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 JUNE 21, 2018 12 9:00 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 ACTING CHARITABLE BINGO OPERATIONS DIVISION DIRECTOR: Ed Rogers 8 LOTTERY OPERATIONS 9 DIRECTOR: Ryan S. Mindell 10 CONTROLLER: Katheryn J. Pyka 11 PRODUCTS MANAGER: Robert Tirloni 12 McCONNELL JONES LANIER & MURPHY, LLP: Darlene Brown 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 TABLE OF CONTENTS PAGE 2 I The Texas Lottery Commission will call the 3 meeting to order Pledge of Allegiance to the U.S. and Texas 4 flags . . . . . . . . . . . . . . . . . . . 7 5 II Consideration of and possible discussion and/or action regarding the Bingo Advisory 6 Committee. . . . . . . . . . . . . . . . . 8 7 III Consideration of and possible discussion and/or action, including adoption, on 8 amendments to 16 TAC §402.102 (Bingo Advisory Committee), 16 TAC §402.300 (Pull-Tab Bingo), 9 and 16 TAC §402.402 (Registry of Bingo Workers) . . . . . . . . . . . . . . . . 12 10 IV Consideration of and possible discussion 11 and/or action, including proposal, on new 16 TAC §402.443 (Transfer of a Grandfathered 12 Lessor’s Commercial Lessor License) . . . 14 13 V Report, possible discussion and/or action on the agency’s comprehensive business plan 14 pursuant to State Lottery Act §466.028 . 20 15 VI Consideration of and possible discussion and/or action, including adoption, on 16 amendments to 16 TAC §401.308 (“Cash Five” Draw Game Rule) . . . . . . . . . . . . . 22 17 VII Report, possible discussion and/or action on 18 lottery sales and revenue, game performance, new game opportunities, advertising, 19 promotional activities, market research, trends, and game contracts, agreements, and 20 procedures. . . . . . . . . . . . . . . . 23 21 VIII Report, possible discussion and/or action on transfers to the State and the agency’s 22 budget status. . . . . . . . . . . . . . 33 23 IX Report, possible discussion and/or action on the FY 2019 Operating Budget . . . . . . 34 24 X Report, possible discussion and/or action on 25 external and internal audits and/or reviews 0004 1 relating to the Texas Lottery Commission, and/or on Internal Audit activities, 2 including approval of the amended FY 2018 Annual Internal Audit Plan and audit reports 3 on the CBOD Education Program, Unclaimed Prizes, Personal Identifiable Information, 4 and Enforcement Division Background Check and Case Investigation Process . . . . . . . 36 5 XI Report by the Acting Charitable Bingo 6 Operations Director and possible discussion and/or action on the Charitable Bingo 7 Operations Division’s activities, including licensing, accounting and audit activities, 8 pull-tab review, and special projects . . 43 9 XII Report by the Executive Director and possible discussion and/or action on the agency’s 10 operational status, major contracts, agency procedures, awards, and FTE status . . . 44 11 XIII Consideration of the status and possible 12 approval of orders in enforcement cases . 53 Lottery NSF License Revocation Cases (Default) 13 A. Docket No. 362-18-2178 – Brazos Bend Home & Ranch 14 B. Docket No. 362-18-2179 – Ferry Mobil C. Docket No. 362-18-2578 – Mt. Selman Mart 15 D. Docket No. 362-18-2828 – Cowboy #11 Lottery Agreed Orders 16 E. Case No. 2018-300 – Beer Barn F. Case No. 2018-301 – Ricks Quick Stop 17 G. Case No. 2018-393 – HEB Food Store #591 Bingo Agreed Orders 18 H. Case No. 2018-432 – Sergio A. Vargas (Bingo Worker) 19 I. Case No. 2018-456 – Kristen Lee Ketchum (Bingo Worker) 20 J. Case No. 2018-487 – Kara Diaz (Bingo Worker) 21 XIV Public comment . . . . . . . . . . . . . 59 22 XV Commission may meet in Executive Session 59 23 A. To deliberate personnel matters, including the appointment, employment, 24 evaluation, reassignment, duties, discipline, or dismissal of the 25 Executive Director, Charitable Bingo 0005 1 Operations Director and/or Acting Charitable Bingo Operations Director 2 pursuant to §551.074 of the Texas Government Code. 3 B. To deliberate the duties of the General 4 Counsel and/or the Human Resources Director pursuant to §551.074 of the 5 Texas Government Code. 6 C. To receive legal advice regarding pending or contemplated litigation or 7 settlement offers, or other legal advice, pursuant to §§551.071(1) and (2) 8 of the Texas Government Code, including but not limited to legal advice 9 regarding the following items: 10 Pending and potential litigation regarding Fun 5’s Scratch Ticket Game #1592, including 11 Travis Co. District Court Cause No. D-1-GN-14-005114, Third District Court of 12 Appeals Cause No. 03-16-00172-CV (Steele, et al. v. GTECH Corp.); and Dallas Co. District 13 Court Cause No. DC-14-14838, Fifth District Court of Appeals Cause No. 05-15-01559-CV 14 (Nettles v. GTECH Corp. and Texas Lottery Commission). 15 Julam Investments, Inc. v. Texas Lottery 16 Commission (Travis Co. District Court Cause No. D-1-GN-16-006124) 17 State of Texas v. Equal Employment 18 Opportunity Commission et al., Legal advice regarding Texas Government Code Chapters 466 19 (State Lottery Act) and 467, the Bingo Enabling Act, the Open Meetings Act, the 20 Public Information Act, the Administrative Procedure Act, employment and personnel law, 21 procurement and contract law, evidentiary and procedural law, ethics laws, and general 22 government law. 23 Legal advice regarding any item on this open meeting agenda. 24 XVI Return to open session for further 25 deliberation and possible action on any 0006 1 matter posted for discussion in Executive Session. Any matter posted for Executive 2 Session also may be the subject of discussion and/or action in open session prior to 3 Executive Session . . . . . . . . . . . . 60 4 XVII Adjournment . . . . . . . . . . . . . . . 62 5 Reporter's Certificate . . . . . . . . . . . . . . 63 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. I'm calling this meeting of the 6 Texas Lottery Commission to order. It is one minute 7 after 9:00 and it's June 21st. We have all of our 8 Commissioners here; Commissioners Arrieta-Candelaria, 9 Lowe, and Rivera. And so we not only have a forum, but 10 we are 100 percent present. 11 I want to start off before we have the 12 pledge, saying that it's notable to me at least that we 13 don't have any public comment today. 14 COMMISSIONER ARRIETA-CANDELARIA: Wow. 15 CHAIRMAN KRAUSE: So anyway, we love 16 hearing from the public and -- but that's not 17 necessarily encouraging anybody to submit, you know, 18 it's not a request at this point in time, but -- we've 19 already started the meeting. But anyway, we have a 20 designated pledge commissioner -- 21 COMMISSIONER ARRIETA-CANDELARIA: Sure. 22 CHAIRMAN KRAUSE: -- who's going to lead 23 us in the pledge to our flags. 24 (Pledges recited) 25 COMMISSIONER LOWE: Good morning, ladies 0008 1 and gent -- don't think it's on. Good morning. Thank 2 you guys for being here. So we just -- we just did the 3 pledge of allegiance to the United States and then also 4 the Texas pledge and in there the last line says -- 5 anybody remember the last line of the Texas pledge? 6 COMMISSIONER ARRIETA-CANDELARIA: One 7 and indivisible. 8 COMMISSIONER LOWE: One and indivisible. 9 Well, I want you to know I made a C in Constitutional 10 Law, I'm not proud of that, but it was a hard course, 11 and my understanding though is that the way the law 12 stands now in this country is that Texas could actually 13 divide up into four or five different states. 14 Well, you think would that be a bad 15 idea? Well, think about that. We would have eight 16 senators, we could -- we could control the congress of 17 the United States. So it -- and make -- make some 18 things happen for Texas y'all. Anyway, that's all I 19 had to say. Chairman? 20 CHAIRMAN KRAUSE: Good to know. I hear 21 that California's thinking about seceding at this point 22 in time and so maybe they'll have a little secession 23 talk. 24 AGENDA ITEM II 25 CHAIRMAN KRAUSE: Our first item has to 0009 1 do with the Bingo Advisory Committee and so anyway, I'm 2 going to open that up to discussion and then I'm going 3 to make a statement about what -- what I think I'm 4 going to do with that, so. 5 COMMISSIONER LOWE: Well, why don't you 6 go first then if you -- 7 CHAIRMAN KRAUSE: All right. 8 COMMISSIONER LOWE: You're the Chairman. 9 CHAIRMAN KRAUSE: We -- apparently we 10 have nine members of the Bingo Advisory Committee that 11 we need to appoint. We apparently have -- and I'm not 12 sure if it's 36 or 49. 13 MR. BIARD: Thirty-six. 14 CHAIRMAN KRAUSE: Thirty-six folks that 15 are interested in serving on the Bingo Advisory 16 Committee. I'm really gratified that we have that many 17 people that are interested in helping us out by 18 providing to us some direct communication, you know, 19 about bingo, offering their different perspective. 20 The Bingo Advisory Committee is going to 21 be composed of people that have different perspectives 22 representing charities, corporate lessors, 23 manufacturers and so, that's all important to us. And 24 I really appreciate that. However, having 36 people to 25 vet, what my proposal is going to be is to have Mr. 0010 1 Rogers to go ahead and divide up into three groups, you 2 know, the names that are in the hat, and try and divide 3 up equally, you know, those folks that represent 4 charities, those folks that represent corporate 5 lessors, and those folks that represent manufacturers. 6 And if there's another category, and then I'd like -- 7 COMMISSIONER LOWE: The public. 8 CHAIRMAN KRAUSE: -- for my other 9 Commissioners to please, you know, take one of the 10 groups and vet those, so that they come back with their 11 recommendations that we can vote on at the next -- at 12 the next meeting that we have. And the reason why I'd 13 like to do that is that Commissioner Lowe, who is our 14 Bingo Commissioner, has spent a lot of time, and I 15 really appreciate this, you know, vetting our -- the 16 candidates for our Bingo Director. And so, I feel that 17 while that's been a service that I'm grateful for, I 18 feel like he has been unduly put upon and that since 19 the Bingo Advisory Committee is a direct report to all 20 of us, that we should have some role in selecting who 21 will be on the Bingo Advisory Committee. 22 And so that's what I'd like to do and 23 I'd like to hear from anybody else. 24 COMMISSIONER LOWE: Well, Chairman, 25 first let me say to the people that took the time to 0011 1 apply for the committee, I appreciate their efforts. 2 We did have 36 people. Ed has worked on some 3 background information that we're required to do under 4 the statute to make sure they're all qualified and I 5 will tell you frankly, I haven't spent too much time on 6 it yet. 7 As you indicated, we've been busy 8 dealing with interviews and the such, so, I think 9 that's a good plan and I just hope that we -- I'm 10 confident we can do it in August, that we can have a 11 decision. 12 CHAIRMAN KRAUSE: Well, that's the goal. 13 I mean, we want to go ahead and have August be the time 14 when we actually make our appointment so that they can 15 begin their work and give us advice hopefully prior to 16 the legislative session and maybe that will be 17 something that will be helpful to us during the 18 legislative session. So anyway, it sounds like that's 19 -- sounds like an acceptable way for us proceed, Mr. 20 Rogers. And so, if you could take that on and if you 21 want visit with me later on about that, then I'm happy 22 to fill in the gaps. 23 MR. ROGERS: Yes, sir. I will take care 24 of it. 25 CHAIRMAN KRAUSE: Alrighty. 0012 1 Outstanding. 2 AGENDA ITEM III 3 CHAIRMAN KRAUSE: Mr. Biard, we have got 4 bingo rule amendments. 5 MR. BIARD: Yes. Thank you, Mr. 6 Chairman. And for the record, I'm Bob Biard, General 7 Counsel. 8 Commissioners, staff recommends you 9 adopt amendments to three bingo rules without changes 10 to the proposed text published in the Texas Register. 11 The Rules are 402.102, Bingo Advisory Committee, 12 402.300, Pull-Tab Bingo, and 402.402, Registry of Bingo 13 Workers. 14 The Department of Texas - Veterans of 15 Foreign Wars, Texas Charity Advocates and the Bingo 16 Interest Group each provided comments in support of the 17 amendments at the May 9th, 2018 public hearing, and in 18 addition, River City Bingo Association also submitted 19 written comments to clarify a provision of the rule -- 20 of the BAC rule, regarding the term "conductors that 21 are licensed commercial lessors" with which the 22 Commission agrees. No changes were made to the rule 23 amendments based on the comments received. 24 The amendments to the BAC Rule update and 25 streamline the BAC member eligibility and appointment 0013 1 procedures and procedural requirements regarding BAC 2 meetings. The amendments to the Pull-Tab rule remove 3 an unnecessary provision requiring detailed information 4 to be provided in a packing slip inside each deal of 5 Pull-Tab Bingo tickets, and the amendments to the 6 Registry of Bingo Worker's Rule remove a requirement 7 that a provisional employee of a Bingo Conductor must 8 indicate the playing locations where they're 9 provisionally employed and they extend the length of 10 time a provisional employee who's not a resident of 11 Texas may work without being listed on the Registry 12 from 45 days to 75 days. 13 Staff recommends the Commission adopt 14 amendments to these three rules. I'm happy to answer 15 any questions. And I do understand that we do have a 16 person who's indicated they'd like to comment on this. 17 CHAIRMAN KRAUSE: Well, before I ask for 18 questions from my Commissioners, then let's hear from 19 Mr. -- I guess Fenoglio. 20 MR. FENOGLIO: I was told to do this on 21 behalf of Steve Bresnen. We support the rule 22 amendments. Thank you very much. Stephen Fenoglio for 23 the record. 24 CHAIRMAN KRAUSE: So Mr. Biard, there 25 were no negative comments from the public? 0014 1 MR. BIARD: No. 2 CHAIRMAN KRAUSE: Outstanding. 3 Commissioners, questions, comments? All right. I'm 4 looking for a motion. 5 COMMISSIONER LOWE: So moved. 6 COMMISSIONER RIVERA: Second. 7 CHAIRMAN KRAUSE: All in favor say aye? 8 (Chorus of "ayes") 9 CHAIRMAN KRAUSE: The rules are adopted. 10 AGENDA ITEM IV 11 MR. BIARD: Thank you, Commissioners. I 12 have the next item, too. Tab 4, proposed Rule 402.443, 13 Transfer of a Grandfathered Lessor's Commercial Lessor 14 License. 15 Commissioners, we recommend your 16 approval to initiate the rulemaking process to consider 17 a new bingo rule on the transfer of a grandfathered 18 lessor's commercial lessor license. The purpose of the 19 proposed rule is to clarify that the broad leasing 20 rights of a grandfathered bingo commercial lessor 21 cannot be transferred to a new license holder under the 22 license transfer provisions of the Bingo Enabling Act. 23 We recommend this new rule in response to Texas 24 Attorney General Opinion Number KP-0202 issued May 25 16th, 2018. 0015 1 The Commission requested this opinion at the December 2 2017 Commission Meeting. 3 Under current law, a grandfathered 4 lessor may lease directly and collect rent from up to 5 seven bingo conductor organizations. Today, out of a 6 total of over 300 commercial lessor licenses currently 7 in effect, approximately 199 of those are grandfathered 8 lessor's licenses. The Bingo Enabling Act provides 9 that a licensed commercial lessor may transfer a 10 commercial lessor license if the person to whom the 11 license will be transferred otherwise meets the 12 requirements of the subchapter. 13 The Attorney General found that such 14 transferee requirements include the leasing 15 restrictions on for profit non-grandfathered lessors, 16 that is leasing to only one bingo conductor 17 organization, set forth in the BEA eligibility 18 provisions. The Attorney General stated, "A court 19 would likely conclude that the language of the Bingo 20 Enabling Act does not authorize the transfer of a 21 commercial lessor license that includes a grandfathered 22 right to lease to more than one licensed authorized 23 organization." 24 This conclusion requires the Commission 25 to change its historical practice of considering that 0016 1 grandfathered leasing rights, that is leasing up to 2 seven bingo conductor organizations, are transferable 3 to a new license holder. Although the Commission's 4 historical practice is not written in a rule, the 5 Attorney General concluded it was likely that a change 6 in the practice requires a formal rulemaking 7 proceeding. 8 We would plan to have a public hearing 9 on the proposed rule at 10:00 a.m. on July 18th, 2018. 10 Again, staff recommends that the Commission initiate 11 the rulemaking process by publishing the proposed rule 12 in the Texas Register to receive public comments. 13 CHAIRMAN KRAUSE: Commissioners, 14 questions or comments? 15 COMMISSIONER RIVERA: Go ahead. 16 COMMISSIONER ARRIETA-CANDELARIA: I have 17 a quick comment. 18 CHAIRMAN KRAUSE: Yes. 19 COMMISSIONER ARRIETA-CANDELARIA: I 20 think because of the significant number of 21 grandfathered licenses you've got two, you know, almost 22 200 out of the 300, so two-thirds of the commercial 23 lessor licenses are impacted. Is there a way to maybe 24 extend comments to 45 days or something? Or do you 25 think that 30 days is sufficient to give -- is a 0017 1 sufficient comment period? 2 MR. BIARD: Well, let me just -- I'll 3 give you the -- there's a logistical issue here. 4 COMMISSIONER ARRIETA-CANDELARIA: Okay. 5 MR. BIARD: The time between this 6 Commission meeting and the next Commission meeting is 7 seven weeks. 8 COMMISSIONER ARRIETA-CANDELARIA: Okay. 9 MR. BIARD: The proposal's not going to 10 be published in the Texas Register until two weeks from 11 tomorrow. 12 COMMISSIONER ARRIETA-CANDELARIA: Okay. 13 MR. BIARD: So 30 day -- 30 days would 14 actually take us to just two or three days before the 15 next Commission meeting. So if we did that, which we 16 certainly could do, I wouldn't be able to bring it back 17 at the August meeting, I'd have to bring it back at the 18 October meeting. But we can do that if you like. 19 COMMISSIONER ARRIETA-CANDELARIA: Yeah, 20 I just -- I just want to make sure that -- that people 21 have enough time to provide comments. 22 MR. BIARD: Sure. 23 COMMISSIONER ARRIETA-CANDELARIA: 24 Because of the number of people that are impacted. But 25 I -- think from -- with that in mind, I mean, I'm not 0018 1 opposed to keeping it to the 30 days. I just wanted to 2 see if there was a little bit of leeway there. 3 MR. BIARD: There certainly is. 4 COMMISSIONER ARRIETA-CANDELARIA: When 5 is our next meeting, it's August 7th? 6 MR. BIARD: It's August 9th, I believe. 7 COMMISSIONER ARRIETA-CANDELARIA: August 8 9th? Okay. 9 MR. BIARD: It's the second Thursday in 10 August. 11 COMMISSIONER ARRIETA-CANDELARIA: August 12 9th. Okay. 13 CHAIRMAN KRAUSE: Well, so Mr. Biard, 14 you know, while the Attorney General strongly 15 recommended we adopt a rule, did the opinion say that 16 we needed to be in a big hurry to adopt the rule? 17 MR. BIARD: The opinion did not say 18 that, no. 19 CHAIRMAN KRAUSE: All right. So we 20 adopt the rule and give plenty of people time to make 21 comment and we can adopt it at the -- 22 COMMISSIONER ARRIETA-CANDELARIA: 23 October. 24 CHAIRMAN KRAUSE: Yeah. October or 25 anytime like that. 0019 1 MR. BIARD: Yeah, that'd be fine. The 2 October meeting is on the 4th. 3 CHAIRMAN KRAUSE: Okay. Well, so I 4 guess all we're doing is looking for a motion to send 5 this to public comment, begin the rulemaking process. 6 COMMISSIONER LOWE: So one thing I do -- 7 I want to make sure everybody understands, that we're 8 not going to go back in time and try to reverse any -- 9 approvals in the past. Y'all -- everybody understands 10 that, right? 11 CHAIRMAN KRAUSE: Uh-huh (affirmative). 12 COMMISSIONER ARRIETA-CANDELARIA: U/ 13 COMMISSIONER LOWE: This is from this 14 point forward. So with that said, I'll move that we 15 initiate the rulemaking process according to the 16 recommendation of our General Counsel. 17 COMMISSIONER RIVERA: Second. 18 CHAIRMAN KRAUSE: All in favor say aye. 19 (Chorus of "ayes") 20 CHAIRMAN KRAUSE: Approved. 21 MR. BIARD: And to clarify, is that with 22 an extended comment period of 45 days or? 23 COMMISSIONER ARRIETA-CANDELARIA: Well, 24 I think you said 30 days. 25 COMMISSIONER LOWE: Thirty. 0020 1 COMMISSIONER ARRIETA-CANDELARIA: It's 2 the 30 days that's included in the recommendation. 3 MR. BIARD: Just keep it at 30? 4 COMMISSIONER ARRIETA-CANDELARIA: Yeah, 5 let's just keep it to that. 6 MR. BIARD: Okay. I just wanted -- 7 okay. 8 COMMISSIONER ARRIETA-CANDELARIA: Okay. 9 MR. BIARD: I can bring it back at the 10 August meeting? 11 COMMISSIONER ARRIETA-CANDELARIA: Yes. 12 MR. BIARD: Okay. Very good. Thank 13 you, Commissioners. 14 CHAIRMAN KRAUSE: Mr. Mindell. 15 AGENDA ITEM V 16 MR. MINDELL: Good morning, Mr. 17 Chairman, Commissioners. For the record, my name is 18 Ryan Mindell and I'm the Lottery Operations Director of 19 the Texas Lottery. 20 Commissioners, each of you have a copy 21 of the 2018-2019 Comprehensive Business Plan and 2017 22 Annual Report before you. You also received a copy 23 electronically a few weeks ago. The Annual Report 24 section contains a summary of the agency's sales and 25 revenue results, along with performance highlights from 0021 1 fiscal year 2017. This section of the Report is 2 followed by the 2018-2019 Business Plan which conforms 3 to the statutory requirements from sunset legislation 4 passed in the 83rd Legislative Session. 5 The Business Plan contains nine key 6 performance factors that capture key measures of agency 7 efficiency and performance and the Plan contains 8 targets or projections for each of these factors and 9 reports on the agency's past performance with regard to 10 the prior Business Plan and targets that we set 11 previously. 12 For me, this is such a key document for 13 the Commission because it's the one place that I would 14 go to for the best information about how we've done in 15 the past and what we're going to do in the future. I'd 16 also be remiss if I didn't note that Robert Tirloni and 17 Angie Bland from Lottery Operations did the lion's 18 share of work on this. I was late to this particular 19 game, but I was involved down the stretch. 20 I'm happy to respond to any questions 21 prior to your approval of the Plan today. 22 CHAIRMAN KRAUSE: Commissioners, 23 questions, comments? 24 COMMISSIONER ARRIETA-CANDELARIA: Looks 25 great. 0022 1 CHAIRMAN KRAUSE: Good work. Alrighty. 2 Looking for a motion. 3 COMMISSIONER ARRIETA-CANDELARIA: I'll 4 make the motion. 5 COMMISSIONER RIVERA: Second. 6 CHAIRMAN KRAUSE: All in favor say aye. 7 (Chorus of "ayes") 8 CHAIRMAN KRAUSE: Approved. 9 MR. MINDELL: Thank you, Commissioners. 10 CHAIRMAN KRAUSE: Ms. Rienstra? 11 AGENDA ITEM VI 12 MS. RIENSTRA: Good morning, 13 Commissioners. Deanne Rienstra, Special Counsel. In 14 your notebook is a proposal to adopt amendments to the 15 current Cash Five draw game rule, which is found at 16 16 TAC 401.308, without changes. The purpose of the 17 proposed amendments is to change the Cash Five game 18 matrix, offer guaranteed fix prizes and set a liability 19 limit for the Match Five top prize. Sales for the new 20 version of the game will start Sunday, September 23rd 21 and the first drawing for the new game will be 22 implemented Monday, September 24th. 23 The proposed amendments were published 24 in the Texas Register on April 27th. A public hearing 25 was held on May 9th here at Commission headquarters. 0023 1 No members of the public appeared. Three written 2 comments were received by the Agency. 3 Two members of the public generally 4 opposed the game changes. The third was from a 5 representative of the Lotto Report who also opposed the 6 game changes and presented additional opposition 7 comments. These comments are summarized in the 8 preamble of the proposed rule. 9 Staff recommends the Commission adopt 10 the proposed rule amendments to the Cash Five game rule 11 at 16 TAC 401.308. I am happy to answer any questions. 12 CHAIRMAN KRAUSE: No comments or 13 questions are coming from the Commissioners. I'm 14 looking for a motion. 15 COMMISSIONER RIVERA: Move for approval. 16 COMMISSIONER ARRIETA-CANDELARIA: 17 Second. 18 CHAIRMAN KRAUSE: All in favor say aye? 19 (Chorus of "ayes") 20 MS. RIENSTRA: Thank you. 21 AGENDA ITEM VII 22 COMMISSIONER LOWE: Kathy Pyka, you've 23 got the next three items, which you're welcome to segue 24 into one after the other. 25 MS. PYKA: Good morning, Commissioners. 0024 1 My name is Kathy Pyka, Controller for the Agency. With 2 me to my right is Robert Tirloni, the Commission's 3 Product Manager. Commissioners, the first chart that 4 we have for you this morning reflects our comparative 5 sales through the week ending June 16th, 2018. Total 6 fiscal year 2018 sales through this 42-week period are 7 $4,467,000,000, which is an increase of $469-million or 8 11.7 percent compared to the $3,998,000,000 sales for 9 the same period last fiscal year. 10 Fiscal year 2018 scratch ticket sales, 11 which are reflected on the second orange bar are now 12 $3,510,000,000, which is a $356-million increase over 13 fiscal year '17, with a growth rate of 11.3 percent 14 over last fiscal year. The Commission has now reported 15 scratch ticket sales growth in every week of fiscal 16 year 2018. We have now had 30 weeks in which weekly 17 cells have exceeded an $80-million figure for the week 18 and in comparison, last fiscal year we had 14 weeks of 19 $80-million weekly sales for the entire fiscal year. 20 Our scratch ticket sales amount to 78.6 21 percent of total sales for this period. Commissioners, 22 our fiscal year 2018 draw sales, which are reflected on 23 the second blue bar, are at $956.9-million, which is an 24 almost $113-million increase or 13.4 percent over last 25 fiscal year and this draw game sales growth is 0025 1 attributed to both Powerball and Mega Millions jackpot 2 rolls that have occurred during the fiscal year. 3 Robert will now provide an overview of sales 4 by product. 5 MR. TIRLONI: Thanks, Kathy. Good 6 morning, Commissioners. We have real good news to 7 share with you today on this slide. I'll start with 8 draw games. They're up a total of almost $113-million 9 year over year. If we look up at the top towards the 10 jackpot games, you can see a lot of that gain is coming 11 from Mega Millions, almost $74-million. Powerball is 12 also up just under eighteen million, but you can see 13 we're also seeing growth with Lotto and all of the add 14 on games. A little bit of decline from Two-Step, that 15 is jackpot driven. 16 Really good news here in the daily 17 section of the slide because these games are not 18 jackpot driven, so we're not waiting for jackpots to 19 drive the sales levels. This is happening just because 20 of the popularity of the games. So we're seeing Pick 3 21 up, Daily 4 continues a very nice increase, almost nine 22 and a half million dollars. We are seeing a decline at 23 Cash Five. Of course, with the adoption of the rule, 24 we're hoping to stem that decline moving forward into 25 the next fiscal year. 0026 1 All or Nothing is holding even, which is 2 good news. We do have a decline of Triple Chance, and 3 I'll be talking to you all about that in a second. So 4 overall, great news on the draw game portion of the 5 portfolio and scratch tickets continues to have a 6 extremely successful year. We're up three hundred and 7 fifty six million, so if you look at the portfolio at a 8 whole, up almost $469-million. 9 So Commissioners, I do have an update 10 for you on a change that we're going to be making to 11 the draw game portfolio over the next few weeks. The 12 Texas Triple Chance game started in September of 2015, 13 and as you can see from the slide, after an immediate 14 sales surge at the launch of the game, it did begin an 15 immediate decline. Triple Chance has the best overall 16 odds of winning of any Texas draw game; one in 3.6. 17 However, the game has really struggled to find a loyal 18 player base, even though it has received a great deal 19 of product support since it was first introduced. 20 We've made numerous attempts with both 21 players and retailers to increase awareness levels and 22 interest. In fiscal 2017, Texas Triple Chance had the 23 lowest sales of any of the draw games in the entire 24 portfolio and Texas Triple Chance sales are 25 approximately two-tenths of a percent of our total 0027 1 sales. As we noted in the agency business plan, and in 2 the agency strategic plan, we've been considering the 3 closing of Texas Triple Chance based on its 4 performance. With your adoption of the Cash Five rule 5 just moments ago and the start of that new game in 6 September, we really believe that this is the opportune 7 time for us to close and end the Texas Triple Chance 8 game. 9 Both Cash Five and Texas Triple Chance 10 are daily games drawn Monday through Friday during our 11 nighttime drawing at 10:12 p.m., and so we believe if 12 we close Texas Triple Chance before Cash Five starts, 13 it'll give it a little bit of room and hopefully make 14 the launch of that game more successful. So we plan to 15 shut down the multi-draw feature of Texas Triple Chance 16 in early July and then close the game after the drawing 17 on Saturday, July 28th. 18 As we've discussed numerous times in 19 this setting, the draw game portion of the portfolio is 20 far more challenging than the scratch portion of the 21 portfolio, but we work very closely with IGT on 22 potential new games, on new game enhancements, to try 23 to keep, you know, that portion of our portfolio as 24 fresh and as exciting as it can be and we believe this 25 is the opportune time to make this game change and 0028 1 close this game. I did have one more update for you 2 all today. 3 I represented the Agency at the Funds 4 For Fitness Grant Program check presentations in the 5 DFW area, along with representatives from the Dallas 6 Cowboys. This was in late May. 7 Since funding education is our mission, 8 we were thrilled to be able to partner with the Dallas 9 Cowboys on the Funds For Fitness Grant Program. Grant 10 applications are limited to one per teacher per grant 11 cycle. The scope of the requested projects is open 12 ended, and they can submit anything that impacts the 13 health or the physical fitness of the student body. 14 Through the first two years of the program, 30 schools 15 have been awarded a total of $120,000 to fund physical 16 fitness and well-being initiatives at elementary, 17 middle and high schools across the state. So on May 18 24th, we traveled to four different schools to present 19 grant program checks, and the Dallas Cowboys produced a 20 video from that day, and I'm going to show you this 21 brief video because we thought you would like to see 22 it. 23 (Video played) 24 MR. TIRLONI: So just quickly, Anderson 25 Elementary School in Arlington received $5000, Warren 0029 1 High School in Mesquite received $11,500. That was for 2 the girls' weight room. Ford Middle School in Allen, 3 received $2500 for their Mustang Hour and Reedy High 4 School in Frisco, received $6,000 and that's for their 5 special education yoga ball program. So those were the 6 four. 7 This was a great example of how our 8 partnership with the Dallas Cowboys really allowed us 9 to be part of a great community initiative, and I'll 10 just tell you, I was really honored to be able to 11 represent us that day. It was a great deal of fun. 12 And I'm hoping Mr. Grief has a conflict again next year 13 and I might be able to attend, but I just wanted to 14 share that with you all and let you see the great 15 things that our partnership with the Cowboys have -- 16 have, you know, the good -- the programs that have been 17 created through that partnership and the good things 18 that those dollars are doing in the community. 19 And that's our presentation for today. 20 CHAIRMAN KRAUSE: Outstanding. 21 Questions, comments? 22 COMMISSIONER ARRIETA-CANDELARIA: I have 23 a question. So Robert, with regards to the Triple 24 Chance Game. 25 MR. TIRLONI: Yes, ma'am. 0030 1 COMMISSIONER ARRIETA-CANDELARIA: How 2 long before -- so if the last drawing is July 28th. 3 MR. TIRLONI: Uh-huh (affirmative). 4 COMMISSIONER ARRIETA-CANDELARIA: How 5 long do -- does the public have to present their 6 tickets for redemption? 7 MR. TIRLONI: They'll still have the 8 full 180 days. 9 COMMISSIONER ARRIETA-CANDELARIA: Okay. 10 MR. TIRLONI: 180 days from the drawing 11 date. And we're going to start doing a lot of 12 messaging here over the next couple of weeks to provide 13 information about when the multi-draw ends, when the 14 game closes, and we'll also be emphasizing that 15 there's, you know, there's the standard 180 days from 16 the drawing in order for prizes to be claimed. 17 COMMISSIONER ARRIETA-CANDELARIA: Okay. 18 So beyond that 180 days, we don't have -- we don't hold 19 money in reserve or anything. All of the -- that money 20 just gets transferred as part of the unclaimed prizes, 21 correct? 22 MS. PYKA: That is correct. 23 COMMISSIONER ARRIETA-CANDELARIA: Okay. 24 MS. PYKA: In accordance with statute. 25 COMMISSIONER ARRIETA-CANDELARIA: Okay. 0031 1 Thank you. 2 MS. PYKA: Uh-huh (affirmative). 3 COMMISSIONER ARRIETA-CANDELARIA: And 4 then the question that I had on your fiscal year over 5 year change in sales, and you have a comparative week, 6 like 42 weeks that you've got listed there -- 7 MS. PYKA: Uh-huh (affirmative). 8 COMMISSIONER ARRIETA-CANDELARIA: -- for 9 the end of the fiscal year, so I noticed that there was 10 in the draw games specifically, there's a couple of 11 weeks that are -- one is a $17-million difference, $42- 12 million, the ones that are in those double digits in 13 the over $10-million changes, are those the ones that 14 correlate with larger jackpots? 15 MS. PYKA: That is correct. So on the 16 draw side, you can clearly see when there were larger 17 jackpot amounts last fiscal year which generate a 18 negative for us this fiscal year. And then you can 19 also see like for the week ending January 13, when we 20 had the large Powerball and Mega roll going on, we have 21 that nice positive of 42-million week over week for 22 this fiscal year. 23 COMMISSIONER ARRIETA-CANDELARIA: Okay. 24 All right. That makes sense. 25 I also see that we have a -- almost a 0032 1 corresponding increase in -- in the scratch tickets, so 2 people probably come in at the same time and buy 3 scratch as well. 4 MS. PYKA: That's correct. 5 MR. TIRLONI: Yes, ma'am. 6 COMMISSIONER ARRIETA-CANDELARIA: Okay. 7 That's good to see. All right. Thank you. 8 MS. PYKA: Uh-huh (affirmative). 9 CHAIRMAN KRAUSE: Commissioner? Okay. 10 Go ahead. 11 COMMISSIONER RIVERA: Just good job 12 obviously across the board, but on the Funds For 13 Fitness, obviously, that's very important in the 14 community. Living in the greater Arlington 15 Dallas/Forth Worth area there's, you know, a lot of 16 media coverage that came from that in terms of 17 awareness. I know in talking with the Cowboys, they're 18 supportive of education, they're supportive of our 19 veterans, that's very important to the franchise. And 20 that visibility, particularly the attachment to the 21 brand, is significant and those kind of partnerships 22 and proactive things that your leadership is involved 23 with is instrumental in advancing what we're doing, 24 particularly with a limited budget. 25 So just good job and continue on. So, 0033 1 good. 2 MR. PYKA: Thank you and we continue -- 3 we know that's important to you, and we're continuing 4 to look for opportunities to be able to do that. 5 COMMISSIONER RIVERA: Okay. Thank you. 6 MS. PYKA: Thank you. 7 AGENDA ITEM VIII 8 MS. PYKA: All right, Mr. Chairman, if 9 good with the Commission, I'll move on to tab eight, 10 which is information on the Agency's transfers to the 11 state and the Agency's budget status. 12 Commissioners, the report in your 13 notebook reflects accrued revenue transfers and 14 allocations to the Foundation School Fund, the Texas 15 Veterans Commission, as well as unclaimed prizes for 16 the period ending April 30th of 2018. Our total 17 accrued revenue transfers at that point were $871.3- 18 million dollars for the first eight months of the 19 fiscal year. So while your notebook includes our April 20 transfer data, we have concluded work on the May 21 revenue transfers, so I'd like to provide an update on 22 that. 23 Our total accrued revenue transfers to 24 the state now amount to $1,037,000,000 for the first 25 nine months of the fiscal year, and of that 0034 1 $1,037,000,000 transferred to the state, $977.2-million 2 was the amount of revenue transferred to the Foundation 3 School Fund, $12.7-million was the amount transferred 4 to the Texas Veterans Commission, with the remaining 5 balance of $47.3-million transferred from unclaimed 6 prizes. Commissioners, total cumulative transfers to 7 the Foundation School Fund through May of this fiscal 8 year have now exceeded $22-billion in cumulative 9 transfers. 10 The final item under this tab is the 11 Agency's fiscal year 2008 method of finance summary for 12 the second quarter ending February 28th of 2018. The 13 Commission's lottery account budget for fiscal year 14 2018 is $230.8-million. Of this amount, 77.6 percent 15 was expended and encumbered through the second quarter. 16 The Bingo Operations budget funded by fees is $17- 17 million with 12.9 expended and encumbered through the 18 end of the second quarter. 19 Commissioners, I'd be happy to answer 20 any questions. 21 CHAIRMAN KRAUSE: Commissioners? 22 COMMISSIONER ARRIETA-CANDELARIA: No 23 questions. 24 CHAIRMAN KRAUSE: Thank you, ma'am. 25 AGENDA ITEM IX 0035 1 MS. PYKA: All right. I'll move on to 2 tab nine, which is the fiscal year 2019 operating 3 budget. Commissioners, your approval of the fiscal 4 year 2019 operating budget in the amount of 5 $252,655,475 and 321 full-time equivalent positions is 6 requested. The budget was developed in accordance with 7 appropriation amounts outlined in Senate Bill 1, 8 adjusted for Rider and Article 9 funding provisions. 9 The initial draft of the budget was developed by the 10 Office of the Controller and delivered to division 11 management for their direct input. The final draft was 12 developed after receiving feedback from the divisions, 13 as well as review by executive management. 14 Commissioners, this concludes my 15 presentation. I'd be happy to answer any questions on 16 the fiscal year 2019 operating budget. 17 CHAIRMAN KRAUSE: We have studied it 18 thoroughly and completely vetted it and so now I'm 19 calling for a motion to approve the budget. 20 COMMISSIONER ARRIETA-CANDELARIA: So 21 moved. 22 COMMISSIONER RIVERA: Second. 23 CHAIRMAN KRAUSE: All in favor say aye. 24 (Chorus of "ayes") 25 CHAIRMAN KRAUSE: Budget's adopted. 0036 1 MS. PYKA: Thank you, Commissioners. 2 COMMISSIONER ARRIETA-CANDELARIA: Thank 3 you. 4 AGENDA ITEM X 5 CHAIRMAN KRAUSE: Ms. Darlene Brown. 6 MS. BROWN: Good morning, Commissioners. 7 I'm Darlene Brown, Internal Auditor. I have several 8 items in your notebook today. The first one is our 9 status report and we are at 32 percent of our budget 10 expended. We are still on track to complete all of the 11 audits this year as approved in the internal audit plan 12 and we have currently three audits in progress. We've 13 wrapped up three audits, and we're also starting the 14 last three. 15 So if you have any questions on the 16 status report, I'll be happy to answer them. 17 Otherwise, we can move on to the next item, which would 18 be a request to approve a revised internal audit plan. 19 Okay. So, we have the FY-18 original 20 internal audit plan was for 2,241 hours and $299,873. 21 In looking at our audits that we've completed and our 22 audits that are still remaining, and then the 23 additional work that we have done in the bingo area, we 24 have decided that we needed to adjust hours around, and 25 we can still accomplish everything that was approved in 0037 1 the FY-18 audit plan. And we can do this at $18,000 2 less than the original approved budget. But because 3 there is so significant number of hours changing 4 amongst the audits themselves, we need to have a formal 5 adoption of a revised internal audit plan and submit 6 that to the SAO Office. 7 And the reason we're able to complete 8 these audits in less time is because, as we do an 9 audit, we're gaining more experience and more knowledge 10 on the operations in general throughout lottery and 11 throughout bingo and so we're able to leverage that 12 knowledge and bring the number of audit hours down. 13 So I'm asking for your approval to 14 revise the internal audit plan. 15 COMMISSIONER RIVERA: Move for approval. 16 COMMISSIONER LOWE: Second. 17 CHAIRMAN KRAUSE: All in favor say aye. 18 (Chorus of "ayes") 19 CHAIRMAN KRAUSE: We're all in favor of 20 saving money. 21 MS. BROWN: Thank you. Thank you. And 22 so then the next action items are I have three audit 23 reports to provide to you. The first audit report is a 24 carryover from last fiscal year, that is the 25 Enforcement Division background check and case 0038 1 investigation process. 2 We found that the controls were 3 effective in that area. We have no recommendations 4 made in the audit report. We did discuss a couple in 5 our closing meeting, and by the time we got back to 6 issuing out the draft report, they had already 7 addressed and made those corrective actions, and they 8 were minor. It was monitoring; more monitoring. 9 The second audit report that we have for 10 you is on the Bingo Education Program. In that one, we 11 concluded that there was a need to completely revamp 12 that program to make it more relevant to what today's 13 operations are for the bingo community. And it needs 14 to be more informative. 15 We have eight recommendations in that. 16 And in following up with the Bingo Division, a lot of 17 these recommendations have already been -- they're 18 either in progress of being implemented or have been 19 implemented. 20 The first one was the education and 21 training materials. All of those education and 22 training materials need to be updated. It's well known 23 that there were errors in the tests and people were 24 being forced to answer questions incorrectly in order 25 to receive their certificate. Those training modules 0039 1 have already -- are in progress of being updated, and 2 two of them almost complete -- completely updated. 3 They're more video, video based rather than having to 4 require five solid hours of sitting in front of a 5 computer just clicking next next next on PowerPoint 6 slides. 7 We also recommended that a training 8 review committee be established of internal 9 representatives from the bingo, of each department 10 within bingo, so that it's all relevant to what's 11 actually going on in bingo. That committee has already 12 been established, is -- and is working. Needed to 13 write written procedures on what is the bingo 14 training's goals, well, how are they going to go about 15 doing it, and then the delivery methods. 16 Rather than just being a PowerPoint on 17 the web, let's have more video content, let's have more 18 webinars, let's do more Facebook Live if possible. So 19 those were already being considered. And let's keep 20 them short, let's keep him 30 minutes or less. That's 21 the attention span of individuals. Let's have operate 22 -- optional training for bingo workers on the to dos 23 and not to dos rather than just simply issuing them out 24 the license and say here, go. Have mandatory training 25 so if you go to be a professional bookkeeper for bingo, 0040 1 let's have a training session so you know what the 2 records requirements are. 3 And finally, everything needs to be 4 refreshed at least every two years. The problem with 5 the education component itself was we felt that it 6 wasn't at the direct -- correct level within the 7 organization structure, they needed more oversight and 8 leadership. That has already been addressed and that 9 function now reports directly to an individual below -- 10 right below the directors. 11 And those were the eight recommendations 12 that -- that we had. There are a lot of sub- 13 recommendations under them and like I said, most of 14 them have already been corrected. 15 And then the third audit report is the 16 unclaimed prizes. We looked at the whole process of 17 how -- how is that money being identified and tracked 18 reported and transferred. The controls around those 19 processes were effective and they have some best 20 practices in place, so we have no recommendations to 21 make in that area. 22 Those are my three audit reports and 23 I'll be happy to answer any questions. 24 CHAIRMAN KRAUSE: Commissioners? My 25 only comment about the bingo training is, is that I 0041 1 like it a lot. I'm under the impression that a lot of 2 our charities are pretty clueless about some of the dos 3 and don'ts of undertaking a bingo occasion, and as a 4 result, they rely heavily on the commercial lessors to 5 provide what amounts to a turnkey service to them. 6 And, however, if there's a little slip up, then the 7 charity is the one that usually gets hammered for that. 8 And so I'm all for our charities knowing more about it 9 and I appreciate you making that recommendation. 10 MS. BROWN: Thank you. 11 COMMISSIONER LOWE: So it sounds like 12 that that might be a good goal or objective for the new 13 bingo director. 14 MS. BROWN: Yes. Yes. Fortunately, a 15 lot of that's already been accomplished. 16 CHAIRMAN KRAUSE: Oh, outstanding. 17 COMMISSIONER ARRIETA-CANDELARIA: So I 18 have a question. So Darlene, when would this come back 19 or is this a review? At one point in time do you come 20 back and review it, that it's been implemented? 21 MS. BROWN: We work in conjunction, 22 we're doing constant monitoring and follow-up. But 23 then in next year's audit plan, there will be a formal, 24 these -- these ones have been closed and these ones are 25 still pending. 0042 1 COMMISSIONER ARRIETA-CANDELARIA: Well, 2 I'm glad to see some of these recommendations. I think 3 these -- some of these items that are listed in here 4 correlate with some of the recommendations that we had 5 early on with training, with some of the issues that we 6 had with -- I can't recall what the -- the issues were 7 specifically, but I -- you know, I recognize some of 8 the recommendations from at least 18 months ago, so -- 9 CHAIRMAN KRAUSE: Yeah. 10 COMMISSIONER ARRIETA-CANDELARIA: -- I'd 11 like to see some follow-up just to make sure they do 12 get implemented. 13 MS. BROWN: Sure. 14 COMMISSIONER ARRIETA-CANDELARIA: Okay. 15 And then from a staff perspective, Mr. Rogers, if you 16 could look to see if you have the -- you have the 17 staffing and the resources that you -- that are needed 18 to be able to implement some of these things as well. 19 MR. ROGERS: Yes, Commissioner, we will. 20 I -- I'd like to say that Fattah Elyabouri has headed 21 up the effort to get a lot of these items that were in 22 the report completed or started, with significant input 23 from across the division. They've done a great job and 24 will continue to work hard to get this all in alignment 25 where it needs to be. 0043 1 COMMISSIONER ARRIETA-CANDELARIA: Thank 2 you. 3 MR. ROGERS: Thank you. 4 MS. BROWN: Okay. So I will need 5 approval on those reports. 6 CHAIRMAN KRAUSE: Alrighty. 7 COMMISSIONER ARRIETA-CANDELARIA: So 8 move. 9 COMMISSIONER RIVERA: Second. 10 CHAIRMAN KRAUSE: All in favor of 11 reports say aye. 12 (Chorus of "ayes") 13 CHAIRMAN KRAUSE: The reports are 14 approved. 15 MS. BROWN: Thank you. 16 AGENDA ITEM XI 17 CHAIRMAN KRAUSE: We're now going to 18 hear from our Acting Bingo Director, Mr. Rogers. 19 MR. ROGERS: For the record, Ed Rogers, 20 acting Charitable Bingo Operations Director. Good 21 morning, Chairman and Commissioners. 22 Besides the information provided in your 23 notebooks, I have nothing additional to report at this 24 time, but I'm happy to answer any questions you have 25 about the information in the notebook. 0044 1 CHAIRMAN KRAUSE: Questions, comments? 2 COMMISSIONER ARRIETA-CANDELARIA: No. 3 CHAIRMAN KRAUSE: All right. 4 COMMISSIONER LOWE: Ed is doing a great 5 job. He jumped in and he and Fattah have been awesome 6 and I appreciate their taking this on and with the 7 small time they're required to do it. 8 MR. ROGERS: Thank you very much. 9 AGENDA ITEM XII 10 CHAIRMAN KRAUSE: The next item is Gary 11 Grief and I understand that he does have something for 12 us today. 13 MR. GRIEF: Thank you, Mr. Chairman. I 14 do have a couple of items other than what's in your 15 notebook that I'd like to report on this morning. 16 The first item I want to cover is the 17 employee survey tool that the Agency has used for 18 several years referred to as the Survey of Employee 19 Engagement. Every two years, the Agency takes 20 advantage of this employee survey tool, which is 21 provided by what's called the Institute of 22 Organizational Excellence. That's an organization that 23 is under the auspices of the University of Texas. I 24 provided each Commissioner with the Executive Summary 25 from that report via email last month. 0045 1 Our survey results here at this Agency 2 have been outstanding for several years, but that said, 3 the results that we received this year were especially 4 encouraging. Commissioners, as you might recall from 5 the executive survey, of the 285 Agency employees who 6 were eligible to take the survey, 259 responded. 7 That's a response rate of 90.9 percent. 8 The institute says that they consider 9 any response rate greater than 50 percent to give the 10 survey soundness in its results. So I feel very 11 confident that we were able to obtain very valid 12 results from this year's survey. Although I haven't 13 seen the results from other agencies as yet, I'm 14 confident that that response rate will be at or near 15 the top of all state agencies of similar size. 16 That also suggests that our team members 17 trust us enough to take the survey and take the time to 18 give us the important feedback that they can provide us 19 to help us do a better job as management. 20 Now, moving to the overall score for the 21 agency. The institute considers scores that are above 22 350 to be desirable and any score below 300, there 23 should be cause for concern. Our Agency's overall 24 score when we took the survey two years ago was 400; 25 that was our highest mark ever, that was one that was 0046 1 at or near the top of other state agencies of similar 2 size, and I knew that type of score might be difficult 3 to achieve again this year. But, as I am many times, I 4 was wrong again. 5 This year's score was 406, once again 6 setting a new high bar for our Agency, and I'm sure 7 that will be a score that will land at or near the top 8 of all similarly sized agencies. These results of the 9 survey of employee engagement, they're important to us 10 really for two reasons. One, we recognize that there's 11 always room for improvement in every division and in 12 different categories, and we're going to be focusing, 13 as we always do, on any scores, no matter where they 14 are in the agency, that we don't believe meets our very 15 high expectations. 16 And second, this report will be provided 17 to the legislature in advance of the upcoming 18 legislative session, so it's important that we're 19 viewed by the Legislature as an agency that respects 20 and appreciates its team members, and I believe the 21 survey results this year do just that. 22 I'd be happy to answer any questions 23 about the survey or accept any comments that the 24 Commissioners might have. 25 COMMISSIONER LOWE: That speaks to the 0047 1 leadership of -- excuse me. I think that speaks to the 2 leadership of this organization and I appreciate 3 y'all's commitment to the State of Texas and to the 4 employees that we have. I really do. Thanks, Gary. 5 MR. GRIEF: Thank you, Commissioner. I 6 appreciate that a lot. 7 Well, speaking of team members, I want 8 to speak to the Commission this morning about our 9 General Counsel Bob Biard and the role that Bob plays 10 here at the Texas Lottery Commission. And not just 11 here at the Commission, but in the lottery industry. 12 Although Bob certainly fulfills all the 13 responsibilities of his position in an exemplary 14 manner, Bob's role with the Texas Lottery really goes 15 beyond a simple job description. Bob also serves as a 16 trusted advisor and a counselor to the Commissioners 17 and to me, with the additional responsibility of 18 representing me at times in important meetings, both 19 internally and externally. By the very nature of Bob's 20 job, he's often tasked with challenging the Commission 21 and me on important issues to ensure that our plans and 22 our decisions are sound and that they can be defended 23 at a later date. 24 Bob has a very unique and effective way 25 of meeting our needs at the Commission. When I think 0048 1 of Bob's strongest traits, a number of them rise to the 2 top. He's really got the ability to take a big picture 3 perspective and make sound recommendations. He also 4 has the ability to listen very carefully, and he 5 thoughtfully interprets the comments that he hears and 6 the actions taken by you, our Commission, by outside 7 entities, by the public, by our staff and me, and how 8 those comments and actions might ultimately affect our 9 agency. 10 And last, but certainly not least, Bob 11 possesses that critical skill that every effective 12 general counsel needs to have; that ability to analyze 13 our legal challenges with an eye towards finding a 14 solution, and not an eye toward identifying reasons why 15 we can't move forward. We are the very closest thing 16 to a for-profit business operation in state government 17 and it's this type of approach that Bob takes to 18 problem solving that's so critical to us in achieving 19 our mission of generating revenue for education and for 20 veterans here in Texas. I want to highlight for the 21 commission just a handful of some high profile real 22 world examples of Bob's effectiveness that have 23 occurred in the recent past. 24 We've had some sponsorship 25 opportunities. You saw those today with the Funds For 0049 1 Fitness and our relationship with the Dallas Cowboys. 2 We've had opportunities like The Star at Frisco, like 3 our Texas Lottery Live music promotions. Those 4 opportunities are unique in state government. They're 5 hard to explain to our leadership here in the state, 6 and they're not the type of thing that traditional 7 government lawyers are accustomed to dealing with on a 8 regular basis. Bob's experience, along with his sound 9 legal advice, his attention to detail and his problem 10 solving skills, have allowed us to successfully execute 11 numerous of those types of agreements and we have 12 thrived in pursuing those opportunities. 13 During my term as President of the 14 Multi-State Lottery Association last year, MUSL as it's 15 known, Bob worked side by side with me and provided me 16 with critically important legal and business advice as 17 we went through the year. He worked in concert with 18 outside counsel at MUSL, he worked with MUSL staff, and 19 he helped us address numerous legal and business issues 20 that came up during my term, and he endeared himself to 21 everyone that he worked with in that process. 22 And along those same lines, Bob has 23 become a go to resource for not only MUSL, but also 24 NASPL, the North American Association of State and 25 Provincial Lotteries, on a wide variety of issues. 0050 1 Bob's expertise and his very reasonable approach to 2 problem solving, those have been recognized and 3 embraced by the staff from both of those national 4 organizations. And then lastly, I also think back to 5 the key role that Bob played in the Agency executing an 6 extension and a significant rate reduction with our 7 friends from IGT for the Lottery Operator Contract. 8 That's one of the largest and most complex contracts in 9 all of state government. 10 Bob worked with me in all of the 11 negotiation sessions and he was a key contributor to 12 this important initiative. So Commissioners, I say all 13 this because every year lottery CEOs are allowed to 14 nominate a member of their team for a special 15 recognition called the Powers Award in the lottery 16 industry. These awards are presented in recognition of 17 outstanding contributions by a lottery employee or a 18 vendor employee who have made those contributions 19 through their exceptional job performance. These 20 awards are named in honor of a gentleman, he passed 21 away several years ago, named Edward Powers. He was 22 known as the father of U.S. lotteries. 23 Mr. Powers spent more than 25 years in 24 the lottery industry and he helped to define the most 25 effective organizational structures, many of which are 0051 1 still in effect for some of the modern day lotteries. 2 The Powers name and the awards that go along with his 3 name are synonymous with success, drive, commitment and 4 integrity. Having long been a student of this 5 industry, and after years of interaction with scores of 6 lottery employees and vendors across the country and 7 around the world, I can attest to the fact that Bob 8 possesses all the traits of success, drive, commitment 9 and integrity that the Powers Award stands for and I 10 nominated Bob for the 2018 Powers Award. I'm delighted 11 to inform the Commission this morning and I'm also just 12 as delighted to surprise Bob with this announcement, 13 that Bob has been named a winner of the 2018 Powers 14 Award. He may die of embarrassment, I'm not sure, but 15 he will be formally recognized and presented with the 16 award at the NASPL professional development conference 17 in July that will be held in Orlando, Florida. 18 So Bob, congratulations and 19 Commissioners, that concludes my report this morning. 20 CHAIRMAN KRAUSE: Great. 21 Congratulations, Bob. 22 MR. BIARD: Thank you. It's an honor to 23 work here and the best job I've ever had for sure. 24 Thank you. 25 COMMISSIONER ARRIETA-CANDELARIA: Can I 0052 1 say something? 2 CHAIRMAN KRAUSE: Yes, please. We have 3 comments; questions and comments from the 4 Commissioners. 5 COMMISSIONER ARRIETA-CANDELARIA: Thank 6 you. I always get a little scared when Gary starts out 7 with those announcements, so I was like oh, yeah, 8 someone's quitting, so I'm so pleased to hear about the 9 award and, you know, I worked with Bob, I -- certainly, 10 I didn't know you when I first started serving on the 11 Commission, but you know, your advice has always been 12 sound and thoughtful and on point, and you're an 13 incredible professional individual. I've worked in 14 government for over 25 years and I can think of very 15 few people that have -- that have your skill set and 16 your professionalism, so thank you so much for all the 17 work that you do. 18 I know that there are times that you can 19 go out into the private industry and and take advantage 20 of all of those -- 21 MR. BIARD: I've been there. 22 COMMISSIONER ARRIETA-CANDELARIA: -- 23 opportunities, but thank you so much for the work that 24 you do, not only for the Lottery, but for the State of 25 Texas. So thank you, congratulations. Well deserved. 0053 1 MR. BIARD: Thank you. 2 CHAIRMAN KRAUSE: We're proud of you, 3 Bob. And so you're going to show us how skilled you 4 are by swiftly leading us through the next agenda item. 5 AGENDA ITEM XIII 6 MR. BIARD: Yes. Thank you, 7 Commissioners. Item 13 in the notebook are the 8 enforcement orders. This contains 10 lottery bingo 9 enforcement matters, Tabs A through J. In these cases 10 the Commission staff either found a licensee violated a 11 statute or rule or an applicant did not qualify for a 12 license. In many cases either the Respondent failed to 13 appear at the hearing and it proceeds by default, or 14 the Staff and the Respondent reached a settlement in 15 the form of an agreed order. 16 I'll briefly describe the cases and you 17 can take them up in a single vote if you'd like. Tabs 18 A through D are the non-sufficient fund lottery 19 retailer license revocations handled in a single order. 20 Each case was presented at the State Office of 21 Administrative Hearings for revocation of the retailer 22 license on the grounds the licensee failed to have 23 sufficient funds in their bank account to cover 24 electronic fund transfers to the Commission's account. 25 In each case the licensee failed to appear and the 0054 1 matter proceeded by default. Your notebook contains a 2 single order to revoke each of those four licenses. 3 Tabs E through G are lottery agreed 4 orders. Tab E is Beer Barn in Lake Dallas. In this 5 case, the Commission investigated a complaint the 6 retailer was operating gaming machines that awarded 7 store credit in which a player could buy, among other 8 things, Texas Lottery scratch tickets. The Agency's 9 undercover investigator played one the machines and 10 asked the clerk on duty if he could trade his credits 11 for several scratch tickets and one draw ticket. The 12 clerk complied by giving the investigator the requested 13 tickets. The violation is the licensee sold a ticket 14 accepting an unauthorized form of payment. The 15 licensee agreed to a 10 day suspension. 16 Tab F is Ricks Quick Stop in Pharr, 17 Texas in Hidalgo County. In this case, the Commission 18 investigated a complaint the retailer was accepting 19 credit cards as payment for lottery tickets, which is 20 not allowed. The investigator visited the store and 21 used a credit card to purchase lottery tickets. The 22 clerk did not ask whether the card was for debit or 23 credit. The clerk processed the payment as a credit 24 and handed the investigator a receipt for a credit card 25 transaction. The licensee agreed to a 10 day 0055 1 suspension. 2 Tab G is HEB Food Store Number 591 in 3 Round Rock. In this case, the Commission investigated 4 a complaint the retailer allowed minors to purchase 5 tickets from an instant ticket vending machine located 6 inside the store. The investigator observed a woman 7 giving money to a minor child who appeared to be about 8 10 to 12 years of age, and he used the money to 9 purchase a scratch ticket from one of the store's 10 vending machines. The machines were in plain view of 11 store employees, but the required remote control 12 shutoff devices were located in an office where they 13 were not available for use by the employees. The 14 licensee agreed to a 10 day suspension. 15 Tabs H through J are bingo worker agreed 16 orders. All three of these cases are applications that 17 could have been denied. However, each applicant 18 provided letters of recommendation and the Bingo 19 Division agreed to allow a restricted registration that 20 provides the workers cannot act as a bingo chairperson, 21 manager, operator, bookkeeper, cashier or designated 22 agent for any licensed bingo conducted for three years. 23 That concludes my presentation, and you 24 may take all these matters up in a single vote if you 25 like. 0056 1 COMMISSIONER LOWE: I have a question, 2 Chairman. 3 CHAIRMAN KRAUSE: Absolutely. 4 COMMISSIONER LOWE: So, on the 5 enforcement order for the HEB store, where was that 6 again? 7 MR. BIARD: That was in Round Rock. 8 COMMISSIONER LOWE: Round Rock? You 9 know, I've expressed concern about this issue before 10 about minors being allowed to purchase lottery tickets 11 out of these machines. Are we doing something to make 12 sure that they -- the retailers know that if they have 13 these kiosks that they don't need to be letting kids 14 buy these tickets? I mean, they're -- they're -- I 15 guess they're an important part of what we do, but 16 shouldn't be -- it shouldn't be happening at all. 17 MR. BIARD: I'll defer to operations; 18 Mr. Mindell? 19 MR. MINDELL: Commissioner, thank you 20 for the question. Ryan Mindell, Lottery Operations 21 Director for the record. 22 So two things. One on -- on this case 23 specifically when we find an issue, you know, one of 24 the things that we insisted as part of the order is 25 that they had to go out and they had to train -- 0057 1 retrain their employees and understand that this isn't 2 something that's allowed. It's a message that we 3 definitely have as part of those -- when those ITVMs 4 are installed, that they understand that they have to 5 have those kill switches within sight of the machines. 6 And you know, we worked last year to install some 7 messages on the face, the retailer facing side of the 8 of the machine or the terminal, so that -- it's a 9 rotating series of messages. And one of the things we 10 worked to do is add a messaging about the sale to 11 minors. And that's true for the ITVMs, but it's also 12 true for just normal sales -- 13 COMMISSIONER LOWE: Right. 14 MR. MINDELL: -- just like with any 15 other thing, too. So we want to make sure that that 16 message is getting out to our retailers and it is an 17 important one. 18 COMMISSIONER LOWE: Okay. 19 CHAIRMAN KRAUSE: Sir? 20 COMMISSIONER RIVERA: On the letter F, 21 the Ricks Quick Stop where a credit card was used to 22 purchase tickets, was there a complaint in advance of 23 that or was it just our folks going out randomly? And 24 if so, is that something that is done randomly? 25 MR. BIARD: That was done in response to 0058 1 a complaint, that particular case was. And I'm not 2 sure exactly what the -- whether those cases are 3 usually handled as a complaint matter or if we 4 proactively go out. 5 COMMISSIONER RIVERA: So out of 6 curiosity who was it -- who would make the complaint? 7 Meaning if someone -- if I was just a random citizen 8 and I saw that happen, how would they know that that, 9 number one, is not allowed, but just can you go through 10 that process? 11 MR. GRIEF: I think that speaks pretty 12 well to the messaging that we've gotten out there over 13 the last 25 years, that credit cards are not allowed 14 for the purchase of lottery tickets. And there are -- 15 surprisingly, there are many members of the public who 16 are very diligent about reporting what they see as 17 violations. I would venture a guess probably the vast 18 majority of our violations in the lottery space are 19 another member of the public who has witnessed the 20 behavior of either the player or the retailer and 21 lodged the complaint. 22 COMMISSIONER RIVERA: Great. Perfect. 23 Thank you. 24 CHAIRMAN KRAUSE: Other questions or 25 comments? Alrighty. Well, we are going to take action 0059 1 on all of these proposed orders and I'm looking for a 2 motion. 3 COMMISSIONER RIVERA: Move for approval. 4 COMMISSIONER ARRIETA-CANDELARIA: 5 Second. 6 CHAIRMAN KRAUSE: All in favor say aye. 7 (Chorus of "ayes") 8 CHAIRMAN KRAUSE: All proposed orders 9 and all agency recommendations are approved. 10 MR. BIARD: Thank you, Commissioners. I 11 have orders for your signature. 12 CHAIRMAN KRAUSE: Alrighty. 13 AGENDA ITEM XIV 14 CHAIRMAN KRAUSE: And we don't have any 15 more public comment. 16 AGENDA ITEM XV 17 CHAIRMAN KRAUSE: But anyway, we are now 18 ready to go into Executive Session. We have a lot to 19 do. And what we're going to do is, this is going to be 20 my motion, that the Texas Lottery Commission go into 21 Executive Session to deliberate personnel matters. In 22 particular, we are considering a candidate for the 23 Bingo Director position, and to receive various forms 24 of legal advice. And so anyway, this Executive Session 25 may take -- is going to take a couple of hours and 0060 1 anybody that wants to stick around to hear what we do 2 afterwards is welcome to, but it is going to take a 3 while. 4 Is there a second? 5 COMMISSIONER RIVERA: Second. 6 CHAIRMAN KRAUSE: All in favor say aye. 7 (Chorus of "ayes") 8 CHAIRMAN KRAUSE: We are in Executive 9 Session. It is 10:03, and the vote was unanimous. 10 (Executive Session from 10:03 a.m. to 11:43 11 a.m.) 12 AGENDA ITEM XVI 13 CHAIRMAN KRAUSE: Texas Lottery 14 Commission is out of Executive Session at 11:43 a.m., 15 and we have been considering applications for the 16 Charitable Bingo Operations Division Director position 17 and we have, I believe, a motion to be made. 18 COMMISSIONER LOWE: Thank you, Chair. 19 So let me say to the applicants, I appreciate your -- 20 what you did presenting yourself to us. The interview 21 process that we came up with I know is not an easy one, 22 it's -- there was some questions that put you on the 23 spot and it was a hard interview. I want to thank the 24 folks that helped to put our committee together and we 25 have -- I think we had a real fair and time to vet it, 0061 1 a team back there. So I appreciate y'all helping on 2 this process. 3 And with that said, my motion, Chair, is 4 as follows: 5 The Commission has considered the 6 application for the Charitable Bingo Operations 7 Director position and we are prepared to make an offer. 8 I move that the Commission offer employment to Michael 9 Farrell, as the Charitable Bingo Operation Division 10 Director, at a salary of 125, effective as soon as 11 possible. And that Ed Rogers continue as Acting Bingo 12 Director to assist during the transition until October 13 the 12th, after which Ed will revert to his prior 14 position as Retail Services Manager. 15 That is my motion, Chairman. 16 CHAIRMAN KRAUSE: Do we have a second? 17 COMMISSIONER RIVERA: Second. 18 CHAIRMAN KRAUSE: All in favor say aye. 19 (Chorus of "ayes") 20 CHAIRMAN KRAUSE: So done. So anyway, 21 at a quarter of 12:00, I think we're finished with our 22 business. 23 MR. BIARD: Do you want to ask if Mr. 24 Farrell will accept the offer? 25 CHAIRMAN KRAUSE: Oh. What say you? 0062 1 MR. FARRELL: Sir, I accept the offer. 2 CHAIRMAN KRAUSE: All right. There, 3 accepted. 4 AGENDA ITEM XVII 5 CHAIRMAN KRAUSE: So anyway, on my own 6 motion, I move that the public meeting and session be - 7 - come to an end and adjourn. 8 COMMISSIONER RIVERA: Second. 9 COMMISSIONER ARRIETA-CANDELARIA: Thank 10 you. 11 CHAIRMAN KRAUSE: All right. So done. 12 (Adjourned and concluded at 11:44 a.m.) 13 14 15 16 17 18 19 20 21 22 23 24 25 0063 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 30th day of June, 2018. 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