0001
1                  TRANSCRIPT OF PROCEEDINGS
2                         BEFORE THE
3                  TEXAS LOTTERY COMMISSION
4                        AUSTIN, TEXAS
5   
    16 TEXAS ADMINISTRATIVE CODE ?
6   ?402.201                     ?
    16 TEXAS ADMINISTRATIVE CODE ?
7   ?402.203                     ?
    16 TEXAS ADMINISTRATIVE CODE ?
8   ?402.401                     ?
    16 TEXAS ADMINISTRATIVE CODE ?
9   ?402.402                     ?
    16 TEXAS ADMINISTRATIVE CODE ?
10  ?402.212                     ?
11  
12               PUBLIC HEARING ON RULEMAKINGS
13                 MONDAY, DECEMBER 14, 2009
14  
15                 BE IT REMEMBERED THAT on Monday,
16  the 14th day of December 2009, the above-entitled
17  public comment hearing was held from 9:02 a.m. to
18  9:32 a.m., at the Hobby Building, 333 Guadalupe
19  Street, Room 102, Tower III, Austin, Texas  78701,
20  before SANDRA JOSEPH, SPECIAL COUNSEL.  The following
21  proceedings were reported via machine shorthand by
22  Aloma J. Kennedy, a Certified Shorthand Reporter of
23  the State of Texas, and the following proceedings were
24  had:
25  
0002
1                         APPEARANCES
2   
    SPECIAL COUNSEL:
3            Ms. Sandra Joseph
4   CHARITABLE BINGO DIVISION MANAGER:
             Mr. Bruce Miner
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0003
1                    P R O C E E D I N G S
2                  MONDAY, DECEMBER 14, 2009
3                         (9:02 a.m.)
4                 MS. JOSEPH:  Good morning.  My name is
5   Sandra Joseph, Special Counsel for the Lottery
6   Commission.  With me is Bruce Miner, the Charitable
7   Bingo Division Manager.  We're here to receive public
8   comments regarding proposed amendments to 16 TAC
9   ?402.201 relating to prohibited bingo occasions,
10  proposed amendments to 16 TAC ?402.203 relating to
11  unit accounting, proposed amendments to 16 TAC
12  ?402.401 relating to temporary license, proposed
13  amendments to 16 TAC ?402.402 relating to registry of
14  bingo workers, and proposed new TAC ?402.212 relating
15  to promotional bingo.
16                I have received two witness affirmation
17  forms, one from Mr. Stephen Fenoglio and one from
18  Mr. Steve Bresnen.  Although this is not an
19  evidentiary hearing, I would like to ask you, if you
20  plan to present testimony, to be sworn at this time.
21  If you would raise your right hand.
22                (Witnesses sworn by Ms. Joseph)
23                MS. JOSEPH:  Thank you.
24                All right.  We have a number of rules.
25  Do you gentlemen -- I know you work closely together.
0004
1   Do you have any preference as to who goes first?
2                 All right.  I see Mr. Fenoglio being
3   indicated.
4                 MR. FENOGLIO:  Going first.
5                 MS. JOSEPH:  If Mr. Fenoglio will step
6   forward.  Thank you.  And it's fine with me just to
7   let you take these in the order that you would like
8   to, if you will clearly indicate which rule you're
9   talking about.
10                MR. FENOGLIO:  Sure.  I shall.  For the
11  record, my name is Stephen Fenoglio.  I'm an attorney
12  in Austin.  We support the rule amendments on 402.201,
13  prohibited bingo occasion.  It seems consistent with
14  the language in 1474, and we would support it as
15  drafted.
16                On 402.203, the unit accounting rule, we
17  have several concerns.  The motion -- and, by the way,
18  there's some housekeeping rule language that needs to
19  be adjusted, and it's found on Page (h) -- or
20  Subparagraph (h).  And it seems to us that
21  Subparagraph (h)(3), Subparagraph (C), (D) and (E)
22  should instead be rewritten as Subparagraphs (4), (5)
23  and (6), because the first provision says, "Except for
24  the transfer of funds to the unit . . . only the
25  following may be deposited . . ."  And (A) and (B) are
0005
1   clearly funds that may be deposited in the bingo
2   account.
3                 You're then changing a comment, leaving
4   the issue of " . . . only the following may be
5   deposited into" a rule and saying, for example, on
6   what is currently Subparagraph (C), "A separate
7   deposit must be made into the unit bingo account,"
8   et cetera.  And again, that's not consistent with the
9   thought of depositing certain funds into a specific
10  bingo account, and the same is true under
11  Subparagraphs (D) and (E).  I think for reading
12  purposes, it would be more consistent.
13                Jumping back to Subparagraph (g)(2),
14  "The unit must adhere to" -- and we would suggest all,
15  quote, applicable, quote, recordkeeping requirements
16  in the Act, and rules.  The unit never has to comply
17  with any recordkeeping requirements concerning a
18  manufacturer or distributor, for example.  And so the
19  word -- the modifier "applicable" should be there.
20                In Subparagraphs (i)(4), we agree with
21  the language as drafted, and we agree with the
22  language in Subparagraph (j)(1) and (2) concerning
23  distribution of funds on withdrawal or dissolution.
24                Under Subparagraph (k), we have several
25  concerns under the heading "Responsibilities of Unit
0006
1   Members."  Under Subparagraph (1), it's clear that
2   each unit member of a unit is responsible for
3   administering its own bingo occasions.
4                 Under Subparagraphs (2) and (3), though,
5   you leave the thought of its own occasions and now
6   each unit member is responsible for maintaining and
7   retaining the bingo records related to all aspects of
8   each occasion.
9                 I think what you're trying to say is of
10  each occasion for that particular unit member
11  organization.  It's not real clear.  In other words,
12  if Charity A -- do you intend to mandate that
13  Charity A is responsible for Charity B's unit
14  occasions?  Again, in Subparagraph (1), it's clear
15  they are only responsible for their own.
16                And the same is true for Subparagraph,
17  (3), ". . . any bingo cash shortages, inventory
18  shortages, or missing . . ."
19                Under Subparagraph (5), there has to be
20  more flexibility in this language.  And again, it's
21  Subparagraph (k)(5) of the unit accounting rule.
22                I would suggest to you that the language
23  here is inconsistent with Section 2001.454 of the
24  Bingo Enabling Act.  I had a hand, as did Mr. Bresnen,
25  and I believe Mr. Sanderson, in suggesting language
0007
1   that was ultimately adopted in 2001.454 of the Bingo
2   Enabling Act, and specifically in Subparagraph (b).
3                 And in Subparagraph (b) of the Bingo
4   Enabling Act of .454, we wanted to change the existing
5   rule, which we were successful in, to make it clear
6   that if the charity is using its funds consistent with
7   the purpose for which it's obtained its 501c
8   designation, then that's an approved purpose.  Here,
9   No. 1, the unit member has to expend all distribution
10  funds within the quarter it receives the distribution,
11  unless specifically documented.
12                And then it goes through, the document
13  must include the, quote, special purpose, quote, and
14  the date for which the distribution will be used and
15  be signed by an officer.  Finally, "The distribution
16  must be used for the purpose stated in the document
17  and within the time frame indicated."  And it cannot
18  under any circumstances exceed one year.
19                Well, if there is a charity setting
20  aside funds for a scholarship for a high school
21  student who is going to college, it may not be -- one
22  year may not be enough.  As long as there is
23  reasonable documentation, assuming you want the
24  documentation, that should be sufficient.
25                For example, there are some veterans'
0008
1   organizations that regularly give scholarships, and
2   they may accrue those funds over a period of years and
3   then award those funds over a subsequent year.  This
4   rule would prohibit them from doing so.
5                 Similarly, there have been organizations
6   that have saved bingo funds for purposes of volunteer
7   fire fighting or emergency services equipment, and
8   they may accrue those funds over a period of years.
9   Some volunteer fire department districts are debt-
10  averse, and fire-fighting trucks can cost in the
11  hundreds of thousands of dollars.
12                So again, if you're going to say that
13  they absolutely, positively have to spend that money
14  within a year, you're forcing them either (a) to go
15  into debt, which many organizations have avoidance of
16  that at all costs.
17                But I want to jump back to some of the
18  other specific concerns within this Subparagraph (5).
19  I'm going to take, for example, Either Family Elder
20  Care, which is a charity that conducts bingo at River
21  City Bingo on Braker, off of Braker Lane on I-35 in
22  north Austin, or the ARC of the Capital Area, which
23  also conduct.  Both are 501c(3) organizations; both
24  are larger non-profits.  In the case of Family Elder
25  Care, it's over three and a half million dollars.
0009
1   General fund in the case of the ARC of the Capital
2   Area, it's about $1.4 million.
3                 Some of those funds are targeted for
4   specific purposes, either by a funding source, either
5   state or federal government, or for some grant.  And
6   that organization will know specifically and will have
7   to demonstrate specifically how much of each dollar in
8   that specific fund account is used and for what
9   purpose.
10                The rest of the funds that are put into
11  the general fund, though, it would be difficult.  And
12  I recall Commissioner Cox observing in a public
13  meeting -- which I tried to find and could not do
14  so -- and it had to do with a similar concept that
15  then Chairman -- or Director Billy Atkins wanted
16  charities to specifically identify each and every
17  dollar they spent, which led to I believe the change
18  in .454.
19                And what I'm suggesting here is, you're
20  going to require officers or director to fudge on
21  their assertion, because the reality is, in the case
22  of the ARC of the Capital Area, they've got a half a
23  million dollars in their general fund.  And they put
24  $80,000, $100,000 a year from bingo into that fund.
25                There may be some auditors who could
0010
1   chase every dollar, but there will be other auditors,
2   competent auditors, who would throw up their hands and
3   say, "This is crazy.  We've got a half a million
4   dollars in an account, a hundred thousand."  Part of
5   the $100,000 -- they're all spent for the general
6   purpose for which the organization was formed.
7                 But the specific dollar, unless they
8   then require some sort of sub-account accounting or
9   establish a separate checking account from which bingo
10  funds go from the bingo account into the general fund
11  and then the general fund into another account, that
12  would be a way that they could actually trace all
13  those dollars.  But I would suggest to you that it's
14  inefficient and it's contrary to Section 2001.454.
15                By the same token, if a legislator asked
16  the Lottery Commission to demonstrate each and every
17  dollar that was spent from licensees paid to the
18  state, I would suggest to you that it would be
19  impossible for the auditors of the Bingo Division to
20  be able to chase discrete dollars.  They can't do it.
21  It goes into a monster general fund in the State
22  Comptroller's office, and then it's spread out.
23                And so what you're suggesting with this
24  specific language, you're either asking charities to
25  create a fiction or you're asking them to fudge in
0011
1   their statements, and either option is not a good
2   option.
3                 MS. JOSEPH:  Which specific language are
4   you talking about?
5                 MR. FENOGLIO:  The specific language in
6   the second sentence of Subparagraph (5), the third
7   sentence of Subparagraph (5) and, you know,
8   technically the fourth sentence because, again, if the
9   charity has a surplus in a year and it got $100,000
10  into its general fund, again, how would that charity,
11  with any degree of certainty, state conclusively that
12  every dollar that it received from its charitable
13  distribution was spent within one year?
14                And I guess the same is true for the
15  first sentence where it expends all distributions
16  within the quarter it receives.  You can create an
17  accounting fiction where you could pretend, "Well, the
18  bingo dollars coming in, we're going to pretend that
19  all of those are spent in the quarter."  But if it's a
20  larger organization -- and by "larger," I mean lots of
21  funds in its general fund other than bingo -- and it
22  ends up with a surplus in the next quarter, there is
23  no way that they can do that.
24                And so for that reason, we think it's
25  contrary to the intent in .454.  It would create
0012
1   fudging by charities if the language isn't changed
2   and/or would create administrative nightmares for the
3   charities who spend large sums of dollars.
4                 In the case of the ARC and Family Elder
5   Care, they have CPAs on their staff who are their, if
6   you will, controllers, so they have people who are
7   sophisticated enough to do that.  But for them to be
8   able to make those assertions that are required would
9   require them again either to fudge or spend a whole
10  lot of time and effort establishing conclusively that
11  the terms under Subparagraph (5) are being met.
12                Now, it may be that if it's a small
13  enough charity with bingo being all of the funds of
14  the organization, then if the policy decision were to
15  keep Subparagraph (5), that charity could meet those.
16  But again, if they didn't engage in spending every
17  dollar in the following quarter that they received
18  from the previous quarter in bingo, they couldn't do
19  that.
20                Turning to the next rule that I have on
21  my list, which is 402.212, the promotional bingo rule.
22  And we understand that the Commission is trying to
23  adopt a rule for the first time to implement a
24  provision that's been in the law for many years,
25  Section 2001.551, Subparagraph (b)(4).  And there are
0013
1   some restrictions that the agency has that are
2   basically re-citing, regurgitating what's in the
3   statute which, if it's in the statute, the agency
4   should follow the statute.
5                 One, though, that is a little beyond
6   that is found in Subparagraph (b)(1), a player of a
7   promotional bingo game cannot be required to provide,
8   quote, personal information in order to receive
9   playing materials or to participate in any facet of
10  the game.
11                There is clearly under the statute,
12  under Subparagraph .551(b)(4)(D), "No player is
13  required to furnish anything of value for the
14  opportunity to participate."  And so it seems to me
15  that money, goods or services may be appropriate.  But
16  the fact of personal information, if the only thing
17  they want is a name and a telephone number, I don't
18  know -- I would suggest that that may not rise to the
19  level of anything of value.  And it may be that the
20  promoter of this game wants to be able to track who
21  all entered one or more games.  With the way the
22  language is, they could not do so.
23                And then in Subparagraph (b)(3)(A), (B),
24  (C) and (D), it seems to me that that is consistent
25  with the language in Subparagraph (4) of 2001.551 --
0014
1   I'm sorry.  Subparagraph (f).
2                 We generally support the language in
3   402.401, temporary licenses.
4                 Under 402.402, registry of bingo
5   workers, I would suggest that subparagraph (a)(2), the
6   definition of "bookkeeper" is too broad.  And for that
7   reason, it's an individual who prepares any financial
8   records for information reported.
9                 River City Bingo charities use an
10  outside CPA firm to do their bookkeeping.  It's also a
11  firm, by the way, that on occasion has also done an
12  independent audit of the charitable bingo activities.
13  Now we use that particular CPA firm, John Lewis CPA,
14  out of Williamson County as our bookkeeper.  And Drew
15  Lewis is our primary, almost exclusive professional
16  who does the bookkeeping.
17                But because it's a CPA firm, there are
18  many associates of Mr. Drew Lewis who does
19  occasionally work on the River City Bingo books.  For
20  example, someone who is in college working in an
21  internship, Drew might have that person do some work.
22                The way the rule is drafted, any
23  particular person would have to be considered a
24  bookkeeper.  In the past, the agencies -- and
25  Mr. Miner has suggested, for example, that Mr. Lewis,
0015
1   the guy who is ultimately in charge of that particular
2   service, is the person who needs to be licensed and
3   they want to be able to question.  Again -- and we
4   think that's a reasonable result.  But the way the
5   draft rule is written, if it's a secretary, if it's a
6   trainee, if it's an intern or if Mr. Lewis is sick for
7   a couple of days and another CPA does the work for a
8   period of time, but ultimately it's Mr. Lewis' project
9   and Mr. Lewis is responsible for it.  That's the
10  person who should be considered the bookkeeper.
11                We also agree with the language in
12  Subparagraph (a)(8) under "Provisional Employee" and
13  the other language in the rule.  And we're glad to see
14  that a provisional employee can be paid with bingo
15  funds.  It seems to me that that's the proper result,
16  especially when you look at other provisions in the
17  Bingo Enabling Act, including 2001.458 which allows a
18  charity to use bingo funds for reasonable or necessary
19  expense associated with the conduct of bingo,
20  including salaries, wages, et cetera.
21                Those are all the comments I have at
22  this time.  Thank you.
23                MS. JOSEPH:  Thank you, Mr. Fenoglio.
24                MR. BRESNEN:  Good morning.  My name is
25  Steve Bresnen.  I'm here on behalf of the Bingo
0016
1   Interest Group.  And Sharon Ives would like to
2   subscribe to and include in our comments all of
3   Mr. Fenoglio's comments.  We would support those
4   comments -- his comments.
5                 On 402.201, we support the rule as
6   written.
7                 On 402.203, we generally support the
8   rule, with a couple of comments.
9                 It's our belief that Subsection (d)(2)
10  expands the statutory duties of a unit manager, and
11  the unit manager was intended simply to be an
12  administrative sort of person to hand over and give
13  the Commission access to documents.  This requires
14  them to be knowledgeable of the unit agreement, trust
15  agreement, submission of all required forms, the
16  quarterly report and the unit's bingo records, there
17  to provide those to the Commission, give the
18  Commission access.  But I don't think it was ever
19  intended that they be knowledgeable as to the internal
20  details of any of those forms or records.
21                Our other comment on 402.203 concerns
22  Subsection (k)(5).  I can't find any basis in the
23  Bingo Enabling Act for the Commission to require an
24  organization that receives a distribution from a unit
25  of which it is a member to expend those funds within
0017
1   the quarter that they receive the money or to within
2   one year expend any money or to document any special
3   purpose.
4                 What the Legislature has done in recent
5   years is to loosen those requirements, in direct
6   response to actions of the Commission in a previous
7   era to micromanage the affairs of the organizations.
8   And what the Legislature said was, you can spend your
9   money in any manner that the IRS authorizes and
10  enacted that in the Bingo Enabling Act.  And the IRS
11  will tag the organizations themselves if they don't
12  make adequate progress towards their charitable
13  purpose.
14                Secondly, unless I'm forgetting
15  something, I don't think there is any requirement for
16  an organization that operates outside the unit format
17  to expend their charitable proceeds within a quarter
18  or within a year.  You've heard ample testimony from
19  Mr. Fenoglio about any number of good reasons why an
20  organization would spend its money whenever it got
21  ready to, so I won't repeat those.  But I think this
22  is an area where we've used some necessary changes to
23  the unit organization rule to include a provision
24  that's not necessary and is not in the interest of the
25  unit format.  We should be encouraging the use of the
0018
1   unit format, and this would discourage the use of the
2   unit format.  We would strongly oppose that Subsection
3   (k)(5) and ask that it be deleted from the final rule.
4                 That concludes my comments on 402.203.
5                 On 402.401, again we're generally
6   supportive of the rule and think it complies with the
7   statute.  We would like to suggest that while this
8   rule is in play and it's making a number of changes,
9   and I would ask you to consider whether
10  Subsection (d)(4)(A) might be clarified while we're
11  doing this.  It says that you're to -- and it
12  literally says that in applying for temporary licenses
13  where you're without a specific time or date
14  requested, that the application is to -- "on the
15  prescribed form that indicates the total number of
16  temporary licenses requested for the license period
17  along with the total amount of license fees for all
18  temporary licenses requested."
19                I would want it to be clear, after all
20  of this is said and done, that you don't have to
21  request all of the licenses for which you're eligible,
22  which I think we moved up to 24 under the statute,
23  didn't we?
24                MR. FENOGLIO:  Yes.
25                MR. BRESNEN:  That you don't have to
0019
1   request all 24 of them at the time that you make that
2   application.  And I would also like to suggest that
3   you make it clear that Subparagraph (a) -- I guess and
4   the remaining paragraphs, subparagraphs in the
5   Subdivision (4) there -- refer back to requesting
6   temporary licenses without a specific date or time of
7   the bingo occasion, because I'm assuming you could do
8   them one at a time with a specific date and time if
9   you so chose.
10                That would be the sum of my comments on
11  that.  Otherwise, we would support that rule and just
12  make the suggestion that while we're going down the
13  road here, that you might want to clarify that.
14                On 402.402, again we're generally
15  supportive of the rule and we appreciate the
16  Commission acting quickly to put the provisional
17  worker concept from House Bill 1474 in.  I would
18  underline Mr. Fenoglio's comments that we not take
19  people into the registry requirement that are nominal
20  in their performance of duties that might otherwise
21  require registration.
22                And we would also like to say, our only
23  strenuous objection to that section is adding the
24  registry expiration date to the identification card.
25  And it's really not that we're so opposed to having a
0020
1   registration date, it's just that we would like to
2   have some stability on the registration card deal.
3   With all the employees involved in bingo, every time
4   you make any kind of a change like that, it's a trap
5   for people out in the halls to not get the word.
6                 It's kind of an obscure additional
7   requirement, and so we would just ask that the
8   registration number and the individual's name -- the
9   information currently required on the card be
10  maintained, with one exception.  For the provisional
11  employee, we think it does make sense to have some
12  kind of designation on there with respect to the
13  submission date, so your personnel can easily identify
14  the provisional employee and where they are in the 14-
15  or 45-day windows.  That would be the sum of my
16  comments on 402.402.
17                On 402.212, we would just would support
18  Mr. Fenoglio's comments.
19                Have I left any of them out?
20                MR. MINER:  No, sir.
21                MS. JOSEPH:  I think that's all.
22                MR. BRESNEN:  Thank you very much.  And
23  that concludes my comments.
24                MS. JOSEPH:  Thank you.
25                Is there anyone else present that would
0021
1   like to offer comments on any of these rules?
2                 Do you have any questions, Mr. Miner?
3                 MR. MINER:  Not at this time.
4                 MS. JOSEPH:  No?
5                 If not, we sincerely appreciate your
6   taking time to be here and help us out on developing
7   good rules.
8                 With that, this hearing is concluded at
9   9:32.  Thank you.
10                (Hearing concluded at 9:32 a.m.)
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0022
1                    C E R T I F I C A T E
2   STATE OF TEXAS    )
3   COUNTY OF TRAVIS  )
4                 I, Aloma J. Kennedy, a Certified
5   Shorthand Reporter in and for the State of Texas, do
6   hereby certify that the above-mentioned matter
7   occurred as hereinbefore set out.
8                 I FURTHER CERTIFY THAT the proceedings
9   of such were reported by me or under my supervision,
10  later reduced to typewritten form under my supervision
11  and control and that the foregoing pages are a full,
12  true and correct transcription of the original notes.
13                IN WITNESS WHEREOF, I have hereunto set
14  my hand and seal this 23rd day of December 2009.
15  
16  
17  
                          ________________________________
18                        Aloma J. Kennedy
                          Certified Shorthand Reporter
19                        CSR No. 494 - Expires 12/31/10
20                        Firm Registration No. 276
                          Kennedy Reporting Service, Inc.
21                        Cambridge Tower
                          1801 Lavaca Street, Suite 115
22                        Austin, Texas  78701
                          512.474.2233
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