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 4   
 5                  TEXAS LOTTERY COMMISSION
 6                          MEETING
 7   
 8                       JULY 23, 2003
 9   
10   *  *  *  *  *  *  *  *  *  *  *  *  *  *  *  *  *
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18             BE IT REMEMBERED that the TEXAS LOTTERY
19   COMMISSION meeting was held on the 23RD of JULY, 2003,
20   from 8:30 a.m. to 12:10 p.m., before Brenda J. Wright,
21   RPR, CSR in and for the State of Texas, reported by
22   machine shorthand, at the Offices of the Texas Lottery
23   Commission, 611 East Sixth Street, Austin, Texas,
24   whereupon the following proceedings were had:
25   
0002
 1                        APPEARANCES
 2   
 3   Chairman:
               Mr. C. Tom Clowe, Jr.
 4   
     Commissioners:
 5             Ms. Elizabeth D. Whitaker
               Mr. James A. Cox, Jr.
 6   
     General Counsel:
 7             Ms. Kimberly L. Kiplin
 8   Executive Director:
               Mr. Reagan E. Greer
 9   
     Deputy Executive Director:
10             Mr. Gary Grief
11   Charitable Bingo Operations Director:
               Mr. Philip D. Sanderson
12   
13   
14   
15   
16   
17   
18   
19   
20   
21   
22   
23   
24   
25   
0003
 1                           INDEX
 2   
 3   Appearances......................................    2
 4   
     AGENDA ITEMS
 5   
     Item Number 1....................................    4
 6   Item Number 2....................................    4
     Item Number 3....................................    6
 7   Item Number 4....................................    8
     Item Number 5....................................    9
 8   Item Number 6....................................   12
     Item Number 7....................................   18
 9   Item Number 8....................................   36
     Item Number 9....................................   37
10   Item Number 10...................................   40
     Item Number 11...................................   41
11   Item Number 12...................................   42
     Item Number 13...................................   42
12   Item Number 14...................................   43
     Item Number 15...................................   43
13   Item Number 16...................................   44
     Item Number 17...................................   71
14   Item Number 18...................................   67
     Item Number 19...................................   69
15   Item Number 20...................................   47
     Item Number 21...................................   48
16   Item Number 22...................................   57
     Item Number 23...................................   60
17   Item Number 24...................................   81
18   
     Reporter's Certificate...........................   82
19   
20   
21   
22   
23   
24   
25   
0004
 1                       JULY 23, 2003
 2   
 3                  CHAIRMAN CLOWE:  It is 8:30 a.m., July
 4   the 23rd, 2003.  We'll call this meeting of the Texas
 5   Lottery Commission to order.  Commissioner Cox is
 6   here.  My name is Tom Clowe.  Commissioner Whitaker is
 7   traveling, She's inbound, and we have a quorum; so we
 8   will begin the meeting.  She will join us as soon as
 9   she is able to.  We'll go immediately to the published
10   agenda.
11                  Item number two, consideration of and
12   possible discussion and/or action, including adoption,
13   on the new rule relating to license fees, 16 TAC
14   402.544.  Billy Atkins is out of the state at this
15   time.  Phil Sanderson is here in his place.  Phil,
16   would you handle this item, please, sir.
17                  MR. SANDERSON:  Yes, sir.  Thank you,
18   Chairman Clowe and Commissioner Cox.  This rule,
19   402.544, the licensing fees rule, was first presented
20   to the Bingo Advisory Committee at their February 27th
21   meeting.  They appointed a subcommittee to receive
22   informal comment.  There was no additional comment,
23   and it was presented a second time at the April 24th
24   meeting.  And they voted to recommend to the Lottery
25   Commission that they publish the rule for public
0005
 1   comment.  The staff recommends the Commission adopt --
 2   this rule was proposed at the May 29th meeting.  There
 3   was no additional comment for the 30-day period and
 4   it's now ripe for consideration.  The staff recommends
 5   the Commission adopt new administrative rule 402.554,
 6   license fees, without any changes to the proposed text
 7   as published in the Texas Register.
 8                  CHAIRMAN CLOWE:  Any questions?  Phil,
 9   will you state your understanding of this rule so
10   we'll have that on the record.
11                  MR. SANDERSON:  The attached rule just
12   sets out information regarding license fees.  It
13   specifically sets out requirements for a license fee
14   that must be submitted by an authorized organization
15   that files for an original license to conduct bingo or
16   to lease bingo premises.  It also sets out
17   requirements for when a license fee -- if an
18   organization puts their license in administrative
19   hold, and it identifies how the license fee is
20   recalculated at renewal time.
21                  CHAIRMAN CLOWE:  Great.  Anything to
22   add, General Counsel?
23                  MS. KIPLIN:  No.  I've got an order
24   in -- in the event you vote to adopt this rule, and,
25   as I understand it, the effective date will be 20 days
0006
 1   upon filing with the Register and adoption.
 2                  CHAIRMAN CLOWE:  So moved.
 3                  COMMISSIONER COX:  Second.
 4                  CHAIRMAN CLOWE:  All in favor, please
 5   say aye.  Opposed, no.  The vote is two-zero in favor.
 6                  Phil, the next item, number three, is
 7   also yours:  Consideration of and possible discussion
 8   and/or action, including proposal, on new rule
 9   relating to tax review inspections, 16 TAC 402.595.
10                  MR. SANDERSON:  Commissioners, 402.595
11   is tax review inspections.  The staff first presented
12   this draft rule to the Bingo Advisory Committee at
13   their April 24th meeting.  They appointed one
14   subcommittee to consider this and two other rules
15   relating to audit, and they received some informal
16   comment from the general public.  The meeting -- the
17   draft rule was considered at the second time, at the
18   BAC meeting on June the 19th, and they voted at the --
19   that meeting to recommend that the rule be presented
20   to the Commission and the -- published for public
21   comment and proposed.  The staff recommends that the
22   Commission vote to publish this rule for consideration
23   in the Texas Register for public comment for a period
24   of 30 days.
25                  One additional item:  This rule was one
0007
 1   of the first rules that were presented to the Bingo
 2   Advisory Committee back in August of 2001.  It was
 3   then presented to the Commission at the January 8th
 4   meeting.  There were public hearings that were held on
 5   March the 7th and the 21st of 2002, and it was
 6   subsequently withdrawn from consideration at the April
 7   25th, 2002, meeting.  This rule was changed just a
 8   little bit when it received some informal comment from
 9   when it was originally published back in 2002.
10                  CHAIRMAN CLOWE:  Phil, give us your
11   summary of this, as well, if you would, for the
12   record.
13                  MR. SANDERSON:  This rule sets out
14   information regarding the reasons for conducting a tax
15   review inspection on a licensee.  It specifically sets
16   out actions that are taken by an auditor during the
17   tax review, what information is provided to the
18   licensee as a result of a tax review, and the possible
19   actions resulting from a tax review.
20                  CHAIRMAN CLOWE:  Anything to add,
21   General Counsel?
22                  MS. KIPLIN:  No.  The staff is
23   recommending that you vote to propose this rule for
24   public comment, in the Texas Register, for a 30-day
25   comment period.
0008
 1                  CHAIRMAN CLOWE:  So moved.
 2                  COMMISSIONER COX:  Second.
 3                  CHAIRMAN CLOWE:  All in favor, please
 4   say aye.  Opposed, no.  The vote is two-zero in favor.
 5                  Phil, item number four is also yours:
 6   Consideration of and possible discussion and/or
 7   action, including proposal, on new rule relating to
 8   location verification inspections, 16 TAC 402.591.
 9                  MR. SANDERSON:  Commissioners, 402.591,
10   location verification inspection, it's another rule
11   that was presented to the Bingo Advisory Committee at
12   the April 24th meeting.  They -- the same subcommittee
13   that considered the tax review inspection was also
14   looking at this rule.  The rule was changed just as a
15   result of some informal comments that were received
16   between the April 24th meeting and the June 19th
17   meeting.  The BAC voted at their June 19th meeting to
18   recommend to the Commission to publish this rule in
19   the Texas Register for public comment.  This rule,
20   just as the tax review rule, was originally presented
21   back in August of 2001, and subsequently withdrawn in
22   April of 2002.  The rule sets out information
23   regarding the inspections of locations, to verify that
24   the requirements of a conductor lessor, manufacturer
25   distributor, and system service provider are in
0009
 1   compliance with the Bingo Enabling Act.  Specifically,
 2   it sets out the purpose for the inspection, the
 3   requirements that are unique to each license type, and
 4   the notification process.  The staff recommends the
 5   Commission vote to publish the rule, 402.591, location
 6   verification inspections, in the Texas Register, for
 7   public comment for a period of 30 days.
 8                  CHAIRMAN CLOWE:  General Counsel, any
 9   comment?
10                  MS. KIPLIN:  No, that would be the --
11   the request for a motion.
12                  CHAIRMAN CLOWE:  So moved.
13                  COMMISSIONER COX:  Second.
14                  CHAIRMAN CLOWE:  All in favor, please
15   say aye.  Opposed, no.  The vote is two-zero in favor.
16                  Next, item five, consideration of and
17   possible discussion and/or action, including proposal,
18   on new rule relating to the transfer of funds, 16 TAC
19   402.584.  Ms. Kiplin.
20                  MS. KIPLIN:  Commissioners, this rule
21   is also before you.  It's a new rule.  The staff does
22   request that you vote to propose this rule for a
23   30-day public comment period, beginning from when it's
24   published in the Texas Register.  Mr. Sanderson may
25   have some additional comments.  As I understand it,
0010
 1   this rule also was presented to the Bingo Advisory
 2   Committee on two -- two occasions, one on April 24th
 3   and one on June 19th, to receive informal comment from
 4   the Bingo Advisory Committee, and also those that --
 5   that presented comment to the Bingo Advisory
 6   Committee.
 7                  The purpose of the rule is to set out
 8   information regarding transfer of funds from an
 9   organization's general fund to the organization's
10   bingo bank account.  In particular, the rule does set
11   out information that must be supplied with a loan
12   request:  the factors that will be considered when
13   determining whether to approve the request for the
14   loan, the requirements relating to paying back the
15   loan, and then the consequences, of course, of failing
16   to pay back the loan.  And it really does have to do
17   with the requirements from the Bingo Enabling Act, in
18   terms of -- of how monies need to be accounted for.
19                  Mr. Sanderson, do you have any
20   additional comment?
21                  MR. SANDERSON:  The only other
22   additional comment -- this rule, when it was presented
23   to the Bingo Advisory Committee on the 24th of April,
24   there was no recommendation to appoint a subcommittee
25   for this rule since it was primarily just
0011
 1   identification of procedures and the process of
 2   requesting the transfer of funds.  And the Bingo
 3   Advisory Committee did recommend it be published in
 4   the Registry for 30 days.  So the staff recommends the
 5   Commission vote to post the new rule, 402.584,
 6   transfer of funds, in the Texas Registry, for public
 7   comment for a period of 30 days.
 8                  CHAIRMAN CLOWE:  That failure to
 9   appoint a subcommittee doesn't denote opposition in
10   any way?
11                  MR. SANDERSON:  No, it did not.
12                  CHAIRMAN CLOWE:  Any questions?
13                  So moved.
14                  COMMISSIONER COX:  Second.
15                  CHAIRMAN CLOWE:  All in favor, please
16   say aye.  Opposed, no.  The vote is two-zero in favor.
17                  Next, item six.
18                  COMMISSIONER COX:  Mr. Chairman?
19                  CHAIRMAN CLOWE:  Sir.
20                  COMMISSIONER COX:  A general comment.
21   Phil, I want to thank you and Billy and your staff and
22   Counsel, as well, for the summary in the calendar that
23   you've put with these rules.  It's really helpful.
24                  MR. SANDERSON:  Thank you,
25   Commissioner.
0012
 1                  CHAIRMAN CLOWE:  Next item six,
 2   consideration of and possible discussion and/or action
 3   on the Commission's participation in a
 4   multi-jurisdictional lottery game.  Mr. Greer?
 5                  MR. GREER:  Good morning.
 6                  CHAIRMAN CLOWE:  Morning.
 7                  MR. GREER:  I bring you a brief report
 8   this morning on where we are on the
 9   multi-jurisdictional game process.  Obviously, this is
10   a huge decision for the Lottery Commission as a whole,
11   and we have been working diligently to get information
12   together that I can come forward with a recommendation
13   to you.  At a future date, I'm looking at bringing a
14   recommendation and being able to give you my full, you
15   know, answer -- question and answer-type presentation,
16   August the 4th or soon thereafter.  I want you to know
17   that we received a lot of e-mail input from the public
18   as a whole, and I'm reviewing that and will make that
19   available to you also if you want to -- want to take a
20   look at it.  It's been very interesting and -- and
21   gives you some insight into the players and what their
22   thoughts are.
23                  We have had some very productive
24   meetings, specifically, on July the 15th and the 22nd.
25   We have included members of the Governor's staff, as
0013
 1   well as the Sunset review staff, to be a part of the
 2   process, so that we can keep them in the loop and let
 3   them know what we're doing as we move into this major
 4   decision.  But we will be looking, again, at the
 5   August 4th date, as the date that I will be coming
 6   forward with a presentation and a recommendation to
 7   you.
 8                  CHAIRMAN CLOWE:  Any questions?
 9                  What is magical about August the 4th?
10                  MR. GREER:  We -- we were looking at a
11   variety of dates, to be honest with you.  I'm still
12   focused on trying to get this up and running as soon
13   as possible and get your input as to that process.
14   And the bill is effective on September the 1st.  So
15   with that in mind, we've still got to do agreements
16   and rules, and there is a lot of things.  In -- in
17   visiting with legal counsel and others in the staff,
18   we felt confident that, by the first part of August,
19   we would be able to do it.  And that's why we picked
20   that day.
21                  CHAIRMAN CLOWE:  So then are you asking
22   for a Commission meeting on or about August the 4th?
23                  MR. GREER:  That was where I was
24   certainly heading, that I would like for you to
25   consider that as an option.  Open to other dates if
0014
 1   that date specifically doesn't work.  As soon
 2   thereafter is why I said that comment a minute ago.
 3   But my original intent, as you remember in our last
 4   meeting at the Capitol, was to come to you today with
 5   a recommendation.  And as we got into this process, I
 6   could see that I was just not going to be comfortable
 7   doing that, specifically, because of the cost benefit
 8   analysis and the number of questions that were raised
 9   that day.  I have been in contact with both groups on
10   a regular basis getting answers to those questions.
11   They have been very forthcoming, both of them.  And I
12   just didn't see that we were going to be ready to do
13   it today.  So that gives me another couple of weeks,
14   and I think by then we can have everything put
15   together.
16                  CHAIRMAN CLOWE:  Okay.  We'll wait
17   until Commissioner Whitaker arrives to tentatively try
18   to set a date in line with your planning.  Along the
19   lines of what you have said, are the groups that
20   you're working with forthcoming in a satisfactory way
21   and are you getting all the information that you need
22   to make this recommendation?  Is there any area that
23   you don't feel you're getting adequate, either
24   cooperation, support, or general information?
25                  MR. GREER:  There has been some issues,
0015
 1   you know.  I will be honest with you.  And some of
 2   those issues are just misunderstandings.  As we get
 3   down into the real factual aspects of what is being
 4   presented, there are some other questions that are
 5   coming up; so I chuckle just because it changes
 6   sometimes on a daily basis.  Oh, is that what you
 7   meant?  Oh, well, I thought you meant this.  So I am,
 8   you know, continuing to be diligent in getting those
 9   answers.  And the overall answer to your question is,
10   yes, they have been forthcoming, they are cooperating,
11   certainly our financial division, in getting us the
12   answers specifically on the finances that we wanted.
13   There are some other things that have been brought
14   forward that all -- in all frankness, will have an --
15   an impact on the decision that we as a staff come
16   together to make, based on the answers that they're
17   giving us, positive or negative.
18                  CHAIRMAN CLOWE:  Great.  My
19   understanding is the period for public input closed on
20   July the 14th.
21                  MR. GREER:  Yes, sir.
22                  CHAIRMAN CLOWE:  And you said that you
23   received a great many comments, if you can call it
24   that, or input from the public.  It's not really
25   comment; it was input.  Right?  Is there some way the
0016
 1   Commissioners can have that information available to
 2   them and review that so that we can have the benefit
 3   of the public input?
 4                  MR. GREER:  Yes, sir.  We will -- we
 5   will get you that information, and it's available to
 6   you so that you can look at it at your leisure.  I
 7   personally probably have looked at well over a
 8   thousand, and the overall comments toward the game are
 9   favorable.  What is interesting is the perception that
10   people have of either of the two games, but they're
11   very forthcoming in their thoughts on that process.
12   And I think it would be beneficial for you to look at
13   it.
14                  CHAIRMAN CLOWE:  How will you do that?
15                  MR. GREER:  Probably the easiest way
16   would be to put it on a CD, is what I would say.
17                  CHAIRMAN CLOWE:  That would be great.
18                  MS. KIPLIN:  Mr. Chairman, I'll be glad
19   to work with each of the Commissioners individually
20   and determine what your needs are, what your technical
21   needs are, and we'll get it to you in whatever format
22   you need it.
23                  CHAIRMAN CLOWE:  Okay.  I -- I think,
24   you know, in the past, to my knowledge, the
25   Commissioners have come to Austin and have sat down
0017
 1   and physically reviewed the physical comments or the
 2   input.  And if it could be on a CD, and we could get
 3   it on our own office or home computers, that would
 4   certainly be helpful.  And I think the Commissioners
 5   want to do that.  I think they want to look at this
 6   comment.
 7                  MR. GREER:  Okay.  Certainly the
 8   comments have been a portion of the questions that
 9   we've come forward with.  There were some issues that
10   were brought up by the citizenry as a whole that I
11   think had validity, and we've added those to our, you
12   know, questioning opportunities with both groups.  So
13   it's been valuable and will be a part of the
14   decision-making.
15                  CHAIRMAN CLOWE:  Okay.  And you're
16   comfortable, then, with the progress you've made
17   and -- and that which the staff has -- has made with
18   you.  And you feel like, when Commissioner Whitaker
19   arrives, if we tentatively set a date after or on the
20   4th of August, you'll be ready?
21                  MR. GREER:  Yes, sir.  I do.  I do want
22   to thank, while I have the opportunity, the fact that
23   it's been a short time fuse basically, specifically,
24   the marketing staff and finance.  They have both --
25   and all -- all the office, as a whole, has worked
0018
 1   great together as a team on this.  But there is a lot
 2   of long hours that are going into making this
 3   decision, and we're obviously taking this very
 4   seriously and want to be sure that we look at every
 5   aspect and every question that could come up.  And I
 6   feel confident that by the August 4th time frame or
 7   thereafter that we can feel good about making a
 8   recommendation to you.
 9                  CHAIRMAN CLOWE:  Very good.  Thank you,
10   Reagan.
11                  The next item is number seven, report,
12   possible discussion and/or action on lottery sales and
13   trends.  Good morning, Lee and Toni.
14                  MS. SMITH:  Good morning,
15   Commissioners.
16                  MR. DEVINEY:  Good morning.  Under --
17   I'm Lee Deviney, Director of Financial Administration.
18   Under tab seven you have some sales memos, and this
19   morning you got updated sales memos for the week
20   ending July 19, 2003.  The first memo is an executive
21   summary.  Fiscal year 2003 sales, to date, are at 2.8
22   billion, which is a 5.2 percent increase over the
23   comparable time period in fiscal year 2002.  The
24   second sales memo provides year-to-date sales by
25   product.  The following memo provides weekly product
0019
 1   sales detail.  Then there is a chart detail for fiscal
 2   year 2003 sales and some matching graphs.  Any
 3   questions?
 4                  CHAIRMAN CLOWE:  So the comparison on a
 5   year-to-date basis, fiscal '03 to '02, is rapidly
 6   approaching a full 12-month period, isn't it?
 7                  MR. DEVINEY:  That's correct, sir.  The
 8   fiscal year ends August 31st.
 9                  CHAIRMAN CLOWE:  And if we're 5.2
10   percent ahead for '03 over '02, that means more people
11   are playing the games this year than the prior year?
12                  MR. DEVINEY:  Certainly we're selling
13   more tickets than we were a year ago.
14                  CHAIRMAN CLOWE:  So those who say that
15   we're behind are incorrect.  Is that correct?
16                  MR. DEVINEY:  Sales are ahead of a year
17   ago; so I would say that we're ahead.
18                  CHAIRMAN CLOWE:  The games are more
19   popular, more people are playing, and the revenue to
20   the State is increasing?
21                  MR. DEVINEY:  That is correct.
22                  CHAIRMAN CLOWE:  I -- I see some
23   material that doesn't support that, and I just wanted
24   to make sure I understood the facts that you were
25   giving us.
0020
 1                  MS. SMITH:  And if -- if I might add to
 2   Lee's comments, sir, at -- at the back of the memos we
 3   prepared two graphs.  I know one of the issues has
 4   been with relation to the Lotto Texas game.  And this
 5   shows a -- a comparison of fiscal year -- total sales
 6   of fiscal year '02 and '03 and then Lotto Texas.  And
 7   I just wanted to make a point on record that any
 8   comments made with regard to comparing Lotto Texas
 9   alone to last year's Lotto Texas sales, that we were
10   sort of competing with a 70-million-dollar jackpot at
11   this time of the year last year.  And so that's why
12   that -- our numbers reflect a -- a decline, compared
13   to last year, was that jackpot level.
14                  CHAIRMAN CLOWE:  In Lotto Texas?
15                  MS. SMITH:  Yes.  In that game itself.
16                  CHAIRMAN CLOWE:  And that's when we had
17   the matrix which we changed from -- we changed the
18   matrix, if I understand the Commission's intent, to
19   create a larger jackpot.  We're at 36 million dollars
20   now.  And if I'm reading the statistics that I'm
21   seeing correctly, we're seeing sales build as that
22   jackpot increases.
23                  MS. SMITH:  Yes, sir.  And -- and I
24   would also like to add -- and this was at Commissioner
25   Whitaker's request at the last meeting.  And then we
0021
 1   were talking about how quickly the jackpots grow.  We
 2   went back and looked at the interest rate factors, and
 3   on this -- this current jackpot we have of 36 million,
 4   we went from 32 million to 36, and the interest rate
 5   was 1.65.  This time last year, if we would have been
 6   at 32 and estimated our jackpot, the interest rate was
 7   1.76, and we would have been able to roll to 39
 8   million.  It stayed pretty consistent the year before,
 9   but for 2000, if we were still at the same level of
10   interest rate then, which was 1.96, we could have
11   rolled from 32 million to 43 million.  Just --
12                  CHAIRMAN CLOWE:  Spoken like a true
13   sales manager.  If things were just different.
14                  MS. SMITH:  Well, so it is a factor.
15   It is a factor in -- in how the jackpots have rolled
16   in the past and how they are currently rolling.
17                  CHAIRMAN CLOWE:  Good morning,
18   Commissioner Whitaker.  Commissioner Whitaker has been
19   able to join us now, and the time is 8:49.
20                  We're into the current sales,
21   Commissioner Whitaker, item number seven on the
22   agenda.  And Toni is responding to a question that you
23   had asked at a prior meeting about interest rate
24   impact.
25                  Would you mind restating that so
0022
 1   Commissioner Whitaker can hear it.
 2                  MS. SMITH:  Sure.  What we did,
 3   Commissioner, we looked at this most recent jackpot.
 4   The estimated amount we have now is 36 million.  And
 5   we had -- had rolled from 32 to 36 when the interest
 6   rate was at 1.65.  So we went -- went back and looked
 7   over the past few years, what the interest rate was at
 8   the same time period.  So last year, if we had a
 9   jackpot at 32 million, we were able -- would have been
10   able to roll to 39 because the interest rate was 1.73.
11   And it was similar in '01, but if we look back to --
12   to 2000, the interest rate was 1.96, and we could have
13   rolled from a 32-million-dollar jackpot to a
14   43-million-dollar jackpot.  So that interest rate is a
15   big factor in how -- how far we can roll those
16   jackpots.
17                  COMMISSIONER WHITAKER:  What's the
18   highest interest rate we've had in the last five
19   years?
20                  MS. SMITH:  Well, now that I don't
21   know.  We can definitely use -- go back --
22                  COMMISSIONER WHITAKER:  Ballpark, just
23   ballpark.
24                  MR. DEVINEY:  I don't know.
25                  MS. SMITH:  Robert is saying that 2000,
0023
 1   the close to 1.96, is probably the -- the highest it's
 2   been in over -- over that time period.
 3                  MR. GREER:  I would like to note a
 4   couple of things, as well, I think that's worth
 5   mentioning.  One of those is that as we track
 6   specifically on Lotto Texas, I've been impressed by
 7   the fact that one of the aspects of the game that the
 8   bill brought forward was the fact that it would go
 9   from four to eight tiers of prize -- prize levels.
10   And in our drawing just the other night, in fact, we
11   had over 122,000 winners.  So there is a lot of
12   activity out there and as people begin to see that the
13   game is bringing forward higher jackpots, as you
14   mentioned, the 36 million this afternoon, and we will
15   decide when we go from there if we would by chance
16   roll, hopefully, then we'll look at a scenario, also,
17   where we're continuing to see that tier of prize
18   levels have an effect on the game in a positive way.
19   Specifically, the -- the thing that has gotten some
20   play from when I'm out and about talking to people is
21   the fact that that five zero match without the bonus
22   ball is a high payout.  And recently, I think one was
23   around 47,000 dollars.  And we didn't have that
24   before.  So people are looking at it in a different
25   way.  It is a whole different game, and that is what I
0024
 1   keep, you know, reinforcing to a lot of people who
 2   continue to have issue with the fact that they've
 3   played that -- their six numbers, you know, for X
 4   years and I reiterate to them, it's a new game; it's a
 5   new format; it's a new way of playing.  And so I -- I
 6   thought that was worth mentioning.
 7                  The other thing that you touched on
 8   earlier is that, obviously, we're very excited about
 9   the opportunity to bring information to show that the
10   percentage of sales is higher, but there is really no
11   key to measure that, as far as number of people.  We
12   can assume that, you know, more people are stepping
13   out, but there is no way, you know, to actually know
14   that.
15                  CHAIRMAN CLOWE:  That's right.  And
16   that was probably a mental misstep on my part when I
17   said more people are playing.  In fact, more dollars
18   are coming in.  We don't know whether it's fewer
19   people or the same number, but the dollars are being
20   spent.
21                  MR. GREER:  Exactly.
22                  CHAIRMAN CLOWE:  And I think it's
23   important to be concerned about each game in the mix.
24   And, certainly, instant ticket sales have been a
25   rising part of the increase in revenue.  But, in fact,
0025
 1   I saw a lot of similarities in the Mega Million and
 2   Powerball presentations.  One was the second tier of
 3   winning that you just commented on.  If I remember,
 4   the lady from Virginia said their second tier winning
 5   was 150 to 175,000, and they considered that a real
 6   plus and a draw.
 7                  MR. GREER:  Right.
 8                  CHAIRMAN CLOWE:  And the change in the
 9   matrix is a change.  And -- and that is a complaint
10   that I have heard from the players, that they can't
11   play their numbers that they've had for a long time.
12   We heard that when we changed from 50 to 54.  But if
13   you take us to a recommendation for a
14   multi-jurisdictional game, both of those matrixes are
15   some number and a separate ball.  And if I recall
16   correctly, we could have some impact on one or maybe
17   both of those games if we joined them with our number
18   of players, which might consider -- cause considering
19   a matrix change as a result of our joining.
20                  Additionally, we would anticipate, if I
21   remember what was said at our last meeting, some
22   reduction of interest in Lotto Texas, which we have to
23   be prepared to accept.  And, you know, we've been
24   worried and concerned about the popularity of this
25   game, and I think we need to be very realistic about
0026
 1   that as we move to these considerations.  And -- and
 2   you -- and I think you need to give us the financial
 3   impact on that, as best you can, because we have
 4   watched this very carefully.  Everybody watches it
 5   very carefully.
 6                  MR. GREER:  Well, we have -- you know,
 7   I certainly agree with and appreciate the aspects of
 8   what you just said.  The -- the thing that we've
 9   looked at is everything across the board, and,
10   interestingly, the -- two points on your comments.
11   One is that I have been watching Cash Five, and that
12   is the game where you can still pick your numbers.  A
13   lot of people do quick picks, but you can, you know,
14   pick those.  And our numbers there, I think, have
15   climbed by 19 percent.  Isn't that the last figure
16   that I saw?  And so that game is, you know, picking up
17   some of the slack for people that, you know, still
18   want to go in and feel like they have some control
19   over the number that -- that, you know, numbers that
20   they're playing.  And the other thing is just to
21   reensure and -- and to refocus to each of you the fact
22   that we are measuring that cannibalization of what it
23   is going to do, we know, across the board to the games
24   that are, you know, currently out there.  And that
25   will be a key part of our decision-making process.
0027
 1                  CHAIRMAN CLOWE:  Commissioner Whitaker,
 2   prior to your arrival, Reagan Greer said that he would
 3   like to have his recommendation for the Commission by
 4   August 4th.  And we deferred until you arrived, trying
 5   to set a tentative date, but as we move through this
 6   meeting, if you'll -- all three of us will look at our
 7   calendars, he wants to go as soon as on or after
 8   August the 4th, I think, with his recommendation,
 9   and --
10                  COMMISSIONER WHITAKER:  What's magic
11   about the 4th?  What happens?
12                  MR. GREER:  It's a tentative date.
13                  COMMISSIONER WHITAKER:  Do I need to be
14   here for that?
15                  CHAIRMAN CLOWE:  I asked the same
16   question.
17                  MR. GREER:  It's a tentative date that
18   we as a group just came forward with.  We are not, you
19   know, married to that date.  I may come back to you,
20   you know, after we set this meeting today and say, I
21   need a couple more days.  But I'm comfortable at least
22   suggesting that date as an option and ask that you
23   give me some flexibility as we look at that, just in
24   case an unforeseen aspect pops up.
25                  COMMISSIONER WHITAKER:  Kim, are you at
0028
 1   a point where --
 2                  MS. KIPLIN:  Commissioners, the -- as I
 3   understand it, there -- where Mr. Greer was coming
 4   from was recognizing that it's an important concept.
 5   We're trying to move through as fast as we can.  We
 6   don't want to -- we're not rushing just for the sake
 7   of rushing.  And there was some inquiry of your
 8   individual calendars that led to information that
 9   y'all were available on August 4th for a Commission
10   meeting.  And so the magic of that date was that it
11   was something that had already tentatively been
12   cleared with your calendars.
13                  COMMISSIONER WHITAKER:  Actually, my
14   question went to, do you think your work in describing
15   it now from a legal perspective is going to be --
16                  MS. KIPLIN:  I think it's -- I -- I
17   will say that I think it's going to depend on the next
18   two weeks and -- and, frankly, the -- the next week,
19   in terms of what -- what is occurring with the -- the
20   questions that have been posed to each of the two
21   groups, along with, I believe, the Comptroller of
22   Public Accounts and the information that is received
23   as a result of the questions that have been posed.
24   We'll have to analyze that information when it comes
25   through.  I don't think that the staff will be in a
0029
 1   position of -- of having a -- a rule ready for your
 2   review in two weeks.  I think where Mr. Greer is
 3   coming from, and certainly he can correct me, is that
 4   he will be in a position of recommending, one, whether
 5   to join a multi-jurisdiction game and, two, if the
 6   recommendation from Mr. Greer is to join a -- a game,
 7   which one -- which game to join.  And from that point
 8   forward, what at least I envision as the general
 9   counsel, is that he is looking to you as the
10   Commission to say, we hear what you're saying, after,
11   obviously, whatever questions that you have need to be
12   answered, and -- and we are approving your desire to
13   go forward to negotiate a contract with one of the
14   groups; and, of course, if that fails, to go to a
15   fall-back position with potentially another group.  I
16   think the agreement is going to be critical and
17   whatever the terms of the agreement are, to be able to
18   drive the terms of the rule.  And so there is a --
19   there is a lockstep approach to this.
20                  COMMISSIONER WHITAKER:  Yeah.  I -- I
21   agree with Reagan on his with recommendations.  I'm
22   going to look a lot, too, at how far along we are in
23   that legal analysis phase.
24                  MR. GREER:  That's certainly a part of
25   what we're looking at, as well, and you brought up
0030
 1   some great points in the past that we are pursuing,
 2   and we'll be bringing that as a part of the
 3   presentation to you.  And when I threw that date out,
 4   you know, it's been working with all of the staff
 5   members to be sure that they're equally comfortable.
 6   And that's why I wanted to leave it as a tentative,
 7   but at least to throw out something that we might be
 8   able to begin to, you know, come together on.
 9                  CHAIRMAN CLOWE:  There has been
10   substantial public input, and we've asked that that be
11   put on a CD or some form where we can look at it in
12   our own computers.  So you should be getting that as
13   well.
14                  Anything further, Toni?
15                  MS. SMITH:  No, sir.
16                  CHAIRMAN CLOWE:  Lee?
17                  MR. DEVINEY:  No, sir.
18                  COMMISSIONER COX:  I've got a question.
19                  CHAIRMAN CLOWE:  Yes, sir.
20                  COMMISSIONER COX:  Toni, the jackpot
21   that we advertised is the actual dollars that will be
22   paid out over a 25-year annuity.  Is that correct?
23   Without regard to interest or present values or the
24   like?
25                  MS. KIPLIN:  For Lotto Texas?
0031
 1                  COMMISSIONER COX:  For Lotto Texas.
 2                  MS. KIPLIN:  The -- the jackpot bet as
 3   advertised is an estimated jackpot beyond the first
 4   four draws of a roll cycle.  And the first four draws
 5   in the -- the initial roll cycle, the -- that's a
 6   guaranteed jackpot.  So beyond that, which when you
 7   get past that event, it is an estimated jackpot.  It
 8   is based on a number of factors, in particular, sales.
 9   And it is an estimated jackpot on the 25-year annual
10   installment payout.
11                  COMMISSIONER COX:  Okay.  So what --
12   the number that we advertise, the number that's 36
13   million right now, is an estimate of the actual
14   dollars that will be paid out over 25 years if the
15   winner selects the annuity option?
16                  MS. SMITH:  Yes.  And based -- but
17   based on sales.
18                  COMMISSIONER COX:  And isn't that --
19   and I understand what Kim is saying, but that
20   really -- I'm not -- my question is much simpler than
21   that.  The player has an option to receive the present
22   value of that number.
23                  MS. SMITH:  Yes, sir.
24                  COMMISSIONER COX:  Based on an annuity
25   factor that is based on kinds of securities that the
0032
 1   Texas Comptroller will buy to fund that jackpot and
 2   what they're yielding at that particular day.
 3                  MS. SMITH:  Yes, sir.
 4                  COMMISSIONER COX:  And that's naturally
 5   a lower number.
 6                  MS. SMITH:  Yes, sir.
 7                  COMMISSIONER COX:  Over the past period
 8   of time that you'll recall, what percentage of the
 9   people have taken the annuity, as compared to the cash
10   option?  And you can just say a whole lot more did one
11   or a whole lot more did the other.
12                  MS. SMITH:  Robert is saying
13   overwhelming cash value.
14                  COMMISSIONER COX:  Okay.  Now, looking
15   at what you told us earlier, that if the annuity
16   factor were the same as it were -- had been last year,
17   the jackpot that we're now advertising at 39 million,
18   I think, or --
19                  MR. DEVINEY:  36.
20                  COMMISSIONER COX:  -- 36, would have
21   been some higher number.
22                  MS. SMITH:  It could have been 39,
23   based on the interest rate the same time last year.
24                  COMMISSIONER COX:  Could have been 39.
25   Okay.  So that means that, as a percentage of the
0033
 1   advertised jackpot, the person taking cash, which is
 2   the overwhelming percentage, is going to get more as a
 3   percentage of that number than he would have gotten
 4   last year.
 5                  MR. DEVINEY:  That's correct.
 6                  COMMISSIONER COX:  Does it make -- do
 7   we in any way communicate what the cash prize is
 8   estimated to be?
 9                  MS. SMITH:  What we have stated, that
10   it is approximately 50 percent of the advertised
11   estimated jackpot.
12                  COMMISSIONER COX:  Okay.  And last
13   year, did we say it would be approximately 48 percent
14   or --
15                  MS. SMITH:  Well, we have kind of
16   stayed at 50, and I don't -- I don't know if Lee's
17   group could maybe report back with what it's actually
18   been.
19                  MR. DEVINEY:  We can look into that.
20   It's -- it's a -- that issue has not come to my
21   attention before, but we can look at it.
22                  COMMISSIONER COX:  But what I heard
23   Toni say is that, as a percentage of an advertised
24   jackpot, the cash -- person who selects cash is going
25   to get about ten percent more cash than they would
0034
 1   have gotten on a comparable jackpot last year.
 2                  MR. DEVINEY:  I don't know what
 3   percentage it would be, but certainly they would
 4   receive more cash today than they would have a year
 5   ago.
 6                  COMMISSIONER COX:  I was looking at 39
 7   as a function of 36, which is a little less than ten
 8   percent.
 9                  Does it make any sense to communicate
10   to them a more precise estimate of what the cash would
11   be?  And you don't have to answer that today, and it
12   may not make any sense to even look at it.
13                  MS. SMITH:  No.  No.  My concern would
14   be that, because of the fluctuation of the interest
15   rate, anything we put in writing we wouldn't want to
16   mislead the players in thinking that they had a
17   certain chance to win a certain amount of money, based
18   on that calculation.  If we said, you know, 52 percent
19   versus 48 percent, that's the only thing is, once we
20   produce something and by the time we get it out there
21   for the players to see, it could have changed then
22   because we don't control the interest rate, obviously,
23   so -- and that is the determining factor.  I mean, we
24   could maybe make them more aware of the changes and
25   the impact it has, but I don't know if we could
0035
 1   publish or advertise a percentage and -- and safely
 2   feel like we were not misleading them.
 3                  COMMISSIONER COX:  Well, we're -- after
 4   the first four draws, we're already publishing an --
 5   publishing an estimate.
 6                  MS. SMITH:  Yes, sir.
 7                  COMMISSIONER COX:  Because they're
 8   going to get the lower number if we estimate it too
 9   high.  I realize it would add another factor to the
10   estimate, and yet I think that probably interest rates
11   are less volatile or at least not much more volatile
12   than the estimates that we're already making, what are
13   sales going to be.  I think I could guess better what
14   the interest rates are going to be on Monday than I
15   could guess what the sales are going to be through
16   Sunday.
17                  MS. SMITH:  Yes, sir.
18                  COMMISSIONER COX:  So just a thought
19   that the -- the winner now is getting more as a
20   percentage of the advertised number.  Does it make any
21   sense to communicate that, recognizing that it's a
22   two-edged sword, and when interest rates go up, the
23   reverse will be true.
24                  MS. SMITH:  What we might be able to
25   do, because we can change things up more quickly, is
0036
 1   to put something on our website that's a little
 2   educational-type piece that explains that process so
 3   that it -- that, you know, those people who do come in
 4   the website, or our winner awareness liaison can refer
 5   them to the website, people call in or -- or call in
 6   the claims center, we -- we at least have some
 7   information that gives them a little more of that
 8   detail.  And we could do that and update it more
 9   quickly than printing something.
10                  COMMISSIONER COX:  That might be a
11   great way to start.
12                  MS. SMITH:  We'll do that, sir.
13                  COMMISSIONER COX:  Thank you.
14                  CHAIRMAN CLOWE:  And that -- and that
15   was a simple question.  I'm sure he didn't have a
16   complicated one for you.
17                  Do you have anything further on
18   advertising and promotion?
19                  MS. SMITH:  No, sir.  I don't have
20   anything new to report today.
21                  CHAIRMAN CLOWE:  That covers item
22   number eight.
23                  COMMISSIONER COX:  I have a question on
24   advertising.
25                  CHAIRMAN CLOWE:  Yes, sir.
0037
 1                  COMMISSIONER COX:  We had a talk some
 2   months ago.  The gentleman from the advertising agency
 3   up in Dallas came and talked to us about what we're
 4   getting for our advertising dollar.
 5                  MS. SMITH:  Yes, sir.
 6                  COMMISSIONER COX:  And I know that you
 7   were doing some -- some tests to try to make some
 8   determinations about that, some more objective tests.
 9   Will we be getting a report in the near future?
10                  MS. SMITH:  Yes, sir, we will.  And --
11   and I'll talk to Liz Jambor, and we'll get something
12   to you next week on that.  What had happened,
13   obviously, all those other factors of jackpot levels
14   and things that have happened skewed that information
15   some way, and it was a very narrow window of time.
16   But we'll -- we'll share the results with you.
17                  COMMISSIONER COX:  Great.  Thank you.
18                  MS. SMITH:  Thank you.
19                  CHAIRMAN CLOWE:  Thank you.  That's
20   item number eight.
21                  And nine now, report, possible
22   discussion and/or action on the 78th Legislature,
23   Regular and First Called Sessions and implementation
24   of legislation affecting the Texas Lottery Commission.
25   Nelda Trevino, good morning.
0038
 1                  MS. TREVINO:  Good morning,
 2   Commissioners.  This morning we provided you an
 3   updated legislative tracking report for the first
 4   called special session, and just to give you some
 5   perspective, during this special session there have
 6   been over 180 bills that -- that have been filed, and
 7   we are tracking six of them.  And I want to highlight
 8   two of them for you this morning.  First of all, House
 9   Bill 55 by Representative Ron Wilson:  This relates to
10   the continuation of functions of the Lottery
11   Commission.  And this is basically the agency's Sunset
12   bill as it was passed out of the House during the
13   regular legislative session.  Also House Bill 93 by
14   Representative Mark Homer:  This is related to
15   protecting the State from losses incurred by a lottery
16   sales agent.  And this bill would authorize the
17   lottery pool bond fund to cover possible losses of a
18   retailer, due to the bankruptcy, theft, or loss of
19   lottery tickets, supplies, or equipment.  And this
20   bill is identical to House Bill 1241 that was passed
21   during the regular legislative session and was
22   ultimately vetoed by the Governor.  There have been no
23   actions taken on either one of these bills.  And just
24   to point out that the other bills that are on our
25   tracking report primarily relate to the state
0039
 1   government reorganization issues that were added to
 2   the call by the Governor.  The last day at the first
 3   called special session is next Tuesday, July 29th, and
 4   we will certainly keep you updated on any developments
 5   that might take place in regards to any of these
 6   bills.
 7                  Also, in your notebook, we have a
 8   document that relates to the agency legislative
 9   implementation project, and as I mentioned in my last
10   report, committees were formed on each of the bills
11   that we identified for this project.  And committees
12   have been meeting and reporting their progress in
13   regards to the implementation on those bills.  And a
14   time line has been established, and, again, progress
15   reports are being provided to Melissa Villasenor in
16   the Governmental Relations Division.  And based on the
17   information that the committees are providing to us,
18   we will compile a comprehensive report that we will
19   provide to the executive management for any review and
20   appropriate action that needs to take place.  And
21   we'll continue to provide you any updates as it
22   relates to the implementation of any of these bills.
23   This concludes my report, and I'll be happy to answer
24   any questions.
25                  CHAIRMAN CLOWE:  Thank you, Nelda.
0040
 1                  Next is the report, possible discussion
 2   or action on HUB and/or minority business
 3   participation, number ten.  Ed Rogers, good morning.
 4                  MR. ROGERS:  Good morning, Chairman.
 5   Good morning, Commissioners.  For the -- for the
 6   record, my name is Ed Rogers, and I'm the Acting
 7   Director of Business Compliance and Development.  On
 8   item -- item number ten, this morning, I actually have
 9   two items for you.
10                  In your notebooks, you'll see the
11   monthly HUB Minority Contracting Activity Report.  It
12   shows that our fiscal year expenditures paid from
13   September 1st, 2003, through June 30th of 2003, were
14   101.8 million, and our HUB utilization was 19.8
15   million, which equates to 19.48 percent of our
16   expenditures.
17                  The second item, actually, at the time
18   that we prepared the notebooks, we didn't have an
19   update on the TLC's Mentor ProtTgT Program, but since
20   that time the Business Development and Compliance
21   Division has extended the Commission's mentor protTgT
22   relationship between Oberthur Gaming Technologies and
23   Business Assets Incorporated.
24                  I would be happy to answer any
25   questions you have on these -- regarding any of these
0041
 1   reports.
 2                  CHAIRMAN CLOWE:  Ed, this is an area of
 3   great interest to the Commission, and we've created a
 4   record in this area that we're very pleased and proud
 5   of.  I think we're third among all agencies in
 6   activities here, promoting HUB utilization.  And you
 7   are acting director now.  I want to ask you to
 8   continue to look into this area in an active way and
 9   pursue it aggressively.  Do you have the resources you
10   need to do that, and are you satisfied with what you
11   find and -- and the progress that you feel you can
12   make in the future?
13                  MR. ROGERS:  Yes, sir.  I will continue
14   to pursue this aggressively.  I do feel like we do
15   have the resources.  I think the staff in the division
16   are very well versed in the rules and -- and some of
17   the statutes and -- and just the processes required
18   to -- to continue to make this HUB minority
19   participation program a success for the Commission.
20                  CHAIRMAN CLOWE:  Great.  I think there
21   are no questions.
22                  You have the next item as well, I
23   believe.
24                  MR. ROGERS:  Yes, sir.  On agenda item
25   number 11, in -- in your notebooks, you'll see that
0042
 1   there is the month report on the Commission's
 2   contracts with an estimated value of 25,000 dollars or
 3   more.  I -- I don't really have anything special to
 4   report on those contracts other than to let you know
 5   that we will be holding long-range contract planning
 6   meetings in mid-August.  We had scheduled those -- or
 7   Robert Hall actually had scheduled those for the end
 8   of July, but due to several scheduling conflicts,
 9   those have been moved to mid-August.  And I would be
10   glad to answer any other questions you may have.
11                  CHAIRMAN CLOWE:  I don't believe we
12   have any.  Thank you.
13                  Next item 12, consideration of and
14   possible discussion and/or action on the agency's
15   business plan.  Michael Anger.
16                  MR. GREER:  Commissioners, I'll be
17   doing that report this morning.  And there is a tab 12
18   in your notebook that goes into more detail on the
19   plan.  We continue to be focused on that and are
20   monitoring legislative activity that Nelda just
21   mentioned as a part of that process.
22                  CHAIRMAN CLOWE:  Thank you.  I don't
23   believe there are any questions.
24                  Next number 13, report, possible
25   discussion and/or action on the drawings audit
0043
 1   services procurement.  Mr. Marker, good morning.
 2                  MR. MARKER:  Good morning,
 3   Commissioners.  For the record, my name is Andy
 4   Marker, Assistant General Counsel, Texas Lottery.  I'm
 5   here to provide an update on the drawings audit
 6   procurement and to advise the Commissioners that the
 7   agency has entered into a new agreement with Davila
 8   Buschhorn & Associates as of last week.  I'll be glad
 9   to answer any questions with regard to that.
10                  CHAIRMAN CLOWE:  I believe there are
11   none, Andy.
12                  And you have the next item.
13                  MR. MARKER:  I'm also here to provide
14   an update on the instant ticket vending machine
15   procurement and to apprise the Commission that last
16   week the Texas Lottery sent a notice of appearance of
17   testament proposer to Interlock Technologies,
18   Incorporated.  And we are in the process of
19   negotiating a new contract with Interlock.
20                  CHAIRMAN CLOWE:  I believe there are no
21   questions.
22                  And you have the next item.
23                  MR. MARKER:  On July 11th -- July 11th,
24   the Commission issued an emergency solicitation for
25   instant ticket manufacturing services.  We have a
0044
 1   pre-proposal conference scheduled this Friday, and
 2   price quotations are due August 1st.
 3                  I'll be glad to answer any questions
 4   you might have.
 5                  CHAIRMAN CLOWE:  I believe there are
 6   none.  Thank you, Andy.
 7                  MR. MARKER:  Thank you.
 8                  CHAIRMAN CLOWE:  Next item is 16,
 9   consideration of and possible discussion and/or
10   action, including proposal, of a rule review of 16 TAC
11   Chapter 403, General Administration.
12                  MS. KIPLIN:  Commissioners, I've just
13   handed you a package of two documents, and the first
14   one is the statutory requirement that an agency
15   conduct a rule review of its rules not later than the
16   fourth anniversary on the date on which the rule took
17   effect and then every four years after that date.
18                  The second document is an order that
19   was adopted by this Commission in September of '99,
20   adopting the rule review of Chapter 403 of Title 16 in
21   the Texas Administrative Code.  These rules relate to
22   the general administration of the Texas Lottery
23   Commission.
24                  The third document is just the index of
25   the rules that are the subject of the proposed rule
0045
 1   review of Chapter 403, so that you have it in front of
 2   you.
 3                  Commissioners, the staff is
 4   recommending that you do vote to propose the rule
 5   review so that we can publish it in the Texas Register
 6   and receive whatever comments we might receive and
 7   then come back before you with a recommendation, prior
 8   to the September 28th, 2003, date.  We -- we talked
 9   about this as a staff, and there may be rules that you
10   might think would not necessarily be ripe for
11   consideration for a rule review because they're not
12   close to the four-year anniversary, but from a
13   housekeeping perspective, we believe it is a good idea
14   to -- to do a comprehensive rule review of all
15   existing rules so that we can calendar them out and
16   make sure we don't have any drop through the crack.
17                  The purpose of the rule review is to
18   determine whether the initial reasons for adopting the
19   rule -- rule continue to exist.  And that is the sole
20   purpose of the rule review.  I do anticipate -- this
21   will be the first one that we'll kick off, and then
22   the next one, just so you know, will be the Chapter
23   401, which needs to be complete by January.  And then
24   the next one will be the Chapter -- Chapter 401 is the
25   Administration of the State Lottery Act.  The next one
0046
 1   and the final one will be Chapter 402, which are the
 2   bingo rules, and that will need to be completed -- I
 3   believe it's April of '04.
 4                  And what I envision occurring is a
 5   two-step process.  One is to conduct the rule review
 6   to determine whether the initial reasons for adopting
 7   the rule continue to exist.  There is a by-product of
 8   that, and that is, generally, a -- a determination,
 9   yes, there is the continued reasons for why the rule
10   was adopted originally, they do continue to exist.
11   But the rule does need to be revised either to conform
12   with current practice or because there is some
13   acknowledgment that there is maybe another approach
14   that would be better.  And so I did envision that,
15   after we conduct the rule review, we will be coming
16   forward as a staff and recommending rule-making on the
17   rules that we believe need to continue to exist, but
18   we believe should be revised in some form or fashion.
19                  So today the staff is requesting
20   your -- your motion, second, and a vote to propose
21   Chapter 403 of Title 16 of the Administrative Code for
22   rule review.  We will publish it in the Texas Register
23   and will receive whatever comments people would like
24   to provide.
25                  COMMISSIONER WHITAKER:  So moved.
0047
 1                  CHAIRMAN CLOWE:  Second.  All in favor,
 2   please say aye.  Opposed, no.  The vote is three-zero
 3   in favor.
 4                  With the Commission's approval I'm
 5   going to defer item number 17, following the executive
 6   session, and we'll not go into executive session at
 7   this time but return to item 20, consideration of the
 8   status and possible entry of orders.  General Counsel,
 9   will you take us through?  It looks like you have just
10   one case today.
11                  MS. KIPLIN:  Yes, sir, I do, which is
12   somewhat surprising.  We usually have a heavier
13   docket.  Commissioners, we do have the one proposal
14   for decision proposed order.  It is a lottery licensee
15   matter.  It is a recommendation from the State Office
16   of the Administrative Hearings, Administrative Law
17   Judge, to revoke the license because the licensee
18   violated our statutes, namely -- and rules, namely,
19   did not have the required monies available at the time
20   that we swept the account.  So staff recommends that
21   you vote to approve the proposed order of the
22   Administrative Law Judge.
23                  CHAIRMAN CLOWE:  Any questions?
24                  COMMISSIONER WHITAKER:  So moved.
25                  COMMISSIONER COX:  Second.
0048
 1                  CHAIRMAN CLOWE:  All in favor, please
 2   say aye.  Opposed, no.  The vote is three-zero in
 3   favor.  We'll sign that order.
 4                  And, Reagan, I'm going to call on you
 5   to make your report under item 21, if you would,
 6   please.  And give us just a minute.  We'll sign this
 7   and we'll be ready to take your report.
 8                  Thank you.
 9                  MR. GREER:  I'm going to ask Lee
10   Deviney to come up.  He wanted to give a brief
11   overview on a new format for our financial
12   information.
13                  MR. DEVINEY:  Again, I'm Lee Deviney,
14   the Financial Administration Director.  Under a blue
15   tab labeled, Agency's Financial and Operational
16   Status, you'll find several reports, including a new
17   one, which if it -- if it's helpful to you, we'll
18   continue in each monthly packet.  The first item
19   you'll find under the blue tab is going to be our
20   transfers and allocations.  To date, our fiscal year
21   2003 cash transfers are 774 million dollars to the
22   Foundation School Fund.  And then below that you can
23   see the monthly detail of transfers and allocations to
24   the Foundation School Fund, the teaching hospitals,
25   and thee tertiary care account, and also the holdback
0049
 1   for agency administration.
 2                  The next page is something new that
 3   we're providing to you that you have not seen before
 4   and this is a budget summary, both for lottery
 5   operations and for the Charitable Bingo Division.  And
 6   what it does is it shows you what our original
 7   appropriation was for fiscal year 2003, adjustments
 8   for unexpended balances brought forward from 2002.  We
 9   have the budget -- House Bill 7 budget reduction in
10   this fiscal year that you'll see.  Then we estimated
11   expenditures and commitments to date, which provides
12   the remaining budget for the fiscal year, and
13   that's -- you'll see that for both the Lottery
14   Division, Lottery operations, and for the Bingo
15   Division.
16                  The next page following is detailed
17   by -- by object of expense of our categories of
18   expenditure.  And then the following -- for lottery
19   operations, and then the next chart is the same
20   information for the Charitable Bingo Division, where
21   you can see expenditures compared to our original
22   budget by object of expense.
23                  And then the last report is our
24   unaudited financial information for Lottery
25   operations.  This is a report that you have been
0050
 1   receiving every month.  And if you will go to the
 2   final page of that report, this is a historical
 3   report, but if you go to the final page, you'll see
 4   where we are in fiscal -- fiscal year 2003, and then
 5   cumulative, starting with sales of each of the Lottery
 6   games, revenues, expenses, administrative expenses,
 7   and so forth.  But this is a -- this is a report that
 8   you have received every month.
 9                  MR. GREER:  Thank you, Lee.  Thanks for
10   your work on that.
11                  I hope that new information is
12   beneficial.  I think it is.
13                  CHAIRMAN CLOWE:  Do you have any
14   comments?
15                  MR. GREER:  Any issues on that before I
16   go into my further --
17                  COMMISSIONER COX:  I just have one
18   question.
19                  CHAIRMAN CLOWE:  Come back up, Lee.
20   These are simple questions.
21                  COMMISSIONER COX:  It's a very simple
22   question.  Lee, these last five pages, starting with
23   Unaudited Financial Information for Fund 5025 and
24   going through Summary of Audited Financial Data for
25   5025, are these prepared for somebody else and come to
0051
 1   us as a by-product, or are these prepared for us?
 2                  MR. DEVINEY:  I believe this report is
 3   prepared for you, but it is -- it's produced through
 4   our Great Plains financial system.  So this is -- the
 5   information we would use for other purposes.  I don't
 6   know that we use this specific report for anything
 7   other than the Commission meeting.
 8                  COMMISSIONER COX:  Would it be possible
 9   to get these in thousands or millions or something
10   that certain numbers aren't quite as wide?
11                  MR. DEVINEY:  Certainly.  Certainly.
12                  CHAIRMAN CLOWE:  Lee, I'm glad to see
13   the attention being focused on the financial
14   activities at this agency, and your impact, from what
15   I have heard, has been very positive since you've
16   joined the Commission.  And it gives me a high level
17   of comfort to have your expertise brought to bear in
18   this area.  And I think that, coupled with
19   particularly Commissioner Cox's experience and his
20   oversight, will keep this agency on a straight and
21   narrow path that I -- I think it gives Commissioner
22   Whitaker, and I know it gives me comfort to have you
23   two working in this area.
24                  MR. DEVINEY:  Thank you very much, sir.
25   And my -- my goal is to produce the information
0052
 1   that -- that you need and that executive
 2   administration needs for decision-making purposes and
 3   to learn as much as I can, as fast as I can.
 4                  CHAIRMAN CLOWE:  And we'll try to keep
 5   the questions simple.
 6                  COMMISSIONER WHITAKER:  Well, very
 7   simple.  That's a big category.
 8                  MR. GREER:  I have a -- a couple of
 9   other things that I would like to mention just in
10   reference to my report of what's been going on over
11   the last month.  I have done numerous interviews in
12   reference to the multi-jurisdictional game, as you're
13   aware -- TV, radio, and newspaper.  There is a lot of
14   interest in this topic.  And I continue to receive and
15   accept opportunities to educate people and just bring
16   up to speed on, you know, what we're looking at and
17   how the process is going.
18                  The other thing that we did discuss
19   that I am glad you brought up and went into detail
20   more on was the whole aspect of an update on Lotto
21   Texas and what is going on in reference to winners in
22   that area.  Yesterday, we had a great session.  We did
23   an e-strategy, e-visioning session for the agency as a
24   whole.  As you know, the Internet continues to affect
25   each one of us in a new way on a daily basis, pretty
0053
 1   much.  And I want to be sure, as the head of the
 2   agency, and certainly in working with Mike Fernandez
 3   and the people in IT, that we're taking advantage of
 4   today's technologies to create a -- a very efficient
 5   and effective open operation, and how we can utilize
 6   technology better.  It was very productive.  And I
 7   look forward to bringing you a report on where we're
 8   going with that in the -- in the days to come.
 9                  I wanted to thank the staff for their
10   work on the emergency procurement on the instant
11   ticket RFP.  We're focused on that, and as Andy
12   mentioned a moment ago, we're having a pre-bid
13   conference on that, I believe, on Friday.
14                  I had an unclaimed ticket press
15   conference in San Antonio on the 21st.  That continues
16   to be something that we look at because the period
17   runs out on July the 28th at midnight for a ticket
18   that was sold in San Antonio on January the 29th.  It
19   was a 5 million dollar jackpot.  No one has come
20   forward claiming to have the winning ticket.  They did
21   take the cash option; so it would be a little over 3
22   million dollars, but we had a lot of inquiry and
23   interest in that in, specifically, the San Antonio
24   market.  And I went down there and visited with the
25   retailers and individuals in that area.  The press was
0054
 1   very responsive and has done a good job of getting the
 2   word out.  Hopefully, that person will step forward,
 3   but if they don't, the funds will go into the tertiary
 4   health care fund and -- and go to good use there.  I
 5   wanted to note, as a part of that, that we did have
 6   input from Senator Leticia Van de Putte from San
 7   Antonio.  She is the V and R for us in San Antonio --
 8   the San Antonio market, through our facilities here,
 9   to help get the word out on that.  And I was very
10   appreciative of her stepping up and assisting us in
11   that matter.
12                  We went to a workshop the other day
13   with the State Auditor's Office.  The class topic was
14   dealing with moral dilemmas.  It was on the 17th, and
15   senior staff went over there.  We had a really good
16   opportunity to visit with other auditors and other
17   individuals in state government and focus a little bit
18   about some of the things that are going on within the
19   auditor's office in terms of moral dilemmas and things
20   that we can do to offset that.  I found it very
21   productive, and I think we all had an opportunity to
22   learn some things there.
23                  The focus and the theme in July has
24   been improving listening skills.  And that has been a
25   part of my topics and some of the things that I've
0055
 1   sent out to the staff this month.  I want you to be
 2   aware of that.
 3                  I'm going to be a part of, and we're
 4   looking forward to, a retailer forum on July 31st in
 5   Arlington.  As you know, we do that on a regular basis
 6   throughout the state to visit with retailers, and
 7   bring them up to speed, and listen to their concerns,
 8   and things like that.  So I did want -- want you to be
 9   aware of that.
10                  And lastly, I sent you an e-mail but
11   just wanted to reinforce, but based on our 2002 sales
12   figures, that we've been recognized in a number of
13   national publications now as the third largest lottery
14   in North America.  Prior to that, we had been fourth.
15   And we overtook California by 69 million dollars,
16   based on our fees.  And I just want to reinforce to
17   each of you that I'm not comfortable in third place
18   and will continue to work, getting us up -- up the
19   ladder, as far as our -- our lottery in the North
20   American continent.
21                  It's been a very busy time, I have to
22   tell you, you know, looking at all these different
23   issues, specifically the multi-jurisdictional, but I
24   continue to enjoy the opportunity and have had a crash
25   course on multi-state, multi-jurisdictional that I'm
0056
 1   confident will come to a conclusion here in the next,
 2   you know, month or so.
 3                  CHAIRMAN CLOWE:  What kind of moral
 4   dilemmas did you talk about?
 5                  MR. GREER:  Well, there was a lot of
 6   things that came out that, you know, we're certainly
 7   in a -- in an agency here that is looked at under a
 8   microscope, and I appreciate that very much.  And we
 9   talked about just some of the situations that, you
10   know, we need to avoid, and how you avoid those
11   things, and if they do come up, how you deal with
12   them.  And, basically, just brought to the forefront
13   the opportunity that we have on a daily basis to
14   continue to look at things in a forthright and honest
15   manner, and how to deal with employee situations, as
16   well as situations that come in from the outside.  It
17   was good.
18                  CHAIRMAN CLOWE:  That is good, and I
19   was serious about the question.  It segues into a
20   comment I want to make about the session yesterday.  I
21   attended and, you know, I was -- I was really
22   impressed by the interaction among the attendees.
23   There was an openness and a desire to campaign for
24   their interests in a positive and active way that
25   reflects in my mind on the impact that you've had on
0057
 1   this agency and the participation that everyone feels
 2   comfortable being involved in to address a subject
 3   like we dealt with yesterday.  And I want to tell
 4   everybody that attended and those who did not attend
 5   that with that kind of positive interaction and a
 6   genuine interest for the benefit of the agency and the
 7   people of the state, this agency will continue to
 8   produce excellence.  And -- and that's the kind of
 9   culture we want in this agency.
10                  MR. GREER:  Thank you.
11                  CHAIRMAN CLOWE:  Good job, and -- and I
12   think we made a lot of progress yesterday.
13                  And, Gary, you're alert, sitting there.
14   Is there anything you want to add?
15                  MR. GRIEF:  Everything is going great,
16   Mr. Chairman.
17                  CHAIRMAN CLOWE:  Okay.
18                  MR. GRIEF:  Nothing I need to add.
19                  CHAIRMAN CLOWE:  Okay.  The next item,
20   Phil, is the Charitable Bingo Division report.  Would
21   you give that, please.
22                  MR. SANDERSON:  Chairman and
23   Commissioners, there -- in your notebook is Billy's
24   report that he sent out last week to y'all.  There is
25   some -- a few things that I need to bring to your
0058
 1   attention.  The vacant position that we had in San
 2   Antonio has been filled with an internal posting.  It
 3   leaves a vacancy here in Austin.  And also we've had a
 4   resignation in the Dallas office, and we've posted for
 5   a position in Dallas that closes, I believe, on
 6   Monday, next Monday the 28th.
 7                  The Charitable Bingo System, the ACBS,
 8   is moving along very well.  We've completed the 30-day
 9   evaluation period.  And Mike Fernandez, the IT
10   Director, can maybe answer a few of your questions if
11   you have any.  But the -- in my opinion, I think it
12   was a very successful project, although it did take
13   some time to get it completed.  And when you roll out
14   a project of this magnitude, the number of problems
15   that we did find after the roll-out were minimal.  We
16   had a very good conversion of the data between the
17   two.  Hopefully, today they will be through.  The --
18   the staff from Keane will be through with the changes
19   and the modifications that they need to make to it,
20   and we'll probably look at continuing our parallel
21   entry between the two systems, at least until the end
22   of the fiscal year, to make sure that we get all the
23   performance measure issues tracked properly, because
24   there is, between the two systems, a design
25   difference, and the way some items are counted in one
0059
 1   system is different than they are counted in the other
 2   system.  And so just to get a clean number for the end
 3   of the fiscal year, we'll probably continue with that.
 4                  And I would also like to publicly thank
 5   the staff in the Bingo Division and IT that were
 6   involved, not only in the project, but also took up
 7   slack for the people that were doing testing on the
 8   system and doing their normal day-to-day operations.
 9   And I just want to publicly thank them for their --
10   their support and the job that they did.
11                  And that's -- last week the quarterly
12   reports were due, and we're getting those data entered
13   into both systems.  And at the next meeting, we'll
14   have an update on the second quarter information.  And
15   that's all I have to report.
16                  CHAIRMAN CLOWE:  Mike, do you have
17   anything to add on the implementation of the system?
18                  MR. FERNANDEZ:  No, sir.
19                  CHAIRMAN CLOWE:  That is a great job.
20   It's been a long time coming, and I'm glad we're
21   finally getting it up and is implemented with as few
22   bugs as it has.  And your part in the conference
23   yesterday was well done.  I thought that we covered a
24   lot of good ground.  I know your hand was in that.
25   Any questions anybody?
0060
 1                  We're now to the public comment portion
 2   in the agenda, and we have a Witness Affirmation Form
 3   for Ms. Dawn Nettles.  She wishes to speak on general
 4   and sales items, Lotto Texas.  Good morning.
 5                  MS. NETTLES:  Good morning,
 6   Commissioners.  Good morning.  For the record, my name
 7   is Dawn Nettles.  I'm from Dallas, and I'm with the
 8   Lotto Report.
 9                  I didn't really come here planning to
10   talk today, but I heard some comments here, and -- and
11   I thought of some issues that might ought to be
12   brought before the Commission for y'all's information.
13                  First, I wanted -- on Commissioner
14   Cox's comments, with regard to the winners -- Lotto
15   Texas.  I'm referring to Lotto Texas -- winners that
16   today are receiving more money than they would have in
17   the past due to the interest rates or something.  If I
18   understood correctly, is that what you said?
19                  COMMISSIONER COX:  As a -- they would
20   be receiving more as a percentage of the higher
21   jackpot than they would have in previous years.
22                  MS. NETTLES:  Okay.
23                  COMMISSIONER COX:  That is, more as a
24   percentage of the annuity-based jackpots.
25                  MS. NETTLES:  Okay.  Because -- because
0061
 1   I was going to try to clarify, and maybe I'm wrong, in
 2   that under the old rule, 654, the Lotto Texas winner
 3   was entitled to 37.532 percent of sales, total draw
 4   sales.  Today, a winner is entitled to 39.104 percent
 5   of draw sales.  That has no bearing on any interest
 6   rates.  Okay?  I mean, that's how much he wins.  So,
 7   yes, he is getting a bigger piece of the pie than what
 8   he used to.  However, with regard to the sales, where
 9   I heard that the -- the jackpots would be higher,
10   based on the interest rate, I understand that they
11   estimate the jackpot and that the jackpot would be
12   higher, but it is driven by sales.  Right now, we're
13   at 13 draws, and since I didn't come prepared to speak
14   today, I believe that you're at 13 draws and your roll
15   sales was 59 million.  Now, that is way off.  There is
16   not even anything -- it breaks all records for low
17   sales.  And that -- I wanted to -- I kind of sat back
18   there and heard that y'all said things are better and
19   that sales are up.  Maybe overall your increase is in
20   the scratch tickets.  It is not on the on-line games.
21   And I -- I wanted to -- to make sure that I understood
22   correctly on what you were saying.  So the winner gets
23   a percentage of sales and, right now, he is not going
24   to get nearly as much as what he would have, based on
25   roll sales, because they're so far down in the new
0062
 1   matrix.
 2                  Y'all know that I've been doing a great
 3   deal of studying on the Powerball, and I have
 4   uncovered -- uncovered some things that I really want
 5   to bring to your attention, not about those games but
 6   something that I found.  And I would like to point it
 7   out to the Commission so that maybe Texas will take
 8   and do something about this.  You may not be aware of
 9   it, but I know that the Powerball people are, that
10   there a number of websites out there that sell Mega
11   Millions and Powerball tickets for two dollars.  And
12   they've been there for a very long time.  When I
13   checked on it -- and they really have good sites --
14                  CHAIRMAN CLOWE:  Just a minute,
15   Ms. Nettles.  If I may interrupt you, and I apologize.
16   I just want to make certain that your comments are
17   appropriate at this time and don't in any way conflict
18   with the public input that was closed on July the
19   14th.
20                  MS. KIPLIN:  Well, she's under public
21   comment, and she -- you know, she can continue to
22   comment if you want her to continue to comment.  I'm
23   not --
24                  CHAIRMAN CLOWE:  It doesn't
25   jeopardize --
0063
 1                  MS. KIPLIN:  I'm not taking this as
 2   public input, and Ms. Nettles, you can state that
 3   affirmatively on the record that this is not public
 4   input that was part of the agency's efforts to receive
 5   that public input which closed July 14th.  Is that
 6   correct?
 7                  MS. NETTLES:  That's correct.
 8                  CHAIRMAN CLOWE:  Great.  That's fine.
 9                  MS. NETTLES:  I'm only trying to tell
10   you all something that I feel like you need to know.
11                  MS. KIPLIN:  One other thing that I
12   would like to add is that, while -- while she is here
13   under the public comment for -- for information that
14   she is providing that doesn't fit, if you will, within
15   an item that has been specifically noticed for the
16   agenda today, your deliberations are -- are very
17   limited.  You can respond to a question that -- that a
18   citizen may pose regarding a policy matter of the
19   agency, and you can -- you can do that.  And you can
20   also deliberate about whether you want to notice up
21   whatever item might be triggered as a result of
22   that -- of the public comment under this item for a
23   future Commission meeting, and that's it.  That's the
24   extent of what you can deliberate.
25                  CHAIRMAN CLOWE:  That's fine.
0064
 1                  We're happy to have you here, and we
 2   want you to be able to comment.  I just want to make
 3   sure we were following the rules.
 4                  MS. NETTLES:  Okay.  I'm not commenting
 5   on Texas joining Powerball and Mega Millions.  Okay?
 6   I've already done that at -- at least for this stage.
 7   What I am concerned about, it -- it has nothing to do
 8   with Texas.  It has to do with everything, everywhere.
 9   Okay?  And what lotteries -- how lotteries are
10   responding to this.  There are websites out there that
11   look very, very legitimate.  They literally sell Lotto
12   tickets for Florida, New York, Powerball, Mega
13   Millions, and Georgia, for two dollars apiece.  Now, I
14   contacted some of those entities to ask them, hey, is
15   this legal, because I -- I knew that Texas was
16   considering joining, and they said, absolutely not.
17   We're aware of these websites.  We've been trying to
18   shut them down for a very long time.  What concerns me
19   is that they are aware that it's up there.  So I'm
20   telling Texas.  Okay?  They're aware that they're up
21   there, and they're also aware that if somebody were to
22   win, and they -- who have bought their ticket for two
23   dollars on the Internet, and if they go to the lottery
24   to collect their winnings, they're not going to
25   receive it because you're not allowed to pay more than
0065
 1   a dollar for a lottery ticket.  So I don't understand,
 2   since it's such a widespread problem, what I don't
 3   understand is why the lotteries themselves do not post
 4   great big notices on your websites that warn people,
 5   do not spend more than a dollar for a Lotto ticket.  I
 6   think Texas should do that, as well as the other
 7   states that I know are involved.  And there -- and
 8   there is more than one website that does this.  And I
 9   am -- sent them an e-mail.  I did not use my name
10   because Lord God knows everybody knows who I am.
11   But -- and I got a very interesting response from
12   those people.  So I am just recommending that Texas
13   needs to address that, and Texas needs to take care of
14   its citizens.  And you need to let the people know
15   that they cannot spend more than a dollar for a ticket
16   via the Internet or anywhere else, because we've
17   already had one ticket that -- I don't know -- I don't
18   recall the -- the outcome on it, whether the people
19   didn't get paid because they spent two dollars on it.
20   But anyway, that's -- that's one item.
21                  Here is -- here is the part you don't
22   want to hear.  I have been complaining for several
23   years about the winners that have been shortchanged.
24   It was under investigation for a solid year, and they
25   finally came out and all the numbers that I had come
0066
 1   out with were confirmed.  They did -- those players
 2   did not receive the amount of money that was in the
 3   prize pool.  The Commission's response was that it was
 4   an internal misunderstanding, misinterpretation of the
 5   rule, what have you.  I am wondering where this
 6   Commission stands with the IRS on that issue.  I
 7   realize that the State -- y'all don't file income tax
 8   returns; you don't have to.  But how would the IRS
 9   feel if they realized that somebody -- they didn't get
10   to collect their share of the taxes?  Where does this
11   put the State with the Internal Revenue for them not
12   receiving their share of taxes because those people
13   were underpaid?  There is two angles to this, and I
14   want y'all to think about that because I -- I -- by
15   not paying a winner everything that he is entitled to,
16   and y'all haven't paid them to my knowledge, and I'm
17   in touch with these people.  And they've not ever
18   heard anything.  And I've not ever understood why --
19   it's been acknowledged that it really did happen.  I
20   don't understand why the State hasn't anted up and
21   paid those people their money.  And what is it going
22   to take for them to get it?  Okay?
23                  And I want to clarify one more thing
24   just because I received some e-mails about this issue.
25   With regard to the balls in the machines that were
0067
 1   purchased prior to the rule being adopted, proposed,
 2   what have you, I personally never said that was
 3   illegal.  I knew it wasn't because I knew that the
 4   Executive Director had the authority to purchase
 5   anything that he wanted, period, without permission,
 6   without anything.  However, the purchase of the balls
 7   in the machines did prove that this Commission did
 8   not -- did not plan to consider comment before
 9   adopting the rule.  Now, to me, that was illegal.  So
10   I wanted to set the record straight, and for the
11   record, that I never said it was illegal.  What was
12   illegal is the fact that y'all did not consider
13   comment, in my opinion.
14                  So I thank you for hearing me.  Y'all
15   have a nice day, and I'm going back to Dallas.
16                  CHAIRMAN CLOWE:  Thank you,
17   Ms. Nettles.
18                  Commissioners, at this time, I believe
19   we are ready to go into executive session.  I want to
20   call your attention that we have deferred item number
21   17.  That's the only item on the published agenda
22   pending our return from executive session.  Anything
23   further before we make that motion?
24                  At this time, I move the Texas Lottery
25   Commission go into executive session:
0068
 1   To deliberate the duties of the Executive Director
 2   and/or Deputy Executive Director, Internal Audit
 3   Director, Charitable Bingo Operations Director,
 4   General Counsel, Security Director, pursuant to
 5   Section 551.074 of the Texas Government Code.
 6                  To received legal advice regarding
 7   pending or contemplated litigation and/or to receive
 8   legal advice pursuant to Section 551.071(1)(A) or (B)
 9   of the Texas Government Code and/or to receive legal
10   advice pursuant to Section 551.071(2) of the Texas
11   Government Code, including but not limited to:
12   TPFV Group, Inc. versus Texas Lottery Commission;
13   Retired Sergeant Majors' Association, et al. versus
14   Texas Lottery Commission, et al.;
15   Scientific Games and Pollard Banknote versus Texas
16   Lottery Commission and Linda Cloud, Executive
17   Director;
18   Keane versus Texas Lottery Commission;
19   Patsy Henry versus Texas Lottery Commission;
20   Ieric Rogers versus Doyle Mitchell, et al.;
21   Sandy Surber, et al. versus GTECH Corporation;
22   Linda Cloud versus Mike McKinney, et al.;
23   Robert Kohler versus Texas Lottery Commission;
24   Matter involving the Department of Justice pursuit of
25   a complaint regarding the Americans with Disabilities
0069
 1   Act;
 2   Matter involving an Internal Revenue Service levy
 3   regarding Ricky B. Wilson;
 4   Contract regarding the charitable bingo system;
 5   Disposition of seized assets, including, but not
 6   limited to, contraband forfeiture agreements --
 7   forfeiture agreements;
 8   Employment law, personnel law, procurement and
 9   contract law, evidentiary and procedural law, and
10   general government law.
11                  Is there a second?
12                  COMMISSIONER WHITAKER:  Second.
13                  CHAIRMAN CLOWE:  All in favor, please
14   say aye.  Opposed, no.  The vote is three-zero.  The
15   Texas Lottery Commission will go into executive
16   session.  The time is 9:59 a.m.  This is July the
17   23rd, 2003.
18                  (EXECUTIVE SESSION.)
19                  CHAIRMAN CLOWE:  The Commission is out
20   of executive session.  Is there any action to be taken
21   as a result of the executive session?
22                  COMMISSIONER WHITAKER:  Well,
23   Ms. Kiplin, is this the time where would it be
24   appropriate for me to ask you a question about public
25   comment?
0070
 1                  MS. KIPLIN:  Yes.  Yes.
 2                  COMMISSIONER WHITAKER:  Would you --
 3   would you please give us -- me some insight or advice
 4   concerning the obligations of the Commission to
 5   respond to public comments made that might or might
 6   not be consistent with the view of the Commissioners?
 7                  MS. KIPLIN:  Yes, I will be happy to.
 8                  Commissioners, actually, the -- the
 9   notion of -- of public comment before a commission
10   is -- is addressed by the Open Meetings Act, the --
11   which is in the Texas Government Code, in it's Chapter
12   551.  In particular, when an item is not specifically
13   noticed and so you have a member of the public that
14   comes forward to offer public comment, your -- your
15   deliberations are very restricted.  You can deliberate
16   to put an item on the agenda at the next -- at a
17   future commission meeting.  You can respond to a
18   request for a -- a certain fact or a policy.  But
19   that's it in terms of deliberation.  Now, I -- I think
20   the most important part of -- of all that is that,
21   when you're receiving public comment, there really is
22   no obligation on the part -- in fact, you know, I
23   think your deliberations would be -- would go into --
24   into such a matter that would be beyond what you
25   are -- you are allowed to discuss.  If you hear
0071
 1   something that you believe is an inaccurate statement
 2   of fact or an inaccurate statement of law, or both,
 3   the fact that you're silent and you're complying with
 4   the Open Meetings Act really should not be construed
 5   as any sort of agreement or admission that you -- you
 6   agree with whatever the recitation of fact or law is
 7   by a commenter.  They're simply coming forth and
 8   providing comment on whatever their universe of
 9   knowledge is.  It may be -- may be correct; it may be
10   incorrect.  But it's -- it's not ever to be construed
11   as something where, if you listen to it and you don't
12   respond, construed as though that was an accurate
13   statement of fact and you go along with it.
14                  COMMISSIONER WHITAKER:  Thank you.
15                  CHAIRMAN CLOWE:  Very well.  Then we'll
16   return to the last and final remaining item on the
17   agenda, number 17, report, possible discussion and/or
18   action on the disposition of seized assets, including
19   but not limited to, contraband forfeiture agreements.
20                  MS. KIPLIN:  Commissioners, I've asked
21   Mr. Oldham, who is an Assistant General Counsel to the
22   Lottery Commission, to come forward, as well as the
23   commander of our Security Division, Mike Pitcock, in
24   the event you have questions.  What is before you
25   today is your consideration, as a matter of policy,
0072
 1   on -- on how the Commission ought to interact with
 2   prosecutors with regard to the sharing of forfeited
 3   assets.  What has prompted this matter to be before
 4   you today is the -- is the fact that there is a
 5   proposed forfeited sharing agreement that has been
 6   presented by Bexar County, and we anticipate that
 7   there will be others along the way.
 8                  The subject matter of the -- the
 9   sharing agreement goes into a -- a sharing of cash
10   properties, called cash property, or -- and the
11   sharing of noncash property and who is to pay costs
12   during the pendency of the criminal and/or civil
13   forfeiture -- criminal proceedings and/or civil
14   forfeiture proceedings as they relate to the seized
15   assets.
16                  And so at this point, the -- the staff
17   is looking to the Commission, as a matter of policy,
18   to give direction in terms of whether the Commission
19   ought to participate in the sharing of any of these
20   assets that are seized and then, at some point, are --
21   are properly the subject matter for disposition and
22   distribution.
23                  CHAIRMAN CLOWE:  Any comments or
24   questions, Commissioners?
25                  The Commission has received legal
0073
 1   advice in the executive session on this subject.
 2   Kevin, would you care to elaborate in this public
 3   meeting on the advice?  Or reiterate it?
 4                  MR. OLDHAM:  Commissioner, I'll be
 5   happy to.  The legal advice was that if the
 6   Commission --
 7                  MS. KIPLIN:  Do we want to -- if you --
 8   if you receive legal advice here in the open, then you
 9   will have waived your privilege.
10                  CHAIRMAN CLOWE:  In -- in a generic
11   sense.
12                  COMMISSIONER WHITAKER:  I would not
13   recommend that.
14                  CHAIRMAN CLOWE:  Okay.  Not even in a
15   generic sense?
16                  COMMISSIONER WHITAKER:  No.
17                  MS. KIPLIN:  No.  I -- I will say that
18   I think it may be an appropriate time in -- in the
19   event you have -- if you don't have questions that are
20   not going to legal advice, it probably is an
21   appropriate time to defer to the Executive Director,
22   who, I think, does have a recommendation and has had
23   an opportunity to visit and has received legal advice
24   himself and is in a position to formulate a
25   recommendation.
0074
 1                  CHAIRMAN CLOWE:  Okay.  That's fine.
 2                  MR. GREER:  Commissioners, as I see
 3   this matter, which we're talking about, the
 4   forfeitures, et cetera, involving issues beyond just
 5   the issue of whether to participate in the sharing of
 6   prosecutorial offices -- that's a hard word.  I want
 7   to better understand the agency's enforcement
 8   activities, and then I believe I will be in a position
 9   to make recommendations to you at a future Commission
10   meeting regarding these activities.  For now, I
11   believe that, if we are going to participate in
12   enforcement or investigative activities that result in
13   assets being forfeited, that we should offset the cost
14   of our investigative efforts by sharing in the
15   forfeited assets that we're talking about here today,
16   as far as this agreement is concerned.  And I do
17   recommend to you that we look at that here today, that
18   we participate.
19                  COMMISSIONER WHITAKER:  I would also
20   ask you to look into other possible options and
21   perhaps rule issues related to this.
22                  MR. GREER:  Well, being that the -- the
23   Bexar County District Attorney, Susan Reed, has come
24   forward with this, you know, specific agreement, I
25   just want your feel on where we should go from this
0075
 1   point and what your directive would be.
 2                  COMMISSIONER WHITAKER:  Well, what I
 3   would add would be, I think there is just many facets
 4   to this issue, not just legal.  And I would ask you,
 5   as Executive Director, to get the advice you need on
 6   all these different levels and thread your way through
 7   it, come back with something you think balances all
 8   those interests.
 9                  MS. KIPLIN:  And -- and Commissioner
10   Whitaker, I hear the direction you're giving the
11   Executive Director, but I will tell you that what is
12   pressing right now is this -- this particular
13   agreement and our -- our action with regard to that
14   agreement.  We'll need to get with Bexar County, one
15   way or the other.
16                  COMMISSIONER WHITAKER:  Yeah.  But even
17   then I think there is a number of policy issues, as
18   well as legal issues, that are implicated by the
19   agreement, and I would like you as Executive Director
20   to again make the same analysis and then come home
21   with a recommendation.  I think -- I think their
22   willingness to work with us is a great thing, and --
23   and I laud them for that.  And so it's just a matter
24   of bringing to bear some -- some policy issues that I
25   think will result in a very balanced document.
0076
 1                  COMMISSIONER COX:  Counsel, is the --
 2   is the approval of this agreement with Bexar County
 3   within the Executive Director's authority?
 4                  MS. KIPLIN:  You know, I -- I thought
 5   about that myself because it's not necessarily a
 6   contract within the connection of -- of acquisition of
 7   goods and services, and that's -- it -- and it is a
 8   policy matter because this is a -- a beginning for the
 9   agency, I think, in terms of formalizing the
10   distribution of these assets.  And that's why it was
11   my recommendation that it come to the Commission to
12   develop policy regarding authorizing the Executive
13   Director to enter into -- as -- as your
14   representative, to enter into these forfeited asset
15   sharing agreements, or not, and then giving him some
16   level of judgment and discretion in terms of the terms
17   of those -- of those agreements.
18                  COMMISSIONER COX:  Would the advice
19   that Commissioner Whitaker gave be responsive to that?
20                  MS. KIPLIN:  If it were me, and I -- I
21   won't speak for Mr. Greer.  If it were me, I would
22   want to hear clearly from the Commission, we do think,
23   as a matter of policy, if we are going to engage in
24   activities where assets are forfeited, that we ought
25   not to participate or we ought to participate.  But
0077
 1   somehow or another we give clear direction to the
 2   Executive Director on whether we ought to participate
 3   and then give him some level of discretion to try to
 4   work out the terms as best as possible to arrive at
 5   results for the agency.
 6                  COMMISSIONER WHITAKER:  I am not
 7   opposed to the idea of participating.  I do think,
 8   however, given the reality of the fact that they are
 9   in control of the prosecution, that the costs
10   associated with it, since they control it, ought to be
11   something that they're responsible for and that the
12   Lottery is -- is protected against expenses that are
13   not within its control.  I also think that our
14   priorities ought to be carefully weighed with making
15   money being the least and bringing about the integrity
16   of the Lottery and the fair pursuit of what we
17   perceive to be illegal conduct being the first, you
18   know, and -- and I -- as I understand it, we are not
19   in charge of the prosecution; they are.  And so,
20   therefore, motivating them to work with us is a very
21   high priority.  And then the second priority, it seems
22   to me, would be to carefully balance the risk we take
23   and the costs we incur because of that risk.
24                  MR. GREER:  And -- and I, you know,
25   truly accept the responsibility to get the information
0078
 1   put together on this whole topic and, you know, come
 2   back to you.  But where I'm going today is to just get
 3   a feel from where you all as a Commission are coming
 4   from, as far as entering into this specific agreement
 5   with Bexar County.
 6                  MS. KIPLIN:  And I hear what Mr. Greer
 7   is saying, but I will say that we do anticipate
 8   receiving, probably any day, other agreements out of
 9   two other counties.  Now, the one thing I would say --
10   and I hear, Commissioner Whitaker, what you're saying
11   very strongly in terms of activities.  These are a
12   result of activities that have already occurred.  So
13   whatever search warrant was -- was issued has already
14   been executed, and these assets do exist.  And now
15   this is just trying to reach an agreement in terms of
16   disposition of those assets.
17                  COMMISSIONER WHITAKER:  Well, I think
18   part of what I'm -- I'm perceiving is important is
19   that I think that each situation -- we're learning
20   as -- you know, we're learning.  Right?  And so what
21   that tells me is, we ought to perhaps look not for one
22   template that works, one size fits all, but to take
23   them on a case-by-case basis.  And as we learn --
24   because what we -- we know what we want to accomplish,
25   and that is, we want to help collaboratively in
0079
 1   dealing with illegal activity in a way that's fair to
 2   us and fair to them.  So how you do that is going to
 3   differ with the situation.  So if you're saying, let's
 4   go ahead and sign off on a deal that -- that we're
 5   stuck with for a long time, I would say -- I would
 6   question that.
 7                  MR. GREER:  Well, and -- and I agree
 8   with that.  I mean, I'm looking at it on a
 9   case-by-case, and this is the case today.  But we
10   know, like the counsel said, that others, you know,
11   are en route.  So I'm sensing from your comment that
12   you're favorable toward me pursuing looking at
13   entering an agreement.  Is that correct?
14                  COMMISSIONER WHITAKER:  Absolutely, as
15   long as it's a case -- you know, heavily weighted on
16   the case-by-case --
17                  MS. KIPLIN:  Sure.  And I hear you
18   saying case-by-case, and I do want to point out that
19   one of the proposed provisions of -- of this is that
20   this term be for two years, where it wouldn't be
21   effective until June 1, 2005, for all forfeiture
22   seizures occurring under these particular statutes in
23   Bexar County.  And what I'm hearing is, that term, we
24   need -- we need to really address that term and make
25   sure that it is limited solely to the activities that
0080
 1   have -- have caused us to be presented with the
 2   proposed agreement.
 3                  COMMISSIONER WHITAKER:  And my reading
 4   of the agreement is that it still doesn't deal in a
 5   way that I'm comfortable with, with the degree of risk
 6   to us, versus our control -- control that risk.
 7                  MR. GREER:  I agree.  And I have had
 8   issues as I went through the process.  I'll work
 9   directly with Kevin and Kim, and we'll, you know, come
10   to an agreement that will be beneficial to the agency
11   as a whole.
12                  COMMISSIONER WHITAKER:  What do the
13   other Commissioners think?
14                  COMMISSIONER COX:  Well, at the risk of
15   saying the same thing Commissioner Whitaker has
16   already said, I think that the most important issue
17   here is the protection of the integrity of the Lottery
18   and Charitable Bingo, and to the extent that these
19   prosecutions will punish those who have damaged the
20   integrity or the appearance of the integrity of those
21   two operations and will serve as a deterrent to others
22   who might choose to do so, that that's the primary
23   thing we should be looking to do.  At the same time,
24   we have to be responsible in managing the related
25   costs.  But I think that either raising revenue or
0081
 1   managing the costs is secondary to the goal of
 2   protecting and enhancing the integrity of the Lottery
 3   and Charitable Bingo.
 4                  MR. GREER:  I agree.
 5                  CHAIRMAN CLOWE:  I agree with exactly
 6   what Commissioner Whitaker and Commissioner Cox have
 7   said.  Do you need any more detail on our feeling
 8   about this agreement that you asked about today?
 9                  MR. GREER:  I don't think so.  I mean,
10   my sense was to just get a directive and a comfort
11   level that each of you have in reference to this
12   topic, and I think you've given me that.  And so with
13   that said, I think I will move forward, working with
14   legal counsel, to try to come to an agreement with
15   Bexar County, and others -- others that may come down
16   the -- the road.  And I'll keep you abreast of that as
17   we get into those other counties that may have
18   interests, also.
19                  CHAIRMAN CLOWE:  Anything further,
20   Commissioners?
21                  Is there anything else to come before
22   the Commission at this meeting?  Therefore, we will
23   stand adjourned at 12:08 P.M.  Thank you all very
24   much.
25   
0082
 1                  REPORTER'S CERTIFICATION
 2   
 3   STATE OF TEXAS       )
 4   COUNTY OF TRAVIS     )
 5   
 6             I, BRENDA J. WRIGHT, Certified Shorthand
 7   Reporter for the State of Texas, do hereby certify
 8   that the above-captioned matter came on for hearing
 9   before the TEXAS LOTTERY COMMISSION as hereinafter set
10   out, that I did, in shorthand, report said
11   proceedings, and that the above and foregoing
12   typewritten pages contain a full, true, and correct
13   computer-aided transcription of my shorthand notes
14   taken on said occasion.
15             Witness my hand on this the 31ST day of
16   JULY, 2003.
17   
18   
19   
20   
                    BRENDA J. WRIGHT, RPR,
21                  Texas CSR No. 1780
                    Expiration Date:  12-31-04
22                  WRIGHT WATSON STEN-TEL
                    Registration No. 225
23                  1609 Shoal Creek Boulevard, Suite 202
                    Austin, Texas  78701
24                  (512) 474-4363
25   JOB NO. 030723BJW