second. 24 All right. All in favor? 25 (Those voting in favor so responded) 41 1 CHAIRMAN WILLIAMSON: The motion passes 2 three-zero. 3 And good luck in the future, Cathy. 4 MS. MELVIN: Thank you very much, 5 Commissioners. 6 AGENDA ITEM NO. XVI 7 CHAIRMAN WILLIAMSON: And that is our only 8 item, so is there a motion to adjourn? 9 COMM. EDWARDS: I motion to adjourn. 10 CHAIRMAN WILLIAMSON: Is there a second? 11 COMM. KRAUSE: I'll think about seconding 12 that. 13 CHAIRMAN WILLIAMSON: All in favor? 14 (All those voting in favor so responded) 15 CHAIRMAN WILLIAMSON: Motion passes 16 three-zero. 17 (Proceedings concluded at 11:41 p.m.) 18 19 20 21 22 23 24 25 42 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Lou Ray, Certified Shorthand Reporter in and 5 for the State of Texas, do hereby certify that the 6 above-mentioned matter occurred as hereinbefore set out. 7 I FURTHER CERTIFY THAT the proceedings of such 8 were reported by me or under my supervision, later 9 reduced to typewritten form under my supervision and 10 control and that the foregoing pages are a full, true, 11 and correct transcription of the original notes. 12 IN WITNESS WHEREOF, I have hereunto set my hand 13 and seal this 19th day of July 2013. 14 15 _______________________________ 16 LOU RAY 17 Certified Shorthand Reporter CSR No. 1791 - Expires 12/31/13 18 Firm Registration No. 276 19 Kennedy Reporting Service, Inc. 1016 La Posada Drive, Suite 294 20 Austin, Texas 78752 512.474.2233 21 22 23 24 Job No. 111107 25