0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 COMMISSION MEETING ) 6 FOR THE TEXAS ) LOTTERY COMMISSION ) 7 8 9 10 COMMISSION MEETING 11 DECEMBER 7, 2017 12 10:00 a.m. 13 AT 14 TEXAS LOTTERY COMMISSION 15 611 East 6th Street Austin, Texas 78701 16 17 18 19 20 21 22 23 24 25 0002 1 APPEARANCES 2 CHAIRMAN: J. Winston Krause 3 COMMISSIONERS: Doug Lowe Carmen Arrieta-Candelaria 4 Robert Rivera 5 GENERAL COUNSEL: Robert F. Biard 6 EXECUTIVE DIRECTOR: Gary Grief 7 CHARITABLE BINGO OPERATIONS DIVISION DIRECTOR: Alfonso D. Royal III 8 ASST. GENERAL COUNSEL: Ryan S. Mindell 9 CONTROLLER: Katheryn J. Pyka 10 PRODUCTS MANAGER: Robert Tirloni 11 McCONNELL JONES 12 LANIER & MURPHY, LLP: Darlene Brown 13 PRODUCTS & DRAWINGS MANAGER, LOTTERY OPERATIONS DIVISION: Robert Tirloni 14 15 16 17 18 19 20 21 22 23 24 25 0003 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 . . . . . . . . . . . . . . . . . . . 7 5 II Report, possible discussion and/or action on 6 external audits and/or reviews relating to the Texas Lottery Commission, including the 7 FY 2017 annual financial audit.. . . . . . 9 8 III Consideration of and possible discussion and/or action, including adoption, on 9 amendments to 16 TAC §§402.400 (General Licensing Provisions), 402.401 (Temporary 10 License), 402.402 (Registry of Bingo Workers), 402.404 (License and Registry 11 Fees), 402.405 (Temporary Authorization), 402.407 (Unit Manager), 402.410 (Amendment of 12 a License – General Provisions), 402.411 (License Renewal), 402.413 (Military Service 13 Members, Military Veterans, and Military Spouses), 402.420 (Qualifications and 14 Requirements for Conductor’s License), 402.422 (Amendment to a Regular License to 15 Conduct Charitable Bingo), 402.424 (Amendment of a License by Electronic Mail, Telephone or 16 Facsimile), and 402.603 (Bond or Other Security).. . . . . . . . . . . . . . . . 13 17 IV Consideration of and possible discussion 18 and/or action on a financial report from bingo licensees. . . . . . . . . . . . . 18 19 V Consideration of and possible discussion 20 and/or action on the status of grandfathered bingo commercial lessors and the transfer of 21 commercial lessor licenses. . . . . . . . 41 22 VI Consideration of and possible discussion and/or action, including adoption, on 23 amendments to 16 TAC §§401.158 (Suspension or Revocation of License), 401.160 (Standard 24 Penalty Chart), 401.301 (General Definitions), 401.302 (Instant Game Rules), 25 401.304 (On-Line Game Rules (General), 0004 1 401.307 (“Pick 3” On-Line Game Rule), 401.308 (“Cash Five” On-Line Game), 401.312 (“Texas 2 Two Step” On-Line Game), 401.316 (“Daily 4” On-Line Game Rule), 401.320 (“All or Nothing” 3 On-Line Game Rule), 401.322 (“Texas Triple Chance” Lottery Game), 401.353 (Retailer 4 Settlements, Financial Obligations, and Commissions), 401.361 (Required Purchases of 5 Lottery Tickets), 401.364 (Training), and 401.370 (Retailer’s Financial Responsibility 6 for Lottery Tickets Received and Subsequently Stolen or Lost) . . . . . . . . . . . . . 96 7 VII Consideration of and possible discussion 8 and/or action, including adoption, on amendments to 16 TAC §401.317 (“Powerball®” 9 On-Line Game Rule)(Passed) . . . . . . . 100 10 VIII Consideration of and possible discussion and/or action, including adoption, on 11 amendments to 16 TAC §401.305 ("Lotto Texas" On-Line Game Rule)(Passed) . . . . . . . 100 12 IX Report, possible discussion and/or action on 13 lottery sales and revenue, game performance, new game opportunities, advertising, 14 promotional activities, market research, trends, and game contracts, agreements, and 15 procedures . . . . . . . . . . . . . . . 100 16 X Report, possible discussion and/or action on transfers to the State and the agency’s 17 budget status. . . . . . . . . . . . . . 104 18 XI Report, possible discussion and/or action on the FY 2018 Itemized Operating Budget. . 105 19 XII Report, possible discussion and/or action on 20 external and internal audits and/or reviews relating to the Texas Lottery Commission, 21 and/or on Internal Audit activities (Passed) . . . . . . . . . . . . . . . . 112 22 XIII Report, possible discussion and/or action on 23 the Charitable Bingo Operations Division quarterly finance data, including charitable 24 distributions. . . . . . . . . . . . . . 57 25 XIV Report by the Charitable Bingo Operations 0005 1 Director and possible discussion and/or action on the Charitable Bingo Operations 2 Division’s activities, including licensing, accounting and audit activities, pull-tab 3 review, and special projects. . . . . . . 75 4 XV Report by the Executive Director and possible discussion and/or action on the agency’s 5 operational status, major contracts, agency procedures, awards, and FTE status. . . . 112 6 XVI Consideration of the status and possible 7 approval of orders in enforcement cases: 106 Lottery NSF License Revocation Cases(Default) 8 A. Docket No. 362-18-0213 – N J K Smoke N More LLC 9 B. Docket No. 362-18-0214 – Fuel Mart 2 C. Docket No. 362-18-0215 – Fuel Mart 10 D. Docket No. 362-18-0390 – Oscar Lloyd’s Beer and Wine 11 E. Docket No. 362-18-0391 – Liberty Crossing Lottery Agreed Orders 12 F. Docket No. 362-17-5465 – The Corner Spot G. Case No. 2017-931 – Harlows 121 13 H. Case No. 2017-1213 – Oasis Baytown I. Case No. 2017-1293 – Sherry’s Mart 14 Bingo Agreed Orders J. Case No. 2017-728 – P&W Enterprises, Inc. 15 (Commercial Lessor) K. Case No. 2017-1076 – American Legion Unit 16 594 Aux. L. Case No. 2017-1077 – City Wide Club of 17 Clubs Chapter 3 Community Service Center M. Case No. 2017-1078 – SPX Boosters Club 18 N. Case No. 2017-1079 – SPX Parents Assoc. O. Case No. 2017-1080 – Knights of Columbus 19 4577 P. Case No. 2017-1161 – David Baimbridge 20 (Bingo Worker) Q. Case No. 2017-1197 – Jorge Mendez (Bingo 21 Worker) R. Case No. 2017-1371 – Adrian Gomez (Bingo 22 Worker) Bingo License Revocation and/or Denial Cases 23 S. Docket No. 362-17-4986.B – Iowa Park Optimist Club 24 T. Docket No. 362-17-5939.B – Teens Addressing the Community Today (T.A.C.T.) 25 (Default) 0006 1 XX Adjournment . . . . . . . . . . . . . . . 113 2 Reporter's Certificate . . . . . . . . . . . . . . 114 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0007 1 P R O C E E D I N G S 2 AGENDA ITEM I 3 CHAIRMAN KRAUSE: Good morning. My name 4 is Winston Krause, I'm the Chairman of the Texas 5 Lottery Commission on this august of Days, December the 6 7th. Pearl Harbor Day. It is 10 o'clock. The 7 Commission -- I've got three other Commission members 8 here: Commissioners Arrieta-Candelaria, Lowe, and 9 Rivera are present. I will be leaving a little bit 10 early at 11:30 and Commissioner Rivera will take over 11 the Chair duties. 12 Since our last meeting, Peggy Heeg 13 submitted her resignation, and the Governor's accepted 14 it. We're sorry to see her go. She was a valuable 15 member of the Commission and so, we're looking forward 16 to having the Governor's appointment office give us 17 another Commissioner at some point in time. We 18 appreciate her service. She worked with us since 19 August of 2015. My, how time flies. 20 Before we have the pledge led by our 21 Pledge Commissioner, we are going to pray. And I call 22 up Sherae Brissette to lead us in prayer. Let's stand. 23 MS. BRISSETTE: Veterans, uncover. Let 24 us pray. 25 Our prayer today is for our God to guide 0008 1 each leader in all areas of our government with his 2 wisdom and understanding. We ask our Lord Jesus to 3 have mercy on America and revive us again in this 4 season when our hearts turn towards our very brave 5 heroes, shipmates and veterans, especially to families 6 that are still affected by the loss of loved ones at 7 Pearl Harbor, when America was secretly attacked on 8 December 7th, 1941, and hundreds of our brave men and 9 women lost their lives and hundreds more were injured. 10 Many were never accounted for and every battleship of 11 the Pacific Fleet either sank or were crippled by our 12 enemies, sending us straight into World War II. 13 Heavenly Father, we also lift up all of 14 our comrades that are in harms way today, fighting even 15 now as we rest in this air-conditioned room. We pray 16 for their safety, strength and courage and 17 determination to continue to fight honorably and with 18 sound judgment. 19 Lord, let us remember and honor our 20 past, let us also realize that every day, Lord, is a 21 Pearl Harbor day. There will be death and betrayal and 22 explosions in our lives full of fear, guilt, regret, 23 pain and sorrow, but Lord, with you, there is hope, 24 restoration, forgiveness, security and freedom. 25 I pray for wisdom, mercy and grace in 0009 1 all things and in your precious name, Lord. Amen. 2 (Chorus of Amens) 3 (Pledges recited) 4 CHAIRMAN KRAUSE: Thank you, everybody, 5 for coming out on this dreary, chilly, moist, morning 6 in December. This is not typical Texas weather, but 7 we're welcome to have it. 8 AGENDA ITEM II 9 CHAIRMAN KRAUSE: Our first item is 10 going to be Kathy Pyka presenting the 2017 fiscal year 11 report. 12 MS. PYKA: Morning, Commissioners. My 13 name is Kathy Pyka. I'm the Controller for the 14 Commission. With me this morning is Kevin Sanford, the 15 engagement partner from the firm Weaver and Tidwell, 16 who performed our required annual financial report. So 17 with that, I'll allow Kevin to provide a quick 18 overview. 19 MR. SANFORD: Good morning, Commissioner 20 Krause and Commissioners. My name is Kevin Sanford. I 21 am representing the firm Weaver and Tidwell. We have 22 been engaged to conduct an audit of the Commission's 23 financial statements for the year end August 31st, 2017 24 and just here to present the results of that engagement 25 to you today. Hopefully, you have a copy of the annual 0010 1 report with you. 2 I have some very brief comments, and 3 I'll have some time at the end for any detailed 4 questions if you'd like me to go into any more detail 5 beyond what I've prepared for you guys. 6 Our opinion on the financial statement 7 is on pages 4 and 5, and once again, this year the 8 opinion is unmodified or unqualified opinion, which is 9 the highest level of assurance that auditors can give a 10 set of financials. It states that in all material 11 aspects those financial statements are accurately 12 presented. 13 The financials themselves begin after 14 management's discussion and analysis on page number 18, 15 the statement of that position. I was really just 16 going to highlight one or two minor things here, not go 17 into really any significant level of detail, but the 18 financial statements on this page are the full accrual 19 method of accounting, so all assets, all liabilities, 20 are presented for all funds of the Commission, 21 presented in one snapshot there, the total column. 22 The total net position is a deficit of 23 $6,097,000, which is really a function of three things: 24 The increase in the pension liability for the 25 Commission increased about $20-million from ERS this 0011 1 year, which is well beyond the Commission's control; as 2 well as an increased payout to the Texas Education 3 Agency and other -- the other benefactors of the 4 Lottery's operations. 5 The compliance report, which is our 6 report under government auditing standards, which is 7 the other standard-setting body that we have to conduct 8 this audit as the Commission is an Agency of the State 9 of Texas, is at the back of the report on page 79. If 10 we had items and internal control over financial 11 reporting or items of compliance that we had found, 12 they would be presented in this report and are pleased 13 to say that we did not have any deficiencies in 14 internal control, whether significant deficiencies or 15 material weaknesses, and we also did not have any 16 findings of compliance to note. So really, in all 17 ways, shape and form, it was a clean audit this year. 18 I want to say that -- thank Kathy Pyka, 19 her staff, Executive Director Grief, for full 20 cooperation during the engagement, for a very efficient 21 engagement as well, and allowing us to bring this 22 report to you here today. 23 So with that, that was everything that I 24 had prepared. Again, if there's any detailed 25 questions, I'd be happy to answer those at this time. 0012 1 CHAIRMAN KRAUSE: I've got a question 2 and that is, is how instrumental was Kathy Pyka and her 3 team in making your work to give us a clean opinion 4 important? 5 MR. SANFORD: Integral. It could not be 6 overstated. And it's actually kind of, you know, the - 7 - this year was a little bit of a challenge, just given 8 the fact of the damage that occurred to this building, 9 that displaced the entire financial reporting OC staff 10 during the engagement. Some accommodations had to be 11 made all the way around, but the fact that we were not 12 encountering any delays of any shape I think is a 13 testament to the way that they conduct their business. 14 CHAIRMAN KRAUSE: Before I allow the 15 other Commissioners to ask questions, I'm going to just 16 go on record saying that Kathy Pyka and her team did an 17 awesome job working with our outside auditors. You 18 know, we feel, whether rightly or wrongly, entitled to 19 have a clean opinion just because we are the most 20 scrutinized agency in state government and we run a 21 tight, clean, ship. 22 So anyway, thank you Staff and Ms. Pyka. 23 We appreciate what you do. 24 MS. PYKA: Thank you, Mr. Chairman. 25 CHAIRMAN KRAUSE: You betcha. 0013 1 Commissioners, questions, comments? How can you 2 question a clean opinion, by the way? Thank you. 3 MS. PYKA: Thank you, Commissioners. 4 AGENDA ITEM III 5 CHAIRMAN KRAUSE: All right. Ryan 6 Mindell, front and center. 7 MR. ROYAL: Commissioner Krause and 8 Commissioners, before Ryan begins, a little bit of 9 background on this item. At the October 5th meeting 10 you approved the process to begin rulemaking which 11 included a public comment period and a formal public 12 hearing on the draft proposed rules that Ryan will 13 highlight shortly. Comments in public testimony 14 provided was considered by staff prior to finalizing 15 the draft rules, which are in your notebooks. The 16 amendments to the rules are necessary to align with 17 recent statutory changes that occurred during the 85th 18 Texas Legislature, specifically related to House Bill 19 2578 by Representative Senfronia Thompson, Senate Bill 20 549 by Senator Lois Kolkhorst, and Senate Bill 2065 by 21 Senator Kelly Hancock. 22 I again went to thank the 12 bingo 23 industry participants of the stakeholder workgroup and 24 Commissioner Lowe, the designated Bingo Commissioner, 25 all who worked in conjunction with Agency staff on the 0014 1 rule amendments. 2 Commissioners, I'll turn it back over to 3 Ryan to speak specifically on the rules. 4 MR. MINDELL: Thank you, Director, and 5 good morning, Commissioners. My name is Ryan Mindell, 6 Assistant General Counsel. 7 Item 3 in your notebook for 8 consideration is adoption of proposed amendments to 13 9 bingo rules as published in the Texas Register on 10 October 20th. As Mr. Royal said, we presented these at 11 the October Commission meeting and the purpose of these 12 amendments was to implement changes required by the 13 newly passed legislation in our last regular session; 14 specifically, HB 2578, SB 549, and SB 2065. That 15 legislation removed all references to bingo conductor 16 and bingo worker license fees in the Bingo Enabling 17 Act. It also allowed for a new refund process for 18 application fees for lessors, distributors and 19 manufacturers. And it removed licensing requirements 20 entirely for bingo unit managers. 21 These proposed rule amendments implement 22 the statutory changes in the relevant bingo rules, as 23 well as making other conforming changes. These rule 24 amendments have two small changes from the proposal in 25 October, conforming language in Section 402.404(d)(3), 0015 1 to match language elsewhere in the rule, and correcting 2 a rule reference in Section 402.411(b). 3 As mentioned, a public comment hearing 4 was held on November 8th. We received comments from 5 representatives of the Texas VFW and Texas Charity 6 Advocates. We also received written follow-up comments 7 from the representative of the Texas VFW. 8 The comments are summarized in your 9 notebook. No changes were made in response to those 10 comments, but I would like to highlight two issues 11 raised. First, both commenters requested changes to 12 Section 402.400(f). That relates to an optional 13 process for bingo applications that would allow 14 organizations to submit an application without the 15 normally required bond and have the Commission first 16 determine if they are eligible for a bingo license. 17 Once it is determined that the organization is 18 eligible, then they would submit the bond. 19 The commenters requested that more 20 specific timelines be provided for organizations during 21 this optional process and for additional time to be 22 provided at the end of the process for the organization 23 to obtain a bond. So this eligibility process was 24 designed to provide more flexibility than the ordinary 25 process, both for the applicant and for the Commission. 0016 1 The eligibility process necessarily would involve a 2 back-and-forth with the Commission and could take some 3 applicants longer than a typical application. 4 Providing strict deadlines in the rule could limit the 5 flexibility to the potential detriment of the 6 applicants. 7 And furthermore, the bond should in most 8 cases be the absolute last step required in that 9 process. Second, both commenters requested that we 10 remove references to annual gross receipts dollar 11 ranges, which is for conductor license classes. Now 12 those amounts were previously in the rule to determine 13 the appropriate fee for each conductor based on their 14 level of gross receipts. Because the newly enacted 15 legislation removed those license fees, the commenters 16 stated that the references were unnecessary. 17 And these references have been left in 18 the rule because that information is necessary for 19 calculations related to the Bingo Division's operating 20 budget. Under this new legislation, the Bingo Division 21 will be funded by prize fees taken on a pro rata basis 22 from the share that cities and counties previously 23 received. We believe that it is more transparent to 24 retain the relevant license class amounts, provide 25 clarity to those affected parties. And furthermore, 0017 1 those conductor license classes are still necessary in 2 the rule somewhere for the calculation of the bond 3 amounts. 4 At this point, Staff recommends the 5 Commission adopt the proposed amendments of these bingo 6 rules and I'm happy to answer any questions about this 7 item. 8 CHAIRMAN KRAUSE: Comments, questions? 9 Bingo Commissioner? 10 COMMISSIONER LOWE: I think everyone has 11 worked really hard on this. And of course, this is 12 responding to the legislation that we didn't really 13 have a whole lot of input in, so, I don't think anybody 14 heard that, did they? 15 Anyway, so, and I know that there is an 16 issue with tracking the individual classes of licenses, 17 but I think Kathy, at least has briefed me and Carmen 18 here, that we have to do that so that we know how much 19 money the jurisdictions get back. Isn't that right, 20 Kathy? 21 MS. PYKA: That's correct. 22 COMMISSIONER LOWE: And so, I think it 23 -- I would personally like to know the information, the 24 data, as we track it, because I think it will help us 25 make policy decisions in the future. So my 0018 1 recommendation is, based on the staff and counsel, that 2 we adopt these rule changes. So I would so move if 3 that's okay at this time. 4 CHAIRMAN KRAUSE: Absolutely. I'm 5 looking for a second to that point. 6 COMMISSIONER RIVERA: Second. 7 CHAIRMAN KRAUSE: All in favor say aye. 8 (Chorus of "Ayes") 9 CHAIRMAN KRAUSE: Adopted. 10 MR. MINDELL: Thank you, Commissioners. 11 MR. BIARD: I have a rule order that I 12 will ask you to sign after the meeting. 13 CHAIRMAN KRAUSE: Outstanding. 14 AGENDA ITEM IV 15 CHAIRMAN KRAUSE: Let's see, we have a 16 financial report from a bingo licensee, by a witness 17 who is very knowledgeable about that. Mr. Bresnen, 18 would you please do us the honor? 19 MR. BRESNEN: Thank you, Mr. Chairman. 20 If you will give us just a second, we're going to get a 21 PowerPoint up here. You are going to see the 22 difference in the dexterity with technology for 23 presentation between us and almost everybody else, 24 because this is pretty simple. And I am reminded of 25 the KISS principle, which is keep it simple stupid. 0019 1 I'm also reminded you like to have short presentations. 2 3 CHAIRMAN KRAUSE: We admire brevity. 4 MR. BRESNEN: Yes sir. Well, I will be 5 as brief as I can. Our reason for being here today, 6 and thank you very much for offering us the time, is 7 that it became clear to me at the last meeting, and I 8 distributed transcripts to you of the portion of that 9 that talked about the bingo financial report, that 10 we're not all speaking the same language and using the 11 same fund of information to have conversations about 12 bingo. And I realized that I was remiss and members of 13 the bingo community who are here in substantial numbers 14 today because of the importance of their efforts, and 15 yours, that we probably should have a regular pattern 16 when new members are appointed to this Board of sitting 17 down with them and having a basic orientation to 18 Charitable Bingo bingo from the licensees point of 19 view. And so I would like to do a little bit of that 20 today if I might. 21 In the letter that I wrote you on 22 November 27th, I recommended that we make four basic 23 points: One, that the Legislature in 2009 instructed 24 the agency how to report the results of Charitable 25 Bingo. There continues to be confusion about 0020 1 Charitable Bingo and how to measure its performance, 2 because the agency, the Legislature, lots of people, 3 keep talking about measures that are not where you need 4 to be watching the ball. 5 And I'm not going to speak later during 6 the Director's report, but I noticed that on your 7 agenda today, we're starting with this gross receipts 8 number, again, at the top of the page. 9 So what I want to do, you're all 10 officeholders and policymakers, and you are going to 11 make judgments about what should be happening, so I 12 would like for you first to know what is happening and 13 see if we could develop a common fund of information 14 and terminology that we can talk to each other about 15 this in the future. 16 Tom, you can go to the next page. Let 17 me get mine up here. So, everybody struggles and this 18 has been going on -- I've been lucky to be involved 19 with my very first clients in the lobby business, the 20 bingo interest group, since 1996. And we have 21 struggled with this for a long time. 22 And you see an array of numbers on the 23 page here and the question is, what's the right number? 24 And I am hoping to show you what the right number is 25 and what the -- how we ought to be talking about 0021 1 Charitable Bingo. 2 Next slide, please. The right number is 3 not gross receipts, it's just not. And there's a very 4 good reason for that. If you'll go to the next page, 5 Tom. 6 There is a phenomenon in gambling called 7 playback or churn, it's well known in the industry. 8 And if I sell you two pull tabs at $.50 each, I'm going 9 to ring up a dollar in sales. One of them is a loser, 10 you throw it in the trash can, the other one wins a 11 dollar. You give me the pull tab back, and I ring up 12 another dollar in gross sales. But the problem is, 13 there's only one dollar. The same dollar has been 14 circulating. And this is a well-known phenomenon in 15 all levels of gaming. It's called playback or churn. 16 That's a -- those are terms of art in the industry. 17 So what's happening, we were struggling 18 with this with the Legislature, and I've given you the 19 example on pages five and six there. What's happening 20 is, we were struggling with this within the Legislature 21 and we did a survey prior to the -- not the last 22 session, but the one before that. And we did a study 23 and I can give you the details of the study, it was in 24 a published report that went to the Legislature and it 25 formed the basis of a bunch of recommendations from the 0022 1 House -- from a joint committee of the House and Senate 2 -- that embrace this concept. 3 And it turns out that on a statewide 4 average, about 20.6 percent of what shows up as gross 5 receipts is actually just playback and churn. You 6 cannot make profits out of those dollars. It's the 7 dollars left over that you can get to the bottom line. 8 And out of those dollars that are left over after you 9 pay prizes, that's where you pay your expenses and then 10 you get your net proceeds. 11 So, $604.6-million, which is the real 12 gross if you will, on a statewide average basis, is 13 still not the right number. 14 One of the compounding factors in all of 15 this and what you all need to understand is prizes run 16 over 75 percent on a statewide basis in Charitable 17 Bingo. I am back to gross receipts now, because it's 18 the only measure I've got of it. 75 percent of the 19 gross receipts that's reported to y'all, it's actually 20 about 76 now, is paid out in prizes. So, you've got 21 the remainder, the 24 percent, to pay your expenses out 22 of and generate net proceeds. This is a very low 23 stakes game. 24 Now, there was some Commission 25 discussion last time about how this seems a lot less 0023 1 efficient than y'all. If you give Charitable Bingo a 2 $600-million prize, we will get so efficient you won't 3 even believe it. The economies of scale, the lack of 4 expenses, your expenses essentially don't go up when 5 your prize goes up in a huge way like that, but your 6 revenues surely go way up. Bingo can offer a maximum 7 $750 prize and for regular bingo -- that's not 8 including -- well, for regular bingo we're capped at 9 2500 per occasion, except for games under $50. 10 So what's typically happening in the 11 bingo hall is they're offering $500 regular bingo 12 prize. That's trying to draw people in against the 13 WinStar Casino in Oklahoma, which is a half a day's 14 trip from the Dallas-Fort Worth area and it is 15 competing against y'all and your game. 16 The bottom line is, where you need to 17 focus, where the ball is, in adjusted gross receipts, 18 that's the money left over after prizes are paid 19 because that's the only thing you have to pay your 20 expenses and generate a profit. So, this slide makes 21 two distinctions, there's two sources of money or two 22 characters of money here: The charity's money, which 23 is gross receipts minus prizes, that's adjusted gross 24 receipts, adjusted gross receipts minus expenses is net 25 proceeds. 0024 1 The Legislature told y'all to report 2 about bingo as adjusted gross receipts and net 3 proceeds. We still keep talking and y'all aren't the 4 only one that does it, so don't think I'm being too 5 harsh on you; 100 percent of the net proceeds belongs 6 to the charities. They can do two things with that 7 money: They can spend it for charitable activities; 8 or, they can retain it in their bingo account for 9 working capital, but that's capped. 10 It used to be there was an organization 11 in the state that had $450,000 in its bingo account. 12 The maximum you can have after "we" got the legislation 13 passed is $50,000. And the cap is based on a formula 14 based on your expenses on a four quarter average. So 15 many people's cap is much less than that. That forces 16 the money out of the bingo account and for use for 17 charitable proceeds. 18 The not so big secret here is that 5 19 percent of all prizes are paid to the state and local 20 governments. Y'all didn't give us any credit for that 21 in your discussion at the last meeting. Mr. Chairman, 22 y'all gave us no credit for that. In fact, my good 23 friend Alfonso, said we would be naive to think that 24 that was much progress by getting the $4.1-million 25 taken back from the local governments to get rid of the 0025 1 license fees that these charities have to pay. That's 2 almost a 13 percent increase in the amount of money in 3 net proceeds if they can avoid those expenses. $4.1- 4 million to these people is a hell of a lot of money. 5 But it's a starting place for your game. It's a -- and 6 your game is a game we compete with. 7 Let me have the next slide. So, this 8 just shows you in a very simple way gross receipts 9 minus prizes is adjusted gross receipts. Out of the 10 prize money paid to players, 5 percent is retained and 11 falls down into prize fees, that goes to the 12 government. From adjusted gross receipts, reasonable 13 and necessary expenses are paid, that generates net 14 proceeds, those are the two things that net proceeds 15 can be made -- can be used for. 16 So what are the right numbers? To 17 report it correctly, you all should emphasize adjusted 18 gross receipts and net proceeds. Mr. Chairman, I was 19 staff for a long time and I put a lot of things in 20 front of people to sign. The letter that goes in your 21 annual report, this one is from 2016, which I supplied 22 y'all, the letter doesn't speak to net proceeds or 23 adjusted gross receipts, it only talks about $761.5- 24 million in gross receipts. 25 A reasonable person, not knowing any of 0026 1 what I am telling you today, would say well, how can 2 you only get 4.4 percent down to the charities? 3 Because 25 percent, 26 percent, came off the top and 4 went to players. So, the right numbers are on this 5 page. I am using 2016 numbers because that's the 6 latest full year that we have; 181.8-million in 7 adjusted gross receipts, 31.8 of that got to net 8 proceeds, which is 17.5 percent of adjusted gross 9 receipts, and the prize fees generated $33-million for 10 local and state government. 11 You've got to give us credit for that 12 $33-million. It's only because of the work that these 13 people do and the investment that lessors and 14 distributors and everybody makes; manufacturers, the 15 charities, that's where that money comes from, and it 16 is general revenue to the state and local governments. 17 That's net. It's net to them. There's no expense to 18 them. We took a little bit back from the local 19 governments in order to get rid of the license fees and 20 save these charities the license fee expenditures. 21 So, those are your real numbers. This 22 next page, just a little summary of what I've already 23 told you. The right numbers are adjusted gross 24 receipts; let's go one more page, Tom. The right 25 numbers are adjusted gross receipts, net proceeds to 0027 1 charities, and the government's share. That's about 2 $64.8-million total or 35.5 percent if you use adjusted 3 gross receipts as your measure and it's something like 4 less than that if you fall back into the trap of using 5 gross receipts. 6 We would like to ask you in your packet 7 that I sent you, is a page out of the annual report 8 that quotes the statute that tells you how to report. 9 I am not saying don't ever talk about gross receipts in 10 here because I believe in the First Amendment, but this 11 is, this is the measure of the performance of 12 Charitable Bingo. After that, what's done with the 13 money, the adjusted gross receipts, is the proper 14 purview of the agency. 15 So, Commissioner Candelaria, I know you 16 have more than a smattering of financial background. 17 We would ask that you recognize that this is the way a 18 gaming enterprise works and in future reports, we'd 19 appreciate that recognition from the get-go, because 20 when your reports go over to the Legislature and I 21 spend a whole lot of time -- it's good for the lobby 22 business -- because I get to go over there and be a 23 lobbyist, but it is not fair to these people. 24 And I want to say today that many of 25 these people in this room came from a long distance. 0028 1 Many of them are from Victoria, we have Texarkana, we 2 have people from the Valley, San Antonio, the 3 Dallas-Fort Worth area; Commissioner Lowe, I really 4 appreciate your reaching out to me and we will follow- 5 up, but I think you, sir, as the Bingo Commissioner, 6 are not the only one of these folks who have 7 responsibilities in bingo. 8 So we need to -- we are happy to 9 interface with you and get as deep into this as you 10 want to get, but you guys also have to know this; it's 11 your duty, the Bingo Commissioner is set up as someone 12 who is to gain knowledge and have input, not to be the 13 bingo czar. 14 So we would ask very much -- I know that 15 sounds harsh, I didn't mean it to, but we would ask 16 that you get fully engaged, because frankly, Mr. 17 Chairman, I had a discussion with you about this in 18 your office several years ago. You can imagine the 19 frustration of people that are working hard when we 20 can't even get on the same page about this terminology. 21 22 So I'd very much request that you do 23 that. And I am going to finish by asking a question. 24 I think there is a typo or something on this document, 25 the ones in your report today, because it has prizes in 0029 1 the third quarter of '14 at right about half of the 2 gross receipts. That can't be. It's got to be a 3 number there or something got reported in another 4 quarter or something, but anyway, that's -- I'd be 5 happy to answer any questions. 6 Did I stay within my time limit? 7 CHAIRMAN KRAUSE: You did. Well, you 8 left five minutes and so we're going to use that for 9 questions. 10 MR. BRESNEN: Well, and further -- no, 11 go ahead. 12 CHAIRMAN KRAUSE: Yes, sir. 13 Commissioners. 14 COMMISSIONER LOWE: I'm going to let 15 Carmen kind of respond. She has more insight -- her -- 16 CHAIRMAN KRAUSE: Well, before she does, 17 let me, you know, mention Commissioner Candelaria's 18 qualifications; she's a CPA. And not only is she just 19 a CPA, she's a practicing CPA. And not only is she a 20 practicing CPA, she is a CPA for a governmental entity, 21 you know, and so, when she talks about this, you know, 22 with us, then we listen to what she has to say, because 23 we feel like she has well gotten some specialized 24 knowledge. 25 You know, that's not to say that it's 0030 1 specialized, you know, in the bingo area, but at the 2 same time, you know, we do recognize her perspective. 3 COMMISSIONER ARRIETA-CANDELARIA: Thank 4 you. And thank you so much for the presentation. 5 MR. BRESNEN: Thank you for letting us 6 do it. 7 COMMISSIONER ARRIETA-CANDELARIA: I 8 think it definitely gives us some additional insight 9 for a new perspective of where you're coming from. 10 So, if I could go back to the slide with 11 regards to the flowchart, the bingo cash flow, just so 12 I'm clear. So, on the prizes, you indicated that 75 13 percent of the prizes come out of gross receipts; is 14 that -- 15 MR. BRESNEN: It's really about 76. 16 COMMISSIONER ARRIETA-CANDELARIA: Okay. 17 MR. BRESNEN: And this is a statewide 18 number. There are places in the state, there are some 19 counties in the state, where the prizes are more around 20 80 percent. So, keep in mind that any given enterprise 21 out there -- these are all businesses, okay? They are 22 not immune from the law of economics. So at any given 23 place, depending on the market, it may be more or less 24 than that. I'm sorry. I didn't mean to interrupt you. 25 0031 1 COMMISSIONER ARRIETA-CANDELARIA: No, 2 thank you for that. So out of that, just so I'm clear, 3 according to this chart, the state government and local 4 government fee comes from the prizes, correct? 5 MR. BRESNEN: It is withdrawn from the - 6 - it's collected from the player. Until House Bill 7 2578, the -- there were two ways that that money got 8 collected: On prizes over five dollars, it was 9 collected directly from the player. So if you won $10, 10 I took 5 percent of that, put it in the till, held in 11 trust for the State, much like sales taxes. 12 The other, under five dollars, they 13 could either collect it from the player or they could 14 just remit it. And so by eliminating that, all those 15 charities that were remitting the 5 percent, now that 16 there's no prize fee on that -- 17 COMMISSIONER ARRIETA-CANDELARIA: Uh-huh 18 (affirmative). 19 MR. BRESNEN: -- all that money is 20 retained as net proceeds, and we think that's 21 conservatively about $1,000,000. Plus, it lets that 22 money recirculate in the hall and generate additional 23 business. 24 COMMISSIONER ARRIETA-CANDELARIA: Okay. 25 So if you were to look at this slide and then you go to 0032 1 the next slide where you indicate that the prize fees 2 to state and local government are at 18 percent of AGR, 3 well, you've already taken out the prize fees to state 4 and local government -- 5 MR. BRESNEN: It's -- 6 COMMISSIONER ARRIETA-CANDELARIA: -- so 7 you have to gross that out. 8 MR. BRESNEN: It's not a good -- it's 9 not a good comparison, and I agree with you on that. 10 My point is that the Legislature has told y'all what to 11 do and it's adjusted gross receipts. You can do it as 12 -- that's why I said a while ago -- 13 COMMISSIONER ARRIETA-CANDELARIA: And 14 that's why I'm walking through this just to make sure 15 that I understand. 16 MR. BRESNEN: No, you are exactly right. 17 The six -- that's why I said a while ago, the 64.8- 18 million is 35.5 of AGR; unless you want to calculate it 19 as gross receipts, you could calculate one one-way and 20 one the other way, but you are exactly right. 21 COMMISSIONER ARRIETA-CANDELARIA: Okay. 22 So when you look at the -- so when I look at this, I'm 23 not sure that I agree with you with regards to the 18 24 percent of AGR, because those prize fees are taken off 25 from the -- the fees are taken from the prizes that 0033 1 people win. So, and we have to add that back in to get 2 the actual percentage. 3 MR. BRESNEN: Sure. I understand 4 exactly what you are saying. There is no -- I said to 5 keep it simple, stupid, and there was -- there's no con 6 -- there's no -- anything but -- it just injects more 7 complexity for me trying to present this to you today. 8 But I agree with you hundred percent. Your observation 9 is correct. 10 COMMISSIONER ARRIETA-CANDELARIA: Okay. 11 MR. BRESNEN: My point -- my point, 12 though, just to put a -- put the fine point on it here, 13 is that money is a result of their efforts, nobody 14 else's efforts. And the Constitution says the proceeds 15 from bingo are to go to the charities. So, I think 16 this is bad law to begin with, but your point about the 17 comparison on adjusted gross receipts, is well taken, 18 and I think what we ought to do is work together and 19 see if we can come up with a better way to do that. 20 Really what I wanted to do is point out 21 to y'all that you ignored the $33-million, which is 22 more than the charities get. That's not right. So I 23 made an effort to take some of it back last time and I 24 got lucky. 25 COMMISSIONER ARRIETA-CANDELARIA: Well, 0034 1 and that -- correct me if I'm wrong, but that's a fee 2 that is set by the Legislature, correct? 3 MR. BRESNEN: Yes, ma'am. 4 COMMISSIONER ARRIETA-CANDELARIA: Okay. 5 So, you know, when we look at that, that's almost like 6 a tax if you will; is that right? 7 MR. BRESNEN: It's a -- it is simply a 8 tax. It's called a fee, but it doesn't go to any 9 dedicated purpose, which would be the legal definition 10 of a fee. 11 COMMISSIONER ARRIETA-CANDELARIA: Right. 12 MR. BRESNEN: It's a tax. We got taxes 13 reduced on the charities last session by taking some of 14 the tax back from the local governments, because to 15 take the State's money back gives me negative fiscal 16 note and I can't pass the bill. 17 COMMISSIONER ARRIETA-CANDELARIA: Okay. 18 So then the concern to us, when we -- or at least to 19 me, when we -- when Mr. Royal gives his presentations, 20 what actually goes back to the charities. 21 MR. BRESNEN: Yes. 22 COMMISSIONER ARRIETA-CANDELARIA: 23 Because as you see some of the cases that we hear -- 24 that we're going to hear today and rule on, is many of 25 them have negative net proceeds. 0035 1 MR. BRESNEN: Yes. 2 COMMISSIONER ARRIETA-CANDELARIA: And so 3 those are things that really concern us. So at the end 4 of the day -- 5 MR. BRESNEN: Sure. 6 COMMISSIONER ARRIETA-CANDELARIA: -- how 7 much does actually go back to the charities? 8 And you say if you have net proceeds 9 which is 17.5 percent, what, is that the amount that 10 goes directly to charities or is that -- is that net of 11 expenses? 12 MR. BRESNEN: Yes, ma'am. 13 COMMISSIONER ARRIETA-CANDELARIA: And 14 that's net? 15 MR. BRESNEN: It's net proceeds. It's 16 net of expenses. Most of that money, and I think 17 you'll hear the staff say that more money is 18 distributed than is required to by -- by the law. Most 19 of that money goes ahead and gets spent for charitable 20 purposes. But it's important that you know that these 21 are ongoing businesses. So, within this cap that I 22 described to you, they can retain some of the net 23 proceeds as working capital. 24 And by the way, that measure and the net 25 proceeds and all that, was -- we were not run over when 0036 1 that got done. We worked on that. There used to be an 2 arcane formula that nobody understood and it 3 misrepresented, and it was called the 35 percent rule 4 and everybody thought they were supposed to get 35 5 percent; it's not doable, it cannot happen. And so 6 that got changed by the Legislature to focus on net 7 proceeds. 8 And the cases that you're talking about, 9 those are case-by-case. 10 COMMISSIONER ARRIETA-CANDELARIA: Yes. 11 MR. BRESNEN: And that's the way it -- 12 that's the way it has to be, you know, to be done. 13 COMMISSIONER ARRIETA-CANDELARIA: I 14 would just like to see less of those cases. 15 MR. BRESNEN: I don't blame you, but 16 there's a world out there. And look, if you'll look -- 17 let me just point to the letter here. The last page of 18 the letter. 19 In 1991, there were 1827 charities and 20 534 lessors. In 2016, there were 1000 charities; 21 that's a drop of 826, and 272 lessors. Bingo is not a 22 thriving, growing deal. $761-million seems like a lot 23 of money, it is not -- that's really -- in real terms, 24 that's at about two-thirds, in real dollars, that's 25 about two-thirds of what it was in 1995. 0037 1 So you guys ought to understand and be 2 sensitive to the fact that these people are toiling in 3 an environment that's extremely difficult. The 4 Dallas-Fort Worth area in particular, because it's 5 right by the casinos in Oklahoma, are killing them. 6 The day after the first lottery scratch off was drawn 7 by Ann Richards, it -- bingo started down and has gone 8 down consistently. 9 So we would ask as you analyze these 10 numbers, you got to do what you got to do on the cases, 11 but when you are talking about Charitable Bingo, we'd 12 like for you to understand and be sympathetic to the 13 fact that these people are doing this with their hands 14 tied behind their back in an environment that is not 15 conducive and that's why we focus so much time on the 16 regulatory environment, get a little bit of this tax 17 money back, and so we need for you all to recognize 18 that and to -- when you're talking about it, to have 19 that awareness that we're reaching hopefully today. 20 21 COMMISSIONER ARRIETA-CANDELARIA: Thank 22 you. 23 COMMISSIONER LOWE: Thank you for 24 bringing this to us today. And Carmen is certainly 25 more eloquent to talk about the financial side, and 0038 1 you've done a good job of telling us the difference 2 between gross and how we're getting our numbers. 3 Here's my bottom line, is, you know, 4 these charities are doing this for the good of our 5 community. I just want to make sure that they're 6 treated fairly, that -- and there's -- and that we know 7 what's going on, the public knows what's going on, and 8 that these efforts that these guys are making are 9 actually beneficial to the charity. And if they're 10 getting net proceeds, negative net proceeds or not a 11 fair share, then we're not doing our job in making sure 12 that -- that the people that need to be benefitted get 13 benefit by the hard work that these people do. 14 MR. BRESNEN: Sure. 15 COMMISSIONER LOWE: Because it's -- I'm 16 -- you know, I'm on the Y Board in Palestine, and we're 17 begging for money all the time. It's hard to raise 18 money, not just in -- in bingo, but just generally now. 19 It's hard to do it. 20 So I appreciate the work that all these 21 folks do. I just want to make sure they're treated 22 fairly. That's all I want. 23 MR. BRESNEN: MR. Well, that's your -- 24 your job is to see that they're treated according to 25 the law. 0039 1 COMMISSIONER LOWE: And they do not take 2 that to be fairly. 3 MR. BRESNEN: Yes, sir. Well, that's -- 4 that's good. People aren't complying with the -- we've 5 always taken the position if you're not complying with 6 the law, then you're competing unfairly against people 7 who are. We've been very up-front about that. We've 8 made numerous efforts to change the Bingo Enabling Act 9 over the years, some successful, to make things more 10 economically sensible. 11 Think about this: Who would create a 12 new industry today and say that you can only have two 13 four-hour occasions today when the economics won't even 14 support four hours per occasion? And so you've got a 15 building that sits there that let's say they use their 16 whole time, 16 hours a day, it's a non-revenue 17 generating building. Walmart doesn't do that, and 18 there's a good reason. 19 So, I'm just asking you as you're 20 judging these cases and as you're talking about bingo, 21 that you be thinking about this broader context. 22 Sometimes it -- I'm a little sensitive about this 23 because I've been dealing with it for a long time. 24 Sometimes it doesn't come across that way. And I 25 wanted today to give us all a common fund of knowledge. 0040 1 2 I think Alfonso said at the last 3 meeting, he -- he made several references emphasizing 4 the expense-side of the equation, it's -- that's where 5 it is. 6 COMMISSIONER LOWE: Thank you, Chairman. 7 CHAIRMAN KRAUSE: All right. I'll 8 reserve my questions because I don't want to take away 9 from Mr. Bresnen's time. Thank you for the really 10 great, informative presentation. 11 I also want to thank, you know, all of 12 the bingo charitable representatives who came from 13 Victoria and Texarkana and all across the State. We 14 are doing this for you guys and I can't say that we are 15 doing it perfectly. I apologize for that, but we're 16 people, too. You know, and so, but we're trying to do 17 the best we can and part of what we do is to keep 18 improving what we do. 19 And so thank you for coming down and 20 showing your support. We appreciate you. 21 MR. BRESNEN: Thank you, Mr. Chairman, 22 for the time and members, we very much appreciate it. 23 CHAIRMAN KRAUSE: We have one more 24 comment. 25 MR. BRESNEN: We'll stay engaged. Yes, 0041 1 sir. 2 COMMISSIONER RIVERA: Great 3 presentation. And, you know, whenever some of these 4 comments were brought up at our last meeting, I was new 5 to your concerns and the concerns of all that are here. 6 And, you know, I've done a little research that -- your 7 points I think are on point and I understand your 8 frustration. And so what I've been presented, what 9 I've seen, I've -- I agree with your methodology, with 10 your thoughts. 11 MR. BRESNEN: Thank you, sir. 12 COMMISSIONER LOWE: And I can appreciate 13 everyone here from across the State. It's neat to see, 14 obviously, you know, representatives from Victoria, but 15 also, you know, we see that the Dallas Cowboys star, 16 Texas Rangers, Houston Astros cap here, so it's neat to 17 see that this is a -- it's a statewide front that's 18 here today. So, anyway, just I appreciate you bringing 19 it to our attention. 20 MR. BRESNEN: Thank you, Commissioner. 21 Appreciate it. Thank you all for your time. We 22 realize y'all are volunteers, too. Thanks a lot. I 23 really do. Thank you. 24 AGENDA ITEM V 25 CHAIRMAN KRAUSE: Let's move on to the 0042 1 next agenda item, which has to do with grandfathered 2 bingo commercial lessors and transferring those lessor 3 licenses. And so, we're going to let our Bingo 4 Commissioner, and I want everybody to know how grateful 5 I am that we have a dedicated Bingo Commissioner who 6 devotes the time necessary to become somebody that 7 knows more about bingo than the rest of us, because it 8 is complicated and it does take somebody willing to 9 devote the time to do that. So Commissioner Lowe, I'm 10 going to let you lay out this item for us. 11 COMMISSIONER LOWE: Okay. Well, I'm 12 going to pass that ball to Alfonso; a lateral. 13 MR. ROYAL: Commissioners, Tab 5 14 provides background on this agenda item. A 15 grandfathered commercial lessor is one who has been 16 continuously licensed since June 10th, 1989. A 17 grandfathered lessor may lease to and collect rent from 18 up to seven organizations in contrast to a non- 19 grandfathered lessor who may only lease to one 20 organization. 21 The Division's historical practice has 22 been to allow a grandfathered lessor to transfer their 23 lessor license with all the grandfathered rights to 24 another person. This practice primarily benefitted 25 individuals who are grandfathered lessors because a 0043 1 legal entity, corporation or partnership can change 2 ownership of an entity without transferring the license 3 and without the Bingo Division's approval. 4 The last individual grandfathered lessor 5 license was approved in 2015. Commission staff has 6 identified an interpretation of the bingo statutes that 7 grandfathered rights only attached to the licensee, not 8 the license, and thus, are not transferable to the 9 person. I communicated this interpretation to the 10 Charitable Bingo community in my two thousand -- August 11 2017 Director's message publication, which generated 12 industry criticism that the Division was improperly 13 changing the historical practice without going through 14 a rulemaking process, despite not having a rule on this 15 issue. 16 Industry representatives urged me to 17 clarify that the historical practice will not change 18 until the Commission goes through a formal rulemaking 19 and adopts a rule change to the practice. On November 20 9th, I issued follow-up communication, stating the 21 Division plans to continue discussing this issue of 22 grandfathered lessors and the transfer of the license 23 rights, which brings us to this agenda item today. 24 25 COMMISSIONER LOWE: Okay. So, as I 0044 1 understand, the bottom line is that on advice of our 2 General Counsel, and his staff, that we've been doing 3 it wrong for a long time. 4 MR. BIARD: Just, if I can clarify for a 5 second. There was a legal memorandum done several 6 years ago by an attorney who is no longer here who -- 7 COMMISSIONER LOWE: Okay. 8 MR. BIARD: -- who set forth an 9 alternative interpretation to what the agency had been 10 following for a number of years, but the agency hasn't 11 changed its practice. 12 COMMISSIONER LOWE: Right. So, I guess 13 that was inartful. If we interpret it one way, it's 14 wrong. If the other way, it's okay; we've been doing 15 it right. Because there's a real question now, and at 16 least in our counsel's mind that we're doing it wrong. 17 I mean, the real question, right? Does that kind of 18 synthesize where we are? 19 MR. BIARD: Well, I think we're in a -- 20 sort of in a tricky -- the Commission is put in sort of 21 a tricky position, because we have this interpretation. 22 This alternative interpretation is at odds with 20 plus 23 years of practice here at the agency. So, we're in a 24 position of, you know, what do we do? It's an awkward 25 position for the agency to be in. 0045 1 COMMISSIONER LOWE: And it's obviously a 2 very important -- whoever decides, it's going to make a 3 big difference to a lot of folks. So, Alfonso, do we 4 have a handle as far as the number of -- actual number 5 of grandfathered licenses that are out there; actual 6 number? 7 MR. ROYAL: There's approximately 200 of 8 those licensees, with about 50 of those in 9 administrative hold. 10 COMMISSIONER LOWE: Okay. So those have 11 been transferred. Do corporate -- how many of those 12 have been transferred to corporations or do we keep 13 track of that, using that vehicle? Do you know? 14 MR. ROYAL: I don't have that 15 information available right now, Commissioner. 16 COMMISSIONER LOWE: But it's happening? 17 MR. ROYAL: Yes, it is. 18 COMMISSIONER LOWE: Using a corporate 19 vehicle as opposed to a licensee being an individual 20 person; they pass that license by virtue of a corporate 21 entity? 22 MR. ROYAL: Correct. There are 23 corporations that transfer those licenses; there have 24 been individuals that have transferred those licenses 25 over the years. 0046 1 COMMISSIONER LOWE: And to transfer 2 that, they had to get our permission; is that correct? 3 MR. ROYAL: That's correct. 4 COMMISSIONER LOWE: So that we can't -- 5 they can't just do it in documents and it has to be -- 6 they have to get some sort of permission or a permit or 7 what -- how do we -- 8 MR. ROYAL: The vehicle is in an 9 amendment that we would process and that way we can 10 properly register the information in the bingo 11 management system. 12 COMMISSIONER LOWE: Okay. So. How many 13 -- as of now, how many pending requests do we have, as 14 far as some -- they're trying to transfer it, we're -- 15 we have to give approval? How many are in that state? 16 MR. ROYAL: I believe I'm in possession 17 of maybe three licenses at this -- three transfer 18 requests at this point in time. 19 COMMISSIONER LOWE: And it's real 20 important to those people, right? I'm assuming. 21 MR. ROYAL: Yes, sir. 22 COMMISSIONER LOWE: And are you going to 23 -- as of now, are you going to let those three go 24 through or are you -- do you need us to say -- or 25 somebody to say go ahead? 0047 1 MR. ROYAL: There's not been a change, 2 that's part of the discussion today, sir. 3 COMMISSIONER LOWE: So you're going to 4 go ahead and approve the three as far as -- assuming -- 5 MR. ROYAL: We'll process -- 6 COMMISSIONER LOWE: -- they meet all the 7 -- 8 MR. ROYAL: We'll process those in 9 accordance with the practice that has -- 10 COMMISSIONER LOWE: Right. 11 MR. ROYAL: -- previously been in place. 12 COMMISSIONER LOWE: Okay. And I think 13 you indicated, there's 50 on administrative hold. Just 14 for the benefit of the Commissioners that don't deal 15 with this, what does that mean on administrative hold? 16 MR. ROYAL: Administrative hold is they 17 actively have a license, but they are not currently 18 leasing to anyone. There is no bingo being played at 19 those locations. They don't lease to anyone. So 20 there's no rent being paid. They just -- they are 21 holding the license. 22 COMMISSIONER LOWE: Okay. All right. 23 So, for the benefit of the folks here that are 24 interested, and I know that this is an important 25 decision, and the Commission, Alfonso and Bob brought 0048 1 this to my attention, I guess, about a month and a half 2 ago, maybe two months, that sound about right? 3 MR. ROYAL: Yes. 4 COMMISSIONER LOWE: And I said, well, 5 that's kind of a problem. And I'm -- my thought is 6 that, as opposed to us churning through it and winding 7 up in court, which we could wind up in court if we make 8 -- if we say no more, let's let the Attorney General 9 take a shot at this. Let's -- they've got a few more 10 lawyers than we do and that's their job is to -- if an 11 agency or elected official says I'm in a spot where or 12 I need some help making a decision, will you give me 13 some advice. And so I asked -- I instructed Bob to 14 start a draft letter to the Attorney General asking 15 questions -- a question about whether those -- what 16 should we do? Is this legal, even though it's been 17 happening? 18 Just because we've been doing it, if 19 we've been doing it wrong for 20 years, that doesn't 20 mean it's right. So, we are going to ask if it's -- if 21 those licensees can in fact be -- those grandfathered 22 licenses can be transferred using the corporate vehicle 23 or whatever artificial entity that they decide to use. 24 And then, depending on the answer to that question, 25 what do we do with the -- what do we do with these that 0049 1 have already transferred? What do we do? 2 And so, I don't want to make the wrong 3 decision. I just -- I think this is an important thing 4 and so, Chairman, you are the designated person to 5 request AG opinions, but, I would like to have the 6 Commission take action as a whole so that they would 7 recognize -- everybody recognizes that this is an 8 important issue, so, that's my -- I would -- if you 9 would take that into consideration, a motion to do 10 that, I would move that we get the Attorney General's 11 opinion. 12 I think Bob has got a draft already to 13 go and we're going to supply that as soon as it is in 14 final form to all the interested parties and -- so that 15 you guys can have your chance to comment, because you 16 can write a response or submit information to the 17 Attorney General as well. So I would make that motion, 18 Chairman. 19 CHAIRMAN KRAUSE: With that motion 20 pending, before I ask for a second, I do have a witness 21 affirmation form on a person that wanted to chat about 22 this if, and it says, "Depends on the discussion. 23 Might not speak." Ms. Kiplin? 24 While Ms. Kiplin makes her way to the 25 microphone, I would like to point out that Ms. Kiplin 0050 1 is held in high regard here by the Commission. She was 2 our general counsel for many years, so I never miss an 3 opportunity to point that out. 4 MS. KIPLIN: Well, I -- 5 CHAIRMAN KRAUSE: She has got special 6 influence with us. 7 MS. KIPLIN: Well, Mr. Chairman, I 8 really appreciate those comments. 9 For the record, my name is Kimberly 10 Kiplin. I'm an attorney here in Austin. 11 I'm here today actually for the 12 Department of Texas-Veterans of Foreign War. And I 13 will say -- I'm not going to belabor the point and I 14 appreciate the discussion in terms of requesting an AG 15 opinion. I do want to make a couple of comments and, 16 just because the staff, and I have very high regard for 17 the legal division, and the general counsel, says this 18 is the correct interpretation, that doesn't necessarily 19 mean that is the correct interpretation. 20 And the fact that the agency has 21 historically interpreted it one way, that's policy, 22 that's the Commission's policy. And my position has 23 been, up until now, that if the agency wants to change 24 the policy, then it needs to go through rulemaking for 25 the purpose that you just said, Commissioner Lowe, 0051 1 notice and comment. But to have a formal proceeding. 2 So -- I'm sorry? I can see my -- 3 COMMISSIONER LOWE: We can still do 4 that. We can still do that. 5 MS. KIPLIN: You can. 6 COMMISSIONER LOWE: And I -- 7 MS. KIPLIN: You can. 8 COMMISSIONER LOWE: And I think that 9 will be fruitful, but I want to have a starting spot 10 before we go to court over something, I don't want to 11 do that or engage in a rulemaking process that, where 12 we are at loggerheads -- 13 MS. KIPLIN: Right. 14 COMMISSIONER LOWE: -- and disagreement. 15 I -- So, I appreciate your comments. 16 MS. KIPLIN: Uh-huh. 17 COMMISSIONER LOWE: But that's -- I 18 think we can still -- we can still do that, whatever 19 happens, whatever way. 20 MS. KIPLIN: Well, and I appreciate 21 that. 22 COMMISSIONER LOWE: Because there needs 23 to be -- this is the rule. 24 MS. KIPLIN: Yeah. 25 COMMISSIONER LOWE: It's not just 0052 1 dependent on the four people that are -- 2 MS. KIPLIN: Uh-huh. 3 COMMISSIONER LOWE: -- or five people 4 that are on this Commission or who's the general 5 counsel. 6 MS. KIPLIN: Right. And I appreciate 7 that in terms of looking to an AG opinion on this 8 matter and giving people an opportunity to brief it and 9 then perhaps undertake rulemaking after that. 10 A couple of points I do want to make, 11 though. The idea that you can just -- you can have a 12 corporation and then change ownership and that's going 13 to be the vehicle going forward, that may be for some 14 folks, but for VFWs, American Legion's, I think there 15 are Columbus Clubs, they're not in a position of 16 changing ownership and they do hold grandfathered 17 lessor licenses. 18 And up until this issue arose through a 19 Director's message, they had a value attached to that 20 license in being able to transfer it. And I may have 21 gotten this wrong so I want you to know that in terms 22 of where you come down. We're not just affecting an 23 individual who holds a license, but we're affecting 24 these VFW posts and the American Legion. 25 With regard to the change of ownership, 0053 1 that's not an approval process by the Commission. So I 2 may have misunderstood that dialogue. Ownership 3 changes, so for example, I own a corporation, I sell 4 you all my shares, that's a notice of a change of 5 ownership. And of course, you have to meet the 6 eligibility criteria as that owner to be able to 7 continue the license eligibility. 8 So those are my comments. Like I said, 9 I don't want to belabor it, but I want to get that on 10 the record. 11 CHAIRMAN KRAUSE: All right. 12 MS. KIPLIN: And happy to answer any 13 questions. 14 CHAIRMAN KRAUSE: Questions? No 15 questions. Thank you. 16 MS. KIPLIN: Thank you. 17 MR. BIARD: Mr. Chairman, before you -- 18 CHAIRMAN KRAUSE: Thank you, ma'am. 19 MR. BIARD: For the record, I'm Bob 20 Biard, General Counsel. 21 If you choose to request an opinion as 22 has been said, interested members of the industry would 23 have an opportunity to submit their arguments and bring 24 -- 25 CHAIRMAN KRAUSE: Yes. 0054 1 MR. BIARD: -- it to the AG for 2 consideration, and we would specifically copy the 3 request to Mr. Bresnen, Mr. Fenoglio, Will Martin and 4 Kim Kiplin, and they, and any other interested persons, 5 will have an opportunity to brief the issue for the 6 Attorney General's office, and we would expect an 7 opinion to be issued within 180 days, which would set 8 us in June 2018. 9 CHAIRMAN KRAUSE: Commissioner 10 Candelaria? 11 COMMISSIONER ARRIETA-CANDELARIA: Yes, I 12 have a -- just a quick question for Mr. Royal. So, 13 with regards to the 200 licenses, are these individual 14 -- these are individuals that hold these licenses, not 15 corporations? 16 MR. ROYAL: Commissioner, it's a 17 combination of individuals, corporations, LLCs; it 18 varies. 19 COMMISSIONER ARRIETA-CANDELARIA: So -- 20 okay. So, with regards to the corporations, have -- 21 did they originally start as an individual license and 22 then went to a corporation over this 20-year period of 23 time? 24 MR. ROYAL: We'd have to go back and 25 look at those. I don't know the specifics of the 0055 1 transfer history of a number of those. 2 COMMISSIONER ARRIETA-CANDELARIA: I'm 3 just asking to the Commissioner's point with regards 4 to, you know, if we were asked to go back or, you know, 5 to go back and rescind that transfer, how would -- you 6 know, I just wanted to get how many licenses we were 7 talking about here. 8 So, most of the individuals, the 9 licenses, do you know how long -- how many have been 10 transferred once or twice or how they -- 11 MR. ROYAL: There have been 79 transfers 12 over the course that have taken place thus far we've 13 traced back to. 14 COMMISSIONER ARRIETA-CANDELARIA: Okay. 15 So, there's been 79 transfers that have occurred over 16 this last 20-year period? 17 MR. ROYAL: Correct. 18 COMMISSIONER ARRIETA-CANDELARIA: Okay. 19 And I think to Kimberly's point, with regards to the 20 value, I -- you know, I think that that is probably 21 something that we need to make sure that we take into 22 consideration. There is value holding those licenses 23 and if we were to take that away, then they could lose 24 their value. 25 Do you not agree? 0056 1 MR. ROYAL: I would -- I agree. 2 COMMISSIONER ARRIETA-CANDELARIA: I 3 agree with the Commissioner. I think it's important to 4 get that opinion. So if you're looking for a second, 5 Mr. Chairman, I would second that. 6 CHAIRMAN KRAUSE: All right. So, just 7 to remind ourselves that what we've got on the floor is 8 a motion to -- for me to request an Attorney General's 9 opinion on transferability with grandfathered lessor 10 licenses and I'll call for a vote. 11 All in favor say aye. 12 (Chorus of "ayes") 13 CHAIRMAN KRAUSE: I would be asking the 14 Attorney General for his opinion before and so that we 15 have it in hand when we begin the notice of comment on 16 the rulemaking. 17 At this point, we're going to take a 18 couple of items out of order and the primary reason is, 19 is that there are folks here that would like to be able 20 to comment. Since you came from distant places to make 21 a comment, we appreciate that and we're going to show 22 you our appreciation by taking Items 13 and 14 out of 23 order. 24 And so we're going to hear Mr. Alfonso 25 Royal's financial report on the Bingo Division and then 0057 1 his report from the Bingo Director and on those items, 2 we have comments. 3 So, Mr. Royal, please take it away. 4 AGENDA ITEM XIII 5 MR. ROYAL: Chairman, Item 13 will 6 actually be by Desira Glenn. 7 MS. GLENN: Good morning, Mr. Chairman, 8 Commissioners. For the record, it's Desira Glenn, the 9 manager of the Charitable Bingo Operations Division. 10 Before you is the bingo financial 11 presentation on the third calendar quarter for 2017. 12 Please note that this information covers July through 13 September 2017 and the data is as of November 9th, 14 2017. 15 In the third quarter of 2017, gross 16 receipts were approximately 191-million. Prizes 17 awarded were approximately 146.5-million. Adjusted 18 gross receipts were just over 44.4-million. Rent was 19 just under 12-million. Cost of goods was approximately 20 8-million. Other expenses were nearly 18-million. And 21 charitable distributions equaled approximately 22 $7,366,615. 23 Also exhibited are figures for those 24 same categories for the third quarters of 2014 through 25 2016, and there are five points that I will emphasize. 0058 1 COMMISSIONER LOWE: Can I interrupt you 2 real quick? 3 MS. GLENN: Yes. 4 COMMISSIONER LOWE: Steve, the error 5 that you're pointing at, is that on this page? 6 MR. BRESNEN: Yes, sir. On the left 7 hand under 2014, third quarter prizes awarded -- 8 MS. GLENN: Yes. 9 MR. BRESNEN: -- you'll notice that's 10 significantly -- it's only half of the gross receipts 11 and it's significantly less than the comparable 12 quarters -- 13 COMMISSIONER LOWE: Okay. 14 MR. BRESNEN: -- for the next years. 15 COMMISSIONER LOWE: So that's -- 16 MR. BRESNEN: I mean, I'm sure there's 17 an explanation for it, it just stood out to me. 18 COMMISSIONER LOWE: Well, the number 19 jumps out. It's -- the other years are half of what 20 that number -- 89,000 -- so that probably is -- should 21 be in the 40s, I'm guessing. It wouldn't be that 22 dramatic of an increase year over year, but -- 23 MS. GLENN: So this number is only 24 applicable to the third quarter, and it's not all of 25 2014, just that specific quarter of 2014. I do have 0059 1 the supporting documentation to show that number. 2 Again, this is self-reported by the licensees. 3 It -- this was reviewed by Kathy Pyka 4 and she asked me that same question, and I provided 5 that supporting documentation and showed her that 6 number. 7 COMMISSIONER ARRIETA-CANDELARIA: Let me 8 ask a question. Was there a legislative change 9 perhaps? 10 MR. ROYAL: There was no legislative 11 changes, Commissioner. 12 COMMISSIONER ARRIETA-CANDELARIA: Okay. 13 COMMISSIONER LOWE: Go ahead, I'm sorry. 14 MS. GLENN: Certainly, no problem. 15 COMMISSIONER LOWE: I see Steve's issue 16 with it. It jumps out at you. 17 COMMISSIONER ARRIETA-CANDELARIA: Well, 18 but even -- but the math doesn't work either on this 19 one. Out of the rent, cost of goods sold, expenses, 20 the distribution, they they don't add up to that 89 21 like the other ones all add up to the AGR. 22 COMMISSIONER LOWE: Yeah, you have to -- 23 you add those four to (inaudible) -- 24 COMMISSIONER ARRIETA-CANDELARIA: 25 There's something missing. 0060 1 MS. GLENN: And I will go through that. 2 COMMISSIONER LOWE: And I'm not trying 3 to be critical. 4 MS. GLENN: Uh-huh. 5 COMMISSIONER LOWE: I'm just trying to 6 figure out whether where -- if there's an error. And 7 I'm sorry, go ahead. You're doing a good job. 8 MS. GLENN: Yeah and -- 9 CHAIRMAN KRAUSE: Keep going. 10 MS. GLENN: -- that's as reported. And 11 it is old, as of 2014, but it is as reported at that 12 time. But I'll continue. 13 Compared to 2014, adjusted gross 14 receipts have decreased by more than $45-million. This 15 is due to an increase in prizes awarded to bingo 16 players. The prize amount that is awarded to the 17 winners of bingo games is set by the organizations that 18 conduct the bingo occasions. 19 The -- oops, excuse me. The cost of 20 goods sold has decreased by over $184,000 compared to 21 2014. Therefore, our licensed charities are spending 22 less money purchasing bingo product. However, rent has 23 increased by more than $1.8-million. 24 There was roughly 127 more licensed 25 conductors in the third quarter of 2017 compared to 0061 1 2014. Consequently, for each additional licensee in 2 2017, there was approximately a $14,100 increase to 3 overall rent in the third quarter. Not including rent 4 and cost of goods sold, all other expenses decreased by 5 more than $500,000 in the third quarter of 2017 6 compared to 2015. 7 And finally, the third quarter of 2017 8 saw an approximate increase of $1.5-million over 2014, 9 and $308,000 over 2015 for charitable distributions. 10 The percent change from 2016 to 2017 is 11 presented on this slide. The largest increase is to 12 rent at 4.36 percent, and the largest decrease is to 13 expenses that do not include rent and cost of goods 14 sold, at 1.19 percent. 15 This pie chart shows charitable 16 distributions, expenses, cost of goods sold, rent, and 17 the prizes awarded as a percentage of gross receipts. 18 Prizes awarded for bingo players was the largest at 76 19 percent, and the cost of goods sold and charitable 20 distributions were the smallest at approximately 4 21 percent each. This is consistent with the figures 22 presented in the 2016 annual report. 23 This is the operational side of bingo. 24 It is a look at the pool of money that remains after 25 prizes have been awarded. It does not include the 0062 1 prize fees collected from the winning players of bingo 2 games because prize fees are not a bingo charity 3 expense. It is a fee on the winnings of the bingo 4 players. 5 However, this slide does show charitable 6 distributions, expenses, cost of goods sold, and rent 7 as a percentage of adjusted gross receipts. Again, 8 adjusted gross receipts equals gross receipts minus 9 prizes awarded. 10 Here, expenses that do not include rent 11 and cost of goods sold is the largest at 39 percent, 12 and charitable distributions is the smallest at 16 13 percent. 14 I believe the presentation from the 15 bingo industry mentioned the showing of adjusted gross 16 receipts in relation to expenses during the October 17 meeting and again today. The purpose of this final 18 slide is to serve that request. Exhibited is 19 information that will be included in the 2017 annual 20 report under the Charitable Bingo Act Section 2001.060 21 reporting. 22 As shown on the slide, net proceeds for 23 the third quarter is negative and totals approximately 24 $693,000. Please remember that this information is 25 only applicable to the third calendar quarter of 2017. 0063 1 With that, my report is concluded, and 2 I'm happy to answer any questions. Thank you. 3 COMMISSIONER LOWE: So here's what -- 4 and if I'm wrong, I'm sure you'll tell me, because I 5 need to be told. But it looks like that net proceeds, 6 the -- is it -- that saying that for all the Charitable 7 Bingos in this state that we're looking at, that that 8 number, they've lost that much money, or they're in the 9 hole? 10 MS. GLENN: All right. That is the net. 11 All the quarterly reports that we have received as of 12 November 9th, all the quarterly reports that we 13 received, that is the net. For the conductors. 14 COMMISSIONER LOWE: Well, that's a 15 little troubling. 16 MR. ROYAL: Commissioner, let me clarify 17 that a little bit. That is the adjusted gross 18 receipts. The gross receipts less prizes paid to 19 players gives you the adjusted gross receipts. 20 So the net proceeds, the negative 21 amount, yes, they did spend more than they actually had 22 available. They used those -- when Mr. Bresnen 23 mentioned earlier that working capital that's in those 24 bank accounts, they have working capital that they are 25 able to spend from which that shows there. But at the 0064 1 end of the day, when you look at the sales and revenues 2 and expenses, that is the number that -- the 3 calculation that is what it shows. So whether or not 4 organizations have gone negative in their bank 5 accounts, we don't know that at this point. 6 COMMISSIONER LOWE: Right. 7 MR. ROYAL: Desira and her team are 8 looking. But just as a whole, when we look at adjusted 9 gross receipts less the expenses that are paid, that is 10 the calculation, that (inaudible). 11 COMMISSIONER LOWE: So how did you 12 arrive at that? Did you take each report, make a 13 spreadsheet and add it up, is that how you did it? Or 14 -- 15 MS. GLENN: Yes. 16 COMMISSIONER LOWE: -- do you have some 17 -- 18 MS. GLENN: Yes. We have a report that 19 we run that pulls every quarterly report that has been 20 submitted for licensed conductors and those that 21 operate as an accounting unit. 22 COMMISSIONER LOWE: And that's not a 23 year-over-year change. That's a known. 24 MS. GLENN: Right. That's for the 25 quarter, just for the third quarter of '17. 0065 1 COMMISSIONER LOWE: Right. 2 MS. GLENN: It's not year to date. 3 COMMISSIONER LOWE: Okay. And then 4 Steve's point, if -- can you back up to that pie chart 5 that shows gross income, that -- I think, Steve, that's 6 kind of -- that's the report. That's how you'd like to 7 see it, right? Could Steve come back here? 8 MR. BRESNEN: I'm sorry, yes, sir? 9 COMMISSIONER LOWE: That's kind of -- 10 that's what you would like us to focus on, right -- or 11 the Legislature -- that pie chart? 12 MR. BRESNEN: Sorry about that. Yes, 13 sir, except -- can you hear me? 14 COMMISSIONER LOWE: Yes. 15 MR. BRESNEN: This pie chart does not 16 include the words "net proceeds." It's charitable 17 distributions. 18 By the way, that term does not appear in 19 the Bingo Enabling Act. I understand it may be in the 20 administrative rules, but it should say net proceeds. 21 On the next item, if you -- would you go 22 to the next one? Does the total expenses in this 23 chart include the rent? 24 MS. GLENN: Yes, it does. 25 MR. BRESNEN: Well, why isn't 44-million 0066 1 in gross receipt -- in adjusted gross receipts minus 2 38-million in total expenses, why isn't that $6-million 3 and some change in net proceeds? Am I missing 4 something? 5 MS. GLENN: No. So if you actually look 6 at the quarterly report data. 7 MR. BRESNEN: I'm just looking at the 8 chart. 9 MS. GLENN: Yes, yes. 10 MR. BRESNEN: 44 minus 38 is 6. Am I -- 11 do you understand my -- I mean, I'm not -- look, these 12 people work with these numbers all day long and I 13 don't. I'm a policy guy. 14 But if we're going to get on the same 15 page about reporting and our terminology, a non-math 16 oriented person like me is going to have -- needs to 17 understand that chart. And it looks to me like there 18 might be a decimal point missing or a comma or 19 something, because it looks to me like 44 minus 38 is 20 6-million. I don’t want to take your morning up 21 arguing about the math, but it just doesn't look right 22 to me. 23 COMMISSIONER LOWE: I get that. 24 MS. GLENN: Uh-huh. 25 COMMISSIONER LOWE: Back to the slide, 0067 1 though, other than saying that's net proceeds -- that's 2 how you'd like to see that chart? 3 MR. BRESNEN: If you'll -- would you 4 back up to it, Ms. Glenn? Thank you. 5 MS. GLENN: Yes. 6 COMMISSIONER LOWE: Because the 7 charitable distributions would actually be less, right? 8 MR. BRESNEN: Well, not necessarily 9 because -- 10 COMMISSIONER LOWE: Right, depends on 11 how they -- 12 MR. BRESNEN: People have -- they have 13 money in their accounts. 14 COMMISSIONER LOWE: Right. 15 MR. BRESNEN: Let me give you a real- 16 life example. All right? Kids go to school -- to 17 college in the fall. So if these folks are giving away 18 scholarships to the sons and daughters of service 19 people who have been killed in action, they're not 20 giving it to them in June, maybe, they might be doing 21 it in the next quarter, and they've got money that's 22 been retained, and it's up to their working capital. 23 Or they may have taken some of that money out of their 24 bingo account, put it in their general fund, that would 25 be a distribution. Or they could have money and they 0068 1 could say, we've got $48,000 in our working capital, we 2 could go to 50, or we could take 5,000 out and write it 3 in a scholarship check for this young person, and they 4 would do that. 5 Now, that's going to show up as a 6 distribution, and presumably it would come out of the 7 bingo account into the general fund and so forth. But 8 that's how you can get lost in the weeds on this, and 9 we just keep saying -- the Legislature has said what 10 the terminology to be reported is. And we would just 11 request that we do that so we're all at least talking 12 about the same thing. 13 COMMISSIONER LOWE: Okay. 14 MR. BRESNEN: I see two places where I 15 personally don't understand the math. On the chart 16 with the 92-million, the prize payout on a statewide 17 basis for an entire three months would have had to drop 18 to 50 percent when it's historically -- you see these 19 other quarters, it's running 75 percent. 20 COMMISSIONER LOWE: Go back to the 21 previous one. 22 MS. GLENN: Which -- I'm sorry, up or 23 down? 24 MR. BRESNEN: The one with the 92- 25 million. Is that what you're -- 0069 1 MS. GLENN: Which way; up? 2 COMMISSIONER LOWE: So, I'm -- 3 MR. BRESNEN: One more. 4 COMMISSIONER LOWE: I'm -- 5 MR. BRESNEN: There you go. 6 COMMISSIONER LOWE: I'm one of those 7 keep it simple -- I'm the stupid you're talking to, so 8 -- 9 MS. GLENN: I can fill this -- 10 MR. BRESNEN: Well, in that case -- 11 MS. GLENN: -- what -- 12 MR. BRESNEN: I apologize. 13 CHAIRMAN KRAUSE: Nonsense. We don't 14 believe it. 15 COMMISSIONER LOWE: If you add the four 16 -- you should be able to add the last four cells 17 together and it should equal adjusted gross receipts. 18 MS. GLENN: So what you're missing is 19 you do not see -- and I've pulled up the quarterly 20 reporting of, everyone who files a quarterly report is 21 familiar with Form 9068. 22 So you're not seeing the prizes awarded. 23 That comes out -- not the prizes awarded, but the prize 24 fees, the actual prize fees that are paid. So when you 25 have your net proceeds, and again, I'm -- I have the 0070 1 report right in front of me so I'm able to look at it, 2 but you're taking basically what you're netting and 3 you're subtracting out your total expense payments, 4 which includes rent and cost of goods sold, and you're 5 -- also, you're subtracting out the prize fees. And 6 that is the paid -- minus the net of the paid and 7 what's been collected. That comes out in your net 8 proceeds calculation. 9 COMMISSIONER LOWE: Okay. But my point 10 is, is that you -- 11 MS. GLENN: So you can't -- you don't 12 see that here. 13 COMMISSIONER LOWE: But it's intended to 14 be a spreadsheet which I thought that was the intent, 15 right? 16 MS. GLENN: Uh-huh. 17 COMMISSIONER LOWE: It's supposed to be 18 a spreadsheet, and the numbers have to all add up. And 19 the numbers don't add up because the last four columns 20 don't equal adjusted gross receipts. 21 MS. GLENN: No. So this wasn't to show 22 a summation, it was to pinpoint these specific items 23 because they come up regularly in discussion; 24 charitable distributions, what's going on with the 25 charity regularly comes up in discussion. What is the 0071 1 adjusted gross receipts? That regularly comes up in 2 discussion. 3 So -- and, of course, rent and expenses 4 regularly come up in discussion. So that other item 5 hasn't come up, and now it has, so I will be sure to 6 include that in the next report. 7 CHAIRMAN KRAUSE: Before we go on, I 8 just want to make -- get a clarification. Ms. Glenn, 9 are you finished with your report? 10 MS. GLENN: I am. 11 CHAIRMAN KRAUSE: Okay. So, we're just 12 in the question phase. So, Commissioner Candelaria? 13 COMMISSIONER ARRIETA-CANDELARIA: Yeah. 14 So, just to -- so I'm clear, because I hear what you're 15 saying and I agree with Commissioner Lowe's point. So 16 this particular slide, if you were to take rent, cost 17 of goods sold, and expenses, that get you to 38,079,000 18 on the other slide, right? 19 MS. GLENN: I'm sorry, on -- are you 20 looking at seventeen three? 21 COMMISSIONER ARRIETA-CANDELARIA: Right 22 here on -- yeah, seventeen three. 23 MS. GLENN: Uh-huh. 24 COMMISSIONER ARRIETA-CANDELARIA: if you 25 take 11.9, 8.2, 17.9, that gives you 38,079,000 that's 0072 1 reported on the other slide. 2 MS. GLENN: Uh-huh. 3 COMMISSIONER ARRIETA-CANDELARIA: So 4 that's how you get the three -- 5 MS. GLENN: Correct. 6 COMMISSIONER ARRIETA-CANDELARIA: -- the 7 38 million. 8 I think to Mr. Bresnen's point, what I 9 understand from you now is that those four numbers here 10 don't add up to the 44.4 because it excludes the prize 11 fees that we've paid out -- 12 MS. GLENN: Right. It excludes that -- 13 that line item. 14 COMMISSIONER ARRIETA-CANDELARIA: -- 15 that are included in the prizes awarded or not 16 included? 17 MS. GLENN: Not -- no, not included in 18 the prizes awarded, because that goes to the bingo 19 winners. 20 COMMISSIONER ARRIETA-CANDELARIA: Okay. 21 So, on the net proceeds, the $7.3-million is the actual 22 amount that went out to the charitable distributions, 23 correct? 24 MS. GLENN: Of the net proceeds? So, 25 the charitable distributions, that's not a calculation 0073 1 -- that's not calculated as in the line item to get to 2 net proceeds. Charitable distributions are after net 3 proceeds. 4 COMMISSIONER ARRIETA-CANDELARIA: Okay. 5 So, we're saying here that on the net proceeds 6 definition is that's the amount that we did not take 7 enough AGR in, in order to support all the expenses 8 plus the charitable distributions given. Is that the 9 definition of net proceeds? 10 MS. GLENN: No. 11 MR. ROYAL: Commissioner, the charitable 12 distributions are calculated based on the previous 13 quarter. That won't even add up in the calculation. 14 MS. GLENN: Right. It's separate. 15 COMMISSIONER ARRIETA-CANDELARIA: Okay. 16 MR. BRESNEN: The answer to your 17 question is no. 18 COMMISSIONER ARRIETA-CANDELARIA: They 19 just don't add up? 20 MS. GLENN: No. 21 MR. BRESNEN: Adjusted gross receipts is 22 gross minus prizes. Net proceeds is adjusted gross 23 receipts minus all expenses. 24 And I think -- Desira, would you back up 25 just one more again? I don't want to go crazy about 0074 1 this -- but I think if you'll look, this $89-million 2 number in the third quarter of '14, if you take that 3 back and normalize it with -- relative to the future 4 three-quarters from there, you're going to find that 5 that difference probably needs to be up in the prizes 6 awarded category and it might just be a reporting 7 error. 8 That's the only way to make that make 9 sense because the others, look how similar they are. 10 By the way, this is -- I'm told by my friends who 11 actually conduct bingo, that this is the worst quarter 12 of the year -- the third quarter is the worst quarter 13 of the year for bingo. 14 Anyway, I don't want to take any more of 15 your time. We'll work with staff on that and hopefully 16 in the future maybe we can arrive at an agreement about 17 what's a good way to do it. 18 CHAIRMAN KRAUSE: Thank you, Mr. 19 Bresnen. 20 MR. BRESNEN: All right. Thanks. 21 CHAIRMAN KRAUSE: My question for the -- 22 Mr. Fenoglio is, is that did Mr. Bresnen cover your 23 testimony? 24 MR. FENOGLIO: Yes. And the point is 25 the third quarter is absolutely the worst; it always 0075 1 is. And I would caution against trying to draw any 2 conclusions on just one quarter unless you're a bean 3 counter on Wall Street where quarters matter. So, but 4 it -- it's really irrelevant because it -- it doesn't 5 surprise me that in the third quarter statewide, you're 6 negative. 7 COMMISSIONER LOWE: Well, and I think 8 part of it, I think Steve did a good job in terms of 9 where I'm confused is the difference between charitable 10 distributions, the scholarships versus how much money 11 did we make this month playing bingo -- or selling 12 bingo. And that's it, too. 13 MR. ROYAL: Commissioner, if I could 14 make one comment on that, as well, as to Mr. Fenoglio's 15 point, let us not forget that during the month of 16 August, Hurricane Harvey did have an impact on bingo 17 operations. So the tail of the tape is still out on 18 that, as well. 19 CHAIRMAN KRAUSE: Undoubtedly. 20 AGENDA ITEM XIV 21 CHAIRMAN KRAUSE: Well, as a matter of 22 fact, you have the next item, Agenda Item 14. It's -- 23 anything you want to say else about that, then you're 24 welcome to right here. 25 MR. ROYAL: Chairman, nothing further. 0076 1 Brevity. 2 CHAIRMAN KRAUSE: Oh my goodness. Well, 3 thank you for that brief report. We admire brevity 4 around here and so in continuing that theme, I've got 5 three witness affirmation reports -- forms here for 6 Will Martin, Tom Stewart, and Eddie Heinemeier. And 7 so, do they still want to speak? 8 UNIDENTIFIED VOICE: Yes. 9 CHAIRMAN KRAUSE: Okay. Well, we're 10 going to start off with the person who drove the 11 furthest. And I understand that Victoria is four hours 12 away, Dallas is three hours away, and San Antonio is 13 one hour away, and so we're going to start with Will 14 Martin. 15 UNIDENTIFIED VOICE: Whoop whoop. 16 CHAIRMAN KRAUSE: And we love brevity. 17 Even though we have not been blessed with it a whole 18 lot this meeting. 19 MR. MARTIN: Good morning, 20 Commissioners. Let me start by thanking you for the 21 opportunity to speak. My name is Will Martin and it's 22 two and a half hours to Victoria. 23 CHAIRMAN KRAUSE: Oh well, I should have 24 let the Dallas half go first. 25 MR. MARTIN: I wear many hats for The 0077 1 American Legion. My main one is chairman of the 2 legislative commission for the State of Texas. I'm 3 also co-executive director for Conservative Texans for 4 Charitable Bingo. 5 This morning, I come before you with 6 some serious concerns about your Charitable Bingo 7 Division and its regulatory activities that are 8 negatively impacting charities and their beneficiaries. 9 With me today are charities and 10 individuals involved in Charitable Bingo. They are 11 veterans who have honorably served our country and 12 veterans organizations who support our veterans and 13 their families. They are charities that focus on 14 supporting citizens with disabilities. They are the 15 citizens with special needs that are supported by 16 Charitable Bingo, and these are just a few examples of 17 the Texas face of Charitable Bingo. 18 These are the people impacted by the 19 unreasonable regulatory actions of the Bingo Division. 20 Under the Division's regulatory oversight, the number 21 of Veterans organizations participating in Charitable 22 Bingo has declined significantly, by as much as 58 23 percent over the last 10 years. And the number of 24 charities conducting bingo continue to decline. Now, 25 there are only about 1,000 charities conducting bingo. 0078 1 Charitable bingo was created by the 2 voters of this State to help the veterans organizations 3 and other non-profits that do such great things with 4 the monies raised by Charitable Bingo. 5 I want to focus on a few concerns that 6 have bubbled up to the top, but by no means are these 7 the only concerns we have. The Division audits the 8 charities for compliance with the statutes and rules. 9 These audits seem to never end, some lasting for eight 10 months or longer. 11 During the audits, the charities do not 12 get feedback from the auditors on violations that, had 13 the charities gotten feedback, they could have 14 corrected. 15 These charities want to comply. They 16 want timely feedback. They can't get it. These audits 17 take charities' time and resources to gather all the 18 documents for the auditors, to respond to their 19 questions, and to respond to the many requests for 20 additional supporting documentation. These audits take 21 a lot of the Division's resources and it seems that 22 most of the audits result in nit-picky findings with 23 monetary fines that are excessive when compared to the 24 nature of the nit-picky findings. 25 When the Division imposes these fines, 0079 1 the result is that there is less money available to 2 support the good causes of the charities, like paying 3 for food, shelter, and clothing for needy Texans. 4 Charities want to comply with these statutes and rules. 5 They do make honest mistakes, but they shouldn't be 6 fined in amounts that are not just unreasonable -- or 7 that are [sic] reasonable when compared to the 8 violations. 9 An example for you is a VFW post that 10 made a mistake and paid 25 cents too much in one of 11 their sessions. That post was fined $500. Now the 12 Division is fining bingo workers for nit-picky 13 violations. These folks are shift workers who don't 14 make much money per hour to begin with, and they can't 15 afford to pay these fines. It will be hard for a 16 charity to find anyone who will want to be a worker if 17 they risk getting fined. The perception is that the 18 charities and their workers are treated like criminals 19 by the Bingo Division. 20 I want you to look at these folks in 21 this room who are involved in Charitable Bingo. They 22 aren't criminals and they shouldn't be targeted as 23 criminals. You should know that the Division tries to 24 strong-arm licensees and bingo workers into settling 25 enforcement matters through agreed orders by telling 0080 1 them if they don't agree to certain conditions or 2 requirements, the Division will go to a hearing and 3 revoke their license. 4 The licensees and workers have to pay 5 for a lawyer or go to a hearing self-represented. If 6 they prevail, they can't get their legal fees 7 reimbursed by the Division. Many licensees end up 8 agreeing because they can't afford to go to a hearing, 9 and that is not fair. 10 The Division holds people accountable, 11 but who holds the Division accountable when they make 12 mistakes that impact the charities? 13 An example is a mistake that cost an 14 organization $11,515 when the Division didn't timely 15 issue temporary license, event though the applications 16 were timely filed. The Director's comment was, sorry, 17 we all make mistakes. 18 CHAIRMAN KRAUSE: Mr. Martin? 19 MR. MARTIN: Yes. 20 CHAIRMAN KRAUSE: I want to thank you 21 for coming up here. I'm going to have to leave the 22 meeting, and Commissioner Rivera's going to take over 23 acting chairman duties. And so I was looking for an 24 opportunity to be able to -- maybe between your 25 testimony and the next person's testimony, but it 0081 1 doesn't look like that's going to happen. So anyway, I 2 want you to continue, but I'm going to go ahead and 3 leave the room. 4 MR. MARTIN: All right. Thank you, 5 Chairman Krause. 6 [Chairman Krause left the meeting.] 7 MR. MARTIN: The charities spend a lot 8 of time completing a bunch of paperwork for each bingo 9 occasion. That's entirely too much -- there's entirely 10 too much paperwork. I have received reports of 11 anywhere from eight to 30 pages of paperwork for each 12 bingo occasion. This includes the ridiculous rule that 13 states, all winning pull tabs must be stapled to the 14 daily cash sheet, and kept for four years. Really? 15 You know. It may not sound like a lot, but it is. 16 And then there's one mistake on all this 17 paperwork, like not initial -- initialing a column on a 18 form, then the charity gets fined for that. 19 I want to bring to your attention that 20 the required online bing -- bingo training on the 21 Division's website -- that must be completed by all 22 bingo chairpersons, designated agents, and unit 23 managers is out of date. It hasn't been updated since 24 October of 2015. 25 It shows that bingo workers must pay a 0082 1 $25 worker registry fee, and that charities have to pay 2 a 5 percent prize on prizes of $5 or less. Both 3 requirements were repealed this past legislative 4 session. Questions on the online training call for an 5 incorrect answer. The person must successfully 6 complete the training to be able to be a chairperson or 7 designated agent. They shouldn't have to pick the 8 wrong answer on the multiple-choice question, to get 9 the certificate issued to be able to show they passed 10 the test. 11 Speaking of training, the Division floor 12 personnel don't seem properly trained. An example is a 13 Division employee going into a bingo hall and seeing a 14 rack of card-minders charging, and asking, what are 15 those things? They should know what bingo equipment 16 is. 17 Another example happened to me 18 personally, when the Bingo Division's enforcement 19 attorney turned to me in an ALJ courtroom and said, I 20 quote, "The reason y'all don't make any money is y'all 21 spend it all on electronics." End quote. 22 This would be akin to telling the 23 Lottery that they would make more money if they'd quit 24 buying and selling scratch-offs. It indicates a basic 25 lack of understanding on bingo operations and what is 0083 1 involved in conducting a bingo occasion. 2 Another complaint I hear is that 3 charities can't get the Division to answer questions. 4 If a charity calls the Division to get an answer to a 5 question, they have to email the question. Why can't 6 they just have a customer service hotline so folks can 7 get immediate answers? 8 Commissioners, we need relief from the 9 Division's overreaching regulatory activity. We need 10 you to review the Division's enforcement activities, 11 and review the penalty amounts from a fairness and 12 reasonable perspective. We need relief from the never- 13 ending audits that cost charities time and money. 14 Let me tell you, I'm also a financial 15 officer at our local post in Victoria, and we have 16 three bank accounts. Every July we are audited by an 17 outsource -- outside source -- a 70-year-old-lady named 18 Ms. Chambers. She not only finishes the audit in four 19 days, but writes a quick report and mails it to the 20 post. To spend months on an audit looking for 21 nit-picky items is a waste of time and taxpayer 22 dollars, on the part of the Bingo Division. 23 We need more answers to questions asked 24 by the charities when they contact the Division, and we 25 need an ombudsman or somebody who will look out for the 0084 1 charities. We need relief. Thank you for listening 2 today. 3 COMMISSIONER RIVERA: Thank you. 4 (Pause) 5 COMMISSIONER RIVERA: Next we have Tom 6 Stewart. 7 MR. STEWART: Mr. Chairman, 8 commissioners. My name is Tom Stewart. I serve as 9 Executive Director of Texas Charity Advocates, and -- 10 and a long time ago, many exits far north on I-35, I 11 served as Public Information Officer for the Texas 12 Lottery Commission. Thank you for taking the time to 13 listen to Steve's presentation today, and for the -- 14 the other remarks that -- that you'll hear today. 15 Texas Charity Advocates was founded in 16 2005 with a singular purpose: to promote the game of 17 Charitable Bingo. And for most of the past 12 years, 18 we've done that by serving as a voice for the industry. 19 Our focus has been on making sure that charities and 20 others in the industry have a strong voice in the 21 legislative and the regulatory arenas. 22 I just want to take a brief minute today 23 to make sure you're aware of two initiatives that we 24 are undertaking over the course of the next year, and 25 these initiatives are aimed at promoting the game of 0085 1 bingo beyond that traditional focus that I just 2 mentioned. 3 At its meeting this past October, the 4 TCA Board approved investing resources in a market 5 research and analysis project. That project is 6 focused, quite simply, on how to attract more people to 7 play bingo. We have far more questions than answers at 8 this point, but we know this: 9 We know that as an industry whose 10 fundamental mission is to general revenue for 11 charitable causes, we have to take steps to grow the 12 game ourselves. In other words, we can't just rely on 13 the legislative and the regulatory changes that we've 14 traditionally sought in the past. We have to take the 15 initiative to better compete for the consumer's 16 entertainment dollar. 17 We anticipate that this initiative will 18 lead to a strategic plan that TCA will, working with 19 its members, implement within the next 12 months. 20 The second initiative is a study of the 21 economic impact Charitable Bingo has on Texas' state 22 and local economies. Steve talked a lot about numbers 23 today. This initiative is designed to take a deeper 24 dive into those numbers to better understand their 25 impact. And while it will be based on solid economics, 0086 1 it will also be designed to help put a human face on 2 those numbers. 3 Our hope is that it will help policy 4 makers, both here at the Lottery Commission and at the 5 Legislature, the respective staffs of those entities, 6 the news media, the general public, better understand 7 this unique industry and the impact that is has on 8 Texas and local economies. 9 You've been gracious with your time here 10 today. I thank you for that. I just wanted to make 11 sure that you were aware of these initiatives and the 12 work that we're doing to help this industry. 13 We'll make sure to keep you informed as 14 we go along, and I would be remiss if I didn't say -- 15 mention that December is Birthday Bingo Month, so I 16 hope that, in addition to the other celebrations that 17 you have in the month of December, you'll take time to 18 play some bingo. 19 COMMISSIONER RIVERA: Thank you very 20 much. Any questions? Thank you. All right. Next up 21 we have Eddie Heinemeier. 22 MR. HEINEMEIER: I -- in brevity, I will 23 withdraw mine. I think it's been covered. Thank you. 24 COMMISSIONER RIVERA: Okay. Thank you. 25 With that, is there any -- any thoughts on what we've 0087 1 heard? Nothing? 2 I know that the Commission very much 3 appreciates all the speakers. I know that what was 4 covered was a lot of information, and it is important 5 to us to hear from everyone here, and so we sincerely 6 appreciate your frontline progress reports on things 7 that we can do better. And clearly, there's a lot of 8 room for improvement, otherwise, we wouldn't have this 9 packed room. And so we recognize that and look forward 10 to the procedural changes that -- that need to happen. 11 Alfonso? 12 MR. ROYAL: Commissioner, if I can? 13 There have been some comments today from the industry 14 relating to the interpretation of over-regulation by 15 the Division, claims of nit-picky violations, untrained 16 staff, and I want to take a moment to respond. 17 As Director, it is an honor and a 18 privilege to lead the Charitable Bingo Operations 19 Division. Charitable bingo is an important fund- 20 raising activity for a variety of Texas non-profit 21 organizations. My goal is to ensure that bingo is 22 conducted fairly, and that the proceeds are used 23 properly. This is primarily achieved through a strong 24 dose of education and training, because it is my belief 25 that education promotes voluntary compliance with the 0088 1 rules and statutes. However, there are instances where 2 noncompliance continues, and in accordance with the 3 Act, administrative fines are within my authority and 4 exercised with care. 5 Now to suggest the use of administrative 6 fines is over-regulation, or that staff is improperly 7 trained, is absurd. In the short three-and-a-half 8 years that I’ve been Director, I have assessed 9 approximately $187,000 in fines, in comparison to my 10 predecessors for a three-year period, who assessed 11 almost a half-a-million dollars. 12 Additionally, I have required the 13 redeposits of funds back to the bingo bank accounts 14 that directly benefit charities, to the tune of 15 $228,000. Things that are important to me as Director, 16 and carried out by the actions of my staff, include: 17 Unreported sales; non-documented support; unsupported 18 expenses; unreasonable or unnecessary expenses; 19 falsifying bookkeeping entries; falsifying bingo 20 occasion reports; conducting bingo without a license; 21 awarding bingo prizes in error; negative net-proceeds; 22 negative funds in the bingo bank account; purchasing 23 bingo products from non-licensees; not tracking 24 inventory; second games of chance, sweepstakes, eight- 25 liners in the bingo hall; and circumventing prize award 0089 1 amounts, just to mention a few. 2 I find it disingenuous to report on 3 activities of myself or agency staff that are untrue. 4 During my tenure as Director, there have been several 5 enforcement cases that we’ve had before the State 6 Office of Administrative Hearings, and never has there 7 been a single reference by a judge of over-regulation. 8 In fact, all cases have resulted in positive outcomes 9 for the agency and the recommendations that we have. 10 The Division continues its desire to 11 work with organizations to improve bingo in this state, 12 but we must work together to achieve that goal. 13 Working together does not mean ignoring the rules and 14 the statutes that govern Charitable Bingo. There is an 15 ex -- there is an education section that answers 16 questions by phone and email, and on the website it 17 speaks to the current state of the bingo training 18 program being under review. It takes time to do these 19 processes. 20 As I close, I’m reminded of a meeting 21 that I had the pleasure of hosting within my first two 22 weeks on the job, and with several bingo industry 23 representatives, many of which are in here today. I 24 was asked the question, did I tell the industry that I 25 would be following the rules? I was somewhat 0090 1 surprised, and responded, I did not think not following 2 the rules was an option. 3 I think back to that meeting often, and 4 I realize that following the rules and statutes is new 5 for several folks in bingo, but it is required and the 6 Division will continue its present course unless 7 directed differently by the Commissioners and state 8 leadership. 9 I truly appreciate all of y’all for 10 attending today, the bingo folks. I appreciate the 11 work and attention given by agency staff here at the 12 Lottery Commission to Charitable Bingo. Thank you, 13 Commissioners. 14 COMMISSIONER RIVERA: Thank you for your 15 stewardship and leadership over such a complex 16 division. Doug, or -- do you have any thoughts you 17 wanted to share? 18 COMMISSIONER LOWE: You know, I 19 appreciate -- well, your remarks -- 20 UNIDENTIFIED VOICE: Do you mind turning 21 your mic on? 22 COMMISSIONER LOWE: Oh, I'm sorry. I do 23 appreciate your remarks and I guess I'm a little 24 disappointed that you -- you feel so -- that we’ve 25 treated you so grievously. There are issues that -- 0091 1 some of the things you say, I -- I -- I'd have to see 2 specific examples of before I could make a judgment on 3 it, but I -- I will tell you that we're constantly 4 trying to improve the -- our Division. And I think 5 Alfonso is moving in that direction. 6 I think our internal auditor, we're 7 pushing with procedures and trying to -- trying to push 8 things along. But this is like turning a battleship, 9 this -- you know, and so I'd ask for your patience in 10 the future. I -- I appreciate your -- I gave you my 11 phone number, my cell phone. If you've got something 12 that you really need to have happen happen, just call 13 me up. But that's -- I think that's just enough said. 14 COMMISSIONER RIVERA: Okay. Thank you. 15 MR. BRESNEN: Mr. Chairman? Mr. Kafka 16 has signed up to speak and I believe I had him do it in 17 the public comment period. Did y’all -- did you get 18 the -- deal? Anyway, we -- he ended up getting left 19 out, and -- 20 COMMISSIONER RIVERA: Yeah. 21 MR. BRESNEN: -- and he’d like to speak 22 to this. 23 COMMISSIONER RIVERA: Sure. 24 UNIDENTIFIED VOICE: Thank you. 25 COMMISSIONER RIVERA: Come on up. Or, 0092 1 sure. That -- that would be fine. 2 MR. KAFKA: Thank you, Commissioners. 3 My name is Bob Kafka. There's been a lot of discussion 4 about the benefit or -- to the charities of Charitable 5 Bingo. We're involved, and have been involved, in 6 Charitable Bingo for almost 20 years. Our organization 7 is the Institute for Disability Access, where 8 disability rights, education, and training. We've done 9 -- we -- our organization is statewide, and the 10 benefits of Charitable Bingo has allowed not only to 11 get and keep people out of institutions and be able to 12 get home care, but also has fought for accessibility in 13 public accommodations. And this is almost totally 14 because of the funds we receive from Charitable Bingo; 15 70 to 75 percent of all our income. 16 We receive somewhere around 120 to 17 140,000 per quarter for our organizations from 18 Charitable Bingo. The bingo hall we’re with, it -- 19 there’s five other charities and they get a similar 20 amount. So I just wanted to let you know that if there 21 are bad actors, I think they need to be taken out of 22 bingo, but, you know, the benefit of it I think far 23 outweighs some of the bad actors. And I think 24 accountability, transparency, and bringing those that 25 aren’t providing or distributing dollars, should be 0093 1 done. 2 But again, I know how just a few could 3 actually harm groups like us, and there are many other 4 groups around the state that are also so beneficial. 5 Maybe not as much as our bingo hall, but we have total 6 transparency. We work cooperatively. All the 7 information is available for us, and we really 8 appreciate it. 9 So as you deliberate, in terms of, you 10 know, getting bingo to be, you know, better reputation, 11 I just wanted to let you know that our group truly 12 appreciates what the bingo charitable distribution has 13 done for our group. So any questions, I’d be glad -- 14 we’re based here in Austin, but our affect is 15 statewide. 16 COMMISSIONER RIVERA: Bob, we very much 17 appreciate you coming forward. You did fill out a 18 form, and -- and just, there was some confusion on -- 19 on -- 20 MR. KAFKA: Yeah -- 21 COMMISSIONER RIVERA: -- your public 22 comment, so. 23 MR. KAFKA: -- I put public comment. I 24 didn't know you could comment on -- 25 COMMISSIONER RIVERA: Sure. 0094 1 MR. KAFKA: -- individual matters. 2 COMMISSIONER RIVERA: No worr -- we 3 would’ve gotten to you, but I’m -- 4 MR. KAFKA: Right. 5 COMMISSIONER RIVERA: -- I’m glad that 6 you -- you spoke here when you did. 7 MR. KAFKA: Okay. 8 COMMISSIONER RIVERA: So thank you very 9 much for your comments. 10 MR. KAFKA: And thank you for all your 11 work. 12 COMMISSIONER RIVERA: Thank you very 13 much. 14 MR. KAFKA: Appreciate it. 15 COMMISSIONER ARRIETA-CANDELARIA: Thank 16 you so much. 17 COMMISSIONER RIVERA: Next we have 18 Justin Logan. I’m not sure if you want to speak now or 19 in -- in public comment, but either one is -- is fine 20 with us. So now. Okay. Perfect. 21 MR. LOGAN: Mr. Chairman and 22 Commissioners, I am Justin Logan. I am the manager of 23 the North Austin Foundation, Project Helping Hand, and 24 I was recently elected to serve on the Board of the 25 Texas Charity Advocates. 0095 1 You heard mentions of the beneficiaries 2 of Charitable Bingo earlier. I am one of those 3 beneficiaries. You see, I am a recovering addict and 4 alcoholic. I have five years of sobriety. 5 I began my recovery at Project Helping 6 Hand. 7 (Pause for applause) 8 MR. LOGAN: I began my recovery at 9 Project Helping Hand. The people at North Austin 10 Foundation helped save my life. My job now is helping 11 others in recovery, and I’m grateful for that 12 opportunity. I do not know a lot of about the 13 intricacies of Charitable Bingo. I know very little 14 about the Bingo Enabling Acts, audits, or anything else 15 that has to do with the regulation of bingo. 16 What I do know, it generates tens of 17 thousands of dollars each and every year to help people 18 like me, who seek help from North Austin Foundation’s 19 Project Helping Hand. As a result of the services 20 received at Project Helping Hand, lives are changed and 21 clients are provided shelter while awaiting alcohol and 22 drug treatment. Some of the money from Charitable 23 Bingo enables us to provide a safe meeting place for 24 those who wish to attend 12-Step meetings. 25 So, I am a beneficiary of Charitable 0096 1 Bingo; past, present, and hopefully, into the future, 2 and I am just one of thousands. 3 There are a lot -- there are people in 4 this room from charities, the bingo halls, and the 5 other businesses associated with this game. They 6 depend upon it. I’m honored to be a part of an 7 organization like TCA that is focused on growing it. I 8 look forward to doing my part, and that’s what I hope 9 all of us can do to -- continue to do. Our part is to 10 see the game grow, so they can continue to change 11 lives. Thank you. 12 Thank you. 13 COMMISSIONER LOWE: Thank you. 14 COMMISSIONER RIVERA: Thank you very 15 much. Thank you for your help as well. Okay. Any 16 other comments from Commissioners or -- or Alfonso? 17 Anything else? 18 MR. ROYAL: Nothing, sir. Thank you. 19 AGENDA ITEM VI 20 COMMISSIONER RIVERA: Okay. Next we’re 21 going to move to adoption of Lottery rule change. 22 Ryan, this is your item. 23 MR. MINDELL: Thank you, Commissioners. 24 Ryan Mindell, Assistant General Counsel, again. Item 25 VI in your notebook for your consideration is adoption 0097 1 of proposed amendments to 15 Lottery rules, mostly 2 focused on the Lottery draw game rules, as published in 3 the Texas Register on October 20th. 4 As presented in the October Commission 5 meeting, the primary focus of these amendments is to 6 facilitate the potential future sale of lottery tickets 7 in-lane from third-party point-of-sale systems. The 8 amendments also make multiple conforming changes 9 throughout the Lottery rules, including some updates 10 that were identified in the most recent rule review. 11 You received written comments on this 12 proposal from representative of the Traditional 13 Kickapoo Tribe of Texas. Comments are summarized in 14 your notebook and were focused on the potential 15 vagueness in the language surrounding the in-lane 16 terms, including the use of the term, third-party 17 point-of-sale system. 18 COMMISSIONER RIVERA: You’re doing 19 great. 20 MR. MINDELL: The rules do -- the rules 21 do retain some language that provides the Commission 22 the ability to approve different types of third-party 23 systems, because: a) the technical approach to these 24 types of sales has not yet been finalized; and b) each 25 retailer typically has its own custom point-of-sale 0098 1 hardware and software. 2 But, in response to these comments, we 3 have added a definition of third-party point-of-sale 4 systems that makes it very clear what these systems are 5 and what they are not. These amendments will allow the 6 potential to sell lottery tickets in-lane at 7 traditional brick-and-mortar, retail checkout counters, 8 such as cash registers or self-checkout terminals. 9 This new definition makes the rule 10 language abundantly clear, that this will not 11 constitute an expansion of gaming in Texas. The third- 12 party point-of-sale systems will only perform lottery- 13 related tasks that are currently performed on dedicated 14 lottery terminals. In other words, it’ll be 15 functionally the same as our dedicated terminals or 16 ticket vending machines. 17 The place of these sales will change 18 slightly but the form and function will stay the same. 19 These terminals will not allow for any casino-style 20 gaming. They will not allow for machine-style gaming. 21 They will not allow for electronic tickets. This 22 doesn’t change what we do, just where we do it. 23 I’d also like to note one other change 24 from the proposal in October. The version today does 25 correct a typographical error in a figure at Section 0099 1 401.307(g)(11). 2 COMMISSIONER RIVERA: Perfect. 3 MR. MINDELL: At this time, Staff 4 recommends the Commission adopt the proposed amendments 5 to these Lottery rules. I’m happy to answer any 6 questions you may have. 7 COMMISSIONER RIVERA: Okay. Thank you. 8 Is there any questions, or do we have a motion? 9 COMMISSIONER LOWE: So real -- so to 10 underline, this will not expand gambling in the State 11 of Texas. Right? 12 MR. MINDELL: Correct. 13 COMMISSIONER LOWE: And so some of this 14 is -- excuse me -- the technology is still evolving, so 15 we have -- so this is -- this -- you’re -- you’re able 16 to nuance the rule as things go on? 17 MR. MINDELL: That’s true. I’m sure 18 we’ll anticipate, depending on what function we end up 19 doing this through, we might come back and have to 20 adjust the rules further. This is just trying to give 21 us the flexibility to explore those options going 22 forward. 23 The rule process can take a long time, 24 and we want to make sure that we can operate as quickly 25 as possible when the right option comes along. 0100 1 COMMISSIONER LOWE: All right. I’m 2 good, thank you. 3 COMMISSIONER RIVERA: Okay? Do we have 4 a motion? 5 COMMISSIONER LOWE: So moved. 6 COMMISSIONER RIVERA: Or any other 7 questions, rather? 8 COMMISSIONER ARRIETA-CANDELARIA: No. 9 And with that, I’ll second that motion. 10 COMMISSIONER RIVERA: Okay. All in 11 favor, say aye. 12 (Chorus of "ayes") 13 COMMISSIONER RIVERA: Okay. You pass. 14 Thank you very much. Because we’re on a -- on a short 15 time, here, we’re going to let folks know that at 16 12:20, or around there, we’re going to have to suspend 17 the meeting in order to allow for flights for our 18 commissioners. So, just -- hopefully we can be done by 19 12:20, which is why we didn’t take a break here a 20 couple of seconds ago, as -- as the good folks were -- 21 were leaving. 22 AGENDA ITEMS VII, VIII, and IX 23 COMMISSIONER RIVERA: Next item is 24 number IX. We’re going to skip VII and VIII to be 25 passed to the next Commissioners’ meeting. So number 0101 1 IX, a report on Lottery sales and revenue. So Kathy 2 and Robert, this is your item. 3 MS. PYKA: Good morning, Commissioners. 4 My name is Kathy Pyka, Controller for the agency. With 5 me this morning to my right is Robert Tirloni, the 6 Commission’s product manager. 7 Commissioners, the first chart that we 8 have for you this morning reflects our sales through 9 the week ending December 2nd, 2017. Our total fiscal 10 year 2018 sales through this 14-week period are 11 $1,285,000,000, which is an increase of $84-million or 12 7 percent, compared to the $1,201,000,000 in sales for 13 the same period last fiscal year. 14 Our fiscal year 2018 scratch-ticket 15 sales, which are reflected on the second orange bar, 16 are at $1,025,000,000, which is an $86.9-million 17 increase over last fiscal year. With a growth rate of 18 over 9 percent over last fiscal year, the Commission 19 has reported scratch-ticket sales growth in every week 20 of the fiscal year since the inception of the year, and 21 our scratch-ticket sales now amount to just under 80 22 percent of total sales this fiscal year. 23 Our fiscal year 2018 draw sales are 24 reflected on the second blue bar. We’re at $259.7- 25 million, which is a $2.6-billion decrease from last 0102 1 fiscal year. 2 And before Robert moves on to additional 3 sales detail, Commissioners, I wanted to share that 4 through the end of the first quarter for fiscal year 5 '18, sales were under -- just under $1,250,000,000. 6 And Commissioners, this sets a new sales record again 7 for the Commission, for the first quarter sales since 8 the inception of the Commission. 9 So with that, Robert will now provide an 10 overview of sales by product. 11 COMMISSIONER RIVERA: Wonderful. 12 MR. TIRLONI: Thanks, Kathy. Good 13 morning, Commissioners. For the record, Robert 14 Tirloni, products manager. 15 So this is our year-over-year 16 comparison, broken down by product. We can start at 17 the top with jackpot games. The category as a whole is 18 down 6.2-million. Most of that is coming from the 19 decrease in Powerball. We are pleased to see some 20 gains for Lotto Texas, for Mega Millions, and these are 21 new sales for Just the Jackpot. That’s the new feature 22 -- or, that started when the Mega Millions game changed 23 in late October. So some promising results there. 24 Our daily games are in blue in the 25 middle of the slide. Again, we’re pleased to see some 0103 1 gains with Pick 3. That’s up $700,000. Daily 4 2 continues to see growth; it’s up 4-million. And the 3 add-on feature for Daily 4 is also experiencing grow -- 4 some growth, excuse me, at 300,000. 5 So if you look at the daily game 6 category, it’s actually up 3.6-million. So when you 7 combine jackpots and daily games, we do have a deficit 8 of $2.7-million. 9 Mega Millions is currently advertised 10 $176-million for tomorrow night, and PowerBall is at 11 212-million for Saturday. So we had a big lack of 12 jackpots last fiscal, so we’re hoping with some 13 jackpots this fiscal, we’ll be able to have a 14 successful draw-game year. 15 COMMISSIONER RIVERA: Perfect. 16 MR. TIRLONI: Scratch tickets are doing 17 great, up almost $87-million. And so overall, the -- 18 the whole product portfolio is up just over 84-million. 19 And in closing, I’ve given you all a sample of our 20 brand-new Season’s Greetings $10 holiday ticket. 21 This has been a top seller for us. Many 22 weeks it’s been number one in sales since it launched 23 in October. Very popular. 24 COMMISSIONER RIVERA: Perfect. 25 MR. TIRLONI: And that’s the report. 0104 1 COMMISSIONER RIVERA: Thank you very 2 much. All righty. The next two items are -- are 3 Kathy’s, so just -- 4 MS. PYKA: Certainly. 5 COMMISSIONER RIVERA: -- feel free to 6 roll on to both. 7 MS. PYKA: Happy to. 8 AGENDA ITEM X 9 MS. PYKA: Item 10 includes information 10 on the agency’s transfers to the State, as well as the 11 agency’s budget status. Commissioners, the report in 12 your notebook includes transfers to the State through 13 the period ending October 31st, 2017. Our total 14 accrued revenue transfers to the State during this 15 period were $174.9-million. And of that amount of 16 transfers to the State, $172.2-million was the amount 17 transferred to the Foundation School Fund, with a 18 transfer of $2.7-million transferred to the Texas 19 Veterans Commission. Commissioners, this brings our 20 cumulative transfers to the Foundation School Fund now 21 to $21.1-billion. 22 The final item under this tab is the 23 agency’s fiscal year '17 method of finance summary. 24 The Commission’s Lottery account budget for 2017 was 25 $261.8-million. Of this amount, we expended and 0105 1 encumbered 93.5 percent through the end of the fiscal 2 year. The bingo budget was $16.7-million, in which we 3 expended and encumbered 97 percent through the end of 4 the fiscal year. 5 I’d be happy to answer any questions on 6 this item. 7 COMMISSIONER RIVERA: Any questions? 8 Okay. 9 AGENDA ITEM XI 10 MS. PYKA: All right. Moving on to tab 11 11, which is the Commission’s itemized operating budget 12 for fiscal year 2018. Commissioners, in accordance 13 with the General Appropriations Act, agencies are 14 required to file an itemized operating budget with the 15 Governor’s Office of Budget and Planning and the 16 Legislative Budget Board no later than December 1st of 17 2017. 18 The budget document included in your 19 notebook reflects our 2018 operating budget that you 20 previously adopted on August 8th of this year, as well 21 as actual expenditures for fiscal years 2016 and 2017. 22 Under the requirements set forth by the 23 Legislature, the document was completed by the Office 24 of the Controller on November 21st, and certified with 25 Legislative Offices on November 30th. This concludes 0106 1 my presentation. I’d be happy to answer any questions. 2 COMMISSIONER RIVERA: Any questions? 3 Okay. Awesome report. 4 MS. PYKA: Thank you, Commissioners. 5 COMMISSIONER RIVERA: Thank you very 6 much. Next we’re going to skip down to number 16, to 7 Bob, to make sure that we get this covered in the 8 meeting. 9 AGENDA ITEM XVI 10 MR. BIARD: Thank you. Thank you, 11 Commissioner. For the record, I’m Bob Biard, General 12 Counsel. Item 16 contains 20 lottery and bingo 13 enforcement matters, tabs A through T. I’ll briefly 14 describe the cases and you can take them up in a single 15 vote if you’d like. 16 Tab A through E are the non-sufficient 17 fund Lottery retailer license revocation cases. 18 They’re handled in a single order. These are cases 19 where the retailer failed to have sufficient funds in 20 their bank account to cover transfers to the Lottery 21 Commission's account. These are all default matters 22 where the licensee did not show up and they’re handled 23 in a single order. 24 Tabs F through I are Lottery agreed 25 orders. 0107 1 Tab F is The Corner Spot in Dallas. 2 This involved an applicant who provided some forged 3 letters from a bank in support of their application, 4 and the settlement in this case is to agree to the 5 license, but to restrict this person so that they 6 cannot be involved in the operations at the store, and 7 to restrict their ownership in the organization. 8 Tab G is Harlows 121 in Anna, Texas, 9 which is Collin County. This is a case where eight- 10 liner machines were operating in the -- in the retailer 11 licensee’s store. Two players won store credit on the 12 machines and used the credit to purchase lottery 13 tickets, which is a violation of the State Lottery Act. 14 The licensee agreed to a 30-day suspension. 15 Tab H is Oasis Baytown in Baytown, 16 Texas. In this case, the claimant presented a $2,000 17 winning ticket at the Houston Claim Center. The ticket 18 contained abrasions and stray ink marks, which prompted 19 an investigation. It turned out that the player had 20 originally taken the ticket to a retail store where the 21 clerk offered to purchase the ticket for $1,500 if the 22 player could remove their signature. The player tried 23 to remove their signature, but then changed their mind 24 and went to the Claim Center. A Commission 25 investigator followed up and went to the same store and 0108 1 similarly was offered $700 dollars for a $1,000 winning 2 ticket. This agreed order is for a 30-day suspension. 3 Tab I is Sherry’s Mart in San Antonio. 4 This is a case where the licensee’s clerk charged a 5 $.50 fee to purchase lottery tickets with a debit card. 6 The Licensee agreed to a 10-day suspension. 7 Tabs J through Q are bingo agreed 8 orders. Tab J is P&W Enterprises in Fort Worth. This 9 is a commercial lessor case similar to some cases 10 you’ve seen in past Commission meetings. P&W leases 11 space to bingo conductors at the Town and Country Bingo 12 Hall. 13 The agreed order in this case settles 14 the Commission’s allegations that the lessor engaged in 15 the practice of deferring rent, which the lessor 16 denies. The amount of unpaid rent was $246,600 for the 17 period from August 2015 to October 2016. 18 The alleged violations were that the 19 lessor improperly extended credit to the organizations, 20 and the rent was charged on the basis of a percentage 21 of receipts or net proceeds, which the lessor denies. 22 The agreed penalty in this case is $500. Plus, going 23 forward, the lessor must collect rent within 90 days 24 from the first day of the month following the month 25 when the bingo occasion is held, and rent not paid 0109 1 within that period will be forgiven. 2 Tabs K through O are all related. They 3 involve the same bingo accounting unit, the Paradise 4 Nighttime Unit in South Houston. The charities 5 involved are the American Legion, Unit 594 Auxiliary; 6 Citywide Club of Clubs Chapter 3 Community Service 7 Center; SPX Boosters Club; SPX Parents’ Association; 8 and Knights of Columbus 4577. 9 In these cases, the organizations had 10 negative net proceeds of $24,739 for the first through 11 the fourth quarters of 2016. The -- the Bingo Director 12 denied a waiver of the net proceeds requirement, but 13 the parties agreed to a settlement, which requires each 14 of the organizations to demonstrate positive net 15 proceeds for the fourth quarter of 2017 and the first 16 quarter of 2018. 17 Tabs P and Q are bingo worker agreed 18 orders. Tab P is for David Baimbridge who filed a 19 bingo worker application in March 2017. His criminal 20 background check showed that he was guilty of 21 interference with the duties of a public servant, and 22 was sentenced to 90 days in Midland County Jail. The 23 sentence was suspended and he was placed on community 24 supervision for one year, which he successfully 25 completed. He also provided letters of recommendation 0110 1 from the bingo hall manager where he intends to work, 2 and from several friends. So the -- this would be -- 3 this agreement would be a conditional registration, 4 where he would not be allowed to act as a bingo 5 chairperson, manager, operator, bookkeeper or 6 designated agent for a licensed bingo conductor for 7 three years. 8 Tab Q is for Jorge Mendez, who currently 9 is on the registry. In March 2017, he pleaded no 10 contest to possession of methamphetamine, which is a 11 state jail felony. He received deferred adjudication 12 and was placed on community supervision. He also 13 provided letters of recommendation from the manager of 14 the bingo hall where he works and from the Bexar County 15 Community Supervision Officer. He is also receiving a 16 -- a conditional registration. 17 Tab R is for Adrian Gomez, who applied 18 to be a bingo worker. His criminal history included a 19 2009 conviction for assault bodily injury. He was able 20 to provide letters of recommendation from workers at 21 the bingo hall where he previously worked and would 22 like to work again, and from the general manager of 23 Chicken Express, where he currently works. This again 24 is a conditional registration. Finally -- or a 25 restricted registration. 0111 1 Finally, Tabs S and T are bingo 2 revocation and denial cases that went to SOAH. Tab S 3 is Iowa Park Optimist Club in Wichita Falls. This is a 4 negative net proceeds case. The background is that the 5 -- the licensee argued that a non-smoking city 6 ordinance that was passed in 2014 was a circumstance 7 beyond his control, which prevented it from generating 8 positive net proceeds. The case went to hearing and 9 the judge agreed with the Commission staff and 10 recommended revocation of the conductor's license. 11 Exceptions and replies were filed and staff recommends 12 revocation in that case. 13 And finally, Tab T, is Teens Addressing 14 the Community Today in Houston. In this case, the 15 issue was whether the applicant organization had a 16 valid 501(c)(3) designation. The application indicated 17 that the organization did not have that designation, 18 but that it was affiliated with a state or national 19 organization that did. However, the organization 20 failed to provide supplementary explanatory information 21 to the Bingo Division. 22 The Bingo Act requires a hearing to deny 23 an application, so this case went to hearing and the 24 applicant did not appear. So this is a default case. 25 And that concludes my presentation. You 0112 1 may take these all up in a single order if you like. 2 COMMISSIONER RIVERA: Okay. Thank you. 3 We also have Steven Fenoglio who is here to speak only 4 if there's any questions on Items J through O and R. 5 Commissioners? 6 COMMISSIONER ARRIETA-CANDELARIA: I 7 don't have any questions. 8 COMMISSIONER RIVERA: Questions? Okay. 9 If not, do we have any -- a motion for approval of Tabs 10 A through T? 11 COMMISSIONER ARRIETA-CANDELARIA: So 12 move. 13 COMMISSIONER LOWE: Second. 14 COMMISSIONER RIVERA: Awesome. We need 15 a vote. All in favor? 16 (Chorus of "ayes") 17 COMMISSIONER RIVERA: Okay. Passes 18 unanimously. 19 AGENDA ITEM XII 20 COMMISSIONER RIVERA: Next in a matter 21 of time, unless Commissioners have any items for 22 Darlene Brown, we will skip that over. 23 COMMISSIONER ARRIETA-CANDELARIA: Okay. 24 COMMISSIONER RIVERA: Okay? 25 AGENDA ITEM XV 0113 1 COMMISSIONER RIVERA: Then we're going 2 to close then with our awesome and fearless leader; 3 Gary. 4 MR. GRIEF: Nothing further, Mr. 5 Chairman. Thank you. 6 AGENDA ITEM XX 7 COMMISSIONER RIVERA: Wow. Alrighty. 8 Well, having said that, is there a motion to adjourn? 9 COMMISSIONER ARRIETA-CANDELARIA: Move 10 to adjourn. 11 COMMISSIONER RIVERA: Okay. Second? 12 COMMISSIONER LOWE: Second. 13 COMMISSIONER RIVERA: Done. 14 COMMISSIONER ARRIETA-CANDELARIA: Thank 15 you. 16 (Adjourned and concluded at 12:07 p.m.) 17 18 19 20 21 22 23 24 25 0114 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF HARRIS ) 4 5 I, Kimberly C. McCright, Certified Vendor and 6 Notary in and for the State of Texas, do hereby certify 7 that the above-mentioned matter occurred as 8 hereinbefore set out. 9 I FURTHER CERTIFY THAT the proceedings of 10 such were reported by me or under my supervision, later 11 reduced to typewritten form under my supervision and 12 control and that the foregoing pages are a full, true 13 and correct transcription of the original notes. 14 IN WITNESS WHEREOF, I have hereunto set my 15 hand and seal this 18th day of December, 2017. 16 17 /s/ Kimberly C. McCright Kimberly C. McCright 18 Certified Vendor and Notary Public 19 Verbatim Reporting & Transcription, LLC 1322 Space Park Drive, Suite C165 20 Houston, Texas 77058 281.724.8600 21 22 23 24 25