1 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 7 8 IN THE MATTER OF: ) PROPOSED AMENDMENTS TO 16 ) 9 TAC 402.404 ) 10 11 12 13 PUBLIC COMMENT HEARING 14 Wednesday, May 29, 2013 15 16 17 18 BE IT REMEMBERED THAT at 10:02 a.m., on 19 Wednesday, the 29th day of May 2013, the above-entitled 20 matter came on for hearing at the Texas Lottery 21 Commission, 611 E. Sixth Street, Commission Auditorium, 22 Austin, Texas, before JAMES PERSON, and the following 23 proceedings were reported via machine shorthand by Lou 24 Ray, Certified Shorthand Reporter. 25 2 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS, WEDNESDAY, MAY 29, 2013 3 4 COMMENTS BY PHILIP SANDERSON 4 5 COMMENTS BY PAUL MELTON 6 6 COMMENTS BY WILLIAM CULVER 11 7 COMMENTS BY STEPHEN FENOGLIO 12 8 PROCEEDINGS CONCLUDED 15 9 REPORTER'S CERTIFICATE 16 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 P R O C E E D I N G S 2 WEDNESDAY, MAY 29, 2013 3 (10:02 a.m.) 4 MR. PERSON: I guess we can go ahead and 5 get started. For the record, my name is James Person. 6 I'm an assistant general counsel here at the Lottery 7 Commission. With me is Sandra Joseph, the director of 8 the Charitable Bingo Operations Division. The time is 9 10:02 on May 29, 2013. 10 The purpose of this hearing is to receive 11 public comments on the proposed amendments to Section 12 402.404, Title 16 of the Administrative Code. Those 13 amendments would impose a new fee for bingo worker 14 registration applications and renewals, and would also 15 increase the fees for licenses to conduct bingo and 16 commercial licenses for leasing bingo premises. 17 The proposed amendments and notice of this 18 hearing were published in the May 24th, 2013 issue of 19 the Texas Register on Page 3235, and also on the 20 Commission's website. The Commission voted to propose 21 these amendments at a public meeting held on May 7th of 22 this year. 23 So far I have three witness affirmation 24 forms. If anyone has not turned in a form and wishes to 25 speak today, please turn in that form now. And with 4 1 that, I'd like to call Philip Sanderson to offer his 2 comments on the proposed amendments. 3 COMMENTS BY MR. SANDERSON 4 MR. SANDERSON: Good morning. Philip 5 Sanderson, Director of Governmental Relations, Texas 6 Charity Advocates, representing Texas Charity Advocates. 7 I'm here today to offer public comment on the proposed 8 rule for the license fee increase to cover the cost of 9 appropriation. Some of the testimony was made at the 10 Commission meeting before, but I'll try to repeat some 11 of that just for the public comment period. 12 I think that the rule is premature. 13 There's too many variables that have changed since the 14 rule was published, and you're going to have to go in 15 and make some changes to this to remove some sections of 16 the rule because it's no longer applicable. There's 17 also some discussion about what the code for the 18 Comptroller's accounts would be used to calculate the 19 necessary funds to cover this cost of the fee increase. 20 There's a section -- subsection of 21 Paragraph E where it talks about a two-year license. 22 The statute, of course, will be, upon signage of the -- 23 or passage of the House Bill 2197 sunset -- 24 organizations are no longer able to pay for a two-year 25 license fee in one-year increments. They have to pay 5 1 for the complete two years up front. So I don't know 2 if -- I haven't done the legal analysis -- I'm not an 3 attorney; I will leave that up to you -- but I'm not 4 sure if through a rule you can require an organization 5 to pay for an increased license during the second year 6 of the two-year license that they've already paid for a 7 two-year license. 8 So, for example, if you paid the $5,000 9 for a Class J license on August the 15th of 2013, that 10 license would be good until August the 12th of 2015. 11 And I don't know if on August the 13th of 2014 you can 12 assess them an increased license fee. So that is 13 something that may need to be looked at to see if it 14 might cause some different calculations. 15 I also believe that a 32 percent increase 16 across the board is a little high. It would -- based on 17 current licensees, it would capture almost 850 to 18 900,000 a year additional income; whereas, the -- all 19 that's needed is around 775,000. 20 I would request that during the comment 21 period that staff work with the industry and try to come 22 up with a -- hopefully, a little bit lesser calculation 23 than 32 percent. I would also like to see a provision 24 in here that would allow for a one-year renewable -- 25 one-year period to look at where we are a year from now 6 1 to see if the collections are higher than expected or 2 lower than expected. And if they are higher than 3 expected, look at making adjustments for the second year 4 of the biennium to potentially offer a credit if an 5 organization did overpay on an annual license. 6 Additionally, I'd like to see a provision 7 in here that this increase would expire in two years on 8 August 31, 2015, hopefully pending some legislation in 9 the 2015 Legislature that would allow for the current 10 fees, today's fees that are collected, which are 11 sufficient along with rental tax to cover the 12 appropriation and not have to continue with this license 13 increase. 14 That's all the comments I have, and I'll 15 be glad to answer any questions. 16 I'm not used to seeing Sandy on that side 17 over there. She's usually in the middle. 18 MS. JOSEPH: I thought about it. 19 MR. PERSON: Thank you for your comments. 20 MR. SANDERSON: Thank you. 21 MR. PERSON: Next we'll call Paul Melton. 22 COMMENTS BY PAUL MELTON 23 MR. MELTON: Good morning, ladies and 24 gentlemen. My name is Paul Melton. I'm the President 25 of the Board of Directors of the Veterans of Foreign 7 1 Wars Department of Texas, here today speaking on behalf 2 of the VFW of Texas. 3 VFW is the oldest major service 4 organization in the United States. The mission of the 5 VFW is to support and assist veterans and their families 6 through charitable enterprises. We have 2.4 million 7 members in the United States and 8500 posts. And in 8 Texas we serve 82,000 members and their families through 9 348 local posts from one end of the state to the other. 10 And you know those geographical limits. 11 I'd like to comment today on a couple of 12 things about the increased license fee. Increasing the 13 license fees for the post creates a hardship for many of 14 my folks in smaller operations. I generally speak a 15 little more extemporaneously, but because of the nature 16 of this research and staffers and counsel have put 17 together some rather detailed findings that we consulted 18 on, I'm going to be reading a little more than I 19 normally would. Feel free to question me at any point. 20 The House appropriations act has been 21 finalized. We know there's not a compelling need to 22 license -- increase license fees in order to fund 23 redesign of the automated charitable bingo system. As 24 such, we are requesting the Commission not to go forward 25 with the proposed license fee increase intended for this 8 1 purpose. 2 House Bill 2197 of the 83rd legislature, 3 regular session, not yet signed by the governor, 4 authorized the Texas Lottery Commission to impose a 5 bingo worker registration application fee under the 6 bingo enabling act. The proposed rule amendment 7 includes a $25 bingo worker application fee. What HB 8 2197 also authorizes the Commission to establish by rule 9 is license fees for manufacturers and distributors in an 10 amount necessary to defray administrative costs. 11 The VFW requests the license fee rule 12 amendments include license fee increases for 13 manufacturers and distributors. We think all license 14 categories should share in the cost to fund the 15 regulation and administration of bingo. 16 Informal contacts with the suppliers, we 17 have had conversations with two other manufacturers and 18 distributors who have indicated no resistance on their 19 part to this increase. They understand it's part of the 20 business. 21 Currently license fees for manufacturers 22 of 3,000 and 1,000 for a distributor, we think 10,000 23 for each license category is appropriate. There are 18 24 licensed manufacturers and 17 distributors in the state 25 currently. The revenue generated for each year of the 9 1 biennium would be $279,000, which we suggest, and for 2 biennium $558,000, roughly a third of these monies we 3 think need to be raised. 4 We understand that the rider requiring the 5 Commission to generate the revenue is tied to the 6 Comptroller's revenue code, 31.52, which addresses 7 conductor and lessor fees, but not manufacturer and 8 distribution fees or bingo worker registration fee is 9 not included also. And that's the articulated reason 10 why manufacturers and distributors were not included in 11 this rulemaking. 12 As I understand it, a meeting occurred 13 yesterday afternoon. I believe some of you were in 14 attendance at -- with the Comptroller's staff regarding 15 the object codes 31.52 and 53, bingo equipment, which 16 addresses manufacturers' and distributors' license fees. 17 VFW believes that having one object code for all license 18 categories is a more efficient approach and works to 19 create parity among the different categories to show the 20 cost of regulating bingo in Texas. We appreciate the 21 lottery staff attending that meeting. 22 It's my understanding that the 23 Comptroller's office does not think combining these 24 object codes is possible at this time. While we respect 25 the position, the VFW would like to request the 10 1 Commission to work with the Comptroller to combine the 2 object codes 31.52 and 31.53 so manufacturers, 3 distributors and bingo workers would be included in this 4 increase. 5 Additionally, the VFW requests the rule 6 include a requirement that should the license fees 7 collected for the first year of '14-15 biennium generate 8 more revenue than what is actually needed to regulate 9 bingo, the Commission would apply a credit to each 10 license holder for the license fee for the second year 11 of that biennium. We feel like this is a reasonable 12 request if we do run over the fees. 13 Finally, since the rulemaking is tied to 14 the 2014 and '15 general appropriations act, we request 15 that the rule include a provision that reverses all 16 license fees to current fees effective September 1, 17 2015. If the '16-17 general appropriations act includes 18 a rider similar to the rider causing this rulemaking, 19 the rulemaking can occur again in 2015 after the 84th 20 Legislation session. 21 We appreciate the opportunity to provide 22 comments on this rulemaking. Thank you for letting me 23 speak today. I look forward to working with the 24 Commission on this matter and other matters that impact 25 the VFW's charitable bingo fund raising activities. And 11 1 I'm happy to answer whatever questions you may have. 2 MR. PERSON: Thank you for your comments. 3 MR. MELTON: Thank you very much. 4 MR. PERSON: William Culver? 5 COMMENTS BY WILLIAM CULVER 6 MR. CULVER: Ladies and gentlemen, my name 7 is William Culver. I'm bingo chairman of the Fraternal 8 Order of the Eagles, Brazosport Area, No. 3111 out of 9 Freeport, Texas. 10 I really admire Paul's address here to 11 you. I think I could go ahead and -- with the bingo 12 work. We could possibly manage the increase a little 13 bit. But the $25, all my bingo workers are volunteers. 14 And you're going to charge them $25 to volunteer? It's 15 hard to have -- to get my volunteers and maintain a 16 working force to conduct bingo. I cannot have the 17 workers -- I'll have to close my doors, and I'm just one 18 of many that may have to do that. 19 So I'd like for you to consider real hard 20 on that fee for application for the bingo workers, 21 because a lot of these bingo places, they pay their 22 workers. We don't. Everybody there is a volunteer. 23 And to ask them for $25 just to volunteer, you know, 24 they're not going -- they're not going to do it. And if 25 I don't have the workers, I'm going to have to shut 12 1 down. That's -- if I have to shut down, I'm sure other 2 people are going to be in the same situation I'm going 3 to be in. And whatever we're paying in our taxes and 4 fees will be lost to the Commission. 5 We're all in it together. So if you 6 would, keep us in your heart. I thank you. 7 MR. PERSON: Thank you for coming in. 8 MR. CULVER: Questions? 9 MR. PERSON: No, I don't believe so. 10 MR. CULVER: Very good. 11 MR. PERSON: Go ahead. 12 COMMENTS OF STEPHEN FENOGLIO 13 MR. FENOGLIO: Thank you. For the record, 14 my name is Stephen Fenoglio. I'm here wearing several 15 hats. I represent the charities at River City Bingo in 16 Austin, Texas. I'm a board member of the Texas Charity 17 Advocates. And I also represent K&B Sales, Inc., d/b/a 18 Good Time Action Games. 19 First and foremost, it's not fair. Why 20 would you exempt manufacturers and distributors? And 21 that was a comment I made at the Commission. And I 22 understand one of the comments by staff was, well, 23 they're not covered in the code, the Comptroller code. 24 Well, neither are the workers, but you've thrown them 25 in. So why would you not include manufacturers and 13 1 distributors? 2 The distributors I've spoken with are -- 3 and, of course, the statute for the lottery sunset bill 4 gives you the authority now to raise the license fee for 5 manufacturers and distributors, which was not opposed, 6 to cover the cost of licensing. The distributors I've 7 spoken with are comfortable going from $1,000 a year to 8 license fee to 10,000. We suggest the same number for 9 manufacturers. 10 By my numbers, that's not an 11 inconsequential sum. Currently there are 16 12 distributors at a thousand dollars each. If you go to 13 10,000 that would be 160. The delta or the difference 14 is 144,000. 15 Manufacturers, there are currently 18. At 16 3,000 each raises 54. If you go to 10, it's 180. The 17 delta is 126. That's $270,000. If you don't think 18 that's much, take it out of your budget. It is a lot. 19 They should be part of the license fee. 20 It's not fair for the charities -- and by the way, the 21 charities will pay the lion's share of this because 22 there are more charities than any other license class. 23 I want to put on the record what I think everyone in the 24 room knows is the rule proposal has a 57 percent 25 increase. But there's also language that you'll reflect 14 1 what the appropriations process gave you, which my 2 understanding is about 27 percent license fee increase. 3 So we do oppose any overrecovery. I agree 4 with Phil's comment about after the first year, look at 5 it. If you're overrecovering, lower your license fee -- 6 if you feel like you have to have a license fee 7 increase -- so you don't overrecover. 8 And some history on that. In the preamble 9 of the rule there's a discussion about the need for the 10 improvement to the ACBS system. Sandy wasn't here and I 11 don't think -- I know Bruce Miner was here at the time, 12 who happens to be in the room. Nelda was here. The 13 industry paid for that, and charities paid for about 14 80 percent of the original redesign of the ACBS system. 15 Here we go again, paying for it again. 16 And I say that -- I did a total of the total price fees 17 that my clients -- and I represent a number of other 18 charities -- paid to the state. And according to my 19 records it's $642 million has been paid in license fees 20 to the state and local governments. State and local 21 governments don't do anything to collect that money. 22 They don't do anything to earn it. But we collected it 23 for them. It's our employees who collect it. It's our 24 employees who process the paperwork, file it with the 25 Lottery Commission and pay it to the Comptroller. 15 1 So we're sort of partners, but we aren't. 2 Partners in the sense that the state and local 3 governments make out -- make a profit from bingo and 4 many years collectively they made more than the 5 charities make. 6 So, number one, put it on all license 7 classes; number two, reconsider after the year is over. 8 And also in the rule -- and again I understand that a 9 part of the rule discussion is no longer active in the 10 sense that some of the appropriations of an agency will 11 take, not from additional license fees, but was given, 12 courtesy of the Legislature, money we paid -- the 13 industry collected and paid to the state. 14 But there's a reference in the rule that 15 part of the license fee increase will be made permanent. 16 We obviously don't want that to happen. 17 I'll be happy to answer any questions. 18 MR. PERSON: Thank you for coming. 19 That's all the witness affirmation forms I 20 have right now. Is there anyone else who wishes to 21 speak? 22 Okay. I'd like to thank everybody for 23 attending today's hearing. And with that, we stand 24 adjourned. 25 (Proceedings concluded at 10:18 a.m.) 16 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 31st day of May 2013. 14 15 _______________________________ LOU RAY 16 Certified Shorthand Reporter CSR No. 1791 - Expires 12/31/13 17 Firm Registration No. 276 18 Kennedy Reporting Service, Inc. 1016 La Posada Drive, Suite 294 19 Austin, Texas 78752 512.474.2233 20 21 22 23 24 Job No. 109716 25