1 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 PUBLIC COMMENT HEARING ON § 7 PROPOSED AMENDMENTS TO § 16 TAC §§402.400, 402.401, § 8 402.404, 402.410, 402.411, § AND 402.412 AND ON PROPOSED § 9 RULE 402.104 § 10 11 12 PUBLIC COMMENT HEARING 13 WEDNESDAY, JANUARY 14, 2015 14 15 16 17 BE IT REMEMBERED THAT on Wednesday, the 14th day 18 of January 2015, the Texas Lottery Commission meeting 19 was held from 10:02 a.m. until 10:18 a.m., at the 20 offices of the Texas Lottery Commission, 611 East 6th 21 Street, Austin, Texas 78701. The following proceedings 22 were reported via machine shorthand by Lorrie A. 23 Schnoor, Certified Shorthand Reporter, Registered Merit 24 Reporter, Certified Realtime Reporter and Texas 25 Certified Realtime Reporter. 2 1 APPEARANCES 2 ASSISTANT GENERAL COUNSEL: 3 Mr. James Person 4 BINGO OPERATIONS DIRECTOR: 5 Mr. Alfonso Royal, III 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 P R O C E E D I N G S 2 WEDNESDAY, JANUARY 14, 2015 3 (10:02 a.m.) 4 MR. PERSON: I guess we can go ahead and 5 get started. For the record my name is James Person. 6 I'm an attorney here at the Lottery Commission. And 7 with me is Alfonso Royal, Director of the Charitable 8 Bingo Operations Division. 9 The time is 10:02 on January 14, 2015. 10 The purpose of this hearing is to receive public 11 comments on proposed amendments to Rules 402.400, 12 402.401, 402.404, 402.410, 402.411, 402.412 and on 13 proposed new rule 402.104. The primary purpose of these 14 rule changes are to align the rules and the bingo 15 division's business processes and procedures with 16 applicable statutes and Generally Accepted Accounting 17 Principles. 18 The Commission voted to propose these 19 amendments and new rule on December 11th of last year, 20 and they were published in the December 26th issue of 21 the Texas Register and on the Commission's website. And 22 in addition to this hearing, we are accepting written 23 comments on these proposed rule changes until 24 January 26th. 25 So far I have two witness affirmation 4 1 forms. If anybody has not turned in a witness 2 affirmation form and they wish to speak, please do so 3 now. 4 And for those witnesses, when you are 5 called up, please identify the rules you are commenting 6 on if you can. And with that, I'll call the first 7 witness, Phil Sanderson. 8 MR. SANDERSON: Thank you. Good morning. 9 Phil Sanderson, Sanderson Consulting Services, 10 representing Texas Charity Advocates. 11 I only have really one comment. It 12 relates to 402.404, Paragraph (j)(1) and talking about 13 the escrow account and funds that would not be eligible 14 for a refund must be used by a certain period. And I 15 just -- for clarification purposes, it's been asked 16 that -- it says, "by the end of the licensee's 17 subsequent license period." So, for example, if they 18 put a hundred dollars in the escrow account during 19 license Period A, they've got till the end of license 20 Period B to use that hundred dollars. Is that correct? 21 That's the question I have. 22 And then one overarching general comment 23 as it relates to the amended rules, not 402.104 but all 24 the rules that are being amended, in the preamble you 25 discuss that the necessity for this rulemaking is as a 5 1 result of the development of the new bingo operating 2 system. And I just want to ask the question and see if 3 we can get a response in the comments or not when 4 they're adopted: Is the purpose of these rules and also 5 the development of the system looking to allow for 6 organizations to have on-line capability for filing 7 applications and paying license fees and prize fees and 8 taxes when they file that application on-line? And 9 that's my questions. 10 MR. PERSON: Okay. Thank you. Next, 11 Stephen Fenoglio. 12 MR. FENOGLIO: Yes, for the record my name 13 is Stephen Fenoglio. I'm an attorney in Austin. I 14 represent a number of bingo charities, conductors, and 15 lessors. I filed my representation of S&S Bingo and 16 River City Bingo here in Austin. 17 We first appreciate the bingo division 18 director's intense discussions we've had over the last 19 six months on these issues. And while we understand 20 some of the genesis is a wholesale review of what state 21 law allows as far as refunds of charity monies, or 22 lessor monies perhaps that have been paid into the 23 state, nonetheless, this represents a dramatic departure 24 from the practice. 25 At one time the division identified about 6 1 $600,000 that could be subject to -- that was charity 2 money that had been paid into the division over many 3 years, not clear -- I don't think the division to this 4 day knows how long that period of time was, but that's 5 charity money. And as I understand it, some of that 6 money could be refunded back to the charities. 7 One of my overarching comments across the 8 board for these rules is to the extent -- we've got this 9 new-fangled tool, the new software program. And I hope, 10 and we urge the Commission, to be able to notify the 11 licensees that these funds are your funds and to the 12 extent that law allows them to be refunded back, if the 13 charity will ask, then we think the division ought to do 14 that, that that's good public policy because this is 15 charity money. It's not state money. It's not a 16 for-profit entity's money. And the sooner you can do 17 that obviously the better because James -- you did 18 the -- most of the research, which was very good 19 research, and it's basically a four-year window. 20 So if you don't -- and charities may 21 not -- my guess is almost all the licensed organizations 22 don't know they have money on -- in an account with the 23 Commission for payment of license fees or whatever it 24 was. 25 Within that ambit, I want to remind the 7 1 Commission I think what you already know, but that for 2 fiscal year 2014, the Commission made a profit from 3 bingo. All the license fees and rental taxes were about 4 5.1 million, the cost to regulate bingo was about 5 3.5 million, leaving a net to the Commission or to the 6 state of 1.6 million for that fiscal year. So it's not 7 like the change in policy is needed to pay for 8 regulation. It's already well paid for. 9 That doesn't include, obviously, the prize 10 fee issue that we've had separate discussions on whereby 11 the state or local government's profit to the tune of 12 about 26 million each and every year from bingo at no 13 cost to the state or local governments. 14 We also -- and I'm a board member of TCA, 15 and we've had quite a few discussions. As you know 16 there is a bingo bill that will be -- is in the process 17 of being drafted as a part of what is referred to as the 18 Cook amendment. As a part of that, we're going to try 19 to seek to change the law to reverse, if you will, some 20 of the refund policies of the state as it relates to 21 funds that are charity monies because we don't -- we 22 can't conceive of any reason why if a charity has paid 23 money to the state, didn't use it, that that money, when 24 it can be identified, is not refunded back to the 25 charity or can be used for other payment obligations. 8 1 So with that in mind, the first 2 substantive comment I have is 402.401, Subparagraph 3 (b)(1). The second line of that, you're inserting the 4 word "bingo liability" and striking "prize fee, penalty 5 or interest." And the devil is sometimes in the 6 details. I can't figure out why you want to change -- I 7 assume the word liability is broader than what would be 8 a prize fee, penalty or interest. And if that's the 9 intent, we'd like to know what would be covered by a 10 liability that wouldn't be covered by a prize fee, 11 penalty or interest. 12 On 402.401, Subparagraph (d), Subparagraph 13 (C)(6), want to remind the Commission this has to do 14 with the language any temporary license fees will be 15 retained by the Commission. That's charity money. It's 16 not the Commission money. And while there may be a -- 17 another state law that mandates this result, again, 18 we're going to try to change the law to make sure that 19 that -- those fees are not retained by the Commission 20 but could be refunded to the charity. 21 And this has to do with obviously 22 temporary license fees. The com -- the comment is if a 23 charity made -- filed an application for 12 temporary 24 license fees, used two, decided it didn't need the other 25 two, why couldn't some of that money, if not the rest of 9 1 it, be refunded or eligible for use by the charity. 2 Same is true in the same section 3 Subparagraph (f)(1), "Temporary license fees submitted 4 to the Commission are not eligible for refund or 5 credit." The same observation. It's charity money. It 6 ought to be subject to being refunded. 7 We do support Subparagraph (f)(2), 8 language -- I believe that's the current practice. The 9 only observation we have is on the third sentence, 10 "Overpayments credited to the organization may be used 11 for the organization's outstanding bingo liabilities." 12 Again, what's a liability? We know under the current 13 rule, as I discussed earlier, what a liability is. If 14 there's something broader than that, we'd like to know 15 what it is. 16 Same is true in Subparagraph (f)(3), the 17 use of the word bingo liabilities. 18 On Subparagraph (f)(4), any overpayment 19 must either be used as a credit or claimed for a refund, 20 again, the Commission surely can notify licensees that 21 they're eligible for that. 22 402.404, we agree with the language in 23 sub -- in the subparagraphs that are changed. 24 With the observation under Subparagraph 25 (g), overpayment of license fees, under (2) and (3), 10 1 again, notification to the licensee that they could be 2 eligible for refunds or credits. 3 Under Subparagraph (h), again, the same 4 comment on refunds, except as provided, regular license 5 fees submitted are not eligible for refund. You have -- 6 we ought to have notice to the licensee that they're 7 eligible. 8 And then the same observation on the word 9 liabilities under (h)(2), Subparagraph (B), bingo 10 liabilities to the state. 11 We also observed that this is kind of a 12 morph of the agency's traditional authority as a 13 regulator to now being a tax collector for the state, 14 which is the job of the comptroller. 15 And to that extent, Subparagraph (h) -- 16 (coughing) excuse me -- (2)(C) makes it clear at the 17 bottom that notwithstanding the Commission will make a 18 review of it, the ultimate call is by the comptroller, 19 which is what current law allows. 20 Under -- (coughing) excuse me -- same 21 section, Subparagraph (j)(1) and (2), again, 22 notification to the charities of any funds that they 23 might be due. 24 Subparagraph -- or Section 402.410, 25 Subparagraph (e)(2), again, notice to the licensee by 11 1 the Commission. 2 Under Subparagraph (3), we've got the same 3 bingo liability language. Again, what's intended by 4 that language? 5 We also support enthusiastically 402.412, 6 Subparagraph (j), use of digital signatures. That is 7 the Commission practice; at least that's my 8 understanding, that they recognize those. We think it's 9 good to put that into a rule. 10 So the other observation is concerning 11 402.104 delinquent obligations. And I've ate and slept 12 since we had our meetings. I don't recall this rule 13 being a part of the discussion we had. May have been 14 and I slept through that or don't recall it. 15 I'm assuming the reason for this is to 16 implement this long-standing Government Code 2107. 17 Otherwise, it seems -- I'm not sure there's a need for 18 this rule in light of the amendments that we've just 19 gone through. And one of the overarching concerns of 20 charities is, there's more and more regulation. 21 There's a common theme within certain 22 members of the Commission Staff that bingo should be run 23 solely by volunteers. I would defy you as a -- to 24 expect a volunteer to know every rule that is applicable 25 to them if they were purely volunteers not getting paid. 12 1 And this is another example of another rule that they 2 would have to know that isn't even in the bingo division 3 rules but nonetheless is -- subjects the bingo charities 4 to this rule. 5 Under Subparagraph (b)(3), "To the extent 6 practicable," the rule states -- "To the extent 7 practicable" -- "maintain individual collection 8 histories of each obligation." We hear constantly that 9 the bingo division staff are overworked and asked to do 10 more with less time. I don't know -- the thought on 11 this is for how long? Is this something that the 12 division is now going to go back 10, 12, 15 years? One 13 could reach that conclusion. Generally speaking, 14 charities are -- statute of limitations is four years on 15 taxes under the tax code. This suggests that there may 16 be a long, long list. 17 Within this, we've had some discussions of 18 the potential liability to the state for unpaid -- and 19 it's usually prize fees. I think the division does a 20 great job of collecting license fees either for regular 21 license, a temporary license, or an amendment; but there 22 are only a few charities that don't make -- pay their -- 23 all of their prize fees. And so one question is: Why 24 do you need to go back to individual collection 25 histories? Is there something out there that we haven't 13 1 heard about that says we're going to go back -- in the 2 case of the charities at River City Bingo, they've been 3 conducting bingo, if memory serves me correct, since 4 1983. Surely the agency has something better to do than 5 go back to 1983. I think some charities are still 6 conducting bingo that were conducting from the very 7 beginning, which I believe was in 1982. 8 Under Subparagraph (e)(3), last sentence, 9 the Commission for policy reasons or other good causes, 10 we'd just like to have some meat on the bone about what 11 those policy reasons or good causes are. We don't know 12 what that means. 13 Those are all the comments I have. I'll 14 be happy to answer any questions. 15 MR. PERSON: Thank you. 16 That's all the witness affirmation forms I 17 have. So unless anybody else wishes to speak, we can go 18 ahead and adjourn the meeting. The time is 10:18. 19 Thank you. 20 (Proceedings concluded at 10:18 a.m.) 21 22 23 24 25 14 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Lorrie A. Schnoor, Certified Shorthand 5 Reporter in and for the State of Texas, Registered Merit 6 Reporter, Certified Realtime Reporter and Texas 7 Certified Realtime Reporter, do hereby certify that the 8 above-mentioned matter occurred as hereinbefore set out. 9 I FURTHER CERTIFY THAT the proceedings of such 10 were reported by me or under my supervision, later 11 reduced to typewritten form under my supervision and 12 control, and that the foregoing pages are a full, true, 13 and correct transcription of the original notes. 14 IN WITNESS WHEREOF, I have hereunto set my hand 15 and seal this 21st day of January, 2015. 16 17 _________________________________ LORRIE A. SCHNOOR, RMR, CRR, TCRR 18 Certified Shorthand Reporter CSR No. 4642 - Expires 12/31/15 19 Firm Registration No. 276 20 Kennedy Reporting Service, Inc. 7800 North Mopac, Suite 120 21 Austin, Texas 78759 512.474.2233 22 23 24 25