0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 COMMISSION MEETING OF THE § 7 TEXAS LOTTERY COMMISSION § THURSDAY, AUGUST 27, 2015 § 8 9 10 11 COMMISSION MEETING 12 THURSDAY, AUGUST 27, 2015 13 14 15 BE IT REMEMBERED THAT on Thursday, the 16 27th day of August 2015, the Texas Lottery Commission 17 meeting was held from 9:00 a.m. until 12:44 p.m., at the 18 offices of the Texas Lottery Commission, 611 East 6th 19 Street, Austin, Texas 78701, before CHAIRMAN J. WINSTON 20 KRAUSE and COMMISSIONERS DOUG LOWE, CARMEN 21 ARRIETA-CANDELARIA, ROBERT RIVERA and PEGGY A. HEEG, and 22 the following proceedings were reported via machine 23 shorthand by William C. Beardmore, Certified Shorthand 24 Reporter. 25 0002 1 APPEARANCES 2 3 CHAIRMAN: 4 Mr. J. Winston Krause 5 COMMISSIONERS: 6 Mr. Doug Lowe Ms. Carmen ARRIETA-Candelaria 7 Mr. Robert Rivera Ms. Peggy A. Heeg 8 GENERAL COUNSEL: 9 Mr. Robert F. Biard 10 EXECUTIVE DIRECTOR: 11 Mr. Gary Grief 12 CHARITABLE BINGO OPERATIONS DIRECTOR: 13 Mr. Alfonso D. Royal, III 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS, THURSDAY, AUGUST 27, 2015 ............. 8 4 I. The Texas Lottery Commission will call the meeting to order ..................... 8 5 II. Report, possible discussion and/or 6 action on Commissioner training, including ethics, administrative 7 procedure, and open government laws pertaining to the Texas Lottery 8 Commission ............................... 9 9 III. Presentation by the Bingo Interest Group and Texas Charity Advocates, including 10 but not limited to the agency's ongoing accounting/license reconciliation 11 process, implementation of the Bingo Operations System Services (BOSS) 12 system, review and reform of the agency's bingo administrative rules, 13 and implementing the Bingo Advisory Committee; and possible discussion 14 and/or action ............................ 16 15 IV. Consideration of and possible discussion and/or action, including 16 adoption, on amendments to 16 TAC §§ 401.305 "Lotto Texas" On-Line Game 17 Rule, 401.307 "Pick 3" On-Line Game Rule, 401.308 "Cash Five" On-Line Game, 18 401.312 "Texas Two Step" On-Line Game, 401.315 "Mega Millions" On-Line Game 19 Rule, 401.316 "Daily 4" On-Line Game Rule, 401.320 "All or Nothing" On-Line 20 Game Rule, and 401.322 "Texas Triple Chance" Lottery Game ..................... 38 21 V. Consideration of and possible 22 discussion and/or action, including adoption, on amendments to 16 TAC § 23 401.317 "Powerball®" On-Line Game Rule ..................................... 46 24 25 0004 1 TABLE OF CONTENTS 2 PAGE 3 VI. Consideration of and possible discussion and/or action, including 4 readoption, on the review of the Commission's rules set forth in 16 5 TAC Chapter 403, relating to General Administration ........................... 59 6 VII. Consideration of and possible 7 discussion and/or action, including publication, of Notice of Intent to 8 review the Commission's rules set forth in 16 TAC Chapter 401 relating 9 to Administration of State Lottery Act, and Chapter 402 relating to 10 Charitable Bingo Operations Division ..... 62 11 VIII. Consideration of and possible discussion and/or action, including 12 proposal, on amendments to 16 TAC § 401.220 Motion for Rehearing ............. 68 13 IX. Report, possible discussion and/or 14 action on agency major contracts, including amendments on the contracts 15 for instant ticket manufacturing and services, and the contract for 16 advertising services ..................... 71 17 X. Report, possible discussion and/or action on agency prime contracts, 18 including extension on the contract for lottery products testing 19 services ................................. 72 20 XI. Report, possible discussion and/or action on lottery sales and 21 revenue, game performance, new game opportunities, advertising, 22 promotional activities, market research, trends, and game contracts, 23 agreements, and procedures ............... 73 24 25 0005 1 TABLE OF CONTENTS 2 PAGE 3 XII. Report, possible discussion and/or action on transfers to the State and 4 the agency's budget status ............... 78 5 XIII. Report, possible discussion and/or action on the Fiscal Year 2016 6 Operating Budget ......................... 80 7 XIV. Report, possible discussion and/or action on the 84th Legislature ........... 82 8 XV. Report, possible discussion and/or 9 action on external and internal audits and/or reviews relating to the 10 Texas Lottery Commission, and/or on Internal Audit activities ................ 84 11 XVI. Report by the Charitable Bingo 12 Operations Director and possible discussion and/or action on the 13 Charitable Bingo Operations Division's activities, including 14 updates on the Business Process Restructuring Project, licensing, 15 accounting and audit activities, pull-tab review, and special 16 projects ................................. 86 17 XVII. Report by the Executive Director and/or possible discussion and/or 18 action on the agency's operational status, major contracts, agency 19 procedures, awards, and FTE status ....... 93 20 XVIII. Consideration of the status and possible entry of orders in enforcement 21 cases: Lottery NSF License Revocation Cases 22 (Default Unless Otherwise Noted) 23 A. Docket No. 362-15-2804 - 2 Cousins Gas and Grocery 24 B. Docket No. 362-15-2809 - Dollar Store Plus 25 0006 1 TABLE OF CONTENTS 2 PAGE 3 C. Docket No. 362-15-4344 - David's Food Mart 4 D. Docket No. 362-15-4345 - ECC Food Store 5 Other Lottery Revocation Cases: E. Docket No. 362-15-2481 - AM Mini 6 Mart Lottery Agreed Orders: 7 F. Case No. 2015-600 - Lampos Grocery G. Case No. 2015-742 - Waco Express 8 Mart H. Case No. 2015-1108 - Kay Mart 9 Bingo Agreed Orders: I. Case No. 2015-329 - ATB FWM, Inc. 10 J. Case No. 2015-761 - All Star Leasing, Inc. 11 K. Case No. 2015-1158 - Bingo Bills Association, II 12 L. Docket No. 362-15-3810.B - EMME Enterprises, Inc. 13 M. Docket No. 362-15-3809.B - Love Bingo, Inc. ......................... 101 14 XIX. Public comment ........................... 16 15 XX. Commission may meet in Executive 16 Session: A. To deliberate personnel matters, 17 including the appointment, employment, evaluation, reassignment, duties, 18 discipline, or dismissal of the Executive Director and/or the 19 Charitable Bingo Operations Director pursuant to Section 551.074 of the 20 Texas Government Code. B. To deliberate the duties of the 21 General Counsel and/or the Human Resources Director pursuant to Section 22 551.074 of the Texas Government Code. 23 24 25 0007 1 TABLE OF CONTENTS 2 PAGE 3 C. To receive legal advice regarding pending or contemplated litigation 4 or settlement offers, or other legal advice, pursuant to Sections 5 551.071(1) and (2) of the Texas Government Code, including but not 6 limited to legal advice regarding the following items: Pending and 7 potential litigation regarding Fun 5's Instant Game #1592, including but not 8 limited to Travis Co. District Court Cause Nos. D-1-GN-14-004345 (Rule 202 9 Petition) and D-1-GN-14-005114 (Steele, et al. v. GTECH Corp.); Dallas Co. 10 District Court Cause No. DC-14-14838 (Nettles v. GTECH Corp.); and El Paso 11 District Court Cause No. 2014-DCV-4113 (McDonald v. GTECH Corp.). State of 12 Texas v. Equal Employment Opportunity Commission et al. 13 Legal advice regarding the State Lottery Act, Texas Government Code 14 Chapter 467, the Bingo Enabling Act, the Open Meetings Act, the 15 Administrative Procedure Act, employment law, personnel law, 16 procurement and contract law, evidentiary and procedural law, and 17 general government law. Legal advice regarding any item on 18 this open meeting agenda ............ 123 19 XXI. Return to open session for further deliberation and possible action on 20 any matter posted for discussion in Executive Session. Any matter posted for 21 Executive Session also may be the subject of discussion and/or action in open 22 session prior to Executive Session ....... 123 23 XXII. Adjournment .............................. 123 24 Reporter's Certificate ............................. 125 25 0008 1 P R O C E E D I N G S 2 THURSDAY, AUGUST 27, 2015 3 (9:00 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN KRAUSE: It's 9:00 a.m., and good 6 morning everybody. 7 I'm here to introduce you today to my 8 brand-new commissioners. I've met all of them, chatted 9 with them and am very proud of their willingness to 10 serve and take this on. 11 This is a unique type of commission 12 because we operate the lottery and we regulate bingo. 13 So it's a mixed bag on what we do. 14 We run a business. I think we run it very 15 well, and then we regulate a really important industry, 16 charitable bingo. 17 So it is August 27th. It is 9 -- 9:00 18 straight up, and all my commissioners are here: 19 Commissioners ARRIETA-Candelaria -- 20 COMM. ARRIETA-CANDELARIA: Candelaria. 21 CHAIRMAN KRAUSE: -- Candelaria, Heeg, 22 Lowe and Rivera are present. We not only have a quorum, 23 we have a full complement, which has been a rare thing 24 in the past. 25 So we are now in session. 0009 1 AGENDA ITEM NO. II 2 CHAIRMAN KRAUSE: The first thing we have 3 to do because we have new Commissioners is training. We 4 turn that over to our General Counsel, Mr. Bob Biard, 5 esq. 6 MR. BIARD: Good morning, Commissioners. 7 For the record, I'm Bob Biard, the General Counsel. 8 Whenever there's a new lottery 9 commissioner, the agency has a tradition of briefly 10 reviewing the laws that govern the Texas Lottery 11 Commission at the Commissioners' first meeting. 12 Also, since 2013 the State Lottery Act has 13 required new appointees to complete a training program 14 before they may vote, deliberate or be counted as a 15 member in attendance at a Commission meeting. 16 The training must provide the appointee 17 with information regarding the legislation that created 18 the Commission, the programs, functions, rules and 19 budget of the Commission, the results of the most recent 20 formal audit of the Commission, the requirements of laws 21 relating to Open Meetings, public information, 22 administrative procedure and conflicts of interest and 23 any applicable ethics policies adopted by the Commission 24 or the Ethics Commission. 25 I wanted to state first for the record 0010 1 that prior to this meeting all four of the new 2 Commissioners have had their required training session. 3 They met with Gary Grief, Alfonso Royal, Kathy Pyka and 4 me and have also met with all the agency division 5 directors for briefing on the Commission's lottery 6 operations and regulatory programs. 7 For purposes of this morning's meeting, I 8 only want to provide a brief overview of highlights 9 regarding the ethics procedural and open government laws 10 governing the Commission. 11 At the training session I provided a 12 document titled "Guide to Ethics Laws for State Officers 13 and Employees." 14 This is a publication from the Texas 15 Ethics Commission and -- because the Lottery Commission 16 has a number of additional requirements. We have 17 annotated it using blue ink to highlight provisions 18 specific to the lottery commission. 19 These lottery-specific provisions are 20 generally more restrictive than the requirements that 21 apply to other state agencies. 22 For instance, there is a restriction 23 against accepting employment or remuneration from a 24 person that has a significant financial interest in the 25 lottery, which is a defined term that includes vendors 0011 1 of lottery goods and services and retailers licensed to 2 see lottery tickets or, on the bingo side, a bingo 3 commercial lessor, distributor or manufacturer. 4 With respect to accepting gifts, other 5 agencies are subject to a de minimis exception that 6 allows agency members and employees to accept gifts 7 under $50 in value; for instance, to cover the cost of 8 the mean. However, lottery Commissioners and employees 9 are prohibited from accepting any gift, meaning anything 10 of value, from a person that has a significant financial 11 interest in the lottery and certain persons associated 12 with them or a person who's won a lottery prize 13 exceeding $600 within the last two years. 14 The lottery commission has an exception, 15 though, for Commissioners to accept a gift that is given 16 on account of the relationship that's independent of 17 your commissioner status such as kinship or a personal, 18 professional or business relationship. 19 Also, the agency does not have the 20 authority to accept gifts. So you cannot accept gifts 21 on behalf of the agency. 22 Next, there is a restriction against 23 certain political activities that is unique to this 24 agency. A lottery commissioner may not directly or 25 indirectly coerce, attempt to coerce, command or advise 0012 1 a person to pay, lend or contribute anything of value to 2 another person for political purposes. 3 There are two Attorney General opinions 4 that discuss this provision, which applies only to the 5 Lottery Commission, and I provided those to you. 6 These are just a few of the ethics points 7 I wanted to highlight. The annotated guide to ethics 8 laws is a useful document if you have ethics questions. 9 Next, with respect to the procedural laws 10 under the Administrative Procedures Act, the Commission 11 has two key roles; first, to propose and adopt rules 12 relating to the lottery and charitable bingo and, 13 second, to decide contested cases involving specific 14 licensees. 15 Rules are general statements of policy or 16 practice that are generally applicable to all persons. 17 When you propose rules you're acting in a legislative 18 capacity; so you may talk to anyone you wish in 19 connection with agency rules or rule proposals. 20 However, you also have a judicial function 21 because you decide contested cases where the legal 22 rights and duties of a particular party are determined 23 after an opportunity for hearing. 24 The Lottery Commission contested cases 25 usually involve a lottery or bingo licensee and the 0013 1 issue is usually whether to deny or revoke a license, 2 and on the bingo side to assess penalties for violations 3 of the agency's governing statutes or rules or to 4 approve settlements. 5 In contested cases ex parte communications 6 are prohibited, which means you may not communicate with 7 any person or party to the case about an issue of fact 8 or law in the case unless all parties have an 9 opportunity to participate. 10 There is an exception to this provision 11 that allows you to communicate with agency staff members 12 that have not participated in the case to use the 13 agency's special skills or knowledge in evaluating the 14 evidence. 15 Contested cases are heard at the State 16 Office of Administrative Hearings, another state agency, 17 by an independent Administrative Law Judge who prepares 18 a proposal for your consideration. 19 Although the proposal is only a 20 recommendation, the law protects the impartial role of 21 the judge by limiting the reasons why the Commission may 22 change the judge's recommendations. 23 There are three reasons, and they are, 24 first, to correct a technical error; second, in the 25 event the judge fails to properly apply the law, agency 0014 1 rules, policies or prior decisions, and, third, if the 2 commission decides to overrule a prior agency decision 3 relied upon by the judge either because it's incorrect 4 or because the Commission decides that it should be 5 changed. 6 The next item I'll touch on briefly is 7 additional required training. A new commissioner is 8 required to complete the Attorney General's online 9 training on the Open Meetings Act and Public Information 10 Act within 90 days of taking the oath of office. 11 In this case, for Commissioner Lowe that 12 deadline is November 16th. That's his 90th day, and for 13 Commissioners Heeg and ARRIETA-Candelaria that is 14 November 18th, and Commissioner Rivera has completed 15 this training. 16 So, Commissioners, there are two 17 certificates you will need to print from the Attorney 18 General's website when you complete the online training, 19 and we are required to maintain those in the agency's 20 files. So you can give those to me when you've 21 completed the training. 22 We have discussed the Open Meetings Act 23 and Public Information Act laws in our training session, 24 and I won't go into detail on those here. There's a 25 separate required webinar training course on contract 0015 1 management conducted by the Comptroller's office that 2 you'll need to schedule through the Comptroller, and it 3 also provides you with a completion certificate I will 4 need to maintain at the agency. 5 Now, last, I will note that because the 6 Lottery Commission is a five-member Board, three 7 commissioners are required for a quorum, and there must 8 be at least three commissioners present to conduct 9 business at an Open Meeting. 10 This also means two commissioners can meet 11 and discuss public business without violating the Act, 12 but there is an important caveat to that. The Attorney 13 General and Texas courts have held it would be a 14 violation of the Open Meetings Act to deliberately have 15 a series of two commissioner meetings with different 16 commissioners to decide a matter of public business 17 outside a public meeting. 18 This is referred to as a "walking quorum" 19 and it is not allowed. Whether you are circumventing 20 the act it is always going to be a question of intent 21 which is a fact question. 22 So, Commissioners, this a very broad 23 overview of some of the things that we went over in our 24 training session. 25 There's a lot of information in the laws 0016 1 governing the Commission's activities. So, please, 2 always feel free to contact me or anyone in the Legal 3 Services Division if you have a question about these 4 laws or how they apply. 5 Thank you. 6 CHAIRMAN KRAUSE: Thank you, Bob. 7 AGENDA ITEM NO. III 8 CHAIRMAN KRAUSE: Alfonso, would you 9 please introduce the Bingo Interest Group? 10 MR. ROYAL: Thank you, Mr. Chairman. Item 11 III, John Anderson, Texas Charity Advocates, President, 12 and Steve Bresnen with the Bingo Interest Group are here 13 to talk about a presentation related to bingo today. 14 These are individuals who have worked with 15 the division previously regarding rules and the bingo 16 operating services system that we put in place. 17 CHAIRMAN KRAUSE: All righty. Well, I was 18 hoping to hear some testimony or a presentation from the 19 Bingo Interest Group. Everybody that wants to talk 20 about it, come on up. 21 We've got three chairs here for you or if 22 you want to stand, it's up to you. 23 AGENDA ITEM NO. XIX 24 MR. ANDERSON: For the record, my name is 25 John Anderson. I'm with the Texas Charity Advocates, 0017 1 their Chairman, and we've asked to have a little time 2 and want to, of course, join in welcoming the new 3 Commissioners. And, Chairman Krause, we appreciate the 4 opportunity, Director Grief, Director Royal, the 5 commission staff and our visitors in the audience. 6 Texas Charity Advocates started as a trade 7 organization about 10 years ago, and our focus is 8 100 percent on the health of the industry and 9 particularly the focus on the charities; although, our 10 members are manufacturers, they're distributors, they're 11 the guys that own the bingo halls, have the lessor's 12 license, but we focus on making the charities receive a 13 proper amount of the cash flow, and that's our focus. 14 We have one issue that we want to sort of 15 lay out to the new commission, and that is the 16 resurrection and perhaps breathing life back into what 17 was referred to as the "Bingo Advisory Committee." 18 I don't know how many years ago -- it was 19 before my time, as they say -- that they started the 20 Bingo Advisory Committee. It was individuals selected 21 from the industry by the Commissioners themselves to 22 come talk and report and carry out any helpful duties we 23 could to interface with the bingo commission. 24 It was not an adversarial position and 25 body to the regulatory or the lottery commission. It 0018 1 was simply another tool in the tool chest, and I'm not 2 going to kid you. It went away. And back in, oh, about 3 2011 -- four years or so ago -- I think the -- I went 4 back and read some testimony of the August hearing in 5 2011, and the sentiment was, "Boy, we are fighting 6 budget battles and we're fighting -- how do we revise 7 our -- and upgrade our computer system and go to the 8 BOSS system?" 9 I think there were budget cuts losing 12 10 full-time employees and things like that. The 11 Commissioners made the comments, "You know, this costs a 12 little money to do this interface with the Bingo 13 Advisory Council, and let's just set it aside and not 14 renew it" because it was an annual appointment, just 15 once a year reappoint the activities of the Bingo 16 Advisory Council. 17 I think in 2011 it was -- you know, we've 18 got bigger fish to fry and everything. Let's just take 19 a break from this. I don't know if it just never came 20 back up, but that's the issue that we're laying before 21 you today. 22 Don't -- I'm not asking for a specific 23 vote. We know you guys have got plenty of briefings and 24 things on your plate, and we don't know that there's any 25 particular time sensitive nature to this, because as 0019 1 you're letting me come here and testify to you, the 2 folks who volunteered to help with this interface with 3 the people in the trenches -- the guys and gals out here 4 running these bingo halls -- we think they are a 5 valuable resource, but we're still talking to them and 6 we'll still be helping and reporting in an informal way 7 like this, or our preference would be to see this Bingo 8 Advisory Committee gin back up and we'd help in any way 9 we could. 10 I will take a moment, if I can, to tell 11 you the other side of the coin and put on another hat 12 that I wear, which is, I'm the CFO for the Boys and 13 Girls Club of Central Texas. 14 Our primary office is in Killeen, right 15 next to Fort Hood, and we celebrated our 50th year 16 anniversary. Now, this is what charitable bingo really 17 does in the real world of Texas, the $27 million that or 18 so, give or take, that we produce in this. 19 It has meaningful results and meaningful 20 impact. A few years ago when I joined them in 2008 21 helping, we probably served 3- or 400 kids and had about 22 six locations. 23 Today we have 29 physical sites that we 24 operate out of. We operate and run the Boys and Girls 25 Clubs in nine cities. We serve over 13,000 kids every 0020 1 year, and I'm telling you it would not be possible if we 2 didn't have charitable bingo. 3 It is the most reliable, steady source of 4 monetary funding that we can find, and it has been 5 indispensable to us. And lest you wonder and doubt the 6 impact of this, I brought a little letter from a child 7 at the camp last month, and this was a music camp, and 8 this letter, the child got up, the shiest young lady in 9 the whole crowd of 300 kids, and read this letter. 10 The letter she read, the crumpled folds 11 had been folded and unfolded, was a suicide note. At 12 the end of it this young lady tears it all up, throws it 13 to the ground, and I'm happy to report to you -- if she 14 were here today she would tell you that "I'm doing fine 15 and that Boys and Girls Club made a difference in my 16 life -- saved my life" -- and I'm going to pull on the 17 heart strings and tug at you that charitable bingo is 18 what saves the Boys and Girls Club and allows us to do 19 what we do, honestly, and I'm happy to field any 20 questions. 21 I appreciate the opportunity to address 22 you guys. 23 CHAIRMAN KRAUSE: Commissioners. Well, we 24 move on then to Sharon Ives, and I apologize for not 25 saying so ahead of time, but we'd really like the 0021 1 comments to stay at three minutes, and you're welcome to 2 sit there. 3 MS. IVES: Thank you. 4 MR. BRESNEN: Mr. Chairman, Steve Bresnen, 5 for the record. We asked Ms. Ives to come in and talk 6 some because she does bookkeeping for lots of charities 7 to talk some about the BOSS system and the -- kind of 8 where we stand with that right now. 9 CHAIRMAN KRAUSE: Perfect. 10 MS. IVES: Hi. My name it Sharon Ives -- 11 excuse me -- with Fort Worth Bookkeeping. My office 12 handles bingo bookkeeping for 18 bingo unit halls which 13 consist of 75 bingo organizations throughout North 14 Central Texas. 15 I'm here today to speak of problems or 16 issues that we are experiencing with the newly 17 integrated BOSS system. 18 Once you're on the bingo service portal, 19 if you try to run any report the charitable bingo 20 website is not user friendly. 21 The format of the conductor and unit 22 reports and the conductor location address reports in 23 Excel and CSV files make the information difficult to 24 use. 25 Nowhere on the state's website does it 0022 1 state that it's not Internet Explorer friendly. I found 2 that out the other day. It works on Chrome but not 3 Internet Explorer. If you do have Internet Explorer 4 your screen keeps locking up regardless what you're 5 trying to do. 6 The portal does not have the current 7 conductor active license's link anymore; however, it 8 still contains to distributors and manufacturers. Why 9 was that one removed? 10 The reports are no longer available. For 11 instance, the active licenses, both active and admin 12 hold, active licensees by license type and license class 13 and conductor return info by conductor and county, these 14 reports are no longer accessible or available. 15 While filing the second quarter report, 16 the confirmation page that is emailed back to you 17 consists of three pages; one for the filing of the 18 report, one for the payment that was due that you paid, 19 and the third page that you receive is from -- regarding 20 the lessor stating that no report filing is due and no 21 payments are due. 22 We are receiving lessor notices on that 23 confirmation on accounts that we don't even do books 24 for. While filing the quarterly report the portal would 25 not allow you to print the Schedule B of that report. 0023 1 It would only allow you to print the 2 two-page quarterly report for your record. So you would 3 have to go back in and print just that Schedule B. 4 The portal would not let you file the 5 lessor quarterly reports that were zero reports. 6 As you know, you still have to file a 7 report as long as you have a license on admin hold. 8 That report is required every quarter. 9 So, basically, we're forced to fill it out 10 by hand and mail it the old fashion way instead of 11 filing a zero report online. 12 CHAIRMAN KRAUSE: Ms. Ives, have you 13 brought these matters to the attention of the staff? 14 MS. IVES: Yes, I have, back in May. 15 CHAIRMAN KRAUSE: Okay. 16 MS. IVES: I only have a couple more. 17 CHAIRMAN KRAUSE: Okay. If you'd go 18 ahead. 19 MS. IVES: The portal also has a unit hall 20 that's listed under my personal user ID that I don't 21 even do the books on. 22 On the renewals that are sent out there's 23 playing days and times that have been listed incorrectly 24 or they have former operators and officers that we have 25 deleted over eight years ago. 0024 1 Additionally, there have been instances 2 where our licenses -- specifically temporary licenses 3 were mailed somewhere else other than to my office. 4 Questions? 5 CHAIRMAN KRAUSE: Thank you very much. 6 MS. IVES: You're welcome. 7 CHAIRMAN KRAUSE: Mr. Bresnen. 8 MR. BRESNEN: Thank you, Mr. Chairman. It 9 may look like we made a mistake by having Sharon talk 10 about things that probably are completely foreign to you 11 new commissioners and using jargon like "admin hold" and 12 those kinds of things. 13 We did that intentionally and we're trying 14 to cause a little cognitive dissidence so you'll 15 immediately be brought home to you that this is a 16 complex regulatory enterprise. 17 It has its own language, and now you're in 18 it. So these kinds of issues are being brought forward 19 to the staff and to you-all, and so there's going to be 20 a steep learning curve and, of course, we'll work with 21 you on that. 22 I represent a group of commercial lessors. 23 These are for-profit entities that rent time in their 24 locations to the charities to conduct bingo, and we have 25 exposure pretty much across the state. 0025 1 So we have a good feel for markets where 2 there's no competition from any other form of gaming and 3 those that are, say, in the North Texas area where the 4 competition from the Indian gaming in Oklahoma and from 5 8-liners is devastating to the industry. 6 I was driving over here earlier and I 7 heard a comic on the radio, and I think he must have 8 been talking to a group of kids, and I had to kind of 9 turn what he was saying on myself because he was talking 10 about the importance of first impressions and how 11 important it is to put your best foot forward. 12 He made the statement, "When you first 13 meet someone they're not meeting you; they're meeting 14 your representative." 15 So I'm hoping over time that you'll -- 16 we'll get to meet you, get to know you, and you'll get 17 to know us, not just because we're here serving as 18 spokesmen for an industry, but because we deeply care 19 about what we're doing, and we have, some of us, a lot 20 more experience than we want to keep tally and the years 21 on in state government and how it can and should work. 22 So what I would like to do is touch on a 23 few things here to kind of expand that universe and tell 24 you where we'd like for you to go during your service on 25 the Commission. 0026 1 Before I say that, after 35 years of 2 working for public officials, I know that nobody gets 3 rich in these jobs. The amount of learning, the 4 pressure sometimes, some parent lack of benefit to you 5 personally is palpable, and we understand that fully. 6 So when we come to you we will probably 7 come across sometimes as complainers and whiners, but 8 that's probably because we've got some complaints and 9 you're the people we can whine to about them and who can 10 do something about them. So we very much appreciate 11 your service. 12 Now, just a word about BIG, the Bingo 13 Interest Group, and the Texas Charity Advocates. We've 14 worked extremely closely together on charitable bingo 15 for a long time. 16 We are reform oriented. There are some 17 people in bingo who are not performing in a fashion that 18 is required by law and morality, and we are the folks 19 that have been trying to do something about that. 20 I failed miserably in the legislative 21 process this last session because some bad guys got in 22 the way and interfered and kept us from achieving 23 significant reforms in bingo. 24 So we have to come to you now and ask you 25 to exercise your statutory authority and your 0027 1 administrative acumen to help us where you can. Every 2 time we ask you for something, we'll have a sound legal 3 basis for doing it. We'll have a sound reason in policy 4 and examples that are concrete on the ground that are 5 necessary to be resolved if we're going to maximize the 6 production of charitable bingo for these charities in 7 this state. 8 Ms. Ives -- this may sound like a bunch of 9 administrative computer stuff and everything, but that's 10 a cost. Those are costs that are embedded in this 11 system. 12 The license fees that these charities pay 13 went up to pay for this new system significantly. They 14 went up significantly to provide additional audit 15 capacity and enforcement capacity in this agency. 16 So when there's a drag caused by that, 17 they're getting hit both directions. They are paying 18 additional fees at two more levels and they're having 19 administrative costs and regulatory drag imposed on them 20 from the other direction. 21 So we are going to come to you and ask you 22 to help us with those things. Mr. Chairman, I would be 23 reluctant -- I would be messing up if I didn't say, 24 thank you very much for putting us on the agenda. 25 That's actually top on my list here to thank you for 0028 1 that, and I very much appreciate it. 2 Commissioner Lowe, thank you for the time 3 you spent with us yesterday, and I look forward to 4 spending time with some of the other Commissioners as 5 well. 6 Unfortunately, I have to drag a 7 disagreement that I realized I had with you overnight -- 8 CHAIRMAN KRAUSE: What's that? 9 MR. BRESNEN: -- well out into the public 10 here, a very serious disagreement. You asked me 11 yesterday about why the TCA and the Bingo Interest Group 12 proposed moving regulation out of the agency -- out of 13 this agency and into the Texas Department of Licensing 14 and Regulation, and I thought about that overnight. 15 You know, I didn't really contest that and 16 push back on that yesterday because I was trying to put 17 my best foot forward. 18 CHAIRMAN KRAUSE: All right. 19 MR. BRESNEN: But there was a reason, and 20 it's a very good reason. There is no special expertise 21 in this agency when it comes to regulating charitable 22 bingo. Nada. Zero. 23 COMM. LOWE: Are you speaking about me or 24 about Alfonso? 25 MR. BRESNEN: No, sir. And listen, I very 0029 1 much appreciate you -- no. I very much appreciate you 2 rasing that because there's a tendency -- I'm going to 3 skip down into my notes here a little bit. Thanks. 4 CHAIRMAN KRAUSE: Mr. Bresnen, we've got 5 two more folks on this particular topic after you. Are 6 you getting close? 7 MR. BRESNEN: I'll move along quickly, but 8 a key message that I want to deliver to you, it's really 9 not about Alfonso Royal's performance. 10 It's about you-all's performance. We have 11 to have you-all -- 12 COMM. LOWE: He was talking about me. 13 MR. BRESNEN: -- from the top down that 14 are directing some changes. You have essentially four 15 functions in bingo. One is licensing. 16 That can be done by many other agencies. 17 Rule enforcement: It's done all over state government; 18 auditing: It's done all over state government; 19 administrative hearings: It's done all over state 20 government. 21 Those could be done elsewhere. The reason 22 we wanted to go to TDLR was because it has a 23 well-established reputation for simplifying regulation 24 and lowering costs. 25 You cannot tell these charities they've 0030 1 got to be getting more money and then drive up the cost 2 to them. The state and local governments get more money 3 out of charity bingo than charities do, and that's got 4 to change. 5 So what to do about it: We're proposing a 6 wholesale rewrite of the administrative rules. You've 7 got this rule review deal you're going to act on, I 8 assume, today. 9 We want to participate in that and we've 10 already started working on it. You need some structural 11 change. 12 I'm going to -- if I might -- 13 CHAIRMAN KRAUSE: Mr. Bresnen, we came 14 here to talk about the Bingo Advisory Group and I think 15 we're going a little far afield. 16 MR. BRESNEN: Yes, sir. Well, there's 17 a -- yes, I understand. 18 CHAIRMAN KRAUSE: You've got one more 19 minute. 20 MR. BRESNEN: On the Bingo Advisory 21 Committee, sir, we would like for this rewrite of the 22 rules to come through the Bingo Advisory Committee after 23 whatever process Mr. Royal wants to engage in is 24 completed. 25 Those rules are going to touch on all 0031 1 these areas that I've outlined here, and we're looking 2 to you-all to help us streamline this regulation and use 3 that Bingo Advisory Committee to achieve that goal. 4 Thank you very much for allowing me to 5 speak today. 6 CHAIRMAN KRAUSE: We've got two other 7 folks that wanted to talk generally about bingo, and 8 this is a good time, and so we've got William Johniken 9 and we've got Ronnie Baker, if they want to come up. 10 Give you-all each three minutes. 11 MR. JOHNIKEN: Actually the issue that I 12 wanted to talk about is -- 13 CHAIRMAN KRAUSE: Do you want to introduce 14 yourself? The Court Reporter can't figure it out. 15 MR. JOHNIKEN: I'm sorry. I'm William 16 Johniken and I'm just basically representing myself. 17 However, the issue that I was wanting to 18 discuss with you and get you to consider for an agenda 19 for your next meeting has been resolved at this 20 particular point in time. 21 So I'm drawing back that. However, I do 22 want to congratulate all the new Commissioners on your 23 appointments and look for great things to happen out of 24 this. 25 Thank you very much. 0032 1 CHAIRMAN KRAUSE: You betcha. Mr. Baker. 2 MR. BAKER: I'll be brief. 3 Congratulations. We welcome you. It's always nice to 4 see a new face. 5 I'm the Sales Manager for Thompson 6 Allstate Bingo Supply, and I'm not sure how many of 7 you-all have actually every played bingo. 8 I'll tell you this: The key word that I 9 keep hearing in here is the Bingo Advisory Committee. 10 Back in 2004 to 2006, on that committee, a new product 11 was introduced called the "Bingo Event Ticket," and 12 because of the Bingo Advisory Committee that one item 13 has saved charitable bingo in the state of Texas. 14 I strongly support the reimplementation of 15 the Bingo Advisory Committee. You know, when I started 16 this 35 years ago we had twice as many charities playing 17 bingo. 18 We had thousands of people that benefited 19 from their good work, and that no longer exists. The 20 competition for the recreational dollar, it has 21 exploded. It's bigger than ever. You know, the state 22 of Texas is under attack from all types of gaming 23 destination casinos, horse racing, historical racing. 24 The Bingo Advisory Committee, charitable 25 bingo, does wondrous things in Texas. I belong to the 0033 1 Knights of Columbus. I belong to the American Legion. 2 Without charitable bingo we wouldn't have the funds that 3 we have to help kids, disabled Vets. Welcome. Thank 4 you very much for your time. 5 CHAIRMAN KRAUSE: Thank you, sir. One 6 more person has provided a witness affirmation form that 7 is not assigned to a particular agenda item, and so 8 let's go ahead and hear from Eddie Heinemeier. 9 MR. HEINEMEIER: This is -- I'm Eddie 10 Heinemeier with the Staff Professionals. I represent 19 11 bingo units across the state and over 100 charities. I 12 want to say, "Welcome." 13 We look forward to working with the new 14 Commissioners and with you and Alfonso and his team. We 15 appreciate it working that way. A lot of the issues I 16 had have been addressed already. So I won't take up 17 your time because I know you have a busy agenda, but we 18 do want to work with you. 19 We look forward to have the Bingo Advisory 20 Committee back because it's something to be useful for 21 everyone and, yes, I represent everything from rotary 22 clubs, Boys and Girls Clubs, VFW, all sorts of 23 charities, and charitable bingo makes it possible and 24 that money stays in Texas. 25 So we need your help in those areas and we 0034 1 appreciate your time. Thank you. 2 CHAIRMAN KRAUSE: You betcha. At this 3 point I would like to introduce Doug Lowe as the 4 Governor-Appointed Bingo Commissioner. 5 So that's his special status. We're proud 6 to have him. He apparently has -- he has got special 7 expertise in this area. So excluding him right now, do 8 we have any questions or comments from the other three 9 Commissioners? 10 All right. Mr. Lowe -- Commissioner Lowe, 11 do you have any comments? 12 COMM. LOWE: Chairman, if you'll indulge 13 me -- 14 CHAIRMAN KRAUSE: Yes. 15 COMM. LOWE: -- do I have my limit at 16 three minutes? 17 CHAIRMAN KRAUSE: Well, you're a 18 commissioner. You can go on as long as you like till I 19 get tired of it. 20 (Laughter) 21 COMM. LOWE: Well, these folks don't know 22 anything about me. So I thought this -- just a little 23 bit of introduction about me -- 24 CHAIRMAN KRAUSE: Perfect. 25 COMM. LOWE: -- if that's okay. I've been 0035 1 practicing law since 1979. So that's a while. 2 I've been doing that work. I live in 3 Palestine, which is in East Texas, Anderson County, 4 which is the home of five maximum security units of the 5 Texas Department of Criminal Justice. 6 That was -- and those folks count in the 7 census, by the way, if you didn't know that. For the 8 last 16 years I was elected District Attorney for our 9 county and spent most of my time prosecuting child 10 molesters, murderers, drug dealers, but the last eight 11 years or so I was chasing people who were running 12 8-liners and charitable sweepstakes, which is an illegal 13 lottery. 14 So when the Governor called -- when the 15 Governor's Office called they said, "Well, Doug, we hear 16 you know something about gambling," and I said, "Where 17 did you hear that from?" 18 So I do know something about the business. 19 We talked yesterday in Mr. Bresnen's group about, you 20 know, the competition that we're facing from illegal 21 gambling. 22 So I did chase those people, and I've 23 worked with the Attorney General, the FBI, the U.S. 24 Attorney's Office, Tarrant County and quite a few 25 prosecutors around the state on trying to put a stop to 0036 1 this. 2 We hadn't had a whole lot of help from the 3 Legislature on dealing with the problem. We still have 4 the fuzzy animal issue that causes judges consternation, 5 but I'm committed to carry on that work. 6 As far as today as the recommendation to 7 have a committee appointed, I would like to think about 8 that, if that's okay with everybody. 9 I am the new kid on the block, and I want 10 to think about that. Alfonso, I've had time to talk to 11 him a great deal and I'm really impressed with his 12 ability to manage this organization with limited 13 resources. 14 So let's give me some time to think about 15 the appointment of this committee and other issues that 16 you've raised. I will tell you that I'm committed to 17 learning the bingo business so that I can do a good job 18 for you folks, that when you have an issue, that we deal 19 with it responsibly and efficiently and quickly. 20 One thing I learned about being District 21 Attorney is you can't close your door and hide from 22 problems. You've got to come out and face them, 23 especially when you've got a victim of a crime or a law 24 enforcement official that's upset about something you've 25 done. 0037 1 So I did learn that as District Attorney, 2 and I will carry that forward to this position. 3 So we'll be responsive. You know, I guess 4 if we have customers, you're it, and I want to deal with 5 our issues as if you're customers with the thought that 6 the reason that we have charitable bingo is for 7 charities. 8 It's not -- it's not for -- it's not for 9 people to -- who are not charities to get rich. I'm not 10 trying to be ugly about that, but I think we need to 11 focus on how we get charities making money for their -- 12 whether they're boys and girls clubs or crisis centers 13 or the Knights of Columbus, we need to make it that 14 they're getting a fair amount of money out of the 15 revenues. 16 So I want to make a -- I heard the 17 complaints about the technology we have. You know, it's 18 2015 and you're able to buy anything you want on the 19 Internet, communicate instantaneously with somebody 20 in -- my son lives in Berlin and we talk on Skype and 21 communicate and I put money in his bank account when he 22 tells me he's broke. 23 (Laughter) 24 COMM. LOWE: So the technology -- you 25 know, we're limited on our resources and I think you've 0038 1 got to realize that. I mean, Ms. Ives, wherever she 2 is -- 3 MS. IVES: I'm here. 4 COMM. LOWE: -- she's over there. I don't 5 use Internet Explorer. So I wouldn't have a problem 6 getting on the system, but we do need to make it where 7 our technology is advancing into 2015 and -- but 8 realizing that there are resources, we're kind of 9 strapped for resources. 10 So, anyway, that's about -- that was a 11 rambling closing argument or opening statement, and so I 12 appreciate your time, Chairman. But at this point in 13 time I'd just move to table the item to appoint members 14 of this advisory committee. 15 CHAIRMAN KRAUSE: Well, it's not an action 16 item. So, anyway, we'd be more than happy to take some 17 action at a later date. 18 AGENDA ITEM NO. IV 19 CHAIRMAN KRAUSE: Agenda Item No. 4, we've 20 got -- Lea Burnett is going to propose some amendments 21 to the regulations, setting the lottery. 22 MS. BURNETT: Good morning, Chairman, 23 Commissioners. Welcome. 24 For the record, my name is Lea Burnett and 25 I'm an Assistant General Counsel with Legal Services. 0039 1 I present to you for consideration a draft 2 submission for publication to the Texas Register that 3 authorizes the adoption of amendments to Rule 16 TAC 4 Sections 401.305, 401.307, 401.308, 401.312, 401.315, 5 401.316, 401.320 and 401.322. 6 The purpose of the amendments is to 7 enhance and clarify the methods by which a lottery 8 player may communicate number and play selections to a 9 lottery retailer from whom the player purchased its 10 tickets. 11 Currently we have three acceptable methods 12 by which a player may complete play selections in order 13 to purchase a ticket. These amendments will add two 14 additional methods: One, using the play it again 15 function which allows a player to provide a previously 16 purchased ticket to a retailer to obtain the same play 17 selections, or, two, using the Texas lottery mobile 18 application through which a player can make play 19 selections that they wish to play and generate a QR code 20 which will capture those selections that the retailer 21 may then scan. 22 A public comment hearing was convened on 23 Thursday, June 30, 2015 at 10:00 a.m. No members of the 24 public attended. We did receive one written comment on 25 the proposal which we responded to in the submission. 0040 1 These amendments are presented without 2 changes to the proposed versions that were published in 3 the Texas Register on June 12, 2015. 4 The staff recommends that the commission 5 adopt the draft amendments as presented in your 6 notebooks, and I'm available to answer any questions 7 should you have any. 8 CHAIRMAN KRAUSE: We do have one witness 9 affirmation form on this item and the next item, and 10 before we call that person, are there any questions that 11 the Commissioners have? 12 COMM. LOWE: I do have questions, 13 Mr. Chairman, if I could. 14 MS. BURNETT: Certainly. 15 CHAIRMAN KRAUSE: Yeah, please. 16 COMM. LOWE: So as I understand it, what 17 you're going to do is have some -- are you going to have 18 some communication between a cell phone or some mobile 19 device? Is that -- 20 MS. BURNETT: What would happen with the 21 Texas Lottery mobile application is the individual would 22 on their phone, not communicating with the system itself 23 but could at another location or anywhere that they were 24 wishing to do so generate play selections for a 25 particular game, and all of the games would be able to 0041 1 be picked out in the mobile application. 2 A QR code could then be generated on your 3 telephone. You would still have to take the telephone 4 to a retailer whose system would then scan the code 5 that's on your phone. 6 Now, the code is not stored in the phone. 7 It's generated at the time you make your purchase. It 8 is scanned by a scanner similar to how groceries are 9 scanned across the scanner, and then you would purchase 10 the ticket with those selections. 11 COMM. LOWE: So there's no communication. 12 There's no -- I can't sit here and buy a lottery ticket 13 on my cell phone. 14 MS. BURNETT: No. This is not intended to 15 enable someone on their phone to purchase tickets, which 16 would be something that we believe we do not have 17 authority to do from the Texas Legislature. 18 COMM. LOWE: So it's like -- I'm starting 19 to get all these coupons from stores like a Beall's 20 store that you can -- basically it's going to create an 21 image that they scan and you -- with your pics on the 22 lottery. 23 That's essentially what we're doing, isn't 24 it? 25 MS. BURNETT: Yes, sir. I don't know if 0042 1 our Lottery Operations Director has anything else to add 2 on that. If you'll give him the opportunity, he's 3 actually the -- 4 COMM. LOWE: He's the tech guy. 5 MR. ANGER: Good morning, Commissioners. 6 Welcome. My name is Michael Anger, and I'm the Lottery 7 Operations Director. 8 Just to add to what Lea said, this is a 9 player-convenience focus change that we're looking to 10 make. 11 So we're looking to launch mobile 12 application next spring. One of the functionalities 13 that we want to add to that as a convenience to players 14 is the ability to store their favorite play sections, 15 numbers that they like to play on their games, on their 16 mobile application, and essentially that would replace 17 the paper play slip that they fill out and carry around 18 with them and have to store and manage and bring with 19 them to retail to make their purchases. 20 So they'll be able to store their wagers, 21 store their number combinations that they like to play, 22 and then when they go into retail if they want to play 23 those they just pull them up on their phone, they 24 generate the QR code that Lea spoke about, they present 25 that to the retailer and the retailer will conduct the 0043 1 sales transaction. 2 So to the question that you asked, 3 Commissioner Lowe, there will be no sales taking place 4 via the mobile application. The sales transaction is 5 exactly the same as it is today. 6 The player has to interact with the 7 retailer or one of our retail sales devices, our Gemini 8 sales machines, in order to conduct the sales 9 transaction to purchase their tickets. 10 So that's not a change. It's really just 11 the difference between providing a paper play slip or 12 presenting their phone with the QR code that will allow 13 them to submit their play selections to the retailer. 14 COMM. LOWE: So as far as getting the app 15 out there, do you use the App Store through Apple and 16 the Google Store or App Store? 17 MR. ANGER: Yes, sir. We intend to have 18 both an iPhone application and Android-based 19 application. 20 COMM. LOWE: So I guess my only question 21 then is, are you going to collect data on who downloads 22 that app through -- because, you know, you have to have 23 an iTunes account to get the app, and Apple is going to 24 know who's getting those -- downloading those apps? 25 MR. ANGER: My understanding is is there's 0044 1 high-level metadata analytics that will collect data 2 about how many times the application is downloaded, et 3 cetera, but we are not drilling down and collecting 4 personal data about individuals. 5 So, for instance -- 6 COMM. LOWE: Well, Apple is. 7 MR. ANGER: Apple may be collecting data 8 with regard to, you know, the download of the 9 application onto the phone, but as far as individual 10 data -- so, for instance, you know, if you download 11 certain applications they may ask to track your 12 location, ask for access to your calendars or things 13 like that, we're not seeking any of that. 14 So this is really just something that 15 we're making available and, you know, it's kind of a 16 user interface for the player. 17 COMM. LOWE: So our policy, though, is 18 that we're not going to collect personal data through 19 anybody about the people who are downloading this app? 20 MR. ANGER: We have no intention to 21 collect any personal data. 22 CHAIRMAN KRAUSE: Any other questions, 23 comments? Thank you very much. 24 Ms. Dawn Nettles would like to comment on 25 this, and when she comes up she's right in between Items 0045 1 IV and V, and so she will comment on IV, and then on V 2 that will introduce Item No. V. 3 We'll have an action item here in a 4 moment. So let's go ahead and hear Dawn Nettles now on 5 IV. 6 MS. NETTLES: Good morning, Commissioners 7 and welcome to you new ones. I don't have any comment 8 on Item IV, and I would like to wait until I hear what 9 you-all say about Item V before I say anything on that, 10 if that's all right with you. 11 CHAIRMAN KRAUSE: Absolutely. 12 MS. NETTLES: Can I wait? Okay. Thank 13 you. 14 CHAIRMAN KRAUSE: All righty. I am 15 looking for a motion. 16 COMM. LOWE: I move to adopt the proposed 17 amendments. 18 COMM. RIVERA: Second. 19 COMM. ARRIETA-CANDELARIA: Second. 20 CHAIRMAN KRAUSE: All in favor say, "Aye." 21 (All those in favor of the motion so 22 responded) 23 CHAIRMAN KRAUSE: All opposed, "Nay." 24 It passes by acclamation. 25 MR. BIARD: Thank you, Commissioners. I 0046 1 have an order for your signature on this item. 2 AGENDA ITEM NO. V 3 CHAIRMAN KRAUSE: Agenda Item No. V. 4 Deanne Rienstra is going to explain this to us. 5 MS. RIENSTRA: Good morning, Chairman, 6 Commissioners. I'm getting my papers straight. For the 7 record, I'm Deanne Rienstra, Assistant General Counsel. 8 In your notebook is a draft of the 9 proposed changes to the Texas Powerball game rule 16 TAC 10 401.317. These were published in the Texas Register on 11 June 12th. 12 I would like to point out that we have had 13 one last minute correction due to a phrase of some words 14 that were left in that have been removed on -- you may 15 have the new draft already, but in the original draft on 16 Page 20 under Section (k)(4) Part (A), we are removing 17 the words "50 percent (50 percent) of each draw's sales 18 shall be collected for the payment of prizes." 19 That is not in the draft that was sent out 20 for the audience today. The amendments were proposed 21 due to the multi-state Lottery Association's adopting 22 changes to the power ball game. 23 The primary purpose for the amendments is 24 to change the game matrix and to offer a new 10X 25 multiplier to the power play add-on feature. 0047 1 The first drawing under these amendments 2 is anticipated to occur on October 7, 2015. These 3 amendments are being presented for adoption with 4 nonsubstantive changes due to clarifying amendments 5 approved by the multi-state lottery association on 6 June 25th 2015. 7 More specifically, language to clarify 8 that the 10X multiplier will only be available on 9 advertised grand prize amounts that are $150 million or 10 less. 11 Also, there is clarification to the prize 12 payout percentage variance which I just explained to you 13 in Section (k)(4)(A). The public comment hearing was 14 held on June 30th. No members of the public were 15 present. 16 Only one written comment was received and 17 the response is in your draft and will be in the 18 documents. The comment period ended July 13th, and at 19 this time staff recommends adoption of these amendments 20 with the nonsubstantive changes, and I am happy to 21 answer any additional questions you may have. 22 CHAIRMAN KRAUSE: Commissioners, comments, 23 questions? 24 COMM. HEEG: I have a question. Can you 25 explain how the multi-state Lottery Association makes 0048 1 proposals and also explain whether if we choose to not 2 adopt this rule what happens? Are we out of Powerball? 3 MS. RIENSTRA: The multi-state Lottery 4 Association is a group of states. When they -- when 5 they adopt their game rules they adopt it within the 6 organization. 7 So when they make the changes, we then 8 have to go to our local state game rule and make similar 9 changes so that we're playing the same game, and I 10 believe that if we don't adopt the changes then we will 11 no longer be playing Powerball. 12 MR. BIARD: Let me jump in for a minute. 13 The multi-state Lottery Association is a type of a 14 nonprofit entity, I believe, under Iowa law. 15 It's not a governmental entity itself, but 16 it's made up of lotteries across the country. So when 17 they make their changes they just do it by a vote of 18 their members. 19 Each one of the states has different 20 requirements regarding how their lotteries can make 21 rules. Some of the states in the lotteries are not 22 state agencies like ours. So some of them take a less 23 period of time, but in Texas because of our rulemaking 24 system it takes us at least, you know, two to three 25 months to ever get a rule from start to finish to 0049 1 change. 2 The agreement among the states is, you 3 know, they all are participating in the games. So if 4 you're going to participate in the game you have to 5 adopt the changes. 6 In Texas we have specific statutes that 7 authorize the lottery commission to participate in a 8 multi-jurisdictional game and to, you know, adopt those 9 rules that the multi-jurisdictional association adopts. 10 COMM. HEEG: Thank you. 11 COMM. LOWE: So how many states are in a 12 multi-state lottery? 13 MR. GRIEF: There's 43 jurisdictions, 14 Commissioner, that participate. In Powerball there are 15 33 states that comprise the multi-state Lottery 16 Association. 17 COMM. LOWE: Okay. So this is the 18 Powerball. 19 MR. GRIEF: This is the Powerball. 20 COMM. LOWE: How many states have -- how 21 many states have approve the rule change? 22 MR. GRIEF: I would -- speculating, I 23 would guess we're one of the very last ones to approve 24 that because of our lengthy rulemaking process that we 25 have to undergo. 0050 1 I would venture probably 80 or 90 percent 2 of the states have already gone through this process. 3 COMM. LOWE: And excuse the bad put, but 4 if we don't ball, how much money are we talking about 5 losing for revenue for education and Veterans? 6 MR. GRIEF: Around $300 million a year in 7 sales. That would impact our total sales dollars. 8 COMM. LOWE: And so my understanding is 9 that this change increases the odds. Is that what's 10 going on in this change? 11 MR. GRIEF: There's multiple changes 12 taking place. One of the changes that we're undergoing 13 is to make the odds of winning the top jackpot prize 14 higher, make it more difficult. 15 This is a change that's way overdue. 16 Since the playing population of Powerball has almost 17 doubled in the last seven or eight years, there's been a 18 counterintuitive change to the odds of winning the top 19 prize. 20 Those actually went down some number of 21 years ago. So I would characterize this as a right 22 sizing of the matrix based on the population in the 23 United States that's now playing the Powerball game. 24 Now, there are other changes taking place 25 at the same time. There's a change to the fourth prize 0051 1 in the game. 2 That prize is being dramatically made 3 higher. There's changes to the overall odds of the game 4 of winning any prize regardless of the dollar amount. 5 That's actually becoming better in the player's favor 6 under this game change. 7 COMM. LOWE: So the article I read, and 8 specifically to the odds winning the big prize, it's an 9 article from 538.com that said the odds now are about 10 172-million-to-1 under the present system and will now 11 go up to -- I think the number was 252 million. 12 MR. GRIEF: 292, if I'm correct. 13 COMM. LOWE: 292 million. So -- so the 14 effect is going to be that you'll have -- within the 15 first five years or so you'll have the very first 16 billion dollar Powerball. 17 MR. GRIEF: It's always nice to speculate 18 on what might occur over time. The Multi-State Lottery 19 Association has thought a lot of things might occur. 20 One of the reasons we're changing this 21 game is because our players have spoken with their 22 dollars and they don't play Powerball as frequently when 23 the jackpots don't get up to what they consider to be 24 attractive levels. 25 We keep raising the bar on that. It's 0052 1 called "Jackpot Fatigue." Whereas 10 years ago a 2 $300 million jackpot would cause lotto fever around the 3 country; it barely causes a yawn now-days. 4 So we must keep changing these games to 5 make them always exciting and interesting for our 6 players. 7 COMM. LOWE: And so what your thought is, 8 it will generate a lot more activity, a lot more folks 9 playing the game? Because I think that's the underlying 10 theory is that you're increasing the size of the 11 jackpots. 12 MR. GRIEF: Yes, sir. You're absolutely 13 correct. That's the goal of these changes, is to 14 increase the jackpots and increase the excitement for 15 our players to play. 16 COMM. LOWE: So do the statisticians say 17 that we'll generate more money? Is that their say, for 18 the kids' education and kids and Veterans? 19 MR. GRIEF: I could spend a day with you, 20 Commissioner Low on that -- 21 COMM. LOWE: I don't have a day. 22 MR. GRIEF: The statistics will tell you 23 one thing. The reality is -- 24 COMM. LOWE: I think the Chairman wants me 25 to shut up, too. 0053 1 MR. GRIEF: -- it's a random game and 2 sometimes we have winners and sometimes we don't, and 3 you can't predict that. 4 The projections indicate that we'll have 5 higher jackpots based on the less likelihood of someone 6 hitting that jackpot as often which translates into more 7 sales and more revenue for good causes. 8 CHAIRMAN KRAUSE: My question is that our 9 lottery is represented at the multi-state organization. 10 MR. GRIEF: Yes, sir. I actually Chair 11 the Powerball game group, and every state is allowed one 12 state one vote when it comes to game changes like this 13 one. 14 I can tell you that this passed 15 unanimously among the Powerball game group. 16 CHAIRMAN KRAUSE: So our views are 17 represented through you at that level. 18 MR. GRIEF: Yes, they are. 19 CHAIRMAN KRAUSE: So you bring your 20 judgment as to, you know, what we need down here when 21 you're making your determination and speaking to the 22 others about the rules that are on the table to be 23 adopted. 24 MR. GRIEF: That's exactly right, 25 Mr. Chairman. If I had any concerns or reservations 0054 1 about any game change that came from either the Mega 2 Millions game group or the Powerball game group through 3 MUSL I would certainly make the Commission aware of 4 those concerns. 5 CHAIRMAN KRAUSE: And just so we nail down 6 this point, bigger jackpots make people more excited; 7 they're a lot more ready, willing and able to play and 8 that translates into more money for the Texas school 9 children. 10 MR. GRIEF: Well said, Mr. Chairman. 11 CHAIRMAN KRAUSE: All right. Thank you 12 very much. Ms. Dawn Nettles. 13 MS. NETTLES: Good morning again, 14 Commissioners. My name is Dawn Nettles, for the record. 15 I'm from Garland or Dallas. 16 I have several comments on the Powerball 17 rule. With all due respect to Gary, I don't agree with 18 him on the 300 million that you'd lose, because you 19 wouldn't -- in the first place, for Fiscal '15, so far 20 Powerball sales is 198 million, and there's two more 21 draws to go, and then Power Play was 25 million. 22 The people would take that money and put 23 it on the other games. The state would not lose 24 anything on that game if we were not a Powerball state. 25 Sales came down. The number of tickets 0055 1 sold came down when they went to $2 a ticket back in 2 2012. I think there's 47 states and jurisdictions that 3 are playing, and I hope you do not adopt the rule 4 because people -- 292-million-to-1 is horrible odds. 5 I mean, I'm fighting for consumer 6 protection for lottery players. Texas only sells 550 7 million -- 550,000 to 800,000 lottery tickets for a 8 draw. 9 Well, many of those are duplicate 10 combinations. So there's 292 million; yet, there's only 11 800,000 tickets sold. To me that's horrible. 12 I think the odds are terrible, and I think 13 that the money would -- people do not approve of the $2 14 price point and they don't -- they're tired of losing. 15 That's why all their online sales are 16 going down. I think if you-all study the past history 17 of the lottery you'll see how sales declined with these 18 rule changes. 19 No one is in favor of this across the 20 country. There's all kinds of negative news stories on 21 it. I don't look for Texas to pull out of Powerball 22 because Texas joined them. People got Mega Millions and 23 went with Powerball, but I hope you-all don't adopt it. 24 I feel pretty sure you will, but at least 25 on behalf of the people, the players, the consumers in 0056 1 this state, it's not good for them. 2 The odds are just totally out of sight. 3 CHAIRMAN KRAUSE: Thank you, ma'am. 4 MS. NETTLES: Thank you very much. 5 CHAIRMAN KRAUSE: You betcha. All right 6 well, this is an action item, and does anybody want to 7 make a motion on it? 8 COMM. RIVERA: I move for approval. 9 COMM. HEEG: Second. 10 CHAIRMAN KRAUSE: All righty. 11 COMM. LOWE: Could I just make one comment 12 before we vote -- 13 CHAIRMAN KRAUSE: Yes. 14 COMM. LOWE: -- in terms of discussion? 15 Here's kind of where I am on this thing: When I tell my 16 preacher that I was going to be on the Lottery 17 Commission, he said, "What"? 18 I said, "Well, you don't understand. I 19 think that the Governor by appointing me wants to have 20 somebody who's going to listen to the issues and make 21 good judgments for the state," and as a whole he said, 22 "Well, you know, I never have bought a lottery ticket," 23 and I said, "Well, I mean, I hadn't bought one in a long 24 time either, preacher," and he said, "Well, I'll pray 25 for you." 0057 1 (Laughter) 2 COMM. LOWE: So here's kind of my thought 3 on this thing: You know, if the odds are 172 million, 4 that's probably about getting -- the same as getting 5 struck by lightning three times in your life. 6 So we're raising the chances of getting 7 struck by lightening to six times. It doesn't seem very 8 relevant to me. I mean -- but my thought is, you know, 9 however you feel about the lottery, it's here and I want 10 to do what we can to make this an effective lottery, 11 that we have fair as possible, but keeping in mind that 12 what we're doing is to raise money for education and 13 Veterans, and if that's going to happen, then I think 14 that we need to do it and so -- I'm sorry to tell you 15 the story about my preacher, but that's kind of my 16 opinion on this. 17 CHAIRMAN KRAUSE: That's okay. I've been 18 on the Commission since 2009 and I can tell you that 19 whenever the jackpot hysteria hits the public they love 20 to play. They love to play and it causes a lot of great 21 publicity for the game and for the state and our 22 customers get out and they vote with their dollars. 23 So I believe that that's what they'd like 24 to see, is big jackpots, and I want to give it to them. 25 Anyway, we've already got a motion -- 0058 1 COMM. HEEG: Can I make one more comment 2 and -- 3 CHAIRMAN KRAUSE: Absolutely. 4 COMM. HEEG: -- it's really not specific 5 to this rule, but as a new Commissioner I would 6 encourage anyone that has concerns with the rule to 7 submit written comments, and I can promise you I'll read 8 them, but it's difficult as a Commissioner to get rules 9 that are supported out for public comment and we don't 10 get comments and then ask us to make changes at the 11 meeting. 12 I promise anyone that files comments I'll 13 read them and consider them, and I'll consider the oral 14 comments at the meeting, too, but I encourage the 15 written comments. 16 CHAIRMAN KRAUSE: Commissioner Heeg, thank 17 you very much. Let me just say this: When I hear from 18 our staff that there is no public comment, that tells me 19 the public is okay with it. 20 So if there's a problem with something, 21 you've got to let us know, and that's how to do it. So, 22 anyway, I'm going to call for -- I've got a vote on the 23 table. 24 All in favor say, "Aye." 25 (All those in favor of the motion so 0059 1 responded) 2 CHAIRMAN KRAUSE: All opposed say, "Nay." 3 Hearing no "Nays," it passed by acclamation. 4 MR. BIARD: Thank you, Commissioners. I 5 have an order for your signature on this item as well. 6 AGENDA ITEM NO. VI 7 CHAIRMAN KRAUSE: Agenda Item No. VI. 8 Mr. Biard. 9 MR. BIARD: Yes, Commissioners. In this 10 item I am requesting that you readopt the Commission's 11 general administration rules at Title 16, Chapter 403 of 12 the Texas Administrative Code. 13 On May 28th the Commission initiated this 14 proceeding pursuant to Texas Government Code Section 15 2001.039 which requires the state agency to review all 16 of its rules every four years. 17 The Commission's rules are contained in 18 three chapters of the Administrative Code; one chapter 19 for Lottery, one for Bingo and one for General 20 Administration. 21 A proposal to initiate a review of the 22 Lottery and Bingo rules is the next item on the agenda 23 at this meeting. The review must include an assessment 24 of whether the reasons for adopting each of the rules 25 continue to exist. 0060 1 The Commission's notice of intent to 2 review the Chapter 403 rules was published in the June 3 12th issue of the Texas Register and we received no 4 comments regarding the rule review. 5 As a result of the review and as discussed 6 in the readoption document we believe the reasons for 7 adopting each of the rules continue to exist and that 8 none of the rules need to be amended or repealed at this 9 time. 10 Nine of the Chapter 403 rules were amended 11 following the last rule review in 2011, and three 12 additional Chapter 403 rules were first adopted in 2013 13 since the last rule review. 14 So we recommend that the Commission 15 approve readoption of the General Administration Rules 16 at 16 Texas Administrative Code Chapter 403. 17 CHAIRMAN KRAUSE: Questions, comments? 18 COMM. ARRIETA-CANDELARIA: I have a 19 question really quick, and this question is for Gary. 20 So from an administration standpoint, do you ensure that 21 your policies and procedures are reviewed annually as 22 well to support the rules that are adopted by the 23 Commission? 24 Is that internally? Is that what you do? 25 MR. GRIEF: Thank you for that question, 0061 1 Commissioner. I would say it happens much more 2 frequently than annually. 3 In addition to our legal team, our 4 administration division, our lottery operations 5 division, all of our larger divisions and smaller ones 6 are constantly reviewing their policies and procedures. 7 Given the amount of audits that we undergo 8 as an agency, which I would venture a guess that we are 9 the most audited and reviewed agency in the state, we 10 have taken great pride in our policies and procedures 11 keeping those updated. 12 We have an annual -- more than annual 13 process where we have a gentleman who's assigned just to 14 make sure that policies and procedures are kept up to 15 date, and periodically we'll get those rerouted to us 16 even if there are no changes just to validate that what 17 we have in place are still accurate and appropriate. 18 COMM. ARRIETA-CANDELARIA: Thank you. 19 CHAIRMAN KRAUSE: I've got a question. Is 20 there any public comment on this type of thing? 21 MR. BIARD: Yes. It was published in the 22 Texas Register and we received no public comment. 23 CHAIRMAN KRAUSE: Good. Then the public 24 is in this line with what we're about to do. So do we 25 have a motion to approve the review of the rules for 0062 1 Chapter 403? 2 COMM. ARRIETA-CANDELARIA: I so move. 3 COMM. RIVERA: Second. 4 CHAIRMAN KRAUSE: All right. All in favor 5 say, "Aye." 6 (All those in favor of the motion so 7 responded) 8 CHAIRMAN KRAUSE: All opposed, "Nay." No 9 opposition, it passes by acclamation. 10 MR. BIARD: Thank you, Commissioners. I 11 have an order for your signature on this item as well. 12 CHAIRMAN KRAUSE: We're going to take two 13 more items, and then we're going to have a break. 14 AGENDA ITEM NO. VII 15 MR. BIARD: I have the next item as well, 16 Item No. 7. This is the notice of intent to review the 17 lottery and bingo rules which are Chapter 401 and 402. 18 This is a request for you to approve 19 publication of a notice of intent to review the rules 20 concerning administration of the State Lottery Act and 21 the Charitable Bingo Operations Division. 22 We propose handling these as two 23 submissions to the Texas Register. As I stated in the 24 prior item by statute every four years the state agency 25 is required to review all of its rules. 0063 1 The Commission last reviewed these rules 2 in the summer and fall of 2011, and the Commission 3 approved orders readopting all of the rules. 4 As a result of that review, the Commission 5 decided to amend several of the rules to reflect current 6 legal and policy considerations and current Commission 7 procedures and to repeal three of the bingo rules. 8 The names and numbers of the rules are 9 listed on the notices. At the conclusion of the review 10 the staff will ask the Commission to approve an order 11 readopting each rule with an assessment of whether the 12 reasons for initially adopting the rules continue to 13 exist. 14 The order will state whether there's a 15 need to amend or repeal any rules, and if the Commission 16 decides to repeal or amend a rule, staff will present a 17 separate rulemaking proposal to provide notice and 18 opportunity for public comment on the specific repeal or 19 amendment. 20 So in this item we recommend the 21 Commission approve publication of the two notices of 22 intent in the Texas Register to receive public comment 23 on the lottery and bingo rules. 24 CHAIRMAN KRAUSE: Comments, questions? 25 COMM. RIVERA: Move for approval. 0064 1 MS. KIPLIN: Mr. Chairman? I signed up to 2 comment on this agenda item. 3 CHAIRMAN KRAUSE: Yeah. Before we vote, 4 let's hear from Ms. Kiplin. 5 MS. KIPLIN: Sorry to interrupt you. Good 6 morning, Commissioners, Mr. Chairman. 7 My name is Kim Kiplin. I'm an attorney 8 here in town with the law firm Duggins Wren Mann & 9 Romero. I'm here today on behalf of the VFW Department 10 of Texas and with me -- is this on? Can you hear me? 11 And with me is Dan West who's the state 12 commander for the department. A little bit of 13 background on the VFW and why we're here on the Chapter 14 402 bingo rule review, it's the oldest major Veteran 15 service organization in the United states. 16 The mission of the VFW, of course, is to 17 support the Veterans and their families. There are 18 204 million members of the VFW and auxiliaries located 19 in 8500 VFW posts around the world. 20 While the VFW is a national organization, 21 the work of the VFW, of course, is conducted through the 22 local posts. 23 Here in Texas we have 330 local posts, and 24 of those 330 about 100 actually conduct charitable 25 bingo. And, of course, through the -- and you've heard 0065 1 previously through the conduct of charitable bingo the 2 VFW posts are able to serve their Veterans and their 3 families. 4 We're here today and only on the Chapter 5 402, the bingo rule, review. We're very much interested 6 in participating in that rule review and in the 7 stakeholder meetings that I -- I've spoken with 8 Mr. Royal, and I know he intends to convene and we 9 intend to participate in those stakeholder meetings. 10 Those meetings are very important because 11 they allow for dialogue between the regulator and the 12 license-holders. And so I think a good bit of the work 13 in terms of a exchange understanding the respective 14 perspectives will occur in those meetings. 15 You heard from your general counsel that 16 the purpose of the rule review is to identify rules that 17 should be repealed, rules that should be readopted, 18 rules that should be readopted with revisions to see 19 whether there's still a regulatory purpose for those 20 rules. 21 We'd like to think that this process will 22 also help bubble up to the top the higher priority items 23 for the Commission and the division. 24 You mentioned, Commissioner Lowe, the 25 limited resources -- and there are. It's limited by the 0066 1 budget, and so we'd like to participate in trying to 2 identify what's a real priority in terms of the 3 regulatory mission and really what is not. 4 There are about 60 bingo rules that need 5 to be reviewed. With that in mind and to have it be 6 meaningful, we would really respectfully request that 7 the comment period be more than 30 days -- we think 8 about 60 days -- to be able to go through that to get 9 meaningful comment on the rule review. 10 We understand the rule review is not the 11 rulemaking, but we believe it's an important process of 12 the overall process of rulemaking. We appreciate the 13 opportunity to comment on the rule review and 14 participate in the stakeholder meetings, and we're here 15 today to answer any questions that you might have. 16 CHAIRMAN KRAUSE: Bob, are you good with 17 the 60 days or 90 days? 18 MR. BIARD: Sure. Certainly. 19 COMM. LOWE: That's a pretty short fuse. 20 So you think 60 days is long enough? 21 MS. KIPLIN: Well, if you can go with 90, 22 that would be even better. 23 COMM. LOWE: What do you think? 24 (Multiple speakers talking simultaneously) 25 COMM. HEEG: How does that fit with having 0067 1 the appropriate time to meet our -- 2 MR. BIARD: There are a lot of -- well, I 3 mean, the requirement is to conduct the review every 4 four years, and it's not real clear under the statute, 5 you know, whether they measure from when you start or 6 from when you end, but I think, you know, having an 7 ongoing rule review I think we're satisfying the 8 statute. 9 My understanding is I think -- I mean, 10 Alfonso can speak to it, but I think, you know, his 11 process for, you know, going forward and evaluating each 12 of these rules, you know, I think it will take more than 13 30 days. 14 So that would support having a comment 15 period that's more than 30 days. 16 COMM. LOWE: What do you think, Alfonso? 17 MR. ROYAL: I agree, Commissioners. We're 18 under no specific time period. I would like to take 19 this opportunity to have a true comprehensive review of 20 the rules in their entirety; so whatever that time 21 period is. 22 There's a lot of things that I think we 23 need to become a little bit more transparent about and 24 I'd like to take this rule review as an opportunity to 25 do that. 0068 1 COMM. ARRIETA-CANDELARIA: Chairman Krause, 2 I would also agree that I think 60 days is a good time 3 frame, because, I mean, you -- if you adopt them every 4 four years, I think 60 days is a good time frame to give 5 the public that opportunity that if you would like to 6 comment it would be appropriate to give them more time. 7 CHAIRMAN KRAUSE: Well, in that case, I'm 8 looking for a motion to recommend for publication for 60 9 days for public comment. 10 COMM. RIVERA: Move for approval for 60 11 days. 12 COMM. LOWE: Second. 13 CHAIRMAN KRAUSE: All in favor say, "Aye." 14 (All those in favor of the motion so 15 responded) 16 CHAIRMAN KRAUSE: All opposed say, "Nay." 17 It carries by acclamation. 18 MR. BIARD: And I have a T-bar memorandum 19 for your initials on this item, and so we'll make it 60 20 days for both the lottery and the bingo rules. 21 CHAIRMAN KRAUSE: All right. We'll take 22 one more item and then we're going to take a bathroom 23 break. 24 AGENDA ITEM NO. VIII 25 MS. GUTHRIE: Good morning, Mr. Chairman, 0069 1 Commissioners. My name is Kristen Guthrie, Assistant 2 General Counsel. Currently there is a rule regarding 3 motions for rehearing. Attached for your consideration 4 are proposed rule amendments to this rule, Section 5 401.220. 6 The purpose of the proposed amendments is 7 to implement changes to Texas Government Code Section 8 2011.146 made pursuant to Section 9 of the 9 recently-enacted Texas Senate Bill 1267 which modifies 10 certain deadlines with regard to filing, responding to 11 and ruling on motions for rehearing in contested cases 12 under the Administrative Procedure Act and clarifies the 13 content required in a motion for rehearing. 14 Staff recommends submitting the proposed 15 amendments for publication in the Texas Register in 16 order to receive public comments for 30 days. 17 I'm happy to answer any questions you may 18 have. 19 CHAIRMAN KRAUSE: Questions, comments, 20 Commissioners? 21 COMM. HEEG: I have a question. The 22 proposed rule talks about when a motion for rehearing is 23 overruled by operation of law. 24 Can you explain to me or to the Commission 25 when that occurs? 0070 1 MS. GUTHRIE: Well, in the past it's had a 2 little bit briefer deadline. Basically, if the 3 Commission chooses not to respond it's -- make any 4 decision it's going to be overruled as a matter of 5 operation of law. So -- but we generally keep you 6 informed of those deadlines so that it doesn't happen 7 without you being aware. 8 COMM. HEEG: And this puts more time into 9 the process. 10 MS. GUTHRIE: Yes. 11 MR. BIARD: Under the new rule in the 12 statute the time for the Commission to act is going to 13 be 55 days after the order was signed, but if it looks 14 like we get into a time crunch, there's a procedure in 15 place in the rule and in our procedures for either the 16 executive director or the bingo director as appropriate 17 to extend that up to a period of 100 days, to make sure 18 that we can bring it back to you at the Commission 19 meeting. 20 CHAIRMAN KRAUSE: Any other questions or 21 Comments? All right. 22 I'm looking for a motion here. 23 COMM. ARRIETA-CANDELARIA: Move to approve. 24 CHAIRMAN KRAUSE: Second? 25 COMM. HEEG: Second. 0071 1 CHAIRMAN KRAUSE: All righty. All in 2 favor say, "Aye." 3 (All those in favor of the motion so 4 responded) 5 CHAIRMAN KRAUSE: All opposed say, "Nay." 6 Passed by acclamation. 7 MR. BIARD: Thank you, Commissioners. I 8 have a t-bar memorandum for your initials on this item. 9 CHAIRMAN KRAUSE: All right. We're going 10 to take a 10-minute break here and we're going to 11 reconvene in 10 minutes. 12 (Recess: 10:15 a.m. to 10:28 a.m.) 13 CHAIRMAN KRAUSE: We took 15 minutes 14 instead of 10. 15 AGENDA ITEM NO. IX 16 CHAIRMAN KRAUSE: So, anyway, it is 10:30 17 and we're going to pick back up with Item No. IX -- 18 Agenda Item No. IX -- and that is Mr. Mike Fernandez, 19 our distinguished -- our distinguished... 20 MR. FERNANDEZ: Administration Director. 21 CHAIRMAN KRAUSE: Administration Director. 22 Thank you. Thank you very much. We love Mike -- big 23 Mike. 24 MR. FERNANDEZ: Good morning, Mr. Chairman 25 and Commissioners. For the record, my name is Mike 0072 1 Fernandez and I'm the Administration Director. 2 Item IX in your packet is a briefing item. 3 It's to advise the Commission of Staff's intent to amend 4 our scratch ticket printing vendors' contracts to add 5 two new pack sizes to the 4X10 scratch ticket and that's 6 pack sizes of 20 and 75. If you any questions I would 7 be happy to answer them about that. 8 CHAIRMAN KRAUSE: Questions, 9 Commissioners? This is not an action item. Segue right 10 on in. 11 MR. FERNANDEZ: The second item on IX is 12 also to amend our current advertising services contract 13 to change our audit reporting date from the Lottery 14 Commission calendar quarter to an annual calendar 15 quarter for that report. 16 So we're going to be amending that 17 contract to make that audit date change. 18 CHAIRMAN KRAUSE: Outstanding. Comments, 19 questions? 20 AGENDA ITEM NO. X 21 MR. FERNANDEZ: Item X on your agenda is 22 also to advise the Commission staff's intent to extend 23 our current product testing vendor contract for one 24 year, and it's the last option that we have on that 25 contract. 0073 1 If you have any questions about that, I 2 would be happy to answer them. That's all I have, 3 Mr. Chairman. 4 CHAIRMAN KRAUSE: Questions, comments? 5 COMM. LOWE: Pass the witness. 6 CHAIRMAN KRAUSE: Kathy Pyka. 7 AGENDA ITEM NO. XI 8 MS. PYKA: Good morning, Commissioners. 9 My name is Kathy Pyka. I'm the Controller for the 10 Commission, and with me to my right is Robert Tirloni. 11 He is the Commission's Product and Drawings Manager. 12 Commissioners, the first chart that we 13 have for you this morning reflects our comparative sales 14 through the week ending August 15, 2015. Our Fiscal 15 Year 2015 sales through this 50-week period are 16 $4,349,000,000, which is an increase of $128 million 17 over the last fiscal year. 18 Commissioners, this is a 3 percent 19 increase over the same time period for last fiscal year. 20 Our Fiscal Year 2015 scratch sales, which are reflected 21 on the second orange bar of the chart, are at 22 $3,340,000,000. This is a $187 million increase over 23 the sales figure for last fiscal year, and as noted here 24 you can see our scratch sales reflect 76.8 percent of 25 total commission lottery sales at this point in time. 0074 1 Our Fiscal Year 2015 draw sales, which are 2 reflected on the second blue bar, are at $1,008,000,000 3 which is a $58 million decline from last fiscal year. 4 Commissioners, this decline is attributed to the lack of 5 large jackpots this fiscal year as compared to last 6 fiscal year. 7 At last fiscal year at this point in time 8 we had had four jackpots that exceeded $400 million, and 9 this fiscal year at this point in time we've only had 10 one jackpot over $400 million, and that was the 11 Powerball jackpot that we had that went up to 12 $500 million. 13 We'll move on to the next slide, and this 14 includes our cumulative average daily sales figures for 15 Fiscal Years 2013, 2014, as well as 2015. Focusing on 16 the total average daily sales value for Fiscal Year 2015 17 at the bottom of the chart, which is $12.5 million, that 18 is a $443,000 per-day increase over last fiscal year and 19 a $377,000 per-day increase over Fiscal Year 2013. 20 As we walk through the products now, our 21 jackpot games are highlighted with the white font with 22 an average daily total of $1.73 million per day in 23 Fiscal Year '15, and that reflects declines of $90,000 24 from last fiscal year at a decline of $172,000 from 25 Fiscal Year '13. 0075 1 Again, as mentioned on the previous slide, 2 we've not had the large multi-state jackpots this fiscal 3 year as we had experienced in the previous fiscal years. 4 Our daily games are highlighted with the 5 blue font, and as you can see the total daily sales 6 average for our daily games is just under $1.2 million 7 for the current fiscal year, and that's a $28,000 8 per-day decrease from last fiscal year. 9 As we look at the details there are 10 variances, and looking at Pick 3 first it remained 11 pretty constant from the previous fiscal year, and we 12 are seeing a slight increase in Daily 4 sales as 13 compared to last fiscal year. 14 We'll move to the very bottom of the 15 chart, and noted there we've got our daily average for 16 our scratch tickets, which are at $9.6 million per day. 17 That is a $562,000 per-day increase over 18 last fiscal year and is a $709,000 per-day increase over 19 Fiscal Year 2013. So with that, Robert will now provide 20 an overview of actual sales by product. 21 MR. TIRLONI: Good morning, Commissioners. 22 For the record, Robert Tirloni, Products and Drawings 23 Manager. 24 Commissioners, this next slide follows the 25 same format as the one Kathy just covered. It is a 0076 1 comparison of fiscal year sales -- Fiscal Year '15 to 2 Fiscal Year '14 through two Saturdays ago, the week 3 ending Saturday, August 15th. 4 So the jackpot games are at the top in 5 white. We do have a $47 million decrease in jackpot 6 sales this fiscal compared to last fiscal. 7 You'll notice the bulk of that decrease is 8 coming from the Mega Millions game, which is down $34 9 million this fiscal compared to last. 10 As Kathy mentioned, this is attributable 11 to a lack of large jackpots in Fiscal '15. There was 12 one good Powerball jackpot this fiscal, which is 13 contributing to the slight increase that we're seeing 14 for that product. 15 So we're seeing a slight gain of 16 two-and-a-half million dollars for Powerball in '15 17 compared to '14. 18 The blue in the center of the chart is the 19 daily games. Pick 3 is pretty consistent. We're seeing 20 a slight decline of three-and-a-half million dollars. 21 The trend seems to be that Pick 3 players 22 are moving to the Daily 4 product, and you'll see that 23 Daily 4 is up about $3 million. 24 All told, the Daily games are down about 25 $11 million, and those two categories, the -- I'm 0077 1 sorry -- the jackpot and the Daily games are 2 experiencing a decline of $58 million this fiscal 3 compared to last. 4 Our scratch tickets or scratch games 5 continue to be and do very -- are performing very 6 successfully this fiscal. We are up $187 million in 7 Fiscal '15 compared to Fiscal '14. 8 So when you combine both product 9 categories together we are seeing an increase of $128 10 million this year. This next pie chart shows our total 11 instant ticket sales through the week ending Saturday, 12 August 15th, broken down by price points. 13 So this pie chart represents $3.34 billion 14 in instant ticket sales. The biggest piece of the pie 15 is the $5 price point. That is this piece here 16 (indicating) which is representing slightly over 17 $1 billion. 18 The next price point is the 10 followed by 19 the 20. This has been very consistent for us for some 20 time now. The 50 is a very small niche product for us. 21 You'll notice the 2 and the 3 are almost neck and neck 22 in terms of their sales through August 15th. 23 I have one other update for you this 24 morning, and it is about a new draw game. Texas Triple 25 Chance will be starting in a few weeks on Sunday, 0078 1 September 27th for sales. 2 The first drawing will be the next day. 3 This game is drawn every night. It will be Monday, 4 September 28th at 10:12 p.m. This is a major initiative 5 for us, this new game. You'll see the advertising 6 slogan that we're using; "It's as easy as 1, 2, 3;" one 7 ticket $2, three chances to win. 8 You'll start seeing full advertising 9 support for this game over the next couple of weeks 10 leading up to that launch on the 27th. You should see 11 outdoor boards, TV, radio spots. If you go into a 12 licensed lottery location you'll see a great deal of 13 in-store point of sale as well. So we wanted to let you 14 know that this was getting ready to start. 15 That concludes the sales presentation for 16 this meeting. Kathy or I are happy to answer questions, 17 though. 18 CHAIRMAN KRAUSE: Questions, comments? 19 Next item. Thanks. 20 MS. PYKA: Thank you, Commissioners. 21 MR. TIRLONI: Thank you. 22 AGENDA ITEM NO. XII 23 MS. PYKA: Commissioners, the next item in 24 your notebook includes the agency's transfers to the 25 state and the operating budget status update. 0079 1 For background purposes, Section 466.355 2 of the Government Code outlines specific purposes of the 3 state lottery account, including a requirement that each 4 month, by the 15th of the month, we make our required 5 transfer of revenue to the foundation school fund as 6 well as a transfer of unclaimed prizes. 7 So, Commissioners, the report in your 8 notebook reflects our accrued revenue transfers and the 9 allocations to the foundation school fund and the Texas 10 Veterans Commission for the period ending July 31, 2015. 11 Our total accrued transfers to the state 12 through this period amounted to $1,115,000,000, and that 13 was for the first 11 months of the fiscal year. Of the 14 $1,115,000,000 transfer to the state $1,051,000,000 was 15 transferred to the foundation school fund. 16 We transferred $10.7 million to the Texas 17 Veterans Commission and the remaining balance of 18 $53.3 million was transferred from unclaimed prizes. 19 This represents a 2 percent increase or 20 $21 million over the amount of revenue transferred to 21 the foundation school fund last fiscal year at this same 22 point in time, and our cumulative transfers to the 23 foundation school fund through July of this year now 24 amount to $18.19 billion. 25 The second item within the notebook under 0080 1 this tab is our agency's Fiscal Year 2015 method of 2 finance summary for the third quarter ending 3 June 30th -- or -- excuse me -- May 31, 2015. Our 4 lottery account budget for Fiscal Year 2015 is 5 $204.4 million, and of this amount we've expended 6 85.7 percent through either expenditures and/or 7 encumbrances, and our bingo operations budget funded by 8 general revenue is $16.6 million, and through the third 9 quarter we had expended 83.7 percent through either 10 expenditures or encumbrances. 11 Commissioners, this concludes my 12 presentation. I'd be happy to answer any questions. 13 CHAIRMAN KRAUSE: Questions, comments? 14 MS. PYKA: Thank you. 15 CHAIRMAN KRAUSE: Budget. 16 AGENDA ITEM NO. XIII 17 MS. PYKA: All right. Commissioners, Tab 18 XIII of your notebooks includes our Fiscal Year 2016 19 operating budget. 20 This morning I'm seeking your approval of 21 the Fiscal Year 2000 (sic) operating budget in the 22 amount of $233,188,237 and 328 full-time equivalent 23 positions. 24 The budget was developed in accordance 25 with appropriation amounts outlined in House Bill 1 as 0081 1 adjusted for our rider and Article IX funding 2 provisions. 3 Commissioners, the initial budget was 4 drafted by the Office of the Controller and delivered to 5 division management for their direct input. 6 After we received their input the final 7 draft was developed and routed to executive management 8 for final approval. 9 This is an action item. So I'm seeking 10 your approval of the Fiscal Year 2016 operating budget 11 unless you have any questions. 12 CHAIRMAN KRAUSE: Questions, comments? 13 COMM. ARRIETA-CANDELARIA: Commissioner, I 14 have a question. 15 CHAIRMAN KRAUSE: Yes. 16 COMM. ARRIETA-CANDELARIA: Ms. Pyka, I have 17 a question with regards to the issue that was raised 18 earlier with regards to the bingo. I guess this 19 question is really for Mr. Royal with regards to the 20 bingo. 21 Some of the issue that were raised by one 22 of the constituents was related to the technical issues 23 on the website related to the online reporting. 24 So do you feel that the resources that we 25 are -- that you-all are proposing that we allocate today 0082 1 give you the ability to resolve those issues either 2 through human resources and/or operating budget, or is 3 that just something -- is that just a nature of the 4 system that you have to resolve? 5 MR. ROYAL: Commissioner, the Legislature 6 has provided sufficient funding for us to be able to 7 regulate bingo. 8 We've identified what those issues were 9 and we're actually working to correct those. 10 COMM. ARRIETA-CANDELARIA: Okay. Thank 11 you. 12 MS. PYKA: Very good. 13 CHAIRMAN KRAUSE: Other questions or 14 comments? I'm looking for a motion. 15 COMM. LOWE: Move to approve. 16 COMM. ARRIETA-CANDELARIA: Second. 17 CHAIRMAN KRAUSE: Call for a vote. All in 18 favor of approving the 2016 operating budget say, "Aye." 19 (All those in favor of the motion so 20 responded) 21 CHAIRMAN KRAUSE: All opposed say, "Nay." 22 Passed by acclamation. 23 MS. PYKA: Thank you, Commissioners. 24 AGENDA ITEM NO. XIV 25 CHAIRMAN KRAUSE: Nelda Trevino. 0083 1 MS. TREVINO: Good morning, Commissioners. 2 For the record, I'm Nelda Trevino, the Director of 3 Governmental Affairs, and I have a very brief report for 4 you today. 5 In your meeting notebook we included a 6 listing of the bills from the last session that 7 comprised the agency's legislative implementation 8 project. 9 Based on the subject matter, bills are 10 assigned to a lead agency division, and with the 11 assistance of the Legal Division staff the bills listed 12 on the document have been reviewed to determine what 13 action, if any, the agency may need to take in order to 14 be in compliance with the legislation. 15 Melissa Villaseñor, a member of the 16 Governmental Affairs staff, coordinates this project and 17 tracks the progress of the implementation project. As a 18 result of certain actions that will be required to 19 comply with the implementation of specific provisions of 20 some of these bills staff will be bringing forward 21 rulemaking and possibly other matters for Board action. 22 As an example, one of the previous agenda 23 items related to proposed amendments to one of the 24 agency's administrative rules is driven as a result of 25 implementing recently-enacted legislation. 0084 1 At future Commission meetings staff 2 intends to bring forward other rulemaking that will be 3 required due to some of the provisions included in the 4 bills impacting charitable bingo, along with rulemaking 5 that will also be required to implement Senate Bill 20, 6 which is a significant piece of legislation relating to 7 state contracting. 8 Lastly, during the legislative interim the 9 Speaker of the House and the Lieutenant Governor 10 assigned each committee to study particular issues and 11 possibly conduct hearings for the purpose of making 12 recommendations to the next Legislature. 13 It is anticipated the Speaker and the 14 Lieutenant Governor will make these assignments in the 15 near future, and the agency's Governmental Affairs staff 16 will be monitoring these actions. 17 That concludes my report and I'll be glad 18 to answer any questions. 19 CHAIRMAN KRAUSE: Questions, comments? 20 This is not an action item. 21 AGENDA ITEM NO. XV 22 CHAIRMAN KRAUSE: So let's hear now from 23 Darlene Brown. 24 MS. BROWN: Good morning, Commissioners. 25 I'm Darlene Brown with Internal Audit. My status report 0085 1 today is also very brief. 2 Since the last we met, our efforts have 3 been concentrating on wrapping up the bingo ledger 4 reconciliation project and also the bingo restructuring 5 project. 6 We will have both of those projects wound 7 down by the end of next week as on-target. So then the 8 next period, which is the beginning of the new fiscal 9 year, we will begin to concentrate on lottery audits, 10 and the first one will be to pick up the procure-to-pay 11 audit that was postponed to accommodate the bingo ledger 12 reconciliations. 13 One of the things in the winding-down 14 process that we've been focusing on over the past couple 15 of weeks is making sure that all of our efforts in 16 identifying the adjustments that are required on the 17 individual ledgers or the individual accounts are 18 recorded accurately and the invoices are accurate going 19 out and that these transactions have the intended effect 20 on the accounts and all the data is correct going 21 forward. 22 We are winding that down and the invoices 23 should start going out pretty soon as Alfonso is going 24 to give a report on that. 25 That is the end of my status report, and 0086 1 I'll be happy to answer any questions you might have. 2 CHAIRMAN KRAUSE: Questions, comments? 3 AGENDA ITEM NO. XVI 4 CHAIRMAN KRAUSE: Alfonso Royal. 5 MR. ROYAL: Good morning, Commissioners. 6 I'd like to update you on the progress of resolving 7 backlogs that were identified doing my assessment of the 8 division and reported back to the Commission in October 9 of 2014. 10 There is light at the end of the tunnel in 11 the licensing area. We're seeing some noticeable 12 headway in reducing backlogs, and any time I can hear 13 from folks in the industry recognizing the positive 14 changes in this area let's me know we're truly headed in 15 the right direction. 16 As of August 16th there are 203 pending 17 renewal applications with 142 of them over 30 days old. 18 Staff is awaiting information on approximately 35 19 applications and is overall reviewing applications 20 submitted in May of 2015. That's a huge improvement 21 where we began. 22 We're well on our way toward my ultimate 23 goal of a review within 30 days. When we get there 24 we're going to reassess and we'll refine the processes 25 further. 0087 1 Audit activities have decreased from 153 2 to 42 with six pending management action responses and 3 10 pending exit conferences. 4 There are currently 25 audits under review 5 by the audit manager with only one in the fieldwork 6 stage. 7 We continue to remain current with 8 compliance activity and pull-tab testing. The bingo 9 account ledger project is winding down. You've already 10 heard from Darlene on this item. 11 I just want to emphasize that the monies 12 owed to the state are being collected in conjunction 13 with license renewals. The first round of statements 14 will be based upon July renewals, which will be mailed 15 in the next few weeks. 16 Finally, an update on our bingo operating 17 services system, BOSS. The team is working diligently 18 to finalize this project. The system went live in a 19 limited capacity in April and will be fully operational 20 once all account ledger reconciliation entries are 21 complete. 22 We are extremely pleased with the 23 migration of users. The bingo services portal, BSP, 24 which is the licensee's interface with BOSS is a huge 25 advantage to them as they never had an automated system 0088 1 to update personal information, submit worker registry 2 applications. Licensees also through the BSP have the 3 ability to view organizational and information, submit 4 and track temporary applications and quarterly filings. 5 BSP provides the ability to make secure 6 online payments for the applications and filings. The 7 number of users since April has increased from 166 to 8 737. Quarterly filings submitted online have also 9 increased from 2.3 million in Quarter 1 to 3.4 million 10 in Quarter 2. 11 As with any system, there are fixes and 12 patches that are required. The project team continues 13 to be responsive to the division's needs once they're 14 made aware to us, and on a go-forward basis the agency 15 staff will be able to maintain the system. 16 Lastly, I traveled to Colorado in June to 17 attend the North American Gaming Regulators Association 18 Annual Training and Education Conference. It was very 19 informative and it was great to interact and exchange 20 ideas with other regulators in other states who are 21 experiencing similar challenges to Texas as it relates 22 to bingo regulation. 23 I also had the opportunity earlier this 24 month to tour one of our licensed manufactures of 25 pull-tab and bingo products. That was an eye-opening 0089 1 experience to see how the products are made and security 2 features and the logic that goes on behind the scenes to 3 ensure the integrity of the games being played. 4 I was also able to see the impact of 5 product requests being submitted to the manufacturer for 6 theme-based games in Texas that previously were not 7 submitted because they could not predict when the bingo 8 division would review products to get out to the bingo 9 hall operators. 10 There's a huge appreciation from a wide 11 group of manufacturers of the streamlined processes and 12 reductions in costs associated with the review and 13 testing of pull-tab submissions. 14 Commissioners, that concludes my report. 15 CHAIRMAN KRAUSE: Questions, comments? 16 COMM. LOWE: Just a little bit. I've had 17 a chance to deal with Mr. Royal. I'm very impressed 18 with what he's doing here. Let me ask you a few 19 questions, though, about the BOSS. 20 When did that -- when did the development 21 of that software start? 22 MR. ROYAL: Oh, gosh. That was about -- a 23 little over two-and-a-half years ago. The project team 24 started -- I've only been here a little over a year. 25 The project team had begun under the 0090 1 previous leadership and were able to sort of start 2 working together and pushing things forward. 3 COMM. LOWE: And is it solely our IT 4 people creating the screens and the programs and the 5 database? 6 MR. ROYAL: It is internal IT with a 7 contractor, yes. 8 COMM. LOWE: A contractor. And who's our 9 contractor for the BOSS system? 10 MR. ROYAL: Oh, gosh. I should know the 11 name of that. 12 COMM. LOWE: That's okay. With regard to 13 the list of technical issues that were -- I didn't write 14 all of them down, but I think the Court Reporter did -- 15 of all the technical issues that she outlined earlier -- 16 do you remember that -- Ms. Ives? 17 MR. ROYAL: Yeah. Ms. Ives and I had a 18 conversation in Biloxi about those and the staff person 19 who is no longer here was intending to call her which 20 never took place. 21 We became aware of something similar from 22 another individual on August 22nd, and we sent that 23 forward to the project team and they are actually 24 working to address that as we speak. 25 COMM. LOWE: So the issue about you can't 0091 1 use it on Internet Explorer, I think the problem is that 2 Explorer is not very secure in some spots, but are we 3 going to make it to where you can use a different 4 Explorer-type vehicle to get to their software or -- 5 MR. ROYAL: Commissioner, we're actually 6 working with all of our licensees. In fact, starting 7 September 2nd we're hitting the road. That becomes our 8 statewide training program that I've been talking about 9 for a little over a year or actually getting out to our 10 organizations and spending time with them to go through 11 the BSP as well as a number of rules, processes and 12 interactions that they have with the divisions to 13 actually get some input from them, the actual front-line 14 charitable organizations who we license, who we regulate 15 across the state, and that's going to start in 16 September. 17 We'll be, in October, November and 18 December, going to Houston, Dallas and San Antonio. 19 COMM. LOWE: And do we have a customer 20 service hotline to where if they get to -- they're 21 stumped about the next step or craters, can they call 22 you and get a response within five minutes or 10 minutes 23 to -- 24 MR. ROYAL: We have a contact, an 800 25 number, that they can call in as well as a dedicated 0092 1 email account that we have our education staff. There's 2 two individuals in education who are responsive to those 3 needs. 4 COMM. LOWE: Well, I'm not dissatisfied 5 with the progress. You know, Microsoft and the Oracles 6 of the world, you know, they've got thousands of people 7 creating data bases and access to public information, 8 and so two-a-half years is not a long time. 9 I mean, product development takes a long 10 time. So I think -- my observation is your progress is 11 going. I think your -- that if your responsive to your 12 customers and you have hotlines, that's what people 13 want. 14 They just want to get on the phone and 15 say, "Here's my problem. Can you fix it," and I think 16 you're going that direction. 17 MR. ROYAL: We are definitely headed that 18 direction. 19 COMM. LOWE: That's all I have, Chairman. 20 CHAIRMAN KRAUSE: Well said, Bingo 21 Commissioner. 22 Any other comments? 23 COMM. LOWE: I don't think I like that 24 connotation, "Bingo Commissioner." 25 CHAIRMAN KRAUSE: You've got special 0093 1 expertise. We're happy that you have it. 2 (Laughter) 3 COMM. LOWE: Need a better acronym like 4 "BIG." I like that one. 5 (Laughter) 6 AGENDA ITEM NO. XVII 7 CHAIRMAN KRAUSE: Next agenda item, 8 Mr. Gary Grief. 9 MR. GRIEF: Thank you, Mr. Chairman. 10 Commissioners, in addition to what's in your notebook 11 this morning, I have a few other items I'd like to 12 report on for you as well. 13 During the week of August 13th our lottery 14 operator, IGT, held their annual statewide sales 15 conference here in Austin at the J.W. Marriott Hotel. 16 Both Chairman Krause and I addressed the 17 300-member IGT sales staff, those very important people 18 who go out and visit and help our more than 17,000 Texas 19 lottery retailers located around the state. 20 The conference was a time of celebration 21 for the team as new lottery sales records are being set, 22 but it was also a time of motivation and encouragement 23 on our part, as the Texas lottery is never content to 24 rest on our laurels. 25 The theme of the sales conference, which 0094 1 was come up with -- came up with by IGT was "Dial It 2 Up." And Chairman Krause and I spent time thanking the 3 sales staff for the great performance that we've seen 4 over the past year while at the same time trying to 5 inspire them to achieve even more in the year ahead. 6 I also wanted to inform the Commission 7 that I'll be in Miami, Florida on September 10th and 8 11th attending the annual Lottery Expo Conference. 9 That's hosted by the Public Gaming Research Institute 10 and the Florida Lottery. 11 I'll be participating as a panelist during 12 that conference and also attending a meeting of the 13 National Premium Game Committee of the Multi-State 14 Lottery Association while I'm there. 15 Now, my next item is something is 16 something that I've had the chance to talk to each one 17 of you about personally, but I did want to remind you 18 about the annual conference of the North American 19 Association of State and Provincial Lotteries. 20 That's going to be hosted by the Texas 21 Lottery this year in Dallas from the October 13th 22 through 15th at the Anatole Hilton Hotel. 23 This is one of the largest gaming 24 conferences in the world and it's a major coups for 25 Texas to be serving as the host of that event. 0095 1 More than 1,000 attendees are expected to 2 attend from all around the world, and the anticipated 3 economic impact on the city of Dallas due to the 4 conference will be approximately $2 million. 5 We have a tremendous lineup of keynote 6 speakers who are scheduled to be at that conference. We 7 also have some terrific breakout sessions for the 8 education tracks and we also anticipate having the 9 largest trade show put on by the vendor community in the 10 history of our national conferences. 11 And then, finally, my last item, I want to 12 again welcome the four new Commissioners to the Texas 13 Lottery Board, and I want to thank you in advance for 14 the significant impact that each one of you is going to 15 make on generating revenue for education, for Texas 16 Veterans and for other good causes here in our state. 17 I really appreciate the time that you gave 18 us last week as we went through our orientations and our 19 training sessions with you. As you learned during that 20 time and as you'll hear the Chairman speak up many 21 times, the Texas Lottery is unique in state government 22 in that we are a for-profit business operating for the 23 benefit of public education, Veterans and other good 24 causes. 25 There are countless moving parts to the 0096 1 Texas Lottery, all of which have to be going constantly 2 in order to keep that revenue stream going for education 3 and Veterans. 4 The role of the Commission, the important 5 role of setting policy for us of promulgating rules and 6 formally approving certain large and major contracts for 7 us, that is critically important to our ongoing success, 8 and I hope we've communicated that to you appropriately. 9 We're going to close the books on Fiscal 10 Year 2015 here in just a few days. Once again, the 11 Texas Lottery is going to set new, all-time records for 12 the amount of revenue generated for both public 13 education and for Veterans' causes. 14 With the help and support from each of you 15 and under the steady leadership of Chairman Krause I 16 anticipate continuing our record of excellence going 17 forward and even setting the bar higher in the future 18 with greater expectations for us. 19 Mr. Chairman, that concludes my report and 20 I would be happy to answer any questions. 21 CHAIRMAN KRAUSE: Commissioners. 22 COMM. LOWE: I have a question for Bob. 23 So if we decide to go to this convention, what -- is it 24 a violation of the open meetings law for us to -- say 25 everybody wanted to go, is that an issue? 0097 1 MR. BIARD: Well, it's not an issue for 2 you to attend provided that there's no more than two of 3 you together at one time having any detailed discussion 4 about public business. 5 If there's three of you together you need 6 to keep it to social, keep it to social, which is 7 difficult to do because the reason why you're there is 8 because it's a lottery function. 9 So my advice would be just be cognizant of 10 being -- when you're in groups of more than two, just, 11 you know, be sure that it's a social interaction. 12 COMM. LOWE: I know the county 13 commissioners, they're having a meeting here this week 14 and I know they're all there from most counties in the 15 state of Texas. 16 So I just want to make sure that I could 17 have lunch with at least, you know, the Chairman and 18 Robert if they want me to have lunch with them. 19 (Laughter) 20 MR. BIARD: Sure. It's always okay if two 21 of you are together. 22 COMM. LOWE: Or anybody -- 23 MR. BIARD: I'm not going to be rushing up 24 there to break you apart or anything, but -- 25 (Laughter) 0098 1 COMM. LOWE: All right. 2 MR. BIARD: But I would just be cognizant 3 when -- whenever there's more than three of you 4 together, just be cautious about the interaction. 5 COMM. LOWE: I guess my comment is to 6 Gary. I think just from my exposure last week and this 7 week has been, you've got an amazing operation for 8 government -- really -- government, in my experience 9 dealing with the county government is not very efficient 10 in some respects, and I think your operation is 11 efficient. 12 It appears to be transparent. You've got 13 good compliance with the auditor. Don't note any 14 deficiencies in anything that's done. So I think you've 15 got a great operation. 16 I guess my have only observation otherwise 17 is that I don't think the general public understands 18 where the money goes. 19 You know, they don't -- 20 CHAIRMAN KRAUSE: I'm ready to talk about 21 that. 22 COMM. LOWE: So, you know, I gave my two 23 little girls the little goody bags, the orange bags of 24 the Texas Lottery and I said, "Take that to school and 25 tell your teacher that we're raising money for them." 0099 1 They just liked the orange bags. But, you know, my 2 brother lives in Georgia and his wife and two of my -- 3 well, a niece and a nephew both went to college on the 4 Hope Scholarship. 5 Over in Georgia they know where that 6 lottery goes to, and so I guess my -- one of the things 7 that I'm going to do is try to educate people that what 8 I see, Rotary, wherever, and say, "Look, the money is -- 9 it's not just going to finance some, you know, stupid 10 project. It's going to kids and to Veterans," and I 11 wish we could get that message out to people. 12 CHAIRMAN KRAUSE: We do. This is actually 13 kind of a new development, but we have a beneficiary 14 program that we are really pretty recently heavily 15 invested in. 16 I got to watch the Dallas Cowboy game last 17 week. You know, the result wasn't what I wanted but the 18 result that I did like was that I saw more than once ads 19 that were not -- that were Lottery Commission ads that 20 were not promoting a game -- any particular game. 21 It was all about, "Thank you, Texas, 22 because all this money goes to the school children and 23 to the Veterans." And so if anybody wants to see some 24 more of that, then watch on Saturday night when the 25 Cowboys play the Vikings, because we know -- I know that 0100 1 there's going to be more run then. 2 COMM. LOWE: Are you going to see more 3 offense? 4 CHAIRMAN KRAUSE: You know, I don't know 5 what I'm going to see. I may see some cocktails, but -- 6 (Laughter) 7 CHAIRMAN KRAUSE: -- the bottom line is is 8 that I'm going to be watching the monitor up in that 9 suite to see if there's going to be some good TV on 10 promoting the lottery and telling the world where we go. 11 In addition to that, when we do have a 12 radio spot, when we have a TV ad that is promoting a 13 particular game, we've added at the end a little tag 14 line where it reminds the public that this all goes to 15 education. 16 Now, it didn't always use to be that way. 17 I think it was now four legislative sessions ago -- six 18 or eight years ago -- Jane Nelson is one of our 19 senators -- she sponsored a bill because apparently it 20 was going in general revenue. 21 You know, I suppose it was being used for 22 education, but she says, "No. It's got to go straight 23 to education. It can't make any detours," and she got 24 that passed. So for the last six or eight years that's 25 exactly where it goes, foundation school fund, and then 0101 1 it was shortly after that that we started having a 2 special scratch-off for the Veterans. 3 So it absolutely goes there. By law it 4 can't go anywhere else, and you're right. It is a 5 public perception. It's a persistent urban myth that it 6 doesn't when it does; so anything we can do to help 7 debunk it. 8 All you guys out there and gals, when you 9 hear somebody say that it doesn't go to education then 10 you need to set them straight. 11 So there we go. 12 AGENDA ITEM NO. XVIII 13 CHAIRMAN KRAUSE: Now we have our 14 enforcement actions. This is the part where we get to 15 deal with the people that couldn't comply with the 16 rules, and we're going to have Bob Biard walk us through 17 that. 18 MR. BIARD: Thank you, Commissioners. Tab 19 XVIII contains 13 lottery and bingo enforcement matters, 20 Tabs A through M. 21 These are cases where the Commission staff 22 found a violation of a statute or rule, and in most 23 cases either the licensee failed to appear at the 24 hearing; so it proceeds by default, or the staff and 25 licensee have reached a settlement. 0102 1 In some cases there is litigation when the 2 licensee does appear. I'll briefly describe the cases 3 and you can take them up in a single vote if you like. 4 Tabs A through D are nonsufficient fund 5 lottery retailer license revocations which are handled 6 in a single order. Each case was presented at the State 7 Office of Administrative Hearings for revocation of the 8 retailer's license on the grounds the licensee failed to 9 have sufficient funds in the bank account to cover 10 electronic fund transfers to the Lottery Commission's 11 account. 12 In each case, the judge recommends 13 revocation and staff recommends that you vote to approve 14 the order in each case revoking the license. 15 Tab E is a contested, a litigated lottery 16 license revocation case. In this case the retailer is 17 an individual who was convicted in April 2014 of 18 aggravated assault on a family member. 19 Because this is a crime of moral turpitude 20 and a second degree felony, the individual is ineligible 21 for a lottery ticket sales license. The person also 22 failed to notify the Commission of a conviction. 23 At the hearing he argued that the 24 conviction has no bearing on his status as a lottery 25 sales agent. The judge recommends revocation and the 0103 1 staff recommends that you vote to revoke the license. 2 There is a technical error in the judge's 3 proposal. Finding of Fact 5 states that the staff has 4 already revoked the license when, in fact, we just 5 initiated proceedings to revoke the license. 6 My understanding is that the retailer 7 signed a witness affirmation form, but I've been told 8 that he has decided that he does not want to speak, but 9 I wanted to just check to be sure of that before we 10 moved on. Is that right? 11 CHAIRMAN KRAUSE: Is Mr. Thomas Pham here? 12 MR. BIARD: So he is not going to be 13 speaking. 14 CHAIRMAN KRAUSE: Okay. Now we do have a 15 comment on XVIII.K. 16 MR. BIARD: Okay. Tabs F through H are 17 lottery-agreed orders. So these are all settlements. 18 Tab F involves an investigation of Lampos Grocery in 19 Bryan in response to a complaint that the retailer 20 improperly charged a fee when a customer bought lottery 21 tickets with a debit card. 22 A commission investigator went to a store 23 and purchased a scratch ticket with a debit card, but 24 was not charged a fee; however, the investigator spoke 25 to the retailer owner who stated that he usually charges 0104 1 a 39-cent fee for debit card transactions on lottery 2 purchases only because there's no markup to cover the 3 fee. 4 The store has to pay for accepting debit 5 cards. It is a violation of the State Lottery Act to 6 sell a lottery ticket at a price that's greater than the 7 price fixed by the Commission. 8 So in this case the retailer admitted the 9 violation and the parties agreed to a 10-day suspension 10 of the license. 11 Tab G involved an employee of a lottery 12 retailer, Waco Express Mart scratching the "void if 13 removed" number of the latex off the front of scratch 14 tickets so they could scan the ticket on a 15 Check-a-Ticket reader to determine if it's a winner. 16 This is called "microscratching," and it 17 is a type of fraud. The winning tickets are kept by the 18 person, either the retailer or their employee, and 19 losing tickets are sold to the public. 20 The offending employee in this case no 21 longer works at Waco Express Mart and the parties agreed 22 to a 30-day suspension of the license. 23 Tab H involved a customer complaint 24 against retailer Kay Mart. The customer complained he 25 was cheated out of a Pick 3 prize because the employee's 0105 1 clerk did not place his order for a ticket which he 2 called in by phone. 3 Placing a wager by phone is a violation of 4 the State Lottery Act and the Commission's rules. When 5 our investigator interviewed the employee he said he 6 knew he should not accept wagers by phone but admitted 7 that he did so on occasion as a courtesy to frequent 8 customers. The parties agreed to a 30-day suspension of 9 the retailer's license. 10 Finally, Tabs I through M are bingo-agreed 11 orders. These cases are settlements and they're all 12 very similar. 13 These are all cases where bingo commercial 14 lessors -- these are the entities that lease space to 15 conduct bingo, allowed illegal gambling devices 8-liners 16 to be played during their bingo occasion. The bingo 17 acting commission rules prohibit any game of chance 18 other than charitable bingo, a charitable raffle or door 19 prize to be conducted during a bingo occasion. 20 The Commission has jurisdiction in these 21 cases because the machines award tickets or a coupon 22 that award entry into a bingo game or bingo pet products 23 or card-minding devices as prizes, and these prizes can 24 only be claimed by exchanging the ticket or coupon 25 during a bingo occasion. So the prize is actually 0106 1 awarded during a bingo occasion. 2 Tab I is for ATB FWM of Houston. In this 3 case the lessor had allowed the operation of 23 gaming 4 machines inside the Big Tex Bingo Hall. Staff assessed 5 an administrative penalty of $13,800. 6 Tab J is for All Star Leasing, Inc. of 7 Dallas. In this case the lessor allowed the operation 8 of 14 gaming machines at the All Star Bingo Hall. Staff 9 assessed the administrative penalty of $8,400. 10 Tab K is for Bingo Bills Association, II. 11 In this case -- this is also in Dallas -- the lessor 12 allowed the operation of 22 gaming machines at the Bingo 13 Bills Bingo Hall. Staff assessed an administrative 14 penalty of $14,300. 15 Tab L is for EMME Enterprises, Inc. of 16 Cedar Hill. In this case the lessor allowed the 17 operation of 18 gaming machines at the Cedar Hill Bingo 18 Hall. Staff assessed an administrative penalty of 19 $10,800, and, finally, Tab M is for Love Bingo of 20 Terrell. 21 In this case the lessor allowed the 22 operation of 30 gaming machines in a game room adjacent 23 to the Terrell Bingo Hall and staff assessed an 24 administrative penalty of $18,000. 25 In each of these cases the bingo director 0107 1 agreed to suspend the penalty if the licensee complies 2 with the terms of the order, which includes not allowing 3 other games of chance to be played during bingo 4 occasions and taking action to evict and terminate the 5 leases of any conductors who do not comply. 6 This -- the terms of this order apply for 7 three years from the date that you sign. So that 8 concludes my presentation, and if you approve the 9 proposed resolution of these cases you may take them up 10 in a single motion and vote. 11 COMM. LOWE: Can I ask a couple of 12 questions, Chair? 13 CHAIRMAN KRAUSE: You may. 14 COMM. LOWE: All right. As far as the 15 SOAH process, which is the State Office of Hearings, can 16 you kind of give us just a general thumb -- a quick 17 thumbnail of now that process works and what the 18 Commission's role is dealing with those recommendations 19 from the SOAH judge? 20 MR. BIARD: Sure. Sure. The cases, of 21 course, rise up from the operating divisions from either 22 the lottery operations or bingo, and there's quite a 23 process that occurs to try to resolve these cases before 24 they get to the point of an administrative hearing. 25 If they can't be resolved informally -- I 0108 1 mean, the cases are referred to the Legal Services 2 Division where informal conferences are allowed to try 3 to resolve the matter. That's what all these 4 settlements are, basically. 5 If there is no settlement, if the parties 6 can't settle or if the licensee cannot be found as in 7 most of the NSF cases, Legal Services initiates a 8 docketed proceeding at the State Office of 9 Administrative Hearings. 10 All the NSF cases are handled in a 11 standing -- we have a standing docket every Thursday 12 with all those cases. The other cases have to be 13 scheduled individually. 14 So it's actually a litigated hearing over 15 at the State Office of Administrative Hearings, which is 16 here in downtown Austin. The parties are allowed to 17 present evidence and to provide proposed Findings of 18 Fact and Conclusions of Law. We have commission 19 witnesses there to testify. 20 COMM. LOWE: Just like a trial. 21 MR. BIARD: Just like a trial. It's a 22 mini trial and the Texas Rules of Evidence generally 23 apply, but in these proceedings the judge has a little 24 more latitude and flexibility to admit certain types of 25 evidence that might not strictly be allowed to be in a 0109 1 civil trial. 2 So once the hearing is concluded, the 3 Administrative Law Judge prepares, basically, an 4 opinion. It's called a "PFD," a Proposal for Decision, 5 that briefly describes the facts and has a set of 6 proposed Findings of Fact and around Conclusions of Law. 7 It's distributed to the parties. Everyone 8 has a chance to comment on them, file exceptions and 9 replies to those -- to the judge's recommendation, and 10 then it's presented to -- it comes back to the agency 11 and is placed on the docket where it's brought to your 12 attention, and the Commission -- 13 COMM. LOWE: Where the Commission is the 14 judge -- the final judge. 15 MR. BIARD: And you can change the 16 Administrative Law Judge's findings and conclusions only 17 for those three purposes I mentioned before, clerical 18 errors, you know, they failed to apply the law or policy 19 properly or you decided to change, you know, your policy 20 or how you apply the law, and then if you do that we 21 have to explain, you know, what the change is and why 22 we're changing it, and then you vote and you're the 23 final judge in the matter. 24 Once you decide, the parties can -- 25 someone can file a Motion for Rehearing if they disagree 0110 1 with your ruling and the case could be appealed to 2 District Court in Travis County. 3 COMM. LOWE: So they get plenty of due 4 process. So the guy who got the penalty, he's -- he 5 appealed it -- or he had a SOAH hearing and found 6 against him. 7 MR. BIARD: Correct. 8 COMM. LOWE: Well, I guess we could check 9 with his probationary officer to see where he is today. 10 MR. BIARD: He was here earlier, but -- 11 COMM. LOWE: Oh, he was? Okay. Let me 12 ask you about the bingo -- the 8-liners and stuff that 13 these guys are running in their halls. 14 Is it our position that they can't run 15 their 8-liners or the sweepstakes during a bingo 16 session, or is it our position that if you're running 17 8-liners and sweepstakes, you're violating the law. 18 I mean, they're illegal. I mean, they're 19 flat illegal, but are they sneaking in and saying, 20 "Well, we're not running those (inaudible) during our 21 bingo session?" Is that what's -- is that kind of where 22 we're -- what their theory is? 23 MR. BIARD: Well, this issue has a long 24 history and there's people in the room here, I'm sure, 25 who could speak to that probably better than I can, but 0111 1 by looking at it as the machines are illegal and they're 2 in the bingo hall or next to the bingo hall and they're 3 illegal machines, you know, it becomes problematic for 4 us because our jurisdiction is only for bingo and the 5 fact that you can't conduct a second game of chance 6 during a bingo occasion. 7 So issues have arisen about, "Well, what 8 if you have a separate entrance and they enter somewhere 9 else and they don't enter the game room from the bingo 10 hall" or, "What if it's a separate roof or a separate 11 foundation" or -- I mean, there's all sorts of 12 permutations that I think the Commission has dealt with 13 over the years, you know, without a whole lot of 14 success. 15 But the one thing we do know that the 16 agency has jurisdiction over is that if a prize is 17 awarded during a bingo occasion that we have 18 jurisdiction over that. 19 So I think even though the Commission 20 has -- perhaps has pursued different, you know, 21 strategies in dealing with these machines over the years 22 probably settled over the last few years has been, if 23 these machines award coupons or tickets that can only be 24 exchanged for a prize during a bingo occasion, then 25 those are the cases that we will go after. 0112 1 However, our investigators, you know, they 2 go out, they develop cases on these, if they think 3 there's illegal gambling going on or there's evidence of 4 illegal gambling, that information is made available to 5 the local authorities who definitely do have 6 jurisdiction over the illegal gambling devices in their 7 jurisdiction. 8 COMM. LOWE: So we can't pursue somebody's 9 license if they're just flat out running an 8-liner or 10 sweepstakes operation? 11 I mean, I -- do we have the authority to 12 pull somebody's license if our -- or initiate revocation 13 proceedings if our investigator walks in and they're 14 running 8-liners regardless of whether it's during the 15 session? 16 MR. BIARD: I think the answer is that 17 there has to be a conviction. Is that -- I mean, I'm 18 looking at Steve White now. I'm not sure. 19 MR. WHITE: You know, it's a complicated 20 issue. I mean, clearly -- 21 CHAIRMAN KRAUSE: Steve, could you come to 22 the mic, please? 23 MR. WHITE: Good morning, Commissioners. 24 For the record, my name is Stephen White. I'm Assistant 25 General Counsel with the Texas Lottery Commission. In 0113 1 attempting to answer your question, Commissioner Lowe, 2 it's really complicated. 3 As General counsel was pointing out, 4 there's lots of issues involved, exactly where the 5 machines are located, when they're being operated, the 6 connection between -- the nexus between the bingo and 7 the operation of the machines, and to some degree it's 8 policy. 9 You know, there's no clear answer, I would 10 suggest. Again, as General Counsel pointed out, 11 recently it's been only if the machines are awarding 12 coupons or other evidence exchangeable for bingo 13 products would we take action if the machines are off 14 the premises and are not being operated during a bingo 15 occasion. 16 Clearly if another game of chance is on 17 the premises and they're being operated during a bingo 18 occasion, we can take action against the organization, 19 the lessor immediately, but if they're off the premises, 20 they're not being operated on a bingo occasion but they 21 are awarding coupons exchangeable for bingo products, 22 which as General Counsel pointed out can only be 23 redeemed during a license to bingo occasion, we'll take 24 action against them. 25 COMM. LOWE: I don't know. That 0114 1 frustrates me because it just looks like we're 2 sanctioning that -- illegal gambling. I mean, we're not 3 doing anything about it and it's frustrating. 4 When we ran on a place, a charitable bingo 5 place, in Palestine and I got a letter back -- I got -- 6 their lawyer showed up at my office with a letter from 7 TABC saying that we've issued a permit to operate 8 8-liners or sweepstakes and we're not doing that, but 9 I'm just a little frustrated by us not having a policy 10 that we are -- you're not going to compete with the 11 charitable bingo by running illegal gambling as an 12 owner, and I think that we need to be -- we need to have 13 a firm -- at least -- I don't know if we can adopt a 14 rule but a position that that is wrong. 15 It takes money away from the bingo hall 16 for those guys -- for the charities -- for the 17 charities. Now, the lessor is getting -- getting both 18 monies. So he doesn't care. But that's taking money 19 away from the charity to not have a firm policy that we 20 are not going tolerate somebody that has a license 21 running 8-liners and sweepstakes. I mean, that's just 22 my comment. 23 I know we -- I don't know where we are on 24 it, but it's frustrating to me that -- and I will tell 25 you. I will take -- prosecutors take a lot of the blame 0115 1 on this, because we've had inconsistent prosecution 2 across the state as to people running gambling like 3 this, but I think that -- that's just my thought is, I 4 think we need to say, "You're not going to have a 5 license to operate bingo if you are operating 6 gambling -- illegal gambling in the state of Texas and 7 we walk in to see it." Sorry. 8 CHAIRMAN KRAUSE: Not a problem. It's a 9 thorny issue. We wish that we had the power to enforce 10 the wrong that we see, but I don't know that we do. 11 COMM. LOWE: Well, it's almost like we're 12 interpreting the rule. The rule is a little confusing 13 to me if you read it, that they can't -- 14 CHAIRMAN KRAUSE: What does the statute 15 say? What does the statute empower us to do, the 16 broadest reading? 17 MR. WHITE: That's -- the broadest 18 reading, there probably is some lee-room, I would 19 suggest, in, you know, how broad we interpret it. 20 You know, that's sort of a policy 21 decision, and I would suggest perhaps there is some 22 lee-rule that we could expand perhaps our enforcement 23 actions through amendments to the rule. 24 Currently we just recently passed a second 25 game chance rule which sort of is the current policy, 0116 1 which, again, is sort of -- if the machines are off the 2 premises and not being operated during a bingo occasion, 3 we will only take action -- licensing action if it 4 involves the sale of bingo products. 5 That rule could be amended to some degree 6 and expand the -- I believe, you know, our actions 7 against these 8-liners and other games of chance. 8 MR. BIARD: The statute itself simply 9 says, "A game of chance other than bingo or raffle 10 conducted under Chapter 2002 of the Occupations Code may 11 not be conducted or allowed during a bingo occasion." 12 CHAIRMAN KRAUSE: So they could be in the 13 next room. 14 MR. BIARD: And they've tried -- and that 15 scenario has occurred in the past. The cases we've 16 taken to SOAH and gotten, you know, positive results for 17 the Commission were the ones -- the types of cases we'll 18 bring before you now where there were tickets and 19 coupons exchanged for the prize during the bingo 20 occasion. 21 COMM. LOWE: So if they're giving out cash 22 it's okay. That's our interpretation of the rules. I 23 mean, is that our interpretation of the statute or do we 24 have the ability to promulgate rules that would comply 25 with that statute or -- 0117 1 MR. BIARD: Yes. 2 COMM. LOWE: What about the legislative 3 intent on that statute? Has anybody checked into that 4 to see what -- 5 MR. BIARD: I think this has been looked 6 at a lot over the years. I don't think there's a clear 7 consensus that the Commission has jurisdiction to 8 enforce the penal code provisions about illegal gambling 9 devices and that we -- and the presence of the gambling 10 devices, there's a question about whether it falls as an 11 exception under the penal code because you've got the 12 fuzzy animal exception or not. 13 I think the argument is, you know, unless 14 there's a conviction -- unless there's been a court that 15 has determined these are illegal gambling devices, then, 16 you know, we don't get to make -- which is a 17 determination that we don't have jurisdiction over, 18 then -- 19 COMM. LOWE: And the statute doesn't allow 20 you to take their -- to revoke their license if they 21 enter into 1818(b) forfeiture of the -- civil forfeiture 22 of their machines? 23 MR. BIARD: I don't know the answer to 24 that right off. 25 COMM. LOWE: Because that's what happens. 0118 1 That's what happens, is you go in and seize the 2 machines. You an 1818(b) which is not a criminal 3 conviction, but it's a civil forfeiture of the 4 contraband and there's an order that says, "This is the 5 illegal contraband," and that's what most prosecutors 6 have been doing, is doing civil forfeiture of the stuff. 7 I'm sorry. I don't want to take a lot of 8 time on this today, but it's just -- I want to tell you 9 that it's just -- it's on my agenda that we're going to 10 make a difference and I hear lots of complaints from the 11 bingo operators that their competition -- that their 12 competition is illegal gambling that's going on, and 13 some of it is going on in their places. 14 CHAIRMAN KRAUSE: Well, not only that, I 15 think that I've heard that there have been these 16 machines in lottery licensees -- 17 COMM. LOWE: Well, absolutely. If you go 18 to -- 19 (Multiple speakers talking simultaneously) 20 CHAIRMAN KRAUSE: -- in the back of the 21 convenience store. 22 COMM. LOWE: If you go to the convenience 23 store you'll have more people sitting at the sweepstakes 24 kiosk that are buying lottery tickets. I promise you. 25 There's a convenience store in Palestine I 0119 1 went into and they had six kiosks running Internet 2 charitable sweepstakes that -- there were people waiting 3 in line, people waiting in line to play -- to play -- 4 and it looks just like that, but they make it look like 5 a slot machine. 6 You could play poker on it. You can play 7 any game you want and there are people waiting in line 8 while we're selling lottery tickets. So they're 9 competing with those on the lottery in a convenience 10 store, our licensees that are -- they're pushing -- they 11 make the -- they make, I promise you, tons more money on 12 those sweepstakes machines than they do off our 13 scratch-offs. 14 CHAIRMAN KRAUSE: Well, I tell you what, 15 this is something that we need to work on, and if you 16 don't mind I would, you know, ask that you get with Bob 17 and, you know, our Assistant General Counsel and noodle 18 on it, because, you know, I've always been interested in 19 minimizing the competition to charities -- okay -- and 20 if it's also cannibalizing to our lottery game I'm 21 interested in, you know, minimizing that. 22 COMM. LOWE: Absolutely. 23 CHAIRMAN KRAUSE: But in the meantime, why 24 don't we go ahead and give me a motion. 25 COMM. LOWE: All right. Does he need two 0120 1 motion, one to adopt the SOAH hearings and one for 2 the -- agree to the -- 3 MR. BIARD: Actually, if there's agreement 4 on all of the orders, it's acceptable to just make a 5 single motion to adopt the orders in Tabs A through M. 6 COMM. LOWE: So I'll move then to adopt 7 the orders. 8 COMM. RIVERA: Second. 9 COMM. ARRIETA-CANDELARIA: I have one quick 10 question, if I may, Commissioner. 11 CHAIRMAN KRAUSE: Sure. Go ahead. 12 COMM. ARRIETA-CANDELARIA: Bob, is there a 13 public notice that when a license -- when someone's 14 license is suspended for a period of time, do they have 15 to have a public notice that says they're suspended? 16 Like in the case of the retailer that was 17 suspended for 10 days, do they have a public posting 18 that they're required to place, or, you know, if the 19 customer comes in and says, "I'd like to buy a lottery 20 ticket," does the retailer just verbally say, "I can't 21 sell" because of this or does our notice go up for 22 posting? 23 MR. BIARD: I think I need to defer to 24 Michael Anger on that. That's an operational issue. 25 MR. ANGER: Again, for the record, my name 0121 1 is Michael Anger. I'm the Lottery Operations Director. 2 Commissioner, there's no formal document 3 or notice that the agency pushes out and requires the 4 licensee to post at their location. 5 So what we do when we have one of these 6 agreed suspensions of a license, we go in through the 7 IGT sales representative. We collect their inventory 8 from their location for that period of time when they 9 won't be selling. 10 We turn off their machines so that they 11 cannot conduct any lottery-related business, but there 12 isn't a notice posted. So it's really at the discretion 13 of the retailer what they communicate to the public. 14 Obviously, this is a public matter and we have the 15 information on file here. So if someone contacts us, we 16 would share, you know, what's going on with that 17 particular location. 18 COMM. ARRIETA-CANDELARIA: I think from the 19 customer experience standpoint, you know, if someone 20 comes in or has been going to a particular retailer for 21 a long period of time and then they come in and they're 22 not allowed to, I think it diminishes that experience. 23 So, I mean, just food for thought, in the 24 future I think it would be helpful to have that 25 requirement or some kind of notice to the public. 0122 1 MR. ANGER: We'll look at that. The 2 licensee is required to post their license at their 3 location in a publicly-visible area. So we can evaluate 4 that and work with the General Counsel on something that 5 we might make as a part of the requirement of the agreed 6 order that they post this in a publicly-available place 7 about what the status of their lottery license it. 8 COMM. ARRIETA-CANDELARIA: Yeah. I think 9 it just would be helpful to the customers when they come 10 in and that expectation that they've bee going to the 11 retailer for a long period of time, and we want to make 12 sure that we continue to increase our sales or something 13 like that. 14 MR. ANGER: Sure. We'd be happy to do 15 that. 16 CHAIRMAN KRAUSE: All right. I've got a 17 pending motion and a second. 18 All in favor say, "Aye." 19 (All those in favor of the motion so 20 responded) 21 CHAIRMAN KRAUSE: All opposed say, "Nay." 22 It carries by acclamation. 23 MR. BIARD: Thank you, Commissioners. I 24 have 10 orders for your signature. 25 CHAIRMAN KRAUSE: All righty. 0123 1 AGENDA ITEM NO. XX 2 CHAIRMAN KRAUSE: At this time I move that 3 the Texas Lottery Commission go into Executive Session 4 to deliberate personnel matters, including the 5 appointment, employment, the evaluation, reassignment, 6 duties, discipline or dismissal of the Executive 7 Director and the Bingo Director, and the duties of the 8 General Counsel and Human Resources Director, as well as 9 to receive legal advice on all of the litigation that 10 we're involved in. 11 Is there a second? 12 COMM. RIVERA: Second. 13 CHAIRMAN KRAUSE: All in favor say, "Aye." 14 We're in Executive Session. 15 (Recess: 11:34 a.m. to 12:44 p.m.) 16 AGENDA ITEM NO. XXI 17 CHAIRMAN KRAUSE: The Texas Lottery 18 Commission is out of Executive Session. It is 12:44, 19 and there was no action -- there's no action as a result 20 of Executive Session. 21 So, anyway... 22 AGENDA ITEM NO. XXII 23 CHAIRMAN KRAUSE: Does anybody want to 24 make a motion to adjourn? 25 COMM. RIVERA: Move to adjourn. 0124 1 COMM. HEEG: Second. 2 COMM. ARRIETA-CANDELARIA: I second. 3 CHAIRMAN KRAUSE: All in favor say, "Aye." 4 (All those in favor of the motion so 5 responded) 6 CHAIRMAN KRAUSE: "Nays"? 7 No "Nays." We're adjourned. 8 (Proceedings concluded at 12:44 p.m.) 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0125 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, William C. Beardmore, 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 1st day of September, 2015. 15 16 _________________________________ WILLIAM C. BEARDMORE 17 Certified Shorthand Reporter CSR No. 918 - Expires 12/31/15 18 Firm Registration No. 276 19 Kennedy Reporting Service, Inc. 7800 North Mopac, Suite 120 20 Austin, Texas 78759 512.474.2233 21 22 23 24 25