1 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 7 8 IN RE: ) PROPOSED BINGO RULES ) 9 10 11 12 13 PUBLIC COMMENT HEARING 14 Wednesday, October 16, 2013 15 16 17 18 BE IT REMEMBERED THAT at 10:00 a.m., on 19 Wednesday, the 16th day of October 2013, the 20 above-entitled matter came on for hearing at the Texas 21 Lottery Commission, 611 E. Sixth Street, Commission 22 Auditorium, Austin, Texas, and the following proceedings 23 were reported via machine shorthand by Autumn J. Smith, 24 Certified Shorthand Reporter. 25 2 1 I N D E X 2 PAGE 3 Proceedings, Wednesday, October 16, 2013 3 4 Comments by Mr. Bunkley 4 5 Comments by Mr. Sanderson 9 6 Comments by Ms. Ives 15 7 Comments by Mr. Bresnen 16 8 Comments by Ms. Kiplin 25 9 Comments by Mr. McTavish 34 10 Comments by Mr. Barnstone 36 11 Attachments A and B Included 39 12 Court Reporter's Certificate 40 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, OCTOBER 16, 2013 3 (10:00 a.m.) 4 MR. PERSON: For the record, my name is 5 James Person. I'm the assistant general counsel here at 6 the Lottery Commission. With me is Sandra Joseph, 7 Director of the General Bingo Operations Division and 8 Lea Burnett, who is also an assistant general counsel 9 here. The time is 10:04 on October 16, 2013. 10 The purpose of this hearing is to receive 11 public comments on proposed amendments to the following 12 bingo rules: Sections 402.200, 402.400, 402.402, 13 402.403, 402.404, 402.410, 402.411, 402.420, and 14 402.700. 15 And we are also accepting comments on the 16 following proposed new rules: Sections 402.702, 17 402.703, and 402.705. 18 The majority of these proposed amendments 19 and new rules implement laws passed in the previous 20 legislative session, including our Sunset Legislation 21 HB 2197 and HB 394. The Commission voted to propose 22 these amendments and new rules at a public meeting held 23 on September 19th of this year. The proposed amendments 24 and new rules along with notice of this hearing were 25 published in the October 4, 2013 issue of the Texas 4 1 Register and on the Commission's website. 2 And in addition to this public comment 3 hearing, the Commission is accepting written comments by 4 mail, email, and facsimile. Originally written comments 5 would need to be submitted by November 4th; however, the 6 Commission has decided to extend that deadline by two 7 weeks to November 18th. 8 And so far for today's hearing, I have 9 seven -- or eight witness affirmation forms. If anyone 10 has not turned in an affirmation form and they wish to 11 speak, you can submit that form now. Also for those 12 speaking, if possible, please identify which proposed 13 rule or rules you are commenting on. 14 With that I can call on Richard Bunkley to 15 offer his comments. 16 MR. BUNKLEY: Good morning. Thanks for 17 allowing me to speak today. For the record, my name is 18 Richard Bunkley. I'm with Littlefield Corporation. 19 I'll be commenting on Rules 402.200, 402.402, and 20 402.702. 21 First off in general, I'd like to say that 22 the rulemaking process can be a bit overwhelming. These 23 rules are quite voluminous and can be a bit like 24 drinking from a fire hose. And I can understand a good 25 bit of the items addressed in these rules are 5 1 necessitated by 2197, but some of them are not. 2 In any event, I would really encourage the 3 Commission to reinstitute the Bingo Advisory Committee. 4 I think that was a very good medium for the industry to 5 provide feedback in the rulemaking process; and I think 6 it benefits the Commission in that it streamlines the 7 process and we're closer to a rule that's ready to adopt 8 by the time we publish them for public comment. 9 In any event, my first rule that I'll be 10 addressing is 402.200; and as written, we oppose the 11 rule. We respectfully request that Item (5) be changed 12 to make it crystal clear and consistent with legislative 13 intent that the changes can be made to the game schedule 14 after the start of the bingo occasion, and possible 15 language might read as follows: Any changes to the game 16 schedule provided for in Section 402.200 (h)(4) made 17 after the start of a bingo occasion shall be announced 18 to the players and documented in writing on an amended 19 game schedule. So there we introduce the concept of 20 amended game schedule to drive home the point that 21 changes can be made after the start of an occasion. 22 Then also on that same rule, the last 23 sentence of Section (n), in our opinion, should be 24 removed completely as it seems to exceed legislative 25 intent by saying a game schedule omission error would 6 1 automatically lead to a second violation of exceeding 2 the $2,500 prize cap. And I really don't believe that's 3 what the legislature envisioned. 4 The next rule I'd like to comment on is 5 402.402. That rule we oppose as currently written. 6 Item (g), line 9 says, (as read) Payment for the 7 employment of a provisional employee as outlined in 8 subsection (a)(8) of this section is an authorized bingo 9 expense; however, payment for a nonregistered worker is 10 not an authorized bingo expense. 11 So this seems a little unclear and 12 difficult to administer. I'm sure that somewhere in the 13 Act or in the administrative rules the difference 14 between a provisional and nonregistered worker is 15 clarified, but I would like to see that clarified in 16 this rule itself. I think that would make it easier for 17 the Commission. I think those Registry of Proof worker 18 forms would be more likely to be filled out properly. 19 As it is right now, there's a section on the bottom that 20 the employee would have to fill out to indicate the 21 organization they would be working for if they would be 22 working on a provisional basis. So I think you're going 23 to be overwhelmed with forms that are improperly filled 24 out unless we add some clarification to the rule or 25 perhaps even to the registry application. 7 1 And then unrelated to the rule, it might 2 also be efficient to set up the escrow account for the 3 registered worker fee similar to the licensed amendment 4 and temporary session amendment fee. 5 Then the final rule I'll address is 6 402.702, Disqualifying Convictions. We would 7 respectfully request that language be included that 8 would clarify the actions of a single individual 9 unrelated to bingo operations cannot permanently 10 disqualify the organization from license eligibility. 11 So charities as they are right now are groups of 12 volunteers, and it would be really unfortunate to have 13 one bad apple render a charity permanently ineligible 14 for the license. 15 And possible language might read as 16 follows: An applicant organization should have the 17 opportunity to remove a member, worker, director, 18 officer, or operator who has a conviction or other 19 action that would render an applicant organization 20 ineligible for a new or renewal license prior to the 21 organization's new or renewal license application being 22 declined. 23 And that is the current process with the 24 Commission, and we appreciate that. It would just be 25 nice to clarify that in the rule that that's what's 8 1 going to happen. 2 And then the final item on that rule 3 pertains to companies that are publicly traded. I think 4 we have to exempt owners of 10 percent or more of stock 5 in a publicly traded company because publicly traded 6 companies have no control over who their ownership is. 7 Way back in 1997 the U.S. district court issued a rule 8 that declared it unconstitutional to prohibit publicly 9 traded corporations from acting as commercial lessors in 10 Texas; and I believe this rule as written could 11 potentially, again, prohibit a publicly traded company 12 from participating in that business. 13 So potential amended language might read 14 as follows: The provisions of this rule shall not apply 15 to a person who owns shares in a corporation or other 16 legal entity whose shares are publicly traded. 17 That concludes my comments. Thank you 18 very much. 19 MR. PERSON: Thank you, Mr. Bunkley. 20 The next witness affirmation form I have 21 is for Glenn Deshields. I believe it says he does not 22 wish to testify, but wishes to note that he is against 23 the proposed rule amendments or new Rules 402.200 24 402.402, 402.420, 402.702, 402.703 and 402.705. 25 Philip Sanderson. 9 1 MR. SANDERSON: Good morning. For the 2 record, Philip Sanderson with Sanderson Consulting 3 Services representing Texas Charity Advocates. Today 4 I'm here to testify on 402.402, 402.420, 402.702, 5 402.703, 402.705, and 402.200. 6 I will start off with the testimony on 7 402.402, 420, and 702. Thank you for the opportunity to 8 comment on these proposed rules. I'm here today 9 registering opposition to these three rules. First I'd 10 like to indicate that there are several other members 11 here to testify, and we've kind of worked together where 12 we're not repeating comments. So Ms. Kiplin's comments 13 and Mr. Bresnen's comments and Mr. Anatole's comments, 14 we concur with those comments as well. 15 I believe that implementing these rules in 16 their current form would be an administrative nightmare 17 and strain the limited resources of the Bingo Division 18 and the Enforcement Division. Not having a clear 19 understanding of what actions are deemed to be a 20 disqualifying conviction or a deferred adjudication will 21 require an enormous amount of time for the background 22 specialists and the background investigators to gather 23 documents in order to verify or substantiate any 24 conviction that comes up on the criminal history check. 25 Additionally, there will be a massive 10 1 amount of time that will be spent by the director, 2 Ms. Joseph, in reviewing the background reports to 3 determine if a conviction or deferred adjudication is in 4 fact a disqualifying conviction. There's several local 5 agencies that take an extraordinary amount of time to 6 report their arrests or their convictions to the DPS or 7 the FBI, thus will result in the background specialists 8 having to redo the background checks every year or every 9 three years, depending on the individual and may having 10 to go back in forever because that's what some of the 11 language is in this rule. 12 Furthermore, the time taken to investigate 13 and complete the background may impact the amount of 14 time that it takes to issue a registry for a personnel 15 or worker registry or a license for an applicant. 16 Moreover, there's a possibility that 17 conviction or deferred adjudication may disqualify an 18 individual from working at a bingo hall; however, that 19 same individual would not be prohibited from working at 20 a convenience store that sells lottery tickets, work for 21 GTECH, or even work here at the Lottery. 22 That concludes my comments on those three 23 rules, 402.402, 402.420, and 402.702. 24 I'd like to move on to 402.703, the Audit 25 Policy and 402.705, the Inspection of Premises -- and I 11 1 may have that backwards. 703 is the Inspection and 705 2 is the Audit Policy. First, I understand that there is 3 requirement from the Sunset Legislation that you adopt 4 rules for the inspection policy and the audit policy and 5 procedures by January 1, 2014. 6 The majority of 402.703 -- I'm sorry 7 402.705, the Audit Policy, is restating the language 8 that's contained in the statute with the exception of 9 subsection (a)(4), which regards complaints, and 10 subsection (b). In subsection (a)(4) is the number -- 11 the question is, is the number or severity of complaints 12 determined by those complaints that have been 13 substantiated or just by complaints that were received? 14 I know there are a lot of complaints that were sent in 15 that are not substantiated. Some of them are of a 16 de minimis nature to where actual investigations don't 17 necessarily take place; they just notify the 18 organization. 19 The -- in subsection (b), what is the 20 purpose of the language, (as read) if the Commission 21 reasonably believes a violation of the Bingo Enabling 22 Act or this chapter may occur or may have occurred? 23 The statute gives clear authority to 24 inspect and/or audit locations. So I'm unclear as to 25 what the purpose of that particular sentence is in that 12 1 subsection. 2 Section 40 of House Bill 2197 requires 3 that the Commission develop policy for auditing license 4 holders and use a risk assessment procedure to annually 5 identify these licensees most at risk to violate the Act 6 or rules and to develop a plan that identifies those 7 licensees. Some of the language in your proposed rule, 8 in particular the language on assessing fees for audits, 9 goes beyond what is required by HB 2197. And we would 10 like the opportunity to work with the Commission using 11 the negotiated rulemaking process that is in your 12 current other proposed Rule 402 -- I'm sorry -- 403.115. 13 Some other comments on 402.705 -- 703, 14 inspection rule, includes similar questions as with 15 those posed on audit. Once again, what is the purpose 16 of Section (b)(3) that they may audit licensees that 17 they believe may have violated the Act; and in 18 subsection (c), the various forms of what must be 19 maintained for audits? 20 In the audit rule in subsection (d)(2), 21 the five-year period and the language in HB 2197 does 22 state that a completion date for an audit that is not 23 later than the fifth anniversary date of the licensee 24 was identified as a candidate. This could be less than 25 five years, doesn't have to be five years. And you 13 1 could also include language as to what is identified as 2 the date that they're identified for an audit. Is it 3 the first date, or is it every September 1 when the new 4 audit plan comes out? 5 Subsection (d)(3) and (f)(3), I believe 6 the Commission does not have authority to arbitrarily 7 impose the fee for someone who is not licensed or who is 8 unable to attend an entrance conference or an exit 9 conference. 10 And lastly, on the audit rule, the 11 Commission provides that the license -- licensee support 12 documentation for the findings in the draft audit rule, 13 and we ask that they also supply the supporting 14 documentation for those findings when they supply the 15 draft rule. 16 As mentioned earlier, some of these 17 provisions are not required to be adopted by January 1, 18 2014, and we would appreciate the opportunity to work 19 during the negotiated rulemaking process on these two 20 rules as well as the other rules that are being 21 proposed. 22 Finally, 402.200, the General Restrictions 23 of the Conduct of Bingo. The subsection (h)(4) as to 24 prior to the start of the occasion, they must identify 25 the -- the games and the game schedule, make it 14 1 available. And the question is, you know, there are 2 other games that could be played during out -- 3 throughout the occasion, and we ask that they not limit 4 to it just to prior to the start, just have a game 5 schedule available for patrons to pick up and monitor if 6 they would like to. 7 The other comment pertains to the 8 documentation as it relates to the additional games, if 9 there were games proposed after the schedule was 10 published, be announced to the players. Why not allow 11 them to just go ahead and note those on the prize 12 schedule payout instead of on the game schedule? Can 13 they just not have a -- they have to list all the 14 schedule of prizes that are paid out and they can -- in 15 that schedule of prizes, they can list those other $50 16 games. 17 And then, finally, subsection (n) should 18 be removed entirely because this overreaches the bounds 19 that are set out in House Bill 394 in the statute and is 20 in direct conflict with the language in the statute. 21 Any new -- any game that's under $50 -- or $50 or less 22 is not considered part of the price fee cap -- price 23 cap. 24 That concludes my comments. I'll be glad 25 to answer any questions. 15 1 MR. PERSON: Thank you. Next up is Sharon 2 Ives. 3 MS. IVES: For the record, my name is 4 Sharon Ives. I'm with Fort Worth Bookkeeping, and my 5 office handles 17 bingo unit halls. And I'm here today 6 to testify on Rule 402.703, Audit Policy and 402.200 7 General Restrictions. 8 On the Audit Policy rule, paragraph (b), 9 Audit Determination, the Commission may audit the 10 licensee at any time. I don't have any problems with 11 that language; but I do, however, have problems with 12 paragraph (h) where the Commission may invoice a 13 licensee for any cost related to an audit of that 14 licensee that was incurred by the Commission, including 15 travel cost, audit investigation, time, and supplies. 16 To me those fees should already be included in the 17 licensee's increased annual renewal fee. 18 Also I was curious on how many other state 19 agencies charge for an audit that they choose to audit 20 at any time. 21 Rule 402.200, General Restrictions, 22 paragraph (n), where you have to list the games $50 and 23 less. If they're not listed on your game schedule, 24 they're not exempt. Why? If customers are there 25 playing bingo and as long as the time is still allotted 16 1 on your license, why not continue playing $50 games if 2 the customers are still there? Why would you have to 3 advertise it prior to in order for that to be exempted? 4 That's all I have for right now. Thank 5 you. 6 MR. PERSON: Thank you, Ms. Ives. 7 Next is Steve Bresnen. 8 MR. BRESNEN: Thank you. My name is Steve 9 Bresnen. I'm here on behalf of Bingo Interest Group, 10 and I will just walk through the rules and comment on 11 the ones that I want to comment on as we go, if that's 12 all right with you. 13 The first one would be 402.200. I would 14 subscribe to the comments that have been made prior to 15 my testimony, and at the risk of -- I only want to be 16 redundant on that last sentence on paragraph (n) because 17 I think it's in direct conflict with the statute. And I 18 would note that in the preamble to the publication of 19 proposed Rule 402.404 on page 6849 of the Register of 20 October 4, 2013, the Commission acknowledges that it 21 can't adopt a rule that's in conflict with the statute 22 and cites a case -- Texas Supreme Court case and 23 Attorney General opinion. 24 I think you got that same problem with the 25 last sentence on (n). It's pretty clear, having been 17 1 the lead on getting House Bill 394 passed, what we were 2 trying to achieve. I think the legislative record is 3 clear on that, that we're trying to increase flexibility 4 for folks to be able to do some things on the fly as 5 necessary to meet customer demand, and I think anything 6 that restricts the conductor's ability to use that tool 7 is not consistent with legislative authority granted in 8 House Bill 394. 9 I want to reiterate that we think people 10 need to be able to make the changes on the fly. We know 11 that every game that's played has got to be documented, 12 and we understand that, whether it's on a game schedule 13 or through a mechanism that Mr. Sanderson suggested. 14 We're not opposed to documenting everything that happens 15 in the bingo hall, but these folks need to be able to 16 operate their businesses in a way that gives them the 17 maximum flexibility to meet what the customers want. So 18 we would -- in addition to Mr. Sanderson's comments and 19 other's comments, we'd like you to strike the last 20 sentence in subsection (n). 21 The next rule that I would like to comment 22 on -- I'll just go in order on these, and so I'm opposed 23 to 402.200 as it was published. 24 I have no comment on 402.402. 25 On proposed rule -- I'm sorry. I do have 18 1 a comment on 402.402. On page 6846 of the Register, the 2 right-hand column, bottom of the page in the underlying 3 material, it -- it says that a person cannot reapply to 4 be on the registry after they've been denied or removed 5 earlier than five years after the commission of the 6 offense or as otherwise allowed under the Commission's 7 rules regarding criminal convictions. This rule will 8 dovetail with that rule, and I'll speak briefly on it in 9 a minute. But we would oppose this rule as proposed 10 because of that and also say that five years seems like 11 a long time for a minimum wage worker to be knocked out 12 of the work force. 13 Page -- proposed Rule 402.403 on page 6848 14 of the Register of October 14 -- October 4, 2013. This 15 raises an issue of updating. It says, (as read) If any 16 information previously submitted to the Commission with 17 the licensee's initial license application or a previous 18 renewal has not changed since the information was last 19 submitted to the Commission, the renewal applicant need 20 not provide that information again. 21 The -- what we're -- if the disqualifying 22 convictions rule is adopted as it stands today, you're 23 going to have people that are -- have been licensed and 24 may have been licensed for 20, 25 years who now will 25 have a different set of convictions that may come into 19 1 play. So I'm afraid we're going to have a bunch of 2 people -- unless there's a grandfathering provision or 3 some mechanism for dealing with this transition, you're 4 going to have a bunch of people that haven't done 5 anything wrong and have in terms of their conduct of 6 their bingo and complying with the Commission's rules, 7 who all of a sudden are going to have information -- I 8 don't know if the -- the information hadn't changed, but 9 the license application will have changed and the rules 10 underlying it will have changed. So whether this -- 11 whether that paragraph compels that person to provide 12 information that they haven't had to provide in the past 13 is not clear and will create a trap for people applying 14 for their licenses. 15 Essentially -- so we would oppose the rule 16 as written, and also we would oppose 402.420. That's 17 the one with the chart and the disqualifying -- or the 18 qualifications and requirements that don't have the 19 disqualifying criteria in it, again, related back to the 20 disqualifying criteria rule or qualifications, and so 21 that all needs to be dovetailed to take account of this 22 updating concern. 23 Now, I would like to talk about proposed 24 Rule 402.702. Ms. Kiplin is going to go into some 25 detail on that, so I will try not to repeat it, but this 20 1 is another circumstance. You're under a continuing duty 2 to update the information in your license during the 3 license period. If this rule goes into effect, it's 4 going to go into effect during a whole lot of people's 5 license period. And so what they won't know is that 6 they now have to go and update the Commission on 7 information that wasn't required when they filed the 8 application but is now part of the qualifications for 9 holding the license, and they're not going to know 10 whether they have to go back and update that 11 information. 12 The simple fix to this is to grandfather 13 going forward. My reading of Chapter 53 of the 14 Occupations Code is it grants the Agency near total 15 discretion over these matters and you ought to exercise 16 it in terms of going -- a going forward basis and not 17 hold past licensees accountable for -- at least for 18 updating in the middle of a license period. And we 19 would request that they be grandfathered completely. 20 My more extensive comments would be -- so 21 we would oppose 402.702 as written partly for that 22 reason and for the other reasons that have been offered. 23 Proposed Rule 402.703 contains several of 24 my biggest concerns. I would support Mr. Bunkley's 25 request that the major portions of this rule be 21 1 subjected to the negotiated rulemaking process. I think 2 it particularly leans itself to that sort of endeavor. 3 And so you're about to have a rule effective to govern 4 that process, and we'd like for you to use it. 5 Otherwise, these very important rules are going to have 6 been adopted, and I'm sure there'll inevitably be other 7 rules to be adopted that that process can be used with. 8 But I think this particular one could be used 9 advantageously. 10 Just as an example, the sorts of things 11 that could be discussed are -- in a negotiation are 12 appropriately limiting the Agency's expenditures for 13 audits; if they're going to be charged -- if the 14 organizations are going to be charged for it; whether 15 and when to charge for audits; whether it's just on the 16 basis of an intentional violation or fraud or some kind 17 of criminal conduct; whether a violation is de minimis 18 or not; and whether -- even at the basest level, whether 19 you're going to charge for an audit where no violation 20 was found. And the rule as presently drafted doesn't 21 seem to corral any of that. It gives the Agency about 22 the broadest discretion it could possibly have. 23 With respect to charging for audits, I'd 24 like to point out that the State of Texas takes in about 25 $25 million annually from bingo, and the bingo charities 22 1 right now are running 29, $30 million a year. So 2 there's a rough equivalency between the amount of money 3 that the State gets and the amount of money that the 4 charities are getting. And it's ironic that we would 5 now be going back to the well to charge them for audits, 6 particularly when the legislature has fully appropriated 7 license fees to the Agency in order to cover the cost of 8 those audits. 9 I would point out to the Commission that 10 on page 6848 of the October 4 Register, the right-hand 11 column, bottom paragraph, that paragraph states 12 unequivocally that the license fee increases that have 13 previously been adopted and which would be essentially 14 ratified by 402.404 were necessary to fund the 15 restoration of employees to the Commission Charitable 16 Bingo Operations Division and that was contingent on 17 increasing those fees sufficient to generate a specified 18 amount of revenue. 19 So it was our understanding that when the 20 Agency increased those fees, as much as we didn't like 21 the fee increase, that that was the end of it. It's 22 hard to imagine -- I think the Appropriations Bill had 23 something like $60,000 in it as an estimate of what 24 would be taken in from these audit fees. That seems 25 extremely low given the audits that I'm familiar with 23 1 that go on for a very long time and use a lot of Agency 2 resources. More specifically, that was my opposition to 3 subsection (h) of the proposed rule. 4 I'd also oppose subsections (d)(3) and 5 (f)(3) which purport to allow the Commission to sanction 6 any -- quote, (as read) Any person familiar with the 7 licensee's operation if that person fails to attend an 8 audit entrance or exit conference. 9 The Commission has sought and been turned 10 down before from the legislature the power of subpoena. 11 I see no difference in this and a subpoena. If you can 12 tell a person to be somewhere and they don't come and 13 you can fine that person, that's -- other than putting 14 them in the hoosegow, that's tantamount to a subpoena 15 and the Commission doesn't have that authority; nor do 16 we think it has the authority to sanction anyone other 17 than a licensee. 18 And also we would point out that the 19 Commission has very broad authority to obtain from the 20 licensee any information that's needed to perform its -- 21 the Commission's functions. 22 As I read them, Subsections (b)(1) and 23 (b)(3) are redundant. One of those could be eliminated 24 or they could be homogenized into one subparagraph. 25 In proposed subsection (d)(2), there's 24 1 a -- purports to be a five-year limit on the length of 2 time an audit make take for a completion. Five years is 3 extreme to us. We have clients that it seems to go on 4 and on. Frequently, they're engaging in conduct that 5 nobody said was afoul. They've had -- during the audit 6 period, they may continue those things, and then they 7 get the audit and somebody says that was wrong. And 8 they've had literally years worth of noncompliance that 9 could have been intervened in earlier, and they were 10 acting in good faith that it was all disclosed to the 11 Commission. 12 So we would like for the Commission to 13 adopt a real limit shorter than the five-year period 14 that the statute and House Bill 2197 allowed. We think 15 that's discretionary on the Agency's part, and it ought 16 to be greatly shortened except for exited circumstances. 17 Furthermore, an audit should begin when 18 the audit begins; and that five-year time limit ought to 19 run from the time that the audit begins, not when it's 20 identified -- not when the licensee is identified and 21 selected for audit. Because as somebody said earlier, 22 that can -- you can just reidentify and reselect them 23 and the audit could never end. 24 So we would oppose Rule 402.703 as written 25 for those reasons. 25 1 I believe that concludes my remarks, and I 2 appreciate the opportunity to make them. 3 MR. PERSON: Thank you, Mr. Bresnen. 4 Next up Kim Kiplin. 5 MS. KIPLIN: Good morning. My name is Kim 6 Kiplin. I'm an attorney in Austin with the law firm 7 Dykema Gossett. 8 I'm here today on behalf of the Department 9 of Texas Veterans of Foreign War and also Multimedia 10 Games, who is a licensed bingo manufacturer. And with 11 me today -- I hope y'all are okay, I asked him just to 12 come up -- is Todd McTavish. He's the general counsel 13 for Multimedia Games, and he has some comments that he'd 14 like to offer at the end of my comments. 15 I do have a written testimony that I would 16 like to submit whenever you-all would like to receive 17 it. It's from Dan West who, if you'll recall, testified 18 at the September 19 commission meeting; and he's the 19 state assistant adjutant. So I've got that and be happy 20 to provide that. 21 So with that, thank you for the 22 opportunity to comment on the draft proposed rules. We 23 are here today in opposition to the proposed Rules 24 402.402, 402.420, and 402.702. We know 402.702 is a new 25 rule and those are proposed amendments. 26 1 The rules when read together are written 2 so broadly that affected persons don't have fair and 3 reasonable notice of what offense is a disqualifying 4 offense. So while we understand that creating a list 5 for each type of offense is likely not practical, we 6 think the "including but not limited to" language for 7 each list negates providing fair and reasonable notice 8 of what is deemed by the Commission to be a 9 disqualifying offense. We do understand Staff's concern 10 regarding not knowing all the possible offenses that 11 could be at issue, but we think a reasonable approach 12 would be to eliminate this phrase of enlargement and 13 include language that would allow an offense in Texas or 14 any other jurisdiction containing substantially similar 15 elements to the listed offenses to be treated the same 16 as those listed offenses. 17 When Chapter 2001 and Chapter 53 of the 18 Occupations Code are read together, we don't think 19 Chapter 53 provisions apply to other persons other than 20 the license holder; and specifically, we don't think it 21 applies to officers, directors, owners of the corporate 22 license holder, or persons who are, quote, active or 23 employed by a lessor or distributor or manufacturer. We 24 think the proposed rules should be revised so that 25 they're not inconsistent with the statutes. 27 1 The proposed rule allows license 2 ineligibility for certain deferred adjudications for 3 which the proceedings were dismissed and the person is 4 discharged. We don't think they should be treated as 5 convictions; and if they are to be treated as 6 convictions, we think the treatment should be applied 7 prospectively for the reasons that you've heard, in 8 particular I believe Steve Bresnen on grandfathering. 9 People just don't know something that at the time that 10 they were licensed, it was on the registry it was not 11 disqualifying but is now, and it was that offense. And 12 I'll speak to that a little more. So that's the reason 13 for the prospective application. 14 Not all the provisions identifying 15 disqualifying offenses have a look-back time limitation. 16 We think there should be and this is a -- I call it a 17 look back when it has to do with when an offense 18 occurred and how long can you look back for that offense 19 to determine it's a disqualifying conviction. 20 Specifically for offenses that directly relate to the 21 license activity, we suggest the look back in ten years 22 from the termination of the sentence parole, mandatory 23 supervision, or community supervision served for the 24 offense; and then for other offenses, the look-back 25 should be five years. We think that's in keeping with 28 1 the language that was in the Bingo Enabling Act for 2 specific enumerated offenses and also in keeping as to 3 tenure in keeping with the Occupation Code for offenses 4 that don't directly relate, it's suggests a five year. 5 For the criminal fraud list under 6 subsection (b)(2), the proposed rule. The rule just 7 sets out entire chapters of the Penal Code that are 8 deemed criminal fraud, and then those entire chapters 9 are incorporated by reference. And I did go through -- 10 I don't know why. Call me crazy -- but when I went in 11 the other day, I went through just to get an idea of 12 what was in each one of those chapters. 13 I can say first that the offenses under 14 Chapter 33A, that's Telecommunications Crimes, they just 15 don't appear to be fraud offenses. They do seem more in 16 line with theft, but not fraud, not criminal fraud. We 17 would request that chapter just be removed in its 18 entirety from the list. It's not as though the 19 Commission wouldn't look at those offenses, but it 20 wouldn't be deemed a criminal fraud. 21 Second, within these incorporated by 22 reference chapters, the offenses can range from Class C 23 misdemeanors and up. I took a look at a few. I just 24 don't see these as an absolute bar, and I'll give you an 25 example. And I'm not condoning, by the way, the 29 1 underlying behavior. I'm just saying, should it 2 actually be such a disqualifying offense that's it's a 3 permanent bar. For example, illegal recruitment of an 4 athlete or deceptive preparation and marketing of an 5 academic product. That's actually -- if you look at it, 6 what I took away was if I paid somebody to write my 7 essay in college. That's a Class C, but because that's 8 incorporated by reference in these chapters that you-all 9 incorporated, that would be an absolute bar. I don't, 10 once again, condone cheating in school; but at the same 11 time, I just don't think it should be an absolute bar. 12 So for that we would request that you 13 exclude Class C misdemeanors from this list and the 14 other list. 15 We also would request that you take a hard 16 look at those that are Class Bs and consider excluding 17 some, if not all. 18 Under proposed subsection (e), the 19 Commission sets out a list of misdemeanor and felony 20 offenses that are directly -- or deemed to directly 21 relate to the fitness of an applicant or renewal 22 applicant. First, we think fitness is too broad, and we 23 don't really think that's the standard of review even 24 under Chapter 53. 25 Second, the list isn't defined. Once 30 1 again, it uses "included but not limited to." So we 2 would like that removed for the same reasons. 3 The list also includes as a deemed 4 offense, (as read) Any prohibitive act under the State 5 Lottery Act under Chapter 467 which created the Lottery 6 Commission or under the Bingo Enabling Act. 7 As I read it, that means any violation 8 under those statutes can render an applicant ineligible 9 for license under this proposed rule, and the impact is 10 that a person who would be further barred if it was just 11 under the Bingo Enabling Act without this provision 12 there's -- revocation is a year sit-out. So we've gone 13 from one year of a sit-out on a license revocation to a 14 potential forever bar because of the bootstrapping of 15 this provision. We think it's too broad, and we think 16 it should be removed. 17 Like I said, the list of offenses, once 18 again, incorporates wholesale chapters under the Penal 19 Code for the same reasons on these Class Cs and possible 20 Class Bs, we ask that you take a look at that and for 21 sure remove Class Cs and then consider on the Class Bs. 22 The draft rules apply to renewals, and so 23 that means people who are licensed and have been are now 24 potentially at risk of license ineligibility due to a 25 particular offense now being considered disqualifying 31 1 that was not before. We just don't think that's fair. 2 We think that these particular offenses for these 3 particular persons should be grandfathered. 4 From a practical perspective as in 5 particular 402.702 is currently drafted, neither the 6 Commission, as we sit here today -- and, of course, this 7 will be an evolutionary process, I imagine -- nor the 8 applicant knows what it is or could be a disqualifying 9 offense or what is not. 10 And corporate license holder, if the 11 provisions of 702 are to apply to persons other than the 12 applicant for the license or the license holder, they 13 don't really know who to appoint as an officer or 14 director or who to employ who may have a particular 15 criminal history that would now render the corporate 16 license holder ineligible. 17 We also are wanting to get better 18 information on what the license application is going to 19 look like now in light of the potential rule changes in 20 terms of -- for each one of these licensees. Is it 21 going to be so broad that the Commission is going to be 22 asking, have you ever been arrested for anything in your 23 entire life? And then from an administrative burden, 24 how will the Commission actually be able to administer 25 this broad net? 32 1 We'd like the rule to establish an 2 exception for veterans -- I'll call it veterans 3 preference -- who have a membership in a veterans 4 service organization as a military veteran and have an 5 honorable or under honorable conditions discharge and 6 have not been convicted of a felony and are workers, 7 officers, directors of a veterans service organization. 8 We think veterans preferences are established in other 9 law; we'd like you to establish for purposes of these 10 rules. 11 And for purposes of the rulemaking comment 12 record, I said this in the beginning, but Dan West who 13 came and testified on behalf of the Department of Texas 14 Veterans of Foreign War, we would like his testimony at 15 the September 19th commission meeting incorporated into 16 the comment record for purposes of these rules. We 17 think it was very instructional, and so we would like 18 that to occur. 19 We know Staff has been working very hard 20 on trying to implement the Sunset Legislation and it's 21 including drafting and proposing the rulemaking. And we 22 know it's required -- the Sunset Mandate for Sunset 23 rulemaking is required to be adopted by January 1, 2014; 24 but we would very much appreciate being involved in the 25 rulemaking process as we go forward, in particular, 33 1 obviously, the drafting stage and formative, the concept 2 stage. We do think that's consistent with the Sunset 3 Legislation and the requirement on the negotiated 4 rulemaking, and you heard that from some other folks 5 that were commenting. 6 So with this in mind, we really would like 7 and request that the Staff convene -- for lack of a 8 better word -- a stakeholders' meeting where we can have 9 an open and frank discussion and exchange of ideas in an 10 effort to try to reach a consensus on the many issues 11 that are included in the rulemakings. 12 We very much appreciate the Commission 13 extending the comment period for a couple of weeks, and 14 we'll take advantage of that. We think the meeting or 15 meetings, if it becomes a series of meetings, and the 16 comment period extension can occur and the Commission 17 can still meet the deadline to have the rules adopted. 18 My understanding is we're looking tentatively at a 19 December 11th commission meeting and that may change. 20 We are prepared, by the way, to meet at y'all's earliest 21 convenience. Just let us know when. 22 We appreciate the opportunity to provide 23 comments on the rulemaking. We look forward to working 24 with you-all on these matters and other matters that 25 impact the VFW and Multimedia's activities. 34 1 And with that, if you have any questions 2 of me, I'm happy to answer any questions if you have 3 them. If not, I'll turn it over to Mr. McTavish. 4 MR. PERSON: Thank you. Go ahead. 5 MR. MCTAVISH: My name is Todd McTavish. 6 I'm general counsel and chief compliance officer of 7 Multimedia Games. With me here today is Elizabeth 8 Hisaw. She's a member of our licensing team at 9 Multimedia. 10 I just wanted to introduce Multimedia and 11 myself here today, and tell you a little bit about 12 Multimedia and our concern about these rules, which I'll 13 talk about in a minute. 14 First about Multimedia. We've been an 15 Austin company for over 23 years. We have two 16 locations. Our headquarters is just west of downtown 17 Austin. We have a manufacturing plant in north Austin. 18 We have over 500 employees, approximately 350 of those 19 are located in Austin. 20 We're publicly traded and one of the 21 largest slot machine manufacturers and gaming device 22 manufacturers in the country. We also run the New York 23 Lottery and the Washington State Lottery for their 24 states. In 2012 the Austin Business Journal voted us as 25 one of the best places to work, and we are licensed in 35 1 over 200 jurisdictions, including Nevada and some of the 2 other major jurisdictions. 3 The officers and directors of our company 4 either hold or are pursuing well over 100 licenses, and 5 I would like to brag a little that MGAM is actually -- 6 and I say "MGAM", that's our ticker symbol. So people 7 say -- call us MGAM. But we're known in the industry of 8 having one of the finest licensing and compliance 9 functions, and we routinely get compliments from 10 regulators on how organized we are. And I think that we 11 have an in-house group of people that are subject matter 12 experts on licensing and disqualifying convictions and 13 that sort of thing. And it's obvious that our company 14 has deep ties to the state and community and that these 15 rules will impact our business. 16 So generally speaking -- I'm not going to 17 go into any details, but just generally speaking, we 18 think these rules as written are too broad. And we're 19 seeking reasonable limitations which were covered by 20 Ms. Kiplin. 21 And, lastly, I would like to offer our 22 licensing team as a resource for their expertise on 23 these various qualifications. Thank you for the 24 opportunity to speak up here today. 25 MR. PERSON: Thank you. 36 1 MS. KIPLIN: Thank you. I have Mr. West's 2 testimony. You mind if I approach y'all and give each 3 one of you a copy and then I'll give it over to the 4 court reporter. 5 MR. PERSON: Next up is Anatole Barnstone. 6 MR. BARNSTONE: Thank you. I have a -- I 7 filed a letter today, and I just want to make sure y'all 8 have a copy of it. 9 And I'm going to keep my comments short 10 and sweet. I'm Anatole Barnstone. I represent a number 11 of charities and licensees that are identified in the 12 letter I just gave you, and I just -- I don't really 13 want to add too much to what the other commenters have 14 already said; but I do want to point this out that in 15 the preamble to the proposed Rule 402.702, which is the 16 rule I'm here to talk about, there's a statement that 17 the rule does not impact small business. And we submit 18 that for a number of reasons that are stated by the 19 other commenters, it absolutely does impact small 20 businesses; and that's an important point because if the 21 rule impacts small businesses or if it might, then an 22 economic impact statement is required to be published in 23 the Texas Register, which it was not. 24 As part of the comments that I submitted, 25 I propose some rewrites to the rule which would minimize 37 1 the impact on small business and hopefully make this a 2 rule that doesn't harm small businesses and is able to 3 be adopted without the required economic impact 4 statement, which would otherwise make the rule invalid 5 if it didn't have that. 6 I want to endorse the other commenters who 7 proposed either a negotiated rulemaking session or a 8 stakeholders' meeting. I think those would be very 9 helpful under the current circumstances. 10 And just point out another -- Kim Kiplin 11 mentioned some of the statues that would be 12 disqualifying if we adopted the rule as is. I found 13 another couple of them, which under Section 30 -- 14 Chapter 30 of the Penal Code, trespassing on 15 agricultural land, that now would be a disqualifying 16 offense. So if you're on somebody's corn field or 17 something, you now can no longer conduct bingo games. 18 Failure to report the death of an inmate. I guess that 19 happens if like you work in a prison and you don't 20 report the death of an inmate, now you are no longer 21 allowed to conduct Bingo. These doesn't seem to be in 22 any way related to a person's integrity, honesty, or 23 their ability to conduct bingo. 24 And so we think that Staff needs to relook 25 at some -- at the broad brush that they're using as far 38 1 as these disqualifying offenses go. 2 Thank you for your time. 3 MR. PERSON: Thank you. 4 That's all the witness affirmation forms I 5 have. Is there anybody else who would like to speak 6 today? 7 (No response) 8 MR. PERSON: I don't see anybody. So I 9 would like to thank everybody for attending today's 10 hearing and for offering comments. The time is -- 11 sorry. Excuse me. 12 MS. BURNETT: No problem. Hi. I'm Lea 13 Burnett, assistant general counsel with the Texas 14 Lottery Commission for the record. 15 Again, I want to echo James' comments and 16 thank everyone for being here and providing some very 17 instructive comments about how you would like the 18 Commission to consider the proposed rules. 19 One thing I do want to get into the record 20 as well is the final Commission report issued by the 21 Sunset Commission dated July 2012, Issue No. 5. I 22 believe that's Pages 34 through 38A. I've provided 23 those in advance to the court reporter, and we're going 24 to also incorporate that into the record assuming 25 there's no objection to do so. 39 1 (No response) 2 MS. BURNETT: And also we are going to 3 officially incorporate anything that was provided to us 4 at this hearing today. Thanks. 5 MR. PERSON: Thank you. The time is 6 10:55, and we stand adjourned. 7 (Attachments A and B included) 8 (Proceedings concluded at 10:55 a.m.) 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 40 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Autumn J. Smith, 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 such 9 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 hand 14 and seal this 21st day of October 2013. 15 16 _______________________________ AUTUMN J. SMITH 17 Certified Shorthand Reporter CSR No. 8871 - Expires 12/31/15 18 Firm Registration No. 276 19 Kennedy Reporting Service, Inc. 1016 La Posada Drive, Suite 294 20 Austin, TX 78752 512.474.2233 21 Job No. 112987 22 23 24 25