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 February 7, 2019 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 TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 1 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: Michael Farrell 8 CONTROLLER: Katheryn J. Pyka 9 PRODUCTS MANAGER: Robert Tirloni 10 McCONNELL JONES 11 LANIER & MURPHY, LLP: Darlene Brown 12 BINGO ADVISORY COMMITTEE: Trace Smith 13 WEAVER AND TIDWELL: Kevin Sanford 14 BINGO INTEREST GROUP: Steve Bresnen 15 TEXAS CHARITY ADVOCATES: Tom Stewart 16 ADMINISTRATION DIVISION DIRECTOR: Michael Fernandez 17 SENIOR CONTRACTS ATTORNEY: Lea Garey 18 GOVERNMENTAL AFFAIRS 19 DIRECTOR: Nelda Trevino 20 21 22 23 24 25 TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 2 1 TABLE OF CONTENTS PAGE 2 I. The Texas Lottery Commission will call the 3 meeting to order . . . . . . . . . . . . . 7 Pledge of Allegiance to the U.S. and Texas 4 flags. Texas Pledge: “Honor the Texas flag; I pledge allegiance to thee, Texas, one state 5 under God, one and indivisible.” 6 II. Report, possible discussion and/or action on external audits and/or reviews relating to 7 the Texas Lottery Commission, including the FY 2018 annual financial audit . . . . . . 7 8 III. Report by the Bingo Advisory Committee 9 Chairman; possible discussion and/or action on the Bingo Advisory Committee’s 10 activities, including appointment of committee members . . . . . . . . . . . 11/16 11 IV. Report, possible discussion and/or action on 12 agency major contracts, including the amendment of the lottery operator contract, 13 and whether discussion relating to the negotiation of the lottery operator contract 14 in an open meeting would have a detrimental effect on the Commission's position in the 15 negotiations . . . . . . . . . . . . . . 31 16 V. Consideration of and possible discussion and/or action, including adoption, on 17 amendments to 16 TAC §§401.315 (“Mega Millions” Draw Game Rule) and 401.317 18 (“Powerball®” Draw Game Rule) . . . . . . 32 19 VI. Consideration of and possible discussion and/or action, including proposal, on 20 amendments to 16 TAC §§401.101 (Lottery Procurement Procedures) and 401.105 (Major 21 Procurement Approval Authority, Responsibilities and Reporting) . . . . . 34 22 VII. Report, possible discussion and/or action on 23 lottery sales and revenue, game performance, new game opportunities, advertising, 24 promotional activities, market research, trends, and game contracts, agreements, and 25 procedures . . . . . . . . . . . . . . . 35 TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 3 1 VIII. Report, possible discussion and/or action on transfers to the State and the agency’s 2 budget . . . . . . . . . . . . . . . . . 38 3 IX. Report, possible discussion and/or action on the 86th Legislative Session . . . . . . 40 4 X. Report, possible discussion and/or action on 5 external and internal audits and/or reviews relating to the Texas Lottery Commission, 6 and/or on Internal Audit activities . . . 47 7 XI. Report by the Charitable Bingo Operations Director and possible discussion and/or 8 action on the Charitable Bingo Operations Division’s activities, including licensing, 9 accounting and audit activities, pull-tab review, and special projects . . . . . . 50 10 XII. Report by the Executive Director and possible 11 discussion and/or action on the agency’s operational status, major contracts, agency 12 procedures, awards, and FTE status . . . 51 13 XIII. Consideration of the status and possible approval of orders in enforcement cases: 14 Lottery NSF License Revocation Cases (Default) A. Docket No. 362-18-5096 – Thompson Oil 15 B. Docket No. 362-19-0274 – Right Food Mart C. Docket No. 362-19-0701 – Yolo Liquor Store 16 D. Docket No. 362-19-0702 – La Porte Express E. Docket No. 362-19-0930 – Mystop #1 17 F. Docket No. 362-19-1013 – D and M Mart G. Docket No. 362-19-1133 – Oak Hill Liquors 18 H. Docket No. 362-19-1135 – Get N Go Food Mart I. Docket No. 362-19-1270 – Quik Store 19 J. Docket No. 362-19-1272 – Regal Food Mart K. Docket No. 362-19-1346 – Tomball Postal and 20 More 2 Lottery Agreed Orders 21 L. Case No. 2018-602 – Houston Corner Store M. Case No. 2019-40 – Timewise Food Store #811 22 N. Case No. 2019-41 – Corner Food #9 O. Case No. 2019-58 – Energy Exxon 23 Other Lottery Cases P. Docket No. 362-19-0004 – Easy Shop 24 Q. Docket Nos. 362-19-0418 and 362-19-0419 – Petromart #113 and Petromart #114 (Default) . 52 25 XIV. Public comment . . . . . . . . . . . . . XX TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 4 1 XV. Commission may meet in Executive Session: A. To deliberate personnel matters, including 2 the appointment, employment, evaluation, reassignment, duties, discipline, or 3 dismissal of the Executive Director and/or Charitable Bingo Operations Director pursuant 4 to §551.074 of the Texas Government Code. B. To deliberate the duties of the General 5 Counsel and/or the Human Resources Director pursuant to §551.074 of the Texas Government 6 Code. C. To receive legal advice regarding pending or 7 contemplated litigation or settlement offers, or other legal advice, pursuant to 8 §§551.071(1) and (2) of the Texas Government Code, including but not limited to legal 9 advice regarding the following items: 10 Pending litigation regarding Fun 5’s Scratch Ticket Game #1592, including Tex. 11 Supreme Court Docket No. 18-0159 (Steele, et al. v. GTECH Corp.) and Tex. Supreme Court Docket No. 12 17-1010 (Nettles v. GTECH Corp. and Texas Lottery Commission). 13 Julam Investments, Inc. v. Texas Lottery Commission (Travis Co. District Court Cause No. 14 D-1-GN-16-006124) State of Texas v. Equal Employment Opportunity 15 Commission, et al. State of Texas v. C.D. (On Petition for Review 16 from the Twelfth Court of Appeals) Prescott Lovern, Sr., Private Attorney General v. 17 Texas Lottery Commission, et al. Legal advice regarding Texas Government Code 18 Chapters 466 (State Lottery Act) and 467, the Bingo Enabling Act, the Open Meetings Act, the 19 Public Information Act, the Administrative Procedure Act, employment and personnel law, 20 procurement and contract law, evidentiary and procedural law, ethics laws, and general 21 government law. Legal advice regarding any item on this open 22 meeting agenda. . . . . . . . . . . . . . . . 15 23 XVI. Return to open session for further deliberation and possible action on any 24 matter posted for discussion in Executive Session. Any matter posted for Executive 25 Session also may be the subject of discussion TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 5 1 and/or action in open session prior to Executive Session . . . . . . . . . . . . 15 2 XVII. Adjournment . . . . . . . . . . . . . . . 53 3 Reporter's Certificate . . . . . . . . . . . . . . 55 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 6 1 P R O C E E D I N G S 2 THURSDAY, FEBRUARY 7, 2019 3 (10:00 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN KRAUSE: According to my watch 6 it's 10:00. Good morning. I'm calling this session of 7 the Texas Lottery Commission to order. It's February 8 the 7th, it's 10:00, and we have all of our 9 Commissioners here, so we have a quorum. We have a 10 designated Pledge Commissioner, and so I ask her to 11 lead us in the Pledges. 12 (Pledges recited) 13 AGENDA ITEM NO. II 14 CHAIRMAN KRAUSE: The Commission is 15 going to go into executive session after Item III. So 16 we are going to now proceed to Item II, which is the 17 financial audit. Kathy Pyka. And she has guests for 18 us today. Or one guest. 19 MS. PYKA: Good morning, Commissioners. 20 My name is Kathy Pyka, Controller for the Agency. With 21 me this morning is Kevin Sanford, the engagement 22 partner for the firm Weaver and Tidwell who performed 23 our required annual financial audit. Kevin, I will let 24 you proceed. 25 MR. SANFORD: Thank you, Kathy. Good TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 7 1 morning, Chairman Krause and Commissioners. It's my 2 pleasure to be here today. I am presenting to you the 3 summary of the audit of the financial statements for 4 the Commission for the year ended August 31st, 2018. I 5 believe you have a copy of the materials that we're 6 going to briefly walk through, and if you have any 7 questions, either during or after, please feel free to 8 interject at any time. But in the interest of time, 9 I'm going to keep this presentation just to the 10 highlights and -- and brief. 11 Our opinion on the Lottery's financial 12 statements is on pages -- printed page numbers 4 and 5. 13 And actually, it spills into 6, of the document. And 14 once again this year, at the bottom of page 4, our 15 opinion is an unmodified or unqualified opinion. 16 That's the highest level of assurance that independent 17 auditors can give to a set of financials, and it states 18 that in all material respects, the Lottery's financials 19 are accurately presented. 20 And to walk through just the highlights 21 of the Lottery fund for the year, that is on page 22 number 29, printed page 29. Total revenues for the 23 lottery system this year were 5.626-billion. I believe 24 that's a record for the Commission. And total revenues 25 of 5.628-billion. TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 8 1 The expenditures for the year are 2 itemized below that. The largest two as you would 3 expect; 65 percent of the revenues are expended in the 4 form of prize payments to winners, 3.666-billion, as 5 well as 26 percent transfers to other intra- 6 governmental agencies of 1.45-billion, and over 99 7 percent of that number goes to the Texas Education 8 Agency in the form of the available school fund. 9 There was a minor $28-million change in 10 net fair value of investments, leading to a decrease in 11 net position of 34.6-million. And at the end of the 12 year, a total deficit net position of $81.9-million. 13 The final item that I was going to 14 present is the our other opinion in this report is at 15 the very back of the report, on pages 85 and 86. And 16 the Commission, as part of the state of Texas, and of 17 course a governmental agency, we are required to 18 conduct our audit, not only in accordance with 19 traditional audit standards, but government auditing 20 standards as well, which requires us to perform some 21 testing on the Commission's internal control and 22 compliance with material contracts and agreements. And 23 pleased to report also in this report, we did not have 24 any findings to present either in internal control or 25 compliance. TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 9 1 CHAIRMAN KRAUSE: Outstanding. 2 MR. SANFORD: So again, a clean report 3 on this instance as well. 4 And so with that, that was everything I 5 was going to highlight in the Commission's annual 6 financial report. You also have a separate letter from 7 us to you as the Commissioners responsible for our -- 8 as governance for the Commission. That is a separate 9 loose letter. And wasn't going to walk through this in 10 detail, there's really nothing other than standard 11 language that are the communications we have to make to 12 you as auditors required by our standards. But again, 13 if you have any questions on that letter or anything 14 else, be more than happy to go through them with you at 15 this time. 16 CHAIRMAN KRAUSE: Commissioners? Well, 17 as the most scrutinized and transparent agency in the 18 State of Texas, we are proud to have a clean opinion. 19 And so anyway, thank you for doing that work. 20 MR. SANFORD: Definitely. Our pleasure. 21 Thank you. 22 MS. PYKA: Thank you, Commissioners. 23 CHAIRMAN KRAUSE: You betcha. 24 COMMISSIONER ARRIETA-CANDELARIA: Do we 25 need a motion? Do we need a motion to approve? TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 10 1 CHAIRMAN KRAUSE: No. 2 COMMISSIONER ARRIETA-CANDELARIA: No 3 motion, okay. 4 CHAIRMAN KRAUSE: Unh-unh. Just a 5 reporting item. 6 MR. SANFORD: Thank you. 7 COMMISSIONER ARRIETA-CANDELARIA: Okay. 8 Thank you. 9 AGENDA ITEM NO. III 10 COMMISSIONER KRAUSE: And so now we're 11 going to take a Bingo Advisory Committee report. 12 MR. SMITH: Good morning, Commissioners. 13 Very briefly, I gave you a handout this morning on the 14 activities of the Bingo Advisory Committee last 15 meeting. Very short. The only thing that was really 16 pressing that we had was membership. We had someone 17 not show again for the second meeting, Laveda Brown. 18 Might need to have the Commission send her notice that 19 she will be removed from the Bingo Advisory Committee 20 pending your approval for that. And we also have our 21 new applications. We got those and we're reviewing 22 those for recommendations for two new members. 23 And we also have a work group meeting in 24 San Antonio coming up on the 21st of February at 11:00 25 a.m. at Northeast Bingo. Any questions, I'll be glad TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 11 1 to answer them. 2 COMMISSIONER LOWE: So is -- is it you 3 all's pleasure to replace Ms. Brown because she's not 4 been there for two meetings; is that your -- 5 MR. SMITH: That's correct, sir. 6 COMMISSIONER LOWE: -- your thought? 7 And Bob, are we allowed to -- does the Commission do 8 that or the Committee replace her; a member? To 9 declare a vacancy; who does that? If she doesn't show? 10 MR. BIARD: Well, I think it's the 11 Commissioners are in charge of the membership of the 12 Committee. 13 COMMISSIONER LOWE: Okay. 14 MR. BIARD: So I think it would be up to 15 -- I think the Bingo Commissioner could send a letter 16 just saying that -- 17 COMMISSIONER LOWE: Okay. 18 MR. BIARD: -- you know, acknowledging 19 that she hasn't -- 20 COMMISSIONER LOWE: Okay. So -- 21 MR. BIARD: -- attended any meetings. 22 So far I think there's been three meetings and she 23 hasn't attended the meetings. 24 COMMISSIONER LOWE: Three? 25 MR. SMITH: That's correct. TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 12 1 COMMISSIONER LOWE: Okay. So I'll -- 2 MR. BIARD: And then of course the 3 Commission would have to vote to fill that position. 4 COMMISSIONER LOWE: So I'll tell Michael 5 to send that letter and then if -- if she doesn't have 6 a response, we'll declare it vacant in the next April 7 meeting and then appoint a successor to her? 8 MR. BIARD: That would be correct. 9 CHAIRMAN KRAUSE: And we'll have three. 10 COMMISSIONER LOWE: Right. And then we 11 have -- we have Mr. Malone's seat to fill as well, and 12 you -- we have some applicants for these positions and 13 we'll be able to do that in April, right? Get 14 everything done? 15 MR. SMITH: It's my understanding y'all 16 wanted us to make -- 17 COMMISSIONER LOWE: Right. 18 MR. SMITH: -- recommendations of who we 19 would like to have. 20 COMMISSIONER ARRIETA-CANDELARIA: Uh-huh 21 (affirmative). 22 MR. SMITH: And then y'all would approve 23 that. So we will be making those recommendations at 24 the next meeting. 25 COMMISSIONER LOWE: Perfect. And I once TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 13 1 again, appreciate your work on behalf of the Committee. 2 I think you're the ramrod, making sure it's 3 functioning, and I know that's a hard thing to do, and 4 I do thank you for your work. 5 MR. SMITH: I appreciate that. There's 6 a lot of people on the Committee that do a lot of hard 7 work besides me, so I've got to give credit to them as 8 well. 9 COMMISSIONER LOWE: All Right. Thank 10 you. 11 COMMISSIONER ARRIETA-CANDELARIA: Thank 12 you. 13 CHAIRMAN KRAUSE: Any other Commissioner 14 comments? 15 COMMISSIONER ARRIETA-CANDELARIA: No. 16 CHAIRMAN KRAUSE: I understand that you 17 come down from Texarkana? 18 MR. SMITH: Yes, sir. 19 CHAIRMAN KRAUSE: That's a long trip. 20 MR. SMITH: Yes, sir, it is. 21 CHAIRMAN KRAUSE: All Right. Well, I 22 appreciate your commitment to leading the Bingo 23 Advisory Committee and for coming all the way down 24 here. Thank you, sir. 25 MR. SMITH: Appreciate it. Thank you, TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 14 1 sir. 2 COMMISSIONER ARRIETA-CANDELARIA: Thank 3 you. 4 AGENDA ITEM NO. XV 5 CHAIRMAN KRAUSE: At this point I move 6 that the Texas Lottery Commission go into Executive 7 Session to deliberate personnel matters and to receive 8 copious legal advice as posted in the open meeting 9 notice. 10 COMMISSIONER LOWE: What's copious legal 11 advice? 12 CHAIRMAN KRAUSE: Is there a second? 13 Have we got a second? 14 COMMISSIONER LOWE: Second. 15 CHAIRMAN KRAUSE: All in favor say aye. 16 (Chorus of "ayes") 17 CHAIRMAN KRAUSE: We're in Executive 18 Session. And it is -- 19 MR. BIARD: And the time is 10:13. 20 CHAIRMAN KRAUSE: All Right. 21 (The Commission was in Executive Session from 22 10:13 a.m. until 11:04 a.m.) 23 AGENDA ITEM NO. XVI 24 CHAIRMAN KRAUSE: It's 11:05 and Texas 25 Lottery Commission is out of Executive Session and we TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 15 1 are resuming our public hearing. 2 AGENDA ITEM NO. III (CONTINUED) 3 CHAIRMAN KRAUSE: We are still on Item 4 III, and at this point, we're going to take some public 5 comment and we're going to have a witness who is going 6 to testify for us, Mr. Steve Bresnen. 7 MR. BRESNEN: Thank you, Mr. Chairman. 8 I'm Steve Bresnen here -- B-r-e-s-n-e-n for the court 9 reporter. I am here on behalf of the Bingo Interest 10 Group. And first, I want to say I agree with you all 11 that Trace is doing a heck of a job and at great 12 personal expense and effort to come all the way from 13 Texarkana. It was a wise choice for him to be Chair. 14 I want to ask -- I think there's a 15 little bit of a process gap in the BAC process right 16 now, and then back in, I think it was probably October, 17 the BAC met and they made some recommendations that 18 they delivered to y'all in November. By my -- by my 19 notes, I think it was November 15th or somewhere on or 20 about there. And y'all received the report and 21 nothing's transpired. 22 There were two aspects of that. One 23 were four items recommended for rulemaking and there 24 were several items that are legislative matters. And 25 we're not quite sure how the rulemaking is -- assuming TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 16 1 y'all think that the rules ought to -- the 2 recommendation should be pursued, we're not quite sure 3 what the process is to get that initiated. 4 Under the Administrative Procedures Act, 5 there is a procedure for people in the community to 6 petition for rulemaking. And we could initiate that, 7 that would -- y'all would have 60 days to either 8 initiate the process or explain why you didn't initiate 9 the process. Some agencies perceive that as being 10 heavy handed and we have -- we -- we have light hearts 11 and not heavy hands, so we're not -- we don't want to 12 send that message in any way. But if it's helpful to 13 the Commission, you know, we could do that. 14 Otherwise, we'd like to see those things 15 followed up on and rulemaking initiated. That doesn't 16 require y'all to vote or do anything, make any 17 decisions, until you're actually presented with a draft 18 rule for your consideration. But that process takes 19 some time. 20 We could do the drafting and present it 21 to y'all. The staff could do the drafting and present 22 it to y'all. We can work with the staff and in 23 combination, which we usually do anyway, and present it 24 to y'all, but the -- we'd like to move forward on those 25 things, because this is relief that the Commission can TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 17 1 give under its current authority. If we wait until the 2 legislature's done and all the legislation's passed and 3 everything, and then you start doing rulemaking on 4 these and things that may be required by the 5 legislation, that would be approximately, it'd be 6 probably 90 days from September 1st when most bills are 7 effective. It would mean that that was over a year 8 from the time the BAC made these recommendations until 9 we actually got something done. And so we -- we split 10 this up and tried to pursue these things separately as 11 rulemaking on the one hand; there's some things that 12 have to be done statutorily. 13 As an example, Michael, to his credit, 14 and very well justified, asked for a -- an example of 15 that, and we talked about some of the net proceeds item 16 that could be done by -- by rule. But the one that's 17 at the top of the list that I know it's an important -- 18 particularly important to you, Commissioner Lowe, is a 19 rule on the collection of deferred rent. 20 Y'all have a policy, I think it's kind 21 of a common law policy right now, because it resulted 22 from a settlement of a case where back rent was an 23 issue. But that doesn't tell the community what the 24 rules are, and those people who are excessively 25 collecting back rent longer and in greater amounts and TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 18 1 unaccounted for, they're going to keep doing that and I 2 don't think you're going to be able to enforce common 3 law policy, you need a rule. And then so others that 4 are listening and say okay, we're not going to go past 5 90 to 120 days is what we've talked about and others 6 that are not abiding by that, they may be getting 7 competitive advantage in the bingo world by doing that. 8 So we need y'all to take action and 9 initiate rulemaking on those things. We're happy to 10 comply with any procedure that you all want to get that 11 done, but we don't want these things to linger and not 12 be done and take a year to do them. 13 The bill that we passed last session, 14 you all need to know, that -- that produced $4-million 15 a year in relief to the charities, they're expenses 16 annually, $4-million a year, and they got a one time 17 $1.4-million refund for license fees that had been 18 contributed. 19 Now, in my shop that's a pretty fair 20 day's work. All right? And we don't want to lose our 21 momentum on that, we want to keep going, because that 22 was done in combination with y'all, with your staff, 23 that was a hell of a piece of work if I do so say so 24 myself. 25 So if you would, we need some guidance TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 19 1 as to how to -- how to proceed. And if it's -- if it's 2 your druthers that -- that we initiate from outside, 3 we'll do that, and we'll do it round or flat, however 4 y'all want. And if -- if y'all would address that, I'd 5 really appreciate it. 6 COMMISSIONER LOWE: So what is the next 7 -- so we haven't had stakeholders meetings since you 8 started the committee, right? Isn't that right, 9 Michael? 10 MR. FARRELL: Yes, sir. We haven't had 11 stakeholders meeting until the committee -- this is 12 Michael Farrell for the record. 13 COMMISSIONER LOWE: So I know we talked 14 about those things, it seemed like the one that -- the 15 deferred rent issue, and then there was a report we 16 owed to the Governor on -- or the legislature, on the 17 our thoughts on the criminal history, the -- 18 MR. BRESNEN: Yes, sir. 19 COMMISSIONER LOWE: -- ten year versus 20 lifetime on the Bingo Registry. I guess here -- here's 21 my thought. I'd like to have us kind of in a consensus 22 about what direction we're going to go. And I know 23 that we'll -- if we wait until the legislature acts on 24 some stuff, it's going to delay things, but if we act 25 and the legislature changes this, where are we. And TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 20 1 then the other que -- other thing -- other point I 2 have, is that so we're at the end of our four year 3 cycle on our mandatory comprehensive rule review, and I 4 -- we'll have -- we'll do that -- we'll start that 5 anyway, Right? Michael? 6 MR. FARRELL: Yes, sir. 7 MR. BIARD: Later this year in 2019. 8 COMMISSIONER LOWE: Later this year. So 9 I guess -- I guess we need to have -- when is the next 10 stake -- when is the next meeting, the Committee 11 meeting? 12 MR. BRESNEN: BAC meeting? 13 COMMISSIONER LOWE: Yeah. 14 MR. BRESNEN: The BAC's acted -- 15 CHAIRMAN KRAUSE: No, when is the next 16 meeting? 17 MR. SMITH: It's March -- we're waiting 18 on approval to make sure the room was available; the 19 date wasn't set. 20 MR. FARRELL: I believe it was -- I 21 think it was like March 10th or somewhere around there. 22 March 7th. 23 COMMISSIONER LOWE: So could we combine 24 that with a stakeholders meeting and kind of listen to 25 some -- the proposals at that point in time? Would you TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 21 1 -- 2 MR. BRESNEN: I'm feeling a little 3 disconnect. The -- the -- 4 COMMISSIONER LOWE: I know that -- 5 MR. BRESNEN: These proposals were made 6 to the BAC and there's some detail attached to them. 7 And if we're back to the BAC process and waiting 8 another month -- 9 COMMISSIONER LOWE: Well, have we 10 arrived at a consensus on the deferred -- what's -- 11 MR. BRESNEN: In my opinion, there was 12 consensus there. The report to you all said that while 13 a specific rule was not -- or draft was not voted on, 14 there was agreement that there should be a limited time 15 period, 90 to 120 days. 16 COMMISSIONER LOWE: Right. 17 MR. BRESNEN: The reason that is 90 to 18 120 days, because it has to do something with the 19 reporting. Mr. Fenoglio could elaborate on -- on that. 20 COMMISSIONER LOWE: All Right. 21 MR. BRESNEN: And that there be a 22 separate form that you have to attribute that rent back 23 to the -- a quarter, and so you all can enforce the 24 rent cap. 25 COMMISSIONER LOWE: Right. TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 22 1 MR. BRESNEN: And so, there's enough 2 meat on these bones for us to start barbecuing this 3 issue. And I would really like to see that happen so 4 we have something to present to you at your next 5 meeting, so if you agree, you can put it on -- in the 6 Texas Register what'll take two weeks or so after that, 7 then you got a 30 day comment period in the Register, 8 and then y'all have to meet again to do final adoption 9 or make whatever changes. So what I'm recommending to 10 you right now is still going to take probably four 11 months I'd say, three to four months. 12 So we wait until March, you know, now 13 we're up into -- 14 COMMISSIONER LOWE: Right. 15 MR. BRESNEN: -- July, August, and very 16 -- very likely, we're at a year out. 17 COMMISSIONER LOWE: Right. Well, let me 18 defer to the experts. So Bob, what do you -- what is - 19 - what's your recommendation, your -- 20 MR. BIARD: Well, all I can really do is 21 lay out options for you. I mean, one thing that 22 outside doing a petition, which is not -- never my 23 first recommendation, is -- 24 COMMISSIONER LOWE: Sure. 25 MR. BIARD: -- you know, it's -- it's TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 23 1 really up to the operating division to initiate -- if 2 they want to ask for -- to initiate rulemaking, to you 3 know, they can come to legal and -- and say, you know, 4 we want to do these rule changes, and so we'll prepare 5 them and then bring them up at the next Commission 6 meeting. 7 I mean, in the past, I'm sensitive that 8 there's been some discussion in the past about bringing 9 up, you know, Bingo rules sort of in a piecemeal 10 fashion over time to sort of, you know, sort of a 11 constant stream of rulemaking. So we're a little 12 sensitive to whether we want to, you know, wait until 13 we've got a big batch of rules to propose or just to do 14 it sort of an ad hoc basis. But that's really a 15 Commission decision on how they want to handle that. 16 But to answer your question, I mean, I 17 think it originates from the operating division. But 18 since the BAC's a direct report to the Commission, I 19 think it would be up to the -- if the Commission wants 20 to give Michael that direction, then that would give 21 Michael a reason to come and initiate the rulemaking 22 process. 23 COMMISSIONER LOWE: So what does the 24 Commission think? 25 CHAIRMAN KRAUSE: Comment? TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 24 1 COMMISSIONER ARRIETA-CANDELARIA: Well, 2 I think -- I think that if the Division supports the 3 recommendations that come forward, then I think it's 4 probably the easiest path to move forward with, and 5 then we can consider that through that process. So -- 6 COMMISSIONER LOWE: I guess the question 7 is the timing. Do we want to do it -- start now or do 8 you want to wait? 9 COMMISSIONER ARRIETA-CANDELARIA: I 10 would start now. 11 COMMISSIONER LOWE: Okay. 12 COMMISSIONER ARRIETA-CANDELARIA: I 13 mean, I think if there's three or four recommendations 14 that can go ahead and move forward, let's deal with 15 that and then, they -- they come forward as they 16 unfold. I -- I think I would agree, let's go ahead and 17 if there is some consensus on -- on some major topics, 18 that -- that we can go ahead and move forward, there's 19 no reason why we should wait if there's a consensus. 20 And if the Division supports those recommendations, 21 let's put them out there on the table and vote. And go 22 -- make -- go through the process. 23 Because it is a laborious process. I 24 mean, to publish -- to publish it and disclose it for 25 comment -- opportunity for comment and all of that, TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 25 1 it's going to take a little while anyway to do that. 2 MR. BIARD: So if we -- if that's the 3 will of the Commission, then it would be possible, prob 4 -- I think these rules are -- they're not super 5 complicated. 6 MR. BRESNEN: No, sir. 7 COMMISSIONER ARRIETA-CANDELARIA: Right. 8 MR. BIARD: So if we could bring them up 9 at the April meeting, probably bring them back in June 10 or August at the latest, for adoption. 11 COMMISSIONER ARRIETA-CANDELARIA: Okay. 12 That would be my -- that would be my take. 13 MR. BRESNEN: In the meantime, we will 14 be sure and coordinate with you if anything's happening 15 legislatively that might moot what we're doing or 16 interfere in any way, then we would certainly 17 understand if -- if the decision was to stand down and 18 wait. 19 COMMISSIONER LOWE: Uh-huh 20 (affirmative). 21 MR. BRESNEN: But on these things that 22 don't need waiting on, the bingo community I think fair 23 to say, would appreciate -- 24 COMMISSIONER ARRIETA-CANDELARIA: Okay. 25 MR. BRESNEN: -- moving forward. And TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 26 1 thank you. 2 COMMISSIONER LOWE: Is that what y'all 3 want to do? 4 MR. BRESNEN: Thank you for your 5 consideration. I really appreciate it. 6 COMMISSIONER ARRIETA-CANDELARIA: Thank 7 you. 8 COMMISSIONER LOWE: We don't have 9 anything on the agenda to vote on, but we'll -- I'll 10 talk -- we'll get that going. 11 MR. BRESNEN: Yes, sir. Thanks. And 12 just one more request. 13 If there's something that's not 14 supported, if you'll let us know so we can communicate 15 with our constituency, that'd be helpful. 16 COMMISSIONER LOWE: Okay. 17 MR. BRESNEN: Thank you. 18 CHAIRMAN KRAUSE: We also have some 19 public comment from Tom Stewart. 20 MR. STEWART: Thank you, Mr. Chairman, 21 Commissioners. For the record, my name is Tom Stewart. 22 I serve as Executive Director of Texas Charity 23 Advocates. 24 More than a year ago, I mentioned two 25 key initiatives that TCA planned to undertake; a TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 27 1 marketing initiative and an economic impact study. And 2 I promised that TCA would keep you informed and follow- 3 up with you from time to time, and today's one of those 4 times that I wanted to take an opportunity to do that. 5 As you know, in January we released a -- 6 the first ever look at the impact of charitable bingo 7 on the Texas economy. Hopefully, you've had a chance 8 to review that already. But the findings are 9 significant. 10 The study found that charitable bingo 11 accounts for almost a half a billion dollars in total 12 economic output across the state. Roughly, 112-million 13 of that is in labor income, and that supports almost 14 3,000 direct and indirect jobs, across all job sectors 15 in the state economy. 16 And as important and as significant as 17 those numbers are, they don't tell the complete story 18 of charitable bingo, because to do that, you have to 19 focus in on the people who are helped by the net 20 proceeds that charities use to carry out their mission. 21 Which leads me to the other innitiative, the marketing 22 effort. 23 For the first time that I'm aware of, 24 charitable bingo in Texas now has a brand. It's new. 25 It's fresh. It's just starting to build. But it now TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 28 1 exists in a way that's never been attempted before in 2 this state. It started with fundamental market 3 research conducted last year. That research found 4 several things. 5 First, everybody loves bingo, whether 6 they play it or not. Everybody -- second, everybody 7 likes that community-based charities win at bingo, too. 8 But, and like Fenoglio, this is a really big but, bingo 9 isn't top of mind with potential customers. 10 So we used that research to develop a 11 strategic marketing plan, and the first concrete 12 evidence of that can be seen at www.letsgobingo.org. 13 That's a new website, it just went live yesterday. 14 Let's Go Bingo is our call to action and the website 15 provides customers with a way to locate the nearest 16 bingo hall by simply typing in their zip code. It also 17 has some history of the game. It's got bingo lingo as 18 a primer if you've never played before, among other 19 things. But beyond that, TCA members -- for TCA 20 members, it provides customizable marketing tools, 21 branded merchandise, in a toolkit filled with pro tips, 22 to help their halls in an effort to increase 23 attendance. 24 And while the TCA board hasn't made any 25 final decisions, I can say that it's seriously TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 29 1 considering ways to use paid generic advertising to 2 raise awareness of bingo as an entertainment option. I 3 wish we could say we had lottery-sized money for that. 4 Anything that we would do would be on a much smaller 5 scale, but it is a serious attempt to raise awareness 6 about bingo, to tell a much more robust story about the 7 game and those who benefit from it, and to begin to 8 reverse the declining trend in attendance that we've 9 seen in the past few years. 10 TCA's mission is to promote and to grow 11 this game in Texas to the benefit of charities, their 12 clients, and their bingo playing customers. Our role 13 in carrying out that mission is to build awareness of 14 bingo as a family friendly fun entertainment option, to 15 showcase the impact the game has on people, communities 16 in the state, and to advocate for legislative and 17 regulatory changes that make the game better. 18 We believe that both of these 19 initiatives that I've talked about here today help 20 fulfill that role and the major steps forward in 21 fulfilling the TCA mission. 22 I'm happy to answer any questions if 23 that's appropriate, but I appreciate you taking -- 24 giving me the time today to talk a little bit about 25 these things. Thanks. TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 30 1 CHAIRMAN KRAUSE: Thank you for coming 2 down. 3 MR. STEWART: Yeah. 4 CHAIRMAN KRAUSE: Commissioners? 5 COMMISSIONER LOWE: Thank you very much. 6 MR. STEWART: Thanks. 7 AGENDA ITEM NO. IV 8 CHAIRMAN KRAUSE: The next item is a 9 report on an amendment to the lottery operator 10 contract. Mr. Michael Fernandez. 11 MR. BIARD: Commissioners, I'm going to 12 interject before Mike gets started. This item's about 13 an amendment to the lottery operator contract and 14 whenever that is a topic of discussion in a public 15 meeting, you have the opportunity under the State 16 Lottery Act, to convene Executive Session to discuss 17 negotiations. But it's my understanding that Mr. 18 Fernandez does not recommend Executive Session, but I 19 wanted you to know that you also have that option. 20 CHAIRMAN KRAUSE: We have already 21 exercised our option along that line. You may proceed. 22 MR. FERNANDEZ: Good morning, Mr. 23 Chairman, Commissioners. For the record, my name is 24 Mike Fernandez, the Director of Administration. 25 Item IV in your notebook is a briefing TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 31 1 item to advise the Commission of staff's intent to 2 amend our current lottery operations and services 3 contract with IGT Global Solutions. The purpose of 4 this amendment is to reflect operational changes in 5 technology regarding our in lane sales. 6 Commissioners have independently 7 confirmed they do not have any financial interest in 8 IGT Global Solutions Corporation. If you have any 9 questions, I'd be happy to answer it. 10 COMMISSIONER ARRIETA-CANDELARIA: No 11 questions. None. 12 CHAIRMAN KRAUSE: Thank you, sir. 13 AGENDA ITEM NO. V 14 CHAIRMAN KRAUSE: Mr. Bob Biard, the 15 next item is yours. 16 MR. BIARD: Thank you, Commissioners. 17 For the record, Bob Biard, General Counsel. Item V is 18 the adoption of amendments to the Mega Millions and 19 Powerball Draw Game Rules with a few minor changes to 20 the proposed text as published in the December 28th, 21 2018 issue of the Texas Register. 22 The purpose of the proposed amendments 23 is to facilitate the potential future sale of Mega 24 Millions and Powerball tickets using what we refer to 25 as Commission-approved third party point of sale TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 32 1 systems, which is a reference to in lane sales of 2 lottery tickets where tickets can be sold at a checkout 3 lane without using an IGT terminal. 4 I presented these for -- at the December 5 meeting and you approved publication for public 6 comment. We received one public comment from the 7 Kickapoo Traditional Tribe of Texas, objecting to the 8 use of an undefined term "computer gaming system" in 9 both of the rules in connection with cancelled plays. 10 Staff agrees with this comment and changed that term to 11 the existing defined term "Lottery Gaming System" as 12 the Tribe suggested. 13 And we made a couple of other minor 14 cleanup changes to the rules after they were published, 15 they were non-substantive, and we recommend adoption. 16 I'd be happy to answer any questions. 17 CHAIRMAN KRAUSE: Alrighty. Is there a 18 motion to adopt the amendments. 19 COMMISSIONER ARRIETA-CANDELARIA: Move 20 to approve. 21 COMMISSIONER RIVERA: Second. 22 CHAIRMAN KRAUSE: All in favor say aye. 23 (Chorus of "ayes") 24 MR. BIARD: Thank you. 25 CHAIRMAN KRAUSE: The amendments are TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 33 1 hereby adopted. 2 AGENDA ITEM NO. VI 3 CHAIRMAN KRAUSE: Are you Lea? 4 MS. GAREY: I am. 5 CHAIRMAN KRAUSE: Absolutely. Well, you 6 are anticipating that you're the next item. 7 MS. GAREY: I am. Good morning. For 8 the record, my name is Lea Garey, and I'm your senior 9 contracts attorney. 10 I present to you for consideration a 11 draft submission to the Texas Register that authorizes 12 the publication of the proposed amendments to Rule 16 13 TAC §401.101, Lottery Procurement Procedures, and 14 §401.105, Major Procurement Approval Authority, 15 Responsibilities and Reporting. 16 The purpose of this submission is to 17 seek public comment on these proposals. The proposed 18 amendments propose to align the language of these rules 19 to coincide with updates made to the Texas Procurement 20 and Contract Management Guide and also with current 21 agency procurement procedures. We recommend that the 22 Commission approve publication of the draft amendments 23 as presented in your notebooks to seek public comment. 24 And I'm available to answer any questions should you 25 have any. TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 34 1 CHAIRMAN KRAUSE: Commissioners? 2 COMMISSIONER ARRIETA-CANDELARIA: No 3 questions. 4 CHAIRMAN KRAUSE: Alrighty. Well, is 5 there a motion to begin the rulemaking process on this? 6 COMMISSIONER RIVERA: Move for approval. 7 COMMISSIONER ARRIETA-CANDELARIA: 8 Second. 9 CHAIRMAN KRAUSE: All in favor say aye. 10 (Chorus of "ayes") 11 CHAIRMAN KRAUSE: Done. Thank you, 12 ma'am. Good job. 13 AGENDA ITEM NO. VII 14 CHAIRMAN KRAUSE: Kathy Pyka and Robert 15 Tirloni. 16 MS. PYKA: Good morning, Commissioners. 17 My name is Kathy Pyka, Controller for the Agency. With 18 me this morning is the Commission's Products Manager 19 Robert Tirloni. 20 Commissioners, our first chart this 21 morning reflects comparative sales through the week 22 ending February 2nd, 2019. Total fiscal year 2019 23 sales through this 23 week period are $2,674,000,000, 24 which is an increase of $376-million or 16.4 percent as 25 compared to the $2,298,000,000 in sales for the same TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 35 1 period last fiscal year. 2 Fiscal year 2019 scratch ticket sales 3 reflected on the second orange bar are $1,990,000,000, 4 which is a $202-million increase over fiscal year 2018, 5 with a growth rate of over 11 percent over last fiscal 6 year, the Commission's reported scratch ticket sales 7 growth in every week of the fiscal year continuing the 8 trend that we had in fiscal year 2018. 9 We have now had 11 consecutive weeks of 10 scratch ticket sales with more than $90-million, 11 including one week in which we exceeded $100-million in 12 scratch ticket sales. 13 Our scratch ticket sales amount to 74.4 14 percent of total sales for this period. 15 And moving on to the blue bar, our 16 fiscal year 2019 draw sales are $684-million, which is 17 $173.7-million increase or 34 percent, over last fiscal 18 year. Robert will now provide an overview of 19 additional sales detail. 20 MR. TIRLONI: Thanks, Kathy. Good 21 morning, Commissioners. 22 This is the comparison through last 23 Saturday, February 2nd. If we look at the top of the 24 slide for our jackpot games, you can see they're up 25 almost $177-million. The majority of that growth is TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 36 1 coming from the Mega Millions game. Mega Millions is 2 up almost $147-million this fiscal compared to last. 3 That is because of the $1.6-billion advertised jackpot 4 back in October. 5 There's growth in almost all of the 6 jackpot games and the add-on features, except Lotto 7 Texas. Lotto is down a little bit, and that is because 8 of a high jackpot that we experienced last year in 9 fiscal '18. But we're seeing really good growth with 10 the jackpot category. 11 For the daily game category, we're 12 showing a decrease of $3.2-million. You see a negative 13 $5-million figure here. I just want to remind you, 14 that is due to the closure of Texas Triple Chance. So 15 we're going to see that almost through this entire 16 fiscal year. We closed Texas Triple Chance at the end 17 of July. 18 Growth is coming from Daily 4, that's 19 very consistent. We do have a little bit of decline 20 from Pick 3. As we've discussed in previous meetings, 21 we do see migration of players from Pick 3 to Daily 4, 22 so I suspect that's what's going on here. A high point 23 is that Cash 5 is up just under $2-million. We changed 24 the Cash 5 game in September. So we're very pleased 25 with the results that we're seeing as a result of that TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 37 1 game change. 2 So if you look at the draw games as a 3 whole, they're up $173.7-million. And then as Kathy 4 mentioned, we continue to have phenomenal scratch 5 ticket sales this fiscal year and we're up $202- 6 million. So all told, the portfolio as a whole, when 7 you combine both product categories, is up $376- 8 million. And that is the end of the sales 9 presentation, but we're certainly happy to answer any 10 questions. 11 CHAIRMAN KRAUSE: Commissioners? That's 12 a testament to the fact that you guys are doing an 13 outstanding job. Thank you. 14 MR. TIRLONI: Thank you, sir. We 15 appreciate that very much. 16 AGENDA ITEM NO. VIII 17 CHAIRMAN KRAUSE: Next item; Kathy. 18 MS. PYKA: Certainly. Commissioners, 19 Tab 8 includes informations on the Agency's transfers 20 to the State and the Agency's budget status. The 21 report in your notebook reflects accrued revenue 22 transfers and allocations to the Foundation School Fund 23 and Texas Veterans Commission, as well as the 24 allocation of unclaimed prizes for the four month 25 period ending December 31st, 2018. TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 38 1 Total accrued revenue transferred to 2 State amounted to $504.3-million for the first four 3 months of the fiscal year. Of the $504.3-million 4 transferred to the State, $487.6-million was the amount 5 of revenue transferred to the Foundation School Fund, 6 $3.6-million was the amount transferred to the Texas 7 Veterans Commission, and the balance of $13.1-million 8 was transferred from unclaimed prizes. 9 The amount transferred to the Foundation 10 School Fund from sales now reflects a 30.6 percent 11 increase or $114.2-million over revenue to the 12 Foundation School Fund for the same period last fiscal 13 year. Our total cumulative revenue transfers to the 14 Foundation School Fund are now $22.9-billion. 15 The final item under this tab is the 16 Agency's fiscal year 2019 method of finance summary for 17 the first quarter ended November 30th of 2018. The 18 Commission's lottery account budget for fiscal year 19 2019 is $237.0-million. Of this amount, 69.7 percent 20 was encumbered and expended through the end of the 21 first quarter. The Bingo Operations budget funded by 22 fees is $17-million, with 13.4 percent expended and 23 encumbered through the end of the first quarter. 24 This concludes my presentation. I'd be 25 happy to answer any questions. TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 39 1 CHAIRMAN KRAUSE: Commissioners? Thank 2 you, ma'am. 3 AGENDA ITEM NO. IX 4 CHAIRMAN KRAUSE: Now we're going to get 5 our legislative report. 6 MS. TREVINO: Good morning, 7 Commissioners. For the record, I'm Nelda Trevino, the 8 Director of Governmental Affairs, and with me is Kathy 9 Pyka. I'm going to be providing a brief report 10 regarding some of the legislation that has been filed 11 this session, and Kathy will provide a report as it 12 relates to the Agency's legislative appropriations 13 request. 14 As you know, the 86th Legislature 15 convened its regular session on January the 8th. In 16 your Commission meeting notebook, we provided you with 17 a copy of the legislative bill tracking report and this 18 morning we provided you with an updated copy of that 19 report. 20 Many of the bills we track and monitor 21 cover a variety of subjects. These measures could 22 relate to subjects relating to open meetings of 23 governmental bodies, open records and the Public 24 Information Act, state purchasing and contracting, and 25 matters related to human resources and state employee TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 40 1 benefits. 2 Today I'm going to highlight these bills 3 that have been filed that specifically relate to the 4 Agency's business or that gives the Commission some new 5 regulatory authority. 6 First, there have been several bingo- 7 related bills that have been filed. These include the 8 following: 9 House Bill 882 by Representative Cecil 10 Bell and the Senate companion, Senate Bill 567 by 11 Senator Lois Kolkhorst. These identical bills extend 12 the hours of a bingo occasion from four to six hours. 13 House Bill 914 by Representative 14 Senfronia Thompson; this bill is being referred to as 15 an omnibus bingo reform bill. Some of the provisions 16 include changing the word fee to tax in all references 17 to bingo prize fees in the Bingo Enabling Act, 18 stipulating that local governments will only be 19 entitled to their 50 percent share of the bingo prize 20 fee or tax if they vote to impose the tax by November 21 1st of 2019, modifying the process for the distribution 22 of bingo prize fees for payments to local governments 23 would be made directly by the charities, authorizing 24 the Commission, based on a complaint or on its own 25 motion, to determine whether illegal gaming is TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 41 1 occurring in a county or municipality to the detriment 2 of bingo. And if so, the Commission would then 3 terminate the state's and local government's 4 entitlement to their share of the prize fee. 5 Authorizing additional bingo occasions; a charity is 6 allowed to conduct bingo. Modifying the net proceeds 7 calculation and extending the timeframe for the Bingo 8 Director's evaluation of net proceeds from 12 to 24 9 months. 10 Again, those are some of the major 11 provisions included in House Bill 914. 12 The next bingo-related bill is House 13 Bill 967 by Representative Rick Miller. This bill 14 would authorize an additional form of pull-tab bingo 15 commonly called banded paper tickets. 16 The last bingo bill, House Bill 1186 by 17 Representative John Kuempel. This bill authorizes a 18 carryover event pull-tab game in which the prize amount 19 can carryover to a jackpot amount not to exceed 20 $10,000. 21 Regarding lottery legislation, there has 22 been one bill filed so far this session, and that is 23 HJR55 by Representative Richard Raymond. This joint 24 resolution would amend the Constitution to dedicate 25 lottery proceeds to fund public education and would TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 42 1 prohibit any advertising that would promote the 2 purchase of tickets for the purpose of supporting 3 public education. 4 A few other bills; these are a bill and 5 a couple of joint resolutions that have been filed 6 relating to the operation of casino gaming that would 7 place the regulation of that activity under the Lottery 8 Commission. These include House Bill 494 and HJR36, by 9 Representative Joe Deshotel and HJR49 by Representative 10 Harold Dutton. 11 Lastly, House Bill 1 and Senate Bill 1, 12 the General Appropriations Act, includes the funding 13 for the Lottery Commission for the upcoming biennium. 14 The Agency made its appearance and provided testimony 15 regarding the Agency's budget request last week at the 16 Senate Finance Committee and we will be doing the same 17 this coming Monday before the House Appropriations 18 Subcommittee. 19 This concludes my portion of the report 20 and I'm going to turn it over to Kathy who is going to 21 report on the budget recommendations included in the 22 Appropriations Act and the Agency's budget request. 23 MS. PYKA: Thank you, Nelda. Similar to 24 last legislative session, the LBB's budget 25 recommendation for the introduced budget bills for both TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 43 1 the Senate and House reflect different amounts. In 2 summary, the Senate version of the bill includes a 3 $3.2-million net reduction to the Lottery dedicated 4 account, while the House version of the bill includes a 5 $986,000 net increase when comparing to our current 6 baseline funding. 7 The dollar difference between the two 8 versions of the budget bills is the Senate version of 9 the bill includes a $4.2-million for the retailer bonus 10 program or one-half of the requests made by the 11 Commission, while the House version of the bill 12 includes full restoration of the retailer bonus program 13 or $4.2-million in each year of the biennium. 14 The Bingo Administration Account is 15 fully funded in both bill versions. 16 In preparation for budget hearings 17 before Senate Finance and House Appropriations, the LBB 18 requested the Agency provide feedback on all unfunded 19 items and those that the Commission would like to 20 pursue as exceptional item requests. 21 Under Senate Bill 1, the Commission is 22 requesting two exceptional item requests in the amount 23 of $6-million. The first exceptional item is for $1.8- 24 million for construction required to move the Agency to 25 the Texas Capitol Complex in the year 2022. TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 44 1 Our second exceptional item for the 2 Senate version of the bill is $4.2-million for full 3 restoration of the retailer bonus program. Other items 4 included in our request for the lottery dedicated 5 account is the new rider request, authority to transfer 6 Rider 11, unexpended balance funds, between the 7 biennia. Also included in the Agency's request is an 8 increase to the Agency's exempt position to a salary 9 group seven at the maximum salary rate of the salary 10 group. 11 Now moving on to the House version of 12 the budget; the Commission's request is the same as the 13 Senate listing, but excludes a request for the retailer 14 bonus appropriation as it was fully funded in the House 15 version of the budget. 16 This concludes my presentation. I'd be 17 happy to answer any questions. 18 CHAIRMAN KRAUSE: Commissioners? Did 19 Senator West have any comments at the hearing? 20 MS. TREVINO: Yes. Mr. Chairman -- 21 CHAIRMAN KRAUSE: I'd like to have a 22 report on that. 23 MS. TREVINO: Okay. Again, the Agency 24 made its appearance before the Senate Finance Committee 25 last week and Senator West did compliment the TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 45 1 Commission on its performance as it relates to our 2 spending with HUBs, Historically Underutilized 3 Businesses. And again, he was very complimentary to 4 the Agency and said so on the record. 5 CHAIRMAN KRAUSE: Didn't he say 6 something like all state agencies ought to be run like 7 yours? 8 MS. TREVINO: He said something very 9 similar to that. 10 CHAIRMAN KRAUSE: That's what I was 11 looking for. There we go. Thank you very much. 12 COMMISSIONER ARRIETA-CANDELARIA: I had 13 a question really quick, just on the retailer bonuses. 14 And you were saying that in the -- in the Senate bill 15 it's included, in the House version it's not. 16 MS. PYKA: Actually, in the Senate bill 17 it's included at half of our requested funding. 18 COMMISSIONER ARRIETA-CANDELARIA: Okay. 19 MS. PYKA: But in the House version, it 20 is included with full restoration. 21 COMMISSIONER ARRIETA-CANDELARIA: Okay. 22 And what do you think -- what did you gauge was the 23 likelihood of that? I think that's really important 24 for our retailers and something that we should continue 25 to advocate for. And what was your feeling on that TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 46 1 particular provision? 2 MS. PYKA: From my perspective, the fact 3 that it is in the House version fully funded and it's 4 in the Senate version half funded, means it's a 5 Conference Committee item. And so, we know that it 6 will be an item for discussion. 7 COMMISSIONER ARRIETA-CANDELARIA: Okay. 8 MS. PYKA: As we looked at the 9 legialtive budget board's document that include the 10 summary of fiscal impacts as it relates to that, I 11 think they did a great job laying that item out, noting 12 that the reason that it had been cut was as part of the 13 Governor's veto. And in the Senate Finance hearing, 14 Gary had an opportunity to further elaborate on that 15 that veto and the fact that we do believe it's very 16 important to the Agency. 17 COMMISSIONER ARRIETA-CANDELARIA: Right. 18 We might have some retailers maybe testify or -- or 19 come forward and you know, I think discuss the 20 importance of that particular item, because I do think 21 it's important to reward our retailers for carrying our 22 product, so okay. Thank you. 23 MS. PYKA: You're welcome. 24 CHAIRMAN KRAUSE: Ladies, thank you. 25 AGENDA ITEM NO. X TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 47 1 CHAIRMAN KRAUSE: Darlene Brown. 2 MS. BROWN: Good morning, Commissioners. 3 I have a very quick status report for you today. 4 The activities that we have been 5 continuing since the last meeting is we have been 6 observing the Drawing Studio's operations and the 7 transition from the former independent auditor to the 8 current independent auditor. And I want to give you 9 some assurance that the transition was a major change 10 for the Agency, but it has not impacted the integrity 11 of the drawings or the games, and so, that was very 12 good to see. And I wanted to report that to you even 13 before the audit report comes out. 14 And then we've also -- we are wrapping 15 up our audit of the House Bill 2578, implementation and 16 then that is making sure that the prize fees were 17 accurately allocated to the municipalities and counties 18 according to the statute and also that the license fees 19 were accurately refunded. 20 We will be bringing both of those 21 reports to you at the next meeting. That's my status 22 report. 23 COMMISSIONER ARRIETA-CANDELARIA: And 24 just really quick. 25 MS. BROWN: Yes. TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 48 1 COMMISSIONER ARRIETA-CANDELARIA: 2 Darlene, on the Drawing Studio audit, as I understand 3 that that -- because you're taking that over, then the 4 external auditor can place reliance on those -- those 5 drawing -- those audits; is that correct? Is that the 6 purpose of that particular change? 7 MS. BROWN: We wanted to look at that to 8 make sure that the internal controls around the actual 9 drawing process was not being compromised and -- 10 COMMISSIONER ARRIETA-CANDELARIA: Okay. 11 MS. BROWN: -- significant changes with 12 the transition. I'm not sure how it's going to impact 13 the external audit, but we will work with them and get 14 that answer. 15 COMMISSIONER ARRIETA-CANDELARIA: Okay. 16 Thank you. 17 MS. BROWN: Sure. 18 CHAIRMAN KRAUSE: Any other questions? 19 COMMISSIONER ARRIETA-CANDELARIA: Unh- 20 unh (negative). 21 CHAIRMAN KRAUSE: So Darlene, how much 22 did you work with Weaver? 23 MS. BROWN: We observed what they were 24 doing. 25 CHAIRMAN KRAUSE: Uh-huh (affirmative). TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 49 1 MS. BROWN: We observed six or seven 2 drawings I'm going to say so far. 3 CHAIRMAN KRAUSE: Well, so Weaver's our 4 financial audit. 5 MS. BROWN: Correct. 6 CHAIRMAN KRAUSE: And they -- they had 7 complimentary language about our internal controls. 8 MS. BROWN: Correct. 9 CHAIRMAN KRAUSE: Which, you know, we're 10 relying on you to make sure -- 11 MS. BROWN: Okay. 12 CHAIRMAN KRAUSE: -- that they're 13 working right. 14 MS. BROWN: Thank you. Yes, I did have 15 a couple interviews with them during the financial 16 audit. I thought you meant during this transition for 17 the Drawing Studio. 18 CHAIRMAN KRAUSE: Alrighty. Well, thank 19 you for your report. 20 MS. BROWN: Thank you. 21 AGENDA ITEM NO. XI 22 CHAIRMAN KRAUSE: Michael Farrell. 23 MR. FARRELL: Yes, sir. This is Michael 24 Farrell -- for the record, this is Michael Farrell, 25 Director of Charitable Bingo. I have nothing TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 50 1 additional to add other than what's in your binder, 2 sir. 3 CHAIRMAN KRAUSE: Outstanding. 4 MR. BIARD: Commissioners, if I may just 5 piggyback on -- slightly on Michael's report. I just 6 wanted to be clear, the discussion about the BAC 7 earlier about the -- the two members that you want -- 8 that we're going to replace, you're going to replace at 9 the next meeting, is that I think that in conjunction 10 with that, that there will need to be a vote to 11 actually remove those two members -- 12 COMMISSIONER ARRIETA-CANDELARIA: Okay. 13 MR. BIARD: -- before you appoint the 14 new ones. So just I'll remember to do that, but when 15 that comes up in April. 16 CHAIRMAN KRAUSE: We can do that at the 17 same time, right? 18 MR. BIARD: Right. 19 COMMISSIONER ARRIETA-CANDELARIA: Okay. 20 MR. BIARD: All right. Thank you. 21 CHAIRMAN KRAUSE: Happy to remove them 22 if they're not going to show up. 23 AGENDA ITEM NO. XII 24 CHAIRMAN KRAUSE: Mr. Gary Grief. 25 MR. GRIEF: Thank you, Mr. Chairman. TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 51 1 Other than what's in your notebooks, I have nothing 2 further to report. 3 COMMISSIONER ARRIETA-CANDELARIA: All 4 right. 5 AGENDA ITEM NO. XIII 6 CHAIRMAN KRAUSE: Mr. Bob Biard, we are 7 circling back to you. 8 MR. BIARD: Thank you, Commissioners. 9 Item XIII in your notebook contains 17 Lottery and 10 Bingo enforcement matters, Tabs A through Q. These are 11 cases where the Commission either found a licensee 12 violated a statute or rule or an applicant did not 13 qualify for a license. In many of these cases, either 14 the Respondent fails to appear and it -- the proceeding 15 goes by default or the staff and the Respondent reach a 16 settlement in the form of an agreed order. 17 Tabs A through K are the non-sufficient 18 funds lottery retailer license revocations handled in a 19 single order. Each one of these cases was presented at 20 the State Office of Administrative Hearings for 21 revocation on the basis that the licensees failed to 22 have sufficient funds in their bank account to cover 23 electronic fund transfers to the Commission's account. 24 Your notebook contains a single order to revoke each of 25 the 11 licenses there. TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 52 1 Tabs L through O are Lottery agreed 2 orders. 3 Tabs P and Q are cases that went to SOAH 4 as litigated matters. Tab P is Easy Shop in Brazos 5 County. Staff recommends that you adopt the Judge's 6 recommendation to revoke the license. 7 Tab Q is Petromart 133 (sic) and 114, 8 located in Hardin and Orange Counties. The retailer 9 failed to show at the hearing in this case, so SOAH 10 remanded the matter to the Commission to handle as a 11 default. And the default order in your notebooks would 12 revoke the licenses for these two locations. 13 That concludes my presentation and you 14 may take these enforcement orders up in a single vote 15 if you'd like or I'll be happy to answer any questions. 16 CHAIRMAN KRAUSE: Questions, comments? 17 COMMISSIONER LOWE: I'll move to adopt 18 the recommendations of staff on all the orders. 19 COMMISSIONER RIVERA: Second. 20 CHAIRMAN KRAUSE: All in favor say aye. 21 (Chorus of "ayes") 22 CHAIRMAN KRAUSE: So approved. 23 AGENDA ITEM NO. XVII 24 CHAIRMAN KRAUSE: I believe that 25 concludes the business of the Commission for this TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 53 1 meeting. Is there a motion to adjourn? 2 COMMISSIONER RIVERA: Motion for 3 adjournment. 4 COMMISSIONER ARRIETA-CANDELARIA: 5 Second. 6 CHAIRMAN KRAUSE: All in favor say aye. 7 (Chorus of "ayes") 8 CHAIRMAN KRAUSE: We are adjourned at 10 9 to 12:00. 10 (Proceedings concluded at 11:47 a.m.) 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 54 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Kimberly C. McCright, Certified Vendor and 5 Notary in and for the State of Texas, do hereby certify 6 that the above-mentioned matter occurred as 7 hereinbefore set out. 8 I FURTHER CERTIFY THAT the proceedings of 9 such were reported by me or under my supervision, later 10 reduced to typewritten form under my supervision and 11 control and that the foregoing pages are a full, true 12 and correct transcription of the original notes. 13 IN WITNESS WHEREOF, I have hereunto set my 14 hand and seal this 17th day of February, 2019. 15 16 /s/ Kimberly C. McCright 17 Kimberly C. McCright 18 Certified Vendor and Notary Public 19 Verbatim Reporting & Transcription, LLC 20 1322 Space Park Drive, Suite C165 21 Houston, Texas 77058 22 281.724.8600 23 24 25 TEXAS LOTTERY COMMISSION 02/07/2019 TRANSCRIPT Verbatim Reporting & Transcription LLC (281) 724-8600 55