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 April 11, 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 0002 1 APPEARANCES 2 CHAIRMAN: J. Winston Krause 3 COMMISSIONERS: Doug Lowe Robert Rivera 4 GENERAL COUNSEL: Robert F. Biard 5 EXECUTIVE DIRECTOR: Gary Grief 6 CHARITABLE BINGO OPERATIONS 7 DIVISION DIRECTOR: Michael Farrell 8 CONTROLLER: Katheryn J. Pyka 9 PRODUCTS MANAGER: Robert Tirloni 10 McCONNELL JONES LANIER & MURPHY, LLP: Darlene Brown 11 BINGO ADVISORY COMMITTEE: Trace Smith 12 ADMINISTRATION DIVISION 13 DIRECTOR: Michael Fernandez 14 SENIOR CONTRACTS ATTORNEY: Lea Garey 15 GOVERNMENTAL AFFAIRS DIRECTOR: Nelda Trevino 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 . . . . . . . . . . . . . 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 scratch ticket games benefitting the Texas 7 Fund for Veterans’ Assistance under Texas Government Code §466.027, including sales and 8 revenue information, programs to benefit Texas veterans, and coordination with the 9 Texas Veterans Commission . . . . . . . . 10 10 III. Report by the Bingo Advisory Committee Chairman; possible discussion and/or action 11 on the Bingo Advisory Committee’s activities, including removal and appointment of 12 committee members . . . . . . . . . . . . 32 13 IV. Report, possible discussion and/or action on agency major contracts, including amendment, 14 renewal or extension of the contract for Internal Audit Services . . . . . . . . . 37 15 V. Report, possible discussion and/or action on 16 agency major contracts, including amendment, renewal or extension of the contracts for 17 Drawing Studio and Production Services and Instant Ticket Manufacturing and Services 38 18 VI. Report, possible discussion and/or action on 19 agency prime contracts, including amendment, renewal or extension of the contracts for 20 Security Officer Services, Lottery Drawings CPA Services and Risk Review and Compliance 21 Monitoring Services . . . . . . . . . . . 39 22 VII. Report, possible discussion and/or action on HUB and/or minority business participation, 23 including approval of the agency's Fiscal Year 2018 Minority Business Participation 24 Report . . . . . . . . . . . . . . . . . 39 25 0004 1 VIII. Consideration of and possible discussion and/or action, including proposal, on 2 amendments to 16 TAC §402.403 (Licenses for Conduct of Bingo Occasions and to Lease Bingo 3 Premises) . . . . . . . . . . . . . . . . 44 4 IX. Consideration of and possible discussion and/or action, including adoption, on 5 amendments to 16 TAC §§ 401.101 (Lottery Procurement Procedures) and 401.105 (Major 6 Procurement Approval Authority, Responsibilities and Reporting) . . . . . 45 7 X. Report, possible discussion and/or action on 8 lottery sales and revenue, game performance, new game opportunities, advertising, 9 promotional activities, market research, trends, and game contracts, agreements, and 10 procedures . . . . . . . . . . . . . . . 47 11 XI. Report, possible discussion and/or action on transfers to the State . . . . . . . . . 50 12 XII. Report, possible discussion and/or action on 13 the 86th Legislative Session . . . . . . 52 14 XIII. Report, possible discussion and/or action on external and internal audits and/or reviews 15 relating to the Texas Lottery Commission, and/or on Internal Audit activities . . . 58 16 XIV. Report by the Charitable Bingo Operations 17 Director and possible discussion and/or action on the Charitable Bingo Operations 18 Division’s activities, including licensing, accounting and audit activities, pull-tab 19 review, and special projects . . . . . . 59 20 XV. Report by the Executive Director and possible discussion and/or action on the agency’s 21 operational status, major contracts, agency procedures, awards, and FTE status . . . 59 22 XVI. Consideration of the status and possible 23 approval of orders in enforcement cases . 60 Lottery NSF License Revocation Cases (Default) 24 A. Docket No. 362-19-1441 – 1st Stop Beverage Barn B. Docket No. 362-19-1532 – Valley Food Mart 1 25 C. Docket No. 362-19-1534 – Liberty Crossing 2 0005 1 D. Docket No. 362-19-1746 – Kountry Mart E. Docket No. 362-19-1747 – Raceway 2 F. Docket No. 362-19-1795 – Super Quick Mart G. Docket No. 362-19-1941 –Xpress Beer & Wine 3 H. Docket No. 362-19-1942 – Z K L Food Mart I. Docket No. 362-19-1944 – Madi Food Mart 4 Lottery Agreed Orders J. Case No. 2018-513 – Lionbacker Drive 5 K. Case No. 2018-633 – Uptown Liquor L. Case No. 2018-745 – Texan Mart #7 6 M. Case No. 2018-802 – Lone-Star Mini Mart N. Case No. 2019-42 – Speedy Mart 7 O. Case No. 2019-121 – Express Lane Exxon P. Case No. 2019-122 – MJ Food 10 8 Q. Case No. 2019-123 – New Sunshine Food Mart R. Case No. 2019-152 – I-40 Eastern Liquor 9 S. Case No. 2019-161 – Handi Plus #19 T. Case No. 2019-163 – Lexington Food Mart 10 U. Case No. 2019-264 – Kountry Korner V. Case No. 2019-265 – Hwy 290 Shell Truck Stop 11 W. Case No. 2019-379 – Triple E Corner Store #2 X. Case No. 2019-380 – Quik Shop 12 Other Lottery Cases Y. Docket No. 362-19-0857 – Stephens Country 13 Corner Bingo Agreed Orders 14 Z. Docket No. 362-19-0858.B – Knights of Columbus 5155 15 AA. Case No. 2019-624 – Heather Martinez (bingo worker) 16 XVII. Public comment . . . . . . . . . . . . . . . XX 17 XVIII. Commission may meet in Executive Session . . 61 18 A. To deliberate personnel matters, including the appointment, employment, evaluation, reassignment, 19 duties, discipline, or dismissal of the Executive Director and/or Charitable Bingo Operations 20 Director pursuant to §551.074 of the Texas Government Code. 21 B. To deliberate the duties of the General Counsel and/or the Human Resources Director pursuant to 22 §551.074 of the Texas Government Code. C. To receive legal advice regarding pending or 23 contemplated litigation or settlement offers, or other legal advice, pursuant to §551.071(1) and 24 (2) of the Texas Government Code, including but not limited to legal advice regarding the 25 following items: 0006 1 Pending litigation regarding Fun 5’s Scratch Ticket Game #1592, including Tex. Supreme Court 2 Docket No. 18-0159 (Steele, et al. v. GTECH Corp.) and Tex. Supreme Court Docket No. 17-1010 (Nettles 3 v. GTECH Corp. and Texas Lottery Commission). Julam Investments, Inc. v. Texas Lottery 4 Commission (Travis Co. District Court Cause No. D-1-GN-16-006124) 5 State of Texas v. Equal Employment Opportunity Commission, et al. 6 State of Texas v. C.D. (On Petition for Review from the Twelfth Court of Appeals) 7 Prescott Lovern, Sr., Private Attorney General v. Texas Lottery Commission, et al. 8 Legal advice regarding Texas Government Code Chapters 466 (State Lottery Act) and 467, the 9 Bingo Enabling Act, the Open Meetings Act, the Public Information Act, the Administrative 10 Procedure Act, employment and personnel law, procurement and contract law, evidentiary and 11 procedural law, ethics laws, and general government law. 12 Legal advice regarding any item on this open meeting agenda. 13 XIX. Return to open session for further deliberation 14 and possible action on any matter posted for discussion in Executive Session. Any matter posted 15 for Executive Session also may be the subject of discussion and/or action in open session prior to 16 Executive Session . . . . . . . . . . . . . . 62 17 XX. Adjournment . . . . . . . . . . . . . . . . . 62 18 Reporter's Certificate . . . . . . . . . . . . . . 63 19 20 21 22 23 24 25 0007 1 P R O C E E D I N G S 2 THURSDAY, APRIL 11, 2019 3 (10:00 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN KRAUSE: Good morning. I'm 6 calling this meeting of the Texas Lottery Commission to 7 order. It is 10:00 straight up regardless of what the 8 clock says. And we have Commissioners Lowe and Rivera 9 present, so we have a quorum. Just barely. 10 Since the last meeting Carmen Arrieta- 11 Candelaria submitted her resignation as Commissioner to 12 the Governor, the Governor accepted it, and she will 13 not be attending any future meetings. We are now down 14 to the bare bones. 15 In addition to that, it is an actual 16 happy day for our other Commissioners, because this is 17 Commissioner Lowe's last meeting. And so before we 18 have a pledge and really get busy with our business for 19 the day, I would like for Commissioner Lowe to just 20 give us about two, three minutes on what sounds like a 21 really kind of an exciting opportunity for any lawyer. 22 COMMISSIONER LOWE: Okay. So around our 23 house on Saturdays, if the TV's on, my wife is watching 24 HGTV and the show that's her favorite show is -- is 25 about buying property on the islands. So she said well 0008 1 Doug, what do you think about moving to the Pacific. I 2 said I was born in California and I'm not going back 3 there. So she said no, I mean like an island in the 4 Pacific. I said well -- I said, Diane, if you can find 5 me a job in the Island Pacific, then I'll go. And so 6 bless her heart, she found me a job in the Island 7 Pacific. 8 CHAIRMAN KRAUSE: And what job is that? 9 COMMISSIONER LOWE: Well, she -- you 10 know, she said it wasn't bad for a job that fits your - 11 - your particular profile, it's with one that wanted a 12 prosecutor who is experienced that's quick on his feet 13 and that's sarcastic and an asshole. I said, it didn't 14 say that, Diane. 15 (Laughter) 16 CHAIRMAN KRAUSE: It would never say 17 that. 18 COMMISSIONER LOWE: She said well -- she 19 said it's like a song that comes naturally to you. So 20 anyway, so I'll be damned if I applied for a job on the 21 Island of American Samoa, it's a territory of the 22 United States of America, as -- as Assistant to the 23 Attorney General of the -- of that territory and they 24 have hired me to be an Assistant Attorney General, a 25 line prosecutor over there. My place I'm going to live 0009 1 is going to be furnished by the government. It's about 2 50 yards from the Pacific Ocean, and so my kids are 3 going to go to international school over there, it's a 4 private school, so they're pretty excited, I'm pretty 5 excited. 6 It's scary, though, to think about 7 leaving -- leaving Texas behind. When you get over 8 there, there's only one road on the island. The speed 9 limit is 25 miles an hour, but they have a lot of pick 10 up trucks. So I'll be doing that for -- I've taken a 11 two year contract. I'm going to go Monday, leaving on 12 the plane, checking it out, and if all -- and if they 13 like me and I like them, I guess I bring the family 14 over in June, Chairman. And I do want to -- before we 15 get started -- acknowledge that you guys have been 16 great, Chairman. 17 I -- I'm guessing the Governor caught 18 me, I told you this before when they said we know you, 19 we hear you know something about gambling. I said 20 where'd you hear that. I said -- well, they said, we 21 want you to be on the Bingo -- be the Bingo 22 Commissioner, this Bingo -- Lottery Commission. Well, 23 I was kind of suspicious and I know that -- I didn't 24 always -- I stepped on people's toes and I apologize 25 for that, for doing that, but I think that this 0010 1 organization is amazing. I think the leadership here, 2 Gary, all the department heads, you've got something to 3 be proud of. And I think the people of Texas have 4 something to be proud of. And I just hope the 5 Legislature or the Governor remember that in this 6 session that's coming up. 7 So I guess that's enough said, Chair. 8 And once again, I appreciate your courtesies and all 9 the courtesies that have been extended to me. And as 10 one of my favorite cowboys said, happy trails; until we 11 meet again. 12 CHAIRMAN KRAUSE: Outstanding. Well, we 13 wish Doug the best. 14 (Applause) 15 CHAIRMAN KRAUSE: And now our new pledge 16 Commissioner, Commissioner Rivera, is going to lead us 17 in the pledge to the American flag and then the Texas 18 flag. 19 (Pledges recited) 20 AGENDA ITEM NO. II 21 CHAIRMAN KRAUSE: We are now officially 22 underway and our first order of business is to call up 23 a special guest who is Mr. Armezzani. If you'll come 24 up, take a seat. We're not going to swear you in, 25 although, we're going to think about it. You might 0011 1 know something that we want to know. 2 Anyway, this meeting was originally 3 scheduled for last week and I got an invitation at the 4 -- I guess I was invited by the Special Forces 5 Charitable Trust. I've come to find out there are 6 several, you know, charitable organizations that 7 benefit, you know, a really pretty great variety of our 8 -- of our veterans and special forces and our -- you 9 know, our Armed Forces. And so anyway, I got to go 10 last week and spend the whole week out at Fort Bragg 11 and that is where they train our Green Berets. And I 12 learned that Green Berets are referred to as Special 13 Forces, SF, okay? That is to be distinguished, it's 14 very important to them, from SOF, Special Operating 15 Forces, which include Delta, Seals, you know, there's a 16 Special Operation Marines, the Air Force has their own 17 Special Operators and that kind of thing. So that's 18 all SOF. SF means Special Forces, that means Green 19 Berets. 20 And so anyway, those young people, and 21 there are some women that are out there, that are 22 candidates to become Green Berets, have got my complete 23 admiration. They have to go through a three week trial 24 period to see whether or not they get to stay for the 25 rest of the 66-week training period. And when they 0012 1 come out, they are not only extremely physically fit, 2 but they are knowledgeable in whatever their special 3 area is, and they speak at least one or two languages 4 fairly fluently. And so I am just flat out amazed by 5 that. 6 I got to, you know, be shown around by 7 the cadre. Cadre are the instructors. And so they 8 have deployed multiple times, they have their 9 experience and they're the teachers out there. And a 10 finer group of people I could not imagine, you know, 11 being with. It makes me very proud to be an American. 12 And so anyway, I wanted to acknowledge 13 that because we raise $18-million every year for the 14 Texas Veterans Commission and you know, and so we've 15 got some representatives here today that are going to 16 be addressing us a little bit later and, you know, and 17 so anyway, but I was really interested in having a 18 Green Beret veteran to come and appear. And so Mr. 19 Armezzani, come forward. I've got something for you. 20 We actually have something for each 21 other, so this is going to be a trade. Are we going to 22 do this the right way? 23 MR. ARMEZZANI: If you want to do it the 24 right way, we can do it the right way. 25 CHAIRMAN KRAUSE: Well, how are we going 0013 1 to do that? 2 MR. ARMEZZANI: I'll do that first. 3 CHAIRMAN KRAUSE: Okay. 4 MR. ARMEZZANI: Thank you, sir. Very 5 much. 6 CHAIRMAN KRAUSE: Outstanding. 7 MR. ARMEZZANI: Have one more for you. 8 CHAIRMAN KRAUSE: Oh, well, that's -- 9 MR. ARMEZZANI: Have to give you your 10 cool hat. 11 CHAIRMAN KRAUSE: I can always use a 12 cool hat. Thank you for coming. So if you wouldn't 13 mind returning to your seat and if you'd explain to 14 everybody what Challenge Coin is, a little tradition 15 about it, and then tell us a little bit about the Green 16 Beret Foundation who you work for, and we'd be really 17 grateful. 18 MR. ARMEZZANI: Actually, I should stand 19 up. 20 CHAIRMAN KRAUSE: If you'd like to stand 21 up and face everybody, that's fine. 22 MR. ARMEZZANI: Yeah, I can do -- I -- 23 be a little bit easier. 24 So the tradition of the Challenge Coin 25 actually started in the '50s with the first -- the 0014 1 first Special Forces unit that was formed, which was 2 then Special Forces Group and the company Sergeant 3 Majors would give a coin to the -- to their incoming 4 personnel so that they could identify themselves to 5 each other later on. 6 That kind of ballooned into Challenge 7 Coins all over the place to the point where I got one a 8 few years ago from the Seattle Seahawks. So everybody 9 has a Challenge Coin. Okay? 10 Quite -- as a piece of American history 11 though, the -- the coin being used as a means of 12 identification actually dates back to the original 13 patriots for this country. There -- there were coins 14 made by Paul Revere and he gave them to the Sons of 15 Liberty, okay, and those guys would identify -- use 16 them to identify each other. And it was also a form of 17 currency to subvert the British currency at the time in 18 Boston, Massachusetts. So a little bit about the 19 origin of the coins. 20 The Green Beret Foundation is a 21 501(c)(3) nonprofit organization and it's headquartered 22 right on Blanco Road in San Antonio, Texas. The main 23 mission of the organization is to take care of Green 24 Berets and their family members; their spouses and 25 their kids, in -- in areas where other organizations 0015 1 don't have the resources and they don't meet -- they 2 don't have the capability. So in a couple of -- give 3 you a couple examples. The four pillars that we use is 4 casualty support, extended care, family support and 5 then transition assistance. 6 For casualty support, I'll give you a 7 little bit of information on that. When an individual 8 is wounded in action, the first thing that happens is 9 the medic goes up to him and ensures that he has a 10 airway, that he's breathing -- or bleeding, and that he 11 has a -- or not bleeding, but breathing, and that his 12 major hemorrhage is controlled, okay, so ABCs control 13 bleeding. 14 The next thing he does is cut all the 15 clothes off the -- off the casualty and make sure that 16 there's nothing else that's wrong with him, okay? 17 After that, he's packaged up and moved to the combat 18 support hospital or evac hospital and evac'd out of the 19 area. 20 From the point that the clothes are cut 21 off, this individual's naked, okay, except for hospital 22 blankets and what have you. What we do is as soon as 23 they land stateside or are stable, we'll send a 24 casualty rucksack out to the -- out to our guys. And a 25 rucksack is hoodies and t-shirts and scrub bottoms and 0016 1 breakaway shorts and a $2500 casualty check, pay to 2 offset the fact that he's naked, all right, other than 3 hospital garb, and B, usually the spouse ends up 4 showing up in the middle of the night, there's no 5 diapers, she's out of -- she's out of formula, the -- 6 it's -- she can't pay or there's no money to pay for 7 the parking, at the hotel that she's staying at, so 8 that's what we give is we give that to offset those 9 initial costs and what have you. 10 Extended support is as he's going 11 through the rehabilitation process, if there's anything 12 that this individual needs that can't be provided for 13 by the department -- the military or the VA and what 14 have you, such as specially adapted braces, HBOT 15 therapy. Anybody know what HBOT is? It's the 16 hyperbaric oxygen therapy for TBI or traumatic brain 17 injuries. Various things like that. 18 Family support will provide -- offset 19 travel and lodging for kids who are going through 20 cancer treatment. You know, we'll do that for a 21 family. Same thing for the spouses and what have you. 22 All right? So we also have a scholarship program for 23 them. 24 And the last is the transition support 25 that I was just hired to do. The Green Beret 0017 1 Foundation absorbed another organization called Oasis 2 Group and our -- our goal is to ensure that these 3 individuals are -- get all the -- their -- their out 4 processing from the military is smooth and seamless and 5 that there's no cracks that they fall through with 6 their VA claims or -- or VA healthcare for -- and 7 that's a -- that's going to be my job. 8 We actually have an application packet 9 that gets forwarded to the VA office of general counsel 10 for -- to be recognized as a Veterans service 11 organization. So incidentally, as far as Special 12 Forces footprint here in the great state of Texas, 13 there's eight Special Forces association chapters all 14 through the state. That's a sig -- there's -- there's 15 a significant Special Forces veteran population in the 16 state obviously, enough for eight chapters. There's 17 also two National Guard Green Beret companies; one 18 assigned to Camp Bullis, and the other one is assigned 19 to the Dallas area. And they fit into the regular 20 deployment pattern with all the other active duty 21 units. And from what USOC has been hinting at is that 22 profile or that footprint is going to grow over time 23 also. 24 So that's all I have, sir. Mr. 25 Chairman. 0018 1 CHAIRMAN KRAUSE: Mr. Armezzani, since 2 you are a bingo -- since you are a lottery player, if 3 you didn't know about our lottery here, these are void 4 tickets -- 5 MR. ARMEZZANI: All right. 6 CHAIRMAN KRAUSE: -- these are samples, 7 so -- 8 (Laughter) 9 CHAIRMAN KRAUSE: They denote exactly 10 what you get. 11 MR. ARMEZZANI: Thank you. 12 (Laughter) 13 CHAIRMAN KRAUSE: Thank you. 14 (Applause) 15 CHAIRMAN KRAUSE: Kathy Pyka, and your 16 entourage. I guess you're going to give us a report 17 and you're going to introduce some other folks. 18 MS. PYKA: Correct. 19 CHAIRMAN KRAUSE: All right. Feel free. 20 Please proceed. 21 MR. TIRLONI: Good morning, Mr. 22 Chairman, Commissioners. For the record, I'm Robert 23 Tirloni, Products Manager for the Commission and Kathy 24 Pyka, our Controller, is with me this morning. 25 Commissioners, I provided you with 0019 1 samples of some of our veterans scratch ticket games, 2 and they're also depicted on this slide. Every year 3 right before Veteran's Day, we release a Veteran's Cash 4 scratch ticket, and then through the remainder of the 5 year, we release generic scratch ticket games. And 6 while they are not branded as Veteran's Cash, they 7 clearly indicate that those games support Texas 8 Veterans. 9 We have a very collaborative 10 relationship with the Texas Veterans Commission. In 11 fact, we're coming up on 10 years of working together. 12 We first started working together in the fall of 2009. 13 We provide staff from the TVC with game 14 concepts that we believe will be successful and then 15 they have the opportunity to choose the games that they 16 like best. We support these games on our website and 17 we also support them in store on our advertising 18 displays. And we also incorporate our support for 19 veterans into a lot of our promotional events around 20 the state. So just to give you a brief flavor, I'll 21 give you two quick examples. 22 So at the State Fair of Texas this past 23 fall at the Texas Lottery venue, we encouraged trial of 24 our Veterans scratch ticket games. Typically you have 25 to spend $10 to spin the lottery prize wheel at that 0020 1 event, however, every day from 5:00 p.m. to 7:00 p.m., 2 if a player purchased a $5 draw game and a $2 Veterans 3 scratch ticket, they had the ability to spin the prize 4 wheel. 5 So this kind of promotion allows our 6 promotion staff, our promotions team that's at that 7 event to focus on the Veterans game. It gives them the 8 ability to talk to players about it and educate players 9 about our support and our contributions to the Fund for 10 Veterans' Assistance. 11 Another example is our promotional 12 relationship with the Texas Stars hockey team. On 13 military appreciation nights, 125 Texas Lottery 14 promotional prize packs are distributed to military 15 personnel and their family members, and then they also 16 receive a seat upgrade to the executive section of the 17 arena. This promotion also communicates information to 18 all the attendees at that game about our support of 19 veterans, the fact that we have scratch tickets that 20 support veterans, and it communicates all of that 21 information. So that's another great opportunity for 22 us to promote these games and promote our contributions 23 to the Fund for Veterans' Assistance. 24 Kathy's now going to give you an update 25 on the sales and revenue that we've been able to 0021 1 generate for the Fund for Veterans' Assistance since 2 the game started in fiscal 2010. 3 MS. PYKA: So that's correct, Robert. 4 So beginning with the first game introduced in 2010, 5 sales in the first year were $32-million, with revenue 6 of $7.4-million. In our most recent fiscal year 2018, 7 sales of tickets dedicated to veterans were $66.3- 8 million, with $18.1-million in revenue dedicated to the 9 Fund for Veterans' Assistance. 10 Commissioners, our cumulative sales are 11 just under $430-million and revenue of $108-million. 12 This concludes our remarks this morning and we have a 13 public service announcement for you that was produced 14 by the Texas Veterans Commission that we wish to share. 15 (PSA video played) 16 MS. VILLASENOR: Good morning, Mr. 17 Chairman and Commissioners. For the record, I'm 18 Melissa Villasenor, Governmental Affairs Liaison for 19 the Texas Lottery Commission. I also have the 20 privilege of serving as our Agency's liaison on the 21 lottery's theme game initiative fostering our Agency's 22 partnership with the Texas Veterans Commission -- to 23 Texas Veterans Commission's Fund for Veterans' 24 Assistance, supporting Texas veterans and their 25 families. 0022 1 Thank you, Mr. Armezzani, for also 2 attending today's Commission meeting and your service 3 to our country. 4 Joining us today are members of the 5 Texas Veterans Commission's leadership team. To my 6 left is Chip Osborne, Director of Resource Management; 7 Charles Catoe, Director for the Fund for Veterans' 8 Assistance; and also joining us is Elizabeth Webster, 9 Communication Coordinator for the Fund for Veterans' 10 Assistance. 11 We also welcome Armen Babajanian, Chief 12 Operating Officer of Big Brothers Big Sisters of San 13 Antonio was -- they were awarded as a grantee in 2018- 14 2019 a general assistance grant. And also with -- 15 joining us as well is Sergeant Allison Brewton. Thank 16 you for being with us this morning. 17 At this time, if there are no other 18 questions, Chairman and Commissioners, I will turn it 19 over to our guests, members of the leadership team 20 representing the Texas Veterans Commission. 21 MR. OSBORNE? Thank you, Chairman. My 22 name for the record again is Chip Osborne. I'm the 23 Division Director for Resource Management. 24 I want to just tell you thank you very 25 much for the partnership that we have. I've been with 0023 1 the Agency since September of basically 2012. I also 2 know Rob, I know Kathy, it has just been a phenomenal 3 relationship. 4 In our state, we roughly have 1.7- 5 million veterans that live in our great state. Also in 6 the great state of Texas, we have the largest woman's 7 veteran population of 187,000 that no other state has. 8 This relationship has just been great. 9 Your -- the funds that we actually 10 receive we've been able to give out across the state to 11 various organizations and help countless veterans, 12 their families, not only with general assistance, but 13 also with mental health issues, so it has just been 14 great. 15 I just want to let you know that on 16 March the 8th, our Commission will be making their 17 recommendations for the next grant cycle. Because of 18 the uptick within the sales, originally we were 19 scheduled to give out only $17-million. I'm here to 20 let you know that our Commission are going to have an 21 opportunity to award additional $5-million on top of 22 that. It is because of this great partnership that we 23 have. 24 Guys, I can't thank you enough. I mean, 25 every time I go across the street and talk with the 0024 1 legislators, I tell them this is a partnership that 2 should never be broken and that we count on your 3 support. You are the lifeline of our program for Fund 4 for Veterans' Assistance program. 5 Before I leave and turn this over to 6 Charlie, I have coins that I want to present to you. 7 (Laughter/Applause) 8 CHAIRMAN KRAUSE: Thank you. 9 MR. CATOE: For the record, my name is 10 Charlie Catoe. I'm the Director of the Fund for 11 Veterans' Assistance of the Texas Veterans Commission. 12 And I wanted to take this opportunity to thank all of 13 you for your wonderful team that I get to work with on 14 a daily basis. I -- I -- this partnership wouldn't 15 happen without Melissa and what she does for us and 16 it's great, so I want to take that opportunity to thank 17 her publicly. 18 Chip gave you kind of the big picture of 19 the Fund for Veterans' Assistance. We actually have 20 four grant programs. General assistance is kind of 21 transportation, education, employment, a whole bunch of 22 different things that you can think of. We also have a 23 veterans mental health grant. We have veterans 24 treatment court grants which supports specialty courts 25 for justice-involved veterans. And then we have 0025 1 Housing for Texas Heroes grant, which supports both 2 homeless veterans, keeps veterans from becoming 3 homeless, and it also does home modifications. So that 4 takes veterans and -- takes care of their houses so if 5 they're on the -- the older side, it makes them so they 6 can age comfortably in place. And if they're some of 7 our younger veterans, it provides a way to possibly 8 give them handicap access in their house if they're one 9 of our Wounded Warriors. 10 Our grantees span the gamut. We give 11 grants to nonprofit organizations that provide services 12 and to units of local government. 13 Today, we actually invited with us one 14 of our current grantees, the Big Brothers Big Sisters 15 of South Texas. And I'll let them introduce the 16 program that is made possible in large part by the 17 funding that we receive from that lottery ticket. 18 Thank you. 19 MR. BABAJANIAN: Good morning. 20 CHAIRMAN KRAUSE: Good morning. 21 MR. BABAJANIAN: My name is Armen 22 Babajanian. I am the Chief Operations Officers for Big 23 Brothers Big Sisters of South Texas, which covers 24 Comal, Guadalupe, Bexar, Brazos, and all of south 25 Texas; Corpus Christi. I've been with the organization 0026 1 for a little over 17 years in four different cities, 2 starting in Houston, Kerrville, in the Hill Country, 3 San Antonio, and a brief experience abroad in Poland to 4 start the operations there. So if American Samoa wants 5 something -- 6 COMMISSIONER LOWE: All right. 7 MR. BABAJANIAN: -- I'd be happy to -- 8 be happy to come out there. And I've also been a Big 9 Brother. My Little Brother recently gradua -- he was 10 enlisted in the Navy, he lives in Seattle, so he would 11 be a perfect person for the grant that we had been 12 awarded. He doesn't know that yet, but I'll let him 13 know. 14 We do one thing and one thing only since 15 1904 when our founder Ernest Coulter initiated this 16 program; pairing up volunteers to kids who face 17 challenges in the community. We have a lot of negative 18 things going on in our society and our communities, and 19 this is one thing where there's a -- there's hope, 20 there's a positive person in their life who could guide 21 them, lead them, to graduate from high school and have 22 a post-high school plan. We do the one -- the 23 mentoring is one to one in person and -- and that's 24 what we're known for. And we can't do any of that 25 without the support from the Veterans Commission and -- 0027 1 and from you all, the Lottery Commission. 2 So it allows us -- these funds allow us 3 to serve more kids who are -- who are waiting, 4 particularly those kids who come from families of 5 veterans and also volunteers like Sergeant Brewton who 6 is a Big Sister. 7 MS. BREWTON: Good morning, Mr. 8 Chairman, Commissioners. For the record, my name is 9 Sergeant Allison Brewton, U.S. Marine Corps. And -- 10 okay. Maybe y'all can hear me a little better. I am a 11 Marine, I am a single mom, and I am also in grad school 12 getting my degree in clinical mental health counseling. 13 I also work with Big Brothers Big Sisters and I'm a Big 14 Sister to an amazing Little Sister. 15 And for this program, the funding that 16 we get, specifically for veterans, it is amazing that 17 we're able to help veterans find their place in 18 society, find their place back home, give them a sense 19 of purpose by mentoring a -- a "Little," a Little 20 Brother or Little Sister. It's just a huge thing to be 21 able -- because we have a wealth of knowledge as 22 veterans. We've seen and done things that, you know, a 23 lot of people don't get the opportunity to do. 24 We've come from a variety of living 25 situations as children, so we may have similar 0028 1 experiences to the Littles that we're mentoring. And 2 by being able to show them hey, look what we've done, 3 look what we've experienced, you can do this, too, like 4 give them that hope and in giving them that hope, that 5 gives us you know, like I said, the sense of purpose, 6 something that is -- is lacking for a lot of veterans. 7 You know, they get out of the military, they've had 8 that purpose for so long and they get out and they're 9 lost now. 10 They don't know what to do, where to go, 11 who -- you know, who's going to hire them or what kind 12 of degree do they want. And so by being there for them 13 as a mentor or a mentorship opportunity like Big 14 Brothers Big Sisters, we give them that sense of 15 purpose and we give them something that they can have 16 like actually see is changing. 17 You know, we're a selfless community of 18 veterans and we're going over to foreign parts of the 19 world and -- but we're not seeing what that impact has 20 on our country and our community. But by being a Big 21 Brother or Big Sister and being a mentor to somebody 22 who needs it within our own community, we do see that 23 change. And by having the grant funding from Texas 24 Veterans Commission, that gives us the ability to help 25 so many more veterans be able to step in that position 0029 1 and be a mentor for a child in need. 2 Thank you. 3 COMMISSIONER LOWE: All right. Thank 4 you. 5 CHAIRMAN KRAUSE: Thank you very much. 6 Thank you all for coming down. Oh, go ahead. 7 COMMISSIONER RIVERA: Well, a couple of 8 things. Just I appreciate the work that collectively 9 all of you, you know, do for our state and it's 10 something that I know may not seem that -- that 11 visible, but it is, and it does have an impact and it 12 ripples throughout the state and the lives of -- we'll 13 focus, you know, on the micro here Big Brothers Big 14 Sisters, but the lives of these children, you know, 15 they grow up. I mean, like you said, yours is now in 16 his 20s and off in another state and he's going to be 17 the head of a household one day and his kids will go on 18 and -- and live awesome, you know, productive lives 19 because of your direct involvement that started here in 20 Texas. 21 So it is important, so the organization 22 is great and we're, you know, happy that y'all are here 23 and happy to, you know, that you've made that 24 partnership with the Veterans Association. And you 25 mentioned -- or actually, you did serve out March the 0030 1 8th that those grants were awarded and so I'm confident 2 that our Chairman here or myself would be glad to -- to 3 go to any of those future award meetings if -- if 4 invited. I'm sure Doug would come out from -- he's on 5 the globe as well, so but definitely keep us abreast of 6 that and invite us and we'd be happy to participate and 7 physically come to your meetings as well. 8 COMMISSIONER LOWE: So Chair, I want to 9 acknowledge the importance of their -- our partnership 10 with the Commission and what we -- what we're able to 11 do with help from the citizens of Texas. 12 I do want to say about American Samoa, 13 it's a territory of the United States, but the people 14 that are born there are not citizens by birth. They -- 15 they have -- their status is a little -- it's strange, 16 but one thing that's unique about them is they have the 17 highest percentage of veterans in the -- per capita of 18 anyplace in this country. So there are more veterans 19 over there per capita than any other place. 20 In addition to producing a lot of NFL 21 football players, so that's -- so the veterans 22 organizations over there are active I've heard and that 23 they do great things. 24 The last thing is that y'all looked at 25 this tie kind of funny and I want you to know this tie 0031 1 is legal in a Texas courthouse. But I'm wearing it in 2 honor of my father-in-law Allen Hopkins (ph) who got 3 this when he was working for the Texas Department of 4 Criminal Justice, but when Allen was in his teens, he 5 joined the United States Navy and served in World War 2 6 in the Pacific and when the Korean War came along, his 7 mother said, Allen, we don't want you to go this time, 8 can you stay home. 9 Well, he did and then his mother -- she 10 passed away, so Allen joined the Seabees in the Vietnam 11 War. And Mr. Hopkins received the bronze star and his 12 purple heart, a veteran. He's passed away now, but I 13 understand that the story that's told about him getting 14 the bronze star is he was driving a bulldozer over a 15 Viet Cong machine nest, which we don't -- I don't know 16 if that's true or not, but we were certainly proud of 17 him and I'm proud of you folks and thank you again, and 18 I'm sorry to pass on our time, but I think this is an 19 important thing that we do and I know that -- that 20 we'll do everything in the world to keep it going with 21 you guys. 22 CHAIRMAN KRAUSE: Thank you. 23 MR. BABAJANIAN: Appreciate it. 24 (Applause) 25 // 0032 1 AGENDA ITEM NO. III 2 CHAIRMAN KRAUSE: Trace Smith is going 3 to give us a Bingo Advisory Committee report. 4 MR. SMITH: Yes, sir. Good morning, 5 Chairman, Commissioners. Before I start my report real 6 quick, I would like to thank Commissioner Lowe for 7 being our de facto Bingo Commissioner. 8 COMMISSIONER LOWE: You're welcome. 9 MR. SMITH: We will certainly miss you, 10 sir. 11 COMMISSIONER LOWE: Thank you. 12 MR. SMITH: We appreciate all you've 13 done for us. 14 COMMISSIONER LOWE: Yes, sir. 15 MR. SMITH: Helping us to get the BAC 16 reinstituted and guiding us along the way, so we do 17 appreciate it, sir. 18 COMMISSIONER LOWE: Thank you. 19 MR. SMITH: In your packet you should 20 have a summary of our last meeting. I'll be very brief 21 about this. Later we're going to hear from Bingo 22 Director Michael Farrell on a draft rule regarding the 23 negative net proceeds. Excuse me. And we are going to 24 be starting our annual rule review from staff that will 25 be getting with us on that, so that's upcoming as well. 0033 1 Two main things is the nomination of 2 applications for the BAC. We had two open seats. One 3 seat was for a charity lessor and the BAC unanimously 4 nominated Mr. Justin Logan. Mr. Logan is a Director 5 for the North Austin Foundation and what that 6 foundation does is help homeless alcoholics and 7 addicts. 8 What they do is they get them into a 9 temporary shelter to get treatment and they provide up 10 to 30 days of temporary treatment to help them get out 11 into the community and get everything in order so when 12 they do enter the treatment program, they are 13 successful in staying sober. 14 It was our unanimous decision to 15 recommend him to you for consideration for the BAC. We 16 need your approval for that. 17 And the second item is on a public 18 member. We discussed in detail how there were no 19 applications where the individuals were a true public 20 member. Staff member representing the pub -- told us 21 that rep -- a member representing the public may not be 22 an individual who is required by statute to be listed 23 on a conductor, commercial lessor, manufacturer or 24 distributor license, so we're going to ask that we 25 please be allowed to reopen those applications to get a 0034 1 true public member for that seat. 2 Also, if there's any other items or 3 considerations that the Chairman would like the BAC to 4 do, we would be glad to do that for you, so just let us 5 know. 6 CHAIRMAN KRAUSE: Great. Comments? 7 COMMISSIONER LOWE: As far as leaving 8 that open, I think -- we will need to take action on 9 that. Do we, Bob? 10 MR. BIARD: Uhm -- 11 CHAIRMAN KRAUSE: Leave it open. 12 COMMISSIONER LOWE: Just leave it open? 13 MR. BIARD: On the vacancy? 14 COMMISSIONER LOWE: Yes. 15 MR. BIARD: And I just want to be -- 16 clarify that the -- the two members that are being 17 replaced, they -- they've already been removed? 18 MR. SMITH: Yes. 19 MR. FARRELL: Yes, sir. 20 MR. BIARD: I just wanted to make sure. 21 COMMISSIONER LOWE: And as far as Mr. 22 Logan, are we -- do we need to take a vote on him now? 23 MR. BIARD: That is an action item. Has 24 he been thoroughly -- has he completed a criminal 25 background check? 0035 1 MR. FARRELL: Mr. Logan hasn't finished 2 the criminal background check, so I recommend it be 3 provisional based upon a clean background check. 4 COMMISSIONER LOWE: Are we allowed to do 5 that? 6 MR. BIARD: Well, I think when the thing 7 is provisional, we just say yes, subject to -- I think 8 you approve him subject to him satisfying the criminal 9 history requirements. 10 COMMISSIONER LOWE: So Chair, I'll make 11 that motion to -- to approve Mr. Logan, subject to or 12 just approve him? I mean, if something comes up we can 13 -- how do you want me to -- 14 MR. BIARD: I recommend that you vote to 15 approve him subject to satisfying the criminal history 16 eligibility requirement. 17 COMMISSIONER LOWE: So moved. 18 COMMISSIONER RIVERA: Second. 19 CHAIRMAN KRAUSE: All in favor say aye. 20 (Chorus of "ayes") 21 CHAIRMAN KRAUSE: Done. 22 MR. SMITH: Thank you very much. 23 COMMISSIONER LOWE: And thank you for 24 all the work you're doing. I know that you're -- 25 they're not compensated to -- to come here, it's on 0036 1 their own nickle, and I appreciate it. 2 CHAIRMAN KRAUSE: From Texarkana. 3 COMMISSIONER LOWE: Texarkana, Texas. 4 MR. SMITH: Yes, sir. 5 COMMISSIONER LOWE: So thanks -- 6 CHAIRMAN KRAUSE: Not quite as far as El 7 Paso, but -- 8 MR. SMITH: Not quite. 9 COMMISSIONER LOWE: And I -- I don't see 10 Will Martin here today. I was hoping I could see him 11 one last time, but I know he comes to y'all's meetings 12 and active and -- 13 MR. SMITH: Yes, sir. 14 COMMISSIONER LOWE: -- thanks again. 15 And I know that we've had -- I think we've had, you 16 know, I can't help being myself, so I apologize for 17 that, but I think that we've had a productive 18 relationship. 19 MR. SMITH: Absolutely. 20 COMMISSIONER LOWE: I think we've 21 accomplished some stuff I -- and I think the rules 22 we're going to -- we're talking about today I think -- 23 they're important to me and I know they're important to 24 y'all, so thanks for your work on behalf of the 25 Committee. 0037 1 MR. SMITH: Thank you very much, sir. 2 AGENDA ITEM NO. IV 3 CHAIRMAN KRAUSE: Mr. Fernandez, next 4 three items are yours. 5 MR. FERNANDEZ: Yes. Good morning, Mr. 6 Chairman, Commissioners. For the record, my name's 7 Mike Fernandez and I'm the Director of Administration. 8 I was -- had to pause to take instruction from our 9 controller on the speed of my presentation, so I'm 10 trying to move very quickly. 11 Item 4 in your notebook is an action 12 item. Staff is seeking Commission approval to extend 13 our internal audit services contract with McConnell & 14 Jones LLP for a one year period. Commissioners have 15 independently confirmed they do not have any financial 16 interest in McConnell & Jones. And I'd be happy to 17 answer any questions. 18 That does require a vote, Mr. Chairman. 19 COMMISSIONER LOWE: Need a motion? 20 CHAIRMAN KRAUSE: Well, we do need a 21 motion, but the reason why we do this is because the 22 internal auditor is a direct report to us. 23 COMMISSIONER LOWE: All right. 24 CHAIRMAN KRAUSE: As opposed to any 25 other contract, which Mr. Fernandez is completely able 0038 1 to do on his own just about. So I am looking for a 2 motion to approve the contract extension. 3 COMMISSIONER RIVERA: Move that we -- 4 COMMISSIONER LOWE: Second. 5 CHAIRMAN KRAUSE: All in favor say aye. 6 (Chorus of "ayes") 7 CHAIRMAN KRAUSE: Done. 8 MR. FERNANDEZ: Thank you, Mr. Chairman. 9 AGENDA ITEM NO. V 10 MR. FERNANDEZ: Item 5 in your notebook 11 is a briefing item to advise the Commission of Staff's 12 intent to amend two contracts. The first for Drawing 13 Studio and Production Services with Elephant 14 Productions Incorporated. And this -- this amendment 15 is for consulting services regarding the 1801 Congress 16 Avenue move of the Agency. 17 The second amendment is for -- if I can 18 get it -- the second contract amendment is for Instant 19 Ticket Manufacturing and Services with Pollard Banknote 20 Limited, and is for the purpose of modifying their 21 pricing to include inks and additional ticket features. 22 Commissioners have also independently 23 confirmed they have no financial interest in either of 24 the aforementioned contracts with either of the 25 aforementioned contractors, and I would be happy to 0039 1 answer any questions, Mr. Chairman, regarding those 2 contracts. 3 CHAIRMAN KRAUSE: Questions? We're duly 4 advised. 5 AGENDA ITEM NO. VI 6 MR. FERNANDEZ: Item Number 6 in your 7 notebook is briefing item to advise the Commission of 8 staff's intent to extend three contracts. The first is 9 for security officers with Smith Protective Services 10 for a one year period. The second contract is a 11 contract extension for lottery drawing CPA services 12 with Weaver & Tidwell LLP, which is also for a one year 13 period. And the third contract is for Risk Review and 14 Compliance Monitoring Services with Grant Thornton. 15 And again, that's also for a one year period. 16 The Commissioners have independently 17 confirmed they do not have any financial interest with 18 any of the aforementioned contractors and I will be 19 happy to answer any questions you have regarding those. 20 CHAIRMAN KRAUSE: : Questions? Thank you 21 for your report. 22 MR. FERNANDEZ: Thank you. 23 AGENDA ITEM NO. VII 24 CHAIRMAN KRAUSE: Eric Williams. 25 MR. WILLIAMS: Good morning, Chairman, 0040 1 Commissioners. For the record, my name is Eric 2 Williams, the Coordinator of the Lottery Commission's 3 Historically and Underutilized Business, or HUB, 4 program. The HUB program is a statewide initiative 5 that provides assistance and contracting opportunities 6 to minorities, women, and service-disabled veteran- 7 owned businesses. I'd like to provide a brief update 8 on our program before I speak about the minority 9 business participation report. 10 At the beginning of each fiscal year, 11 the Agency sets its annual internal HUB goals as 12 required by the comptroller's rules. This year's goals 13 and a set of summary reports was sent to you last fall. 14 As part of our outreach to HUBs, the Lottery Commission 15 has a minority -- I'm sorry, has a mentor protégée 16 program. This is an ongoing initiative to match HUB 17 vendors with mentor companies who assist with specific 18 business development goals. 19 Currently, the Lottery Commission has 20 one mentor protégée relationship and this is with our 21 prime vendor IGT and High Top Talent. The Commission 22 also conducts an annual HUB forum to provide 23 information and networking opportunities to HUB 24 vendors. This event is currently scheduled for May 25 15th. 0041 1 A copy of the Agency's finalized fiscal 2 year 2018 minority business participation report is 3 included in your notebook under Tab 7 today. This is 4 an annual report which is required by Section 466.107 5 of the State Lottery Act and must be made available to 6 the Governor, Lieutenant Governor, Speaker of the House 7 and members of the Legislature. 8 The report documents minority and HUB 9 participation and our Agency's contracting activity and 10 includes information on number of licensed minority 11 retailers. 12 During fiscal year 2018, the Agency 13 received an overall participation rate of 20.69 percent 14 in its minority HUB contracting activity, which is 15 represented by an increase of six percentage points 16 from our fiscal year 2017's performance of 14.21 17 percent. 18 The increase was largely due to one of 19 the Texas Lottery Commission's contractors recertifying 20 as a Texas certified HUB, which resulted in an increase 21 to direct HUB spending during this reporting period. 22 In addition to the 20 largest spending 23 state agencies and universities, the Lottery Commission 24 ranked fourth by overall HUB percentage. Also ranking 25 largest spending state agencies by overall HUB 0042 1 percentage, the Lottery Commission ranked first. 2 During this reporting period, the Agency also had 7,769 3 minority retailers, which represented 43.27 percent of 4 the Texas Lottery's total retailer base. 5 This report requires formal approval 6 prior to being printed and published on the Lottery 7 Commission website. I'll be happy to answer any 8 questions regarding this report at this time. 9 CHAIRMAN KRAUSE: So please reiterate, 10 we are number one in what? 11 MR. WILLIAMS: We are number one looking 12 at all state agencies as far as HUB participation rate. 13 CHAIRMAN KRAUSE: And so we're better 14 than the rest of them. 15 MR. WILLIAMS: Yes, sir. 16 CHAIRMAN KRAUSE: Duly noted. Thank you 17 very much. 18 MR. WILLIAMS: Yes, sir. 19 MR. GRIEF: Mr. Chairman? 20 CHAIRMAN KRAUSE: Yes. 21 MR. GRIEF: Right here. If I could add 22 just something to Eric's report. To your point -- 23 CHAIRMAN KRAUSE: Yeah. 24 MR. GRIEF: -- this session we appear as 25 we always do in front of the Senate Finance Committee. 0043 1 And Senator Royce West from Dallas is always very 2 focused on agencies' HUB numbers, their participation 3 rates, et cetera. And the day we appeared for our 4 finance hearing, there were a number of agencies that 5 were in line in front of us. And there were some 6 comments made by Senator West regarding their HUB 7 programs that were not complimentary to say the least. 8 And when our turn came up late in the day, the Senator 9 made a point to be present and he told us that he 10 appreciated the work that we do in this particular 11 area, that we're a model for other state agencies and 12 they should follow our lead. So I just wanted the 13 Commissioners to know that. 14 COMMISSIONER RIVERA: That's great. 15 COMMISSIONER LOWE: Excellent. Do we 16 need a motion to approve his report? Did you say you 17 needed a motion? 18 MR. WILLIAMS: Yes, sir. It is an 19 action item. 20 CHAIRMAN KRAUSE: All right. Let's get 21 a motion. 22 COMMISSIONER LOWE: So I'll move to -- I 23 want to move to approve this report and acknowledge 24 that Mr. Eric is a veteran of the United States Navy. 25 MR. WILLIAMS: Yes, sir. 0044 1 COMMISSIONER RIVERA: Second. 2 CHAIRMAN KRAUSE: All in favor say aye. 3 (Chorus of "ayes") 4 CHAIRMAN KRAUSE: Approved. 5 MR. WILLIAMS: Thank you, sir. 6 MR. BIARD: I have a letter for the 7 Chairman's signature on that. 8 AGENDA ITEM NO. VIII 9 CHAIRMAN KRAUSE: Tyler Vance. 10 MR. VANCE: Morning, Commissioners. My 11 name's Tyler Vance. I'm with the Legal Division. I 12 have for your consideration today a proposed amendment 13 to Rule 402.403, regarding the issuance of licenses to 14 commercial lessors. 15 The Bingo Enabling Act prohibits 16 licensing a commercial lessor to -- or commercial 17 lessor's license to any person who's ever issued a loan 18 to an organization. And the Agency's handled this on 19 kind of a case by case basis in the past and out of a 20 recommendation of the Bingo Advisory Committee they've 21 asked us to formalize this rule. So this rule will 22 define a loan as any debt to a lessor, be it rent, 23 insurance, utilities, or taxes, that is collected or 24 accepted after 120 days. 25 There is an exception to that if it's 0045 1 collected pursuant to a court order so that lessors 2 still have the option to pursue it formally, but 3 informally, they can no longer accept it. Specifically 4 in cases where the deferral of the debt allows the 5 organization to demonstrate positive net proceeds. 6 So that's the rule that's before you. 7 Staff recommends that you propose this and publish it 8 in the Texas Register for notice and comment. 9 COMMISSIONER LOWE: So Chair, that's 10 kind of -- I've been pushing for this, and so based on 11 that, I'll make a motion to do this action. 12 COMMISSIONER RIVERA: Second. 13 CHAIRMAN KRAUSE: All right. So all 14 we're doing is beginning the rule making process. 15 COMMISSIONER LOWE: Yes. 16 MR. VANCE: Correct. 17 CHAIRMAN KRAUSE: All right. All in 18 favor say aye? 19 (Chorus of "ayes") 20 CHAIRMAN KRAUSE: Approved. 21 MR. VANCE: Thank you. 22 MR. BIARD: And I have a T-Bar memo for 23 your initials. 24 AGENDA ITEM NO. IX 25 CHAIRMAN KRAUSE: Lea Garey. 0046 1 MS. GAREY: Good morning, Chairman, 2 Commissioners. For the record, my name is Lea Garey, 3 I'm your Senior Contracts Attorney. Under Item 9, I 4 present to you for consideration a draft submission for 5 publication to the Texas Register that authorizes the 6 adoption of amendments to Rule 16 TAC §401.101, Lottery 7 Procurement Procedures, and §401.105, Major Procurement 8 Approval Authority, Responsibilities and Reporting. 9 The purpose of the amendments is to 10 align the rules with current agency procedures and 11 current defined terms found in the Texas Procurement 12 and Contract Management Guide. No written comments 13 were received on the proposal during the public comment 14 period. These amendments are presented without changes 15 to the proposed versions that were published in the 16 Texas Register on February 22nd, 2019. 17 Staff recommends that the Commission 18 adopt the draft amendments as presented -- I'm sorry, 19 the draft adoption as presented in your notebooks. And 20 I'm available to answer any questions should you have 21 any. 22 CHAIRMAN KRAUSE: Questions? Need a 23 motion. 24 COMMISSIONER LOWE: So moved. 25 COMMISSIONER RIVERA: Second. 0047 1 CHAIRMAN KRAUSE: All in favor say aye. 2 3 (Chorus of "ayes") 4 CHAIRMAN KRAUSE: Adopted. Proceed with 5 the rule making process. 6 AGENDA ITEM NO. X 7 CHAIRMAN KRAUSE: Alrighty. Kathy Pyka 8 and Robert Tirloni. 9 MS. PYKA: Good morning, Commissioners. 10 My name is Kathy PYka, I'm the Controller for the 11 Commission. With me to my right is Robert Tirloni, the 12 Agency's Product Manager. 13 Commissioners, our first chart this 14 morning reflects comparative sales through the week 15 ending April the 6th, 2019. Total fiscal year 2019 16 sales through this 32 week period are $3,852,000,000, 17 which is an increase of $478-million or 14.2 percent 18 compared to the same period last fiscal year. 19 Fiscal year 2019 scratch ticket sales 20 reflected on the second orange bar are $2,918,000,000, 21 which is a $288-million increase over last fiscal year. 22 With a growth rate of 11 percent in scratch ticket 23 sales over last fiscal year, the Commission has 24 reported scratch ticket growth in every week of the 25 fiscal year continuing with the trend that we had in 0048 1 fiscal year 2018. 2 We set a new Commission record last week 3 with scratch ticket sales of $108-million for the week 4 and that marked our eighth week in which scratch ticket 5 sales exceeded $100-million in weekly sales. 6 Our scratch ticket sales amount to 75.8 7 percent of total sales for this period and moving on to 8 draw sales, which are reflected on the second blue bar, 9 are reported at $933.9-million, which is a $189-million 10 increase, or 24.4 percent over last fiscal year. So 11 Robert will now provide sales detail by product. 12 MR. TIRLONI: Thanks, Kathy. 13 Commissioners, this is the sales detail through this 14 past Saturday, April 6th. So at the top we have our 15 jackpot games in the white font. Jackpot games as a 16 whole are up just under $195-million. The bulk of that 17 growth is coming from the two multi-state games Mega 18 Millions and Powerball. 19 Mega Millions is up over $130-million 20 year over year. That is due to the $1.6-billion 21 jackpot that we had back in the fall. And just 22 recently at the end of March, Powerball rolled up to a 23 $750-million jackpot and that is what is resulting in 24 this $41-million gain year over year. 25 We are seeing growth at our small -- on 0049 1 our small in-state game Texas Two Step, that's up $4- 2 million. Lotto is down slightly, but overall, good 3 results from the jackpot category. 4 The daily game category is down $5.2- 5 million. The reason for that is the discontinuation of 6 Texas Triple Chance which we ended at the end of last 7 fiscal. 8 We are seeing growth on the new version 9 of our Cash 5 game which started at the end of 10 September, so we're pleased to see a two and a half 11 million dollar gain from that game change. 12 Daily 4 continues to grow. Pick 3 is 13 down slightly at 3.8-million. When you look at the 14 draw game category as a whole, we're up just under 15 $190-million. And as Kathy mentioned, we're having a 16 phenomenal scratch sales year and we're up $288-million 17 on the scratch portion of the portfolio. So all told, 18 we are up just under $478-million through the beginning 19 of April. 20 And that is our presentation for you 21 today. We're happy to answer any questions you may 22 have. 23 CHAIRMAN KRAUSE: I've got a question. 24 MR. TIRLONI: Yes, sir. 25 CHAIRMAN KRAUSE: Who does scratch 0050 1 ticket development better than our Commission? 2 MR. TIRLONI: I don't think there is 3 anybody that does better scratch ticket development. 4 CHAIRMAN KRAUSE: I'm sorry, what do you 5 say? 6 (Laughter) 7 MR. TIRLONI: I don't believe there's 8 another lottery that does better scratch ticket 9 development than the -- 10 CHAIRMAN KRAUSE: Outstanding. 11 MR. TIRLONI: -- Texas Lottery. 12 CHAIRMAN KRAUSE: Continue to be number 13 one. 14 MR. TIRLONI: We are striving for that. 15 Absolutely. 16 CHAIRMAN KRAUSE: Thank you. 17 AGENDA ITEM NO. XI 18 CHAIRMAN KRAUSE: Transfers to the 19 state. 20 MS. PYKA: Yes. So Commissioners, 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 unclaimed 24 prizes for the six month period ending February the 25 28th. We have completed the March transfer, so I'd 0051 1 like to provide an update on the most current 2 information for you, which provides for now a total 3 accrued revenue transfer to the state of $902-million 4 for the first seven months of fiscal year '19. 5 Of the $902-million transfer to the 6 state, $865.2-million was the amount transferred to the 7 Foundation School Fund. We transferred $9-million to 8 the Veterans Commission, and $27.8-million was the 9 amount transferred for unclaimed prizes. 10 Commissioners, while we just reported on 11 sales and we noted that sales reflect an increase 12 overall of 14.7 percent through the end of March, I 13 wanted to note that our transfers to the Foundation 14 School Fund are reporting an increase of 23 percent or 15 $162-million over where we were on revenue transfers 16 last fiscal year at this same point in time, and now 17 our total cumulative transfers to the Foundation School 18 Fund are $23.3-billion. 19 Be happy to answer any questions. 20 CHAIRMAN KRAUSE: Commissioners? 21 COMMISSIONER RIVERA: No. Thank you. 22 COMMISSIONER LOWE: Thank you. 23 MS. PYKA: Thank you. 24 CHAIRMAN KRAUSE: Excellent report. 25 Nice. 0052 1 AGENDA ITEM NO. XII 2 CHAIRMAN KRAUSE: Nelda? 3 4 COMMISSIONER LOWE: Bring up nothing but 5 good news. 6 MS. TREVINO: Good morning, 7 Commissioners. For the record, I'm Nelda Trevino, the 8 Director of Governmental Affairs. 9 I'm going to provide a brief update 10 regarding some of the legislation that has been filed 11 this session and Kathy will provide an update as it 12 relates to the status of the Agency's legislative 13 appropriations for the next biennium. 14 In your Commission Meeting notebook, we 15 provided you a copy of the Agency's legislative bill 16 tracking report and we provided you this morning with 17 an updated copy of that report. At the February 18 meeting, I highlighted those bills that had been filed 19 that were specifically related to the Agency's business 20 or that grant the Commission with additional authority. 21 I specifically mentioned several bingo related bills 22 and want to provide an update as it relates to those 23 bills. 24 House Bill 882 by Representative Cecil 25 Bell. This is a bill that extends the hours of the 0053 1 bingo occasion from four to six hours. This bill was 2 considered by the House Licensing and Administrative 3 Procedures Committee earlier this week and is currently 4 pending in that Committee. 5 House Bill 914 by Representative 6 Senfronia Thompson, this is the bill that's being 7 referenced as the omnibus bingo reform bill. This bill 8 has been considered by the House Licensing and 9 Administrative Procedures Committee and was voted 10 favorably out of the Committee. This bill has been 11 amended from the filed version and some of the 12 provisions that remained in the Committee's substitute 13 of the bill include stipulating that local governments 14 will only be entitled to their 50 percent share of the 15 prize fee if they vote to impose this fee by November 16 1st, 2019. 17 Modifying the process for the 18 distribution of bingo prize fees where payments to 19 local governments would be made directly by the 20 charities, authorizing additional bingo occasions that 21 a charity is allowed to conduct bingo, and modifying 22 the net proceeds calculation and extending the time for 23 the Bingo Director's evaluation of net proceeds from 12 24 to 18 months. 25 All the illegal gaming language and the 0054 1 requirement for the Commission to determine whether 2 illegal gaming is occurring in the county or 3 municipality to the detriment of bingo was removed from 4 the bill and it's not included in the Committee's 5 substitute. 6 Additionally, all the provisions that 7 change the prize fee term to prize tax have also been 8 deleted from this bill. 9 The next bill I wanted to mention is 10 House Bill 967. This is by Representative Rick Miller. 11 This bill would authorize an additional form of pull 12 tab bingo commonly called banded paper tickets. As of 13 this date, there's been no action taken on that 14 particular bill. 15 House Bill 1186 by Representative John 16 Kuempel, this is the bill that authorizes a carryover 17 event pull tab game in which the prize amount can 18 carryover to a jackpot amount not to exceed $10,000. 19 This bill has also been considered by the House 20 Committee and was voted favorably out of the Committee. 21 There have been four additional bills 22 that have been filed related to the Lottery since the 23 February meeting report. I wanted to briefly mention 24 these today. 25 First one, House Bill 1790 by 0055 1 Representative Ryan Guillen. This would -- this bill 2 would give authority to the Commission to contract for 3 -- to contract with for profit businesses to sell 4 advertising space on Lottery equipment, products or any 5 medium. This bill has also been considered by the 6 House Committee and has been favorably voted out of 7 that Committee. 8 The next bill, House Bill 3431 by 9 Representative Scott Sanford, this bill remain -- 10 relates to the prohibition on lottery advertisements 11 and promotions in certain low income counties. As of 12 this date, there has been no action taken on this bill. 13 House Bill 4034 by Representative Alex 14 Dominguez. This bill would mandate that not less than 15 50 percent of lottery sales be transferred to the 16 Foundation School Fund. There has been no action taken 17 on this bill as of this date. 18 The last Lottery-related bill is Senate 19 Bill 832 by Senator Beverly Powell, and this bill would 20 authorize a dedicated lottery scratch game with the 21 proceeds going for grants to public school pre- 22 kindergarten programs. And as of this date, there has 23 been no action taken on this bill. 24 The last bills I want to mention give 25 some additional authority to the Commission and these 0056 1 bills are Senate Bills 1710 by Senator Lucio, which 2 would require the Commission to conduct a study on the 3 legalization of gaming on river boats and boats 4 operated on bays in this state and another bill by 5 Senator Lucio, Senate Bill 1711, that would require the 6 Commission to conduct a study on the legalization of 7 gaming in certain communities. And there's been no 8 action as of this date taken on those two bills. 9 This concludes my portion of the report 10 and I'm going to turn it over to Kathy again to provide 11 a status update on the appropriations bill. 12 MS. PYKA: So there's a chart before you 13 that includes the status of our budget request before 14 the 86th Legislature. The House adopted their budget 15 on March 29th, while the Senate version of the budget 16 was adopted this week on April the 9th. I will provide 17 a summary of the difference in the budgets which will 18 be up for consideration by the Conference Committee. 19 Beginning first with the House version 20 of the budget that includes biennial authority for 8.4- 21 million for the retailer bonus program, while the 22 Senate version of the budget reflects one-half of that 23 budget, or $4.2-million for the biennia. 24 Our advertising budget was reduced by 25 $15-million in the House version of the budget, to 0057 1 $35.5-million for the biennia, while the Senate version 2 of the budget includes $50.6-million. 3 The House version of the budget includes 4 a decrease of $500,000 which was allocated across all 5 lottery and bingo strategies. There is not a similar 6 reduction on the Senate side. 7 And while the House version of the 8 budget moved our Agency's exempt position to a salary 9 group 7 at a rate of $224,573, the Senate did not 10 consider our request and the position is still 11 reflected as a salary group 6, at the current salary 12 rate. 13 In closing, both versions of the budgets 14 do appropriate funding of the $1.8-million for 15 construction required to move to the Texas Capitol 16 Complex, however, neither budget includes our request 17 for authority to transfer Rider 11 unexpended balance 18 funds between the biennia. 19 This concludes our presentation and we'd 20 be happy to answer any questions. 21 COMMISSIONER RIVERA: I only want to say 22 but just good job. I know there are a lot of moving 23 parts going on at the Capitol and so, coming back after 24 session or when they get hearing, just get your 25 updates, and I always look forward to seeing you here. 0058 1 Good job. 2 MS. TREVINO: Thank you very much. It 3 takes a team effort. 4 COMMISSIONER RIVERA: Yes. 5 COMMISSIONER LOWE: Thank you. 6 CHAIRMAN KRAUSE: Thank you very much. 7 MS. TREVINO: Thank you. 8 AGENDA ITEM NO. XIII 9 CHAIRMAN KRAUSE: Darlene Brown. 10 MS. BROWN: Good morning, Commissioners. 11 I'm Darlene Brown, the internal auditor. I have a 12 brief status report for you today. 13 Since we last met, we have completed the 14 two audits on the implementation of House Bill 2578, 15 and that's related to the bingo, and also the drawing 16 studio. We are currently conducting the cyber security 17 audit and we will have that wrapped up before your next 18 Commission meeting. 19 We are on trend to complete the annual 20 internal audit plan as originally approved and also on 21 trend to come in under budget. 22 So if you have any questions, I'll be 23 happy to answer them. 24 COMMISSIONER LOWE: So I just want to 25 say thanks and I'm glad we extended your contract. You 0059 1 know, we had a little -- we've had -- we had change in 2 leadership in the Bingo Division and I think one of the 3 reasons why it went so smoothly and that we're doing 4 well is because of Darlene and her interest in the -- 5 working with the bingo and getting her reports and kind 6 of being a receptacle of our knowledge, what's going 7 on, and so I appreciate your -- your work for the Bingo 8 Division and for the Lottery. 9 MS. BROWN: Thank you. 10 CHAIRMAN KRAUSE: Thank you, ma'am. 11 MS. BROWN: Thank you. 12 AGENDA ITEM NO. XIV 13 CHAIRMAN KRAUSE: Michael Farrell, your 14 report. 15 MR. FARRELL: Sir, other than what's -- 16 other than what's in the binder, I -- this is Michael 17 Farrell for the record. I'm also a Coast Guard 18 veteran. And other than what's in the binder, I have 19 nothing else to report. 20 COMMISSIONER LOWE: I was going to 21 mention that. I remembered that. I was going to 22 mention that. 23 AGENDA ITEM NO. XV 24 CHAIRMAN KRAUSE: Gary Grief. 25 MR. GRIEF: Nothing further, Mr. Chair. 0060 1 AGENDA ITEM NO. XVI 2 CHAIRMAN KRAUSE: Mr. Biard, you're 3 going to impress us with your brevity. 4 MR. BIARD: Yes, Commissioners. Bob 5 Biard, General Counsel. Item 16 in your notebooks are 6 the enforcement orders; there's 27 Lottery and Bingo 7 enforcement matters, Tabs A through AA. 8 In these cases, Commission staff either 9 found a licensee violated a statute or rule or an 10 applicant did not qualify for a license. In many 11 cases, either the Respondent failed to appear at the 12 hearing and it proceeded by default or the staff and 13 the Respondent reached a settlement in the form of an 14 agreed order. 15 Today, Tabs A through I are the Lottery 16 non-sufficient fund cases that are handled in a single 17 order. 18 Tabs J through X are Lottery agreed 19 orders. 20 Tab Y is a Lottery contested case from 21 the State Office of Administrative Hearings. 22 And Tab Z and AA, are Bingo agreed 23 orders. 24 These materials are all in your 25 notebooks. You may take up the enforcement orders in a 0061 1 single vote if you'd like. We recommend adoption of 2 all the orders in your notebook and will be happy to 3 answer any questions. 4 CHAIRMAN KRAUSE: Bob, I am impressed. 5 COMMISSIONER LOWE: So Chair, as -- as 6 these recommendations and evidence, our documents, are 7 part of the record, I'll move that we adopt the 8 recommendations of our Counsel in due order. 9 COMMISSIONER RIVERA: Second. 10 CHAIRMAN KRAUSE: All in favor say aye. 11 (Chorus of "ayes") 12 MR. BIARD: Thank you, Commissioners. I 13 have orders for your signature. 14 AGENDA ITEM NO. XVIII 15 CHAIRMAN KRAUSE: At this time I move 16 that the Texas Lottery Commission move to Executive 17 Session to deliberate personnel matters and to receive 18 legal advice as posted in the open meeting notes. Is 19 there a second? 20 COMMISSIONER RIVERA: Second. 21 CHAIRMAN KRAUSE: All in favor say aye. 22 (Chorus of "ayes") 23 (Executive Session begins at 11:11 a.m.) 24 // 25 AGENDA ITEM NO. XIX 0062 1 CHAIRMAN KRAUSE: Lottery Commission is 2 out of Executive Session at 11:59 a.m. Is there any 3 action to take as a result of Executive Session? The 4 answer is yes. Is there a motion to approve the Bingo 5 Director's performance evaluation? 6 COMMISSIONER LOWE: So moved. 7 COMMISSIONER RIVERA: Second. 8 CHAIRMAN KRAUSE: All in favor say aye. 9 (Chorus of "ayes") 10 CHAIRMAN KRAUSE: And so -- 11 AGENDA ITEM NO. XX 12 COMMISSIONER LOWE: Motion to adjourn. 13 CHAIRMAN KRAUSE: All in favor say aye. 14 (Chorus of "ayes") 15 CHAIRMAN KRAUSE: Done. 16 (Proceedings concluded at 11:59 a.m.) 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 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 22nd day of April, 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