1 1 2 3 4 5 TEXAS LOTTERY COMMISSION 6 7 8 COMMISSION MEETING 9 10 11 12 DECEMBER 1, 2016 13 14 10:00 a.m. 15 16 AT 17 18 TEXAS LOTTERY COMMISSION 19 20 611 East 6th Street 21 22 Austin, Texas 78701 23 24 25 2 1 APPEARANCES 2 CHAIRMAN: J. Winston Krause 3 COMMISSIONERS: Doug Lowe Carmen Arrieta-Candelaria 4 Robert Rivera Peggy A. Heeg 5 GENERAL COUNSEL: Bob Biard 6 7 EXECUTIVE DIRECTOR: Gary Grief 8 CHARITABLE BINGO OPERATIONS DIVISION DIRECTOR: Alfonso D. Royal III 9 10 ADMIN. DIVISION DIRECTOR: Michael R. Fernandez 11 ASSISTANT GENERAL COUNSEL: Deanne Rienstra 12 CONTROLLER: Katheryn J. Pyka 13 PRODUCTS & DRAWINGS MANAGER, 14 LOTTERY OPERATIONS DIVISION: Robert Tirloni 15 LOTTERY OPERATIONS DIRECTOR: Michael Anger 16 17 McCONNELL JONES LANIER & MURPHY LLP: Jose Reyes 18 19 20 21 22 --oo0oo-- 23 24 25 3 1 TABLE OF CONTENTS 2 Page 3 I The Texas Lottery Commission will call the meeting to order. 4 Pledge of Allegiance to the U.S. and Texas flags........................................... 6 5 II Report, possible discussion and/or action on the biennial security study of the lottery...... 15 6 III Report, possible discussion and/or action on the 2016 demographic report on lottery 7 players......................................... 20 IV Report, possible discussion and/or action on 8 agency contracts, including the procurement for the contract for risk review and 9 compliance monitoring services.................. 30 V Report, possible discussion and/or action on 10 agency prime contracts, including the extension for the headquarters lease............ 30 11 VI Consideration of and possible discussion and/or action, including adoption, on 12 amendments to 16 TAC §401.317 (“Powerball®” On-Line Game Rule).............................. 35 13 VII Report, possible discussion and/or action on sales and revenue, game performance, new game 14 opportunities, advertising, promotional activities, market research, trends, and game 15 contracts, agreements, and procedures........... 36 VIII Report, possible discussion and/or action on 16 transfers to the State and the agency's budget.. 46 IX Report, possible discussion and/or action on 17 external and internal audits and/or reviews relating to the Texas Lottery Commission, 18 and/or Internal Audit activities, including approval of Human Resource Audit Report and 19 CBOD Ledger Account Reconciliation Project Report.......................................... 47 20 X Report, possible discussion and/or action on the Charitable Bingo gross receipts, 21 charitable distributions, prize fees, and allocations..................................... 53 22 XI Report by the Charitable Bingo Operations Director and possible discussion and/or action 23 on the Charitable Bingo Operations Division's activities, including licensing, accounting 24 and audit activities,pull-tab review, Bingo Advisory Committee, and special projects........ 59 25 4 1 TABLE OF CONTENTS (Continued) 2 Page 3 XII Report by the Executive Director and possible 4 discussion and/or action on the agency's operational status, major contracts, agency 5 procedures, awards, and FTE status.............. 6 XIII Consideration of the status and possible 6 approval of orders in enforcement cases......... 65 7 Lottery NSF License Revocation Cases (Default Unless Otherwise Noted) 8 A. Docket No. 362-16-5380 - EZ Travel Plaza B. Docket No. 362-16-5381 - EZ Food Mart #2 9 C. Docket No. 362-17-0063 - $1 Store D. Docket No. 362-17-0064 - Shop N Go 10 E. Docket No. 362-17-0260 - La Providencia F. Docket No. 362-17-0261 - 140 Convenience 11 G. Docket No. 362-17-0546 - Spencer 8 Citgo Other Lottery Revocation Cases 12 H. Docket No. 362-16-5599 - Sammy's Auto Care & Collision Center 13 Lottery Agreed Orders I. Case No. 2016-343 - Stop and Drive 14 J. Case No. 2016-388 - West Lake Market K. Case No. 2016-1174 - EZ Mart #596 15 Bingo Agreed Orders L. Case No. 2016-814 - St. Julia Catholic Church 16 M. Case No. 2016-992 - Joe Garcia (Bingo Worker) Bingo License Revocation Cases 17 N. Docket No. 362-16-3511.B - VFW Post 2427 Tomball 18 O. Docket No. 362-16-1513.B - Julam Investments, Inc.(Motion for Rehearing) 19 XIV Public comment.................................. XX XV Commission may meet in Executive Session........ XX 20 A. To deliberate personnel matters, including the appointment, employment, 21 evaluation, reassignment, duties, discipline, or dismissal of the 22 Executive Director and/or the Charitable Bingo Operations Director 23 pursuant to Section 551.074 of the Texas Government Code. 24 B. To deliberate the duties of the General Counsel and/or the Human 25 Resources Director pursuant to 551.074 of the Texas Government Code. 5 1 TABLE OF CONTENTS (Continued) 2 Page 3 C. To receive legal advice regarding pending or contemplated litigation or 4 settlement offers, or other legal advice, pursuant to 551.071(1) and 5 (2) of the Texas Government Code, including but not limited to legal 6 advice regarding the following items: Pending and potential litigation 7 regarding Fun 5's Scratch Ticket Game #1592, including Travis Co. 8 District Court Cause No. D-1-GN-005114, Third District Court of Appeals 9 Cause No. 03-16-00172-CV (Steele, et al. v. GTECH Corp.); Dallas Co. District 10 Court Cause No. DC-14-14838, Fifth District Court of Appeals Cause 11 No. 05-15-01559-CV (Nettles v. GTECH Corp. and Texas Lottery Commission); 12 and El Paso County Court Cause No. 2014-DCV-4113 (McDonald v. GTECH 13 Corp.), State of Texas v. Equal Employment Opportunity Commission et al. 14 Legal advice regarding Texas Government Code Chapters 466 (State Lottery Act) and 15 467, the Bingo Enabling Act, the Open Meetings Act, the Public Information Act, 16 the Administrative Procedure Act, employment and personnel law, procurement 17 and contract law, evidentiary and procedural law, ethics laws, and general 18 government law. Legal advice regarding any item on this 19 open meeting agenda. XVI Return to open session for further 20 deliberation and possible action on any matter posted for discussion in Executive 21 Session. Any matter posted for Executive Session also may be subject of discussion 22 and/or action in open session prior to Executive Session............................. XX 23 XVIII Adjournment................................... 95 24 Reporter's Certificate.............................. 96 25 --oo0oo-- 6 1 P R O C E E D I N G S 2 AGENDA ITEM I 3 CHAIRMAN KRAUSE: The Texas Lottery 4 Commission is in session. It is December 1st, 2016. 5 The time is -- whether it is or not -- 10:00 o'clock. 6 MR. GRIEF: Mr. Chairman, your mic. 7 CHAIRMAN KRAUSE: So, anyway, now you can 8 hear; but I'm not going back over it. 9 We have all of our Commissioners here, 10 and so we have a quorum. We are ready for business. 11 We'll start, as we have been recently, with the pledges 12 to the flags; and so Commissioner Candelaria will lead 13 us in that. 14 (Pledges recited.) 15 CHAIRMAN KRAUSE: We'll be taking an item 16 out of order. We are going to hear first from our 17 Executive Director, Gary Grief. 18 AGENDA ITEM XII 19 MR. GRIEF: Thank you, Mr. Chairman. 20 Good morning, Commissioners. 21 In addition to what I have for you in 22 your notebooks today, I think I have a couple of items 23 of interest that I want to share with you. 24 First, I wanted to report to you on some 25 events that took place during the World Lottery Summit 7 1 in Singapore the week of November 6th through 9th. As a 2 reminder, this is the biennial conference of the World 3 Lottery Association, known as the WLA, of which the 4 Texas Lottery is a member. One of the benefits of being 5 a member of the WLA is being able to take advantage of 6 the very significant and robust responsible gambling 7 programs offered through the WLA by its members. 8 As you know, the Texas Lottery Commission 9 has had a robust responsible gambling program in place 10 going all the way back to 2004, when we first began 11 participating in the Gambling Awareness Month Campaign, 12 which is in March of every year; and that program is 13 overseen by the National Council on Problem Gambling. 14 We began our involvement in that program by issuing 15 press releases supporting the campaign. And by 2014, we 16 had grown and expanded our involvement to include 17 classroom training for our employees in identifying the 18 signs of problem gambling, including our claims center 19 and our customer service staff, who have direct and 20 frequent interaction with the players and with our 21 retailers, as well as providing that training to the 22 IGT sales force, who is out in field every day. 23 In 2015, we then took this program a step 24 further by becoming more engaged with the World Lottery 25 Association's responsible gambling programs. At the 8 1 WLA, they have four levels of responsible gambling 2 certifications that a lottery can obtain; and in 2015, 3 we performed a gap analysis of our program as part of 4 our efforts to obtain our Level 2 Certification, with 5 Level 2's focus being able to identify those gaps and 6 set priorities for our future program development. We 7 are very proud to have achieved our Level 2 8 certification back in October of 2015; and immediately 9 afterward, we embarked on striving to obtain our Level 3 10 Certification, which is a very different matter 11 altogether. 12 The Level 3 submission must focus on 13 implementation plans to address those gaps and those 14 priorities that were identified during our Level 2 15 process, and we had to develop detailed planning for 16 evaluating our program's effectiveness. We completed 17 our submission for the Level 3 certification, and we 18 sent that in to the WLA on September 28th of this year 19 for their assessment. 20 The WLA utilizes an independent 21 international judging panel to evaluate these 22 submissions; and I'm delighted to report to you today 23 that I was informed at the WLA Conference that we, The 24 Texas Lottery, have, indeed, achieved our Level 3 25 Certification. The independent international panel that 9 1 reviewed our submission, they release a report on each 2 submission that they review. It's called an Independent 3 Assessment Panel Evaluation Report. In the report 4 issued on the Texas Lottery Commission, I would like to 5 read for you just a part of what the panel of judges had 6 to say about our entry; and I quote, "The Texas Lottery 7 has demonstrated a strong management commitment and 8 effort in developing its responsible gaming program. 9 The judging panel was pleased that the Texas Lottery 10 took on board the comments made by the panel on your 11 previous submission. The panel can see that the Texas 12 Lottery has made significant progress since last year, 13 and we would like to congratulate you on it. The Texas 14 Lottery has established the policies, the standards, the 15 guidelines for responsible gaming program elements; and 16 it is commendable that you were able to align your 17 service suppliers and business partners in implementing 18 the responsible gaming program. 19 "Furthermore, the Texas Lottery has 20 implemented innovative measures to ensure a responsible 21 gaming atmosphere exists among your employees, your 22 retailers, and your stakeholders. 23 "The Panel wishes to extend its warmest 24 congratulations for achieving Level 3 Certification." 25 Commissioners, I was obviously thrilled 10 1 with that achievement, which is commemorated in the 2 white framed certificate that Chairman Krause has; and 3 he will pass that around for you to see. But that's not 4 all. It's far from all. 5 You may also recall that at the October 6 Commission meeting Ms. Teresa Edwards, who is here with 7 us this morning -- she works our Retailer Services 8 Department -- she described for you a special entry that 9 we submitted to the WLA under the Level 2 best 10 innovation category. The entry involved our employee 11 program that supports the March National Problem 12 Gambling Awareness Campaign. The award we were 13 competing for recognizes the best practices and 14 innovation in the design of one element of a Lottery's 15 responsible gambling program. 16 Our 2016 Responsible Gaming Campaign here 17 at the Texas Lottery included several new initiatives. 18 Our classroom training that I mentioned earlier, we 19 expanded that to include our employees in our Promotions 20 Department, as well as employees in our Enforcement 21 Division. Over the month of March, six different daily 22 news messages were delivered to our employees and to all 23 the IGT sales reps across the state. Each one provided 24 information about identifying the signs of problem 25 gambling and helping our employees and our IGT partners 11 1 become familiar with the resources available to provide 2 help to individuals who suffer from that type of thing. 3 We developed a dedicated Internet page on 4 our website that featured our Responsible Gaming 5 Training Video and our Play Responsibly Brochure, which, 6 by the way, is available at all of our more than 17,500 7 retail locations. The theme for our campaign last March 8 was: Have the conversation. And we had posters up to 9 that effect throughout our headquarters, throughout all 10 of our field offices, and throughout all the IGT sales 11 offices as well. We had messages about our responsible 12 gaming campaign on Twitter, Instagram, Facebook; and we 13 became the very first lottery ever to conduct a live 14 video stream on Facebook to our almost 200,000 fans and 15 followers. And on that Facebook Live Stream, I 16 delivered a message supporting the Problem Gambling 17 Month Awareness Campaign. Now, this entire initiative 18 was an agency-wide effort and included IGT; and everyone 19 had to work together to make it be successful. 20 This morning I'm happy to inform the 21 Commission that out of more than 150 lotteries from 22 around the world that were represented at the World 23 Lottery Association Meeting in Singapore, the Texas 24 Lottery's entry was selected as the winner in this 25 category; and we were one of only three lotteries in the 12 1 world recognized in total for this type of achievement. 2 And that achievement is represented in the plaque that 3 Chairman Krause also has, and he will pass it around for 4 the Commission to see. 5 Commissioners, the attainment of a 6 Level 3 Certification, along with winning the award that 7 I just described for the best innovation in responsible 8 gaming, that was a major coup for our lottery; and it 9 solidified our status as a world class gaming operation 10 and took significant effort by many of the staff people 11 that are here in the room today. 12 With that said, I want the Commission to 13 know that much of the credit for this goes to our very 14 own Teresa Edwards from our Retailer Services Department 15 for the leadership on this project, her determination, 16 and attention to detail as we developed these entries 17 are really what carried the day for us; and her work on 18 this project has allowed us to achieve these outstanding 19 accomplishments. 20 So I want to publicly thank Teresa this 21 morning and recognize her for all that she did and for 22 all that she will do in the future because we have more 23 work ahead of us to ensure that the Texas Lottery 24 remains and maintains its position as a world leader in 25 this particular arena. 13 1 So, Teresa, if you will, please stand. 2 (Applause.) 3 MR. GRIEF: Any comments, Mr. Chairman, 4 before I move to my final item? 5 CHAIRMAN KRAUSE: Comments? 6 COMMISSIONER LOWE: Congratulations. 7 Great job. 8 COMMISSIONER ARRIETA-CANDELARIA: 9 Outstanding. Congrats. 10 CHAIRMAN KRAUSE: You know, if there's a 11 theme for today, then it's a theme about how the lottery 12 is important in several respects for Texans and that is 13 not only does it raise money for education and for 14 veterans, but we do it in a secure way and we don't take 15 advantage of anybody. What we do is we care about the 16 people who play, those are the people that includes the 17 people that may not be able to control themselves; and 18 as we are going to hear, you know, in the third item, it 19 also includes people who are economically disadvantaged. 20 They are as smart as anybody else and that they are able 21 to handle their money just as well as anybody else, and 22 so that's one of the themes that we have for today. 23 So I'm very proud of the fact that we are 24 striving to, you know, have a fantastic program and be 25 involved in the world organization that is giving us 14 1 these awards and that we're winning these awards. 2 Thank you, staff. Y'all are doing a 3 great job. 4 (Applause.) 5 MR. GRIEF: If I could, Mr. Chairman, I 6 just want to remind the Commission that next week we are 7 going to be hosting the LaFleur's Lottery Conclave 8 Conference, here at the Stephen F. Austin 9 Intercontinental Hotel. That's from the 4th through the 10 7th. We last hosted that conference back in 2014. We 11 are very honored to have State Representative Larry 12 Gonzales from Georgetown, who is also the current Chair 13 of our House Appropriations Subcommittee, giving the 14 opening remarks at this year's conference. 15 We expect more than 200 attendees from 16 around North America to be in attendance. Our 17 conference planners, Terri Markle and Bruce LaFleur, 18 have done a wonderful job of organizing the conference 19 this year. It's very rich in content. 20 And concurrent with that conference, I'm 21 holding a full Multi-State Lottery Association Board 22 Meeting here in Austin at the Driskill Hotel. So out of 23 the more than 200 attendees at the conference, around 24 20 to 25 of those will be my fellow lottery directors 25 from around the country. And we will also have leaders 15 1 from every one of the vendor organizations, as well, 2 participating. 3 Mr. Chairman, that concludes my report 4 today. 5 Thank you. 6 CHAIRMAN KRAUSE: It was a fine report. 7 Thank you. 8 We'll move on to our next item, which is 9 going to be introduced by Mr. Mike Fernandez. As a 10 matter of fact, the next two items are his as well. 11 AGENDA ITEM II 12 MR. FERNANDEZ: Good morning, 13 Mr. Chairman, Commissioners. 14 For the record, my name is Mike 15 Fernandez. I'm the Director of Administration. 16 Section 466 Texas Government Code requires the Executive 17 Director to conduct a security study of all operations 18 of the Texas Lottery Commission every two years. 19 The results of the study have been 20 provided to the Commission; and in accordance with 21 statute, a summary of the study will be provided to the 22 Governor and the Texas Legislature prior to the 23 convening of the next session. The items to be included 24 in the study are delineated in the statute, as well as 25 any other requests that the agency would like to 16 1 include. 2 That study has recently been conducted by 3 BerryDunn. And with me this morning to present that 4 effort is Mark Caiazzo, a partner with BerryDunn, and 5 Chris Ellingwood, the Project Manager for the study. 6 I'd now like to turn it over to Mark. 7 MR. CAIAZZO: Thank you, Mike. 8 Good morning, everyone. My name is Mark 9 Caiazzo, and we conducted the biennial security study 10 for the Commission. And it covered a period of the 11 latter part of 2014 through mid 2016, and it addressed 12 13 areas of lottery operations and the security controls 13 related to those areas. And it covered, of course, the 14 lottery and several of their critical vendors. 15 And so we conducted the project in three 16 phases, and I'm going to turn it over to Chris 17 Ellingwood for a very quick overview of our process. 18 And then he'll hand it back to me, and I'll take a 19 minute or two and talk about the results. 20 MR. ELLINGWOOD: Good morning. Thank you 21 for having us this morning as well. 22 Our firm has been working with lotteries 23 since about 1995 and we do a lot of work for lotteries 24 throughout the country and we use our experience to help 25 enhance our assessment. 17 1 We used a basic three-phase approach to 2 this project. The first phase was just around planning 3 and logistics, when we were coming to visit and when we 4 could do our work. 5 Our second phase was a very comprehensive 6 risk assessment. For both Phases II and III, we had a 7 team of six consultants here in Austin, between here and 8 IGT, the lottery and IGT. We covered all the 13 areas 9 that were required in the standards, and we walked 10 through operations and talked with people. We observed 11 things; and we identified risks, potential risks, from 12 our knowledge of the industry and then other risks that 13 might be very unique to the Texas model and how you 14 operate. 15 From there, in our interviews and our 16 observations, we identified nearly 200 what we call 17 internal controls that help mitigate any identified 18 risks. And we provided at the end of the 19 risk-assessment phase a report that ranked our risk by 20 high, medium, and low; and we mapped the 200 controls 21 identified to those risks. 22 Then we began Phase III a couple weeks 23 later. When we arrived onsite, again, we a had team of 24 six. We were here for two weeks, and we tested every 25 one of the 200 controls for operating effectiveness over 18 1 that two-year period. That was the scope of the 2 engagement. 3 Our risks were ranked. So the higher 4 risks we studied the controls at more a comprehensive 5 level than lower risks, but every control was tested. 6 That included controls at the key critical vendors as 7 well. We worked with -- to test our controls, we tested 8 them through observations, meetings, observation by 9 inspection of systems, technology, observed draws. 10 We covered the whole company, the whole 11 organization from top to bottom; and at the end of our 12 Phase III, we provided a detailed report with findings 13 and recommendations that further enhance the internal 14 control environment of the lottery. 15 MR. CAIAZZO: Thank you. 16 In terms of the results overall, the 17 results were excellent. I believe the Texas Lottery has 18 a strong security posture and the lottery operations and 19 the security controls around those operations are well 20 documented. They're mature. They're operating 21 effectively. And, of course, strong management, 22 dedicated staff were very helpful during the process. 23 We didn't identify any findings that 24 would impact the security, reliability, integrity of the 25 lottery operations. Again, things are operating very 19 1 effectively. The findings that we did have were more 2 process improvements. They're doing some things now; 3 perhaps here's a way to do it a little bit better. So, 4 again, nothing of high risk or concern. 5 In terms of specific strengths that we 6 observed, strong compliance program, strong contract 7 compliance, dedicated Security Department, Enforcement 8 Department, Compliance Department, all doing some 9 excellent work. We have independent auditors observing 10 your draws. You have third parties conducting security 11 studies and penetration studies and other studies of 12 interest for the lottery. 13 So in closing, again, you've seen our 14 report. Our public report is available on the Internet; 15 and after reading it, I think everyone should be very 16 pleased with the results. In closing comments, I would 17 like to thank everybody at the lottery for their 18 assistance. 19 We've spent a lot of time here. We've 20 conducted a lot of interviews and took a lot of the 21 staff's time, and we definitely appreciate that. 22 Everyone was friendly and accommodating, and I would 23 like to mention Jeff Manners for his assistance. He 24 served as the project manager for the Lottery, did an 25 excellent job and really helped things run smoothly. 20 1 MR. FERNANDEZ: That concludes our report 2 Commissioners. Any questions that we could answer? 3 CHAIRMAN KRAUSE: Commissioners? 4 (No response.) 5 CHAIRMAN KRAUSE: Well, I want you to 6 know that it is very important to me and the other 7 commissioners to have confirmation of the fact that we 8 have excellent security controls that protect the 9 integrity of the lottery. We're here to provide a fun 10 and fair game, and the integrity of the lottery is one 11 of our highest priorities. 12 Thank you for confirming what we believe. 13 Thank you. 14 MR. CAIAZZO: Thank you for having us. 15 CHAIRMAN KRAUSE: You bet. 16 AGENDA ITEM III 17 MR. FERNANDEZ: Again, for the record, 18 Commissioners, my name's Mike Fernandez, the Director of 19 Administration. 20 Item 3, in your notebook, as you know, 21 Section 466 Texas Government Code also requires the 22 Executive Director to conduct a demographic study of the 23 Texas Lottery players every two years; and the results 24 of the study will be presented to the Commission, the 25 Governor, and the Texas Legislature prior to each 21 1 Legislative Session. 2 As you also know, we conduct the study 3 annually. The 2016 demographic study was prepared by 4 the University of Houston and will be presented again 5 this morning by Dr. Jim Granato, Director of the Hobby 6 School of Public Affairs. 7 DR. GRANATO: Thank you, 8 Director Fernandez. 9 This will be a brief summary PowerPoint 10 about some of the findings. To begin, we had a sample 11 of roughly 1700 respondents, which is in keeping with 12 past practice. The split between landlines and cell 13 phones was about 60/40. 14 To give a sense of what was happening 15 with cell phone usage, 10 years ago we were using about 16 15 to 20 percent of our samples being cell phones. And 17 why do we do this? Because of the generational divide. 18 Younger folks don't use landlines at all. 19 So in order to get a representative 20 sample, you need to have exclusive cell phone users in 21 your sample; and some of the recent studies suggest 22 sampling should contain up to 45 percent cell phone 23 usage. So we're in the ballpark, and it's an educated 24 guess on where to have it. We know as the trend 25 increases, we will continue to increase. 22 1 Participation rate this year increased to 2 35 percent. It was up from 25 -- up 28 percent from 3 last year. It's in Table 2 of the report. 4 The central and important part of the 5 study is in looking at players versus non-players. This 6 is where you get a sense of how people that are 7 playing are different -- and there are a variety of 8 indicators -- from the people that don't play. And we 9 have a variety of things we look at, as in keeping with 10 past practice: Their income; employment status; if you 11 own your home; your age; your gender; your marital 12 status; if you have children under 18 in your household, 13 if so, how many; your race; are you of Hispanic origin; 14 your education level; and your occupational status. 15 In this survey and this sample we find 16 differences on a variety of categories. First, you're 17 more likely to be employed full time if you play the 18 lottery. 19 Second, you're more likely to own a home 20 if you play the lottery. 21 Third, the people that play, the age 22 group difference was between ages -- people the age of 23 25 to 60; for that group that played, they were less 24 likely to play than people over the age of 65. 25 The more children you had, the more 23 1 likely you were to play, which means you're spending 2 your kids' inheritance. 3 (Laughter.) 4 Females are less likely to play than 5 males in this sample. 6 And Hispanics are more likely to play 7 than non play in this sample. 8 In terms of the 13 sales districts, we 9 found the districts with the highest participation rates 10 being Houston East, Fort Worth, and El Paso. Notice 11 that the clustering is roughly the same. The highest 12 average expenditure per month was in Fort Worth. The 13 highest median expenditure per month was in McAllen, in 14 Table 4 of the report. 15 The game results. This is just looking 16 at -- we're not looking at players versus non-players. 17 We're looking at the games and seeing the trends. In 18 terms of participation, Lotto Texas has the highest 19 participation. Mega Millions was second; Powerball, 20 third; Scratch Off was fourth; and Pick Three Day was 21 fifth. Note the drop-off from Scratch Off to Pick Three 22 Day. 23 So you've got those four games clustering 24 around each other, with the highest participation rate. 25 With Pick Three Day, the next highest, with a sharp 24 1 drop. The highest average expenditure per play is 2 Pick Three Day at $13.93 per play. The highest average 3 number of plays times player per week is Pick Three Day 4 and Scratch, per month. We look at Scratch per month 5 and Pick Three Day is per week. That's in Table 1. 6 Game Result Averages. The average time 7 played, whether it's weekly, monthly, or annually, the 8 games that had stable results that were up from last 9 year are: Lotto Texas, Mega Millions, Powerball, and 10 Scratch. Stable or down: Pick 3 Day, Cash Five, and 11 Texas Two Step. And mixed results were Megaplier, Power 12 Play, and Extra. 13 Average hours of time per play stable or 14 up: Lotto Texas, Powerball, Pick Three Day, Megaplier, 15 Cash Five, Texas Two Step, and Extra. 16 Stable or down is Mega Millions, Scratch, 17 and Power Play. 18 In this we have two figures -- well, one 19 figure and one table. This figure shows that the trends 20 in participation for any lottery game, as you can see, 21 there's an uptick back to where it used to be in 2013, 22 2012. And, roughly, if you look from about 2008, I 23 would say the average is about 36, 37. This is around 24 the average. The two outliers were 2014 and 2015, 25 especially 2014. That's was known as the drop, but it's 25 1 back. It's back to the trend that we've had the last 2 eight to ten years. 3 And this table highlights some of the 4 findings that I've mentioned to you. What's in yellow 5 are the extreme cases, the highest. So participation in 6 2016 they're the highest percentage participating. 7 Powerball had the biggest change in participation of 36 8 percent, a substantial increase there. 9 In terms of frequency of purchase, at 10 least once-a-week purchase, you have Texas Triple Chance 11 and Extra about the same, almost tied. So I put those 12 two together. If you're purchasing at least once a 13 month, the highest purchaser was Extra. In terms of 14 average number of times played per week, Pick Three Day 15 had the highest. Per month you had Texas Lottery 16 Scratch games. Of course, the average game per play, 17 again, was Pick Three Day. 18 And that concludes my presentation. I'd 19 be glad to answer any of your questions. 20 CHAIRMAN KRAUSE: Commissioners? 21 COMMISSIONER LOWE: I have questions. 22 Doctor, how're you doing this morning? 23 DR. GRANATO: Fine, thank you. 24 COMMISSIONER LOWE: You identified, I 25 think, east Houston as one of the highest 26 1 participation -- or the highest participation rate. Is 2 that sorted by ZIP code, or how do you make that sort? 3 DR. GRANATO: It's by ZIP. 4 COMMISSIONER LOWE: By ZIP. 5 DR. GRANATO: Yes. 6 COMMISSIONER LOWE: And do you confirm 7 those percentages with our sales data by ZIP code? 8 DR. GRANATO: We do not. We use our own 9 data to do that. We check what the boundaries are for 10 the district, and we confirm it that way. 11 COMMISSIONER LOWE: Okay. Thanks. 12 CHAIRMAN KRAUSE: Anybody else? 13 COMMISSIONER ARRIETA-CANDELARIA: Do you 14 have any way to determine what -- like, in El Paso, how 15 many people from Mexico are coming and buying lottery 16 tickets? 17 DR. GRANATO: We do not have a question 18 for that. We do have a question for Hispanic origin, 19 but not about if you were born there or came here, no. 20 COMMISSIONER ARRIETA-CANDELARIA: I know, 21 particularly before the lottery -- before New Mexico had 22 their lottery, there was a lot of people that would 23 cross from New Mexico to Texas to buy lottery tickets. 24 So you can't document how many people that live in New 25 Mexico and buy lottery tickets in El Paso? 27 1 DR. GRANATO: One thing I would suggest, 2 based on our -- we interviewed respondents over the age 3 of 18, presumably U.S. citizens -- I suspect people that 4 are not U.S. citizens would not answer; so that's a 5 guess. But there may be a way to change, alter the 6 instrument to deal with that issue, if the Commission 7 desires. 8 COMMISSIONER ARRIETA-CANDELARIA: I'm 9 just interested -- it's always interesting me how much 10 that border crossing is impacting sales. I think it's 11 important to note, especially for -- I know there's a 12 lot of fluid movement between New Mexico and Texas and 13 now that -- New Mexico has a lottery now, has for a 14 number of years. So I don't know how -- I think that 15 there still is a lot of that crossing if, like, the 16 Texas specific games are -- if we have a large jackpot, 17 probably see a cross-over. 18 There is literally like a store right 19 when you cross from New Mexico to Texas. There's a 20 store on either side and you can walk and buy lottery 21 tickets from Texas and across the street you can buy 22 lottery tickets in New Mexico. So it's very fluid 23 there. 24 CHAIRMAN KRAUSE: Well, so, Doctor, what 25 is your opinion of the claim that I hear pretty 28 1 regularly that the lottery is unfair because poor people 2 play and they shouldn't be playing? What do you think 3 about that as far as what your study shows about their 4 judgment as far as playing? 5 DR. GRANATO: The data in the sample is 6 that there was no difference in income between players 7 and non-players. 8 CHAIRMAN KRAUSE: Okay. So that's a good 9 thing for us, actually. 10 Yeah, there's no difference. 11 COMMISSIONER ARRIETA-CANDELARIA: Thank 12 you. 13 CHAIRMAN KRAUSE: Do you have a question? 14 COMMISSIONER RIVERA: You kind of touched 15 upon it earlier; and I really couldn't find it 16 specifically in the documents, who the average player 17 is, meaning, age, male or female, income, education. 18 Who -- if you could put that, who would that be? 19 DR. GRANATO: So we have -- so for ages, 20 like, seven different categories; and so we separate 21 them by seven or eight years. So I don't have the 22 actual average age, but we have them by categories. 23 What I can tell you is, for example, age, we saw and 24 compared players and non-players. If you looked at the 25 middle categories, from the age of 25 to 64, that swab, 29 1 percentage of players was larger than the non-players. 2 When you get to 65 and over, you saw the reverse. You 3 saw non-players being much larger than players, and we 4 can get that data for you. It's just we granularize it 5 and break it down by categories, but we can probably 6 build averages on those categories for you. 7 COMMISSIONER RIVERA: Right. But it's 8 probably someone in their forties, maybe, you know, just 9 ballpark? 10 DR. GRANATO: Yes. 11 COMMISSIONER RIVERA: And income? 12 DR. GRANATO: Yes. 13 COMMISSIONER RIVERA: And number of 14 children. So that's -- I'm just trying to -- 15 DR. GRANATO: The category that stood out 16 for number of children was three. 17 COMMISSIONER RIVERA: Okay. 18 DR. GRANATO: So the first question is: 19 Do you have any children under the age of 18 in your 20 household? And then, after that, it's: How many 21 children do you have? And I think it's: 1, 2, 3; and I 22 think there's another number. Three was the largest 23 category. 24 COMMISSIONER RIVERA: Right. And then 25 education? 30 1 DR. GRANATO: Oh, it's less than -- less 2 than high school, high school, graduate school, things 3 of that sort. There's, like, five categories for that, 4 too. Again, there's no -- we did not see any difference 5 by educational status. 6 COMMISSIONER RIVERA: Okay. Perfect. 7 Thank you. 8 CHAIRMAN KRAUSE: Thank you for your good 9 work. It's important to us. 10 CHAIRMAN KRAUSE: Mr. Fernandez, the next 11 couple of items are yours. 12 MR. FERNANDEZ: Yes, sir. 13 AGENDA ITEM IV 14 MR. FERNANDEZ: The next item in your 15 notebook is a briefing item, and it's to advise the 16 Commission of staff's intent to issue a request for 17 proposals for risk review and compliance monitoring 18 services. 19 If you have any questions, I can answer. 20 CHAIRMAN KRAUSE: Questions? 21 (No response.) 22 CHAIRMAN KRAUSE: No questions. 23 AGENDA ITEM V 24 MR. FERNANDEZ: The last item, 25 Commissioners, is a briefing item, also; and it's to 31 1 advise the Commission of staff's intent to extend our 2 current headquarter's lease for a five-year period. The 3 commissioners have all independently confirmed they do 4 not have any financial interest in Lynx Grant, LLC. 5 COMMISSIONER ARRIETA-CANDELARIA: I have 6 a question with regards to the lease. Have we done a 7 cost-benefit analysis to perhaps owning our own building 8 or purchasing a building as opposed to the annual cost? 9 And, certainly, I don't know how many square feet this 10 building is. Presumably that's a lease for this 11 building; is that correct? 12 Yes. And we're at 78,000, I believe -- 13 78,000 square feet on this particular building. 14 COMMISSIONER ARRIETA-CANDELARIA: So the 15 2.3 million, that's an annual cost? 16 MR. FERNANDEZ: The annual cost. It's 17 roughly around $195,000 a month is the cost, and that's 18 a full service lease. 19 COMMISSIONER ARRIETA-CANDELARIA: So it's 20 all in? 21 MR. FERNANDEZ: I say that advisedly 22 because you can trip that power and put stuff out 23 when you do that. I think that the thing that we have 24 been -- well, first off, we always work with the Texas 25 Facilities Commission. We have exemptions. We work 32 1 very closely with them; and when we start to look at 2 rent surveys and what the local costs are, keeping in 3 mind that we have a studio -- so there are some unique 4 needs here -- we start looking at that and look at 5 making a move, we need to get out fairly far in front of 6 it because we know for a studio like ours, it would 7 probably be a year, at least, if not longer, really, for 8 us. 9 We have been, I would say, since 2014 10 working very closely, as all agencies have, with Texas 11 Facilities Commission. There has been an interest by 12 the Texas Legislature of bringing in all the agencies 13 throughout the space here in Austin or in the Capitol 14 Complex or in State Government to own our own buildings 15 and operate the buildings, and that has been underway. 16 In the last Legislative Session, there were 17 appropriations granted to begin that process. 18 And so all agencies have been talking 19 with the Texas Facilities Commission about the outcome 20 of that. We certainly are not excluded, and what they 21 are looking at is a deadline for that out in 2020. 22 Okay? So we don't know quite yet what their schedule's 23 going to be, how that's going to unfold, if you will, 24 over that period of time; and, really, our information 25 and our discussion is for us to hold tight, if you will, 33 1 as this begins to unfold. 2 I've had the opportunity to see the 3 proposed plans, which are posted on the website, Texas 4 Facilities Commission website; and what their plan 5 entails right now is closing Congress Avenue between 6 15th Street and Martin Luther King, where Congress runs 7 there in front of the Bob Bullock Museum and those 8 buildings right there. And what their intent is, right 9 now what the plan is to close that street and make that 10 into a very attractive mall; and the parking lots that 11 you see over by the Comptroller's Office behind the 12 State Auditor's Office, et cetera, are going to be 13 excavated. They will build ample underground parking, 14 and the plan then is to construct buildings. 15 And what they're looking at is how that 16 may or may not get staged up in 2020 and future years. 17 So for us, we're well advised to hold our position right 18 now to see what the future holds. 19 MR. GRIEF: Mike, it might be helpful if 20 you could talk a little bit about the out clauses in our 21 lease. 22 MR. FERNANDEZ: Right now we have, as you 23 know, and by contract, we have funding out. So if we 24 don't receive our appropriations, it immediately puts us 25 out; but in this particular contract we also have a 34 1 clause in there that states that we are also out of that 2 contract if the state chooses to relocate us into a 3 building. So as Gary alluded to -- thank you -- we 4 continue to have that. But what we're looking for is to 5 ensure that we've got ample time because if we get 6 signalled or staged up and something were to happen we 7 would have to have some time to make it if we had to 8 make it just because of the size and complexity of the 9 studio piece. That's where we are. 10 COMMISSIONER ARRIETA-CANDELARIA: I 11 didn't know what the actual cost entailed. To me, that 12 seems high; but, you know, I don't know what the market 13 rate is in this area. 14 MR. FERNANDEZ: Well, in Austin, Texas -- 15 and some of you probably know better than I do -- but 16 right now, the latest information I've seen is around 17 31, $32 a square foot; and ours is less than that today 18 because of the time in which we entered into it. So I 19 think we're in good shape there, if you will. 20 COMMISSIONER ARRIETA-CANDELARIA: Okay. 21 All right. Thank you. 22 MR. FERNANDEZ: Thank you. 23 * 24 AGENDA ITEM VI 25 CHAIRMAN KRAUSE: Ms. Deanne Rienstra. 35 1 MS. RIENSTRA: Good morning, 2 Commissioners. 3 Deanne Rienstra, Assistant General 4 Counsel. 5 In your notebook under Tab 6 is a draft 6 of the proposed amendments. It is the Texas Powerball 7 Online Game Rule, which is found at 16 Texas 8 Administrative Code 401.317. The proposed amendments 9 were published in the Texas Register on October 28th, 10 2016. These amendments clarify the prize pool and 11 reserve accounts, update rule definitions, clarify 12 MUSL's use of the MUSL annuity factor, and clarify 13 player remedies in the event of litigation arising out 14 of a Powerball play. 15 A public comment hearing was held on 16 November 16, and no members of the public attended. No 17 written comments on the proposed amendments were 18 received during the public comment period. Staff 19 recommends adoption of these amendments. 20 Happy to answer any questions. 21 CHAIRMAN KRAUSE: Commissioners? 22 COMMISSIONER ARRIETA-CANDELARIA: No. 23 CHAIRMAN KRAUSE: Well, if the public 24 doesn't have any comments, then neither do we. 25 (Laughter.) 36 1 CHAIRMAN KRAUSE: I'm looking for a 2 motion about the staff's recommendation. 3 COMMISSIONER HEEG: So moved. 4 COMMISSIONER RIVERA: Second. 5 CHAIRMAN KRAUSE: All in favor say aye. 6 (Chorus of "Ayes.") 7 CHAIRMAN KRAUSE: All opposed? 8 (No response.) 9 CHAIRMAN KRAUSE: None opposed. It 10 carries. 11 MS. RIENSTRA: Thank you. 12 MR. BIARD: I have an order for you to 13 sign. 14 AGENDA ITEM VII 15 CHAIRMAN KRAUSE: Ms. Pyka, the next two 16 items are yours. 17 MS. PYKA: Good morning, Commissioners. 18 My name is Kathy Pyka, Controller for the 19 Commission; and with me, to my right this morning, is 20 Robert Tirloni, the Commission's Products & Drawings 21 Manager. 22 Commissioners, in our last meeting we 23 provided you an overview of year-end fiscal 2015 24 results of sales and the record-breaking $5 billion 25 that we had. So now here we are at only 13 weeks into 37 1 the fiscal year, and we are already at $1,110,000,000 2 total sales for the fiscal year; and that is an increase 3 of $28 million over last fiscal year at this same exact 4 point in time. 5 So breaking this down by product, you can 6 see our Scratch ticket sales for fiscal year 2017 are 7 now at $865.7 million, and that is a 38-million-dollar 8 increase over last fiscal year. Our Scratch ticket 9 sales at this point in time are 78 percent of our total 10 sales. And then, moving down to Draw sales, on the 11 second blue bar, were at $244.7 million; and that is a 12 9.9 million-dollar decrease from last fiscal year at 13 this same point in time, comparing it to the 254 million 14 that we have. 15 So with that, Robert will now provide an 16 overview of sales by product. 17 MR. TIRLONI: Thank you, Kathy. 18 Good morning, Commissioners. 19 This is the fiscal year comparison 20 through last Saturday, November 26th. So at the top of 21 the slide are our jackpot gains in white. You will note 22 that Powerball is showing a $9.1-million-dollar gain 23 over last year; and the add-on multiplier feature for 24 Powerball, Power Play, is up almost $2 million. Most of 25 this gain is because of a $403-million-dollar jackpot 38 1 that we had. Last Saturday, the 26th, there was a 2 winning ticket sold in Tennessee for that drawing. So 3 we're back at starting levels for Powerball. 4 So while we're happy to see that gain -- 5 and that's great news -- I want to just remind the 6 Commissioners that by the time we get back in here 7 February for our next meeting, there's the extremely 8 strong likelihood that we will not see positive numbers 9 for Powerball. That is because in January of '16, we 10 had the 1.5-billion-dollar jackpot; and, you know, that 11 was a world-record jackpot with tremendous sales. And 12 so without a jackpot of anywhere near that level, we 13 will see pretty big losses for Powerball, like I said, 14 by the time we get back here again in February. 15 Our daily games are in the middle of the 16 slide in blue. It is early in the fiscal year. We are 17 seeing declines in most of those. Daily Four is up, 18 though. And that's a trend that has continued for some 19 time now. That is a growing product for us. 20 So all told, if you take our daily games 21 and our jackpot games, we are seeing a decline of 22 $9.9 million through last Saturday. 23 We've had a stellar start to the fiscal 24 year for our Scratch games. We've sold almost 25 $866 million worth of Scratch tickets, and so that is 39 1 generating a 38-million-dollar gain in fiscal '17 2 compared to fiscal '16. So when you combine everything 3 together, we're slightly over 1.1 billion in sales; and 4 that's a 28-million-dollar gain. 5 The only other update I have for you, in 6 fact, in front of you you have examples of our holiday 7 tickets. There's about four of them in there for you. 8 I do want to just call your attention to two of those. 9 The big ticket, the Holiday Countdown Super Ticket, is 10 the focus of our marketing campaign that's out right 11 now. You might see billboards or other point of sale or 12 other advertisements about that. And the Holiday Super 13 Ticket or the Super Ticket in general is a printing 14 process or an innovative production process that we take 15 advantage of, along with the Garland Riches ticket; 16 that's also a proprietary printing by one of our 17 vendors. And it's these types of new games or new 18 production processes that are allowing us to drive the 19 Scratch sales that you're seeing. And it's these types 20 of new games, new different types of innovations that 21 are allowing us to realize the gains that we're seeing 22 in our Scratch ticket sales. I just wanted to call that 23 to your attention and let you know about that. 24 MS. PYKA: This might also be a good time 25 to note the importance of the Scratch ticket rider that 40 1 we've included in our fiscal year 2018/19 Legislative 2 Appropriations Request that will address the funding 3 mechanism of the printing of Scratch tickets. 4 Our current funding structure, again, is 5 a fixed budget that doesn't really allow for expanded 6 printing features that Robert has identified. What 7 we're hoping to have funded in the new rider is a budget 8 that is based on a percentage of sales, specifically 9 Scratch ticket sales, that would increase that budget 10 authority as we have increased scratch ticket sales, as 11 we've seen in the previous years with all of these 12 year-over-year sales ticket increases. 13 So with that, that concludes our 14 presentation. We'll be happy to answer any questions. 15 CHAIRMAN KRAUSE: Commissioners? 16 COMMISSIONER ARRIETA-CANDELARIA: I have 17 a question with regards to the sales, and I know that 18 we get the presentation where we compare from year to 19 year -- year over year. My question is: Do we have a 20 target for, like, a revenue budget that we -- for 21 example, you know, we -- as a Commissioner, I'm aware 22 that when we have that -- when we changed the rules and 23 then allowed those larger jackpots to grow, to me, that 24 signalled that we were going to have an increase in that 25 particular category in sales. And so this year we may 41 1 not be as strong in that particular category. 2 So say we have, you know, the increase in 3 the Scratch tickets. Something you said that triggered 4 for me a question is that: Did we anticipate that 5 increase in the scratch tickets, and what's the budget 6 for the revenue side? 7 MS. PYKA: Certainly. I'm going to 8 respond two ways: From our internal documents that we 9 developed that's our measuring tool, as well as what the 10 State has from the perspective of the General 11 Appropriations Act, which is probably the more important 12 one in the State's eyes, so internally the way that we 13 have projected sales is through looking at a 3 percent 14 growth year over year on Scratch. 15 And then on the Draw side what we have 16 done is we have considered it to be a projection of a 17 flat growth for draw, less the dollars from the 18 increased record-setting Powerball jackpot, which 19 equates to about $220 million in Draw sales. So that's 20 our internal target that we have set for our internal 21 use. 22 Probably the one that we're judged in the 23 State's eyes is the official biannual revenue estimate 24 that's published by the Comptroller of Public Accounts. 25 And what they do with that target is use that to set 42 1 forth some of our spending riders in our appropriations 2 bill; and that is actually set at $4.4 billion, so much 3 more conservative than our internal. 4 COMMISSIONER ARRIETA-CANDELARIA: All 5 right. Thank you. 6 MS. PYKA: I'll be happy to answer any 7 other questions. 8 COMMISSIONER HEEG: Kathy, on the budget 9 rider, are we taking steps to make sure that the 10 appropriate people involved in the appropriations 11 understand the impact of the requests? 12 MS. PYKA: Most definitely. We've had 13 briefings at both the staff level from the Legislative 14 Budget Board; and then Nelda and her team have an 15 outreach group in which they're visiting with members of 16 the House Appropriations as well as the Senate Finance 17 Committee, which are the two respective committees that 18 will be hearing from us on our specific budget. 19 And I know that Gary mentioned earlier 20 Representative Gonzales will be with us next week at La 21 Fleur's, and he's critical to that because he has 22 historically been the Chair of your committee for the 23 budget on the House side. So yes, definite outreach. 24 COMMISSIONER RIVERA: Question: On your 25 advertising, have you noticed -- and maybe you have 43 1 historical data over the past several years of where you 2 target advertised or Draw games versus Lotto in general 3 and if there's a return on investment that you're seeing 4 at all. Is there any correlation in what we are doing 5 in marketing? 6 MR. TIRLONI: Well, on the Draw game 7 side, we're not introducing a new game such Texas Triple 8 Chance or All or Nothing. Most of our focus is just on 9 our jackpot billboards. So we're looking at our Mega 10 Millions and Powerball boards; and the other thing that 11 we do in terms of advertising for our Draw games are our 12 live traffic feeds, when you're driving and they're 13 talking about, you know, why there's a traffic delay. 14 And then you hear the, "Tonight's Powerball jackpot is a 15 hundred million dollars." That's really the focus of 16 our Draw game advertising. 17 COMMISSIONER RIVERA: Okay. So I'm not 18 asking about the specifics of what are we doing. I'm 19 asking from an analytical standpoint to analyze dollars 20 spent on each category and the return of gross sales. 21 That's what I'm asking. 22 MR. ANGER: Commissioners, for the 23 record, Mike Anger, the Lottery Operations Director. We 24 work with Texas A&M University's May School of Business 25 to address just the question that you're asking now. 44 1 It's not granular down to the level of 2 different product categories; but they came in and did a 3 complete independent analysis of our advertising 4 approach and looked at different campaigns, including 5 Scratch and Draw campaigns, and correlated that and 6 created a return on investment. And, essentially, the 7 sum of that study was that for every dollar in 8 advertising spending, we get approximately $8 in 9 increased sales in spending. So mathematically, that's 10 what we're getting. 11 COMMISSIONER RIVERA: Okay. So that's 12 good to know from a holistic standpoint -- 13 Yes. 14 COMMISSIONER RIVERA: -- but does that 15 translate, meaning, is it, you know, $10 per Draw and 16 then six for Scratch or -- that's really what I want to 17 know. 18 MR. GRIEF: If I could, I want to try to 19 address that. Standing by, listening to your question, 20 I knew that's what you were getting at, Commissioner. 21 Over the years we have spent significant advertising 22 dollars on Draw game portfolios; and what I have seen 23 over time is that return on investment has been less 24 than overwhelming. 25 So as I've worked with Michael and his 45 1 team and our advertising vendors what I've asked them to 2 do over the last few years is to push more of our 3 advertising dollars, Number 1, from traditional 4 advertising -- TV, radio, et cetera -- more to the 5 digital side because we know we do capture that 6 millennial audience and derive those sales and also to 7 push more of those advertising dollars from the Draw 8 Game side to the Scratch Ticket side. I think we can 9 all see 75, 76 percent of our sales are coming from the 10 Scratch Ticket side. That's continuing to grow, 11 especially with the lack of some record-setting 12 Powerball or Mega Millions jackpot. 13 So in answer to your question, we are 14 moving more and more towards the Scratch Ticket side and 15 in particular a suite of games like our Holiday suite of 16 games or our Break the Bank suite of games, those types 17 of suites. We do see a significant return on investment 18 on that side, and we're targeting our advertising on 19 those games. 20 COMMISSIONER RIVERA: Thank you. 21 CHAIRMAN KRAUSE: I believe that we have 22 exhausted our curiosity on that. 23 (Laughter.) 24 CHAIRMAN KRAUSE: Next item? 25 AGENDA ITEM VIII 46 1 MS. PYKA: We'll move on to Tab 8 then, 2 and this information in your notebook is on the agency 3 transfers to the state and the agency's budget status. 4 The report in your notebook reflects the accrued revenue 5 transfer and allocations for the Foundation School Fund 6 as well as the Texas Veterans Commission for the period 7 ending October 31st, 2016. Our total accrued revenue 8 transfers to the state amounted to $169.2 million for 9 the first two months of fiscal year 2016. And of that 10 169.2 million-dollar transfer to state, $165.4 million 11 was the amount of revenue transferred to the Foundation 12 School Fund; and we transferred $3.8 million to the 13 Texas Veterans Commission. This represents four-tenths 14 of a percent decline, for the 647,000 from the total 15 amount transferred to the Foundation School Fund last 16 year and an increase in revenue to the Fund for 17 Veterans Assistance with $2.3 million. So, 18 Commissioners, at this point in time our total 19 cumulative transfers to the Foundation School Fund are 20 at $19.9 billion. 21 Another item under this tab is the 22 agency's fiscal year 2016 method of finance summary for 23 fiscal year ending August 31, 2016. The Commission's 24 lottery account budget for 2016 was $238.8 million; and 25 of that amount, 93 percent was expended at the end of 47 1 the fiscal year. 2 Our Bingo Operations budget, which was 3 funded by general revenue, was $16.6 million; and 98 4 percent of that was expended through the end of the 5 fiscal year. 6 Commissioners, this concludes my 7 presentation. I'd be happy to answer any questions. 8 CHAIRMAN KRAUSE: Commissioners? 9 (No response.) 10 MS. PYKA: Thank you, Commissioners. 11 CHAIRMAN KRAUSE: Jose Reyes. 12 AGENDA ITEM IX 13 MR. REYES: Good morning, Commissioners. 14 For the record, I am Jose Reyes, Texas 15 Lottery Commission's Internal Audit. 16 I will be presenting three items today. 17 First is an informational item and the Internal Audit 18 Status Report as of October 31st, 2016. 19 We are currently working on the following 20 audits: Number 1, a Scratch Ticket warehouse receiving 21 controlled audit. We are currently wrapping up the 22 audit by observing a Scratch Ticket manufacturing 23 printing, packing, and loading operations this week; 24 The second is a Charitable Bingo 25 Operations Division Audit Services audit process audit; 48 1 The third is a Charitable Bingo 2 Operations Division restructuring and implementation 3 project follow-up review; 4 The fourth is a Scratch Ticket 5 reconstruction audit; 6 And the fifth is the Enforcement Division 7 background check and investigations process audit. 8 I would be happy to answer any questions 9 you may have at this time. 10 CHAIRMAN KRAUSE: Commissioners? 11 COMMISSIONER LOWE: Are we going to cover 12 the ledger project, Alfonso, in your talk; or at this 13 point in time? 14 MR. ROYAL: Jose is going to address that 15 in his -- 16 MR. REYES: Yes, I have two more. The 17 next item I have for presentation -- 18 COMMISSIONER LOWE: Sorry. 19 MR. REYES: -- are the two Internal Audit 20 reports that we have here for your approval. The first 21 one that we're going to speak of is the Human Resource 22 audit. We noted the internal controls of the Human 23 Resources processes are in place and working. 24 We identified two low-risk observations: 25 One, required interview questions are on file but are 49 1 not date stamped to verify compliance with written 2 procedures; and two, the Electronic Employee Performance 3 Appraisal System that the agency is developing is not 4 completed and implemented. 5 Thirteen percent of the agency's 6 workforce is eligible to retire within the next two 7 years, and this creates higher-than-normal risk of 8 knowledge lost due to employee turnover associated with 9 this retirement-eligible population. However, the 10 executive team has implemented a culture of transparency 11 in knowledge, sharing within and between departments. 12 Additionally, managers have made a conscious effort to 13 share knowledge within their departments. 14 The second item to report is the 15 Charitable Bingo Operations Division Ledger Accounts 16 Reconciliation Project Report. The project is fully 17 completed. The necessary adjustments were made to 18 reflect statute, administrative rules, and self-reported 19 transactions; and the data is now reliable. The 20 individual accounts in BOSS are accurately reflected. 21 As of June 2014, the ledger accounts 22 indicate that there were 1,616 organizations with credit 23 balances totaling $746,634. The reconciled balances of 24 these accounts now reflects total credit balances of 25 $112,367 net of liabilities. 50 1 Ledger account adjustments made as a 2 result of the reconciliations generally failed to 3 correcting one of four broad categories: One, 4 inaccurate regular license fees charged or credited 5 based on annual gross receipts reported by a licensee; 6 Two, inaccurate temporary and amendment 7 license fees charged or credited;. 8 Three, expired ledger account credits, 9 excess payments received from licensees prior to 10 calendar year 2011 related to regular temporary and 11 amended license fees; 12 And four, liability or credits that 13 cannot be established with supporting documentation. 14 The majority of the items in this category are 15 liabilities and credits from periods prior to 16 January 1st, 2011. 17 I am asking for your approval on these 18 two reports, and we'll be happy to answer any questions 19 that you may have. 20 CHAIRMAN KRAUSE: Commissioners? 21 (No response.) 22 CHAIRMAN KRAUSE: Bingo Commissioner? 23 COMMISSIONER LOWE: First, I want to 24 thank your organization and Ms. Brown for the ledger 25 project management. I think we had a good resolution, 51 1 and I think -- are we going to talk in your report about 2 how we're going to resolve the credit through the 3 individual licensee in your report; or do you want to do 4 that now? 5 MR. ROYAL: Commissioners, we addressed 6 that in the October meeting. We've wrapped that up. 7 All of the refunds have been issued to those individuals 8 who requested those refunds and are eligible for those. 9 The $112,000 credit that are available to 10 them are available for them to use on the next license 11 periods. 12 COMMISSIONER LOWE: Now, we do have -- 13 you know, in talking to Darlene on the phone, there are 14 some licensees that have refunds that are older than 15 four years; and there is a process that they have to go 16 through to get that money back? 17 MR. ROYAL: Correct, we have those. 18 There are 31 organizations that have what we call 19 "expired credits" that they must go through the 20 miscellaneous claims process. That totalled about 21 $26,000. They have provided us with those particular 22 forms. We're going to be preparing those up and sending 23 those over to the comptroller to verify that -- we've 24 got to verify that those amounts are valid. 25 COMMISSIONER LOWE: And so we're going to 52 1 work with anybody who needs help to get their money 2 back? 3 MR. ROYAL: That is correct. 4 COMMISSIONER LOWE: Okay. So thanks 5 again for your help in finishing the project. 6 CHAIRMAN KRAUSE: I am looking for a 7 motion to approve these reports. 8 COMMISSIONER ARRIETA-CANDELARIA: I have 9 a question. So does the escheat law apply here to get 10 these off the books or do we just routinely apply that 11 for us as well; and then, after a period of time, then 12 we send those up to the Comptroller's Office? 13 MR. ROYAL: I'm not familiar. 14 MR. BIARD: For the record, I'm Bob 15 Biard, General Counsel. Kathy may be able to help a 16 little bit on this; but my understanding is these funds 17 are already deposited with the Treasury. So they're not 18 here at the agency. 19 COMMISSIONER ARRIETA-CANDELARIA: Oh, I 20 see. Okay. 21 MR. BIARD: And they have to be 22 deposited, by law, within three business days. 23 MS. PYKA: That's correct. So at this 24 point in time the three years' appropriations authority 25 we still have; and so it returns the funds back to the 53 1 general revenue funds. 2 So the process that Alfonso mentioned 3 under the Miscellaneous Claim Act, that would actually 4 be something that would be paid for out of funds outside 5 of our appropriation budget. 6 COMMISSIONER ARRIETA-CANDELARIA: Okay. 7 Thank you. 8 COMMISSIONER LOWE: I move to approve the 9 audits. 10 CHAIRMAN KRAUSE: Anybody want to second 11 that? 12 COMMISSIONER RIVERA: Second. 13 CHAIRMAN KRAUSE: All in favor say aye. 14 (Chorus of "Ayes.") 15 CHAIRMAN KRAUSE: All opposed? 16 (No response.) 17 CHAIRMAN KRAUSE: The proposition 18 carries. 19 Alfonso Royal, we're ready to hear from 20 you. 21 AGENDA ITEM X 22 MR. ROYAL: Good morning, Commissioners. 23 This item will actually be presented by Desira Glenn, 24 the Bingo Division's Licensing and Account Services 25 Manager. 54 1 While she's coming forward, a little bit 2 of background: Prior to this meeting, the Division 3 presented financial data on an annual basis with the 4 submission of its annual report. I actually review this 5 type of data quarterly, looking at the trends in 6 reporting and the overall impact of Bingo Operations on 7 the charities and the proceeds they receive currently in 8 comparison to the prior periods. 9 This lets me know how they're performing 10 and if there are any organizations that are becoming 11 unstable, operating at a loss, or heading towards 12 noncompliance with the Act or rules. If there are any, 13 they are contacted by the Bingo accounting staff to 14 assist them in their reporting and to get an 15 understanding of what occurred during the reporting 16 quarter. The goal is to proactively help them stay 17 profitable and in compliance with the Act and rules. 18 Going forward, we will share this 19 high-level information quarterly. 20 Desira. 21 MS. GLENN: Good morning, Mr. Chairman 22 and Commissioners. 23 In this report I will go over the bingo 24 allocation and quarterly fiscal data. Bingo allocations 25 are derived from a 5 percent prize fee from the Bingo 55 1 player. The licensed conductors of the bingo games 2 collect the prize fees from the players, holds it in 3 trust; and then remits those prize fees to the Division 4 each quarter where it is then allocated out to local 5 jurisdictions. 6 The third calendar quarter of 2016 saw an 7 increase of more than $2600 or .79 percent in 8 allocations to local jurisdictions compared to the third 9 quarter of 2015. 10 San Antonio, Austin, Corpus Christi, 11 Fort Worth, and Bryan were the top five cities that 12 received the highest amount of allocations. The top 13 five counties were: Bexar, Harris, Dallas, Travis, and 14 Tarrant. 15 This slide reflects information used to 16 gauge the success of bingo operations. The red bar 17 represents the third quarter of 2016, and the blue bar 18 is comparable data from 2015. In 2016 there was a 19 slight decrease in gross receipts and prizes awarded. 20 Additionally, total expenses decreased to more than 21 $363,000 or .96 percent; and charitable distributions 22 increased by more than $227,000 or 3.23 percent. 23 Displayed on this slide is the calendar 24 year to date fiscal data for 2016 compared to the same 25 three-quarter period for 2015. Gross receipts increased 56 1 by more than $2.7 million, and prizes awarded increased 2 by more than $1.3 million. Also, total expenses 3 decreased by more than $11.5 million and charitable 4 distributions have increased by more than $1.1 million 5 or 5.12 percent. 6 If Charitable Bingo continues to progress 7 with this same trend, individuals and communities 8 throughout Texas will benefit from the increased 9 distributions from the charitable organizations 10 conducting bingo for their various benevolent causes. 11 This concludes our report, and I'm happy 12 to answer any questions. 13 CHAIRMAN KRAUSE: Commissioners? 14 (No response.) 15 CHAIRMAN KRAUSE: Bingo Commissioner. 16 COMMISSIONER LOWE: Well, I guess I've 17 asked for a little bit more information from you folks; 18 and they're maybe not so much interested in bingo as I 19 am. But I hope this is helpful that we provided to show 20 you the kind of work that our Division is doing. And 21 I'm proud of their work. And thanks, Desira, for 22 putting this report together. 23 And I think that the message that we're 24 seeing is that the Legislature wants charities to 25 benefit from bingo, and that's happening because you can 57 1 see there is increased money going to charities. Now, 2 we have a ways to go because I think the Legislature 3 wants to get us to move this percentage up to where 4 charities are getting more money. And so I know that's 5 kind of hard on operators and licensees; but I think 6 that to benefit charities, we have to run on regulation 7 and we're going to continue the efforts of our Division 8 to increase the money going to charities. 9 COMMISSIONER ARRIETA-CANDELARIA: Let me 10 add something to that. If you could go back to that one 11 slide, though -- I think it's the second slide, where it 12 says the fiscal data, the third quarter fiscal data. 13 So I mean, I think it's helpful, though, 14 to your point, Commissioner, to show the percentage, 15 though, of the amount that's going to the charities or 16 whether or not that meets your benchmark as you would 17 like to see it because, I mean, if you look at the 18 slide, it doesn't... 19 COMMISSIONER LOWE: It's right around -- 20 we looked at that yesterday, and we'll include that in 21 our future reports. I think it's just shy of 4 percent 22 that's going to charities. You know, there was a 23 benchmark that was set by Representative Cook of 24 5 percent, which I'm not sure that we can go there 25 quickly but we're going to -- our efforts are to set 58 1 some point in time where we do have a benchmark, but 2 we're not really ready to do that yet. We're right now 3 at 4 percent going to charities out of gross proceeds. 4 COMMISSIONER ARRIETA-CANDELARIA: I think 5 it should be a lot higher, personally. 6 COMMISSIONER LOWE: But you realize that 7 it's different than the lottery, you know. We have all 8 of these different, hundreds and hundreds of licensees 9 for different operations. So we're regulators as 10 opposed to owners and I would like to see it higher, 11 too; but, you know, you have to attract players with 12 attractive games. 13 So, you know, that doesn't seem like a 14 lot; but I think that the efforts that Alfonso has made 15 to get to this point, it's been some teeth gnashing to 16 get here; but we're going to move forward with trying to 17 raise the percentage. 18 Right, Alfonso? 19 MR. ROYAL: That is correct, 20 Commissioner. 21 COMMISSIONER ARRIETA-CANDELARIA: Agreed. 22 Just one other comment: So on the prizes 23 awarded, I think it's a little -- I mean, the slide, 24 for me, is a little skewed because the difference is 25 almost -- it's very minor, $3,000. So when you look at 59 1 the slide, it doesn't look as proportionate as I would 2 expect. Does that make sense? 3 COMMISSIONER LOWE: (Inaudible) the 4 presentation? 5 COMMISSIONER ARRIETA-CANDELARIA: No, no, 6 this is great. I think this is really helpful. I think 7 it's probably the first time we've seen this data, 8 right? So definitely kudos to the staff for that. 9 But I think for me when I look at this 10 slide and look at the differentiation, those two bars 11 should really be the same, at the same level, as opposed 12 to the spread between the next slide, which is 363,000. 13 Does that make sense? 14 MS. GLENN: Yes, a smaller gap. 15 COMMISSIONER ARRIETA-CANDELARIA: Yes. 16 Thank you so much. 17 CHAIRMAN KRAUSE: Any other comments? 18 (No response.) 19 CHAIRMAN KRAUSE: Thank you, thank you. 20 Alfonso, it's still your table. 21 AGENDA ITEM XI 22 MR. ROYAL: Commissioners, just two 23 additional items in conjunction with what's in your 24 briefing books. First, the Division continues our 25 outreach and interaction with the bingo industry. Our 60 1 bingo stakeholder workgroup will meet December 8 to 2 continue our dialog on operational issues and potential 3 rulemaking provisions. 4 Secondly, we have recently taken a major 5 step towards fulfilling the promoting Charitable Bingo 6 part of our mission statement while reaching out to 7 organizations not currently conducting bingo to share 8 the benefits of using charitable bingo as a fundraiser 9 for a their charitable organization. 10 At the invitation of the Texas Catholic 11 Diocese, Disira Glenn and I presented a bingo fundraiser 12 at their annual meeting. There have been several 13 inquiries from the members of the organization into 14 licensure since that presentation, and we've actually 15 received three new original applications for licensure. 16 Additionally, the licensing team is 17 developing materials, including examples for each type 18 of licensure category that a new organization can use as 19 a guide to complete their application. The goal here is 20 to simplify the process. 21 We are currently working with several 22 American Legion posts to obtain provisional bingo 23 licenses, and we look forward to continuing to help our 24 organizations supplement their charitable income with 25 bingo related funds. 61 1 Commissioners, that concludes my report. 2 CHAIRMAN KRAUSE: Questions for 3 Mr. Royal? 4 (No response.) 5 CHAIRMAN KRAUSE: We do have a public 6 comment from Mr. Ronnie Baker. 7 MR. BAKER: Thank you very much. Good 8 morning, Commissioners. 9 I'll be very brief. I hold a unique 10 position. I'm a sales manager for one of the largest 11 bingo distributors in the United States; and I live in 12 New Braunfels, Texas. I actually belong to two 13 nonprofits. One I joined before I got into Charitable 14 Bingo. And my background is law enforcement and 15 industrial sales, and I've been in Charitable Bingo for 16 about 35 years. 17 I come to these meetings. I see 18 Commissioners come and go. I see Directors come and go. 19 I'll speak and tell you that I've known Alfonso since 20 he's been here, and he's doing a very good job. I don't 21 see eye to eye with him on all the things; and he will 22 tell you that, which is good, because somebody needs to 23 call certain things that they could be done better. I 24 think the agency's made vast strides over where we've 25 been over the last 35 years. 62 1 That being said, yesterday, I was in 2 Laredo, Texas visiting with two of my charities; and we 3 cover -- my company, actually, is in eight states. We 4 deal with [inaudible] games, military bases, so on and 5 so forth and up until about three years ago actually had 6 some charitable gaming over in Mexico; but that went 7 away. 8 Anyway, in Laredo, Texas, there's two 9 bingo halls there; and at one time they were getting 10 approximately 300 to 350 players. They're down to less 11 than 120 players, and that's because of the presence 12 of -- and I know you've heard this word before -- 13 eight-liners and sweepstakes. I know Doug has taken a 14 very personal interest in this, as has Alfonso. 15 I actually work with the Texas Charity 16 Advocates and The Conservative Texans for Bingo and I 17 can tell you that in New Braunfels, Texas three years 18 ago, we had three game rooms open up. I went to the 19 New Braunfels Police Department. They know me well 20 because I've been there for 30 some odd years; and in a 21 matter of about six months, we got them closed down. It 22 definitely had a real impact on the Knights of Columbus, 23 on the American Legion, the Elks. 24 And what I bring to your attention is 25 that every Legislative session our groups submit 63 1 proposals. We get to a certain point and, you know, we 2 can't get over the hump; but one of these days we will. 3 That being said, when you drive with me 4 to Laredo or to Sherman -- I have six offices -- or in 5 Houston or in Orange, Texas and you stop, these 6 different stores that sell lottery products will have 7 anywhere from five to ten either sweepstakes or 8 eight-liner games. 9 We can talk about regulating Charitable 10 Bingo. We can talk about second games of chance; but 11 this agency needs to take a very strong, strong stand on 12 the fact that if you're going to have somebody selling 13 lottery products, tickets -- and certainly I buy some -- 14 and I listened to Gary's presentation about how well 15 Texas is doing. You could be doing a whole lot better 16 if there was a strong stand saying, "If you're going to 17 sell our product, you're not going to have eight-liners 18 and sweepstakes in your facility." 19 I would invite any of you to ride with me 20 in any direction that I go and look at the number -- and 21 it's not lot of machines. It may be five. It may be 22 ten. It may be 15, but they take hundreds of thousands 23 of dollars out of Texas. It compromises Bingo. 24 There's over 150 game rooms in Laredo. 25 The city of Laredo takes in to close to $4 million in 64 1 their little permit fees that they put on the machines. 2 So for something that's illegal, what begs the question 3 is: Why in the world, until the cities stand up and 4 say, "You know something? This is illegal." 5 Three years ago I went to 6 Senator Zaffirini's office and talked to her chief of 7 staff about the game rooms in Laredo; and reaction was, 8 "What game rooms?" You can walk out of Border Bingo, 9 which used to get 350 people and now gets 120, walk down 10 the sidewalk and walk into a game room that looks like 11 the Kickapoo Indian Casino. 12 I do all the bingo for that particular 13 native game. And you go in and there's marble tops. 14 There's recessed lighting. There's machines that pay 15 out cash. And for me to be told, "What games?" I just 16 have to scratch my head. 17 I told my wife, "Thirty-five years. Four 18 more years, and I'm done. I'm headed to the South Fork 19 Llano River, and I'm not going to worry about bingo." 20 But my Knights of Columbus, the American Legions, those 21 that derive charitable dollars for worthwhile causes 22 need a strong statement from this group saying: These 23 locations, we're going to start with them. If you're 24 going to sell our product, you can't have these machines 25 in your locations. 65 1 I appreciate your time. If you have any 2 questions or if somebody would like to ride with me -- 3 because I do drive about 2,000 miles a week -- be more 4 than happy to have you go with me. Thank you. 5 CHAIRMAN KRAUSE: Very powerful. 6 All right. We're going to adjourn for 7 about ten minutes for a bathroom break. 8 (Off the record from 11:18 to 11:27 a.m.) 9 CHAIRMAN KRAUSE: The Texas Lottery 10 Commission is reconvened, and we begin with Mr. Bob 11 Biard. 12 AGENDA ITEM XIII 13 MR. BIARD: Thank you, Commissioners. 14 For the record, I'm Bob Biard, General Counsel. 15 Tab 13 contains fifteen Lottery and Bingo 16 enforcement matters. These are Tabs A through O. We 17 have commenters here today that wish to speak on Tab N 18 and O. N is the VFW Tomball case, and O is Julam 19 Investments' Motion for Rehearing. Those were both 20 litigated bingo cases. 21 The other tabs today are cases where the 22 Commission staff found a violation. Either the licensee 23 failed to appear at the hearing and it proceeded by 24 default or the staff and the licensee have reached a 25 settlement. 66 1 I'll briefly describe the cases, and you 2 can take them up in a single vote if you'd like. Tabs A 3 through G are the non-sufficient fund Lottery Retailer 4 License revocations. Each case was presented to the 5 State Office of Administrative Hearings for revocation 6 of the retailer's license on the grounds the licensee 7 failed to have sufficient funds in their bank account to 8 cover electronic fund transfers to the Lottery 9 Commission's account. In all of these cases the staff 10 recommends revocation. 11 In Tabs A and B the judge prepared a 12 proposal recommending revocation, which is how these 13 cases have always been handled in the past, even though 14 the licensee failed to appear. 15 Tabs C through G were handled as pure 16 default cases, which is how SOAH has asked us to handle 17 these cases going forward. SOAH will no longer prepare 18 a proposal for these cases but will remand the cases 19 back to the Commission for the Commission to dispose of 20 with a default order. Going forward all the NSF cases 21 and all of our other cases where the licensee fails to 22 appear will be handled this way with a default order. 23 So those are tabs A through G, the NSF cases. 24 Next, Tab H was a lottery revocation case 25 for Sammy's Auto Care & Collision Center in Houston, 67 1 Texas. This was a lottery licensee. In this case the 2 licensee failed to offer at least two scratch ticket 3 lottery games for sale at all times as required by the 4 Commission's rules. The licensee did not appear at the 5 hearing. So the matter was remanded to the Commission 6 to handle as a default, and the order is in your 7 notebook. The staff recommends revocation of the 8 license. 9 Tabs I through K are lottery agreed 10 orders. Tab I is for Stop and Drive in Galveston. In 11 this case, in October of 2015, the president of the 12 licensee was found guilty of gambling promotion, which 13 is a state jail felony. He was placed on community 14 supervision for two years. This conviction rendered 15 Stop and Go [sic.] ineligible for a lottery license 16 since Stop and Go [sic.] failed to timely notify the 17 Commission within ten days of the conviction, as 18 required by the statute. However, they did remove this 19 individual as an officer. 20 The parties agreed to settle the matter 21 by removing the licensee as president and agreed to 22 restrict his financial involvement in Stop and Go [sic.] 23 until an expiration of ten years after the termination 24 of his community supervision. He will not be allowed 25 to be an officer, director, or an owner of greater than 68 1 ten percent of the company or hold an equitable interest 2 of greater than ten percent of the company, and will 3 abide by similar financial restrictions as are set out 4 in the eligibility statute. 5 Tab J is the West Lake Market in Austin. 6 This is similar to the last case. In this case, in 7 September of 2015, the vice president of the licensee, 8 West Lake Market, was found guilty of conspiracy to 9 introduce misbranded drugs for interstate commerce, 10 which is a felony, and sentenced to 24 months in federal 11 prison, after which time he will be placed on community 12 supervision for three years. His conviction renders 13 West Lake Market ineligible for a sales agent license, 14 but they also did not timely notify the Commission 15 within ten days. 16 However they did remove this individual 17 as an officer and agreed with the Commission staff to 18 settle the matter by removing him as vice president; and 19 similar to prior case, agreeing to restrict his 20 financial involvement with the licensee until the 21 expiration of ten years following the termination of his 22 community supervision. 23 Tab K involves EZ Mart #596 in 24 San Antonio. In this case the staff determined that a 25 clerk was scratching off the bonus play area on scratch 69 1 tickets for the Cashword Multiplier game to identify 2 winning tickets. A customer complained to the 3 Commission and the San Antonio Police Department. 4 Surveillance video from the store showed the clerk 5 scratching the tickets without tearing them off the roll 6 and returning them to the dispenser for sale. 7 The clerk, who was terminated from his 8 employment, admitted to the investigator that he 9 scratched the tickets to determine if they were winners. 10 The licensee agreed to a 30-day suspension. 11 The next tabs, L and M, are bingo agreed 12 orders. Tab L is for St. Julia Catholic Church in 13 Austin. In this case, after receiving a complaint, the 14 Commission and staff determined that the church was 15 conducting bingo without a license. The Commission 16 investigator found evidence of the church conducting 17 bingo through online sources and attended a bingo 18 occasion after church. 19 In addition to conducting bingo without a 20 license, the church also improperly acquired bingo 21 equipment from a bingo hall rather than a licensed 22 distributor, made its premises available for bingo 23 without a commercial lessor license, and allowed 24 individuals who were not on the Bingo Worker Registry to 25 work the bingo occasion. The parties agreed to a 70 1 2,000-dollar administrative penalty. 2 Tab M is a Bingo Worker Registry case 3 involving an individual named Joe Garcia. In this case 4 the worker had been found guilty of burglary of a 5 habitation with intent to commit a family assault, which 6 is a felony. The individual was sentenced to six years 7 in jail, but the sentence was suspended and he was 8 placed on community supervision for six years. 9 He provided the Commission with two 10 letters of recommendation, one from the bingo unit where 11 he was employed and one from his probation officer. The 12 parties have agreed to a restricted registration where 13 Mr. Garcia will not act as a chairperson, manager, 14 operator, bookkeeper, cashier, or designated agent for 15 three years; but he will be able to basically work the 16 floor at bingo events. 17 The last tabs, N and O, are two litigated 18 bingo cases where we have members of the public here to 19 comment. 20 Tab N is for VFW Post 2427 in Tomball. 21 In this case the conductor organization failed to have 22 positive net proceeds for the fourth quarter of 2014 23 through the third quarter of 2015, and also failed to 24 file a supplement to the quarterly report for the period 25 ending March 31st, 2016. This matter went to hearing, 71 1 and the record indicates the organization's Post 2 Commander appeared and essentially conceded these 3 violations; thus, the violations were undisputed. The 4 judge recommended revoking the license, and that is also 5 the staff recommendation. The organization did not file 6 exceptions to the judge's proposal. 7 Last is Tab O, which is a Motion for 8 Rehearing for a case you decided at the October meeting, 9 the Julam Investment case. That was an eight-liner case 10 where you voted to revoke the Commercial Lessor License 11 of Julam Investments, which was a fully litigated case. 12 Mr. Rigano, who is here today, also spoke at the October 13 meeting. 14 To refresh your memory, Julam was accused 15 of allowing the operation of 64 gaming machines at the 16 Lucky Star Bingo Hall during bingo occasions. Although 17 they did not file exceptions to the judge's 18 recommendation, they have filed a Motion for Rehearing 19 asking the Commission to reconsider suspension. 20 Julam's argument is essentially that a 21 number of the judge's findings of facts and conclusions 22 of law are not supported by the facts or evidence in the 23 record and that the Commission, thus, failed to meet its 24 burden of proof. The Commission's staff submitted a 25 point- by-point response arguing that there is evidence 72 1 in the record to support the decision. 2 I believe what Julam is requesting is for 3 the Commission to grant a rehearing and issue a new 4 order rejecting the judge's recommendation, which would 5 allow Julam to have a valid Commercial Lessor License. 6 And I will note that the arguments that Julam is raising 7 now for the first time in a Motion for Rehearing are the 8 types of arguments you would often expect to hear made 9 in exceptions to the judge's recommendation; as I 10 indicated, Julam did not file exceptions to the judge's 11 recommendation. So it did not present these arguments 12 to the SOAH judge to give the SOAH judge an opportunity 13 to correct the alleged errors. 14 And that concludes my presentation. We 15 do have commenters here today. 16 CHAIRMAN KRAUSE: Yes, for Item XIII N we 17 have three witnesses; and I'm going to call them all up. 18 And I'm going to let you guys testify as 19 you wish, but we would like for y'all to keep it to 20 about five minutes altogether. So if y'all will please 21 come up: Stanley Jaynes, Bill Shaffer, and Aaron Isaac. 22 I'm going to let the highest ranking one amongst you all 23 begin. 24 MR. SHAFFER: If I may start, I'm 25 appointed National Chief of Staff. This happens to be 73 1 my home post, and I've been a member of the VFW some 52 2 years. So I've been around a while. 3 I've never known -- let me say this: 4 We've had a bingo person take care of our books for 5 years and she passed away and she was great. We never 6 had any trouble. She was good at it; and anytime she 7 had a problem, of course, she called the Bingo 8 Commission. We've had since then several different 9 commanders and several different Quartermasters, and 10 we've just relieved -- the Quartermaster just relieved 11 the bookkeeper that we had, and he is now the 12 bookkeeper. 13 So what I'm asking is -- I realize that 14 some things happened, but we weren't always aware of it. 15 I, as the Past Commander of that post, was not aware of 16 bingo. I just didn't do anything with the bingo and 17 never hardly went to bingo. At present I do work one of 18 the registers at bingo, so I'm starting to understand 19 the laws and the different things that bingo asserts. 20 I think that the Quartermaster here and, 21 of course, the Commander -- I happened to be the 22 Commander a couple of those years that we fouled up. 23 And we brought the Commander with us and not only a 24 person of knowledge; he oversees the Post now. And our 25 Quartermaster runs bingo. He's the bingo chairman, and 74 1 he is now the bookkeeper. 2 And I appreciate your attention. Thank 3 you. 4 MR. ISAAC: The allegations that were 5 made, we're not denying those. What literally took 6 place was there were people in place before my time that 7 weren't doing credible things as far as proper 8 bookkeeping procedures. When I became aware of that, I 9 stepped in and started to fix all those things. 10 One of the questions that initially got 11 us into court in the first place was a loss of -- we 12 didn't make a profit for one of the quarters. Overall, 13 we've done decent; but when we went to court, I wasn't 14 the bingo chairperson totally there and I wasn't the 15 bookkeeper and the information turned in by the 16 bookkeeper was incorrect. 17 When I caught the bookkeeper not telling 18 the truth, the whole truth, and nothing but the truth, 19 that's when I intervened; and I had to release her from 20 what she was doing. In order for me to get access to 21 all of our files, I had to make myself the bookkeeper. 22 Even though I had put in for the bingo chairperson, I 23 wasn't allowed access because our license was in limbo; 24 but as a bookkeeper, they allowed me to have access, 25 which I have now to properly ensure that our bookkeeping 75 1 procedures are correct. 2 One of the questions that they asked us 3 to do -- and I didn't totally understand it then, but I 4 do now -- is to have a credible business plan for our 5 post to ensure that we no longer have a loss of funds 6 and that we do better at it. And I have put that plan 7 together. I did not have it at the hearing because I 8 was under the impression that was part of what my 9 bookkeeper was doing; but as the bingo chairperson, I 10 was ultimately responsible for that to take place, and I 11 have done that. 12 My plan includes that we used to play 13 three days a week; and now we only play two, which 14 really helps out a lot financially. That's a 15 1400-dollar savings for the month because we no longer 16 have to worry about -- I'm sorry. It's a thousand in 17 savings for the month. It's a 1400-dollar savings for 18 bingo supplies that we no longer have to have. 19 Another thing that we were doing before 20 is although we're authorized to pay out $2500 a session, 21 we reduced that according to the amount of people 22 playing; and our public are well aware of that. That 23 took us from paying approximately 82 percent out 24 quarterly now to about 72 percent, which really brings 25 us into track with the amount of business we're having. 76 1 We used to average 67 people per session; now we're 2 about 40, 45 people per session. And because we only 3 play on Wednesdays and Fridays now, that allows us to 4 make a substantial savings and do more contributions. 5 I've also spoken with our bingo supplier 6 and he's already reduced the cost of bingo supplies with 7 that and he's going to do another reduction on supplies 8 to help keep us in sync with that. 9 Talking in regards to workers, I only 10 have enough workers for the days that we're working. So 11 I don't have people being paid to work that we don't 12 really need and that determination is made on a nightly 13 basis and we're tracking with that. 14 The plan that I put together, it's about 15 a 7200-dollar-per-quarter savings that we're going to 16 do, which allows us to stay ahead; and I'm thinking 17 between six to eight months we'll actually be in full 18 force, if not sooner. It should be no longer than that. 19 I know there's been some mistakes made, 20 and we're asking that now that we've seen what was going 21 on that shouldn't have been going on, give us the 22 opportunity to show that we can make this organization a 23 Charitable Bingo, what we're doing at the Tomball VFW 24 Post 2427 work. 25 While we're not the only Bingo hall 77 1 that's in Tomball, we contribute to the community in 2 more ways than donations. Our hall, when the schools 3 need to use the hall, we give it to them at a reduced 4 price. I mean, the Texas [inaudible] they annually use 5 the organization. When there's funerals and people 6 can't afford to go to the funeral home, that's when they 7 come to us. We don't charge for that. We do that as a 8 donation. We support the community in every way and 9 fashion in what we do. 10 We know our bingo players. We know the 11 lady in the wheelchair. We know them personally. 12 That's the way we support them. We're like a family 13 within that organization, and we would really like for 14 you to give us an opportunity to show that we can bring 15 this back on board. 16 MR. BIARD: I just want to make sure the 17 record's clear. Would you state -- I want to make sure 18 we have your name. 19 MR. ISAAC: My name is Aaron Isaac, and I 20 am the Quartermaster. I'm also the bingo chairperson, 21 and I am now also the bookkeeper. 22 MR. BIARD: Okay. 23 CHAIRMAN KRAUSE: And who spoke first, 24 your name? 25 MR. SHAFFER: Bill Shaffer. And let me 78 1 say this, too: We're not trying to hide anything. This 2 has happened one other time, and I did come up in front 3 of the Lottery Commission. And, basically, it was right 4 after Paula had passed; and we really didn't have a 5 bookkeeper, per se. And, of course, y'all gave us time 6 to get a bookkeeper; and that's the one that the 7 Quartermaster just relieved. 8 So it behooves us to have him. Aaron has 9 a Master's in Finance; and we've been very, very happy 10 with him since he's joined our organization. And we 11 have not had any major problems; and the problems we've 12 had is something we didn't know, something he wasn't 13 aware of. 14 And his plan, that's something we should 15 have sent that to that judge or to the Commission. We 16 realize that now. The waiver, we should have done that. 17 We didn't know. Since then we have sent the waiver in, 18 and now he has a plan of action. And I hope y'all will 19 take that into consideration. 20 CHAIRMAN KRAUSE: Mr. Jaynes, do you have 21 anything to say? 22 MR. JAYNES: I've been a member of the 23 Tomball VFW 2427 for exactly 30 years. It's the only 24 post I've ever belonged to. I was Post Commander back 25 in '91 and '94 and District Commander after that. 79 1 We are community oriented. The people in 2 Tomball and Magnolia look to us for helping them, and 3 they help us. Its' a two-way street. We belong to both 4 the Tomball and Magnolia chambers of commerce. We 5 invite participation. We encourage participation from 6 the community, and one of those services that we provide 7 is bingo. 8 As you well know, if bingo operations 9 were to cease, bingo players do not sit at home and 10 watch soap operas and Fox News. They find other bingo 11 halls. And if we were to be suspended and got the 12 license back, it's going to be at least another six 13 months to year to get those bingo players back to 2427. 14 So that would really hurt us financially and the state 15 financially. 16 I just appreciate your consideration. 17 Thank you. 18 CHAIRMAN KRAUSE: You bet. 19 Bingo Commissioner. 20 COMMISSIONER LOWE: So, Alfonso, what 21 kind of -- first, let me say: I appreciate your service 22 to our country and your work at the VFW. I'm aware of 23 that and the fine work that you do as an organization. 24 It's certainly appreciated by this Commission and 25 everybody else. 80 1 What kind of help do we offer licensees 2 that are having difficulty? Are we able to give them 3 assistance? 4 MR. ROYAL: Commissioner, this is one of 5 those decisions that I really don't really like about my 6 job, candidly. I wrestle with it. 7 You know, we start a conversations with 8 the organizations, and this particular organization over 9 a year ago. And after a year of negative net proceeds, 10 communication-wise, with due process, we're here a year 11 later. In that subsequent year's period they have 12 continued to operate at a loss. 13 The most recent quarter, being the third 14 quarter which they just reported, where Mr. Isaac is now 15 the bingo chairperson and is involved in the operations 16 and the bookkeeping, part of that was a conversation 17 with my office. And that particular quarter resulted 18 in a negative $7,000 in proceeds. 19 And we look at organizations -- as I 20 mentioned earlier in our report, we look at the risk 21 factors. We look proactively to see if those 22 organizations that are not achieving positive proceeds 23 that have high payouts, that have high expenses; and we 24 work with them. We pick up the phone and we call them. 25 And, you know, part of my message last 81 1 January when I went and spoke to the organizations was: 2 Don't be surprised when you get a call from us. The 3 call is a help call. So please don't ignore it. 4 And there are some organizations who have 5 taken advantage of that. For example, in the last two 6 reporting periods, there were organizations who had 7 negative net proceeds, high expenses. When we started 8 dissecting their reports and worked with them, those 9 organizations have turned positive proceeds of $46,000 10 and $11,000 in charitable distributions, just from 11 working with us. 12 So Desira's team, the accounting staff, 13 they work with those organizations. We pick up the 14 phone, and we're looking at the reporting that they're 15 doing. 16 There are some organizations that fall 17 asleep at the wheel; and these are the organizations 18 that at the joint committee, as I testified with the 19 Legislature back in 2014, they need to take a step out 20 of bingo and reorganize themselves and take a hard look 21 at how they can be involved in bingo such that they can 22 generate a profit. Organizations should not fail 23 because bingo funds are a supplement to their income. 24 They should not be living day to day a hundred percent 25 off of the bingo proceeds. 82 1 And the gentleman testified they do 2 support their community. They have other means in the 3 community. However, at this point, staff recommendation 4 is to really help them stop the bleeding, so to speak. 5 I'm not sure how they're able to contribute and continue 6 to have charitable distributions if their operations to 7 generate funds are at a negative loss. 8 COMMISSIONER LOWE: As far as the 9 sanction, is this like a death penalty; or can some time 10 pass and they re-apply. 11 MR. ROYAL: Some time passes and they 12 can -- they have to sit out a year, and they can 13 re-apply. And during that time we're willing to sit 14 back and help them develop not just a patch plan but 15 overall an look at a business plan for their 16 organization and how they'll achieve bingo, much through 17 volunteers so that they don't have to have excessive 18 payouts for bookkeepers and other positions that are 19 paid. Use volunteers. 20 COMMISSIONER LOWE: So here's where I am. 21 And I'm not trying to embarrass you guys, but I know 22 you've got those machines, other machines in your hall, 23 those sweepstakes machines or eight-liners; and I hate 24 to see you having those in there. I know that some DAs 25 are just sitting on their haunches doing nothing; but 83 1 you're making money on those machines, right? 2 MR. SHAFFER: Yes, sir. 3 COMMISSIONER LOWE: So I've got a feeling 4 that some of the money that's going to those machines 5 could be going to the bingo. 6 MR. SHAFFER: We do close the door and we 7 do lock the door and it is not played at all -- that 8 particular area is in a different room, and it's not 9 played during bingo. 10 COMMISSIONER LOWE: Well, I understand 11 that. But you close the doors to the bingo, and then 12 they walk into the other room to play. 13 MR. SHAFFER: Only when bingo is over 14 with. 15 COMMISSIONER LOWE: Right. That's where 16 your players go. They go next to the -- 17 MR. SHAFFER: We have -- here's the 18 situation the way I see it: I take care of that 19 particular room, and I do it on -- they don't pay me to 20 do it. I just do it as a volunteer. I'm retired, like 21 I'm sure a lot of people are in this room; and, 22 consequently, I try to help the Post. 23 The money is turned over to our 24 Quartermaster, and puts it in -- I'm sure it's in the 25 general fund. And we use those monies just like we use 84 1 our bingo money, for charities. We don't -- nobody's 2 making any big money here off of it. I didn't know we 3 were $7,000 behind, and I don't think anyone at this 4 table knew it until he took over the books. 5 Once we took over the books -- you have 6 to understand, it was a ladies -- at the time it was 7 called The Ladies Auxiliary; and they had half of it. 8 They decided to go with a larger -- they wanted to move 9 their license to a larger bingo hall. We didn't want to 10 do that. We wanted to stay small. 11 So, consequently, they took their bingo 12 and attempted to go with a larger with a larger bingo 13 place, Triple Crown or somebody. It wasn't too long 14 after that until Triple Crown approached us, and they 15 wanted us bad. They wanted our room. They wanted our 16 game room. That's really what they wanted. I'm sure 17 it's exactly what you're talking about. 18 I would say that at the present our 19 biggest fundraiser, charitable raiser, however you want 20 to say it, is bingo; and we -- our hall holds 500 21 people. Years ago -- you know, we're talking -- we're 22 not talking since '14; we're talking way back in the 23 Nineties, early Nineties. We didn't have any problems; 24 we did what we were supposed to do. 25 Paula, bless her heart, before she passed 85 1 away, we never had a problem; and I think most of this 2 has been book problems. Aaron has just been made the 3 person in charge of the books, so to speak. So, 4 consequently, we didn't have that access; the women had 5 that access. Even though after they broke off, we still 6 kept one of them to take care of our books because she 7 was a little bit aware of it. 8 When we found out that we were in 9 arrears, it was a shock to me. I don't know if it was a 10 shock to Aaron or not once he looked at it and got all 11 the figures put together. 12 But we're asking -- we're here to ask -- 13 to kind of throw our mercy, you know, to the court and 14 hope that you will grant us a little bit more time 15 because I guarantee he's going to do right. 16 I've had the trustees look at things. 17 Nobody is stealing money. We've never had that money at 18 that Post, and it's just -- it was a bookkeeper's 19 mistake. She's not here to defend herself; but, you 20 know, y'all caught her in a big fib when we had our 21 hearing before the Lotto Commission. And it shocked 22 myself and it shocked him and that's why he fired her or 23 let her go. 24 But I can't argue with what he's saying. 25 He's saying what is probably what is exactly right 86 1 because we've had problems the last -- I'll say the last 2 probably three years, maybe four, because of not having 3 the right bookkeeper. 4 COMMISSIONER RIVERA: Just "yes" or "no," 5 do you feel that you need a year off? 6 MR. SHAFFER: No, sir. 7 COMMISSIONER ARRIETA-CANDELARIA: I have 8 some questions. 9 CHAIRMAN KRAUSE: Go ahead. 10 COMMISSIONER ARRIETA-CANDELARIA: First 11 of all, thank you so much for your service and your 12 commitment and interest in your community. 13 So I just have some questions if you will 14 indulge me. The first question is: How many people are 15 in Tomball, population? 16 MR. SHAFFER: In the area? Probably 17 20,000 in the area. 18 COMMISSIONER ARRIETA-CANDELARIA: And how 19 many people normally go to play bingo? 20 MR. SHAFFER: We used to have anywhere 21 from -- we've had up to a hundred people. Now, we have, 22 I'm going to say, 38 to 48. 23 MR. ISAAC: We average on a Wednesday -- 24 our Wednesday bingo, we average about 40 to 42. On 25 Friday it goes up as high as 70 or 80 people. It 87 1 depends on what's going on. Whether it's the end-of- 2 the-year timeframe; sometimes that varies. But we've 3 always had those lulls in times; but this year, it just 4 didn't pick up. 5 I think that if the Lotto Commission and 6 Bingo Commission will look at the figures, it shows that 7 all bingo halls have a little reduction in the amount of 8 people who normally play. Our big disadvantage is we're 9 just one hall, one organization. The others might have 10 five or six, but we're designed for one. We're not 11 designed for five or six organizations. 12 COMMISSIONER ARRIETA-CANDELARIA: Okay. 13 MR. SHAFFER: And if I might add this: 14 We just became non-smoking, thanks to Aaron; and I think 15 we lost a few people in the last six months because we 16 don't let anybody smoke anymore. 17 COMMISSIONER ARRIETA-CANDELARIA: Thank 18 you. 19 Do you feel that -- some of the testimony 20 here is that you're attempting to get your financial 21 situation in hand. Do you feel that you have your 22 financial situation straightened out? 23 MR. ISAAC: I think that we are heading 24 in the definite right direction. One of the things that 25 was mentioned is that Commission was willing to help us 88 1 be successful, and I'm not saying that these phone calls 2 weren't made. I just know know that they weren't made 3 to me. That's not their fault. That's something that's 4 happened within the organization. But we had people in 5 place or thought they were in place to take care of us 6 from a bingo perspective; and when I came to the 7 conclusion that wasn't happening is when I brought it to 8 commander and brought it to the membership. And I 9 started taking steps. 10 The last quarterly report that went in 11 when I asked to see that the report, I was told it was 12 online; and it was never copied online. I don't have 13 access to it. I can do the next one, but I don't have 14 access to see what mistakes were there. He's reporting 15 what was reported to them, which was totally before; and 16 I understand that. I'm just saying I'm not sure if the 17 report's accurate based on the information that was 18 turned in because if wrong information is turned in, it 19 would show a loss when there really wasn't a loss. 20 (Inaudible.) 21 When I released the bookkeeper, that was 22 her last report; and I didn't get that report. I was 23 told it was filed. And I always pay the taxes, which we 24 haven't had a problem. The taxes are always paid. The 25 payroll is always paid. That always happened. So that 89 1 was a little bit confusing on my part. 2 COMMISSIONER ARRIETA-CANDELARIA: Do you 3 have a business plan that you've submitted, or you state 4 that you're going to submit it. 5 MR. ISAAC: I have them with me. And 6 based upon as I read the requirements of -- the Lotto 7 requirements, when I wrote it up, I thought that would 8 fulfill the requirements for that. 9 MR. SHAFFER: We do have a plan of 10 action, in other words. 11 COMMISSIONER RIVERA: One more real 12 quick: Would you be agreeable to -- you mentioned 13 what's in the other room where you shut the door. Would 14 you remove all of those machines in exchange for our 15 approval? 16 MR. ISAAC: We would be willing to do 17 that, yes. 18 CHAIRMAN KRAUSE: All right. Well, now, 19 it's my turn. Y'all heard that earlier witness that 20 talked about how the eight-liners cannibalize -- 21 MR. SHAFFER: We don't have eight-liners. 22 CHAIRMAN KRAUSE: Y'all have some kind of 23 machines? 24 MR. SHAFFER: Yes. Let me state 25 something. 90 1 CHAIRMAN KRAUSE: All right. 2 MR. SHAFFER: I agree with what he said. 3 A lot of people don't use those machines right. We have 4 sweepstakes, veteran sweepstakes. We would be willing 5 to do what you ask. Okay? I'll just put it like that. 6 But the eight-liners, we haven't had eight-liners in 7 years; and I'm not saying there's no VFWs that have 8 eight-liners. But in Harris County, Texas I don't know 9 of but one; and they just took theirs -- they just got 10 rid of all theirs probably for the same reason that 11 y'all are telling us. But that was eight-liners. 12 CHAIRMAN KRAUSE: All right. Very good. 13 Well, I'm ready to listen to Hayward 14 Rigano. 15 Thank you guys for coming up. We really 16 appreciate hearing your testimony and appreciate your 17 service. 18 MR. ISAAC: May I ask a question? When 19 will we find out the results? 20 CHAIRMAN KRAUSE: In a few minutes. 21 MR. ISAAC: Oh, thank you. 22 MR. RIGANO: Good morning, Commissioners. 23 CHAIRMAN KRAUSE: You've been here before 24 and not that long ago. 25 MR. RIGANO: Not long ago. 91 1 I don't have too much to offer except 2 that we did file a Motion for Rehearing and set out 3 several factors that we felt the evidence was a little 4 bit lacking in; and I basically came to answer any 5 questions that y'all might have. 6 CHAIRMAN KRAUSE: Would you be opposed to 7 just making an application to the District Court and 8 have a trial de novo. 9 MR. RIGANO: That's probably what we'll 10 do if y'all don't mind. 11 MR. BIARD: I think that would be a 12 substantial evidence review. 13 CHAIRMAN KRAUSE: Any other questions? 14 COMMISSIONER HEEG: Why didn't you file 15 any exceptions? 16 MR. RIGANO: Well, actually, I probably 17 made a mistake there and did not do that. I usually 18 admit to my own mistakes, by the way. 19 (Laughter.) 20 COMMISSIONER HEEG: Appreciate that. 21 CHAIRMAN KRAUSE: Any other questions? 22 (No response.) 23 MR. RIGANO: Very good. Thank you. 24 CHAIRMAN KRAUSE: Let's do this the easy 25 way, and I will entertain a motion to accept staff's 92 1 recommendation on A through M and O. 2 COMMISSIONER RIVERA: Move for approval. 3 COMMISSIONER ARRIETA-CANDELARIA: Second. 4 CHAIRMAN KRAUSE: All in favor say aye. 5 (Chorus of "Ayes.") 6 CHAIRMAN KRAUSE: All opposed? 7 (No response.) 8 CHAIRMAN KRAUSE: A through M and O we 9 adopt the staff's recommendation. 10 On N, I don't know what kind of a motion 11 is going to be proposed here unless the Bingo 12 Commissioner wants to make the motion. 13 COMMISSIONER LOWE: No, I don't feel -- 14 my heart goes out to these guys; but the problem is if 15 they're losing money every month, they're digging the 16 hole deeper. I mean, I'm not sure by getting rid of the 17 eight-liners is going to make the hole start filling up. 18 I want them to flourish and be able to operate, but I 19 think Alfonso has worked with them pretty diligently. 20 Alfonso? 21 COMMISSIONER RIVERA: Commissioners, my 22 take on it is that we have a new set of circumstances, a 23 new set of people; that the yes-or-no question, do you 24 feel the need to sit out a year, the answer is "no." 25 These are grown adults. They know what they're doing. 93 1 Again, they're new to it; and the folks that were there 2 before, they're not there. And were there mistakes 3 made? Yes. 4 I'd be willing to support it with the 5 removal of all the machines; and if it's not working, 6 then we'll take another look at it in a year. 7 COMMISSIONER ARRIETA-CANDELARIA: And I'm 8 going to agree with the Commissioner with regards, 9 though, to add that the business plan be immediately 10 submitted. 11 COMMISSIONER RIVERA: Yes. 12 COMMISSIONER ARRIETA-CANDELARIA: I think 13 that there's a commitment here. These gentlemen came 14 forward and showed a commitment and interest to their 15 community. I think that that business plan, though, 16 needs to be submitted as soon as possible; and I would 17 be willing to go along with your recommendation. 18 COMMISSIONER HEEG: I'm willing to 19 support that based on your commitment to get rid of the 20 other machines and with the understanding that these 21 rules are here -- these are important, and they're the 22 law. And we're sympathetic to what has happened; and if 23 you get this break, you should look at it as a break. 24 And you need to come into compliance. You need to take 25 this seriously. You're not going to get another break. 94 1 COMMISSIONER RIVERA: Right. 2 CHAIRMAN KRAUSE: I will entertain a 3 motion, if somebody wants to put it together, that says 4 that the staff's recommendation be deferred to the next 5 meeting to see if, you know, the business plan can be 6 submitted and some other implemented. 7 COMMISSIONER RIVERA: Move for approval. 8 COMMISSIONER ARRIETA-CANDELARIA: Second. 9 CHAIRMAN KRAUSE: All in favor say aye. 10 (Chorus of "Ayes.") 11 CHAIRMAN KRAUSE: All opposed. 12 (No response.) 13 CHAIRMAN KRAUSE: There you go. 14 MR. ISAAC: Thank you. 15 MR. BIARD: And this will be brought back 16 to the next Commission meeting? 17 CHAIRMAN KRAUSE: Yes. 18 All right. I, on my own motion, am going 19 to move that this Commission meeting be adjourned. Do I 20 have a second? 21 COMMISSIONER RIVERA: Second. 22 COMMISSIONER HEEG: Wait. 23 MR. RIGANO: Did you deny our motion? 24 CHAIRMAN KRAUSE: We've took care of -- 25 MR. BIARD: I think you voted on -- 95 1 CHAIRMAN KRAUSE: Yeah, we voted on A 2 through M and O. 3 (Simultaneous speakers.) 4 CHAIRMAN KRAUSE: All right. Well, 5 everybody in favor of adjourning say aye. 6 (Chorus of "Ayes.") 7 CHAIRMAN KRAUSE: All opposed keep to 8 yourself. 9 (Laughter.) 10 MR. BIARD: Before we get out of here, I 11 do have orders for you to sign. 12 (Adjournment at 12:06 p.m.) 13 --oo0oo-- 14 15 16 17 18 19 20 21 22 23 24 25 96 1 STATE OF TEXAS) 2 3 **************************** 4 REPORTER'S CERTIFICATE 5 **************************** 6 7 8 I, DEBBIE D. CUNNINGHAM, CSR, Certified 9 Shorthand Reporter in and for the State of Texas, do 10 hereby certify that the above and foregoing contains a 11 true and correct transcription of an excerpt of the 12 above-referenced meeting to be included in the 13 transcript of said meeting, and was reported by me to 14 the best of my ability. 15 16 SUBSCRIBED AND SWORN TO under my hand and 17 seal of office on this the 13th day of December, 2016. 18 19 ______________________________ 20 DEBBIE D. CUNNINGHAM, Texas CSR 2065 Expiration Date: 12/31/2016 21 Kim Tindall & Associates 16414 San Pedro Avenue, Suite #900 22 San Antonio, Texas 78232 (210) 697-3400 23 24 25