0001 1 2 3 4 * * * * * * * * * * * * * * * * * * * * * * * * * * * 5 6 TEXAS LOTTERY COMMISSION 7 MEETING 8 9 March 27, 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 27TH day of MARCH, 21 2003, from 8:30 a.m. to 3:52 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 Executive Director: Mr. Reagan E. Greer 9 Deputy Executive Director: 10 Mr. Gary Grief 11 Director, Charitable Bingo Operations Divisions: Mr. William L. Atkins 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 INDEX 2 3 Appearances....................................... 2 4 5 AGENDA ITEMS 6 ITEM NUMBER I.................................... 4 ITEM NUMBER II................................... 28 7 ITEM NUMBER III.................................. 34 ITEM NUMBER IV................................... 36 8 ITEM NUMBER V.................................... 37 ITEM NUMBER VI................................... 60 9 ITEM NUMBER VII.................................. 60 ITEM NUMBER VIII................................. 60 10 ITEM NUMBER IX................................... 63 ITEM NUMBER X.................................... 66 11 ITEM NUMBER XI................................... 68 ITEM NUMBER XII.................................. 7 12 ITEM NUMBER XIII................................. 100 ITEM NUMBER XIV.................................. 101 13 ITEM NUMBER XV................................... 76 ITEM NUMBER XVI.................................. 79 14 ITEM NUMBER XVII................................. 81 ITEM NUMBER XVIII................................ 98 15 ITEM NUMBER XIX.................................. 101 ITEM NUMBER XX................................... 84 16 ITEM NUMBER XXI.................................. 92 ITEM NUMBER XXII................................. 97 17 ITEM NUMBER XXIII................................ 97 ITEM NUMBER XXIV................................. 105 18 19 Reporter's Certification......................... 106 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL 0004 1 March 27, 2003 2 Texas Lottery Commission Meeting 3 CHAIRMAN CLOWE: Good morning. It is 4 8:30 a.m., March the 27th, 2003. Commissioner 5 Whitaker and Commissioner Cox are here. My name is 6 Tom Clowe. We'll come to order. 7 I want to begin our meeting this 8 morning with Item Number XII, which is consideration 9 of and possible and/or action including adoption on 10 the repeal of 16 TAC 401.305 and/or on new rule 16 TAC 11 401.305, relating to Lotto Texas on-line games. 12 MS. KIPLIN: Commissioners, you have 13 had an opportunity to look at the comment that was 14 submitted in response to the proposed rule that 15 you-all voted to propose at your January 31st 16 commission meeting. That proposed rule as well as the 17 proposed repeal of the Lotto Texas rule were published 18 in the February 14th issue of the Texas Register. 19 Comment period ended March 16th. 20 The commission, as I had indicated, did 21 receive a comment. You have reviewed that comment. 22 You've also reviewed the draft rules both for repeal 23 and for adoption of the new rule. As -- as you've 24 seen, the agency responses are contained in there. 25 You've had an opportunity to consider that. The staff 0005 1 is at a point now of recommending that you do adopt 2 both the repeal of the existing Lotto Texas rule, 3 which is 16 Texas Administrative Code 401.305 and 4 adopt new rule, 16 Texas Administrative Code 401.305, 5 which is the Lotto -- the new Lotto Texas rule, which 6 will implement changes. Specifically, I guess the 7 biggest change is the two-field matrix. 8 As you've -- as you've seen, the 9 majority of the comment that's been submitted by the 10 interests of persons is in opposition to the change. 11 And the reasons for their opposition where they've 12 expressed it are contained as part of the rule-making 13 preamble. 14 The staff recommend that you adopt with 15 two different effective dates. The repeal effective 16 date would be May 3rd of 2003. And I'm looking at 17 Mr. Tirloni to keep me straight on the dates. And the 18 effective of the adoption of the new rule would be May 19 4th, 2003. With regard to the transition issue, your 20 order indicates very clearly that those players that 21 purchased tickets under the old rule obviously will 22 claim under the provisions of the -- of the old rule. 23 And those that purchased them under the provisions of 24 the new rule will claim under the provisions of the 25 new rule. 0006 1 At this point, I'm sure that the staff 2 will be happy to -- to answer any questions, including 3 myself, if you have any. But the staff is looking for 4 two votes today, two motions today and two votes. The 5 first motion would be the motion to adopt the repeal 6 of the existing rule 401.305 with the effective date 7 of May 3rd, 2003. And the second vote that the 8 commission -- the staff is recommending and desirous 9 of is the adoption of the new rule, new Lotto Texas 10 rule with an effective date of May 4th, 2003. 11 COMMISSIONER CLOWE: Does the staff 12 have a presentation, Mr. Greer? 13 MR. GREER: No, sir. We have done our 14 work up to this point and have given it to you. 15 CHAIRMAN CLOWE: Are there any 16 questions? 17 I have a question regarding how the 18 proposed new rule would affect the odds on our game in 19 the State of Texas compared to other states such as 20 New York and Massachusetts. Is there someone on the 21 staff that can give me that number? 22 MS. SMITH: Good morning, 23 Commissioners. For the record, my name is Toni 24 Smith. I'm marketing director at the Texas Lottery 25 Commission. 0007 1 Chairman Clowe, we don't have that in 2 our hands right at this moment, but we'd be happy 3 to -- to try and get it together for you and get it to 4 you in just a few moments. 5 COMMISSIONER CLOWE: Do you have from 6 your past -- past presentations -- I see you have a -- 7 a presentation cued up. I don't know whether it has 8 anything to do with this subject. 9 Do you have a presentation relative to 10 the revenue trends that relate to the size of the 11 jackpot? 12 MS. SMITH: Actually, Commissioner, in 13 my sales of trends, that agenda item, I was going to 14 give you an update on where we, which there are a 15 couple of charts and graphs that address where we are 16 on the Lotto Texas jackpots relative to sales and the 17 impact that they had. If you would like, I can go 18 ahead and -- and share that with you or we can do that 19 when we get to that agenda. 20 CHAIRMAN CLOWE: I'd like to see it 21 now, if you would, please. 22 MS. SMITH: Okay. We have bingo cued 23 up here. 24 Commissioners, in my report that I was 25 going to give today on lottery sales and trends, 0008 1 first, to look at year-to-date total sales for the 2 week ending March 22nd, 2003, sales are 1.74 billion. 3 This is an increase of 8.4 percent from fiscal year 4 2002 sales to date of 1.61 billion. Now, we are 5 currently averaging $60 million a week in sales for 6 all products. But then to take a look, a cut of an 7 eighth, an updated look of what we've shown to the 8 commission in previous meetings with regard to Lotto 9 Texas. 10 This is an updated graph that we had 11 shown in actually both of our last presentations with 12 regard to information about a proposed rule for Lotto 13 Texas. And what this graph shows us is -- is that 14 the -- the blue line was the original Lotto Texas six 15 of 50 matrix. The red lines show the matrix change 16 that we did in July of 2000. As you can see, the red 17 line, we did show some spikes in sales, and we -- we 18 stopped the decline that we had expected because of 19 the performance of the first matrix that we had. But 20 it still had not performed in the way that we had 21 expected it to in -- in the projections that had been 22 made with that game. So I think this line kind of 23 reinforces some of what we had presented in the past 24 with regard -- regard to the support of a change in 25 the Lotto Texas game. 0009 1 This next graph shows us the blue -- 2 the blue line at the bottom is Lotto Texas sales only 3 from the beginning of -- of sales. We actually 4 started that fiscal year, so it would be September 8th 5 of 2001 through March 22nd of '03, which was last 6 week. The blue line shows the sales trends from Lotto 7 Texas from the inception of the game. And it's also 8 marked by the jackpot amount, so you can see that we 9 started out, there was a 40, a 36, a 27, 34. The big 10 spike was a 70 million and so on. 11 The red line on the graph is total 12 sales for that whole time frame. So you can see that 13 there's definitely a clear correlation between the 14 Lotto Texas jackpot and the impact that they have on 15 total lottery sales. 16 The other areas where we may see some 17 peaks there towards the end above that 53 million. 18 Those -- those are times that maybe we introduced our 19 20 million-dollar scratch-offs -- I -- I'm sorry -- 20 our 20-dollar scratch-off ticket. So the scratch-off 21 and the other products do have some impact, but the 22 jackpot amounts for Lotto Texas definitely have the 23 biggest impact on our total sales. 24 This chart then shows us the average 25 draw of sales by various jackpot amounts. On the far 0010 1 left, the four million, when the jackpots were at a 2 four million-dollar level, our sales are just shy of 3 four million. We -- we don't even make the four 4 million actually. When they're around 12 million, you 5 can see it grow 20 or more. And it's not until they 6 get up to 30 million and plus, that sales get above 12 7 million for us. 8 So, again, this is very relative to the 9 jackpot amount and how they have an impact on -- on 10 Lotto Texas sales and total sales. And that's really 11 all I have, Chair Clowe, regarding Lotto Texas. 12 I did have one other slide to share 13 with you. A question had come up in the last 14 commission meeting regarding did I have any concerns 15 about the -- some of the trending and fluctuation on 16 the instant product. Well, what this graph shows us 17 that the blue line in fiscal year 2002, last year, are 18 trended for the instant product alone. The red line 19 is year-to-date for fiscal year '03. And you can see 20 there's a very similar pattern, and if we would have 21 added previous years, we would see the same pattern. 22 So even though there is some seasonality or some 23 things that occur with the -- the scratch-off product, 24 in -- in a definite trending pattern throughout the 25 years, this year we are still above. Even though the 0011 1 trends are similar, we are above. We are one -- we're 2 113.5 million ahead of fiscal year '02, which is 10.71 3 percent higher than the last fiscal year. So we seem 4 to have the definite things that impact when those 5 sales come up and down, but we have managed to make 6 them higher each year. So we are real proud of that 7 fact. And that's all I had on that agenda item. Does 8 that answer -- 9 CHAIRMAN CLOWE: It does. 10 MS. SMITH: -- your question. 11 CHAIRMAN CLOWE: Thank you. That's 12 good. That's exactly what I wanted to see. And if 13 you can furnish that information on the comparison of 14 the odds at a point in time when you can generate 15 that. 16 MS. SMITH: We will have that for you 17 today, sir. 18 COMMISSIONER CLOWE: Okay. 19 MS. SMITH: Thank you. 20 CHAIRMAN CLOWE: Are there any 21 questions, Commissioners, any discussion that you 22 would like to have? 23 COMMISSIONER COX: I have one. 24 CHAIRMAN CLOWE: Yes, sir. 25 COMMISSIONER COX: Toni, or whoever 0012 1 would want to address this, I looked through an awful 2 lot of comments yesterday, and it seems like the -- 3 the theme of those comments is from those who are 4 opposed to the change that they don't like to see the 5 odds of their winning getting smaller. And they like 6 to see a lot of prizes. 7 MS. SMITH: Yes, sir. 8 COMMISSIONER COX: Now, do we not have 9 products in our product line which provide the kinds 10 of things that those folks seem to be asking for? 11 MS. SMITH: Yes, sir, we do. And, 12 actually, we -- we just talked about that the other 13 day. Some of the comments we've heard over all -- all 14 the years, well, you know, how come you have a 40 15 million-dollar jackpot and you don't make 40 one 16 million-dollar winners. Well, we, just this past 17 week, reached an all-time high with our -- our 18 prizes -- excuse me -- on the Texas Two Step. We 19 actually reached the two million-dollar point, and we 20 had -- we were at 1.8. So that game was designed to 21 offer to those players who want, you know, that 22 particular prize level. That's the game for them. 23 And the odds are different in that game. 24 And Robert may want to elaborate a 25 little better, but that's -- that's why we have Cash 0013 1 Five, Pick Three, and Texas Two Step to try to meet 2 the demands of the players who are playing for other 3 prizes other than that big jackpot amount. 4 COMMISSIONER COX: Well, is it possible 5 that -- that our players don't understand our product 6 line, that we have not sufficiently communicated the, 7 hey, if you're looking for X and Y, this is the 8 product for you. If you're looking for A and B, this 9 is the product for you. 10 MS. SMITH: We could definitely look 11 into that, and I'm sure improve upon the way that we 12 show those different games. I think we tend to and 13 those in the industry tend to introduce our new games 14 are -- are enhanced individually. But we can 15 definitely try to put together a package that shows 16 the benefits of each game, each of those games 17 together. That -- that would probably be a good 18 selling tool for us. We will definitely look into 19 that and do that. 20 COMMISSIONER COX: Thank you. 21 CHAIRMAN CLOWE: Yes, ma'am? 22 COMMISSIONER WHITAKER: I'm talking to 23 Robert. What is the practice of other state lotteries 24 as far as examining their matrices on an ongoing basis 25 and changing them. 0014 1 MS. SMITH: I think that we've 2 seen that -- and Liz may want to address that. But I 3 think what we've seen in the past is that some states 4 even change their games much more frequently than we 5 have. And that is something that as players' buying 6 habits change and as the games change to keep them 7 fresh, to keep them people in the game. That is 8 something that other states definitely do and even 9 more frequently than we have done. We actually went a 10 long time with our first matrix before we made any 11 changes, which was longer than most jurisdictions have 12 ever done. 13 MR. TIRLONI: And if I may, for the 14 record, my name is Robert Tirloni. I'm the on-line 15 product manager for the Texas Lottery Commission. 16 I think, Commissioner Whitaker, some of 17 our previous game changes, I -- I think we've been 18 very successful with previous changes that we've made 19 and the two most recent examples that I would point 20 out would be the introduction of the day draw on Pick 21 Three, which has helped the agency realize the almost 22 16 percent increase in Pick Three sales since we've 23 added the day draw, and the revamp and relaunch of our 24 Cash Five game last summer in July. Since we've done 25 that, we've realized an increase of over 20 percent in 0015 1 Cash Five sales. 2 So, as Toni said, I think it's very 3 important for the agency to continue to examine the 4 games and make enhancements and make changes that keep 5 those games new and exciting just as we've done on the 6 instant product, by bringing out new games on a 7 regular basis so that when players go into the store, 8 there's something new that excites them about the game 9 and encourages them to try it or to continue playing 10 it. 11 MR. GREER: Commissioner, I'd like 12 to -- to add a few things to that just to -- to 13 continue the discussion from where your question was 14 coming from. I think there's seven points worth 15 noting as we talk about this and -- and we spent some 16 time examining some different options. 17 The first one is the fact that the 18 higher jackpots, we feel will provide and indicate a 19 possibility of having three or four jackpots that 20 would be between 65 and 100 million dollars, based on 21 the -- the information that's come from other states 22 and the information we've looked at. 23 The number of prize tiers from the new 24 game is going to double from four tiers to eight 25 tiers. We feel like that will bring in more winners. 0016 1 And the percentage that was thrown out was 25 percent 2 and more that would come into that. The current odds 3 of winning in the current Lotto Texas game are one in 4 71 and it will move to one in 57. So with that new 5 prize tier that comes forth, by doubling that amount, 6 we'll see more opportunities to win. We think that's 7 a positive thing. 8 We've had great success, and -- and I 9 think there's a familiarity now with the Texas Two 10 Step. Toni just mentioned that we just moved into 11 a scenario where we had a 1.8 million-dollar jackpot. 12 The game will be very similar to that. And the key 13 points that come with the game are the fact there will 14 be five choices of 44 balls on the first set of 15 numbers and one set on the last 44 numbers, which will 16 allow an opportunity, we think, for a new generation 17 to step up to the plate in the Lotto games. 18 MS. KIPLIN: Commissioners, the one 19 thing I neglected to mention is the staff is 20 recommending the adoption without changes to the text 21 that was published in the Register. 22 COMMISSIONER CLOWE: Any other 23 questions, Commissioners? 24 COMMISSIONER COX: No. 25 CHAIRMAN CLOWE: I'm prepared to make 0017 1 two motions unless someone else wants to. I move that 2 we repeal the 16 TAC 401.305 effective May the 3rd, 3 2003. Is that correct? 4 MS. KIPLIN: Commissioner, let's -- 5 CHAIRMAN CLOWE: Just a second. 6 MS. KIPLIN: I'm sorry. 7 CHAIRMAN CLOWE: I'm making a motion 8 here. 9 MS. KIPLIN: Yes. I'm sorry. The 10 motion would be to adopt the repeal of 16 Texas 11 Administrative Code Section 401.305, without changes, 12 as published with an effective date of May 3rd, 2003. 13 CHAIRMAN CLOWE: Is there a second? 14 COMMISSIONER COX: Second. 15 COMMISSIONER WHITAKER: Second. 16 CHAIRMAN CLOWE: All in favor, please, 17 say aye. 18 THE COMMISSIONERS: Aye. 19 COMMISSIONER CLOWE: Opposed to it? 20 None -- no. The vote is three, zero. 21 Then I would move the adoption of the 22 new rule 16 TAC 401.305 effective May the 4th, 2003. 23 MS. KIPLIN: Correct. Without changes. 24 CHAIRMAN CLOWE: And as -- without 25 changes, as published. 0018 1 MS. KIPLIN: Yes, sir. 2 CHAIRMAN CLOWE: Is there a second? 3 COMMISSIONER WHITAKER: Second. 4 CHAIRMAN CLOWE: All in favor, please, 5 say aye. 6 THE COMMISSIONERS: Aye. 7 CHAIRMAN CLOWE: Opposed. No. The 8 vote is three, zero in favor. 9 MS. KIPLIN: Commissioners, I have two 10 orders that reflect your vote. 11 CHAIRMAN CLOWE: Okay. 12 MR. TIRLONI: Mr. Chairman, I do have 13 the odds for New York. We're still finding the odds 14 for Massachusetts. Would -- would you like me to show 15 those to you? 16 COMMISSIONER CLOWE: Please. 17 MR. TIRLONI: The odds of winning the 18 jackpot prize on the New York game are one in 45 19 million. And that's for the jackpots. The overall 20 odds are one in 72, and the New York game is a six of 21 59, and it has a bonus ball feature on it. 22 CHAIRMAN CLOWE: Great. Thank you, 23 Robert. 24 I have two appearance forms from 25 individuals who wish to speak on this matter. I would 0019 1 like to call on them in the order I received them. 2 Mr. GErry Eubank, would you come up, 3 please? 4 MR. EUBANK: Would it be permissible? 5 I have a single page that I could hand to you so that 6 you could have some reference, rather -- 7 CHAIRMAN CLOWE: Certainly. 8 MR. EUBANK: Good morning. 9 CHAIRMAN CLOWE: Good morning. 10 MR. EUBANK: What I've handed you is -- 11 CHAIRMAN CLOWE: Well, I think you need 12 to use the microphone -- 13 MR. EUBANK: Oh. 14 CHAIRMAN CLOWE: -- in front of you. 15 Just pull it over in front of you and make sure there 16 is a green light so your comments can be heard. 17 MS. KIPLIN: Sir, if you could 18 identify -- identify yourself for the record. We do 19 have a court reporter that records our meetings, and 20 if you could spell your last name. 21 MR. EUBANK: Yes. My name is Gerry 22 Eubank, G-e-r-r-y E-u-b-a-n-k. 23 I'd like to speak to you today about 24 the matter that you just voted on about the changes to 25 Lotto Texas. Actually, I had a more lengthy 0020 1 presentation that I was going to give, but since the 2 vote has already been taken, I would just like to move 3 back to Mr. Greer's comment about the increase in the 4 number of prizes by 25 percent. And the three sets of 5 information other than the Texas Register, which most 6 citizen don't either have access to or care to access, 7 the three sets of information that the TLC has 8 published have been the two marketing surveys that you 9 did, and then also there was a letter to the -- I'm 10 sorry -- what's it called. The statement from the 11 director where Gary Grief made comments about it, and 12 you made comments as well. I think you just posted 13 yours yesterday. 14 Each of these times you have made great 15 reference to the 25 percent increase in the number of 16 prizes. Nowhere have I found that you have referenced 17 the decrease in the overall payout from 55 percent to 18 52 percent or the change in the pay matrix. 19 If you look at this matrix that I 20 presented to you at the time, you redistributed the 21 prize payout so that on the original Lotto Texas, you 22 had eight cent -- 18 cents per sales dollar returned 23 to the lower level prizes. That's less than in the 24 jackpot. When the change to the six of 54 matrix was 25 made, that stayed relatively constant, and you 0021 1 increased the total payout to the players of 55 2 percent. The lower level payout remained at 17 and a 3 half cents on the sales dollar. Now, it's dropping to 4 12.9 cents on the sales dollar. What you just stated 5 as a positive 25 percent increase in the number of 6 prizes is actually negative. It's a 26 percent 7 decrease in the dollar value of that prize payout. 8 CHAIRMAN CLOWE: Does that conclude 9 your remark? 10 MR. EUBANK: Since the vote has already 11 been made, yes, sir, it is. 12 CHAIRMAN CLOWE: Thank you, sir. 13 MR. EUBANK: Thank you, sir. 14 CHAIRMAN CLOWE: Next I have an 15 appearance form from Ms. Dawn Nettles. Please, come 16 up. 17 Good morning. 18 MS. NETTLES: Good morning, 19 Commissioners. For the record, my name is Dawn 20 Nettles from the -- I'm the editor of the Lotto Report 21 and the web site LottoReport.com. 22 Y'all have already taken your vote and 23 already signed the order. And I have a couple of 24 comments to make that aren't going to be used by this 25 commission other than I hope that you've realized that 0022 1 you've just approved a rule that will give Texas 2 jackpots, in excess of a 100 million-dollar jackpots, 3 and by that, the player has no option to get cash 4 value options or annual pay when he wins, which is 5 terribly unfair to whoever wins because it might not 6 be in his best interest of whatever he's chosen 7 because he didn't expect to win in the first place. 8 He's been faced -- he is now faced with a huge 9 learning experience on what to do with the money, you 10 know, that he's just come into. 11 The question that you-all also came up 12 with a while ago, when you asked if there were other 13 games that offered what you saw the players wanted, 14 the players, what their objection to on the lottery is 15 that they are tired of spending their money and 16 winning $3 and $5. That's not a win. Most of them 17 will spend $5 when they go to the store to purchase 18 something, and they're -- they're tired of -- of not 19 winning. They want better prizes. 20 The rule that you have here on this 21 game is wasting the player's share of sales. It -- 22 the -- the money -- the only reason that they're 23 offering those -- that three-dollar prize and the two 24 five-dollar prizes is so that you can advertise how 25 many winners you have. That is the sole purpose of 0023 1 it. 2 When asked about the other games, I'd 3 like to remind you that the Texas Two Step is a 4 failing game. It has not been doing well. They just 5 quoted you a nine drawings for Texas Two Step where 6 they had all these winners and that that is the game. 7 What's going to happen to Texas if you-all, which 8 you've already done, people will just switch over to 9 Texas Two Step and -- and Lotto is -- the -- the 10 people are just totally opposed. I can't believe 11 you-all just voted and did not care that you had 6,500 12 people opposed to this and nobody for it. 13 And I've been advised to ask you -- 14 you've already signed the order. I would like for 15 you-all to tell me what can be done to reverse the -- 16 the signing of the order? What -- what -- what 17 procedure is going to go through the legislative 18 process to do this? 19 CHAIRMAN CLOWE: Counselor, could you 20 answer that question? 21 MS. KIPLIN: Well, Commissioners, first 22 of all, this is your commission meeting. And people 23 really have a right to be here and be present and to 24 listen. 25 CHAIRMAN CLOWE: I -- I -- 0024 1 MS. KIPLIN: Okay. 2 CHAIRMAN CLOWE: -- understand that. 3 And I think Ms. Nettles has asked a fair question, and 4 I think I know the answer. But I think it would have 5 more credibility if it came from an attorney. 6 MS. KIPLIN: Well, an order is an 7 order, and you signed it. And we're planning on going 8 forward based on that order and filing the rule. You 9 know, if y'all wanted to revisit today and -- and 10 change that, I -- I imagine that you have plenary 11 power over your orders for a period of time up until 12 the rule is filed with the Register. 13 In terms of what legislative oversight 14 the Administrative Procedure Act does provide for us 15 to provide notice of proposed rule-makings to the 16 leadership in both houses, and we've done that. And 17 if they had the majority vote on a standing 18 committee -- the majority vote of the standing 19 committee that the committee can file comment. It's 20 not called comment, but you can indicate opposition or 21 support. And we have received none of that. 22 CHAIRMAN CLOWE: Yeah. Well -- 23 MS. KIPLIN: We're a preacher of the 24 state -- the state government, state agency. 25 CHAIRMAN CLOWE: Of course, the chair 0025 1 is open to a motion at any time regarding the subject 2 that's on the agenda. But my experience of being in a 3 regulated industry was that when an agency made a 4 ruling, that we felt as a new member of the industry, 5 in this case, Ms. Nettle -- Nettles has asked as a 6 member of the public, wasn't liked, the remedy was to 7 exhaust the administrative procedure and then when 8 that was exhausted, to file suit in court. That -- 9 that would have been my answer. 10 MS. KIPLIN: Well, there's a -- 11 there's -- there's certainly for those who have seen 12 an opportunity to seek judicial review. The question 13 I saw was -- was somewhat more narrow in that I 14 actually -- basically in terms of what can we do 15 today. 16 CHAIRMAN CLOWE: Okay. I just wanted 17 to give her a full and complete answer. 18 MS. NETTLES: So what is the answer? 19 MS. KIPLIN: The answer really is you 20 should seek your own counsel. 21 MS. NETTLES: You mean, I need to get a 22 counselor? 23 MS. KIPLIN: That's what I -- that 24 would be my answer is that you should seek your own 25 counsel. I'm the lawyer for the -- for the 0026 1 commission, as you know. You and I had this 2 conversation before, Ms. Nettles. My advice goes to 3 the commission. 4 As a citizen, if -- if you believe 5 that -- that you have been aggrieved, then you should 6 seek your own counsel. This commission has made their 7 vote today. They've had the opportunity to receive 8 comment, follow the administrative procedure, and 9 that's what this agency has done. 10 MS. NETTLES: I don't believe that my 11 question entailed suing the Texas Lottery Commission. 12 I believe my question was from the legislative and our 13 senators, state reps, the governor's office, the 14 lieutenant governor's office, and the speaker of the 15 house. Is there any action? What do they have to do 16 to try to speak their minds and their peace with 17 regard to how their constituents feel? What do they 18 have to do to -- to try to reverse this vote? And I 19 don't -- 20 MS. KIPLIN: The Texas Lottery 21 Commission is a state agency that was created by the 22 legislature and signed in -- into existence by the 23 governor on the bill. That -- the State Lottery Act 24 in the Chapter 467 of the Government Code set out the 25 authority by which this agency conducts its operations 0027 1 and its activities. 2 In terms of the legislative 3 involvement, that's up to the legislature to decide 4 what authority they would like an -- an agency -- a 5 state agency to have. 6 MS. NETTLES: So would an alternative 7 be, I mean, just to abolish the Texas Lottery 8 Commission? Would they be the -- the people to 9 abolish the Commission -- Texas Lottery Commission? 10 CHAIRMAN CLOWE: I -- I don't think 11 we're going to get into that discussion. I -- I think 12 that's something that if you want to pursue, you 13 should do so on your own. We've tried to give you 14 the -- the best answer to your question that we could, 15 as a citizen, and I think we've come to the end of 16 that answer. 17 MS. NETTLES: Okay. Okay. Well, 18 Commissioners, I'm -- I'm very, very disappointed 19 that -- I feel very strongly that the commission is 20 taking advantage of their monopoly on the lottery -- 21 of the state lottery, and I feel like that you-all -- 22 you-all are hurting the people of Texas with such a 23 rule. 24 Just because other states do this 25 doesn't make it right at all. And you -- you have 0028 1 totally gone against the people. And I haven't seen 2 anyone for this plan. So to me, the commission has 3 only done this so y'all can make more money, and 4 that's greed and it's wrong. And it's too late. 5 You've already sign the order, and I will just go from 6 there. And I appreciate your time in listening to me. 7 CHAIRMAN CLOWE: Thank you, 8 Ms. Nettles. 9 Now, we go to the Item Number II on the 10 agenda. Report possible discussion and/or action on 11 work group sessions on use of proceeds and/or unit 12 accounting. 13 Mr. Atkins. 14 MR. ATKINS: Thank you, 15 Commissioners. The memo in your notebook under this 16 item indicates that the work group on unit accounting 17 met on March 14th and that the information that was 18 contained in your notebook was the final work product 19 as a result of that meeting. Subsequently to the 20 meeting on the 14th, we did receive another draft that 21 I have placed in your notebooks. 22 The -- the language in the draft that 23 I've placed in your notebook is -- is the same as the 24 language that was originally contained in your 25 notebook. Some of the items have just been moved 0029 1 around within the draft. I had conversations with 2 Steve Bresnen yesterday, and he has indicated that it 3 is the industry's position that what I have provided 4 to you today is the final recommendation and is -- 5 is good to move forward on. 6 I did want to discuss briefly with 7 you. I know there are some issues that have been 8 discussed at past meetings relating to unit 9 accounting, and I just wanted to touch on some of 10 those briefly. They first dealt with the potential of 11 the federal IRS impact from the implementation of 12 this, and I don't think that there's anything we can 13 do in state law to supercede federal law and some of 14 those potential implications. But I do think that 15 there has been enough discussion about the issue that 16 organizations that may decide to enter into unit 17 accounting are advised that they should seek their own 18 professional tax advice on this matter before they 19 move forward. 20 The -- another issue dealt with the 21 number of organizations involved in a unit at a 22 location. Originally, it was the staff's position 23 that the maximum efficiency would be achieved by all 24 of the organizations at a location participating in 25 the unit, and that's still the staff's position. 0030 1 That's a position, again, in order for us to identify 2 the greatest benefit to the agency in terms of 3 production on workload, et cetera, it would be if all 4 of the organizations at a location were a member of 5 the unit. 6 If you have seven organizations of the 7 unit and two of them decide to form a unit, we've now 8 gone from having to review seven accounts down to six 9 accounts, which I don't think is necessarily a big 10 statement. Again, it wasn't a major issue for the 11 staff operationally as much as it was 12 efficiency-wise. So this provision will allow -- it 13 does require two or more organizations to form a unit, 14 but it doesn't require all of the organizations at a 15 location to form a unit. 16 And the final issue I think dealt with 17 the -- the concept of a unit manager. Staff 18 originally proposed that this individual be licensed 19 by the agency. And there was some concerns among the 20 industry that this would create a new type of license 21 class where individuals would essentially be able to 22 charge exorbitant fees to the organizations because 23 they had this type of license. 24 We engaged in quite a bit of dialog 25 with the industry and explained to them that our 0031 1 primary concern with licensing the individual is 2 because that's the person that we want to look to for 3 responsibility of the agent -- of -- of the unit, and 4 if anything goes wrong with that unit, we want to be 5 able to reach that individual. And we also want to 6 make sure that that individual doesn't, for lack of a 7 better word, organization hop. They may cause some 8 trouble over here and then move on to another 9 organization. Because, as you know, we license 10 organizations, and if the individual violates the act 11 or whatever, we can't necessarily reach them. 12 This draft contains a -- it does 13 contain the provision to license a unit manager. It 14 also contains a provision for what's referred to as a 15 designated agent, and that's an individual who 16 performs essentially the same functions as a unit 17 manager, but they're not licensed. They still have to 18 be identified to the agency. They would still go 19 through the regular background checks that other 20 individuals in organizations go through, but they 21 would not be licensed. 22 The compromise was that there is 23 language in this draft that the agency would be able 24 to prohibit someone, either a licensed unit manager or 25 a designated agent, from serving if they had violated 0032 1 provisions of the act or the rules. So that got to 2 essentially the concern that the agency had with, 3 again, what we call that organization hopping. 4 There -- as the memo indicates, there's 5 no action that we're asking of the commission on this 6 issue. If there's no objection from the commission, 7 the staff would like to move forward and provide 8 copies of this to our Sunset sponsors for their review 9 and consideration. And, I guess, before I go any 10 further, I would be happy to answer any -- any 11 questions you may have about the -- the draft. 12 CHAIRMAN CLOWE: And this was in 13 response to you were asked for by members of the 14 Sunset Commission, as I recall. 15 MR. ATKINS: That's correct, 16 Mr. Chairman. The Sunset Commission directed the 17 agency to study the concept of unit accounting, 18 determine if it had merit, and if it would require 19 legislation in order to implement. I do think that we 20 found there is merit to the concept. And this draft 21 before you is for legislation that we believe is 22 necessary for implication. 23 COMMISSIONER WHITAKER: Billy, have -- 24 have you passed this by -- 25 MR. ATKINS: Yeah. 0033 1 COMMISSIONER WHITAKER: -- or have any 2 of the attorneys who have been participating in this, 3 passed it by a tax expert at least to determine that 4 it's at least not counter to or set up in a way that 5 might make it more difficult to get federal tax 6 favorable treatment? 7 MR. ATKINS: No, ma'am. We haven't. 8 COMMISSIONER WHITAKER: Is that a -- I 9 take it that's not a concern of -- 10 MR. ATKINS: No. I -- 11 COMMISSIONER WHITAKER: -- Mr. Bresnen 12 and -- 13 MR. ATKINS: I -- I think it is a 14 concern. The concern was actually raised by 15 representatives from the industry who are not tax 16 attorneys, but they are bookkeepers for organizations 17 that conduct bingo. So in that sense, they have some 18 familiarity with it. 19 COMMISSIONER WHITAKER: Yeah. I'm not 20 saying that we -- obviously, the state can't preempt 21 the federal government on taxes. I'm just saying has 22 this language been crafted in the way that at least is 23 consistent with as opposed to counter to requirements 24 at the federal tax level. 25 MR. ATKINS: I'm sorry, Commissioner 0034 1 Whitaker. I can't -- can't answer that question. 2 COMMISSIONER WHITAKER: Okay. Let me 3 ask -- let me ask it this way. Have participants in 4 the industry who have raised this issue had enough 5 time to independently review that to their 6 satisfaction and bought off on this language? 7 MR. ATKINS: I believe the answer to 8 that is yes. 9 CHAIRMAN CLOWE: I believe if there are 10 no further questions, then I hear no objections. 11 COMMISSIONER WHITAKER: There is one 12 typo. 13 MR. ATKINS: One -- 14 COMMISSIONER WHITAKER: That's my 15 objection. 16 MR. ATKINS: One last item, 17 Commissioners, on this -- or -- or two, I guess. This 18 agenda item references use of proceeds, which I would 19 like to include in Item Number III and -- and, also, I 20 believe, Mr. Chair, you had asked that this be a -- a 21 standing item on the agenda until it's resolved. I 22 think in the -- in the staff's opinion, we've done 23 pretty much all we can do. So if the commission 24 agrees, we would -- we would not have this as a future 25 standing item. 0035 1 CHAIRMAN CLOWE: Very good. Okay. She 2 found it. 3 So, Billy, you're going to cover that 4 in Item Number III now? 5 MR. ATKINS: Yes, sir. 6 As you will recall, Commissioners, both 7 you and the BAC have approved a work plan for the 8 coming year for the advisory committee. And as the 9 result of that work plan, the advisory committee has 10 appointed several subcommittees to address different 11 issues and report back at their next meeting, which is 12 currently scheduled for the end of April. 13 Again, there is no action requested on 14 this report. We did -- we did just want to provide 15 you with an update on the implementation of that work 16 plan and the activity of the advisory committee. The 17 information in your notebook includes a page from the 18 commission's web site that identifies the different 19 subcommittees and their members, as well as contact 20 information for those individuals if a member of the 21 public wants to comment on any of those issues. 22 Also included in your notebook is a 23 summary of the activities that those subcommittees 24 have already engaged in, particularly meetings, work 25 sessions, et cetera. The use of proceeds from Item II 0036 1 is actually covered under the subcommittee working on 2 the draft of charitable bingo administrative rule 3 402.568. And we have had so far several meetings on 4 that issue, and there are several more planned in 5 addition to -- to other meetings prior to the April -- 6 I believe, it's April 24th BAC meeting. 7 Again, we anticipate that as the 8 advisory committee moves forward on its work plan as 9 well as future rules that are proposed, we will be 10 providing to you these types of updates on the 11 activities of the advisory committee. 12 CHAIRMAN CLOWE: Very good. Any 13 questions? All right. 14 Billy, I think Item IV is yours, as 15 well. 16 MR. ATKINS: Commissioners, we have 17 closed the fourth quarter of 2002. And as we have 18 speculated to you in the past, we did see an increase 19 in the pull-tab gross receipts for that quarter. And, 20 again, we attribute this increase to the changes that 21 were made to the charitable bingo administrative rule 22 402.554. 23 The materials in your notebook include 24 a detailed report and several graphs showing specific 25 line items. If you'll notice in the detailed report, 0037 1 which is the first page of the spreadsheet, you'll see 2 that for the fourth quarter of 2002 instant bingo 3 sales were 24.5 million dollars. And that's the 4 highest the sales have been for pull-tabs since the 5 first quarter of 1999 when pull-tab sales were 24.9 6 million dollars. 7 The first graph after that detailed 8 report shows you a total gross receipts by quarter, by 9 year. And, again, you'll see an increase in total 10 gross receipts for that quarter, which is out of the 11 ordinary for bingo, something else that we attribute 12 to the increase of pull-tab sales. 13 I just wanted to remind you, as you'll 14 recall, that based on the successes that we've seen 15 with the pull-tab rule, the commission amended 16 administrative rule 402.558, which relates to bingo 17 paper, and we were hoping that we would see some of 18 the same kind of increases in regular bingo. That 19 rule became effective in December of 2002. And the 20 majority of the paper that has been submitted -- which 21 would be authorized under that rule, has been 22 submitted in February and March of this year. So it 23 may be several quarters before we're able to see any 24 kind of change in regular bingo as a result from the 25 introduction of this new type of paper, but we will 0038 1 continue to monitor that for -- for any changes and 2 report to you accordingly. 3 CHAIRMAN CLOWE: I believe there are no 4 questions. 5 Item V. 6 MR. ATKINS: Item V. Commissioners, I 7 would like to call forward Phil Sanderson, the 8 assistant director; Bruce Miner, who's the manager of 9 the licensing services section; Terry Shankle, the 10 manager of the accounting services section; and Roy 11 Gabrillo, who is the senior audit manager for the 12 charitable bingo division. 13 As we were preparing the previous 14 report on the fourth quarter 2002 financial 15 statistics, we thought about all of the other 16 activities that occurred in the bingo division on an 17 ongoing basis, and we thought that you might be 18 interested in a high level report from the division's 19 management regarding the previous year's successes and 20 challenges, as well as the plans for the coming year. 21 Our hope is that this presentation will 22 accomplish two things. First, of all, we want to 23 provide you with a greater exposure to the management 24 of the bingo division; and, secondly, we want to help 25 you better understand the changes that the bingo 0039 1 division has undergone through the years. In 2 particular, the makeup of the work that's performed by 3 the division has changed over the years. It has 4 become a lot broader in focus in terms of bingo 5 regulation. 6 For example, what a bingo auditor did a 7 few years job-wise has changed significantly. In the 8 past, it was an auditor's job to audit books and 9 records of bingo licensees. Well, today, in addition 10 to conducting audits, bingo auditors are also teachers 11 when they conduct the operator training program and 12 they're computer technicians, testing electronic 13 equipment. So I think through this presentation 14 you'll see that this is the case for the entire 15 division. 16 And with that, I will turn it over to 17 Phil to kick it off. 18 CHAIRMAN CLOWE: Good morning. 19 MR. SANDERSON: Good morning, Chairman 20 Clowe, Commissioner Whitaker, and Commissioner Cox. 21 For the record, I'm Phil Sanderson, 22 assistant director of the charitable bingo operations 23 division. 24 First, I would to thank you for the 25 opportunity to allow the division to brief you on our 0040 1 activities for 2002 and our goals that we are setting 2 for 2003. 3 The first project that we undertook in 4 2002 was a review of our strategic plan. The agency 5 prepares a strategic plan every two years. The one 6 for 2007 was the first endeavor that we undertook last 7 year. The managers, all section managers plus the 8 regional audit managers had previously attended 9 training on strategic planning and performance 10 measures that's put on by the Government Center for 11 Management Development. 12 Based on this training, the managers 13 got together and we reviewed our strategic plan, our 14 strategies, goals, and mission statement. We created 15 a new mission statement that more reflects the 16 activities of the division as they stand today. We 17 divided our strategies and goals from two to four, and 18 we also reviewed our performance measures, all of 19 which to more accurately reflect our current 20 activities. 21 The second project was the Sunset 22 Review process. It officially began in April of 23 2002. We participated throughout the summer answering 24 questions and responding to the needs of the Sunset 25 Commission staff. Currently, we are already 0041 1 implementing two of the recommendations that were 2 based in the Sunset Review. First one deals with 3 compliance monitoring. There is a group called Camp 4 that is meeting regularly to interrelate complaints 5 within the agency. And the second one was an overall 6 review of the functions and activities of the Bingo 7 Advisory Committee. 8 In June of 2002, we began the official 9 testing of all pull-tabs and paper. Previously, it 10 was a -- it was an effort that was jointly served by 11 the security division and the bingo division. With 12 the transfer of those activities, the lottery moved 13 two FTEs along with one licensing FTE in the bingo 14 division creating a new special projects section that 15 Terry will go over in her analysis of her division at 16 a later time. 17 Also, the turnover rate for the 18 division last year was 4.17 percent. Both vacancies 19 last year were due to retirement of individuals. This 20 speaks well of the dedication of the staff and the 21 long-term relation that the staff members have to 22 offer the best available customer service and 23 activities within the state. It also compares very 24 favorably with the state retirement -- I mean, I'm 25 sorry, the state turnover rate of 14.8 percent. 0042 1 Another process that we started in 2002 2 was stakeholder meetings. This process is to help 3 develop in the process of developing new or amended 4 rules. We get together with the industry 5 representatives, and we hold informal discussions on 6 the rules prior to any formal publication or adoption 7 by the commission. This process allows for a more 8 efficient process and offers input from both sides 9 industry and staff so that when the rule is published 10 for adoption and recently and adopted, it flows 11 through the process more efficiently. And we're able 12 to come up with a rule that both sides tend to agree 13 with. 14 Last year we wrote and published six 15 rules, five of which were adopted. We currently have 16 two licensing rules that are ready for their first 17 reading. There are two rules that are being prepared 18 with the assistance of the Bingo Advisory Committee 19 members and subcommittees. And also last year there 20 were six audit rules that took up a large portion of 21 the time in developing and going through the process 22 that were published but ultimately removed or 23 withdrawn from publication. And we have all intents 24 and purposes to review the audit rules this coming 25 year to offer the input of the Bingo Advisory 0043 1 Committee and also the industry. 2 Another project that took up a lot of 3 time last year was the development of the automated 4 charitable bingo system. We continue to work on that 5 project. Last year we dedicated one FTE from the 6 licensing section; information technology dedicated an 7 FTE, both to exclusively work on this project. 8 Our legal activities over the last year 9 resulted in ten agreed orders with organizations. We 10 had five PFDs from hearings, and currently there are 11 15 pending hearings based on activities in 2002. 12 That concludes the division overview 13 for 2002, and I'll be glad to answer any questions 14 that you have at this time. 15 CHAIRMAN CLOWE: I don't believe there 16 are any, Phil. Thank you. 17 MR. SANDERSON: If -- if there are no 18 questions, then I'll turn it over to Bruce Miner, the 19 licensing services manager for his overview. 20 MR. MINER: Chairman Clowe, 21 Commissioners, my name is Bruce Miner. I'm the 22 licensing section manager for the charitable bingo 23 division. 24 The staff of the licensing section 25 consists of nine examiners, one administrative 0044 1 technician, one data entry clerk, and a part-time file 2 clerk. And our responsibilities include the 3 processing of all applications to ensure statutory and 4 regulatory requirements have been met. The types of 5 applications we process include originals, renewals, 6 amendments, and temporaries, and we communicate with 7 the applicants to clear deficiencies before these 8 licenses are issued. We address inquires from the 9 general public and licensees via e-mail, fax, and 10 phone. 11 Here you see this chart showing how the 12 pending license count, by type, fluctuated throughout 13 the past year. It's a very dynamic constant changing 14 of the picture. And as you can see April through 15 September are our peak period. What is not showing 16 here is that in 2002, 82 of our licensees surrendered 17 or allowed their license to expire without renewing. 18 Based on a survey of some 60 organizations, our data 19 reflects that 57 percent were taking this action due 20 to low attendance. Other reasons cited were lack of 21 member interest, not enough members, low revenues, or 22 too much competition. 23 This next slide shows that in 2002, we 24 issued a total of 5,777 licenses. That includes 92 25 originals; 1,065 amendments; 1825 renewals; 2,795 0045 1 temporaries, which equates to approximately 700 2 licenses per examiner. 3 Customer service is a primary focus for 4 us. We're sensitive to our customer base, and we have 5 attempted and think have been successful in providing 6 quality customer service to assist them. I'm happy to 7 report that for fiscal year 2002, 98 percent of our 8 licensees that we have surveyed indicated the quality 9 of service that they received from us has been 10 excellent. Even though we are a regulatory agency 11 charged with enforcing state law, which is a 12 responsibility that we take seriously, we go that 13 extra step to assist our customers. 14 Let me provide you with just one 15 example of this. There have been times when an 16 organization, for some reason or other, have allowed 17 their license to expire. State law and the attorney 18 general's opinion on this matter is clear. There is 19 no discretion that the agency has. When the license 20 expires, it's gone. Therefore, understanding that 21 often times we are working with volunteers, we do a 22 lot of work up front to help make sure this doesn't 23 happen. We actually mail out renewal notices 45 to 60 24 days in advance. Then the -- if we haven't received 25 the renewal within two weeks of their expiration date, 0046 1 we generate a second notice letter. And also I 2 receive a weekly report identifying those licenses 3 that are nearing expiration, and from that list we 4 make courtesy calls to each organization informing 5 them that if they wish to renew, they must postmark 6 their application no later than their expiration date. 7 A large part of our customer service 8 consists of providing the licensees with information 9 they need to make sure their experience of bingo is 10 positive. As part of that, in 2002, we responded to 11 over 11,000 1-800 customer service calls. We sent out 12 over 16,000 pieces of correspondence. We also made 13 presentations at three conferences: one for the 14 general membership that belongs to the VFW, one for 15 the general membership of the American Legion, and one 16 for the mid-summer VFW officer's training seminar. 17 Additionally, prior to the pull-tab 18 review process being moved under the special projects 19 section in June, the licensing section tested and 20 approved for sale in Texas 84 pull-tab deals from 21 January to May of 2002. Also, to help us do a better 22 job, we drafted 51 procedures that were initially 23 written in '98 and '99. And in ongoing effort to keep 24 them current, by the end of 2002, we had reviewed and 25 updated 15 procedures and have done a few more so far 0047 1 this year. 2 Additionally, we responded to over 145 3 open records requests during this time. For the 4 remainder of 2003, we are looking forward to the 5 preparation for the forthcoming changes generated by 6 the new legislation and a new system. 7 That concludes my prepared comments. 8 Are there any questions? 9 CHAIRMAN CLOWE: Bruce, what is the 10 nature of the open records requests that the division 11 receives in general? 12 MR. MINER: Some of it relates to 13 lawsuits that are pending. Some of it relates to 14 trying to get records of past applications submitted 15 to make sure they -- the licensee has the most current 16 information. We have a lot related to capturing the 17 trends of the bingo industry, and different reports we 18 generate reflects, you know, information that they 19 need for making the decisions. 20 CHAIRMAN CLOWE: Thank you. And you 21 made substantial effort, I believe, in regard to 22 notification of license expiration to determine that 23 we have a current address and we have the right 24 recipient of the notification. I believe your 25 division has improved in that effort in the last year 0048 1 or two. Is that not correct? 2 MR. MINER: Absolutely. In preparation 3 for the new charitable bingo system, we've done a 4 major effort in data cleansing and part of that is 5 making sure the -- the addresses are correct, even to 6 the additional four digits on the ZIP code. And for 7 each application, that's one of our steps is to verify 8 the accuracy of the address. 9 MS. KIPLIN: Mr. Chairman, I -- I do 10 feel a need now to -- to put some information into the 11 record regarding the question that you asked. What 12 the bingo division is doing is what I'm considering to 13 be customer service to the industry that they 14 regulate, and they're doing this in an effort to help 15 that industry, in particular, those organizations not 16 having disconnects, for lack of a better word, on 17 license expirations and renewal applications. 18 However, the act is very clear that the 19 responsibility for updating the information that's 20 contained in a -- in a license application is the 21 responsibility of the licensee. The requirements that 22 are set out by the administrative law, case law that's 23 been developed and also the statutes, is that so long 24 as the notices that we send, an agency sends, go to 25 the addresses that we have on record, that's 0049 1 sufficient notice for purposes of -- for legal 2 purposes. 3 So I -- I want to make that clear that 4 not only are they bending over backwards to try to 5 help these organizations and we all applaud that but 6 that in the event that there was a challenge that the 7 notice didn't go to whom the notice should, so long as 8 we're complying with sending it to those addresses 9 that have been provided to us, we're -- we are 10 complying legally. 11 MR. ATKINS: And if I could, 12 Mr. Chairman, follow up on one of the things Bruce was 13 talking about. There are a number of reports that we 14 generate off our system that provides some pretty 15 useful statistical information to organizations. 16 Just, for example, one of the questions 17 that we get from organizations considering bingo is, 18 you know, can you tell us who else is playing in the 19 area. And we can. There are a number of reports that 20 will tell them the location of bingo halls, the 21 organizations playing there, and a lot of information 22 about those organizations and their bingo activities: 23 their sales, their number of occasions, their average 24 attendance, et cetera. And we encourage them to get 25 that report and review it so that they'll have an idea 0050 1 of the entire bingo market that they're looking at 2 going into and entering. 3 One of things that we are trying to do 4 in working -- working towards is getting that 5 information put out on our web site so that 6 organizations can just access that without having to 7 go through the effort of requesting the open records. 8 CHAIRMAN CLOWE: Thank you. 9 MR. MINER: Yes, sir. I would like to 10 introduce now Terry Shankle, the manager of accounting 11 and special projects section. 12 MS. SHANKLE: Good morning, 13 Commissioners. 14 CHAIRMAN CLOWE: Good morning. 15 MS. SHANKLE: Accounting services 16 entered 11,500 quarterly returns. We mailed 177 17 adjustment letters to -- to organizations that 18 incorrectly filled out their report. For those 19 licensees who either failed to pay or underpaid their 20 prize fee or rental tax, we mailed 351 billings for a 21 total amount of $385,000 and collected 358,000 of that 22 amount. We notified 421 licensees that they failed to 23 file a return. 56 licensees received show compliance 24 letters stating that they owed a debt to the State of 25 Texas or failed to make their required 35 percent 0051 1 charitable distribution. 99.85 percent of our 2 collections are voluntary. My staff and I are 3 extremely proud of this figure. It shows how hard we 4 work with our licensees to ensure compliance to the 5 state. 6 For 2002, we deposited into the general 7 revenue fund $23.8 million in license fees, rental 8 tax, prize fees, and administrative penalties. Cities 9 and counties received 9.2 million for their share of 10 the prize fee. 33 loan applications were processed, 11 requesting that organizations be allowed to move money 12 from their bingo bank account -- I'm sorry -- from 13 their general revenue fund to their bingo bank 14 account. We performed 1,000 desk audits to ensure 15 that each conductor or lessor was in compliance with 16 the Bingo Enabling Act or rules, prior to issuance of 17 a license. 2,000 phone calls were answered. And we 18 processed in microfilm 23,000 pieces of mail, 19 completed 92 open records request, and acted as a 20 liaison for the Sunset request and information. 21 The special projects section was formed 22 June, 2002, with three full-time employees whose 23 primary tasks were to perform pull-tab testing, write 24 charitable bingo publications, and update information 25 to our web site, and perform industry research. On 0052 1 June 10th, 2002, the Texas Lottery Commission adopted 2 the new pull-tab rule. We established new procedures 3 and methodology for testing the tabs. From June, 4 2002, to the end of December, 2002, we've tested and 5 approved 180 games. 35 of those games were the new 6 style of play. 7 As a result, of the new pull-tab rule, 8 pull-tab sales registered an increase of approximately 9 17 percent from the fourth quarter of 2001 to the 10 fourth quarter of 2002. Here are examples of the new 11 style of play of pull-tab games that we've approved, 12 and these games were indeed welcomed by the 13 organizations and continue to be a boost to the bingo 14 revenue. 15 The special projects team has published 16 six bi-monthly bingo bulletins, as well as articles to 17 the Bingo Bugle. We've published the 20th year report 18 to celebrate the most charitable game in Texas. We 19 were also responsible for the bingo web site. We have 20 made 150 updates and changes to the site and received 21 approximately 130 e-mails, which are general question 22 or complaints, which we then direct to the necessary 23 divisions. 24 We are responsible for maintaining data 25 for use by management. We perform analysis from 0053 1 surveys and conduct extensive internet -- internet 2 research and develop personal contact with other 3 regulatory jurisdictions. 4 That is accounting and special projects 5 in a nutshell. I'll be happy to answer any questions 6 that you may have. 7 CHAIRMAN CLOWE: Thank you, ma'am. 8 MS. SHANKLE: I would like to introduce 9 at this time Roy Gabrillo, the senior audit manager. 10 MR. GABRILLO: Thank you, Terry. 11 Good morning, Commissioners. 12 CHAIRMAN CLOWE: Good morning. 13 MR. GABRILLO: Mr. Chairman, 14 Commissioners, my name is Roy Gabrillo, 15 G-a-b-r-i-l-l-o. I'm the senior audit manager of the 16 audit section for the charitable bingo operations 17 division, and this morning I will be discussing the 18 accomplishments of the audit section, which includes 19 the number of audits and inspections completed, the 20 operator training program, audit form updates, testing 21 activities, risk assessments, and open records 22 requests. 23 The audit services section is staffed 24 by 25 full-time employees in five regional offices. 25 There's one senior audit manager, four audit managers, 0054 1 and 20 auditors. Those auditors perform a variety of 2 audits and inspections, conduct the operator training 3 program, investigate complaints, and assist security 4 investigators with their cases when they request 5 assistance. 6 For the calendar year 2002, the audit 7 services section conducted 416 audits and compliance 8 reviews with 71.2 percent cited for violations. They 9 conducted 473 assessment and assistance inspections 10 with 25.8 percent cited for violations; 75 books and 11 records inspections with 22.7 percent cited for 12 violations. I'm sorry. That's -- yes, 22.7 percent; 13 111 site inspections or location verification 14 inspection; and conducted 45 operator training 15 classes. 16 We have two performance measures which 17 measure our effectiveness, which are monitored during 18 the fiscal year. One deals with the number of 19 inspections conducted and the other on licensees and 20 the other is the number of audits completed during the 21 year. 22 The functions of the audit sections 23 have expanded over the years. When bingo first came 24 to the Lottery in April of 1994, we began by 25 conducting books and records inspections. The purpose 0055 1 of that was twofold: first to introduce ourselves to 2 licensees and second to educate the licensees on what 3 records to maintain and how to maintain those records. 4 Overall the response was positive to the inspections 5 as many of our licensees informed our auditors they 6 had -- they had had no one from any of the -- from the 7 comptroller or the TABC visit them in years. We also 8 conducted tax reviews on licensees who failed to file 9 their quarterly report and/or owe delinquent fees or 10 taxes to the state. 11 In 1995, we began conducting audits on 12 a regular basis, which were more in number than the 13 books and records inspections. The purpose of the 14 audit was to determine compliance with the act and the 15 rules regarding the use of funds. In late 1997, the 16 location verification and site inspections were 17 transferred from security to the audit section. In 18 conjunction with the site inspections, we also conduct 19 free licensing interviews with the licensees, which is 20 explanation or an overview of the licensing and 21 recordkeeping requirements. 22 In 2000, we began conducting the 23 assessment and assistance inspections in order to 24 verify compliance that the bingo games were being 25 conducted in compliance with the act and the rules, 0056 1 and second, and most important of all, was to address 2 any concerns that licensees may have or and -- and 3 answer any of those questions from those licensees. 4 We also began conducting the compliance reviews, which 5 is a kind of hybrid audit. It is narrower in scope 6 than an audit, but it allows an auditor to concentrate 7 on a particular area or areas such as expenses or 8 charitable distributions. 9 Additionally, in 2000, we began 10 conducting the operator training program for 11 licensees, which is mandated by the act, section 12 2001.107. Through the -- through the years, we 13 updated the operators training program. In 2002, we 14 updated it by implementing a hands-on exercise 15 relating to recordkeeping. We've updated it 16 throughout the year when rules are proposed and 17 adopted. We revised the format and appearance to 18 increase class participation by making it interactive 19 with the attendees. There were 1747 persons that 20 attended and certified during 2002. And based on the 21 surveys collected at the end of each class, the 22 training is still considered beneficial to the 23 licensees, with 98.4 percent of the respondents 24 indicating as such. 25 We've also created and completed an 0057 1 automated forms manuals, which is currently on our web 2 site and can be downloaded by licensees for their 3 use. After the data is inputted in the automated 4 forms manual, it automatically calculates the 5 following: the dated forms from the bingo occasions, 6 which transfers the information to the sales journal; 7 cashes and prepares the cash and disburse journals, 8 inventory forms, and transfers all that information to 9 the quarterly report. There are only five items that 10 must be manually entered into the forms manual. So -- 11 but other than that, it's -- it's totally automated. 12 With the assistance of the audit 13 managers, an audit risk assessment was developed. The 14 risk assessment gives us a better methodology of 15 selecting organizations to be audited using line items 16 that are on the quarterly report. 17 We've tested 14 card-minding systems 18 and approved 12. We completed 21 open records request 19 and responded to 52 complaints and closed 29 of those. 20 That concludes the overview for the 21 audit section. I'd be glad to answer any questions if 22 you have any. 23 CHAIRMAN CLOWE: Thank you, Roy. 24 MR. GABRILLO: I turn it over now to 25 Phil Sanderson. 0058 1 MR. SANDERSON: Commissioners, I would 2 like to conclude with the goals for 2003 for the 3 division. Up to date in 2003, we have currently been 4 participating in conducting bill analysis and fiscal 5 notes from over 20 bills that have been filed with the 6 legislature. We are currently monitoring 17 of 7 those -- those bills that deal relately -- directly 8 with bingo operations. 9 We have created and presented to the 10 BAC a work plan and an orientation to -- to actively 11 participate in the decisions and some of the forms and 12 updating the rules with the staff. And we continue to 13 participate with the BAC with the creation of 14 subcommittees that will help gather information from 15 the industry. 16 Our main goals for the remainder of 17 2003 is to implement the new automated charitable 18 bingo system. We began testing in February. We're on 19 schedule now for an -- an implementation date of June 20 16th. Once that system is developed, we'll be 21 providing training for all staff members on the new 22 system. We'll have to review and draft procedures as 23 a result of the new system. 24 We'll continually monitor legislation 25 and depending on what has passed, we'll have to draft 0059 1 rules or may revise current rules. And we'll also 2 have to draft and provide procedures based on new 3 legislation. As well as other -- review other rules 4 and procedures, we'll continue to monitor those and 5 update those as necessary. One other activity that we 6 plan on conducting in 2003 is to monitor the 7 card-minding activity throughout the state through a 8 system modem. 9 Additional goals for 2003 will be to 10 increase the frequency of audits. And also we're 11 preparing to host NAGRA, the North American Gaming 12 Regulators Association conference in Texas in the 13 spring of 2004. 14 Commissioners, that is the division 15 overview for 2002 and 2003 for the charitable bingo 16 operations division. If you have any questions, we'll 17 all be glad to answer those now. 18 CHAIRMAN CLOWE: Thank you. Well 19 done. We appreciate the -- the effort on all of your 20 parts. 21 COMMISSIONER WHITAKER: It sounds like 22 a lot of work behind that. Thank you. 23 MR. ATKINS: Thank you. Commissioner 24 Whitaker, I appreciate that comment because that's 25 exactly what we wanted to share with you is the fact 0060 1 that there is a lot of work that goes on in the 2 division besides just what our -- I just had one of 3 those moments -- the organizational chart shows of 4 licensing -- licensing, accounting, and audit. And, 5 again, I -- I appreciate your comment, and I also want 6 to -- to thank not just the managers but the entire 7 staff of the division. They are very responsive, and 8 they are -- they are very eager to take on any new 9 opportunity that comes before them. They are a great 10 bunch of folks to work with. 11 CHAIRMAN CLOWE: And my -- that's 12 called a senior moment. 13 MR. ATKINS: I believe that's it. 14 CHAIRMAN CLOWE: You are too young for 15 that. 16 MR. ATKINS: I wasn't going to go 17 there. 18 CHAIRMAN CLOWE: Thank you. 19 Billy, we're ready to go to Item VI 20 now. 21 MR. ATKINS: Mr. Chairman, with the 22 Commission's permission, I would like to propose that 23 we take up Items VI, VII, and VIII together. That's 24 the -- the adoption of the repeal of an existing rule 25 and the adoption of three new rules. And these were 0061 1 all proposed together. Their -- their time lines are 2 all consistent. 3 CHAIRMAN CLOWE: That's fine. 4 MR. ATKINS: At the January 31st Texas 5 Lottery Commission meeting, the commission voted to 6 publish in the Texas Register for public comment the 7 proposed repeal of existing administrative rule 8 402.545 and the proposed adoption of new 9 administrative rule 402.545; new administrative rule 10 402.540; and new administrative rule 402.583. All of 11 these rules were published in the February 14th, 2003 12 issue of the Texas Register, and no comment regarding 13 these rules has been received. 14 Prior to being presented to you at your 15 January meeting, these rules had gone before the 16 advisory committee at two different meetings for in 17 comment -- for informal comment prior to their 18 publication in the Texas Register. The proposed rules 19 are ripe for the commission's consideration to adopt, 20 and the staff would recommend that the commission vote 21 to adopt the repeal of existing administrative rule 22 402.545 and adopt new rule administrative rules 23 402.545; new administrative rule 402.540; and new 24 administrative rule 402.583, without changes to the 25 proposed text as published in the Texas Register. 0062 1 CHAIRMAN CLOWE: Billy, without 2 creating a problem on the record, can you describe the 3 impact of what you're asking the commission to 4 approve? What the result of this is. 5 MR. ATKINS: The -- I'm -- I'm not sure 6 I understand your question. The -- the content of the 7 individual rules? Okay. 8 CHAIRMAN CLOWE: Yes. 9 MR. ATKINS: The -- okay. New 10 administrative rules 402.540 and 402.583, essentially, 11 contain language that was contained in the 12 administrative rule 402.540, which you are repealing. 13 I'm sorry. 545, which you are repealing. What the 14 staff has attempted to do is to order the rules in a 15 more logical fashion, making it easier for the 16 licensees to find specific language in an 17 administrative rule. As we've gone through that 18 process, of course, we have also updated that language 19 making it consistent with the agency's practices. So 20 that -- that's what those rules do. 21 402.540 is a general licensing rule 22 that contains provisions relating to all types of 23 licenses. 402.583 is a rule relating to bonds that 24 organizations are required. And 402.545 relates to 25 licenses for the conduct of bingo occasions and 0063 1 commercial lessors. And just for the record, it's -- 2 it's the staff's belief that even the new rule, 545, 3 that we're asking you to adopt today -- today will 4 actually be incorporated in future rules. 5 CHAIRMAN CLOWE: Okay. That's what I 6 wanted to hear. 7 MR. ATKINS: Okay. 8 CHAIRMAN CLOWE: Any questions? Is 9 there a motion. 10 COMMISSIONER WHITAKER: So moved. 11 CHAIRMAN CLOWE: All right. Is the 12 motion I believe is to take the action that is 13 recommended by staff relating to all of the rules, the 14 repeal and the adoption of the preceding? 15 MS. KIPLIN: Without changes as 16 published in the Texas Register. 17 CHAIRMAN CLOWE: That's right. Okay. 18 What's the effective date? 19 MS. KIPLIN: The effective date will be 20 the standard effective date, 20 days after filing with 21 the Texas Register. 22 CHAIRMAN CLOWE: The motion is made and 23 seconded. All in favor, please, say eye. 24 THE COMMISSIONERS: Aye. 25 CHAIRMAN CLOWE: Opposed. No. 0064 1 The vote is three, zero in favor. 2 Billy, I think we've exhausted you. 3 Okay. We're ready to go to Item IX. 4 Report possible discussion and/or action on Lottery 5 sales and trends. 6 Toni, you've covered some of this, but 7 I think there are other portions that you want to 8 revisit. 9 MS. SMITH: Well -- 10 MR. GREER: This might -- excuse me. 11 This might be an appropriate time. Robert, I know 12 you've got an answer to the Commissioner's question. 13 MR. TIRLONI: Mr. Chairman, we've 14 obtained the odds that you requested for Massachusetts 15 earlier. 16 CHAIRMAN CLOWE: Yeah. Good. 17 MR. TIRLONI: Massachusetts actually 18 runs three jackpot style games. They run a Megabucks 19 game. That's a six of 42 matrix. The odds of winning 20 the jackpot are one in five million. They also run 21 Massmillions. That's a six of 49 matrix, and the odds 22 of winning the jackpot on that game are one in 14 23 million. And then Massachusetts also participates in 24 Megamillions, which a multi-state game. And the odds 25 of winning the Megamillions jackpot are one in 135 0065 1 million. 2 CHAIRMAN CLOWE: Okay. Thank you, 3 Robert. 4 MR. TIRLONI: You're welcome. Thank 5 you. 6 CHAIRMAN CLOWE: Toni. 7 MS. SMITH: Well, Chairman Clowe, what 8 I had presented on the -- in the slides earlier was 9 my -- my report on sales. Would you have any other 10 questions about sales, or would you like me to repeat, 11 again, the information about year to date, I'd -- I'd 12 gladly do so. 13 CHAIRMAN CLOWE: And you covered 14 everything that you wanted to talk to us about at that 15 time? 16 MS. SMITH: Yes, sir. 17 CHAIRMAN CLOWE: Are there any 18 questions? I believe -- 19 COMMISSIONER COX: I have one 20 question. Pardon me. 21 CHAIRMAN CLOWE: Yes, sir. 22 COMMISSIONER COX: Toni, is that chart 23 you showed us awhile ago that showed the instant 24 sales -- 25 MS. SMITH: Yes, sir. 0066 1 COMMISSIONER COX: -- for this year 2 versus last year, it has some real surprising, if you 3 will, seasonal variations. And they seem to be 4 consistent from year to year, pretty much so. 5 MS. SMITH: Yes, sir. 6 COMMISSIONER COX: Has -- has your 7 staff looked at why those seasonal variations are 8 there? 9 MS. SMITH: Some of what we've seen is 10 seasonal. For example, in -- in the -- the late fall 11 is the Christmas holidays. People buy the 12 scratch-offs for gift-giving in addition to their own 13 purchases. What we have typically said in the past 14 that the summer is sort of a slow time for us. We've 15 sort of changed out strategy there. So that's the 16 time when we need to come out with something new. 17 Something like the Harley Davidson games are beginning 18 to offer some additional interest to the players. But 19 I don't think it's unusual in the industry to see 20 those kinds of peaks and valleys. 21 The charge and challenge for us is how 22 do we deal with those since we don't have as many 23 spikes. And we're actually looking at instant product 24 games to see how we can improve the product and manage 25 that in a way so that it's not so fluctuating. 0067 1 COMMISSIONER COX: You've already 2 answered my second question. Thank you. 3 MS. SMITH: Thank you, sir. 4 CHAIRMAN CLOWE: And then, Toni, I 5 think the next item is yours, as well. Do you have 6 any report for us on advertising and promotions? 7 MS. SMITH: Yes, sir, I do. In your 8 binders you have an overview of a test that the 9 marketing division was conducting to monitor the 10 effectiveness of advertising the lottery products. 11 This has been an issue that we -- we have talked about 12 in the past. So we decided we'd take a -- a shot at 13 it our ourselves and try to come up with some numbers 14 to -- to maybe answer some of Commissioner Cox's 15 questions through the past. 16 The advertising campaign was planned to 17 run to support the Cash Five product from March 17th 18 through April the 6th, and it was scheduled to run in 19 four of the larger markets. So what we did was opted 20 to not air in the Dallas market in that three week fly 21 and monitor sales three weeks prior to, the three 22 weeks during the advertising campaign, and then three 23 weeks after. And then so that we don't short that 24 game of its support, because obviously when we spend 25 our ad dollars, we want to make sure that we get the 0068 1 most bang for the buck that we can, we will then run 2 that same campaign in the Dallas market for the three 3 week fly later in June and July. And -- and again do 4 a comparison to the other markets it did not air 5 with. And even though it's a short period of time 6 frame test, hopefully we can come back with some good 7 numbers, Commissioner Cox, that answers some of your 8 questions. 9 I do want to note that obviously there 10 are a lot of other things that impact sales. We chose 11 this game, though, because it was not jackpot driven. 12 The campaign that -- that's supporting the game left a 13 very soft message, a general reminder to play. So 14 it's not like a new game induction or a new feature. 15 But we have noticed during this time frame that we 16 have noted the increased jackpot that we had on Texas 17 Two Step, it may also have had an impact on Cash Five 18 sales. And I'm sure that Doctor Liz Jambor will have 19 noted in her report for you. But I just wanted to 20 share that -- that project with the Commissioners. 21 There will be a full report when the -- the project is 22 finished. 23 Thank you, sir. Any other questions? 24 CHAIRMAN CLOWE: Thank you, Toni. I 25 don't believe there are any questions. 0069 1 Now, we're ready for Item Number XI. 2 Report possible discussion and/or action on the 78th 3 Legislature. 4 Ms. Treviħo, good morning. 5 MS. TREVI-O: Good morning, 6 Commissioners. For the record, I'm Nelda Treviħo, the 7 director of governmental affairs. This morning we 8 provided you an updated copy of our legislative 9 tracking report. And just to report to you, there has 10 been over 5700 bills filed in this legislative 11 session. And we're tracking approximately 240 of 12 those bills. 13 At our last commission meeting on 14 February the 28th, I highlighted those bills that 15 directly impact either the lottery and charitable 16 bingo that had been filed as of that date. And I 17 would like to very briefly highlight those bills that 18 we're tracking that directly impact either the lottery 19 or charitable bingo that were filed after that 20 commission meeting date. 21 And those bills are House Bill 2122 by 22 Representative Ron Wilson, relating to taxes and 23 fees. And there's a provision of that bill that 24 repeals the three percent gross rental tax received 25 from lessors who lease bingo premises. House Bill 0070 1 2124, also by Representative Ron Wilson. This is a 2 bill relating to the continuation of the Lottery 3 Commission. This is another Sunset bill that has been 4 filed regarding the agency, and it's an identical bill 5 to the two bills that have previously been filed. 6 House Bill 2439 by Representative Kino 7 Flores. This bill relates to the implementation of 8 video lottery terminals at race tracks to be 9 administered by the Texas Lottery Commission. House 10 Bill 2442 by Representative Kino Flores. It's related 11 to the use of electronic bingo card-minding devices. 12 This repeals the 40 percent requirement that's 13 currently in the Bingo Enabling Act. House Bill 2443 14 also by Representative Kino Flores, relates to the 15 authorization of satellite bingo games. House Bill 16 2519 by Representative Kino Flores, relates to bingo 17 regulations. House Bill 2792 by Representative Kino 18 Flores, relates to the use of electronic pull-tab 19 devices. 20 And rep -- excuse me. And House Bill 21 3382 by Representative Tommy Merritt which relates to 22 public school finance. And there is a provision in 23 that bill that would direct the lottery proceeds to be 24 directed to a new fund called the Texas Great Teachers 25 Facility Fund. And there would have to be a 0071 1 constitutional amendment that would have to pass in 2 order for that to happen. 3 Senate Bill 1171 by Senator Kyle Janek. 4 This relates to a demonstration project to provide 5 certain services to trauma victims. There's a 6 commission on that bill that would direct the Lottery 7 to -- to transfer some of our unclaimed prize money to 8 this particular fund. 9 Senate Bill 1244 by Senator Ken 10 Armbrister. This relates to the operation of video 11 lottery machines at race tracks. Senate Bill 1422 by 12 Representative Juan Hinojosa, related to electronic 13 pull-tab minding devices. Senate Bill 1734 by Senator 14 Eddie Lucio, relates to bingo regulation. Senate Bill 15 1735 by Senator Lucio, relates to the authorization of 16 satellite bingo games. And Senate Bill 1736 also by 17 Senator Lucio, relating to the electronic card-minding 18 devices. It's an identical bill to the House bill 19 relating to the 40 percent requirement. And the last 20 two Senate bills, Senate Bill 1818 and Senate Bill 21 1819 by Senator Leticia Van de Putte, relates to 22 contracts awarded by the Lottery Commission and 23 consideration in economic impact to be considered as 24 part of our agency procurement process. 25 So that's a brief summary, again, of 0072 1 bills that have been filed since our last commission 2 meeting on bills that directly impact either the 3 lottery or charitable bingo. 4 Very -- very briefly in regards to the 5 agency's Sunset bill, it is our understanding that 6 April 2nd is the tentative date that has been set for 7 our bill to be heard in the Senate Government 8 Organization Committee. And we will keep you posted 9 when we receive some confirmation in regards to that 10 date. 11 In regards to the agency's 12 appropriations, on Monday, March the 10th, the House 13 Appropriations Committee considered and adopted the 14 agency's appropriations for fiscal year 2004 and 15 2005. On Friday, March the 14th, the Senate Finance 16 working group comprised of Senators Ogden, Senator 17 Shapiro, and Senator Shapleigh met. And the purpose 18 of the working group was to further discuss the 19 agency's request for the '04, '05 biennium. And 20 during the discussion of our agency, the proposed rule 21 on the Lotto Texas matrix game was discussed, 22 specifically the proposed amount of that revenue that 23 the agency was project -- projecting to be gained by 24 this rule change. The work group did request some 25 additional information in regards to that particular 0073 1 matter, and we have provided that working group that 2 information. 3 Tomorrow the full Senate Finance 4 Committee is scheduled to consider the agency's 5 appropriations for '04 and '05. 6 Just in regards to other committee 7 hearings, very briefly, on Wednesday, March the 5th, 8 the House Weighs and Means Committee met. This is a 9 committee chaired by Representative Ron Wilson, and 10 the agency was invited to provide the committee with a 11 general overview and a briefing on current policy 12 issues. Gary Grief provided the committee with 13 lottery sales and revenue updates, information about 14 the proposed Lotto Texas rule change, information 15 about the lottery revenue enhancing policy issues and 16 related bills that had been filed this session, and 17 the agency's response to the seven percent budget 18 reduction request for fiscal year '03. Additionally, 19 they will be asking folks to provide testimony related 20 to the charitable bingo division's responsibilities, 21 statistical and financial information related to 22 bingo, and also highlighted some of the bingo revenue 23 enhancing opportunities that are also being considered 24 this legislative session. 25 Today the House Licensing and 0074 1 Procedures Committee is scheduled to hear House Bill 2 1401 by Representative Tony Goolsby, and this relates 3 to the bill regarding the Lottery Commission 4 disseminating amber alert information. And Colin Haza 5 is there representing the agency as a resource. 6 This concludes my report, 7 Commissioners, and I'll be happy to answer any 8 questions that you might have. 9 COMMISSIONER WHITAKER: I have a 10 question. What is the rule as to the ability of 11 people to add riders to let the legislation after the 12 deadline for filing? 13 MS. TREVI-O: A rider in the agency's 14 bill pattern? 15 COMMISSIONER WHITAKER: For example, 16 let's take these bills that were filed before the 17 deadline, filed bills, which is March 14th. 18 MS. TREVI-O: Correct. 19 COMMISSIONER WHITAKER: Can riders to 20 those bills be added after March 14 -- 14th? What are 21 the rules relating to that? 22 MS. TREVI-O: Commissioner, maybe 23 you're talking about amendments. 24 COMMISSIONER WHITAKER: Amendments. 25 MS. TREVI-O: Amendments. 0075 1 COMMISSIONER WHITAKER: Can amendments 2 be added? 3 MS. TREVI-O: Yes. As part of the 4 legislative process when a bill is heard in the 5 committee hearing or when it's also heard either on 6 the house floor or on the Senate, it may make 7 amendments considered on those bills. 8 COMMISSIONER WHITAKER: Do they all 9 have to relate to the topics of the statute, or can 10 they relate to separate topics? 11 MS. TREVI-O: They're supposed to 12 relate to the topics. 13 MS. KIPLIN: You -- 14 CHAIRMAN CLOWE: That's closed. 15 MS. KIPLIN: You might also want to 16 discuss the House or Senate committee substitutes. 17 MS. TREVI-O: Yes. And that -- that's 18 part of the new process that old -- new bills can be 19 made out that may be referred to, as Ms. Kiplin said, 20 a committee substitute. So just to pick a number, 21 House Bill, you know, 37, if a member wants to lay out 22 a complete committee substitute rather than just an 23 amendment that can be done also. 24 Any other questions? 25 CHAIRMAN CLOWE: Thank you, Nelda. 0076 1 I -- I think I heard you say the only scheduled 2 meeting we have next week is April the 2nd. 3 MS. TREVI-O: Yes, sir. 4 CHAIRMAN CLOWE: Okay. 5 MS. TREVI-O: And that's still a 6 tentative date, but it's my understanding that 7 hopefully we can get some confirmation on that. 8 CHAIRMAN CLOWE: And you'll keep the 9 Commissioners informed? 10 MS. TREVI-O: Absolutely. 11 CHAIRMAN CLOWE: You know, it's our 12 desire for commission representation to be at these 13 committees insofar as possible. And I want to thank 14 Commissioner Cox for being at, I think, at least two 15 committee hearings where Commissioner Whitaker and I 16 were unable due to scheduling of activities and 17 changes to attend, but it's important for the 18 commission to have a presence. Commissioner Cox 19 enabled the staff to go over there and have that 20 presence. And it's very important, and we thank you 21 for that. We want to continue that practice insofar 22 as possible. 23 MS. TREVI-O: Yes, sir. We will do 24 that. 25 CHAIRMAN CLOWE: Thank you. 0077 1 MS. TREVI-O: Thank you. 2 CHAIRMAN CLOWE: The next item, Number 3 VIII, we're going to defer until possibly later in the 4 meeting. And it's my understanding that Item Number 5 XIV, there's no report to be made at this time so... 6 MS. KIPLIN: Mr. Chairman, you 7 indicated Item VIII, I'm wondering if you mean Item 8 XIII. 9 CHAIRMAN CLOWE: I did mean to say 10 XIII. I'm sorry. 11 MS. KIPLIN: I'm sorry. XIV. 12 CHAIRMAN CLOWE: And then XIV, I 13 understand there is no report. 14 MS. KIPLIN: At this time. 15 CHAIRMAN CLOWE: I believe that's what 16 I said. 17 And now we'll go to Item XV. Report, 18 possible discussion and/or action on HUB and/or 19 minority business participation. 20 Mr. Hall. 21 MR. HALL: Good morning, Chairman 22 Clowe, Commissioners. For the record, my name is 23 Robert Hall. I'm the director for minority -- excuse 24 me -- Business Development & Compliance. 25 Commissioners, as it relates to HUB 0078 1 and/or minority participation, I have two reports for 2 you. The first is regarding the monthly HUB 3 participation for the court and which is -- includes 4 all fiscal year expenditures that have been paid from 5 September 1, 2002 to February 28th, 2003. I'm happy 6 to report that the total Lottery Commission's 7 expenditures to date is over $60.8 million. Our total 8 HUB, slash, minority possession is over $11.1 million, 9 which equates to roughly 18.41 percent total HUB and 10 minority organization. 11 I'm also happy to inform you that our 12 total subcontracting from FY 2002 has increased to 13 over -- it almost doubled, from $3.6 million to almost 14 $7.2 million in FY 2003. 15 The second report for you is 16 regarding -- in regards to specially placed to our 17 Mentor Protegee Program. The Business Development & 18 Compliance Division, BDC, recently received a letter 19 from Fogarty Klein Monroe stated they are voluntarily 20 withdrawing as a mentor from the Texas Lottery 21 Commission's Mentor Protegee Program. In addition, 22 Scientific Games has informed us that they will also 23 withdraw one of their two mentor program 24 relationships. As a result of these decisions, the 25 TLC now has five established mentor program 0079 1 relationships, only four of which are currently active 2 with the Texas Voting Procurement Commission. 3 The BAC is also assisting vendors that 4 would be eligible as a result to become recertified to 5 have that agreement also activated as soon as 6 possible. We also have contacted two of our mentors, 7 who have relationships expiring in April to request 8 the extension of their agreements for an additional 9 year. And I'll be happy to answer any questions you 10 may have regarding those two reports. 11 COMMISSIONER COX: Robert, Fogarty 12 Klein Monroe, who are they? 13 MR. HALL: Fogarty Klein Monroe was a 14 general marketing advertising vendor previous to them. 15 COMMISSIONER COX: Okay. And they're 16 no longer serving the commission. Is that your guess 17 of why they're -- withdrew their support? 18 MR. HALL: I'm sorry? 19 MS. KIPLIN: Well, I don't -- I don't 20 know. Have they -- have -- let me ask it this way 21 instead of asking -- 22 COMMISSIONER COX: Okay. 23 MS. KIPLIN: -- Mr. Hall to speculate. 24 Have they indicated to you why they decided to opt out 25 of the Mentor Protegee Program? 0080 1 MR. HALL: In your -- in your notebooks 2 there is a letter from Fogarty Klein Monroe which 3 indicates according to the guidelines of HUB rules 4 111.28, it stipulates that a mentor protegee 5 relationship is voluntary on behalf of the mentor or 6 as well as a protegee. They are exercising their 7 right, if you want to call it that, to terminate their 8 agreement at this time. 9 COMMISSIONER COX: Thank you. 10 MR. HALL: You're welcome. Any other 11 questions? 12 CHAIRMAN CLOWE: I don't believe so. 13 Thank you, Robert. 14 MR. HALL: Next item? 15 CHAIRMAN CLOWE: Go ahead. 16 MR. HALL: Okay. The next item -- item 17 is reference to the report on the agency's contract 18 activities. 19 The first report I have for you is in 20 relationship to all contracts over $25,000, and I have 21 a revised report for you, Commissioners. The report 22 that we submitted to you has a -- a minor error on it, 23 and I want to make sure you have the most updated 24 information as of this morning. And I want to present 25 to you -- present that to you at this time. 0081 1 CHAIRMAN CLOWE: Good. 2 MR. HALL: And, again, all of this 3 report -- this report reflects all the contract 4 activity over $25,000. We've been tracking it on an 5 ongoing basis, and it includes all the cost benefit 6 analysis have; those -- what is -- what's going on for 7 development of the new contracts or current contracts; 8 also, renewals; resource stations; and also the 9 interagency contracts that we're contracting. 10 The second report I have for you is a 11 report based on the contract planning committee. 12 Meetings have been ongoing. We've -- we have 13 conducted our final meeting on March 3rd. The 14 objective of these meetings, again, was to identify 15 the tasks and responsibilities associated with the 16 commission procurement processes in order to effect a 17 release and award all contracts in a timely manner. 18 The BAC has already processed formally in this final 19 meeting for any proposed recommendations. It is our 20 intent to submit this report to you for your review 21 and discussion at the April or May 2003 commission 22 meeting. 23 And with that, Commissioners, that is 24 all the reports I have. I would be happy to answer 25 any question that you may have this morning. 0082 1 CHAIRMAN CLOWE: Good, Robert. 2 Any questions? 3 Good report. Thank you very much. 4 MR. HALL: You're welcome, sir. Thank 5 you. 6 CHAIRMAN CLOWE: Commissioner Cox has 7 indicated we should revisit Item Number XIV, and there 8 may be a report and possibly some information 9 forthcoming. Is there? Let's just take a minute. 10 COMMISSIONER COX: All right. 11 CHAIRMAN CLOWE: Well -- 12 COMMISSIONER COX: We'll see if we can 13 line that up for later. 14 CHAIRMAN CLOWE: Right. We'll pass 15 over that for the time being, and if there is a 16 report, we'll revisit that after executive session. 17 Next down is Item XVII, consideration 18 of and possible discussion and/or action on the 19 agency's business plan. 20 Mr. Anger. 21 MR. ANGER: Good morning, Mr. Chairman 22 and Commissioners. For the record, my name is Michael 23 Anger, and I am the director of lottery operations. 24 I'm here this morning to give you a brief progress 25 report on our work on the commission's business plan. 0083 1 Let's begin by updating on our progress 2 in review of the agency's mission statements. I am 3 pleased to report that our task force has completed a 4 draft vision, mission, and value statement and 5 submitted it for review and consideration by executive 6 director Greer. Soon I anticipate the delivery of a 7 draft to you for your consideration and approval. 8 There are two sections in the business 9 that we developed prior to final approval of the 10 agency's mission statement. These are the 11 commission's history and milestone section and the 12 agency management and organizational structure section 13 of the plan. It is my intent to move forward with 14 establishing project groups to work on these sections. 15 I've only recently identified and 16 procured a software application that will aid and 17 coordinate in work on the development of the business 18 plan. I will be conducting an assessment of this 19 software to determine its usefulness in developing a 20 business plan and making a decision on its 21 implementation. I will continue to monitor the 22 commission's Sunset legislation detailed in House Bill 23 794 and 2124 and Senate Bill 27 for any changes in 24 guidance regarding the development of the commission's 25 business plan. 0084 1 That concludes my report this morning. 2 I'd be glad to answer any questions you might have or 3 receive any feedback. 4 CHAIRMAN CLOWE: Any questions? 5 MR. GREER: Mr. Chairman, I'd like to 6 mention that there's copy of the mission statement 7 there in front of you, and I want to thank Mike for 8 his work on that. We are certainly subject to any 9 review of that if you want to bring it to the table. 10 I'm very impressed by the work the group done and have 11 done at this point and look forward to your input on 12 that before we finalize it. 13 CHAIRMAN CLOWE: Very good. And -- and 14 I understand congratulations are due to you. You are 15 now the director of the operations division. Is that 16 correct? 17 MR. ANGER: Yes, sir. I'm pleased to 18 announce that that's correct. 19 CHAIRMAN CLOWE: I think I got that. 20 It's not condolences, is it? Sometimes we get those a 21 little confused. You've done an excellent job, Mike, 22 and we're all appreciative of it. And we look forward 23 to continuing to run a very important function at the 24 commission. 25 MR. ANGER: Thank you, sir. I look 0085 1 forward to the challenge. 2 MS. KIPLIN: Mr. Anger -- Mr. Anger 3 gets to the pleasure of completing a personal 4 financial statement now with the Texas Ethics 5 Commission, so he has stepped up a little bit. 6 CHAIRMAN CLOWE: Welcome to the club. 7 MR. ANGER: Thank you, sir. 8 CHAIRMAN CLOWE: We're moving right 9 along on the agenda. And in light of that, I would 10 like to go right on to Item Number XX and consider the 11 status and possible entry of orders listed in letters 12 A through S. 13 MS. KIPLIN: Commissioners, I think I'd 14 like to take up all but the Heart of Texas matters at 15 this time. Chairman Clowe, as you know, you have 16 recused yourself from the matters involving Heart of 17 Texas. So I'd like to hold those until -- until your 18 consideration on items A through Q. 19 CHAIRMAN CLOWE: Very good. Those -- 20 those are items R and S. 21 MS. KIPLIN: Correct. Items A through 22 P were all lottery revocation cases. In each of these 23 cases, the State Office of Administrative Hearings 24 administrative law judge has recommended revocation of 25 the license due to the failure of the licensee to have 0086 1 submitted or had on hand the monies that were owed the 2 state at the time we swept the account. Staff does 3 recommend that the commission vote to adopt the 4 administrative law judge's proposal for decision and 5 recommended order. 6 The item Q is a bingo case. It's an 7 agreed order between the parties. We've responded. 8 Optimist Club Downtown Corpus Christi and -- and then 9 the bingo division. The violations that were noted 10 were a failure to file, to propose the name of the 11 organization, and also playing outside license times. 12 Mainly, they were selling pull-tabs outside license 13 times. 14 The respondent has no history of 15 previous violations. And the order -- agreed order 16 that's proposed and recommended by the staff sets out 17 procedures that the division would like for the 18 respondent to follow to hopefully ensure that these 19 kind of instances don't occur in the future. 20 So with that, the staff recommends that 21 you vote to approve the settlement and enter the 22 consent order. 23 CHAIRMAN CLOWE: Is this -- do we 24 require two motions or is one satisfactory? 25 MS. KIPLIN: I think that one is 0087 1 satisfactory so long as it's a motion to accept the 2 staff's motion -- or pardon me -- request to enter the 3 orders as presented in your book. 4 CHAIRMAN CLOWE: All right. On letters 5 A through P and then the recommendation, which is 6 the -- not revocation but rather a stipulated 7 procedure, if I can phrase it that way. 8 MS. KIPLIN: That's correct. 9 CHAIRMAN CLOWE: On item Q -- 10 MS. KIPLIN: Correct. 11 CHAIRMAN CLOWE: -- or letter Q. 12 MS. KIPLIN: Yes, sir. 13 CHAIRMAN CLOWE: Is there a motion? 14 COMMISSIONER WHITAKER: Second. 15 CHAIRMAN CLOWE: Second. I say -- all 16 in favor say aye. 17 THE COMMISSIONERS: Aye. 18 CHAIRMAN CLOWE: Opposed. No. 19 The vote is three, zero in favor. 20 Do I need to ask Commissioner Whitaker 21 to chair the meeting at this point in time? 22 MS. KIPLIN: Yes. I think that would 23 be helpful, although I'm going to need you to sit 24 there for just a second because of an issue that I 25 need to put on the record. 0088 1 CHAIRMAN CLOWE: All right. 2 MS. KIPLIN: Commissioners, as you 3 know, in each item R and S, Commissioners Whitaker and 4 Commissioner Cox voted to accept the administrative 5 law judge's recommendation in each of those cases. 6 The reason that I'm asking Chairman Clowe to sit there 7 is because in the flurry of the orders that get 8 sent -- sent down your row, Chairman Clowe signed the 9 two orders that came from the State Office of 10 Administrative Hearings and in doing so, signed 11 incorrectly. And, you know, I'll accept 12 responsibility because I'm the one that floats them 13 down your row. But clearly that's inconsistent with 14 the record and so I wanted to put this on the record 15 and make it clear that his signature has no force and 16 effect on those two orders. It is not part of a 17 motion, not part of a second, clearly not part of the 18 vote and had indicated that he had recused himself. 19 CHAIRMAN CLOWE: So my signature 20 appearing on the order was an oversight that occurred 21 in the practice of simply signing orders which were 22 passed to me and was an inadvertent signing. Is 23 that -- 24 MS. KIPLIN: That is correct. 25 CHAIRMAN CLOWE: -- my understanding, 0089 1 is that correct? 2 MS. KIPLIN: That is correct. You were 3 not part of -- of any of the action. You were not 4 part of the deliberations. You were not part of the 5 proceedings. And as you'll recall you got up, and you 6 left the room, which is appropriate. 7 CHAIRMAN CLOWE: That's right. 8 MS. KIPLIN: And I wanted to make -- 9 make that clear on the record. 10 COMMISSIONER WHITAKER: So that's why 11 it's on the amendment? 12 MS. KIPLIN: No. That's the first 13 part. 14 CHAIRMAN CLOWE: Okay. Now may I -- 15 MS. KIPLIN: Now you have to -- 16 CHAIRMAN CLOWE: -- ask Commissioner 17 Whitaker to chair the meeting? 18 MS. KIPLIN: Yes. That -- 19 COMMISSIONER WHITAKER: Yes. That 20 would be good. 21 MS. KIPLIN: -- that would be helpful. 22 CHAIRMAN CLOWE: No signing. 23 MS. KIPLIN: Now, on item R, that's 24 docket number 362-01-2136.B. Commissioners, at your 25 January 31st commission meeting, you did vote to -- I 0090 1 believe it was a revote. Ms. Wilkov, keep me straight 2 on it for me. Yeah. Revocation of a license. The 3 respondent filed a motion for rehearing in this 4 matter. There is a question, I guess, on whether it 5 was a timely motion filed or not. I think that 6 Ms. Wilkov has done a really good job in terms of 7 filing a reply to that motion that sets out the 8 balance. And my recommendation as the general counsel 9 for the agency is that if you decide that you want 10 to -- to vote to take action on this motion for a 11 rehearing is to err on the side of caution. Consider 12 for purposes of this record that the motion was timely 13 filed based on the respondent receiving notice via the 14 mail. 15 There are no new substantive issues 16 that I can see in reviewing the motion for a 17 rehearing. Ms. Wilkov has contacted this -- by -- 18 finally got a hold of the respondent's representative 19 yesterday, tried over a period of a couple of days, I 20 guess, or a period of time to try to contact the 21 respondent. So the respondent's representative is 22 aware of the proceeding today and staff recommends 23 that you overrule a motion for a new hearing. 24 Mr. Atkins and -- and y'all should 25 receive this. We're in a position where the motion 0091 1 for a hearing would have been overruled by operation 2 of law if he had not extended it, entered an order to 3 extend the time for you-all to act today. Consistent 4 with the order -- the commissioner order that 5 delegates that authority to the bingo operation's 6 director. He did sign that motion so that this would 7 be something that you-all could consider today. It 8 would not have been overruled -- would not be 9 overruled by operational law. But the staff is 10 recommending that you do vote to overrule this motion 11 for a rehearing today. 12 COMMISSIONER WHITAKER: Counselor, do 13 you have any comments? 14 MS. WILKOV: No. I was here in case 15 you wanted to ask me questions. 16 COMMISSIONER WHITAKER: I have no more 17 questions. Do you want to move? 18 COMMISSIONER COX: Yes. 19 COMMISSIONER WHITAKER: Okay. Your 20 motion is? 21 MS. KIPLIN: My -- my recommendation 22 that your motion would be to overrule the motion for a 23 rehearing as been filed in this docket number by the 24 respondent and to not -- to deny any other relief 25 requested that was obviously not granted. 0092 1 COMMISSIONER WHITAKER: I'll second it. 2 All in favor say aye. 3 THE COMMISSIONERS: Aye. 4 COMMISSIONER WHITAKER: All opposed say 5 no. 6 The vote is two, zero. 7 MS. KIPLIN: The order already reflects 8 Chairman Clowe's refusal. 9 COMMISSIONER WHITAKER: Is that it, 10 Kim? 11 MS. KIPLIN: The second one that was on 12 there. I apologize for that was just to clarify the 13 issue of Chairman Clowe's signature. There -- we'll 14 just leave it at that for the moment. 15 COMMISSIONER WHITAKER: Okay. You may 16 come back. 17 CHAIRMAN CLOWE: Are you not finished? 18 MS. KIPLIN: I'm done. 19 CHAIRMAN CLOWE: Okay. 20 MS. KIPLIN: For now. 21 CHAIRMAN CLOWE: I know. It goes on. 22 Continuing in light of our progress, I 23 would like to call Item XXI next. The report by the 24 executive director. 25 MR. GREER: Mr. Chairman and 0093 1 Commissioners, the financial and FTE information is in 2 your packets in reference to one of the items that 3 comes down in Number XXI. But I did want to give you 4 an overview of my first 30 days here, my first month. 5 We've had a productive time together. We have had a 6 good staff meeting and directors meetings. Our focus 7 has been on teamwork. We started out -- actually, the 8 first day I was here, the Chairman came down and had a 9 great meeting with the entire staff and continue to 10 focus on being part of the team. 11 I was pleased that one of my first 12 actions was to offer the position of lottery operation 13 director to Mr. Anger, which he gladly accepted, and 14 we're excited to have him on board. We are 15 interviewing candidates right now for the financial 16 administrative director. We began doing that 17 yesterday, and we'll keep you apprised as that moves 18 forward. We're also in the process of receiving 19 applications for the vacant communications director 20 position. I've got, like the staff there, a new 21 approach and a new vision in communications, and 22 we're -- we're moving forward on that. 23 You have received today a copy of the 24 mission statement which we touched on a moment ago, 25 and we're in the process of finalizing the mission 0094 1 statement and the values. We're introducing new 2 opportunities to the interact more with the employees 3 You'll be getting a copy in April of our first monthly 4 newsletter that will continue to communicate what's 5 going on in the organization, what's our entire 6 operation. I'm excited about that and have enjoyed 7 working with the marketing and communications area in 8 reference to that newsletter. 9 We are promoting our revamped web site 10 on our literature, press releases. I'm very proud of 11 the web site. We have moved the web master into the 12 IT division from communications and really pushing the 13 that fact that we have a great web site and want 14 people to go to that for information. Also, we have 15 begun work on a e-government assessment in that area. 16 And I'm excited about moving forward with IT on what 17 we can do in the whole e-government arena to be more 18 user friendly. 19 I've been attending meetings with Toni 20 and her group to get a better perspective on what goes 21 on in marketing. I know that's been an issue 22 especially for you, Commissioner Cox. And I have 23 stayed on top of that. And I want to acknowledge the 24 fact that they have been very receptive to numerous 25 new projects that I've put on their plate and have 0095 1 identified some great things that we're going to see 2 as far as changes in the future here in that area. 3 Externally, I wanted to acknowledge 4 Nelda and her team. We have had weekly visits to the 5 capitol and have been well-received by legislators and 6 elected officials and let them know that I am looking 7 forward to working with them, and we'll continue to do 8 that. I've attended numerous meetings in that 9 regard. We've talked about the agency's budget cuts 10 and also fiscal projections for next year. And I've 11 really enjoyed interacting on the hill. 12 I've toured the GTECH facility and had 13 an opportunity to get an overview of their office and 14 warehouse operations and give me some insight into 15 what goes on over there. 16 We've been an active participant in 17 check presentations. I've personally given out the 18 check. I've enjoyed doing that, and it certainly 19 brings home the fact that we do bring some joy into 20 people's lives here. And we'll continue to be a part 21 of those check presentations if possible. 22 Toni has put together a retailer forum 23 on April the 3rd. It will be in San Antonio. I think 24 it will be at the hotel. The address is 611 Northwest 25 Loop 410. It will be from 3:00 to 6:00. I'll be 0096 1 present at that and look forward to interacting with 2 the retailers. 3 We are coordinating, as Nelda mentioned 4 a moment ago, something that I am -- I'm really 5 excited about which is the amber alert project. And 6 we are coordinating that with the appropriate state 7 officials and entities and will keep apprised as we 8 moved forward with that amber alert project. That's a 9 great thing. 10 Obviously, I've been a part of 11 reviewing the Lotto Texas rule change and the matrix 12 change. We will be proactively working to provide 13 that information to the public, which I have given you 14 a copy and wanted your input on a press release that 15 we're proposing putting out today and look forward to 16 working with people to work through that whole aspect 17 of what the matrix change is going to do. 18 And, lastly, I want to thank you for 19 the opportunity that I had to be the executive 20 director of the organization. It's been a great month 21 for me. It's an opportunity that I certainly have 22 been looking forward to, and, as I look down the road, 23 because of the fact that I -- I'm married, my 24 government experience, my business experience, and 25 political experience, hopefully, which will continue 0097 1 to be a great relationship to the benefit with the -- 2 of the organization and look forward to working with 3 each one of you as we see a new day here at the 4 Lottery. 5 CHAIRMAN CLOWE: Any questions? 6 COMMISSIONER COX: No, sir. 7 CHAIRMAN CLOWE: Reagan, the 8 commissioners have monitored your progress this month, 9 and you've made a lot of good moves, I think, and 10 especially I'm appreciative of your efforts towards 11 communications internally, team building, and then 12 your communications externally to have a desire on the 13 part of this agency known the leader -- leadership, 14 the legislature, other agencies, and the players of 15 the games of Texas, that we are open to their comments 16 and their direction and we want to be responsive. 17 That's a responsibility that I think we bear second 18 only to the honesty and integrity aspect of running 19 this agency. 20 So I would simply say that on behalf of 21 the commissioners, we want you to know that we're 22 here; we're available; we want to be proactive; and 23 when issues come up that -- that you or others in the 24 agency feel require our oversight and direction, we 25 want you to call. 0098 1 MR. GREER: Thank you very much. 2 CHAIRMAN CLOWE: Billy, that's -- that 3 goes for you too. And now we're to your report, which 4 is Item XXII. If you would, please. 5 MR. ATKINS: Thank you, Commissioners. 6 I don't really have a lot to add to my report. We're 7 still in the process of filling the vacant audit 8 position in Houston. The testing of the new CBS 9 system is on schedule. We did make allocations for 10 the fourth quarter of 2002 and the first part of this 11 month, and we have one conference scheduled for April 12 in Waco. And other than that, I would be happy to 13 answer any questions. 14 CHAIRMAN CLOWE: Okay. Again, members, 15 as Commissioner Whitaker said an excellent report on 16 behalf of your staff, and I think you really brought 17 us up to date very nicely with that. 18 MR. ATKINS: Thank you. 19 CHAIRMAN CLOWE: Is there anyone 20 wishing to make public comment to the Commission at 21 this time? 22 Is there any business on the public 23 agenda that we need to cover at this point before I 24 move to go into executive session? We have deferred 25 at least one item until after executive session, but I 0099 1 think this pretty well completes the public's agenda. 2 At this time I move the Texas Lottery 3 Commission go into executive session to deliberate the 4 duties of the executive director and/or deputy 5 executive director pursuant to section 551.074 of the 6 Texas Government Code. 7 To deliberate the appointment, 8 employment, and duties of the internal audit director 9 pursuant to section 551.074 of the Texas Government 10 Code. 11 To deliberate the duties and 12 reassignment of the internal audit division senior 13 auditor and/or auditor VI pursuant to Section 551.074 14 of the Texas Government Code. 15 To deliberate the duties of the 16 charitable bingo operations director pursuant to 17 section 551.074 of the Texas Government Code. 18 To deliberate the duties of the general 19 counsel pursuant to section 551.074 of the Texas 20 Government Code. 21 To deliberate the duties of the 22 security director pursuant to section 551.074 of the 23 Texas Government Code. 24 To receive legal advice regarding 25 pending or contemplated litigation and/or to receive 0100 1 legal advice pursuant to section 551.071, paren, one, 2 close paren, paren, A, close paren, or paren, B, close 3 paren, of the Texas Government Code and/or to receive 4 legal advice pursuant to section 551.071, paren, two, 5 close paren, of the Texas Government Code, including 6 but not limited to: TPFV Group, Inc., versus Texas 7 Lottery Commission; Retired Sergeant Majors' 8 Association, et al, versus Texas Lottery Commission, 9 et al; Scientific Games and Pollard Banknote versus 10 Texas Lottery Commission and Linda Cloud, executive 11 director; Keane versus Texas Lottery Commission; Patsy 12 Henry versus Texas Lottery Commission; Ieric Rogers 13 versus Doyle Mitchell, et al; contract regarding the 14 charitable bingo system, employment law, personnel 15 law, procurement and contract law, and general 16 government law. 17 Is there a second? 18 COMMISSIONER WHITAKER: Second. 19 CHAIRMAN CLOWE: Okay. All in favor, 20 please, say aye. 21 THE COMMISSIONERS: Aye. 22 COMMISSIONER CLOWE: The vote is three, 23 zero in favor. 24 The time is 10:31 a -- a.m. And today 25 is March 27th, 2003. 0101 1 (Recess.) 2 CHAIRMAN CLOWE: The commission is out 3 of executive session. The time is 3:46 p.m. It is 4 March the 27th, 2003. 5 Is there any business to be taken up as 6 a result of executive session? 7 Hearing none, we will now return to 8 items which we had passed over. And that was 9 consideration of possible appointment and employment 10 of the internal audit director. We're not going to 11 take that item up at this time. And Kim will ask that 12 that be on the agenda for the next meeting. 13 And then Item XIV consideration and 14 possible discussion of state auditor's office and 15 external audit reports or internal audit reports 16 relating to the Texas Lottery Commission. I -- I 17 don't believe there is any action to be taken on that 18 item either. 19 Commissioner Cox, you received some 20 audit reports that you're going to be visiting with 21 the internal office about, as I understand. 22 COMMISSIONER COX: That is correct. 23 CHAIRMAN CLOWE: Very good. 24 Reagan, is there any other comment you 25 have as part of your report that perhaps you did not 0102 1 cover earlier. 2 MR. GREER: Yes, sir. I have two quick 3 issues. The first was to let you know that since we 4 received a vote this morning from you in reference to 5 the matrix change, I've done three radio interviews: 6 one on WOAI in San Antonio; one on KTRH in Houston; 7 and one on the Texas News Network, which goes all over 8 Texas. They went well, asking some specific questions 9 about the changes, and I'll continue to keep you 10 abreast of, you know, the media contact that we have 11 on the issue there. 12 The other thing is I wanted your 13 opinion in reference to one of the -- the earlier 14 things that we discussed in reference to the vision 15 statement for the organization. The statement that 16 came forward out of the working group was the -- our 17 vision is to be the premier gaming provider for 18 citizens and visitors to the State of Texas. 19 The question that I had for you was 20 that there was some concerns that came forward with 21 using the word "gaming." And I wanted each of you to 22 have a say in the verbiage as we look at that vision 23 statement, to be the premier gaming provider for 24 citizens and visitors to the State of Texas. 25 Internally, there was some people that didn't like 0103 1 that. 2 CHAIRMAN CLOWE: My reaction is it 3 might be more correct and more specific to say exactly 4 what we are providing, which is lottery and bingo. 5 MR. GREER: Okay. 6 CHAIRMAN CLOWE: We are authorized by 7 the statute to conduct lottery and bingo. And gaming 8 to me, as a layperson -- and I defer to Commissioner 9 Cox. Gaming is an all-inclusive term that can be 10 applied to many forms of bad activity. We're 11 authorized by a statute to conduct lottery and bingo 12 operations. So might that not satisfy that express 13 concern? 14 COMMISSIONER WHITAKER: Well, we 15 don't -- we're not providing bingo. We're regulating 16 bingo. So it seems to me a little -- 17 CHAIRMAN CLOWE: That's correct. 18 That's correct. 19 COMMISSIONER COX: I think that the 20 idea that we are the premier gaming provider in the 21 State of Texas says very little because we're 22 effectively the only one, legally. There is certainly 23 a para mutual, but that's tiny compared to what we 24 generate here. You might think about -- and I -- I 25 agree with -- that -- with Chairman Clowe that we -- 0104 1 some specificity might be good and that that word 2 "gaming" might be a little more loaded in certain 3 circumstances. That might be serviced best, and then 4 maybe we think of the -- the excellence statement, the 5 comparative excellence statement in terms of national 6 or international as opposed to just within the state. 7 MR. GREER: Okay. 8 COMMISSIONER COX: I think what I see 9 that we want to do is we want to be the best doggone 10 lottery organization there is. 11 COMMISSIONER WHITAKER: I would -- 12 my -- my view is the mission statement actually 13 articulates the balance because not just that we want 14 to make the most money if only in a contest. 15 Excellence means many things other than just the most 16 revenue. It doesn't mean the most revenue, meaning 17 that consistent with, you know, the most value. So I 18 wonder if you could -- I think a mission statement is 19 wonderful as it uses very strong, powerful words. 20 Maybe you can maybe use that to shape the mission 21 statement. 22 MR. GREER: Okay. Well, we're going to 23 go back to the drawing board, but I wanted your input 24 as it related to that phase. And we'll get back to 25 you next month with a more detailed mission statement. 0105 1 CHAIRMAN CLOWE: Very good. 2 MR. GREER: That's all I have. 3 CHAIRMAN CLOWE: Anything else? Anyone 4 else to comment to the commission? 5 If not, we are adjourned at 3:52 p.m. 6 Thank you-all very much. 7 (Concluded at 3:51 p.m.) 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL 0106 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 14th day of 17 April, 2003. 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. 030327SNJ WRIGHT WATSON STEN-TEL