0001 1 2 3 4 * * * * * * * * * * * * * * * * * * * * * * * * * * * 5 6 TEXAS LOTTERY COMMISSION 7 MEETING 8 9 JANUARY 31, 2003 10 11 * * * * * * * * * * * * * * * * * * * * * * * * * * * 12 13 14 15 16 17 18 19 BE IT REMEMBERED that the TEXAS LOTTERY 20 COMMISSION meeting was held on the 31ST of JANUARY, 21 2003, from 8:32 a.m. to 3:03 p.m., before Shelley N. 22 Jones, RPR, CSR in and for the State of Texas, 23 reported by machine shorthand, at the Offices of the 24 Texas Lottery Commission, 611 East 6th Street, Austin, 25 Texas, whereupon the following proceedings were had: 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 Kiplin 8 Acting Executive Director: Mr. Gary Grief 9 Director, Charitable Bingo Operations Divisions: 10 Mr. William L. Atkins 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 WRIGHT WATSON STEN-TEL 0003 1 INDEX 2 3 Appearances....................................... 2 4 5 AGENDA ITEMS 6 ITEM NUMBER I.................................... 4 ITEM NUMBER II................................... 41 7 ITEM NUMBER III.................................. 44 ITEM NUMBER IV................................... 120 8 ITEM NUMBER V.................................... 121 ITEM NUMBER VI................................... 123 9 ITEM NUMBER VII.................................. 123 ITEM NUMBER VIII................................. 126 10 ITEM NUMBER IX................................... 132 ITEM NUMBER X.................................... 132 11 ITEM NUMBER XI................................... 110 ITEM NUMBER XII.................................. 4 12 ITEM NUMBER XIII................................. 137 ITEM NUMBER XIV.................................. 138 13 ITEM NUMBER XV................................... 139 ITEM NUMBER XVI.................................. 147 14 ITEM NUMBER XVII................................. 140 ITEM NUMBER XVIII................................ 140 15 ITEM NUMBER XIX.................................. 140 ITEM NUMBER XX................................... 143 16 ITEM NUMBER XXI.................................. 147 ITEM NUMBER XXII................................. 168 17 ITEM NUMBER XXIII................................ 108 ITEM NUMBER XXIV................................. 105 18 ITEM NUMBER XXV.................................. 61 ITEM NUMBER XXVI................................. 154 19 ITEM NUMBER XXVII................................ 170 ITEM NUMBER XXVIII............................... 175 20 ITEM NUMBER XXIX................................. 176 21 22 Reporter's Certification......................... 177 23 24 25 26 WRIGHT WATSON STEN-TEL 0004 1 January 31, 2003 2 Texas Lottery Commission Meeting 3 CHAIRMAN CLOWE: Good morning. I 4 believe it's 8:30 a.m., January the 31st, 2003. And 5 we'll call the meeting of the Texas Lottery Commission 6 to order. 7 My name is Tom Clowe. Commissioner 8 Whitaker and Commissioner Cox are here, so we're 9 prepared to go forward with the agenda as it is 10 published. 11 Because of some time constraints which 12 we're dealing with today, we're going to handle some 13 items on the agenda where a number of people have come 14 today to be involved in this and see the 15 deliberations. And it is my hope to go into executive 16 session to deal with matters in that portion of our 17 meeting between 10:30 and 11:00 a.m. 18 We're going to deal with the two or 19 three issues on the agenda and then we're going to 20 deal with a couple of items in the case section of the 21 agenda, the contested cases. And it is my intention 22 to recuse myself from one of those cases and ask 23 Commissioner Whitaker to chair the meeting on that 24 item. So that's our plan for this morning. 25 We'll go first, then, to item number 0005 1 XII, consideration of -- no, it's not XII. I'm sorry. 2 I've got the wrong item. It is XII, consideration of 3 and possible discussion and/or action including 4 proposal on a repeal of 16 TAC 401.305 and/or on 5 numeral 16 TAC 401.305, relating to Lotto Texas 6 on-line games. 7 Toni Smith and Kim Kiplin. 8 MS. SMITH: Yes, sir. 9 MS. KIPLIN: Commissioners, let me lay 10 out for you this item. What we have today and what's 11 before you for your consideration is the publication 12 of the repeal of the existing Lotto Texas game rule 13 and the consideration of the proposal of the new rule 14 relating to Lotto Texas. The reason that the staff 15 has chosen to take this approach versus amending the 16 rule is to try to make it easier and less in confusion 17 for those who want to read the rule without the 18 strike-throughs and the other required formatting from 19 the Texas Register. 20 What the staff intends to do today is 21 to present to you the aspects of the rule and the game 22 change. And then staff is requesting that you 23 consider and you vote to publish these two rule-making 24 items in the Register to receive public comment. 25 We -- as part of the preamble of the 0006 1 new rule, we are noticing up a rule-making comment 2 hearing for those who wish to provide oral comment. 3 We are also requesting and making it clear that we 4 want to receive and need to receive comment within 30 5 days for that comment to be considered. The purpose 6 of that is to conduct this rule-making in an orderly 7 proceeding. 8 With that, I'll turn it over to Gary 9 Grief. 10 MR. GRIEF: Commissioners, as you know, 11 the staff has been work diligently for the past 12 several months researching potential changes to our 13 Lotto Texas game to both enhance the game for our 14 players and to potentially increase revenue to the 15 state. 16 At the November commission meeting, 17 marketing director, Toni Smith, and her staff provided 18 you with an overview of our current game and some 19 information about alternative styles of play that were 20 being considered. 21 I would like to turn it over to Toni 22 Smith this morning, once again, for her presentation 23 today. 24 MS. SMITH: Good morning, 25 Commissioners. For the record, my name is Toni Smith, 0007 1 and I'm the marketing director of the Texas Lottery 2 Commission. 3 Commissioners, as you know, lottery 4 sales are closely monitored to track the projected 5 success of our products. In order to keep the on-line 6 games fresh and exciting, game enhancements should be 7 implemented. Like any business enterprise, the 8 lottery must be able to respond to the ever changing 9 dynamic nature of the gaming industry. So the purpose 10 of this presentation provides an overview of today's 11 proposed rule for the Lotto Texas game. 12 This chart shows us the history of the 13 Lotto Texas game. And -- and we had presented this in 14 November. Lotto Texas was successful from start-up 15 with a six of 50 matrix -- matrix. We reached jackpot 16 levels of 50 million, 75 million, 60 million. Then 17 sales began to decline. And through the -- the 18 following fiscal years, we saw a continued drop. 19 And in July of 2000, we made another 20 matrix change. And even though, based on the -- 21 the -- the predictions that we had made on the outcome 22 of that game, it did not perform as well in reaching 23 those higher jackpots as frequently as expected. 24 And you can also see that with the 25 higher jackpots, we had, where the red marks are, a 0008 1 40, a 60, a 48, and a 85 million-dollar jackpot, but 2 sales still did not reach the levels that they had at 3 the beginning -- at the start-up. Some of this is 4 contributed to jackpot fatigue, but we have learned 5 through our research that it's the -- those higher 6 jackpots that keep our players in these type games. 7 This slide shows us that the actual 8 draw patterns of the six of 54 matrix that we have -- 9 that we currently have. And as you can see in -- from 10 July of 2000 to July -- July of 2001, we totaled 18 11 winners or -- or times that the jackpot was won. From 12 July of 2001 to July of 2002, we had 22. And from 13 July of 2000 to date, we've already had 14 jackpot 14 winners on this game. So you can see that we're being 15 hit more frequently. And I'd like to note that you 16 can see from -- from the jackpot levels from four to 17 11 million, we've already had ten winners at that 18 level. 19 And -- and because we know that people 20 stay in this game to play the higher jackpots, you can 21 see why we're proposing today that we make some 22 changes to this game to try and achieve the higher 23 jackpot levels. 24 MS. CHAMBER: Good morning. For the 25 record, my name is Liz Chamber. I'm the marketing 0009 1 research manager for the Texas Lottery. 2 As part of our continual monitoring of 3 games to make sure that we provide the best games 4 possible for players, we conducted research to find 5 the matrix for Lotto Texas that would be most 6 appealing to Lotto Texas players. 7 Three new matrices and the current 8 Lotto Texas game were tested with -- with current 9 Lotto Texas players in Houston and Dallas using a 10 minilab focus group format. This format allows us to 11 collect both quantitative and qualitative data so that 12 we are able to quantify any results that come about, 13 that we're able to quantify any sales increases or 14 decreases that might come as a part of the change in a 15 game. We also collect the qualitative data, so we are 16 actually able to hear what players are saying about 17 potential changes to the game. 18 The three matrices tested were the red 19 game, or the five of 44, one of 44, which is the 20 two-field matrix; the blue game, which is the six of 21 59 with the bonus ball; and the yellow game, which is 22 the six of 59. 23 And the reason that we called them red, 24 yellow, and blue is because it's -- it's easier for 25 players to have a name for a game, rather than 0010 1 continue to say the five of 44, one of 44 matrix. 2 It's a lot for them to spit out. 3 Players are asked to rate each matrix 4 on the -- on various attributes, as well as report 5 potential spending on each matrix. All attributes and 6 spending were asked of and compared to the current 7 Lotto Texas matrix. 8 Based on our research, we found that 9 the most beneficial matrix change would be to the -- 10 the change to the five of 44, plus one of 44 two-field 11 matrix. From that research, we found that our heavy 12 spending players in the Lotto Texas are in favor of 13 this two-field matrix. 14 As you can see by this slide, it shows 15 the reported overall weekly spending on our players. 16 And if -- if I can just make note of the legend. The 17 bar in red that says "Lotto Texas only," that is for 18 the game or the matrix that would fall into the Lotto 19 Texas slot. So whatever matrix we change to and 20 called Lotto Texas, that's -- that's what I'm 21 referring to there. 22 But as you can see, the spending on all 23 games was similar when including either the five of 24 44, plus one of 44 matrix or the six of 59, plus bonus 25 ball matrix. However, what is more important to note 0011 1 is the increased individual spending on the five of 2 44, plus one of 44 matrix over all other matrices 3 tested, including the six of 59, plus bonus ball 4 matrix. 5 Also, I need to note here that the 6 percent of players reporting that they would play the 7 game every draw was higher for this two-field matrix 8 than for the current game and actually was lower for 9 the 60 -- six of 59, plus bonus ball. 10 When we look at the spending across 11 players -- and we -- we separated our -- our players 12 into heavy players and light, moderate players -- we 13 saw that heavy players reported spending higher for 14 the five of 44, plus one of 44 matrix more than any 15 other matrix tested. The percentage of the light, 16 moderate players that would play this matrix was also 17 higher than for the current matrix. 18 The question might come up, if you look 19 at the light players, which are in the red bar, they 20 actually reported spending higher on the six of 59, 21 plus bonus ball. However, if you look at the blue bar 22 and look at the heavy players, those that actually 23 contribute more sales to the game, they would spend 24 significantly more on the five of 44, plus one of 44 25 matrix. 0012 1 Then in looking at the different 2 attributes of the -- of the games, we saw that the 3 five of 44, plus one of 44 matrix saw more appealing 4 and ranked higher on many levels. With its likelihood 5 to play similar across the two games, we know that -- 6 that either game would be appealing to players, 7 however -- or that they would -- there would be a 8 likelihood to play. However, we saw a greater appeal 9 for the five of 44, plus one of 44, greater percentage 10 of playing twice a week. We also -- not noted on this 11 slide but did find from the research, that players 12 found appealing of the game that they could win often 13 at more levels and that there was a -- a potential of 14 higher jackpots. 15 MR. TIRLONI: Good morning, 16 Commissioners. For the record, my name is Robert 17 Tirloni. I am the on-line product manager for the 18 Texas Lottery Commission. 19 As Liz just explained, the five of 44, 20 one of 44 was the matrix most favorably received by 21 our players. So let's just take a few minutes to 22 discuss or go into more detail about this matrix. 23 The current Lotto Texas matrix is a six 24 of 54, with overall odds of winning a prize being one 25 in 71. There is one guaranteed prize here that pays a 0013 1 guaranteed prize of five dollars and the odds of 2 winning the jackpot prize in our current game is one 3 in 25.8 million. 4 Our proposed change is to change the 5 matrix to a five of 44, one of 44. That lowers the 6 overall odds of winning any prize to one in 57. This 7 matrix provides three guaranteed prize tiers. The 8 lowest tier paying a guaranteed three-dollar prize and 9 the odds of winning the jackpot in the 5 of 44, 1 in 10 44 are one in 47.7 million. 11 This shows a little more detail in all 12 eight prize levels in the five of 44, one of 44 13 matrix. 14 I just want to point one thing out. We 15 keep referring to the five of 44, one of 44 as a 16 two-field matrix. In the industry it's also commonly 17 known as a bonus-ball-style matrix. We've been 18 running a bonus-ball-style matrix in Texas since May 19 of 2001. That's our Texas Two Step game. Other 20 examples of bonus ball or two field matrices would be 21 Power Ball, Megamillions. Those are also bonus-ball, 22 two-field matrices. 23 As you can see from this slide, in 24 order to win the jackpot, players have to match five 25 out of five numbers from the first set of 44, plus the 0014 1 one number drawn from the second set of 44. You also 2 see the three guaranteed prize levels. And, again, 3 the bottom tiers pays a guaranteed three-dollar prize 4 and the next two guaranteed tiers pay five dollars. 5 Again, the odds of winning the jackpot, one in 47.7 6 million. And the overall odds, one in 57. 7 What are the player benefits to the 8 five of 44, one of 44 matrix. First and foremost, 9 higher jackpots. Reasonable predictions would 10 indicate the possibility of three to four jackpots 11 between 65 to 100 million dollars in a 52-week period. 12 As you just saw on the previous slide, 13 the bonus-ball field or the two -- the two fields 14 provide us the opportunity to create additional prize 15 tiers or prize levels. And there are eight in this 16 matrix. 17 Again, the overall odds of winning in 18 any prize are one in 57. And that is the decrease 19 from the current game, which has overall odds of 20 winning one in 71. 21 This matrix would -- would create an 22 approximate increase of 25 percent in the number of 23 overall winners. And, again, this is a familiar 24 bonus-ball-play style. 25 This is a repeat of a slide that we 0015 1 showed you back in November. These were some of the 2 parameters that we considered while we were working on 3 building a matrix. We took into consideration the 4 current annuity factor, the fact that the jackpot 5 prize can be paid out over a 25-year period, or the 6 player or the jackpot claimant can choose to get the 7 net present cash value option, the one-dollar prize 8 per board, and the minimum of one board per play. 9 What's new about this proposed five of 10 44, one of 44 matrix. The prize pool minimum is 52 11 percent. And for the first four drawings in a roll 12 cycle, the Commission will pay the greater of either 13 the advertised jackpot or the jackpot based on sales. 14 For all subsequent drawings in the roll cycle, the 15 Commission will strictly pay the jackpot based on 16 sales. 17 MR. SANCHEZ: For the record, my name 18 is Bart Sanchez. I'm the financial administration 19 director. 20 In coordination with the staff of 21 marketing division, the financial administration has 22 estimated this fiscal note revenue packet. The 23 additional revenue to the state is estimated 24 through -- with a start date, a soon start date of May 25 4, 2003 of 5.9 million. For fiscal year '04, 0016 1 additional revenue is 56.4 million. In fiscal year 2 '05, the additional revenue is estimated at 68.8 3 million. For fiscal year '06, the additional revenue 4 is 60.4. And for fiscal year '07, we're estimating 5 52.3 million. 6 At this rate, costs for the start-up 7 are estimated to be about 250.6 thousand on a 8 one-time-only basis and would be part of the 70 9 percent administrative allocation. The current 10 advertising budget for the on-line games are used -- 11 are going to be used to cover the changes in the game. 12 This graph will show you the -- the 13 sales projections dollar change. Sales projections 14 are estimated to be 181.7 million, again, assuming a 15 start date of May 4, 2003 with a proposed matrix 16 change and 180.3 million without the matrix change. 17 In fiscal year '04, the sales -- the sales are 18 projected to be 584.2 million with the change and 19 466.3 million without the change. For fiscal year 20 '05, sales projections are estimated to be 559.7 21 million with the change and 402 million without the 22 change. In fiscal year '06, sales projections are 23 estimated to be 536.2 million with the change and 402 24 million without the change. And, lastly, fiscal year 25 '07 sales projections are estimated to be 513.7 0017 1 million with the change and 402 million without the 2 change. 3 This -- this graph presents the 4 comparison and the net revenue to the state of the two 5 changes -- two games. Net revenue to the state are 6 estimated to be 65.4 million assuming a start date of 7 May 4th, 2003, with a proposed matrix change at 59.5 8 million with the change -- without the change. In 9 fiscal year '04, net revenue to the state is estimated 10 to be 210.3 million with the change and 153.9 million 11 without the change. In fiscal year '05, net revenue 12 to the state is estimated to be 201.5 million with the 13 change and 132.7 million without the change. In 14 fiscal year '06, net revenue is estimated to be 193 15 million with the change and 132.7 without the change. 16 And, lastly, fiscal year '07, net revenue to the state 17 is estimated to be 184.9 million with the change and 18 132.7 without the change. 19 This last graph shows you the -- the 20 past history of the Lotto Texas sales. Sales for 21 Lotto Texas for fiscal year '99 were 714.7 million. 22 In fiscal year 2000, sales were 583.5 million. In 23 fiscal year '01, sales for Lotto Texas were 695.2 24 million. In fiscal year '02, sales for Lotto Texas 25 were 594 million, and we're projecting without the 0018 1 change fiscal year '03 sales for Lotto Texas are going 2 to come out to be 541 million. 3 MS. SMITH: Commissioners, I'd like to 4 note that -- briefly go over the rule-making process 5 involved in this proposal now, that we have before us 6 a tentative schedule of events. Today we are 7 proposing to you this rule change. The rule could be 8 published in the Texas Register and public comment 9 begin on February 14, 2003. 10 We are anticipating that if -- if the 11 Commission agrees today with this proposal, to 12 schedule a public comment hearing here at Lottery 13 headquarters on February the 25th. And then on March 14 16th, 2003, this rule would be ripe for adoption. 15 If -- if the rule is adopted by the 16 Commission, an implementation schedule would then be 17 prepared to illustrate the necessary steps to ensure a 18 successful game launch for May 4th. 19 And that concludes our presentation, 20 Commissioners. And we would be happy to answer any 21 questions that you may have. 22 CHAIRMAN CLOWE: Can we have the lights 23 back. Thank you. 24 We lost a commissioner there 25 somewhere. Any questions, Commissioner? 0019 1 COMMISSIONER WHITAKER: It's pretty 2 straightforward. 3 CHAIRMAN CLOWE: Beg your pardon? 4 COMMISSIONER WHITAKER: It was pretty 5 straightforward. 6 CHAIRMAN CLOWE: I'd like to wait for 7 Commissioner Cox to return and see if he has any 8 questions. In the meantime, I have a few questions. 9 In your study that you told us about where you had the 10 groups choose, my understanding is that you had them 11 also consider the Lotto Texas game as it exists today. 12 MS. CHAMBER: That is correct. 13 CHAIRMAN CLOWE: One of the things that 14 I hear from the players is, don't change the game. We 15 didn't like it when you changed it the first time, and 16 we don't want it changed again. 17 Help me understand that viewer 18 expression. I had a very interesting call from a 19 player in Houston earlier this week. And, you know, 20 his thinking was, we're regular players. We -- we 21 have a group. We -- we liked it better when it was 50 22 balls than we do when it's 54. We don't want you to 23 change it again. 24 Help me reconcile that attitude that I 25 hear from some players to the report that you've given 0020 1 us this morning. 2 MS. CHAMBER: I've also heard that same 3 information, Commissioner, but it is outweighed -- 4 outweighed by the number of players that want to see 5 the higher level jackpots. Lotto Texas is our 6 multi-million dollar jackpot game, and that is the 7 primary reason the majority of the players play the 8 game. 9 Many people are uncomfortable with 10 change, and they like the consistency. But for this 11 game, players play primarily to have the higher level 12 jackpots. Unfortunately, we're not seeing that with 13 the 6 of 54 matrix. However, we do believe with -- 14 with the change to this new matrix, we can generate 15 those jackpots that players are truly playing the game 16 for. 17 I can appreciate the comments of not 18 liking change, but I would bet that once they see 19 those higher level jackpots they will appreciate the 20 change to the game. 21 CHAIRMAN CLOWE: So what you're saying 22 is, there is a group or an element of players who like 23 the old game, like the game as it is now. And we are 24 hearing from them, they are more articulate or 25 speaking up more often than the response that you 0021 1 found in your study group. And those players that 2 like a higher jackpot who are not playing when the 3 game -- when the jackpot is four, five, six, seven 4 million will outweigh and are more numerous than this 5 other group that we're hearing from. 6 MS. CHAMBER: Yes, I would have to 7 agree with that statement. 8 CHAIRMAN CLOWE: And further, you're 9 saying that your study indicates that if the game is 10 changed, that some number of the players who are 11 saying don't change the game, will come over and enjoy 12 the new proposal, if the commission adopts the one 13 that you have recommended, and will become players 14 that are happy in that game. 15 MS. CHAMBER: I -- I would have to 16 agree with that. And we saw a similar -- 17 CHAIRMAN CLOWE: I'm not saying it. 18 I'm asking it. 19 MS. CHAMBER: No. If you were saying 20 it, I would agree with it. 21 We saw this -- this same type of 22 dialogue go on when we -- we made the change from six 23 of 50 to six of 54 and there were some players that 24 were disgruntled with the change that may have gone 25 away from the game. But if -- if you look at player 0022 1 patterns and you look at the percentages that are 2 playing Lotto Texas, we -- we eventually saw that -- 3 that percent playing Lotto Texas, the percent of the 4 player base playing Lotto Texas, increased once those 5 higher level jackpots came around. 6 They may be committed to a certain play 7 style, but it's -- it is going to be the jackpots that 8 the majorities of people -- and from our research the 9 majority of people who spend a lot on the game, they 10 want to see those higher level jackpots. And 11 that's -- that's what we're trying to create for them. 12 CHAIRMAN CLOWE: And that's the -- the 13 mental hurdle that I'm dealing with as we look at this 14 game. I'm hearing from this group that's saying don't 15 change the game. But I'm seeing when the jackpot gets 16 larger, and I think that threshold is about $20 17 million, more interest and a higher indication of 18 involvement from the players by virtue of buying 19 tickets. You know, when it gets up beyond that, 20 recently, 50 million, you see a tremendous interest. 21 And -- and, you know, those are compelling results 22 when you look at what the facts are and -- and you've 23 shown us that here this morning. 24 MS. CHAMBER: And I -- I think even 25 though you're not hearing from these people, they are 0023 1 telling you, we need to do something about this game, 2 when you look at the progression of sales. They're -- 3 they're speaking with their dollars. And what -- and 4 what they're -- what they're telling us is that you're 5 not giving us the higher level jackpots. 6 CHAIRMAN CLOWE: Commissioner Cox, we 7 wanted to wait for your return to see if you had any 8 questions. Commissioner Whitaker did not have any 9 questions. Do you have any questions? 10 COMMISSIONER COX: I've been pretty 11 involved with this process. And -- and Liz and I 12 initially did some research on the last physical 13 demand for lottery products. And GTECH has met with 14 us numerous times and has addressed that issue, as 15 well. I think we're in agreement that, one, 16 increasing the jackpots through higher odds will be 17 productive to a point and that we have to be careful 18 about passing that point. I'm also comfortable based 19 on the information GTECH has shown us from other 20 jurisdictions that we aren't at that point yet, that 21 we're still on the upside of that curve and this is an 22 additional matter. 23 COMMISSIONER WHITAKER: I do have a 24 question. Liz, when the matrix was changed last time, 25 it was done for the same reason, which is, we're going 0024 1 to get higher jackpots. That didn't happen quite like 2 it was predicted and I know there's several factors, 3 but one seems to be just the statistical analysis. In 4 looking back, do you see anything that was flawed 5 about that statistical analysis? 6 MS. CHAMBER: I didn't -- I could not 7 see what -- if there was any flaws in that statistical 8 analysis. However, the one thing that -- that we have 9 to keep in mind is that we -- we set up the best 10 predictions that we possibly can. Once those 11 predictions match up with the real world, they don't 12 always fall out the way that we had hoped. 13 We did, however -- in the first 52 14 weeks of the matrix change when it went from six of 50 15 to six of 54, it did respond the way that it was 16 supposed to and the way that we predicted. It's the 17 life span that didn't bear out, which is one of the 18 reasons that -- that in this presentation, we have 19 made note of a continual monitoring of the games and 20 the possibility to -- to need to revamp games, whether 21 it's Lotto Texas or Pick 3 or Cash 5's so that we are 22 meeting the market demands for those particular games. 23 COMMISSIONER WHITAKER: What made it 24 fall off, in your opinion? 25 MS. CHAMBER: People just start -- are 0025 1 really lucky. There -- I -- I know that's not the 2 best answer from the research manager but, you know, I 3 should have a good number for you. But it -- these 4 games can go one way when you look at them and -- and 5 predict them out. Once the balls are actually drawn 6 and we match them up to the winning numbers, sometimes 7 people win more often than -- than we predicted, which 8 is good for the players. 9 CHAIRMAN CLOWE: You mean, it's the 10 luck of the draw? 11 MS. CHAMBER: Very -- very well put. 12 MR. GRIEF: Commissioners, can I make 13 one additional point? 14 CHAIRMAN CLOWE: Certainly. 15 MR. GRIEF: Another factor that has 16 come out in our research, and I think you might have 17 seen this in one of the slides that Bart Sanchez was 18 discussing, was even with this matrix change, at some 19 point over the five-year projection, you start to see 20 declining sales. And what we have discovered through 21 this process is that we will need to look at this game 22 again at some period of time, whether that's 18 23 months, two years, three years, four years. We will 24 be keeping a close look on this and every other game 25 that we have to make sure that we -- we keep it 0026 1 enhanced and attractive to our players and it 2 generates the revenue that we want. 3 CHAIRMAN CLOWE: Gary, I think that's a 4 good point. And I was a Commissioner who voted for 5 the change in the matrix from 50 to 54, and, quite 6 frankly, my mind-set at that time was that I -- I 7 wasn't certain we were finished changing this game. 8 And although I am very respectful of those players who 9 have communicated with me and expressed their desire 10 to see this game maintained in its present form, I 11 understand their position and I'm, you know, as I say, 12 respectful of that. 13 On the other hand, you know, the 14 Lottery Commission overall is ahead five percent in 15 this prior fiscal year, last fiscal year. And a good 16 portion of that, two thirds of that, I think, comes 17 from the instant ticket sales where there is constant 18 change and an attempt to make those games attractive, 19 new, innovative. And I think your point is exactly 20 that in regard to this game, Texas Two Step, and any 21 other game that this Commission has that it offers to 22 the Texas players. 23 If the Commission were to vote on a 24 motion to approve this and there would be public 25 comment on the -- the proposed rule change, I would 0027 1 hope that we would hear from everybody and not just 2 one segment of the players. And I'm glad that you 3 have in your schedule a public meeting. I would hope 4 that we have good attendance and people bringing to us 5 their thoughts, their ideas, and suggestions. 6 If the Commission votes to adopt this 7 rule for consideration, maybe we can have that input 8 in addition to the study groups that you conducted. 9 I saw those videos. I took those and 10 reviewed them personally. And I think your study was 11 well done. It's convincing, and it speaks for the 12 will of those people who were in the study groups. So 13 I think it has validity. 14 Is there any further comment or 15 questions? Is there a motion? 16 I think the request at this point is to 17 adopt the proposed rule and -- 18 MS. KIPLIN: No, sir. The -- the 19 motion would be to vote to approve the publication of 20 the proposed repeal and proposed new rule, for both 21 comment in the Texas Register. 22 CHAIRMAN CLOWE: Yeah. That's correct 23 and -- 24 COMMISSIONER WHITAKER: I favor the 25 motion. 0028 1 COMMISSIONER COX: I second. 2 CHAIRMAN CLOWE: All those in favor, 3 please say aye. 4 THE COMMISSIONERS: Aye. 5 CHAIRMAN CLOWE: Oppose, no. 6 The vote is 3-0 in favor. 7 And you will follow the schedule then 8 that you put up for us? 9 MS. SMITH: Yes, sir. 10 CHAIRMAN CLOWE: Thank y'all very much. 11 MS. SMITH: Thank you, Commissioner. 12 CHAIRMAN CLOWE: We'll move next to 13 item number XI, which is consideration of and possible 14 discussion and/or action on the lottery operator 15 contract including whether the negotiation of the 16 lottery operator's contract in an open meeting would 17 have a detrimental effect on the Commission's position 18 in negotiations of the lottery operator contract. 19 Gary, are you and Kim going to handle 20 this item? 21 MR. GRIEF: I'll be handling this item, 22 Mr. Chairman. 23 I bring this item to your attention 24 today in hopes of initiating a discussion regarding 25 the manner in which GTECH, the lottery operator of the 0029 1 Texas Lottery, is compensated. Our nine-year lottery 2 operator contract with GTECH, which commenced on 3 September 1st, 2002, calls for GTECH to be compensated 4 at the rate of 2.6999 percent of total sales. 5 For your reference, I put in your 6 notebooks a section of the current lottery operator 7 contract that defines sales and lays out the rate that 8 the commission pays GTECH. 9 As you know, the lottery operator plays 10 a very significant role in the success of the Texas 11 Lottery, and GTECH is an integral part of both the 12 marketing and the promotion of our instant and our 13 on-line products. 14 By contract, the lottery operator must 15 provide the Commission with an overall suggested 16 strategy of marketing of our instant ticket products 17 and a detailed analysis for suggestions for future and 18 upcoming on-line games. In addition, GTECH 19 contractually has to provide the Lottery with 20 long-range sales goals for every one of our games and 21 possible game enhancements. 22 With that very important information in 23 mind, I would put before the Commissioners this 24 morning the discussion forum as to the pros and cons 25 of the current compensation method being used to 0030 1 compensate the lottery operator on the percentage of 2 gross sales versus possibly an alternative method 3 which might be based, in some fashion, on net sales. 4 And by "net sales," I mean less prizes paid. 5 And with that, I'll turn it over to the 6 Commissioners for discussion. 7 MS. KIPLIN: Commissioners, if I could 8 just interject. Mr. Grief commented on -- on a 9 nine-year lottery operator contract. Of course, the 10 lawyer in me feels compelled to point out that this is 11 a termination-at-will provision in that contract. But 12 the -- the term at this point is nine years, subject 13 to that termination. 14 Secondly, Section 467.030 of the .030 15 of the -- of the Texas Government Code does provide an 16 opportunity to the Commission, should they wish to 17 meet in executive session, if the Commission 18 determines in writing that an open meeting would have 19 a detrimental effect on the Commission's position and 20 the negotiations. You-all have exercised that ability 21 at the time that the contract was before you for 22 negotiation after the procurement process. 23 CHAIRMAN CLOWE: And we made the 24 determination that it would not be appropriate for 25 this subject to be discussed in executive session and 0031 1 it should be discussed in the open session. 2 MS. KIPLIN: And that's -- that's 3 something that the Commission can consider, if you 4 believe it is premature to trigger that opportunity 5 with executive session, to discuss it in the public. 6 If you believe that your discussions would have a 7 detrimental effect on your position in negotiations, 8 then you can go into executive session. 9 Did that answer your question? 10 CHAIRMAN CLOWE: It does. 11 Are there any comments on this? 12 COMMISSIONER WHITAKER: On what? On 13 what -- what's on the table? The issue of whether 14 it's detrimental or the negotiations part? 15 CHAIRMAN CLOWE: I think -- I think 16 both subjects are on the table. I think we can 17 discuss whether it's detrimental or we can go to the 18 discussion of the issue, whichever the Commissioners 19 like. 20 COMMISSIONER WHITAKER: What I would 21 appreciate is -- I heard Gary's statement on the 22 issue. I would like to hear your statement of the 23 issue, if you have thoughts on that. 24 CHAIRMAN CLOWE: I -- I think 25 Commissioner Cox is probably better able to state that 0032 1 than I am. My understanding is that he's done some 2 research. And I'm not aware of what it is. And I 3 would like to hear what it is. And that's why we're 4 on the agenda and -- and in the open meeting. 5 And I -- I guess, then, Commissioner 6 Cox, the question to you is, do you feel it's 7 detrimental to our negotiation of our contract with 8 GTECH to give us your thoughts in public, or would you 9 like to adjourn to executive session for this subject, 10 or are you comfortable commenting on Gary's 11 presentation and entering into this discussion to some 12 extent now? 13 COMMISSIONER COX: I think that the 14 discussion would probably better be -- I think that we 15 would best make this discussion in the closed session, 16 at least, initially, and air the issue a little bit, 17 get some familiarity with it, and then decide where to 18 go from there. 19 CHAIRMAN CLOWE: In executive session? 20 COMMISSIONER COX: Yes, sir. 21 COMMISSIONER WHITAKER: I'll defer to 22 him on that. 23 CHAIRMAN CLOWE: And, Kim, what's your 24 legal opinion on that? 25 MS. KIPLIN: I think -- I think if 0033 1 you-all are of a mind-set to negotiate, you should 2 trigger it and enter into executive session so that 3 you can protect your position in the negotiations. 4 I think if you're before negotiations 5 and you're discussing it in a general topic, you 6 should meet in the open for the general discussion. 7 Now, having said that, I don't know 8 what's in the minds of each individual commissioner. 9 And Commissioner Cox may very well say, but the 10 general discussion, in my thinking, could very well 11 affect our position in negotiations. And to that end, 12 it's the Commission that must make that determination. 13 I have a draft determination. I'll be 14 glad to read it to you-all or pass it out. I have 15 multiple copies, and you can read it and see if that 16 meets with your -- with your approval. 17 CHAIRMAN CLOWE: Okay. The subject, as 18 I understand it from your presentation, Gary, is the 19 question of the existing contract that we have with 20 GTECH being based on, as it is, gross sales, on the 21 one hand, and on the other hand, the question of the 22 issue of whether it would be beneficial if that 23 contract were based on net sales, which is less prizes 24 paid. 25 MR. GRIEF: That's correct. 0034 1 CHAIRMAN CLOWE: Is that correct? 2 MR. GRIEF: Yes, sir. 3 CHAIRMAN CLOWE: I'm concerned about 4 the implications of this subject and where we are in 5 it relative to affecting our negotiations with GTECH 6 concerning the Open Meetings Act. That -- that's -- I 7 want to be very careful to have any discussion that's 8 appropriate in the public and not go into executive 9 session with anything that's improper. I need some 10 comfort on that issue. 11 COMMISSIONER WHITAKER: Well, what I -- 12 what I need, Kim, is some -- some analysis by you and 13 some advice to us about the current terms of the 14 contract and how this suggestion would square with 15 that. In other words, I'm not ready to make your 16 determination -- or the determination we need to make 17 but, I am ready for some legal advice from you on 18 that. 19 MS. KIPLIN: Well, you can certainly 20 receive legal advice in executive session on this 21 matter. And you -- we cannot deliberate regarding the 22 legal advice in executive session unless your 23 deliberations, of course, are under this exception 24 that I've previously cited. I'm prepared to discuss 25 that with you in the open, if you would like, and talk 0035 1 about what it would require, should the Commission 2 want to change the way in which the Commission pays 3 GTECH. 4 COMMISSIONER WHITAKER: Well, what I -- 5 what I would propose would be, we first get her -- her 6 suggestion here in the open. And, I mean, that's a 7 fairly straightforward analysis. Is that right? 8 And then I would like Gary to give us a 9 little bit more discussion about the some of the 10 reasons why he thinks this is important without 11 getting into any negotiative strategy. Is that fair? 12 CHAIRMAN CLOWE: I agree with that. 13 Yeah, I think that's fine. 14 Can you do that for us? 15 MS. KIPLIN: Well, I think Mr. Grief 16 laid out how we are paying GTECH now. Just to 17 summarize, you have in your notebook an expert from 18 the contract that does define sales. And so you can 19 take a look at that and read it, if you like, or I can 20 read it to you. 21 Sales are defined as sold tickets, 22 processed by the lottery gaming system, less any 23 tickets that have been cancelled, returned, and less 24 any promotional tickets or promotional coupons subject 25 to the exclusion set forth in -- in another 0036 1 provision. And that's not necessarily on point. 2 All right. The next comment, legal 3 comment, is that it takes two parties to amend this 4 contract. So what you -- you would begin would be the 5 negotiation of an amendment to the contract and 6 negotiations regarding the contract. 7 It would not be something that would be 8 unilateral on the part of the Commission. The 9 Commission, of course, does have the opportunity to 10 terminate this contract at will pursuant to the 11 provisions, but it's not a unilateral amendment. It 12 takes two parties to amend the contract. 13 COMMISSIONER WHITAKER: Okay. So -- so 14 what you're telling us is -- is that this is something 15 that would not currently be allowed under the contract 16 but would require an agreed-upon amendment? 17 MS. KIPLIN: Correct. 18 COMMISSIONER WHITAKER: Okay. What I 19 would like to hear -- any more questions on that 20 piece? 21 CHAIRMAN CLOWE: You would like to 22 or -- 23 COMMISSIONER WHITAKER: Yeah. I -- I 24 would like now to ask Gary a couple of questions. 25 CHAIRMAN CLOWE: Sure. 0037 1 COMMISSIONER WHITAKER: Gary, without 2 going into negotiative strategy, give us a little bit 3 more insight into why you think this is an idea we 4 should think about. 5 MR. GRIEF: Commissioners, one of the 6 important factors that we consider in current game 7 structure or potential future game structure is the 8 prize payout percentage. I'm sure you may recall over 9 time we've looked at various sales from other states, 10 but one of the ones that always jumps off the page at 11 us is Massachusetts, for example. Their prize payout 12 is significantly higher than the State of the Texas, 13 somewhere in the neighborhood of 10 to 15 percent of 14 different games. And it's obvious that that plays a 15 role in increased sales. 16 However, understanding the amount of 17 importance that we place on our relationship with 18 GTECH when it comes to developing our game plans and 19 marketing our games, when we increase the prize payout 20 on any game here in Texas, that decreases the net 21 returns to the State. 22 On the flip side of that coin, it has 23 no impact on the amount of compensation that GTECH 24 receives because, as we laid out earlier, their 25 compensation is based on gross sales. So, for 0038 1 example, a one-dollar ticket sale, our prize payout is 2 50 percent. We have administrative expenses of seven, 3 payment to our retailers of five percent. The net 4 result of that would go to the state, and GTECH would 5 get their 2.6999 cents on that. 6 However, if prize payout was 70 7 percent, then the net return to the state had dropped 8 in proportion to that. However, GTECH would be 9 compensated in a like manner. So -- 10 COMMISSIONER WHITAKER: So they would 11 basically share the risk. Was the idea for the change 12 would be to share the risk and, therefore, be more 13 responsive. Is that it, Gary? 14 MR. GRIEF: Yes, ma'am. If we are 15 relying heavily on the advice and counsel through 16 GTECH through our contract and based on their 17 experience worldwide over a period of many years, we 18 need to be mindful that, although it may not be 19 something that we actually believe is occurring, 20 contractually it might pose somewhat of a conflict. 21 COMMISSIONER WHITAKER: Jim, can you 22 give us some sense of why you think we need to go into 23 executive session? 24 COMMISSIONER COX: The reaction that 25 you and Mr. Chairman might have to my suggestion 0039 1 initially could be different than the reaction you 2 might have after discussion. And I'd rather see that 3 impact somewhere else than out here. Whether that's 4 consistent with the intent of the open meeting laws, I 5 don't know, Mr. Chairman. 6 CHAIRMAN CLOWE: Well, I think we're 7 cutting a very fine line here. And we're having a 8 good discussion to try to get to the right place. And 9 I think this is very positive. We do have the right 10 and the responsibility, if we're discussing 11 negotiations, to go into executive session so that the 12 Commission can have the best position in any active 13 negotiations. 14 What we're trying to do now, I think, 15 is to understand some thoughts and some questions and 16 maybe develop some answers to some thinking that I 17 believe you have done with Gary Grief and some others, 18 perhaps, for Commissioner Whitaker's benefit, as well 19 as my own. And it's -- it's a hard call, frankly, to 20 make. And I understand your concern that you've just 21 stated about a discussion that's in executive session 22 as opposed to one that's in the open. 23 COMMISSIONER WHITAKER: Here -- here's 24 what I would suggest is, is I'm not comfortable voting 25 on it now. I would like to get some legal advice in 0040 1 executive session from Ms. Kiplin on some of those 2 particulars because I agree with you, I want to make 3 sure we're completely within our -- and I would also 4 like Mr. Cox to be able to talk to general counsel and 5 have her opinion after she has the input from you as 6 to whether we're safely within this. 7 CHAIRMAN CLOWE: Are you all right with 8 that -- 9 MS. KIPLIN: Yes. 10 CHAIRMAN CLOWE: -- General Counsel? 11 MS. KIPLIN: Yes. 12 CHAIRMAN CLOWE: All right. Then that 13 will be what we'll do. And we'll take legal advice in 14 the executive session. And I want to make it very 15 clear we will not be discussing this subject in 16 executive session but, rather, simply receiving legal 17 advice. And then based on that determination, when we 18 come back in to the open session, we'll either discuss 19 it in open session or we'll move to put it on the 20 agenda for executive session, if it's justified. 21 MS. KIPLIN: Yes, sir. 22 CHAIRMAN CLOWE: We have some time. 23 We've gone through other subjects more rapid than I 24 thought perhaps we might. So let's go back to the 25 agenda item II, Billy. And I'll call on you to cover 0041 1 it. In consideration of and possible discussion 2 and/or action including adoption on amendments to 16 3 TAC 402.567 relating to Bingo Advisory Committee. 4 MR. ATKINS: Thank you, Mr. Chairman. 5 And with your permission, if I could, I would like to 6 take up items II, III, and IV together because they 7 kind of interrelate with one another. So -- 8 CHAIRMAN CLOWE: Certainly. 9 MR. ATKINS: -- with your permission, I 10 would like to begin discussing item II. We have a 11 brief presentation to give you under item III. And 12 then I'll actually defer to Ms. Kiplin for discussion 13 of item IV. 14 CHAIRMAN CLOWE: Okay. 15 MR. ATKINS: Commissioners, before you 16 today under item II is amendments to the 17 administrative rule dealing with the Bingo Advisory 18 Committee. That's charitable bingo administrative 19 rule 402.567. 20 The amendments to this rule were first 21 discussed at the advisory committee at their April 22 10th meeting. The draft rule was submitted to them 23 for consideration at their June 28th and August 23rd, 24 2002 meetings. 25 The rule that's in your notebook under 0042 1 item II was approved for public comment at your 2 September 10th meeting and was published in the Texas 3 Register for public comment in the September 27th 4 issue of the Texas Register. The Commission received 5 no written comments. 6 There is one change to this rule from 7 the rule as it was published in the Texas Register, 8 and that change is in Section 402.567(j), duration. 9 The staff would recommend that the 10 Commission vote to extend the advisory committee for a 11 period of one year to March 6, 2004. This one year 12 extension would provide the Commission with the 13 opportunity to evaluate the effectiveness of the rule 14 resulting from the changes contained in this rule, as 15 well as the proposed work plan for the BAC, which I'll 16 discuss in more detail under item III. 17 Regarding 402.567, the proposed 18 amendments incorporate many of the recommendations 19 that were made by the Sunset Advisory Committee. For 20 example, Section 567(e) addresses recommendation 7.1, 21 that the BAC develop an annual work plan that 22 addresses specific issues. 567(l) addresses 23 recommendation 7.3 that the Commission evaluate the 24 necessity of the advisory committee. And 567(c) 25 addresses two recommendations: recommendation 5.7, 0043 1 that member terms be lengthened and then staggered, as 2 well as recommendation 7.6 relating to membership 3 requirements. 4 Under the membership requirements, some 5 of those, of course, require nominees to be on the 6 record of the licensed category class that they're 7 nominated for. It -- it clarifies that it requires an 8 organization that they're listed on to be in good 9 standing with the agency and also clarifies that a 10 general public member cannot be associated with the 11 record of a licensee under this act. 12 Of the other three recommendations that 13 Sunset made relating to the advisory committee, one 14 has already been implemented. And that's 15 recommendation 7.7, that a staff attorney be assigned 16 to monitor those meetings. 17 Recommendation 7.2, to eliminate the 18 SSP position on the advisory committee would require 19 statutory action, and recommendation 7.4 dealt with 20 the balance between public members on the advisory 21 committee, as well as industry representatives. 22 Again, this is an item that was 23 available for comment during this rule-making period. 24 And, again, we received no comment on that -- on that 25 particular section. 0044 1 One other amendment to 567 that I do 2 want to bring to your attention is, as you'll recall, 3 the advisory committee made several requests to the 4 Commission for permission to hold at least one meeting 5 outside of Austin. And the Commission, after careful 6 consideration, agreed to this request. And the rule 7 before you contains an amendment that would authorize 8 the advisory committee to hold one meeting a year 9 outside of Austin. 10 And as Mr. Grief is going to discuss 11 with you later, agencies have been asked to examine, 12 very closely, their budgets including any travel 13 budgets. And, given that fact, I want to make you 14 aware that before we would recommend a meeting being 15 held outside of Austin, we would want to review those 16 costs very carefully and make sure that they were 17 clearly justified given the State's current financial 18 position. 19 And unless you have any other questions 20 for me on that rule, I can now move into item III, the 21 work plan for the advisory committee. 22 CHAIRMAN CLOWE: Very good. 23 MR. ATKINS: Commissioners, over the 24 past several months there has been a great deal of 25 discussion, both in these commission meetings, as well 0045 1 as the advisory committee about ways to improve the 2 effectiveness of the Bingo Advisory Committee. 3 Using those discussions, as well as a 4 lot of research that our own staff did, we have 5 developed an orientation program for the advisory 6 committee that we think will help them better 7 understand their role in advising you. In addition to 8 this orientation, the staff will also recommend the 9 adoption of a plan of work for the advisory committee 10 that will clearly identify their responsibilities for 11 the coming year. 12 Now, by way of some institutional 13 history, I'm going to talk about the advisory 14 committee and how it was formed and -- and came to 15 develop. 16 If you look at previous agendas of 17 advisory committees, you'll notice that whenever a new 18 committee was formed, there was an orientation. 19 However, that orientation for the advisory committee 20 centered more around the division and the agency and 21 not the advisory committee itself. 22 The discussion always focused on the 23 agency's operations and not the BAC and its operations 24 or duties. And part of that I think was because when 25 the advisory committee was formed, the Lottery 0046 1 Commission itself wasn't that old and the only model 2 that we had to base that on was the -- was the 3 Commission. So the BAC, its -- its structure, its 4 operation, et cetera, was all patterned after the 5 Lottery Commission. And the purpose of the 6 orientation that we prepared for the advisory 7 committee is more clearly discussed, their role and 8 function in advising -- advising you as a Commission. 9 The overview will include a discussion 10 of definitions that are common to state government and 11 regulatory agencies. For example, we think that 12 detailed discussions of appropriations and what that 13 means to an agency in performing its statutory 14 obligations, et cetera, will be of benefit to the -- 15 to the advisory committee. 16 In discussing the purpose of the 17 advisory committee, we'll spend some time emphasizing 18 the difference between you, the Lottery Commission, as 19 a decision-making body, versus the advisory committee 20 as an advisory body. 21 As we discuss the objectives and the 22 responsibilities of the advisory committee, this is 23 where we're going to have serious discussions with 24 them that as members of the advisory committee, they 25 need to get past asking questions such as, how will 0047 1 this issue before us help me in my organization, and 2 move to the question of, how will this help bingo as a 3 whole statewide. 4 And the work plan will really be the 5 heart of the Bingo Advisory Committee orientation, and 6 it will answer probably one of the most common 7 questions that we get from new or potential BAC 8 members, which is, what exactly does the BAC do. 9 And I would like to, after I finish 10 this presentation, talk to you about the work plan in 11 a little more detail. 12 We would then, in the orientation for 13 the advisory committee, discuss the different job 14 descriptions and roles, not just, for example, the 15 advisory committee members and the BAC chair but also 16 the staff position and roles, such as the role of -- 17 for the BAC -- or for the Lottery Commission staff 18 attorney, as well as the Lottery Commission staff 19 liaison to the advisory committee. We would go over 20 with them a discussion of ways to effectively conduct 21 meetings to make them more beneficial for the members, 22 for the public and, ultimately, in getting information 23 to you. 24 And, finally, we'll have a series of 25 frequently asked questions in a Q-and-A-type format 0048 1 that we can go over with the advisory committee. We 2 have an example up there, for example, the difference 3 between a rule and a statute. 4 That, again, is just a quick overview 5 or summary of the plan that we have so far. You have 6 a copy of the actual draft plan in your notebook, if 7 you would like to look at it, if you have any 8 questions about that further. 9 Norma, if you could get the lights. 10 Now, I would like to talk about the 11 work plan. And I added in your notebook a copy of the 12 recent one, and it has attached to it a white flag, if 13 you want to follow along. 14 This is a series, Commissioners, of 15 about nine issues that we've compiled through 16 discussions with the advisory committee, through 17 discussions that have taken place in -- in commission 18 meetings, and issues that have been considered during 19 staff -- or considered by staff. 20 And what we would recommend is that the 21 Commission adopt this work plan. And this would 22 essentially, for the coming year, become the advisory 23 committee's agenda. These would be the items that 24 they would work on throughout the year. We would 25 envision them being able do a lot of this work 0049 1 during -- in -- in small work groups or 2 subcommittees. And the format we have the work plan 3 laid out in now to then essentially become the status 4 report that the chair would give after each meeting on 5 the progress that's being made on these issues. 6 Now, we fully anticipate that issues 7 could arise, that issues could come to the level of 8 Commission that you would like to see the advisory 9 committee address. The advisory committee, through 10 the chair, could come to you and ask for permission -- 11 to ask for permission to items -- add items to this. 12 But we think this is a good start that provides the 13 advisory committee with some very clear direction on 14 some input that would be beneficial to you as a 15 Commission. We really believe that good information 16 leads to good decisions. So we think this would 17 clarify what the advisory committee should be working 18 on and allow them to more effectively offer you 19 advice, particularly on these issues that are included 20 in the work plan. 21 So our purposes for bringing this to 22 you today is we would like to receive any comments, 23 either on the orientation that we have planned for the 24 advisory committee or the items that we have listed on 25 the work plan. Our desire would then be to go forward 0050 1 to the advisory committee, discuss this with them, 2 incorporate any comments that they may have, and then 3 come back and ask for your final adoption and approval 4 of the BAC work plan. 5 CHAIRMAN CLOWE: Commissioners, I think 6 we have one individual who wants to speak on item IV, 7 if you want to hear from that person before you have 8 any questions. 9 Mr. Fenoglio? 10 MS. KIPLIN: And so Mr. Fenoglio is not 11 wanting to comment on the rule that's before you for 12 adoption? Because I would consider to -- continue 13 to -- to urge you not to accept comment at a time 14 we're on the rule-making, at a time where it's before 15 you for adoption because it creates logistical issues. 16 CHAIRMAN CLOWE: Well, his -- his 17 appearance says he wants to comment in this part of 18 the consideration on II, III, and IV, on IV only -- 19 MS. KIPLIN: Okay. 20 CHAIRMAN CLOWE: -- which is possible 21 discussion and action on the continuation of the Bingo 22 Advisory Committee. Is that your advice, that he not 23 be allowed to speak on that? 24 MS. KIPLIN: No. My -- my urging would 25 be that he would not be allowed to provide comment at 0051 1 this time on a rule that's before you for adoption. 2 Mr. Fenoglio, you're not planning on 3 making a comment on the rule-making, are you? 4 MR. FENOGLIO: Well, your form doesn't 5 allow me to actually say if I'm for or against in the 6 detail, but -- I don't know how to answer your 7 question, other than to say we're for the proposed 8 rule-making. I mean, I don't want to discuss the 9 substance of it -- 10 CHAIRMAN CLOWE: Well -- 11 MR. FENOGLIO: -- or the details of it. 12 CHAIRMAN CLOWE: -- what I'm asking at 13 this time is only in regard to item IV on the agenda, 14 consideration and possible discussion -- 15 MR. FENOGLIO: Oh, I'm sorry. 16 CHAIRMAN CLOWE: -- and/or action on 17 the continuation of the Bingo Advisory Committee. 18 MR. FENOGLIO: Yes. I'm sorry. I 19 misunderstood what you -- 20 CHAIRMAN CLOWE: When we get to the 21 other items -- 22 MR. FENOGLIO: I'll withdraw my 23 comments on the item -- as it relates to items II and 24 III. And we do support number IV. 25 MS. KIPLIN: All right. And thank you, 0052 1 Mr. Fenoglio. We have received no comments, so it 2 would be -- 3 MR. FENOGLIO: I am aware of that. 4 CHAIRMAN CLOWE: For the record, 5 your -- your appearance form doesn't list II and III. 6 It only lists IV, in addition to your four other items 7 that are on the agenda. 8 MR. FENOGLIO: Thank you, Mr. Chairman, 9 for correcting me. I appreciate it. I need all the 10 help I can get. 11 CHAIRMAN CLOWE: Well, I think you do 12 pretty good. 13 MR. FENOGLIO: Thank you. 14 CHAIRMAN CLOWE: Do you not wish to 15 comment on item IV? 16 MR. FENOGLIO: I already made my 17 comment in one sentence that we support the 18 continuation of the BAC. 19 CHAIRMAN CLOWE: You're -- you're 20 finished? 21 MR. FENOGLIO: Yes. Thank you. 22 CHAIRMAN CLOWE: Okay. Thank you, 23 Mr. Fenoglio. 24 Now, Commissioners, are there any 25 questions or comments for Billy? 0053 1 COMMISSIONER WHITAKER: Billy, what is 2 this document? This is the work plan for -- 3 MR. ATKINS: This is our -- this is our 4 proposed work plan, yes, ma'am. 5 COMMISSIONER WHITAKER: Because each of 6 the issues is actually quite broad. And they're 7 really not, what I would consider action items or even 8 very specific. I mean, like the comments on the 9 improvement and the status on the bingo industry, 10 progress report on that, how do we measure success? 11 MR. ATKINS: One of the things that we 12 would envision doing is providing the advisory 13 committee with a quarterly report similar to the ones 14 that we provide to the Lottery Commission that -- that 15 capture quarterly activities as it relates to gross 16 receipts, distributions, expenses, and attendance, and 17 get the considered input from the advisory committee 18 on the -- the causes for those figures -- 19 COMMISSIONER WHITAKER: Well -- 20 MR. ATKINS: -- and -- and the trends 21 in those figures. 22 COMMISSIONER WHITAKER: It just strikes 23 me that the issue column is more of almost like a 24 heading and under that you're going to need to add 25 specific issues, like specific rules, for example, 0054 1 under two. For this to be meaningful for us to chart 2 progress, we're going to have to kind of have more 3 specific statements of like particular rule number two 4 or -- 5 MR. ATKINS: I would think, 6 Commissioner Whitaker, that -- that comment on 7 proposed rules would be ongoing and any rules that -- 8 that we came forward with, they would comment on. 9 COMMISSIONER WHITAKER: I guess my 10 point is that I don't see your statement of the issue 11 as what I think of as an issue. An issue to me is 12 something that -- it's more concrete and specific. 13 These look like nice areas of responsibility within 14 which there could be further development of particular 15 issues. But my concern with BAC is that it's -- it's 16 been such a general task that we've given them that 17 when they give us feedback, I don't really know 18 against what to measure that. So to the extent that 19 you could, on an ongoing basis, flesh out the issues 20 with particulars, particularities, so that the 21 progress is on a particular subissue. Does that make 22 sense? 23 CHAIRMAN CLOWE: It does. And let me 24 try to give you some comfort. My view is that this is 25 a first step and that Billy and his staff have done a 0055 1 good job of beginning the focus of attention in areas, 2 and these are areas. You're exactly right for the 3 members of the BAC. And I think the educational part 4 of this project is very worthwhile because these 5 individuals need to understand the difference in a 6 statute and a rule. They need to be acquainted and 7 educated with the legislative process. They -- they, 8 generally, need help in that area. And I think this 9 would be a first step that we would see some progress 10 in. And then we could go more into the meaty issues 11 and fine tune the focus during this year to measure 12 results. I think this is just a first step, in my 13 mind. 14 COMMISSIONER WHITAKER: Okay. 15 CHAIRMAN CLOWE: And -- and I would be 16 satisfied with the work they've done to this point and 17 indicate my approval, with the understanding that I 18 think it's going to get better as time goes on, if 19 that will satisfy you. 20 COMMISSIONER WHITAKER: That's the way 21 I would see it as well, is I -- I like the fact that 22 I'm seeing progress towards a focus and framework and 23 accountability. And I guess what I would just say is 24 as -- as long as we're all seeing it as a work in 25 progress, I think we're all on the same page about it. 0056 1 CHAIRMAN CLOWE: Commissioner Cox? 2 COMMISSIONER COX: I agree. 3 CHAIRMAN CLOWE: Okay. Billy, I think 4 the Commissioners have indicated their acceptance and 5 approval of what you've done today. 6 MR. ATKINS: Thank you, Commissioners. 7 And I just want to point out that 8 you -- well, Norma Quezada who was doing the -- the -- 9 running the Power Point program for me has -- has 10 really put a lot of work in this. And she did a lot 11 of that research. And -- and I'm very pleased with 12 where she's taken it. And I'm going to ask her to 13 become more involved in working with the advisory 14 committee and helping them stay focused and move 15 forward on this. 16 CHAIRMAN CLOWE: This is vital to the 17 continuation and the productivity of the Bingo 18 Advisory Committee. And I think the Sunset report 19 pointed out very clearly to us that we need to work in 20 this area and we need to have more production and 21 we've got to help these individuals. 22 And the Commissioners are all, I think, 23 eager and willing to help in that role. I know 24 Commissioner Cox has spent considerable time in this 25 area working with you and others. And we want to be 0057 1 supportive. But the BAC must improve and must be more 2 productive and -- and you can't just say that. You've 3 got to help them. Okay. 4 I want to now move to another item on 5 the agenda, being mindful of some time constraints 6 that I mentioned earlier. 7 I want to ask the general counsel: Can 8 you take us through on the consideration of status and 9 possible entry of orders, item number XXV, items 10 letter A through M and P through Q fairly quickly? 11 MS. KIPLIN: Yes, sir. I think -- I 12 think fairly quickly. There's a -- a couple of 13 proceedings that may not be -- I don't know if you've 14 gotten any sort of witness affirmation forms on the 15 Hearts -- Hearts of Texas case. 16 CHAIRMAN CLOWE: I -- I have not. I 17 assume there may well be. I would like to reserve 18 those two letters, N and O, until after the letters 19 that I mentioned. 20 MS. KIPLIN: Okay. And then, 21 Commissioner, just to take you back to the Bingo 22 Advisory Committee rule. I didn't know if you 23 intended to take action on that or did you want to 24 defer until later in the commission meeting? 25 CHAIRMAN CLOWE: Billy, are you asking 0058 1 for action -- 2 MR. ATKINS: Yes, sir. We're asking -- 3 CHAIRMAN CLOWE: -- on item II? 4 MR. ATKINS: On item II, we're asking 5 the Commission to vote and adopt for -- to publish in 6 the Texas Register for a 30-day comment period -- 7 thank you. 8 We're asking the Commission to vote and 9 publish in the Texas Register for a 30-day comment 10 period to -- I'm sorry -- to adopt Charitable Bingo 11 Administrative Rule 402.567 relating to the Bingo 12 Advisory Committee. 13 CHAIRMAN CLOWE: That's ripe. For 14 consideration now? You haven't had any comment, if I 15 remember, on this. 16 MR. ATKINS: That's correct. 17 MS. KIPLIN: Commissioners, I need to 18 weigh in. 19 Mr. Atkins brought to your attention 20 the issue with regard to having a meeting outside of 21 Austin. Currently, the way the rule is written, it 22 would -- it's mandatory. It shall -- you shall have 23 one quarterly meeting outside of Austin. 24 If you want to change that to have it 25 discretionary in light of the budget constraints, we 0059 1 would need to make a change to the rule text. My 2 suggestion is that we just have "may," that the Bingo 3 Advisory Committee may. 4 Also, there is another change I just 5 picked up in looking at that, and that's -- it's an 6 inadvertent word that was left out. It's not 7 substantive. And I've already made that change in the 8 Texas -- the preamble of the -- the draft of the 9 adopted rule. 10 But I think the Commission will need to 11 decide whether they would like a change to have the 12 meeting held outside of Austin, that one quarterly 13 meeting be mandatory or be discretionary. And we can 14 quickly make changes and get the rule before you -- 15 the order adopting the rule before you before the 16 close of the commission meeting today. 17 CHAIRMAN CLOWE: My reaction to that is 18 that we would certainly want to change the language to 19 "may" and that we would want you, Billy, not to have 20 any meetings outside of Austin that would increase 21 cost to the agency at this time with the current 22 budget constraints that we're facing. 23 Now, we, I think, agreed that we would 24 be happy to have those meetings prior to development 25 of the current situation. And we have strong 0060 1 indications from the leadership offices that we must 2 reduce expenses. So my sense is that we might go 3 ahead and let the rule go in on a permissive basis but 4 that we would tell you under the current situation we 5 wouldn't want any additional expenses to be incurred. 6 So what do you need to do? Change the 7 language and then bring it back to us? 8 MS. KIPLIN: Yes, sir. And my 9 suggestion would be -- 10 CHAIRMAN CLOWE: Just a minute, Kim. 11 Is there any objection to that? 12 MS. KIPLIN: My suggestion would be 13 that the "may" be subject to the discretion of the 14 Bingo director because it's the bingo director's 15 budget that must be managed and monitored, unless you 16 want it at the discretion of the Commission. The 17 issue of it being at the discretion of the Commission 18 is, I think, it would be an action item before you and 19 we would have to take action to allow the meeting 20 outside of Austin. 21 CHAIRMAN CLOWE: Commissioners, how do 22 you feel about that? 23 COMMISSIONER WHITAKER: I would just 24 leave it at "may." I think "may" covers it. 25 CHAIRMAN CLOWE: I think we've given 0061 1 Billy direction. 2 MR. ATKINS: Okay. 3 CHAIRMAN CLOWE: I think he understands 4 the deal. 5 MS. KIPLIN: The point I'm making is 6 who has the discretion on the word "may," the Bingo 7 Advisory Committee or the bingo director. And I would 8 like to make that clear -- or the Commission. I would 9 like to make that clearer within the wording. 10 CHAIRMAN CLOWE: The bingo director as 11 I -- as I understand it. Yeah. 12 MS. KIPLIN: We'll make that change. 13 CHAIRMAN CLOWE: Yeah. Because it's 14 his budget. 15 MS. KIPLIN: We'll make that change, 16 and we'll bring back a revised order for your 17 consideration for adoption before the close of 18 business. 19 If you would like -- if you would like 20 to go to the contested case proceedings now. 21 Commissioners, what you have before you 22 in your notebooks on the dockets that are identified 23 in the open meetings notice, those are letters. It's 24 Roman Numeral XXV, letters A through M, all lottery 25 revocation matters. 0062 1 These are -- staff is recommending that 2 you vote to adopt the proposed order entered by the -- 3 by the administrative law judge -- excuse me -- by the 4 administrative law judge. And recommendation by the 5 administrative law judge is to revoke the licenses and 6 the -- these revocations are based on insufficient 7 funds that were owed to the Lottery and were unpaid 8 and so at this point, the staff would recommend that 9 you vote on that. 10 We also have letter P, which is a 11 contested party. It's an agreed proceeding, if I'm 12 not mistaken. Ms. Wilkov is the staff attorney here. 13 She can correct me if I'm wrong. And that is a bingo 14 proceeding. I apologize. I stand corrected. It is a 15 contested case proceeding, and it's for violations of 16 the Bingo Enabling Act. The organization was 17 represented at the hearing. Staff would also 18 recommend that you vote to approve the proposed order 19 that was entered by the administrative law judge and 20 deny the renewal application for that organization, 21 FOE Aerie 2753 Bayshore Auxiliary of La Porte, Texas. 22 Commissioners -- 23 CHAIRMAN CLOWE: That was letter P, 24 correct? 25 MS. KIPLIN: Yes, sir. There is also 0063 1 before you -- I -- I can stop and you can vote on 2 those and we can get into the agreed proceedings, if 3 you would like. There was one agreed proceeding. 4 Mr. Palmer was the attorney that represented the 5 respondent. I don't know that he would -- if he would 6 want to make comments. He has submitted a witness 7 affirmation form. So if you would like to -- if you 8 would like to vote on the ones that are before you or 9 take up Mr. Palmer -- I think he -- 10 MR. PALMER: Only to respond to 11 questions. 12 CHAIRMAN CLOWE: Let's see if we can 13 handle Q along with the others. 14 MS. KIPLIN: Commissioners, Q. 15 Letter Q is a -- was a contested case 16 proceeding, docket number as identified in the open 17 meetings notice. It was between the bingo division 18 director and the systems service provider, licensee, 19 TXTV Corporation. The agreed order that is before you 20 is an agreement, and it would be supported by your 21 order that the licensee surrender his -- his license 22 for a period of one year. 23 Commissioners, to a large extent, this 24 matter was intertwined, I think, with litigation in 25 district court. In that matter TXTV's case was 0064 1 dismissed. And I think that this is a conglomerate 2 wrap-up, if you will, of the two cases, the district 3 court proceeding and then the contested case 4 proceeding. The staff would recommend that you vote 5 to accept the settlement agreement and sign the 6 consent order which would require the licensee to 7 surrender his license and not apply for another 8 license for a year. 9 CHAIRMAN CLOWE: Is there any person 10 wishing to speak on any of these dockets? 11 I move the adoption, then, of the 12 recommended orders in cases -- or item under number 13 XXV, A through M and P and Q. 14 MS. KIPLIN: Commissioner Clowe, I'm 15 in -- I'm seeing somebody in the back of the room 16 indicating -- 17 CHAIRMAN CLOWE: Do you -- 18 MR. FLORENCE: N and O. 19 CHAIRMAN CLOWE: N and O are not 20 included in my motion. 21 COMMISSIONER WHITAKER: Second. 22 CHAIRMAN CLOWE: There's a second. All 23 in favor please say aye. 24 THE COMMISSIONERS: Aye. 25 CHAIRMAN CLOWE: All right. 0065 1 Opposed. no. 2 The vote is 3-0 in favor. 3 Now we're ready to take up under item 4 XXV, the letters N and O. And I'm going to recuse 5 myself at this point in time and ask Commissioner 6 Whitaker to take the chair for the Commission for this 7 item. 8 COMMISSIONER WHITAKER: Okay. 9 Ms. Kiplin, can you give us your report? 10 MS. KIPLIN: Yes, I will. I would also 11 like Ms. Wilkov to come to the table. She is the 12 staff attorney that has handled both of these 13 contested case proceedings. 14 I understand that there is somebody who 15 does wish to speak. I would request that they 16 complete a witness affirmation form. 17 Commissioners, before we get into the 18 merits of this matter, there are a couple of 19 admonishments that I would like to make at this time. 20 And that is the -- there was a record -- let me give 21 these gentlemen a chance to get to the table. 22 There was a record. There was a 23 contested case proceeding in both of these cases 24 before the State Office of Administrative Hearings. I 25 would recommend and strongly encourage you not to 0066 1 accept any evidence today from comment that's made by 2 other parties -- either party, frankly, that is 3 outside of that record. This is a record, an 4 administrative record, that should there be a decision 5 on the part of the respondent to -- to appeal, would 6 be the basis of the -- pardon me -- substantial 7 evidence review before a district court judge. And 8 that review is based solely on the administrative 9 records. 10 COMMISSIONER WHITAKER: So what is our 11 standard of review? 12 MS. KIPLIN: Standard of review at this 13 point is substantial evidence. And it -- your 14 standard of review is did the -- did the -- in one 15 case, did the staff -- staff prove beyond a 16 preponderance of the -- of the evidence that the 17 renewal application for the respondent should be 18 revoked. And the other one, the burden is on the 19 respondent to establish beyond a preponderance of the 20 evidence that their license to conduct bingo should 21 not be denied. 22 COMMISSIONER WHITAKER: What I'm 23 looking for, though, is at this date we've got a 24 lower -- you know, the SOAH -- recommendation or 25 ruling and what is our standard of review of that 0067 1 ruling? 2 MS. KIPLIN: Well, at this point, 3 your -- your ability actually to -- to change or 4 revise the order that was entered by the L -- ALJ 5 is -- is somewhat -- is limited. It's pretty 6 limited. You have to be able to indicate that you 7 believe that there was wrong law that was applied. 8 But at this point, the ALJ acts as the fact-finder. 9 COMMISSIONER WHITAKER: Right. 10 MS. KIPLIN: And it's not your -- your 11 position to change the facts. The facts are what -- 12 what they already found. If you believe that further 13 evidence should be taken, you want more facts 14 development, then the proper process would be to 15 remand this back. I will tell you that one of these 16 matters has already been remanded back. 17 COMMISSIONER WHITAKER: Which one was 18 that? 19 MS. KIPLIN: And there was a very long 20 proceeding in that matter. And so I would caution 21 you. I will -- I will urge both parties, of course, 22 to raise objection if they believe that the other 23 party is stepping outside of record, but I intend -- 24 my job is to protect that record. 25 COMMISSIONER WHITAKER: Okay. So let 0068 1 me just state to both sides, we don't want to receive 2 additional evidence. What we are looking at is 3 argument as to whether the law was incorrectly 4 applied. All right. 5 Ms. Wilkov, go forward. 6 MS. WILKOV: Yes. Commissioner, my 7 name is Penny Wilkov. And I'm the assistant general 8 counsel responsible for this case and -- 9 COMMISSIONER WHITAKER: Which one are 10 we looking at first? 11 MS. WILKOV: If I may, I would like to 12 address 362 -- sorry. This is... 13 COMMISSIONER WHITAKER: 362 -- 14 MS. WILKOV: 362-03-0694.B, which is -- 15 COMMISSIONER WHITAKER: That's the 16 second one in the text. 17 MS. WILKOV: Right. I received a copy 18 of the respondent's exceptions yesterday afternoon. 19 And I have -- I have an objection about the timeliness 20 of the filing of this exception. And that would be 21 based on our staff -- our rule which provides that the 22 State Office of Administrative Hearings will serve a 23 proposal for decision on the parties and any party may 24 file exceptions and briefs within 15 days, serving 25 copies on all parties. 0069 1 And the proposal for decision from the 2 State Office of Administrative Hearings was dated 3 December 30th. And using the presumption under the 4 administrative -- administrative rules of the State 5 Office of Administrative Hearings, if a document was 6 sent by regular mail, the judge shall presume that it 7 was received no later than three days after the 8 mailing. 9 Therefore, we could presume that the 10 proposal for decision was received by Heart of Texas 11 on January 3rd, 2003. And therefore, their exceptions 12 were due to the State Office of Administrative 13 Hearings on Tuesday, January 21st, 2003. And that's 14 including all holidays: Martin Luther King Day and 15 January 1st. 16 So these were untimely filed. And the 17 reason that's important is because had they been filed 18 on time at the State Office of Administrative 19 Hearings, I could have immediately replied to that and 20 the judge could have issued a -- either a decision to 21 amend her proposal for -- for decision or to deny that 22 exception. And also she would -- she would entertain 23 whether this was timely or not. 24 COMMISSIONER WHITAKER: I have not seen 25 those exceptions. Do you have copies? 0070 1 MS. KIPLIN: Those exceptions should be 2 in the notebook as part of -- are we on 362-01-2136.B? 3 MS. WILKOV: We're on the one that was 4 filed yesterday -- 5 MS. KIPLIN: Okay. 6 MS. WILKOV: -- afternoon, which is 7 03 -- 8 COMMISSIONER WHITAKER: The would be 9 four of the last four digits of the second tab? 10 MS. WILKOV: Yes. That would be 11 362-03-0694, and I'm sorry. I misspoke. I'm 12 referring to the judge as a female, and it's actually 13 Judge Borkland, who is a male. 14 But Judge Borkland could have ruled on 15 that in a timely manner. And also the exceptions that 16 were filed did state that they concede there were no 17 contested issues of notice or jurisdiction. And as 18 part of its proposal for decision, the administrative 19 law judge found that proper and timely notice of the 20 hearing was given. And that would be in conclusion of 21 law number four. And what -- 22 COMMISSIONER WHITAKER: So that would 23 be in conclusion of law number four. What do you 24 mean? 25 MS. WILKOV: That that's what the 0071 1 conclusion of law number four in Judge Borkland's 2 proposal for decision was that notice of the hearing 3 was timely. Proper notice had -- proper and timely 4 notice of the hearing was sent to respondent pursuant 5 to the Administrative Procedures Act, and it contained 6 a statement of the time, place, and nature of the 7 hearing. Basically, the proposal for decision does 8 recite that they failed to attend that hearing. 9 And in their exceptions that they 10 filed, besides being untimely, it contained 11 information that was not brought out in the evidence 12 or the law that was presented on that day. This is 13 outside of the record, and it's the kind of 14 information that the judge could have considered at 15 the hearing had they been present. And exceptions are 16 not an opportunity to present unsworn testimony in 17 front of you. It's a -- rather, it's a -- a time to 18 examine the proposal for decision and in that, the 19 judge is required to put a statement of reasons for 20 each of the findings of fact and conclusions of law 21 and that's what exceptions are about. We're talking 22 about the conclusions of law and the findings of fact 23 that were presented at the hearing. It's not an 24 opportunity now to come in and present unsworn or 25 unheard testimony. 0072 1 And just one more quick point. The 2 provision that our General Counsel, Ms. Kiplin, was 3 referring to does state that a state agency may change 4 a finding of fact or conclusion of law made by the 5 administrative law judge only if the agency determines 6 that the administrative law judge did not properly 7 apply or interpret applicable law, agency rules, 8 policies, and I don't think that -- their motion has 9 alleged that. The prior administrative decision on 10 which the administrative law judge relied on is 11 incorrect. It should be changed, and there is 12 certainly no allegation of that in their exception or 13 that a technical error in a finding of fact to be 14 changed. 15 THE COURT REPORTER: Could you speak up 16 just a little, please? Sorry. 17 MS. WILKOV: And if any of those were 18 the case, then the agency shall state in writing a 19 specific reason and legal basis for a change. 20 COMMISSIONER WHITAKER: Okay. May I 21 hear from you. 22 MR. WALKER: Yes. My name is D.A. 23 Walker from the Heart of Texas Black Chamber of 24 Commerce. 25 COMMISSIONER WHITAKER: Okay. 0073 1 MR. WALKER: And Mac Florence is the 2 president of the Heart of Texas Black Chamber of 3 Commerce. 4 COMMISSIONER WHITAKER: I would note 5 for the record that both of you have filed and do have 6 an affirmation forms. Are either of you lawyers? 7 MR. WALKER: No, ma'am. 8 COMMISSIONER WHITAKER: Okay. Do you 9 have legal counsel? 10 MR. WALKER: We had -- at one time we 11 had Gary Bledsoe. He was allowed to withdraw -- 12 COMMISSIONER WHITAKER: Okay. 13 MR. WALKER: -- from our current 14 contract. 15 COMMISSIONER WHITAKER: What would 16 help -- help me focus the issues is would you respond 17 to, first of all, the timeliness of these exceptions. 18 MR. WALKER: Well, with respect to the 19 timeliness of the exceptions, although it seems to be 20 that they're lawyers, very well versed in the law. So 21 they basically know a little bit more than we do. 22 However, we made good faith attempts to put in the 23 record. 24 And she's referring to two cases, but 25 it's one operation, and it's related. And -- and 0074 1 she's saying that this is outside of the record 2 because the other case, the individual is relevant to 3 both these cases. We didn't get those, and it was 4 obstructed then. So we had to -- and it's in the 5 record because they're talking about other issues that 6 we put in the statue that we filed -- that we finally 7 discovered that there was a -- it -- it was two 8 hearings, one on the 13th and, I believe, another on 9 the 18th. 10 COMMISSIONER WHITAKER: In -- in -- in 11 the second one -- well, in either of those, though, 12 the 15 days would have run before yesterday. So what 13 is your response to why it took you until yesterday to 14 file them? 15 MR. WALKER: Well, number one, we're 16 not lawyers. We simply could not find counsel after 17 the one was relieved, and the resources that we find 18 was hard. 19 COMMISSIONER WHITAKER: Okay. 20 MR. WALKER: We come out, and -- and -- 21 but with respect to this case, Commissioners, is that 22 the only thing that has not been complied with that 23 we've made good faith attempts to try to get a bond. 24 COMMISSIONER WHITAKER: All right. 25 So in -- in your opinion, I -- and I don't want to go 0075 1 into the evidence. So at this point in time, I'm 2 taking it as you just stating what the issues are. Is 3 that fair? 4 MR. WALKER: Yes. 5 COMMISSIONER WHITAKER: Okay. What is 6 the issue in your opinion, the core issue? 7 MR. WALKER: Well -- well, the core 8 issue is that there is a severe sanction of the 9 states. However, the -- we have complied with these 10 on this -- on this case here. And the only thing that 11 we have not got is the bond. We don't have sufficient 12 funds to pay the cash bond. We made an attempt to try 13 to secure a bond and the -- 14 MS. WILKOV: Commissioner, I'm sorry. 15 But I have to object that this is outside of the 16 record. And this is the kind of testimony that the 17 administrative law judge would have wanted to hear. 18 COMMISSIONER WHITAKER: Yeah. 19 MS. WILKOV: He would have wanted to 20 hear that. 21 COMMISSIONER WHITAKER: And -- and I'm 22 not accepting it at this point in time as evidence. 23 Ms. Kiplin, is that acceptable? 24 I just want to hear a statement of the 25 issues, not sworn testimony. This is not sworn 0076 1 testimony. It's not being received as testimony. 2 MS. KIPLIN: But if it's being -- if -- 3 if he's making argument and he's relying on evidence 4 that's outside the record, I -- I would recommend that 5 you not accept that. 6 COMMISSIONER WHITAKER: Well, I just 7 want to frame the issues. In other words, the issue 8 in your mind is you've complied with everything except 9 the bond and because of -- of financial concerns, you 10 haven't been able to comply with that. 11 MR. WALKER: Yes. 12 COMMISSIONER WHITAKER: Okay. That's 13 your statement of the issue, right? 14 MR. WALKER: Apparently, counsel -- I 15 don't see how they harmed by the untimely filing. 16 COMMISSIONER WHITAKER: Okay. 17 MR. WALKER: Because we should have 18 some leeway in presenting, since they're lawyers. You 19 should give some leeway and -- and consideration. 20 They are not showing how they were prejudiced or 21 harmed in any way by the untimely filings of 22 exceptions in this case. 23 COMMISSIONER WHITAKER: Let me ask you 24 this other question, then. You did not raise an 25 issue -- you or your firm did not raise this issue 0077 1 with the administrative judge. Is that correct? 2 MR. WALKER: What issue is that, ma'am? 3 COMMISSIONER WHITAKER: The issue 4 you're framing right now, which is the bond and the -- 5 MR. WALKER: We did -- that's -- 6 that's -- the problem with the exception. We 7 obtained -- 8 COMMISSIONER WHITAKER: Right. But at 9 the time -- 10 MR. WALKER: -- we -- we did ask for a 11 continuance, Your Honor. 12 COMMISSIONER WHITAKER: -- at the time 13 of the hearing, did -- was evidence about the bond 14 something that was presented? 15 MR. WALKER: That afternoon we did not 16 show up. 17 COMMISSIONER WHITAKER: Oh, okay. 18 MR. WALKER: We -- we did file. 19 COMMISSIONER WHITAKER: Right. 20 MR. WALKER: Our request for a 21 continuance was denied. 22 COMMISSIONER WHITAKER: Okay. Why 23 didn't you show up? 24 MR. WALKER: Well -- 25 MS. KIPLIN: Turn it on, Commissioner. 0078 1 Okay. 2 MR. WALKER: In the process of -- of -- 3 of the 18th of November hearing -- 4 COMMISSIONER WHITAKER: Which -- which 5 one was that? 6 MR. WALKER: That was this -- this -- 7 MS. WILKOV: The second one. 8 COMMISSIONER WHITAKER: This one? Is 9 it this one? 10 MS. WILKOV: No, Your Honor. 11 COMMISSIONER WHITAKER: All right. 12 MR. WALKER: But -- 13 MS. WILKOV: That's the renewal. 14 MR. WALKER: -- but -- but it's -- the 15 point is that we had no knowledge of the previous 16 hearing. In the process of trying to determine on 17 this case, we called and we found out there was 18 another hearing going on, and I also learned that from 19 one of the state's -- Commission's witnesses, Adrana 20 Goodman, moved up the date because the -- the mailing 21 was sent to 409 Turner. 22 MS. WILKOV: I'm going to have to 23 object again because this is outside of the record. 24 COMMISSIONER WHITAKER: We're not 25 receiving any of this as evidence. This is simply a 0079 1 framing of the issues. All right. 2 Would you -- would the state please 3 respond to the significance of the bond? And is there 4 any evidence that you're aware of as to their 5 inability to pay the bond and how you frame that issue 6 in response. 7 MS. WILKOV: Well, at the 8 administrative -- 9 COMMISSIONER WHITAKER: And let me just 10 tell you the general attitude I have. And 11 Commissioner Cox might have a different attitude. But 12 I tend to be very thoughtful about if you don't have 13 an attorney for strict compliance with timely rules, 14 unless there can be a showing by the Commission of 15 some prejudice. 16 So what I'm really trying to look at 17 here is not so much whether there was specific 18 compliance with timely rules but -- but the heart of 19 the issue and -- and the -- and the good faith effort 20 to comply with that. So I'd like you to kind of 21 respond to -- to -- to that framing of the issues by 22 me. 23 MS. WILKOV: All right. You're asking 24 me about the bond requirement. 25 The -- we did have a hearing and -- 0080 1 like I said, that -- that was in front of Judge 2 Borkland. And at that time, I did have my witness, 3 Ms. Terry Shankle, who had prepared an exhibit that 4 showed the calculation of the bond, and it was based 5 on previous three or four quarters. I'm not sure 6 exactly, but it had previous quarters and what the 7 risk was to the state if they did not pay the taxes. 8 Basically, it's a jeopardy determination. 9 COMMISSIONER WHITAKER: Okay. 10 MS. WILKOV: And they -- they have a 11 worksheet that they have prepared, and we did have it 12 admitted as an exhibit and that showed the risk to the 13 state as far as not -- nonpayment of taxes, not with 14 the issue in their case that they could have shown up 15 and defended or given the information about their 16 inability to -- to get a bond or, you know, any of the 17 other things that they wanted to argue today. 18 COMMISSIONER WHITAKER: In -- in other 19 words, there was showing that there was risk due to a 20 bond not being posted, but there was no analysis of 21 their ability to post the bond or how close they got 22 to it. Is that correct? 23 MS. WILKOV: There was no showing on 24 their part of any type of defense to that. 25 COMMISSIONER WHITAKER: How would you 0081 1 state the prejudice to the state? 2 MS. WILKOV: How would I state the -- 3 COMMISSIONER WHITAKER: How would you 4 state -- 5 MS. WILKOV: As far as -- 6 COMMISSIONER WHITAKER: What's the 7 degree of the risk that we're talking about? 8 MS. KIPLIN: It's risk to the state in 9 the fact that the state will not recover the monies 10 that are owed to the state in terms of prize -- the 11 prize fees and the taxes. 12 Commissioners, under 2001.514, a 13 licensee is required to post a bond. This licensee 14 has not posted bond. That's the bottom line. They 15 had the burden of proof, and they weren't there. The 16 notice went to where -- to the proper address as 17 required under our license requirements, and they 18 didn't respond. 19 COMMISSIONER WHITAKER: So the issue 20 is -- it was pretty clear cut in that no bond was 21 filed. And so the requirement on the issue of whether 22 they can't file a bond, in your opinion, is legally 23 irrelevant. 24 MS. KIPLIN: Correct. That is correct. 25 That's an equitable argument. And it's unfortunate, 0082 1 but the Bingo Enabling Act does not provide that kind 2 of latitude and discretion. This is monies that are 3 owed to the state, and the state must protect that 4 risk. And that's for requirements that's in the Act 5 in terms of filing a bond. 6 COMMISSIONER WHITAKER: Do you concede 7 that no bond was filed? 8 MR. WALKER: No bond was filed, but no 9 money is due. 10 COMMISSIONER WHITAKER: No bond was 11 filed, though, correct? 12 MR. WALKER: Well, we was seeking 13 trying to find someone to get the bond. 14 COMMISSIONER WHITAKER: Okay. 15 MR. WALKER: And we've been doing that 16 for three months. We didn't have the ability to try 17 to secure a bond from State Farm and others. We even 18 called from Dallas and -- 19 MS. KIPLIN: That's outside the record, 20 and I'm going to object to that at this point. 21 Regardless of whether money was due, that's not the 22 point of a bond. The point of the bond is to protect 23 the state from risk for future losses to the state. 24 Commissioners, also what I would like 25 to point out is that you have two proceedings against 0083 1 this respondent today. One is the revoke, and one is 2 the denial. You're on the denial right now. You 3 might want to defer this case until you hear the 4 revoke. If you decide to revoke, it may move this 5 case out and you move forward on the fact that there 6 is no license because you -- you ordered today that 7 their license be revoked. 8 Now, having said that, they do have an 9 opportunity to file a motion for rehearing within 10 20 days. I'm putting this on the record so you know 11 because I know you're not represented by counsel. But 12 they would have an opportunity to file a motion for 13 rehearing within 20 days of their notice of the order, 14 which will occur today because they're -- they're here 15 and present. And they can file that motion for a 16 rehearing and have them reconsider your order if you 17 decide to move forward on the revoke. 18 And, I guess, that I would recommend 19 that you -- you consider deferring this matter and go 20 to the revoke and have that -- that case presented 21 before you. Because if you take action on that, it's 22 consistent with what has been recommended by the 23 administrative law judge, who heard the -- the 24 hearing, took the evidence, dealt with the issue. 25 But, once again, I recommend along the lines of a 0084 1 continuance. 2 COMMISSIONER WHITAKER: All right. 3 Commissioner Cox, do you want to ask any questions? 4 COMMISSIONER COX: No. I -- I 5 understand. I believe what counsel is recommending, 6 and it makes since to me. 7 COMMISSIONER WHITAKER: Okay. All 8 right. Let's go to the next one, which is 213 -- 9 362-01-2136. 10 MS. WILKOV: Yes, Commissioner. 11 They -- this -- the November 13th, 2002, was a remand 12 hearing for the limited purpose of presenting 13 additional evidence as directed by the Commission's 14 order granting the motion for rehearing. 15 And the administrative law judge, in 16 her motion for -- I'm sorry -- order denying 17 continuance, stated that the administrative law judge 18 notified applicant of this remand hearing by sending 19 an order setting remand hearing on the 29th day of 20 August, 2002, to an address, to applicant Ida Pinkard 21 at her address at 1701 Sealy Street, Waco, Texas, and 22 by faxing it to her attorney of record, which was Gary 23 Bledsoe, Attorney at Law, 316 West 12th Street. 24 And Mr. Bledsoe had made numerous 25 appearances on behalf of the organization, including 0085 1 the mediated settlement conference that was set 2 forth. And they've alleged that they had no notice of 3 that hearing, and the administrative law judge did 4 find that was sent to their address. That was 5 available. 6 And, in fact, in a filing that they 7 made in an exception, they did admit that they knew of 8 the hearing two days before the hearing. They had -- 9 COMMISSIONER WHITAKER: Well -- go 10 ahead. I'm sorry. 11 MS. WILKOV: All right. Your Honor, 12 the -- well, I included the transcript so that you 13 would see that we had witnesses available. We had 14 Adrana Goodwin, who -- 15 MR. WALKER: Goodman. 16 MS. WILKOV: Goodwin? 17 MR. WALKER: Goodman. 18 MS. WILKOV: Goodman, that is, that 19 used to be with the organization. We had a fraud 20 investigator from the state auditor's office, and we 21 also had an auditor available. And the -- they were 22 available and ready to testify and be cross-examined 23 by either their lawyer or by them showing up and 24 appearing and doing that, but they chose not to and... 25 COMMISSIONER WHITAKER: Do you guys 0086 1 have any response to that? 2 MR. WALKER: She failed to point out 3 that we asked for a continuance at the last minute 4 because we was -- Mr. Florence was a plaintiff in the 5 McLennan County 19th District Court and the two 6 witnesses, Ms. Ida Pinkard and Darleen Schnell, were 7 subpoenaed. They had to show up on that date in court 8 or be held and fined. That's why they did not show 9 up. 10 We knew about -- we -- we discovered 11 that date two days prior to that hearing, it would 12 be that -- I ascertained from Adrana Goodman because 13 the mail was sent to 409 Turner, who occupies the 14 building. She did not -- we had no knowledge of this 15 hearing. When we found out about it, we promptly made 16 good faith attempts to notify a request for a 17 continuance because we had a judicial proceeding. 18 Two of the witnesses were subpoenaed, 19 failure to show up in court would have resulted in 20 consequence of imprisonment or fined. Mr. Florence 21 was the plaintiff. He could not come down on that 22 hearing. 23 COMMISSIONER WHITAKER: You're aware 24 that the court considered these issues and denied the 25 motion for continuance, right? 0087 1 MR. WALKER: Well, I understand that, 2 but I'm saying that's the only reason why we were 3 showing when she made a point that -- that we didn't 4 show up. It was not a willful, intentional refusal to 5 show up. 6 COMMISSIONER WHITAKER: Okay. Yeah. 7 Well, when -- 8 MS. KIPLIN: Commissioners, if -- 9 COMMISSIONER WHITAKER: Yes. 10 MS. KIPLIN: -- if I could respond to 11 that. What -- what has been failed to be mentioned is 12 the fact that at the time that of the late filed 13 continuances, the State Office of Administrative 14 Hearings, the administrative law judge contacted the 15 district court and discovered from the conversation 16 that occurred that the respondent specifically 17 requested that date for that district court hearing so 18 as to have a conflict where they couldn't appear at 19 the hearing and then filed a continuance. 20 So I -- I think that in the -- and I 21 will say that the administrative law judges, in my 22 experience, are very lenient on continuances. 23 This case, if you'll recall, 24 procedurally was on a remand already. This is the 25 second time before you. And if you will look at the 0088 1 findings of fact in this case, Commissioners, you will 2 see that there are very strong findings that have been 3 entered by the administrative law judge who did listen 4 to the evidence and did read the record that was on 5 remand. So it's two -- two bites at the apple that 6 this respondent has had. 7 COMMISSIONER WHITAKER: Anything 8 further? 9 MR. WALKER: May I respond to that 10 statement. I am the one that went to the court 11 administrator and got a court date. We did not know 12 about this hearing. The court -- that was initial. 13 That was even before an injunction, and that's the 14 date the court -- 15 COMMISSIONER WHITAKER: That's -- 16 MR. WALKER: -- give us. 17 COMMISSIONER WHITAKER: -- and I -- 18 MR. WALKER: We did not systematically 19 orchestrate a date to circumvent the hearing. 20 COMMISSIONER WHITAKER: -- and -- and 21 I'm not going to -- and just so you know, I'm not 22 going to accept evidence, what you're saying as 23 evidence, because the time to present that would have 24 been back then. 25 MR. WALKER: But she was -- 0089 1 COMMISSIONER WHITAKER: You're stating 2 that that's the issue, right? 3 MR. WALKER: By the time the general 4 counsel posted this issue, that we had a concentrated 5 effort -- 6 COMMISSIONER WHITAKER: Go on. 7 MR. WALKER: -- to -- to manipulate a 8 judicial procedure to circumvent another. 9 MS. KIPLIN: Well, I think what's more 10 important for the Commissioner's knowledge, what is 11 part of the record at the State Office of 12 Administrative Hearings, at the time that this 13 administrative law judge continued -- considered the 14 motion for continuance -- 15 COMMISSIONER WHITAKER: And I am only 16 accepting any of your comments, Ms. Kiplin, like you 17 said, that they are already reflected in the record. 18 Okay. Commissioner Cox, any comment? 19 COMMISSIONER COX: No. 20 COMMISSIONER WHITAKER: Okay. I am 21 prepared to vote to accept the findings of the 22 administrative judge in both proceedings. 23 COMMISSIONER COX: Second. 24 MS. KIPLIN: And adopt the proposed 25 order, which is to revoke the renewal application of 0090 1 Hearts of Texas Black Chamber of Commerce of Waco, 2 Texas. 3 COMMISSIONER WHITAKER: Yes. 4 All in favor? 5 THE COMMISSIONERS: Aye. 6 COMMISSIONER WHITAKER: All opposed? 7 Passes two to no votes of zero. 8 MS. KIPLIN: Commissioners, at this 9 time, I would recommend that you defer any action on 10 the proceeding that's open -- 11 COMMISSIONER WHITAKER: Yeah. 12 MS. KIPLIN: -- until we see what 13 happens with the proceeding that's before you because 14 it may -- it may very well be that it should be -- the 15 respondent not file a motion for rehearing, that it 16 will moot out the other action. 17 COMMISSIONER WHITAKER: Okay. And so 18 if we file -- if we sign this -- 19 MR. WALKER: All right. 20 COMMISSIONER WHITAKER: Well, thank you 21 very much. 22 MR. WALKER: Thank you. 23 COMMISSIONER WHITAKER: Okay. Where is 24 our Chairman? 25 MS. KIPLIN: Commissioners, I presented 0091 1 the wrong order to you. I'm going to take off on the 2 record, make it clear that the order that you signed 3 does not take effect because it was on the wrong 4 docket. You didn't take action on that docket. 5 CHAIRMAN CLOWE: We are signing these 6 orders now. 7 Is there an order in here, Kim, on the 8 issues that I'm not involved in? 9 MS. KIPLIN: No. That -- that order 10 has bypassed you, Commissioner. 11 CHAIRMAN CLOWE: Okay. Thank you. 12 There is a person who has signed a 13 witness affirmation form who wishes to speak on an 14 item that we have covered earlier in this meeting. 15 And I'm going to call on her, Ms. Dawn Nettles, as 16 soon as we have finished signing these orders and ask 17 her to come forward and speak. 18 If you'll come up, Ms. Nettles, please. 19 MS. NETTLES: Good morning, 20 Commissioners. 21 CHAIRMAN CLOWE: Good morning. 22 Ms. Nettles, if you'll hold on just a minute, please. 23 MS. NETTLES: Okay. 24 CHAIRMAN CLOWE: Ms. Nettles, it's my 25 understanding you wish to make an appearance and to 0092 1 speak on agenda item number XII, which the Commission 2 took out of order and heard earlier this morning. And 3 we're happy to hear from you at this time. 4 MS. NETTLES: Thank you, 5 Commissioners. For the record, my name is Dawn 6 Nettles, and I am the publisher and owner of the Lotto 7 Report -- it's a biweekly publication -- as well as 8 the owner of the web site lottoreport.com. 9 I purposely did not rush to get here 10 this morning because it was item number XII on the 11 agenda. And the last several times I've been here, I 12 waited a real long time because it was way down the 13 line. So seeing bingo was first on the agenda, 14 knowing how much time bingo has been taking here 15 recently, I purposely did not get here. 16 For that, I cannot begin to tell you 17 how I regret that because I understand now -- I was 18 told as I walked in the door that you-all have already 19 heard the presentation, which I did not get to hear 20 and you have already voted to approve the proposal to 21 consider increasing the odds on Lotto Texas and -- 22 CHAIRMAN CLOWE: That's correct. And 23 we're sorry that you missed it -- 24 MS. NETTLES: Not near -- 25 CHAIRMAN CLOWE: -- and we appreciate 0093 1 you being here now. 2 MS. NETTLES: -- not near as sorry as I 3 am, Commissioner Clowe. 4 I realize that it's -- it's probably 5 too late for you-all to reconsider and/or revoke 6 based -- based on any of this information. But when 7 the reporters caught me at the door and told me that 8 y'all had already done this, my first question was, 9 did the Commissioners, at least before they voted, 10 clarify the numbers that were presented in this 11 proposed rule. And I named off my questions to them 12 and they said, no, that stuff never came up. 13 So I -- I guess I want to start there. 14 Lotto Texas definitely needs a new rule. What we have 15 in place now and what we've had in place is not fair 16 to the people, and it's not fair to the state, both 17 ways. The people have no consumer protection. We 18 depend on the three of you-all to protect us, to watch 19 over us. 20 When the states were given the 21 authority to have a monopoly, the reason for that 22 authority given to states on the lottery was to 23 protect the citizens of the states of this country. 24 It was not intended to give states the authority to 25 generate revenue or more revenue, not to be used in 0094 1 that manner. It was given to the states specifically 2 to protect the people. 3 The population in Texas is 21 million. 4 At least, that's the last number I saw. This game 5 is -- I don't have the paperwork and I haven't seen 6 it, but I believe the odds are 88 million to one to 7 win it. We have a population of 21 million, and out 8 of that 21 million, that includes the children and the 9 elderly that probably don't play. And probably, even 10 giving you -- giving you the high number that 50 11 percent of the people in Texas play, this -- this 12 would be -- the sole intent of this is to create a 13 game that people are probably not going to win. It's 14 done on purpose so that people will spend their money 15 and lose their money repeatedly, over and over and 16 over and over again. 17 When you added those four balls in -- 18 in 2000. If we go back on that for a second and we 19 look, it was originally proposed to add four balls in 20 1999. There was an outpouring of the people from all 21 over the state that just pounced on y'all and said, 22 don't do this. They withdrew the rule and really all 23 they did was regroup, come up with 4700 surveys 24 that -- that I presented to you-all that I questioned 25 it. But this is the comment that was made that y'all 0095 1 concluded that people were all for adding four balls, 2 would support it; yet, it failed. 3 You have not increased your sales from 4 Lotto Texas. You angered the people. You did not 5 please them. You did not offer them something fair. 6 The people are opposed to the rule that you-all have 7 just put for proposal today. They've already told the 8 Commission this. The Commission has numerous 9 comments. And just yesterday I received an e-mail 10 from a gentleman, who sent in a comment yesterday. He 11 got a reply yesterday from the Commission, and the 12 reply was we appreciate your comments but we do -- we 13 don't know that we're going to do this, and if so, if 14 we do do it, then at that point in time will be a 15 comment period, so please make your comments then. 16 This is something that has been 17 happening for the last three months. People send in 18 their comments. They're told not to comment, but, 19 now, these people -- all these people who've already 20 commented due to the -- the tremendous press that's 21 been on this issue, are of the impression that they 22 have already commented. And they're not going to do 23 it again. But, anyway, we'll just put that aside too. 24 At a real quick, quick glance, I did 25 get to see the draft here. And this draft, on a real 0096 1 quick glance that y'all proposed that was going up 2 there, is not fair. And here's why it's not fair. 3 It's saying that you're going to give 52 percent of 4 the sales back to the players. For the record, the 5 players have never gotten their share of sales, 6 anyway. 7 Since the inception of Lotto Texas, we 8 have never gotten our true percentage of sales. The 9 reason we haven't gotten our percentage of sales is 10 because you would -- you -- you guarantee prizes which 11 allows the Lottery to have a reserve fund. And the 12 monies in the reserve fund are not returned to the 13 players. And that's a part of the money that shall be 14 returned to the players. This rule, once again, 15 allows the Commission to have reserve funds because 16 they are allotting so much money for these guaranteed 17 three, four, and -- five- and three-dollar prizes. 18 That's not fair. There's no part of this that is fair 19 because while you are planning on giving back 52 20 percent of sales, you're not. 21 I have another thing that's not fair is 22 the unclaimed prize money. Now, I know the state is 23 facing a 10-billion dollar deficit. Now, I know that 24 the state likes that unclaimed prize money, but that 25 unclaimed prize fund is over $400 million. And one of 0097 1 the -- one of the reasons that it is that high is 2 because the lottery terminals err. 3 I have a winning ticket that has been 4 taken to multiple retailers, run through their 5 terminals, and each time it prints a ticket that says, 6 "not a winner," "sorry, it's not a winner." But it 7 is. The retailers -- and this is something they don't 8 like to do. But the retailers run these tickets 9 through for players, and the players don't have a clue 10 as to whether or not they won. They just trust that 11 machine to tell them, and that machine errs. It gives 12 false readings on tickets and I have here as one such 13 ticket and I have others at my office. This is not 14 fair. 15 It's y'all's responsibility and only 16 you three to protect the people of Texas, not rob them 17 and -- and this reserve fund for Lotto Texas, the fact 18 that you allow retailers to check tickets for players 19 instead of putting the sole responsibility on the 20 player. I probably wouldn't complain as bad about the 21 unclaimed prize fund if it weren't for the fact that I 22 know, for a fact, that those machines err. They also 23 err big time on the scratch tickets. 24 The other problem I have -- which I've 25 not read this. You've already voted to approve or to 0098 1 propose it. Players -- two years ago or a year and a 2 half ago, I came here and I told y'all that winners, 3 66 winners, lottery winners, did not receive all the 4 money that they had won. It was called an allegation 5 at the time. It took over a year for you to come out 6 with your audit report, the investigation report, that 7 confirmed everything I sat here and told you-all at 8 that time. 9 Those 50 some-odd players, who were 10 literally screwed out of their share, out of what they 11 had rightfully won, cannot go to the attorney general 12 and file a complaint because the attorney general has 13 no jurisdiction. They have to go hire their own 14 lawyer, and they have to sue you-all to get it. 15 Now, in today's time and given our 16 10-billion dollar deficit and the things on the agenda 17 over there for frivolous lawsuits, I think it's 18 terribly unfair that you three are not protecting 19 these people. They -- they -- they won money, but 20 they did not get it. It was confirmed in the 21 investigation report that -- that came out a year 22 later and even that report has something that troubles 23 me more. 24 There's a lot of things that trouble 25 me, and I'm not sure which one is worse. But there 0099 1 was one winner on that investigation report that was 2 really shortchanged because he did not receive all of 3 his money. And I have here what's called a dummy 4 trade ticket that I obtained twice on two different 5 occasions from the comptroller's office. 6 And let me explain one thing first. 7 When it's a cash value option win, the comptroller 8 does not obtain three bids. They get the percentage. 9 They contact a company somewhere. They only do one. 10 It's called a dummy trade ticket. There are no other 11 numbers obtained. This Commission has reported on 12 this investigation report that the investment cost was 13 less than what the dummy trade ticket from the 14 comptroller's office gave to me. And what's so 15 troubling is that the Commission when I called them on 16 this, they said, well, we have a dummy trade ticket 17 that shows the number that we have reported here. 18 That tells me that there could be two sets of 19 documents. And that is really troubling to me. 20 There are other wins. Two -- I forget 21 exactly how many, but there are two or three other 22 Lotto wins where the investments, where the amount of 23 the money in the prize pool, it was paid to the -- 24 well, it was invested. Well, that money, it appears 25 should bring back much more than they are actually 0100 1 receiving for their win. That troubles me too. 2 Texans, we want our lottery, but we 3 don't want to be robbed. We don't want these unfair 4 things. It's fair for the state to make money. I 5 don't object to that, but at the same time, the 6 players are entitled to their -- their share of sales. 7 By having a rule that you have just 8 agreed to propose, this rule -- by having a reserve 9 fund and having -- offering guaranteed prizes is not 10 fair to the people because you're going to withhold 11 and allocate from sales more than what is probably 12 necessary, as in the past, to pay those prizes. 13 You're going to give the people, 21 14 million people, a game with odds of 88 million to 15 one. That is absolutely a scam. No question. No 16 doubt. The players aren't receiving their 50 -- their 17 55 percent of sales now. 18 The last two wins on the 19 53-million-dollar jackpot that y'all just paid out 20 or was just won, players were shorted by $1,000,113 -- 21 $113,275. This money went into reserve. It was not 22 given as part of the 55 percent of the sales. That's 23 wrong. The win the other night, the players were 24 shorted out of $76,329. That's not fair. 25 When you added the four balls, since 0101 1 that, I believe it's been 265 drawings, there have 2 been fewer winners than there were in the 265 3 preceding draws. By adding four balls and increasing 4 the odds, you've created losers. People are tired of 5 losing. That's why your sales are down. 6 There are other solutions that this 7 Commission had, and I'm going to just remind you that 8 it's your duty. You owe it to us to protect us. And 9 we're not being protected. And I don't think you're 10 doing your jobs. I don't believe that you've reviewed 11 these numbers that's on this draft here for the 12 percentages. I don't believe y'all checked into how 13 much money the players were going to get, what the 14 prizes were. And I still don't have it. I -- I know 15 the reporters do, but I haven't seen what the prize 16 was officially on -- on the papers. 17 But, Commissioners, I hope that you'll 18 rethink and -- and do what you owe us, and you owe it 19 to protect us because the people of Texas have no 20 protection. 21 And this is -- this -- this rule change 22 is geared for one reason, and that's for the state of 23 Texas to make more money. And they're taking 24 advantage of the people by doing this. I spent my 25 whole life teaching my child that just because 0102 1 somebody else does it, doesn't make it right. 2 And I'll be the first one to tell you 3 that at least Texas is ahead of all the other states 4 in what they had -- what they did give back because 5 the other states that are older have already whittled 6 down to as little as 38 percent of public sales. 7 People in Texas are saying they're 8 getting 52 percent back out of this, but they're not 9 if the proposal or if one of this -- if this passes. 10 They're going to -- they -- you -- you -- they're only 11 getting 50 percent of total sales. And when they win, 12 the feds come in and take 28 percent right off the 13 top, which really ultimately means the players only 14 see 22 percent of the total sales. And we're talking 15 about billions and billions of dollars. 16 I thank you for hearing me. I hope and 17 I beg the Commission to take care of these winners 18 that were shortchanged. 19 I am going to provide for the media the 20 list of names of every player that has been taken 21 advantage of because I think that the media will 22 finally care to do something about this because nobody 23 up here has, and it's not right. 24 I thank you for hearing me. Do y'all 25 have any questions? Can I collect my money? 0103 1 CHAIRMAN CLOWE: Thank you, 2 Ms. Nettles. I want to add that your comments be made 3 part of the record, the public comment on the proposed 4 rule. And I'll ask Toni Smith to share with you the 5 information on the proposal that the Commissioners 6 voted to consider and put out for public comment this 7 morning. 8 Some of the information you quoted is 9 not correct, and we -- we need to give you the correct 10 information. Additionally, I'll ask Mike Pitcock to 11 work with you on the tickets that you indicated are 12 winning tickets that have been denied and get that 13 straight and then report back to us on that. 14 MS. NETTLES: May I ask you -- 15 CHAIRMAN CLOWE: Any other -- beg your 16 pardon. 17 MS. NETTLES: May I ask you which piece 18 of information that you just referred to that I was 19 definitely incorrect on? Which -- which part of it 20 was it? Was it the 80 -- 88 one? 21 CHAIRMAN CLOWE: Yes, ma'am. That's 22 one of the items that you mentioned there. There are 23 some others -- 24 MS. NETTLES: They already are. 25 CHAIRMAN CLOWE: -- but that's one of 0104 1 them. We'll -- 2 MS. NETTLES: Okay. Well, they already 3 are? 4 CHAIRMAN CLOWE: -- we'll want to give 5 you the correct information. 6 MS. NETTLES: Okay. 7 CHAIRMAN CLOWE: We'll ask Toni to do 8 that later. 9 MS. SMITH: Here. Here's the slides. 10 CHAIRMAN CLOWE: Would you do that? 11 But -- but go over it with her in -- 12 MS. NETTLES: She's already planned to 13 do that. 14 CHAIRMAN CLOWE: -- detail rather than 15 just -- 16 MS. NETTLES: I just would like to know 17 what the odds are. 18 CHAIRMAN CLOWE: I'm going -- I'm going 19 to ask Toni to cover that with you in detail so you 20 have a full understanding of it, rather than just 21 handing it to you. 22 I don't believe Commissioner Cox has 23 any questions. 24 Do you have any questions for her? 25 Thank you very much, Ms. Nettles. 0105 1 MS. NETTLES: Thank you. 2 CHAIRMAN CLOWE: I believe we've 3 covered everything at this point in time that we have 4 time to on the public agendas. 5 It was shortly moved that we go into 6 executive session. We will be returning and complete 7 the public agenda. I would imagine executive session 8 will take a minimum of -- at least two hours. 9 At this time, I move the Texas Lottery 10 Commission go into executive session to deliberate the 11 appointment, employment, and the duties of the 12 executive director and/or deputy executive director 13 pursuant to Section 551.074 of the Texas Government 14 Code; to deliberate the duties of the acting executive 15 director pursuant to Section 551.074 of the Texas 16 Government Code; to deliberate the appointment, 17 employment, evaluation, reassignment, duties, 18 discipline, or dismissal of the internal -- internal 19 audit director pursuant to Section 551.074 of the 20 Texas Government Code; to deliberate the appointment, 21 employment, and/or duties of the acting internal audit 22 director pursuant to Section 551.074 of the Texas 23 Government Code; to deliberate the duties and 24 reassignment of the Internal Audit Division senior 25 auditor and/or auditor VI pursuant to Section 551.074 0106 1 of the Texas Government Code; to deliberate the duties 2 and evaluation of the Charitable Bingo Operations 3 director pursuant to Section 551.074 of the Texas 4 Government Code; to deliberate the duties of the 5 general counsel and security director pursuant to 6 Section 551.074 of the Texas Government Code; to 7 receive legal advice regarding pending or contemplated 8 litigation and/or to receive legal advice pursuant to 9 Section 551.074, paren, one, close paren, paren, A, 10 close paren, or, paren, B, close paren, of the Texas 11 Government Code and/or to receive legal advice 12 pursuant to Section 551.074, paren, 2, close paren, of 13 the Texas Government Code, included -- including but 14 not limited to: TPFV Group, Inc., versus Texas 15 Lottery Commission; Retired Sergeant Majors' 16 Association, et al, versus Texas Lottery Commission, 17 et al; Loretta Hawkins versus Texas Lottery 18 Commission; States of Minnesota, et al, versus NIGC, 19 et al; Scientific Games and Pollard Banknote versus 20 Texas Lottery Commission and Linda Cloud, executive 21 director; TXTV versus Texas Lottery Commission; Keane 22 versus Texas Lottery Commission; Patsy Henry versus 23 Texas Lottery Commission; contract regarding the 24 charitable bingo system, employment law, personnel 25 law, procurement and contract law, and general 0107 1 government law; to deliberate the negotiation -- 2 MS. KIPLIN: And we're going to stop on 3 that and tend -- 4 CHAIRMAN CLOWE: -- and I'm going to 5 stop there. 6 MS. KIPLIN: Commissioner, if -- this 7 is my bad on what you have. We also noticed up 8 two other legal advice lottery operator contracts. So 9 you would be going in to receive legal advice 10 regarding the lottery operator contract. 11 CHAIRMAN CLOWE: All right. Make that 12 a part of the motion then. 13 Is there a second? 14 COMMISSIONER WHITAKER: Second. 15 CHAIRMAN CLOWE: All in favor say aye. 16 THE COMMISSIONERS: Aye. 17 CHAIRMAN CLOWE: The vote is 3-0 in 18 favor. 19 The Texas Lottery Commission will go 20 into executive session. The time is 10:40 a.m. The 21 date is January 31st, 2003. 22 (Recess.) 23 CHAIRMAN CLOWE: The Texas Lottery 24 Commission is out of executive session. The time is 25 1:40 p.m. 0108 1 Is there any action to be taken as a 2 result of the executive session? 3 If not, I would like to note for the 4 record that Commissioner Whitaker is now absent. 5 Commissioner Cox and I are here. There is a quorum. 6 We will continue to do the business of the Commission. 7 Oh, thanks, Toni. 8 Okay. The Texas Lottery Commission is 9 out of executive session. The time is 1:40 p.m. 10 There is no action to be taken as a result of the 11 executive session. 12 I'd like to note for the record that 13 Commissioner Whitaker is now absent. Commissioner Cox 14 and I are present. We have a quorum, and we'll 15 continue to conduct the business of the Commission. 16 We will move to agenda item number XXIII. 17 Consideration of and possible discussion and/or action 18 on instant ticket and services procurement and/or 19 contract. 20 Mr. Bennett. 21 MR. BENNETT: Thank you, 22 Commissioners. For the -- for the record, my name is 23 Ridgely Bennett. I'm the deputy general counsel of 24 the Texas Lottery Commission. 25 Commissioners, all argument was heard 0109 1 on January 8th, 2003 before the Third Court of Appeals 2 in the Scientific Games and Pollard Banknote versus 3 the Texas Lottery Commission litigation. Of course, 4 that's the litigation where the Texas Lottery 5 Commission has been enjoined from including 6 anticipated economic impact as an evaluations factor 7 in these procurements. Now, we are currently awaiting 8 the decision of the Third Court of Appeals. 9 I bring that to your attention because 10 the current contract that we have with Scientific 11 Games and the emergency contract for the instant 12 ticket services had -- was entered into on September 13 1st of 2002 and had an initial term of six months. 14 And the -- the six months will be over beginning of 15 March. And we have as our -- as our options, an 16 opportunity to extend that contract for an additional 17 six months. And it's staff's -- the staff's 18 recommendation is that we take the option and extend 19 the emergency contract for an additional six months. 20 And I would be happy to answer any 21 questions. 22 CHAIRMAN CLOWE: Any questions? 23 COMMISSIONER COX: No. 24 CHAIRMAN CLOWE: Is that necessary that 25 the Commission vote on that? 0110 1 MS. KIPLIN: No, I don't believe it is. 2 It's -- once again, this -- these are the kinds of 3 contracts that you-all have indicated that you wanted 4 to have more oversight. And so this is just bringing 5 it to your -- your attention letting you know if you 6 have any objections having -- having those indicated. 7 CHAIRMAN CLOWE: Great. Thank you, 8 Mr. Bennett. I see there are no objections. 9 MR. BENNETT: Thank you, Commissioners. 10 CHAIRMAN CLOWE: And I would like to 11 return to agenda item number XI regarding the 12 consideration of the possible discussion and/or action 13 on the lottery operator contract. 14 The Commission received legal advice in 15 executive session that we indicated we wanted. 16 And I'll ask Ms. Kiplin to state for 17 the record where we are on that. 18 MS. KIPLIN: I think where -- I think 19 where you are, Commissioners, is needing to be in -- 20 in the open portion of the Commission meeting and 21 having further deliberations. I think at this point 22 based on -- just based on the interchange. It appears 23 to be premature to go into the executive session under 24 the exception that you have in Chapter 467. 25 I will listen with a very close ear. 0111 1 And at any time, of course, if you think that it -- 2 that the discussions that you have will affect your 3 positions in negotiations, please speak up, and I'll 4 be glad to revisit that issue. 5 CHAIRMAN CLOWE: Thank you. Then let's 6 go back and let me see if I can pick up the thread 7 where we were with Mr. Grief. 8 The issue under discussion is the 9 current methodology of payment to the lottery operator 10 at 2.026999 per dollar, per ticket, that being a 11 payment on a gross basis as on the one hand, I won't 12 say opposed, but on the other, to a possible 13 methodology that would result in a compensation to the 14 lottery operator based on a what might be called a net 15 income after prizes are awarded. Do I recall that 16 correctly? 17 MR. GRIEF: Yes, sir. 18 CHAIRMAN CLOWE: Commissioner Cox, can 19 you talk to us about this. What are your thoughts? 20 COMMISSIONER COX: Well, the -- in one 21 of the number of meetings that -- in -- in one of the 22 number of meetings that staff, including me, when we 23 met with GTECH, we were talking about an issue which 24 related to the amount of revenue that a certain action 25 might take and then we worked that action down to the 0112 1 bottom line to see what the bottom line effect might 2 be. And I observed that, you know, it's sure good to 3 have GTECH's input on this because they are sharing in 4 the same thing we are. 5 And one of our executives said, no, 6 that's not the case. And I said, well -- well, how is 7 it different? He said, well, GTECH shares in sales. 8 The state of Texas participates in sales less payouts. 9 So when we look at the advice of GTECH, we can really 10 only give it complete credibility as it relates to the 11 top line, but we have to independently form our own 12 judgment as to payouts because they're not sharing in 13 that. 14 And there is a situation in which they 15 would benefit and lead a difference. To which I said, 16 why don't we try to get all on the same page. And 17 we've had some discussions about that issue with 18 GTECH. And the idea I think everyone understands 19 would be to get our interests and those of our lottery 20 operators directly in line with each other for a 21 couple of reasons, one, because that's the way I like 22 to do things. Certainly, I think employees in the 23 private sector, employees' incentives should be in 24 line with those of the shareholders, and I think this 25 is much the same kind of situation. 0113 1 The other thing that I'm concerned 2 about is that GTECH brings a great deal of expertise 3 to the table, not only on sales but on payouts. And 4 if we have to look at their experience there and say, 5 well, gosh, we've got to discount that and maybe we 6 have to get another expert to help us with that, then 7 we're not getting the maximum benefit from the lottery 8 operator's services. 9 So with that, I'll just throw it out 10 there for you and see what you think. 11 CHAIRMAN CLOWE: I understand, and I 12 think you're making excellent points. Ms. Kiplin, 13 we're not negotiating at this point in time, but it is 14 noticed for discussion. Would it be fair to ask GTECH 15 if they have a comment on this discussion? 16 MS. KIPLIN: Yes, I think it is. 17 They're in the audience, and it's your commission 18 meeting. You can request them to come forward and 19 give comment. Of course, they can decline. But 20 they're here, and I -- I will be happy to get a 21 witness affirmation. 22 CHAIRMAN CLOWE: Would you be willing 23 to do that? 24 MR. RIVERA: I -- I -- I -- good 25 morning, Commissioners -- afternoon, excuse me. For 0114 1 the record, my name is Ramone Rivera. I'm the account 2 general manager for GTECH. 3 CHAIRMAN CLOWE: And let me say that 4 we're not negotiating the contract at this point, but 5 Commissioner Cox has apparently -- because I haven't 6 been in on it -- had some meeting or meetings with 7 Gary and possibly with you and others with GTECH. And 8 you were here this morning, so you understand in order 9 to have a discussion on this subject, we need to be in 10 the public. Otherwise, I can't hear what Commissioner 11 Cox has to say. 12 And I'm very interested in the points 13 that he has made. I think Commissioner Whitaker would 14 be too if she were here. And we don't expect you to 15 come back with a firm responsive position on your 16 part -- your company's part, but we would be very 17 interested, I think, in your reaction and what 18 experiences the company has in other states and in 19 other lotteries. 20 MR. RIVERA: Yes, sir. I would be 21 pleased to attempt to respond as fully as I can under 22 the situation that -- that you've -- you've described. 23 First, let me start by saying that I 24 believe that -- that in negotiating the current 25 lottery contract, lottery staff went to a great deal 0115 1 of effort to study and survey best practices used 2 throughout the industry. And I -- I don't know this 3 for a fact, but I believe they landed on a gross on 4 a -- on a billing on -- on a percent of gross basis 5 because that is the industry standard. To my 6 knowledge, at -- at this -- at this sitting, I am not 7 aware of a -- of a single lottery, either domestically 8 or internationally that is compensated on anything 9 other than a gross basis, for some -- some points that 10 we probably shouldn't discuss in this forum. 11 So I believe that -- that the agreement 12 that was negotiated and discussed at length was, of 13 which many outside parties were -- were represented 14 on -- on both the Lottery staff as well as GTECH 15 staff, came to a full and complete agreement. And on 16 that basis, we proceeded forward with, you know, 17 with -- with the current -- with the current situation 18 that we have today. 19 And I can understand Commissioner Cox's 20 concern about conflicting interests or possibly not 21 complete participation by GTECH. And in that regard, 22 I think he and I have had some discussions where we -- 23 we're not in total agreement with that statement 24 either. And -- and the reason that we're not is that 25 the Massachusetts example, which was referenced, I 0116 1 believe, by Mr. Grief this morning, and it clearly 2 shows and -- and we can provide information to that 3 effect that although payouts decreased -- excuse me -- 4 payouts increased and the net percentage return to the 5 state thereby decreases, the revenue to the state on a 6 gross basis increases. That is -- that was the spirit 7 of our recommendations, and the discussions that we've 8 been having. In that, we are totally aligned. 9 We -- we firmly believe that -- that 10 our responsibility and -- and our mission is to help 11 the -- the Texas Lottery in -- in their -- in their 12 efforts to increase the contributions to the 13 Foundation School Fund. And we made those 14 recommendations strictly in that spirit, not looking 15 at any constraining conflict other than improving 16 return to the state. 17 There -- there have been circumstances 18 where a higher payout was recommended or suggested, 19 and we did not agree with that. And so we're not -- I 20 guess, the point is that what we attempt to do is give 21 you recommendations, as Commissioner Cox stated, on 22 the basis of our experience and throughout the 23 industry and using -- using strategies that have 24 been -- have been proven effective in not only 25 increasing sales but increasing returns to the 0117 1 jurisdiction where those are being applied. So I -- I 2 suppose I -- I could go on record as saying our 3 recommendations are -- are clearly aligned for the 4 same purpose. 5 Notwithstanding that, we're not -- I'm 6 not going to sit here and say -- as always, we're -- 7 we're certainly willing to sit down and discuss 8 anything with -- with the Commission that the 9 Commission feels is in the best interest of the state. 10 CHAIRMAN CLOWE: Again, I want to say 11 we're not trying to negotiate the contract, and we're 12 not expressing any dissatisfaction with our present 13 arrangement. But Commissioner Cox has extensive 14 experience in the gaming industry, and he's a very 15 creative thinker. And, you know, this idea is, I 16 think, worth exploring. And it's interesting to hear 17 you say that either domestically or in an 18 international operation, you've never had this kind of 19 an arrangement before. 20 I for one would like to ask you to go 21 back to your company and get some history for us and 22 some further views. I don't know how prepared you 23 were to speak to us on this today, but I'd like to 24 see, as one Commissioner, this subject pursued because 25 I think it's incumbent on the Commissioners to always 0118 1 be looking at an opportunity to enhance the 2 attractiveness and the revenue from the games to the 3 state. And if our operator can participate in that 4 and support us in that effort, by any means, we would 5 want to explore those opportunities. 6 MR. RIVERA: Yes, sir. We would be 7 pleased to do that. 8 CHAIRMAN CLOWE: Anything further, 9 Mr. Grief? 10 MR. GRIEF: No, sir. 11 CHAIRMAN CLOWE: And, again, we expect 12 other good ideas to be forthcoming that will keep all 13 of us on our toes. Thank you. 14 MR. RIVERA: Thank you, sir. 15 CHAIRMAN CLOWE: We are now ready to go 16 to item number V on the agenda. We're back to 17 charitable bingo. 18 And, Billy, will you take up this rule 19 and issue, please, sir? 20 MS. KIPLIN: Commissioners, can I -- 21 can I interject? I've got the order on the Bingo 22 Advisory Committee rule -- 23 CHAIRMAN CLOWE: Yes. 24 MS. KIPLIN: -- as a housekeeping 25 matter. Can we take that up first? 0119 1 CHAIRMAN CLOWE: Yes, as amended or 2 changed? 3 MS. KIPLIN: Yes, as amended as -- as 4 identified on the record this morning. Just to be 5 clear and to be specific, what the staff is requesting 6 of the Commission today is that you vote to adopt the 7 amendments to 16 Texas Administrative Code, Section 8 402.567, relating to the Bingo Advisory Committee with 9 changes to the proposed taxes published in the Texas 10 Register edition of September 27, 2002. 11 Specifically the changes are to reflect 12 a date, a different date by which the Commission must 13 affirmatively vote to continue the committee or the 14 committee will be abolished. 15 Commissioners, that's by law and 16 there's a statute that requires that be part of the 17 rule in -- 18 CHAIRMAN CLOWE: In fact, that current 19 date is the end of March of this year, right? 20 MS. KIPLIN: That's -- that's correct. 21 Just for a cite, that rule pertinent to that section 22 is 2110.008 of the Texas Government Code. You 23 actually have to amend the rule to provide for a 24 different abolishment date. The new date will just be 25 another year, 2004. 0120 1 And then the next change is to pick up 2 the word that we left out. It's not a substantive 3 change. And then the other one is to provide a 4 section for meetings held outside of Austin subject to 5 the bingo director's discretion. 6 CHAIRMAN CLOWE: And this is covered 7 under item II. And we've had the discussion on that, 8 and you're ready for vote? 9 MS. KIPLIN: Yes, sir, I am. 10 CHAIRMAN CLOWE: So moved. 11 COMMISSIONER COX: Second. 12 CHAIRMAN CLOWE: All in favor please 13 say aye. 14 THE COMMISSIONERS: Aye. 15 CHAIRMAN CLOWE: The vote is 2-0 in 16 favor. 17 We'll sign that order and then, Billy, 18 as soon as we get that accomplished, we'll ask you to 19 begin with item number V. 20 MR. ATKINS: Commissioners, actually if 21 you want to finish item number IV. 22 MS. KIPLIN: I'm sorry. That's my 23 oversight. The number IV is actually affirmatively 24 voting to continue the Bingo Advisory Committee -- 25 CHAIRMAN CLOWE: Oh, and we need to 0121 1 vote on that, right? 2 MS. KIPLIN: -- until March 6th -- 3 you've got the rule in front of you. March -- I think 4 it's March 6, 2004. Am I correct on the date? 5 MR. ATKINS: That's correct. Yeah. 6 MS. KIPLIN: And you actually have to 7 vote. So the motion would be that you move to 8 continue the Bingo Advisory Committee until March 6th, 9 2004. 10 CHAIRMAN CLOWE: So moved. 11 COMMISSIONER COX: Second. 12 CHAIRMAN CLOWE: All in favor say aye. 13 THE COMMISSIONERS: Aye. 14 CHAIRMAN CLOWE: Opposed. 15 The vote is 2-0 in favor. 16 Do you have that order? 17 MS. KIPLIN: No. It's just a vote 18 Pardon me. It's just a vote. 19 CHAIRMAN CLOWE: It's on the record. 20 MS. KIPLIN: Yes, it's on the record. 21 CHAIRMAN CLOWE: Now, Mr. Atkins. 22 MR. ATKINS: Thank you, Mr. Chairman. 23 Again, with your permission, I would like to take up 24 items V, VI, and VII. 25 CHAIRMAN CLOWE: I was hoping you 0122 1 would. 2 MR. ATKINS: They deal with some 3 proposed new rules, and they all sort of interrelate. 4 First, I would like to discuss item V, 5 which actually contains two rules. There is a 6 proposed rule that would repeal the existing 7 charitable bingo administrative rule 402.545 and 8 propose a new administrative rule 402.545. 9 The changes to rule 402.545 represents 10 the division of ongoing efforts to clean up imperative 11 administrative rules and adopt clear and necessary 12 administrative rules. The majority of the language 13 that has been deleted from 402.545 has been moved to 14 either 402.543, general licensing provisions, which is 15 item VI; for 402.583, bonds, which is item VII. 16 And just for your information the staff 17 participates anticipates that in the future the 18 remaining language in 402.545 will eventually be moved 19 to other more appropriate rules as they're adopted. 20 Originally, staff presented one rule to 21 the -- to the Bingo Advisory Committee and that was an 22 amended 402.545. Based on advice from legal, you're 23 being presented with a proposed new rule and a 24 proposed repeal of the existing rule due to the number 25 of amendments that were in 402.545. 0123 1 The language contained in the proposed 2 new rule 402.454 addresses requirements for licenses 3 to conduct bingo and licenses to lease bingo premises, 4 license fees, and language relating to amendments and 5 temporary licenses. 6 Item VI, which is 402.543, general 7 licensing provisions, again contains much of the 8 language that had been in 402.545. The language in 9 402.543 is applicable to all license types, and it is 10 intended to provide both applicants and licensees with 11 important information about the licensing process. 12 Item VII, which is 402 -- proposed rule 13 402.583, bonds, also includes language that had 14 previously been contained in 402.545. The language in 15 402.583 is intended to provide to applicants and 16 licensees, again, with additional information 17 regarding the bonding process. 18 There has been language added to the 19 rule since it was presented to the advisory committee 20 for consideration that addresses bond requirements for 21 manufacturers. 22 The changes to the 402.545 and the 23 proposed new rules for 402.543 and 402.583 were all 24 considered by the advisory committee at their meetings 25 held on November 21st and December 12th, 2002. 0124 1 There were comments received during 2 this informal comment period on 402.545 and 402.543, 3 and we have incorporated those comments in the rule. 4 There were no comments received on 402.583, which is 5 the bond rule. 6 So staff is asking today that you vote 7 to publish all of these rules discussed under items V, 8 VI, and VII for comment in the Texas Register for a 9 period of 30 days, specifically, a vote to repeal the 10 existing rule of 402.545; the proposed new rule 11 402.545, which is licenses for conduct of bingo 12 occasions and for commercial lessor; new rule 402.543, 13 general licensing provisions; and new rule 402.583, 14 bonds. 15 MS. KIPLIN: And that's to vote to 16 propose all -- all those documents or those items for 17 public comment in the Texas Register. In other words, 18 to initiate the rule-making process. 19 CHAIRMAN CLOWE: All right. Now, 20 before I ask Commissioner Cox if he has any questions, 21 if it's all right with you. Mr. Fenoglio had filed an 22 affirmation form wherein he wanted to comment or 23 testify on these rules, if I remember correctly. 24 Counselor, are you going to object to 25 that? 0125 1 MS. KIPLIN: No. This is at the 2 proposed time, and it doesn't create a logistical 3 nightmare for me. 4 CHAIRMAN CLOWE: We might let him 5 comment even if it did. 6 MS. KIPLIN: Yes, sir. I would prefer 7 that he wouldn't. 8 CHAIRMAN CLOWE: Yes, sir. 9 MR. FENOGLIO: Thank you, Chairman and 10 Commissioner Cox. Thank you. And I salute your 11 comments, Mr. Chairman. 12 My comments will be extremely brief. 13 We still have some concerns about some of the proposed 14 rules, but I think we can work them out in the comment 15 period. And we look forward to working those out. 16 CHAIRMAN CLOWE: Well, we thank you for 17 your participation in this and the representative role 18 that you played with the industry. Mr. Bresden was 19 here earlier. I don't see him. I think we've worn 20 him out. 21 But I think in this rule-making 22 process, your efforts and the industry's involvement 23 is the key to the best result that we can have. 24 MR. FENOGLIO: Thank you, Mr. Chairman. 25 CHAIRMAN CLOWE: Okay. Thank you. 0126 1 Can one motion do all this, Counsel? 2 MS. KIPLIN: Yes, I think it's likely 3 it can. 4 CHAIRMAN CLOWE: So moved. 5 COMMISSIONER COX: Second. 6 CHAIRMAN CLOWE: All in favor please 7 say aye. 8 THE COMMISSIONERS: Aye. 9 CHAIRMAN CLOWE: Opposed. No. 10 The vote is 2-0 in favor. 11 Are there orders to sign in this, or is 12 it on the record? 13 MS. KIPLIN: No. This is sufficient. 14 This is just the beginning of the rule-making 15 process. 16 CHAIRMAN CLOWE: Then we may go to item 17 number VIII. 18 Billy, this is going to be an 19 interesting item. I'm looking forward to hearing 20 about this. 21 MR. ATKINS: Thank you, Mr. Chairman. 22 Commissioners, staff is bringing this 23 forward for informational purposes and to seek 24 direction. These two items, again, were discussed by 25 the Sunset Advisory Commission at their November 12th, 0127 1 2002, meeting. Specifically, recommendation 4.2 of 2 the Sunset report directive -- directed the Commission 3 to clarify the definition of charitable purpose and 4 authorized expense. 5 Additionally, under the new issues 6 section, it directed the Commission to conduct a study 7 regarding the conceptive unit accounting, determine if 8 it had merit, and can be implemented without 9 legislation. 10 Again, we discussed these issues with 11 the advisory committee at their December 12th meeting, 12 and there was a section of work groups made up of 13 industry representatives and staff that soon began 14 working on these issues. These work groups met on 15 January 21st and January 24th. And after the meeting 16 of the 24th, the industry representatives went back to 17 meet with their respective memberships and submit 18 additional comments by January 29th. And we have 19 received those comments back. 20 Those meetings so far have resulted in 21 the following findings. In regards to the unit 22 accounting, I think there is a consensus that there 23 is -- that there is merit to the concept as well as a 24 consensus that it would require legislative changes to 25 the Enabling Act in order to implement unit 0128 1 accounting. And as a result of these meetings, staff 2 has prepared a draft of proposed legislation that 3 includes many of the issues that have been discussed 4 at the work group meetings. 5 Additionally, through our discussions, 6 there was an issue raised by an industry 7 representative, and it appears that there may be 8 certainly negative implications to organizations 9 engaging in unit accounting at a federal level. And 10 so those potential negative implications are being 11 further considered by both the staff and the industry. 12 In regards to the use of proceeds, both 13 sides agree that there should be a draft rule ready to 14 present to the advisory committee for first reading 15 for the beginning of the informal process by their 16 meeting on February the 27th. 17 And I just wanted to echo, Commissioner 18 Clowe, something that you said. I also wanted to 19 extend our appreciation to the members of the industry 20 that have come in and sat down and met with us who've 21 taken their time, sometimes days at a time, to attend 22 these sessions and work with staff. And in addition 23 to us being able to work through some issues together, 24 the biggest benefit I think is that there's coming to 25 be an understanding on all sides that a lot of these 0129 1 issues are much more complex than they just appear to 2 be on the surface. And after -- again, after these 3 fact sessions, I think most everybody is coming to 4 understand that we often just can't snap our fingers 5 and -- and make these things occur, that they require 6 work and -- and thoughtful -- thoughtful comment on -- 7 on everyone's behalf, careful consideration, and a lot 8 of work on everybody's part. And I think we're 9 getting there. 10 CHAIRMAN CLOWE: Great. Billy, I think 11 we owe the Sunset staff and some officers on the 12 Sunset committee responses, particularly in these two 13 areas. Are you maintaining that communication and 14 keeping them abreast of where we are? 15 MR. ATKINS: I am, sir, through our 16 governmental affairs officer. And, again, I think -- 17 and I don't want to speak for Mr. Fenoglio because I'm 18 sure that he's quite capable of doing that himself -- 19 but in terms of the unit accounting, which is the one 20 that we really need to move forward to the 21 legislature. I -- my understanding from my last 22 conversations with him, that we are close to having 23 something we can forward on. 24 CHAIRMAN CLOWE: Okay. Well, I -- I'm 25 happy to rely on Mr. Fenoglio for his support and 0130 1 assistance, but I think we made certain 2 representations in our report to the Sunset Committee 3 that we would be forthcoming with our recommendation. 4 So I -- I think we need to be responsive for that. 5 Okay. Glad to hear you're working on that. 6 Next item number IX. Billy, that 7 covers all of your issues on the charitable bingo. Is 8 that right? 9 MR. ATKINS: I don't know if 10 Mr. Fenoglio wanted to -- 11 MR. FENOGLIO: I had asked, 12 Mr. Chairman, to make a brief comment on Roman numeral 13 VIII. 14 CHAIRMAN CLOWE: Oh, you did. Okay. 15 Please, do so. 16 MR. FENOGLIO: Yes, sir. For the 17 record, my name is Stephen Fenoglio. I share Billy's 18 concerns and observations. I think we'll be very 19 close soon on the unit accounting proposal. I don't 20 know what staff have discussed with the legislature, 21 but I know from our side, there have been discussions 22 with the legislature. 23 CHAIRMAN CLOWE: And you remain 24 optimistic on the benefits of that, even though there 25 seems to be a potential IRS problem that has surfaced. 0131 1 MR. FENOGLIO: Yes. If we can resolve 2 the IRS problem, I think it will, to paraphrase it, a 3 timeworn Texas expression, "better than sliced bread," 4 as far as what would be -- what would help the 5 charities. But, I mean, it is and it has to do with 6 perhaps from an IRS perspective establishing the unit 7 accounting concept and the IRS can look at that and 8 say, well, you've lost your tax exemption or now 9 you're subject to unit unrelated business income tax 10 charges and could take -- could swallow all of the 11 benefit. 12 But I believe we've got enough 13 intellectual talent, we can figure that out. But that 14 was an issue that just came out of the blue. And 15 that -- and that's one of the benefits I -- I have 16 foreseen that having a round table discussion like we 17 have with the Commission. We've already had two 18 extensive working groups, meetings on both issues, and 19 that's kind of the -- the synergy that can develop 20 that -- I don't know any -- I don't think anyone of us 21 would have thought about it on our own, but when we 22 were kicking the -- the tires, so to speak. 23 Turning the issue on charitable 24 distribution rule, it's time and my view has -- it was 25 needed a long time. It has become apparent from 0132 1 discussions from our side of the table, if you will, 2 the -- the regulated industry as well as the staff's 3 position as the regulator, that what may seem simple, 4 the devil is in the details, and it is becoming 5 increasingly complex. And I'm still hopeful we can 6 resolve most of our issues. It may at the end of the 7 day, rather than at the end of a several-month period 8 that we can't agree on everything. And I don't think 9 we probably will be able to agree on everything that 10 should be in the rule or should not be in the rule, 11 but we're going to make a lot of progress. 12 CHAIRMAN CLOWE: Great. 13 MR. FENOGLIO: And I applaud the staff 14 for being willing to undertake this effort. 15 CHAIRMAN CLOWE: Great. 16 MR. FENOGLIO: Thank you. 17 CHAIRMAN CLOWE: Any comments, 18 Commissioner Cox? 19 COMMISSIONER COX: No. 20 CHAIRMAN CLOWE: Then let's move on to 21 item number IX, report, possible discussion or action 22 on lottery sales and trends. 23 Toni Smith. Bart Sanchez. 24 Toni, I will ask you to cover item X, 25 advertising and promotions as well, please. 0133 1 MS. SMITH: Commissioners, total year 2 to date sales for weeks ending January the 25th, 2003 3 are 1.2 billion. This is up eight percent from fiscal 4 year 2002 total sales to date of 1.1 billion. Bart 5 and I are both here, and we've attached additional 6 detail sales. 7 And we would be happy to answer any 8 questions that you have about any of this information. 9 CHAIRMAN CLOWE: Commissioner Cox, do 10 you have any questions or comments? 11 COMMISSIONER COX: It's just so nice to 12 hear those numbers in billions. 13 MS. SMITH: Thank you, sir. 14 COMMISSIONER COX: Thank you. 15 CHAIRMAN CLOWE: Well, Toni, I guess 16 I'd have to ask the result of where Texas -- Lotto 17 Texas is. Is it part of, I think, due to the 18 53-million-dollar jackpot, is it? 19 MS. SMITH: Yes, sir. Look at the very 20 last page of the grid where you can actually see when 21 the jackpot -- jackpots occurred and what the jackpots 22 were. 23 CHAIRMAN CLOWE: Yeah. 24 MS. SMITH: Then you can see that our 25 53-million-dollar jackpot was on a Wednesday. Lotto 0134 1 Texas sales then for that week -- excuse me -- were 2 24.7, the previous week 24.4 and as you go backwards 3 and the jackpot amount, reading from the bottom up, 4 they do decrease. 5 CHAIRMAN CLOWE: And though we 6 anticipate, since the jackpot was hit last Saturday 7 night and then again last Wednesday -- 8 MS. SMITH: Yes, sir. 9 CHAIRMAN CLOWE: -- we'll see the same 10 kind of results that we did in the earlier period when 11 the jackpot was again hit at $4 million. 12 MS. SMITH: Yes, sir. And you -- you 13 can see it. It dropped back. In fact, it drops back 14 to about 7.4 when we were at -- at the starting 15 4-million-dollar jackpot. 16 CHAIRMAN CLOWE: And this is the 17 phenomenon that we had a discussion about this 18 morning. 19 MS. SMITH: Yes, sir. 20 CHAIRMAN CLOWE: There's a lot of 21 interest about this, but these are the facts. 22 MS. SMITH: Yes, they are. 23 COMMISSIONER COX: Now, Toni, the sheet 24 that I have doesn't have the January 25th week in it. 25 What is -- what did you say that number was? 0135 1 MS. SMITH: Okay. Well, I thought 2 that -- 3 CHAIRMAN CLOWE: Here it is. 4 MS. SMITH: -- I had put it in there, 5 maybe on the top or your -- 6 CHAIRMAN CLOWE: The most recent in the 7 bold print. 8 MS. SMITH: -- the most current. 9 CHAIRMAN CLOWE: That's it. 10 COMMISSIONER COX: So the 24.7 was for 11 a week that had a 53-million-dollar jackpot for half a 12 week and a 4-million-dollar jackpot for the other 13 half. 14 MS. SMITH: Yes, sir. 15 COMMISSIONER COX: So that's a -- 16 MS. SMITH: Having rolled on that 17 Saturday roll, then we needed a higher number. 18 COMMISSIONER COX: So that's a very 19 mixed bag. 20 MS. SMITH: Yes. 21 COMMISSIONER COX: Do you happen to 22 recall what the sales were before 53 million and after 23 53 million in that week? 24 MS. SMITH: No. I'm sorry, sir, but I 25 can find out for you. 0136 1 COMMISSIONER COX: I heard and -- I was 2 in Dallas, and I heard on KRND that we were selling 3 tickets, I think, at the rate of $11,000 an hour. So 4 it was a pretty rapid pace. 5 MS. SMITH: 33,000. Keith -- 6 COMMISSIONER COX: 33. 7 MS. SMITH: -- Keith has a number for 8 33,000. 9 COMMISSIONER COX: Okay. Thank you. 10 CHAIRMAN CLOWE: You know, so many 11 people who were here this morning have left, and I'm 12 sorry for that. I hope, Keith, that you have the 13 opportunity to point out the point that we're making 14 now that there is a group of players that come and 15 play this game when the jackpot reaches higher levels 16 that apparently gets larger based on these actual 17 numbers than the people who play at the 18 4-million-dollar or low levels. 19 MS. SMITH: Yes, sir. 20 CHAIRMAN CLOWE: These are the numbers, 21 and they just -- I want to make it very clear that our 22 experience is right what we're seeing right here. 23 MS. SMITH: Yes, sir. I think that's 24 what Liz said earlier. She said that players speak 25 with their dollars. 0137 1 CHAIRMAN CLOWE: Yeah, and, you know, 2 the projections that we saw, the study groups, that's 3 all soft evidence. This is hard evidence. 4 COMMISSIONER COX: But they both point 5 in the same direction. 6 CHAIRMAN CLOWE: They both point in the 7 same direction. That's right. I wish we had your 8 report this morning. 9 MS. SMITH: I'm sorry. 10 CHAIRMAN CLOWE: Whose fault was that? 11 MS. SMITH: It was my fault. 12 CHAIRMAN CLOWE: Well, what else, Toni? 13 MS. SMITH: Well, I have nothing new to 14 report on the advertising or commercials. I would be 15 happy to answer any question that you may have. 16 CHAIRMAN CLOWE: Nothing from you, 17 Bert -- Bart? Thank you. 18 Thank you, Toni. 19 We'll go to item number XIII, report, 20 possible discussion and/or action on the legislative 21 appropriations request for fiscal year '04 and '05. 22 Bart, this is yours. Anything? 23 MR. GRIEF: Mr. Chairman, if we could, 24 I would like to defer on that item, and I'll discuss 25 that under my report. 0138 1 CHAIRMAN CLOWE: Very good. Thank you. 2 Item number XIV, report, possible discussion and/or 3 action of the Sunset process involving the agency. 4 Colin, are you going to sit in for 5 Ms. Trevino? 6 MR. HAZA: Mr. Chairman and 7 Commissioner Cox, I'm Colin Haza from the Governmental 8 Affairs staff. And I am appearing on behalf of Nelda 9 Trevino today. 10 We have continued to communicate with 11 and provide information to the Sunset staff. We have 12 been advised that our Sunset bills will be filed by 13 Senators Mike Jackson and Representative Bart 14 Solomons, and that they will be coming very soon. We 15 were further advised that "very soon" does not mean 16 today, and it will be at the first of the week. So as 17 soon as they're filed, we will inform you of that and 18 provide you with copies. 19 I'll be happy to try to answer any 20 questions. 21 CHAIRMAN CLOWE: And your office has 22 set up meetings for us with those legislators, I 23 think, on the 5th of the next month, which is next 24 week. And my understanding is it will be Billy 25 Atkins, Gary Grief, and Nelda Trevino, and myself, 0139 1 assuming that she's well and able to return to her 2 duties. 3 MR. HAZA: That's correct. I believe 4 next Wednesday. 5 CHAIRMAN CLOWE: That's the 5th, then? 6 MR. HAZA: Right. 7 CHAIRMAN CLOWE: Good. All right. The 8 next item is also yours, Colin. Would you cover that? 9 MR. HAZA: The 78th Legislature has a 10 meeting on January the 14th. As of the close of the 11 day yesterday, 1,004 bills and resolutions have been 12 filed. We are currently tracking 37 of those bills. 13 Six bills of particular interest to the agency have 14 been filed. By bill number, they are HB 209, HB 486, 15 HJR 27, HJR 31, SB 178, and SB 217. I'll be happy to 16 summarize any of those bills for you or answer any 17 questions about them if you do have any specific 18 questions. 19 CHAIRMAN CLOWE: We -- we have no 20 questions, and we thank you for keeping us up to date 21 by e-mail on those bills. And I think we're current. 22 I appreciate your attention on that. Thank you, sir. 23 MR. HAZA: Thank you, Mr. Chairman. 24 CHAIRMAN CLOWE: The next item is XVII 25 on consideration of and possible action on the 0140 1 appointment and employment of the internal audit 2 director. The Commission has directed a posting on 3 that to go up today. And we hope we get a number of 4 very fine applicants, and we'll be eager to review 5 those and move forward in that issue. 6 On the next item, I -- my understanding 7 is there is no report. That's item number XVIII. 8 Moving into XIX, Robert, discussion and action on the 9 HUB and minority business status and/or contract 10 management. 11 MR. HALL: Good afternoon, 12 Commissioners. 13 For the record, my name is Robert Hall, 14 director of business, development, and compliance. I 15 have three reports for you by way of activity 16 concerning our division. The first is regarding our 17 contract activity report for the period of September 18 1, 2002 to December 31st, 2002. I want to report to 19 y'all the utilization for HUB. Minority participation 20 continues to climb. Our utilization so far is we've 21 spent over $5.5 million for HUB, which equates to 22 11.25 percent; however, our total spending was over 23 $49.4 million. 24 The second report I have for you is in 25 regard to our mentor project program, which we have no 0141 1 actions to report. However, the Businesses 2 Development, Compliance Division did host it's annual 3 bill orientation and forum, and we shared information 4 with over 85 vendors in the audience regarding our 5 mentor project initiative. And we are happy and 6 pleased with that. We also provided applications to 7 mentors and potential mentors and also potential 8 proteges. And since that time, we've had some 9 inquiries about mentors and many are interested in 10 joining our program. 11 In addition, to that I'm also giving 12 you an update as part of our division's process 13 regarding the contract planning process. As you are 14 aware, the Business, Development, and Compliance 15 Division's current facilitating contract planning 16 process were to attend in meetings, and the objective 17 of those meetings was to identify the task and 18 responsibilities associated with the Commission 19 procurement processes which will assist us in 20 effectively releasing all contracts in a timely 21 manner. 22 We've had four successful meetings on 23 January the 7th, January the 13th, January the 21st, 24 and our last one was just January 27th. All our 25 meetings have been very productive, and we hope to, 0142 1 prior to the next -- next Commission meeting or 2 sometime in March, present to you with a 3 recommendation from the committee on our particular 4 recommendation for rule amendments as well as 5 procedures to be amended as part of our planning and 6 our process of our all our contracts. 7 And I know you haven't had a chance to 8 review the information I've provided for you in the 9 packet, but if you have any questions regarding these 10 topics, I'll be happy to answer those. 11 CHAIRMAN CLOWE: Robert, do we continue 12 in this field of activity to be the third most 13 productive agency in the state? 14 MR. HALL: In regards to HUB and 15 minority utilization? 16 CHAIRMAN CLOWE: Yes. 17 MR. HALL: Yes, sir. I'm going to 18 highlight that for you in the next agenda item as 19 well. 20 CHAIRMAN CLOWE: Press on. Thank you. 21 MR. HALL: Okay. Are you ready to move 22 on? 23 CHAIRMAN CLOWE: Yes, sir. 24 MR. HALL: Our next agenda item is in 25 regards to fiscal year 2002, the minority business 0143 1 participation report, and according to the State 2 Lottery Act, we are required to release a minority 3 business participation report which goes to the 4 Governor and Lieutenant Governor and legislators. 5 I am pleased to report to you as of FY 6 2002, which is a reporting period between September 7 1st, 2001 and through August 31st of 2002, the 8 Commission awarded $18.6 million in contracts and also 9 subcontracts to minority-owned businesses and also 10 HUBs. During this time, our utilization increased in 11 2001 from 11.22 percent to 12.56 percent. This is a 12 total increase from 2001 of 2.1 million dollars. As 13 you -- as you recall, back in 2001, we reported to you 14 that we increased that utilization over $6 million in 15 2001. 16 I'm also pleased to let you know that 17 our minority retailer studies intend to increase. 18 Last year -- I mean, this year we're reporting over 19 5,615 minority retailers still being listed with the 20 Commission as licensed retailers. This equates to 21 34.09 percent. With that in -- with that, 22 Commissioners, I would like to seek your approval for 23 the release of the minority business participation 24 report to the state, which is going -- it's going to 25 require to be printed and hopefully sometime before 0144 1 February 14th. 2 CHAIRMAN CLOWE: Did we have a draft of 3 that, if I remember correctly? 4 MR. HALL: Yes, sir. You have also a 5 copy in your notebook as well. 6 CHAIRMAN CLOWE: Okay. But I -- I 7 hadn't seen it in the notebook. Is it the same as the 8 draft that you sent us? 9 MR. HALL: There is one change I wanted 10 to point out to you that we were going to make on page 11 five of your -- of your notebook, which is fiscal year 12 2002 highlights. And we -- in the report that I gave 13 you in your notebook as well as the draft, where it 14 says that the Commission increases direct spending 15 treasury bonds to the minority- and HUB-owned 16 businesses from $16.5 million to $18.6 million. That 17 was incorrect. That includes all of our spending, 18 which is a subcontracting and also direct spending. 19 The correct numbers of the -- in the report should 20 reflect -- and I'll read this for the record. The 21 Commission increases total direct spending treasury 22 funds to minority- and HUB-owned businesses from $8.4 23 million to over $10.5 million in FY '02. And that is 24 the only change that we have found since we -- we gave 25 you the draft report as well as put it in your 0145 1 notebook. 2 CHAIRMAN CLOWE: So with that 3 correction, you are ready to go forward with the 4 issuance of the report? 5 MR. HALL: Yes, sir. And we've already 6 made that change in the new document, and I've got a 7 new one for your signature, as well. 8 MS. KIPLIN: Commissioners, this 9 actually does require a vote, action and a vote, in 10 which you -- which you move that is an approval of 11 this report. This is y'all's report that then is 12 released over. 13 CHAIRMAN CLOWE: So moved. 14 COMMISSIONER COX: Second. 15 CHAIRMAN CLOWE: All in favor, please 16 say aye. 17 THE COMMISSIONERS: Aye. 18 CHAIRMAN CLOWE: Opposed. No. 19 Vote is 2-0 in favor. 20 What else, Robert? 21 MR. HALL: That's all I have and -- oh, 22 I'm sorry, one additional item. 23 We will be participating in a black 24 caucus. Our initiative for -- on this will be the 25 week of February the 6th. Myself and Mr. Grief will 0146 1 be participating in that, to share information about 2 how our model HUB Program here has been successful 3 with the inclusion of it into the Business, 4 Development, and Compliance Division. So I just 5 wanted to share that with you. 6 CHAIRMAN CLOWE: Robert, I think I can 7 speak for all the commissioners here. We are 8 extremely pleased with the work that's going on here 9 under your leadership and the result that is being 10 produced and, you know, to have the ranking that we do 11 and being as proactive with the mentor, protege 12 program, for example. These are the kinds of things 13 that we need to do in this agency, and we are very 14 pleased at the progress we're making. 15 MR. HALL: Thank you, and we are too. 16 And we think that this year will be more productive, 17 and we're hoping to share some good figures with you 18 next year. 19 Can I get you to sign this letter for 20 me? 21 CHAIRMAN CLOWE: Yes. I've been asked 22 to clarify under item number XVI that I directed that 23 the posting for the executive director be changed or 24 modified as of today. 25 That's all I can read of your 0147 1 handwriting. Is there anything else in this note? 2 MS. KIPLIN: No. Thank you for that. 3 CHAIRMAN CLOWE: Okay. I just want to 4 make sure that we have a record on that. CHAIRMAN 5 CLOWE: You're going to have to improve your 6 penmanship. 7 MS. KIPLIN: That, by the way, was an 8 improvement. 9 CHAIRMAN CLOWE: Robert, do you have a 10 pen with black ink in it, if would you please? 11 MS. KIPLIN: I -- I prefer that you 12 sign in blue, so we can keep a record of what's the 13 original. 14 CHAIRMAN CLOWE: I have a blue pen. 15 MS. KIPLIN: Thank you. 16 CHAIRMAN CLOWE: Courtesy of 17 Commissioner Cox. 18 Thank you, Robert. 19 MR. HALL: Thank you, sir. 20 CHAIRMAN CLOWE: My record indicates we 21 are now to item XXI, report, possible discussion 22 and/or action on the agency demographic study of the 23 lottery. 24 MR. GRIEF: That would be my item, 25 Mr. Chairman. 0148 1 Commissioners, Section 466.021 of the 2 Texas Government Code states that the executive 3 director of the Texas Lottery Commission shall, every 4 two years, employ an independent firm experienced in 5 demographic analysis, conduct a demographic study of 6 our lottery players. The study must include the 7 income, age, sex, race, education, and frequency of 8 participation of players. The executive director 9 shall report the results of this demographic study to 10 the Commission, the Governor, and the legislature 11 before the convening of each regular legislative 12 session. 13 The agency complied with this 14 requirement, and we used the services of the Office of 15 Survey Research in the College of Communications at 16 the University of Texas to prepare the 2003 17 demographic study. 18 The results of the study provided 19 insight into the way that Texans play the Texas 20 lottery and the findings were similar to previous 21 surveys done in past years. We reported the results 22 of the study to the appropriate offices by the 23 mandated deadline, and the study is also available on 24 our agency web site. 25 Some highlights of the study. We found 0149 1 that approximately 56 percent of all adult Texans have 2 played at least one Texas lottery game in the past 3 year. 4 CHAIRMAN CLOWE: That's down from a 5 higher in a prior period. 6 MR. GRIEF: Down slightly from the 7 study that was done in 2001. 8 CHAIRMAN CLOWE: What was the number 9 then? 10 MR. GRIEF: I don't have that number 11 handy. 12 CHAIRMAN CLOWE: I believe it was 60 13 percent. 14 MS. SMITH: I'll go get a copy of that. 15 MR. GRIEF: Yeah, write that number 16 down. 17 CHAIRMAN CLOWE: I would like that on 18 the record. 19 MR. GRIEF: And although it was down 20 slightly as you mentioned, Mr. Chairman, the results 21 also indicated an increase in the amount of reported 22 participation of our instant scratch off tickets, 23 which coincides with increased sales that we've seen 24 in that particular product. 25 According to the study, those Texans 0150 1 with the lowest level of education and income were 2 least likely to play Texas lottery games, and that is 3 consistent with past findings and despite some 4 perceptions out there to the contrary. We have 5 consistently encouraged our players to play 6 responsibly, and this finding supports the contention 7 that we've done a good job of getting that message 8 out. 9 Our communications director, Keith 10 Elkins, has also taken the necessary steps to get this 11 information out to the media. On January 13th, Keith 12 and his staff hand-delivered copies of the demographic 13 study, along with a cover letter from Keith, 14 highlighting the significant findings to members of 15 the Capital Press Corps. And a similar series of 16 e-mails and faxes were also sent to the statewide 17 media organizations advising them of the ability of 18 the study and also that the study was also available 19 on our agency web site. 20 In addition, Keith's staff prepared a 21 video news release on the results of the study, and 22 that was also released to the media. 23 And that was concludes my report on the 24 demographic study. I'd be happy to try and answer any 25 questions you might have. 0151 1 CHAIRMAN CLOWE: Gary, I think it's -- 2 it's very important to highlight the fact that the 3 majority of the players are not those individuals that 4 are commonly perceived to be the most frequent 5 players. You do that in your cover letter for this 6 report, and the statistics bear that out. I'm glad 7 that you're working with Keith and that you're 8 highlighting that information throughout the state. I 9 think it's important that people who like or don't 10 like the lottery understand who the players are and 11 deal with the facts and this is a move, a strong move 12 in that direction. 13 MR. GRIEF: Yes, sir. 14 CHAIRMAN CLOWE: Thank you. Now, I 15 think we are to your report. We covered the executive 16 session. 17 MS. KIPLIN: Commissioners, I think 18 Mr. Grief has a note to answer your question on the 19 demographic study from last year. 20 MR. GRIEF: That number was 63 percent 21 last year. 22 CHAIRMAN CLOWE: I -- I remembered it 23 as being almost a third of the people in the state, 24 and I think that's a significant shift. Although, as 25 you pointed out, people are playing more often as 0152 1 indicated by the revenue increase. It dropped and I 2 think that's significant from 63 percent to our 3 current level. 4 Do you have any thoughts on that, 5 Commissioner Cox? 6 COMMISSIONER COX: Well, I want to be 7 sure I understand the statistic. Is it the number of 8 people that played in any one of our games whether 9 on-line or instants? 10 MR. GRIEF: Correct, Commissioner. 11 COMMISSIONER COX: So our sales are 12 flat. 13 MR. GRIEF: Sales were up slightly. 14 COMMISSIONER COX: Up slightly. Up 15 pretty nicely in the instant tickets, down somewhat in 16 Lotto Texas. And what were the demographic groups in 17 which we experienced the dollar influence? 18 MR. GRIEF: I don't have the report in 19 front of me, but I can have that a little later. 20 COMMISSIONER COX: I guess, that's the 21 question I have, Mr. Chairman. 22 CHAIRMAN CLOWE: The most frequent 23 player, if I remember, is an Anglo male that has some 24 college and is creating an annual income in excess of 25 $35,000. 0153 1 MR. GRIEF: Toni, do you have the 2 report? 3 MS. SMITH: Yes, sir, I do. 4 MR. GRIEF: Can you come forward and 5 quote us some increases, please? 6 MS. SMITH: If you can repeat the 7 question on which -- which information we're looking 8 for. 9 CHAIRMAN CLOWE: Commissioner Cox's 10 question was who's the -- the player. 11 MS. SMITH: Do -- I -- 12 COMMISSIONER COX: Who's up in terms 13 of -- we're down in percentage of participation. 14 We're flat to up in dollars. What demographic is up 15 in dollars? 16 MS. SMITH: The way the study is broken 17 down, I -- I can give you the demographic of each of 18 those components. I haven't found the chart yet 19 that -- that answers all of that in one question so... 20 MR. GRIEF: Would you like us to come 21 back to that item, Mr. Chairman, or do you just want 22 to -- 23 CHAIRMAN CLOWE: Well, if you have time 24 to maybe break it down. 25 MR. GRIEF: Sure. 0154 1 CHAIRMAN CLOWE: We'll give you a 2 minute. 3 MS. SMITH: Okay. 4 CHAIRMAN CLOWE: Then we'll go on to 5 your report under item XXVI, Gary, please. 6 Do you have the feeling that we ought 7 to have laptops in front of us? 8 COMMISSIONER COX: I do. 9 CHAIRMAN CLOWE: Everybody's got one 10 but you and me. Well, Jim and Bart and Toni don't. 11 We feel better now. 12 MR. GRIEF: Commissioners, I've asked 13 Bart Sanchez, the director of financial 14 administration, and Jim Richardson, our -- our 15 director of human resources and Toni Smith to come 16 forward to brief you on the agency's financial and 17 operational status, FTE status, and retailer forums. 18 However, before they make their report 19 on my behalf, I would like to share with the 20 Commissioners some information about two particular 21 items of interest. The first is regarding our 22 agency's efforts to comply with the recent budget cut 23 request that we received from the Governor, Lieutenant 24 Governor, and Speaker of the House. As you know, our 25 agency along with other state agencies and 0155 1 institutions of higher education received a letter 2 last week from the leadership that asked us to reduce 3 our FY '03, our current fiscal year, spending by at 4 least seven percent. And a formalized plan to meet 5 that mandate must be turned in by February 6th. 6 Working with Billy Atkins and other 7 senior agency management, we immediately put in place 8 several agency directives pending the outcome of our 9 own internal budget evaluation and the submission of 10 our agency's final plan on the 6th. We halted 11 out-of-state travel not statutorily necessary or 12 reimbursed for by a third party. We discontinued 13 capital purchases on necessary and statutory 14 obligations. We put a hiring freeze in effect for 15 nonessential personnel, and we discontinued entering 16 into or we curtailed as inappropriate those service 17 contracts for consultants or other professional 18 services that aren't necessary to meet statutory 19 obligations. 20 And although our plan has not yet been 21 finalized, the agency has already identified a 22 significant amount of potential savings in FY 2003, an 23 amount that I believe will exceed the seven percent 24 requirement. 25 I would be happy to answer any 0156 1 questions that you might have on that particular item. 2 CHAIRMAN CLOWE: Gary, thank you and 3 good work on behalf everyone, and we'd like to be kept 4 up-to-date to see where you finally end up in that 5 process. 6 MR. GRIEF: Yes, sir. The second time 7 item I would like to brief you on concerns our 8 agency's 2004, 2005 legislative appropriations 9 request. We have initiated meetings and held meetings 10 over the past few weeks with both the governor's 11 office of budget and planning and staff on the 12 legislative budget proposal. And these meetings were 13 to discuss further refinements that we need to make to 14 our budget requests for the upcoming biannual. We 15 proposed substantive changes to the manner in which we 16 lay out our appropriations request, changes that we 17 feel benefit both the agency and the state by using a 18 modified format, based on the governor's recently 19 suggested new format, a format that would clearly 20 identify and separate out for us routine state agency 21 costs versus lottery specific contractual and unique 22 costs. 23 To eliminate confusion, we also agreed 24 in these meetings that we would use sales and revenue 25 estimates that would come out of the comptroller's 0157 1 office in the form of their biannual revenues. But we 2 also proposed a new component for rider four that, if 3 we can get approval for that, would provide the agency 4 some additional flexibility if sales exceed the 5 biannual revenue estimate. And both the LBB and the 6 governor's office were receptive to our idea's at the 7 time. 8 Subsequent to those meetings, we 9 received a letter from Mr. John Keel, director of the 10 LBB on January 29th. And in his letter, Mr. Keel 11 requested that agencies and institutions of higher 12 education utilize a different format for the 2004, 13 2005 budget requests. It's a format that focuses 14 first on identifying the agency's corps functions and 15 mission and essential services, and then you build up 16 your budget from that foundation in a priority order. 17 Yesterday I met with senior agency management, and we 18 wanted to talk about these new instructions. And we 19 have already begun to develop some of the components 20 that are not in question. However, we still have 21 several questions for the LBB staff to help clarify 22 some of the instructions that were in Mr. Keel's 23 letter. 24 Once we put together our agency's 25 revised budget request, I plan on seeking Commission 0158 1 approval even if only on an individual commissioner 2 basis before going forward. I anticipate having our 3 agency's revise the budget request, prepare it and 4 approved by commissioners before our legislative 5 budget hearings take place, and that concludes my 6 report on that item. I would be happy to answer any 7 questions that you have. 8 COMMISSIONER COX: Mr. Chairman, I've 9 been working with Gary and TC and Bart and Daniel on 10 these items and I think these are really important 11 steps that we are making in narrowing down the numbers 12 that we use so that they're jiving with numbers that 13 the folks on the hill use, eliminating some of these 14 discrepancies and reconciling items and clarifying our 15 budget so that it points out that, yes, we're a state 16 agency, but we're also a business. And here's the 17 business side, and here's the state agency side. 18 I'm -- I'm real pleased with what we're doing. 19 CHAIRMAN CLOWE: That's great. And 20 thanks to all of you for your good work and especially 21 Commissioner Cox to you for your involvement. It 22 gives me a great deal of comfort with your background 23 to have you helping Gary and Bart and TC and all the 24 others, the kind of involvement that you don't 25 ordinarily have, and we're grateful for it. 0159 1 Thank you, Gary, and all of your staff. 2 MR. GRIEF: Yes, sir. I would like to 3 now turn it over, first, to Bart Sanchez. 4 MR. SANCHEZ: Commissioners, the amount 5 of transfers to the state -- 6 THE COURT REPORTER: Can you turn 7 your -- 8 CHAIRMAN CLOWE: I don't believe your 9 mike is on, Bart. 10 MR. SANCHEZ: Commissioners, the total 11 amount of transfers to the state for the month of 12 January was $75.5 million. That's all I have. If you 13 have any questions, I'll be happy to ask concerning 14 the money transfer to the state. 15 CHAIRMAN CLOWE: Thank you. 16 MR. SANCHEZ: I guess, concerning the 17 operating budget, I think it goes in line with what 18 Gary said, that we're looking and reviewing our budget 19 situation. 20 MR. GRIEF: Jim. 21 MR. RICHARDSON: Commissioners, we have 22 what was submitted in your earlier notebook. If there 23 are any questions, I would be happy to answer that. 24 CHAIRMAN CLOWE: My understanding is 25 that you have stepped back from any hiring other than 0160 1 essential. 2 MR. RICHARDSON: Yes, sir. 3 CHAIRMAN CLOWE: I hope we don't hire 4 anybody that's not nonessential anytime. If there's 5 anybody that wants to volunteer as being nonessential, 6 I -- we're going to have -- you know, when they have a 7 snow day up north, they all say all nonessential 8 people can leave. I'm always curious as to who 9 leaves. Thank you, Jim. 10 MR. GRIEF: Toni. 11 MS. SMITH: Commissioners, I'm happy to 12 report with regard to our retailer town meeting 13 program. I had mentioned that previously we were 14 looking at a revamping of that whole program and 15 yesterday was the first of our what we now call 16 retailer partnership meetings that we hold in the 17 McAllen district. And Frank Coniglio and Arden Reid 18 and I visited with a smaller group of retailers in -- 19 in a more informal format at a conference room. We 20 had about 13 or 14 retailers in attendance and had a 21 very open discussion about the marketing tools we give 22 them, our advertising, report performance of the sales 23 reps, just an array of different discussions. 24 The agenda was literally based on 25 questions to start conversations and then we went 0161 1 forward from there and it was a very productive 2 meeting. We touched on everything from the type of 3 Spanish language we use in our -- our brochures, that 4 it was a little too formal and that we needed to lean 5 towards more of a Tex Mex version of the Spanish 6 language, to different types of point-of-sale and 7 things that reps can do to help them enhance their 8 sales. So we think it's going to be a very successful 9 format for us. 10 We will continue to do the -- the 11 quarterly full-blown retailer town meetings four times 12 a year, but this format will still give us the same 13 feedback that we were getting from the others, but 14 they're a much smaller group. 15 MR. GRIEF: Commissioners, I want to 16 add. I'm -- I'm very proud of Toni and her staff. 17 I -- I asked them to put their thinking caps on and 18 come up with very effective smaller group-type setting 19 that we could actually sit down and have some rapport 20 with our retailers, and this is the first one of these 21 types of meetings that were held. And from what I 22 understand, we did get some meaningful information 23 shared. And I appreciate the work and the thought 24 that went into that from Toni. 25 CHAIRMAN CLOWE: Great. I think that 0162 1 interface with our retailers is extremely important 2 and if the smaller group works better -- 3 MS. SMITH: It did. 4 CHAIRMAN CLOWE: -- that's great. I 5 think we need to continue that reaching out because I 6 think our retailers need to see Texas Lottery 7 Commission people, in addition to the GTECH people 8 that they see. 9 MS. SMITH: GTECH was there represented 10 also. It was good because they actually asked some 11 questions about their own sales staff. 12 CHAIRMAN CLOWE: Sure. 13 MS. SMITH: That was -- is just 14 beginning to occur and so that -- that made it a 15 productive meeting for them also. 16 CHAIRMAN CLOWE: I would think you 17 would always want to have them there, but I think, you 18 know, they need to see you others like you from time 19 to time. 20 MS. SMITH: Well, our plan is to 21 continue these meetings on a monthly basis, with the 22 exception of those four larger meetings that will 23 happen. We will keep the Commission abreast of those 24 schedules. 25 CHAIRMAN CLOWE: Let us know ahead of 0163 1 time so that if it's possible, we can arrange to drop 2 in and be there. 3 MS. SMITH: Sure. And, if I may, I -- 4 I can some of the highlights of those demographic 5 studies. Regarding the age of Texas Lottery players, 6 they follow the age range of 26 to 55 years, with 7 approximately 64 percent in this age group. 8 Approximately 11 percent of lottery players comprise 9 the youngest age range 18 to 25. Adult Texans over 65 10 years of age represent the least frequent players. 11 Regarding education, contrary to 12 popular belief, it is not the least educated who play 13 the lottery. In fact, this study, again, suggests 14 that those are the lowest level of incomes and are 15 least -- least likely to play the Texas Lottery games. 16 These statistically significant findings replicate 17 2001, 1999, 1999 -- '97, and our 1995 study. So we 18 continue to get the same reporting there. College 19 graduates, excuse me, and those with some college 20 education make up 35 and 32 percent respectively were 21 the mostly likely to play lottery games. Only eight 22 percent of the lottery players population has less 23 than a high school education. 24 Similar to education is the myth that 25 the lowest income levels are the most likely to play 0164 1 the lottery games. Again, the studies show that those 2 are the lowest income levels and are the least likely 3 to play the lottery. These results also are 4 replicated in previous studies. 5 Texans most likely to pay are those 6 with earnings of 50,000 or more, followed by the 7 segment reporting household income between 30,000 and 8 49,999. The most reported family income for players 9 is very similar to the findings in the 2001 survey, 10 which was our last survey. Players with incomes less 11 than $10,000 are the least likely group to play the 12 lottery games, followed by Texans with family incomes 13 of ten to 19,000 dollars. Adult Texans earning 50,000 14 or more per year are the most likely to play all 15 lottery games, and there is a breakdown in -- in the 16 report. Commissioners, I know you've gotten it, but 17 if you would like additional copies, we can give you 18 the details of those percentages. 19 MR. GRIEF: Is that the statistic, 20 Commissioner Cox, that -- 21 COMMISSIONER COX: No, it isn't. 22 MS. SMITH: I haven't gotten to that 23 one yet? 24 COMMISSIONER COX: Okay. Toni, what I 25 was asking was in terms of dollars, and not in 0165 1 numerical participation, in terms of dollars. Do we 2 know that we're down about seven percent, I think, 63 3 to 56 in the percentage of people who play. Yet we're 4 up a little bit in dollars, and I was asking if you 5 could spot the disparity between numbers and dollars 6 and what demographic is involved. 7 CHAIRMAN CLOWE: I think you would have 8 to go back to the prior report and compare it by 9 category to answer that question. 10 MS. SMITH: But we can do that. We 11 can -- we can do that. The closing -- the summary may 12 answer some of your questions. Although this current 13 study indicates a decrease in overall participation, 14 data did show that spending for individual games had 15 increased. As stated previously, this increase in 16 spending might be attributed to the changes in the 17 instant game strategy, the addition of the midday draw 18 for Pick 3, and modifications for the Cash Five game. 19 The demographics of players of the Texas Lottery game 20 demonstrate that adult Texans of middle to upper 21 income -- well, that's just reiterating what I had 22 said, but I -- I agree with Chair Clowe. We can go 23 back and do a comparison of the two. 24 CHAIRMAN CLOWE: That's for 25 Commissioner Cox. 0166 1 COMMISSIONER COX: That's seems right. 2 CHAIRMAN CLOWE: That's good numbers. 3 What's the source of the sample? How is it drawn? 4 MS. SMITH: The survey methodology, the 5 questionnaire drafted by the staff of the Office of 6 Survey Research in consultation with Texas Lottery 7 officials who Doctor Liz Jambora wrote the report. A 8 final copy of that questionnaire goes to them. It's 9 also translated in Spanish to allow Spanish 10 participation. Then a random sample is obtained to 11 allow each household with a telephone to participate, 12 and then there is a total of 1,715 interviews 13 completed with adult Texans 18 years of age or older. 14 And they're actually selected by using their last 15 birthday to ensure that -- that they are, in fact, 18 16 years of age. The overall response rate to the survey 17 is 63 percent. 18 CHAIRMAN CLOWE: 63? 19 MS. SMITH: 63, which statistically is 20 an acceptable response rate. The margin of error for 21 a sample of 1,715 was approximately plus or minus a 22 2.4 percent, which is again acceptable, and the survey 23 results are committed unweighted by demographic data 24 and for each of the Texas lottery games. 25 COMMISSIONER COX: Toni, have we always 0167 1 used this school of communication to do this. 2 MS. SMITH: We -- we have, and I -- and 3 I want to say it's by -- it's by interagency contract. 4 MS. KIPLIN: That's correct. It is by 5 interagency contract. 6 COMMISSIONER COX: Is it inappropriate 7 to ask the Bureau of Business Research at UT and the 8 business school to give us a proposal also and see if 9 they -- they might look at it a little differently and 10 give us a fresh look? 11 MS. KIPLIN: No. There's nothing 12 inappropriate about going out and searching for 13 other -- other vendors or other parties to do the 14 contract. This was actually by the Office of Survey 15 Research in the college of communications, but there 16 is nothing wrong with that at all. 17 MS. SMITH: Would you like for us to 18 look into doing an additional study with business -- 19 COMMISSIONER COX: Not an additional 20 study. But next we're year when we're doing this same 21 one, if we could ask the Bureau of Business Research 22 to give us their thoughts on how it could be done and 23 the school of communication do the same. And we can 24 rotate it around a little bit. 25 MS. SMITH: Okay. We can do that. 0168 1 MR. GRIEF: Commissioner Cox, the study 2 is only required every two years, but I -- if. 3 COMMISSIONER COX: Maybe we can do it 4 next time. 5 MR. GRIEF: Maybe -- maybe we can talk 6 about something in the interim. 7 MS. SMITH: Or an annual where we would 8 rotate that way. 9 MR. GRIEF: And we have a pending 10 request from you for some follow-up information. 11 We'll make sure that you get it. 12 COMMISSIONER COX: Thank you. 13 MR. GRIEF: Commissioners that 14 concludes my report. 15 CHAIRMAN CLOWE: Very good. Thank you 16 all. 17 MS. KIPLIN: Commissioners, we did -- 18 CHAIRMAN CLOWE: I know. I know. Just 19 let me get back to it. I found it before you did. 20 Mr. Anger, item number XXII, the 21 Commission's business plan. 22 MR. ANGER: Good afternoon, 23 Mr. Chairman, Commissioner Cox. For the record, my 24 name is Michael Anger. I'm the acting director of 25 lottery operations. I'm here this afternoon to give 0169 1 you a brief progress report on the status of the 2 Commission's business plan. 3 My last briefing with you, I indicated 4 my interest in using the agency's mission statement as 5 starting point for this project. Subsequent to that 6 discussion, I began researching mission statements 7 from various organizations including Texas state 8 agencies, other lottery and state gaming commissions 9 and Fortune 500 companies. I recently compiled this 10 information, shared my findings with a group of agency 11 staff, including acting executive director, Gary 12 Grief. 13 The purpose of this meeting was to 14 generate discussion of the existing Lottery's mission 15 statement. Mr. Grief and the Commission stated it 16 should be further evaluated for possible revision. 17 As you're aware, the charitable bingo 18 division has a separate mission statement that 19 recently underwent the same type of analysis and was 20 subsequently revised. I have met with Billy Atkins, 21 the charitable bingo operations director, discussed 22 the planned review of the Lottery's mission statement 23 and Billy has agreed to take part in these 24 discussions. But then we also leaned toward a few of 25 our philosophy statements for stylistic changes to the 0170 1 agency's mission statements. 2 I plan to schedule ongoing meetings to 3 finalize these proposed changed to this language found 4 in the agency's strategic plan, and upon completion, 5 any proposed changes will be submitted for your 6 consideration and approval. It is my goal to move to 7 this process to the development of business plans by 8 finding our key objectives and strategies as they 9 relate to our mission. 10 This concludes my report, and I'd be 11 glad to hear any comments or feedback that you might 12 have. 13 CHAIRMAN CLOWE: Good work. Thank you 14 very much. 15 MR. ANGER: Thank you. 16 CHAIRMAN CLOWE: Now, Mr. Atkins, I 17 believe we're to you. Item number XXVII, last but not 18 least. 19 MR. ATKINS: Thank you, Commissioners. 20 We are preparing to fill a vacancy in our Houston 21 regional office for an audit manager. We are 22 expecting to make an offer on that position very soon. 23 In regards to the charitable bingo 24 system redesigned, we have received the revised 25 project plan from the company and it has a projected 0171 1 roll out date of May 30th. The staff is continuing to 2 work on test scripts, and currently staff is scheduled 3 to begin user acceptance testing on Monday. So that 4 project is moving along. The mock conversion is also 5 scheduled to occur this weekend as well. 6 On the Bingo Advisory Committee, as you 7 are aware, the meeting had tentatively been scheduled 8 for yesterday was cancelled due to scheduling 9 conflicts and now tentatively scheduled for February 10 27th. 11 Quarterly reports for the fourth 12 quarter of 2002 were due on January 15th. Those are 13 coming in, and they are being processed. I did want 14 to let you know that preliminary figures show as 15 you'll recall, Commissioners, you'll approve changes 16 to the pull-tab rule in the August, September area 17 time period last year, which meant that that rule was 18 in effect for the fourth quarter of 2002. And we are 19 seeing some fairly substantial increases in our 20 pull-tab sales and as well as hearing very positive 21 comments back from licensees, some of who are 22 reporting that their sales has, in some cases, 23 tripled. So we're happy to see those -- those 24 increases occur. 25 CHAIRMAN CLOWE: So that worked? 0172 1 MR. ATKINS: Apparently, it did. Yes, 2 sir. And we've actually -- we've actually had 3 conversations with some of those organizations that 4 are reporting those -- their sales tripling, they had 5 agreed to working with us to let us share their 6 particular sales techniques with other organizations. 7 So we're incorporating those techniques and the 8 operator training program as well as preparing an 9 article for the Bingo Bulletin so that all of the 10 organizations will have -- 11 CHAIRMAN CLOWE: Spread the good 12 process around, Billy. 13 MR. ATKINS: Yes, sir. -- will have 14 the benefit of that. 15 We conducted last week two conferences 16 for our veterans organizations, both the VFW and the 17 American Legion held their mid-winter conferences on 18 the 23rd of last week. And, again, this was the 19 second time where we where offered our operator 20 training program in conjunction with their 21 conferences, and I believe there were approximately 22 140 individuals that attended that conference. So we 23 find that very beneficial. We have staff here 24 available. They're here anyway for the conference so 25 it gives a lot of the organizations an opportunity to 0173 1 get that training done and out of the way. 2 We have right now approximately 18 3 operator training programs scheduled throughout the 4 state through June of this year. And then there are a 5 number of articles that you have relating to 6 charitable bingo and the U.S. and -- and globally and 7 there were just, I guess, two broad categories that 8 seemed to come up repeatedly. One dealt with smoking 9 bans and the -- the states of New York and several of 10 the Canadian provinces are instituting smoking ban 11 that, in many cases, affect bingo halls. And the 12 concerns raised by those organizations are similar to 13 the concerns we hear -- that we hear in Texas when 14 cities impose smoking ordinances, one of which is 15 Dallas that has one in consideration subject to vote. 16 COMMISSIONER COX: They have. 17 MR. ATKINS: Have -- have they voted to 18 adopt it? 19 COMMISSIONER COX: They voted to adopt 20 it last week. 21 MR. ATKINS: Okay. The organizations 22 have in the past had -- swearing that it would 23 adversely affect their attendance because there seems 24 to be a tendency among the bingo players to often be 25 smokers. And I don't know that we have any actual 0174 1 information to back that up, but it does seem to 2 becoming more and more common. 3 COMMISSIONER COX: Billy, the -- there 4 was a time in Las Vegas where it was believed that you 5 couldn't possibly have nonsmoking sections in casinos. 6 Now, their entire casinos are smoke-free. 7 MR. ATKINS: There are a great number 8 of bingo halls I know of that have nonsmoking 9 sections. But like with a lot of casinos that may 10 have nonsmoking, it's been hard for me to tell them 11 apart between the smoking and the nonsmoking. 12 The other thing, Commissioners, is 13 there are stories on a number of enforcement cases 14 that occurred in North Dakota and particularly in the 15 state of Ohio that I thought you might be interested 16 in. As you know, Texas is involved with the North 17 American Gaming Regulators Association even though 18 we're not going to be able to attend their upcoming 19 meeting in Winnipeg. I'm still working with my 20 co-chair, Simone Syrenne who is with the Manitoba 21 Gaming Commission on putting those -- those sessions 22 together, and we're actually trying to obtain speakers 23 from those two jurisdictions because there is a 24 session on audit and fraud cases. And it seems like 25 the articles, if you'll read them, would be very 0175 1 interesting for other jurisdictions to have access to. 2 And that, Commissioners, is my report. 3 I'd be happy to answer any questions. 4 CHAIRMAN CLOWE: Is there anyone 5 wishing to make comment to the Commission at this 6 time. 7 Commissioner Cox, do you have any 8 anything further? 9 COMMISSIONER COX: No, I do not. 10 CHAIRMAN CLOWE: We would like to 11 tentatively set the next meeting day at this time. 12 It's not possible to do this precisely because 13 Commissioner Whitaker is absent, but I think the 14 Commission is focused on trying to meet the third week 15 in February, the week beginning of Monday the 17th, 16 sooner, if possible, depending on some activities that 17 are going on. I believe at this point, that's about 18 the best we can offer in the way of advice on the next 19 meeting, unless you feel differently about it. 20 COMMISSIONER COX: Monday of that week 21 is President's Day. 22 CHAIRMAN CLOWE: That's right. 23 COMMISSIONER COX: That is a state 24 holiday. 25 CHAIRMAN CLOWE: Yeah. That is -- that 0176 1 is a state holiday. We will be forthcoming with that 2 information as soon as we have it. 3 And what is the requirement, Kim, on 4 publishing the agenda in the Texas Register? 5 MS. KIPLIN: I need no less than seven 6 days notice. You can't count the day you post and you 7 can't count the day of the meeting. So essentially 8 what you do is you look -- look at what day you want 9 and you look up to the week before and move over a 10 day. 11 CHAIRMAN CLOWE: Yeah. 12 MS. KIPLIN: That's the trick. 13 CHAIRMAN CLOWE: Yeah. Okay. Well, 14 we'll -- we'll try to make those determinations as 15 soon as we can. I know Commissioner Whitaker is in 16 the process of moving her law firm, and she has some 17 commitments. We'll just work on that and give 18 everybody as much notice as we can. 19 Is there any further business to come 20 before the Commission at this time? 21 We are adjourned then at 3 p.m. 22 Thank you-all very much. 23 (Adjourned.) 24 25 WRIGHT WATSON STEN-TEL 0177 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, SHELLEY N. JONES, Certified 7 Shorthand Reporter in and for the State of Texas, do 8 hereby certify that the above-captioned matter came on 9 for hearing before the TEXAS LOTTERY COMMISSION as 10 hereinafter set out, that I did, in shorthand, report 11 said 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 16 Witness my hand on this 11th day of 17 February, 2002. 18 19 20 ________________________________ Shelley N. Jones, RPR, CSR #8058 21 Expiration Date: 12/31/04 1609 Shoal Creek Boulevard, 22 Suite 202 Austin, Texas 78701 23 (512) 474-4363 24 25 JOB NO. 030131SNJ WRIGHT WATSON STEN-TEL