1 1 2 3 4 5 * * * * * * * * * * * * * * * * * 6 7 TEXAS LOTTERY COMMISSION 8 MEETING 9 10 FEBRUARY 15, 2001 11 12 * * * * * * * * * * * * * * * * * 13 14 15 16 17 18 19 BE IT REMEMBERED that the TEXAS LOTTERY 20 COMMISSION meeting was held on the 15TH of FEBRUARY, 21 2001, from 8:30 a.m. to 4:05 p.m., before Brenda J. 22 Wright, RPR, CSR in and for the State of Texas, 23 reported by machine shorthand, at the Offices of the 24 Texas Lottery Commission, West Sixth Street, Austin, 25 Texas, whereupon the following proceedings were had: WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 2 1 APPEARANCES 2 3 Chairman: Mr. C. Tom Clowe, Jr. 4 Commissioners: 5 Ms. Elizabeth D. Whitaker Mr. Anthony J. Sadberry 6 General Counsel: 7 Ms. Kimberly L. Kiplin 8 Executive Director: Ms. Linda Cloud 9 Charitable Bingo Operations Director: 10 Mr. Billy Atkins 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 3 1 INDEX 2 3 Appearances...................................... 2 4 AGENDA ITEMS 5 Item Number 1.................................... 4 6 Item Number 2.................................... 4 Item Number 3.................................... 7 7 Item Number 4.................................... 9 Item Number 5.................................... 10 8 Item Number 6.................................... 122 Item Number 7.................................... 11 9 Item Number 8.................................... 12 Item Number 9.................................... 21 10 Item Number 10................................... 136 Item Number 11................................... 137 11 Item Number 12................................... 142 Executive Session................................ 147 12 Item Number 16................................... 148 Item Number 17................................... 149 13 Item Number 18................................... 157 Item Number 19................................... 157 14 15 Reporter's Certificate........................... 159 16 17 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 4 1 CHAIRMAN CLOWE: Good morning. It is 08:48 2 8:50 a.m., February 15th, 2001. I would like to call 08:48 3 to order the meeting of the Texas Lottery Commission. 08:48 4 We have a quorum. Commissioner Sadberry is here. I 08:48 5 am Tom Clowe. We will begin without Commissioner 08:48 6 Whitaker. We anticipate her arrival at some point in 08:48 7 time, and I'll announce that when she appears. 08:48 8 We're ready to go to the agenda, item 08:48 9 number two, report, possible discussion and/or action 08:48 10 on lottery sales and trends. Toni, are you going to 08:48 11 help us with that this morning? 08:48 12 MS. SMITH: Yes, sir. Good morning, 08:48 13 Commissioners. For the record, I'm Toni Smith, 08:48 14 marketing director of the Texas Lottery Commission. 08:48 15 First, to take a look at sales. Fiscal year to date 08:48 16 for fiscal year 2001 are $1,297,255,224. This is 08:48 17 11.37 percent from last fiscal year's total sales of 08:49 18 $1,164,865,476. To look at the same numbers on a 08:49 19 weekly average basis for fiscal year '01, we are at 08:49 20 $54,052,301, which again, reflects an 11 percent 08:49 21 increase over the weekly average of last year's sales 08:49 22 of $48,536,061. 08:49 23 To look at year to date by just a 08:49 24 couple of products. The Instant product fiscal year 08:49 25 to date is $797,271,319, as opposed to $708,545,367. 08:49 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 5 1 The Instant product in fiscal year '01 represented 08:49 2 61.46 percent of sales, and last year it was 60.83 08:49 3 percent of sales. So we're seeing a 12.52 percent 08:50 4 increase over last year. And for Lotto Texas, fiscal 08:50 5 year to date we're at $320,613,469, versus 08:50 6 $268,922,799. It's currently 24.71 percent of sales, 08:50 7 and we've seen an increase of 19.22 percent on that 08:50 8 product. And then just to compare this week to last 08:50 9 week, total sales for this week were $54,942,635, 08:50 10 which was an increase of seven percent over last week 08:50 11 of $51,326,869. And I have also included a handout 08:50 12 that Robert Tirloni, our on-line product manager, 08:50 13 prepared at your request, Chair Clowe, to take a look 08:50 14 at where we are with our Lotto Texas matrix change. 08:50 15 So we looked at the game -- the change has been in 08:50 16 effect for 30 weeks, so we looked at the 30 weeks 08:51 17 prior to the change and 30 weeks after the change. 08:51 18 And the Lotto Texas was hit 20 times prior to the 08:51 19 matrix change, and we've only been hit nine times in 08:51 20 the 30 weeks since it started. So we're less than 08:51 21 half of the number of times we're being hit, so I 08:51 22 think the matrix change is working for us. 08:51 23 CHAIRMAN CLOWE: Toni, I would like to 08:51 24 comment at this point in time that I agree with that 08:51 25 last summary statement that you made. I think that we 08:51 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 6 1 have achieved to this point in time what the change in 08:51 2 the matrix was designed to do. The jackpots are 08:51 3 larger and they have been won or hit less than half as 08:51 4 many times since the matrix has been changed. In this 08:51 5 report that you've just finished quoting to us, the 08:51 6 sales are up substantially, Texas Lotto or Lotto 08:51 7 Texas, and the instant ticket sales are up 08:51 8 substantially, which -- 08:52 9 MS. SMITH: Yes, sir. 08:52 10 CHAIRMAN CLOWE: -- seems to go in some 08:52 11 relationship. 08:52 12 MS. SMITH: Yes, sir. 13 CHAIRMAN CLOWE: So I would say at this 08:52 14 point in time, we are being successful with the goal 08:52 15 we established of increasing interest in Lotto Texas, 08:52 16 and that has had a positive effect on the instant 08:52 17 tickets, so we're headed in the right direction. 08:52 18 MS. SMITH: Yes, sir. 08:52 19 CHAIRMAN CLOWE: And I also want to 08:52 20 refer back to the change the Legislature made in the 08:52 21 prior session of increasing the prize payout. I think 08:52 22 that has had a positive impact on the interest in the 08:52 23 games as well. 08:52 24 MS. SMITH: Yes, sir, I agree. 08:52 25 CHAIRMAN CLOWE: So the lottery in 08:52 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 7 1 Texas, insofar as what the goals have been, to 08:52 2 recreate some interest in a correct and positive way, 08:52 3 is being achieved. 08:52 4 MS. SMITH: Yes, sir. 08:52 5 CHAIRMAN CLOWE: Good. Anything 08:52 6 further on that? 08:53 7 MS. SMITH: No, sir. 08:53 8 CHAIRMAN CLOWE: Linda, anything to 08:53 9 add? 10 MS. CLOUD: No, sir. 08:53 11 CHAIRMAN CLOWE: We'll go to item 12 number three, then. Report, possible discussion 08:53 13 and/or action on lottery advertising and promotions, 08:53 14 including print media criteria. 08:53 15 MS. SMITH: Fogarty, Klein & Lowe, our 08:53 16 general market services ad agency, presented new 08:53 17 radio -- will present a new radio concepts for three 08:53 18 Lotto spots that will begin on January 29th. And they 08:53 19 were also worked -- we worked on some three animated 08:53 20 scratch coin spots, and one called hoedown will begin 08:53 21 to air on February 19th. 08:53 22 In our minority market, The King Group 08:53 23 has just completed a secret -- and that's the title of 08:53 24 the campaign, that will continue to run in the 08:53 25 minority markets radio started on November 20th and TV 08:53 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 8 1 began in the beginning of February. So we're getting 08:53 2 everything covered out there. 08:53 3 CHAIRMAN CLOWE: Explain that secret 08:53 4 campaign, if you would. 08:53 5 MS. SMITH: It's sort of a fun way to 08:53 6 look at the different ways that people either scratch 08:53 7 their tickets or pick their numbers. So each spot 08:54 8 shows a different way. Maybe someone carries a lucky 08:54 9 charm, or they may pick their numbers based on their 08:54 10 clothing sizes or football scores, or just sort of a 08:54 11 fun way to look at how you decide how to pick your 08:54 12 numbers or where and how you scratch your tickets. 08:54 13 CHAIRMAN CLOWE: Kind of like a lucky 08:54 14 shirt? 08:54 15 MS. SMITH: Yeah. Exactly. 08:54 16 CHAIRMAN CLOWE: Okay. 08:54 17 MS. SMITH: And that's all I have. 08:54 18 MS. CLOUD: Toni, has the Commissioners 08:54 19 been given copies of those commercials? 08:54 20 MS. SMITH: I just signed off on the 08:54 21 tapes to go upstairs this morning, so they might can 08:54 22 get them today. 23 CHAIRMAN CLOWE: We haven't seen them. 08:54 24 Very good. Anything further, Toni? 08:54 25 MS. SMITH: No, sir. 08:54 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 9 1 CHAIRMAN CLOWE: Then we'll go to item 08:54 2 number four. Status report, possible discussion 08:54 3 and/or action on the lottery operator procurement 08:54 4 and/or lottery operator consultant. Linda? 08:54 5 MS. CLOUD: Mr. Bennett? 08:54 6 MR. BENNETT: Good morning, 7 Commissioners. For the record, my name is Ridgely 08:54 8 Bennett. I'm the deputy general counsel. We are 08:54 9 still in the drafting phase of the lottery operator 08:54 10 procurement, and once that has been issued, you will 08:54 11 be so notified. I'll be happy to answer any questions 08:55 12 if you have any. 08:55 13 CHAIRMAN CLOWE: Is that moving on 08:55 14 schedule, Ridgely? 08:55 15 MR. BENNETT: It's moving right along, 08:55 16 Commissioner, yes. On schedule -- 08:55 17 MS. CLOUD: It is on schedule. 08:55 18 MR. BENNETT: I think -- it appears to 08:55 19 be on schedule. I hate to say we're on schedule 08:55 20 because out the door -- 08:55 21 CHAIRMAN CLOWE: You've been whipped 08:55 22 before. 08:55 23 MR. BENNETT: Many times. 08:55 24 COMMISSIONER SADBERRY: Responsiveness 08:55 25 to the question. 08:55 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 10 1 CHAIRMAN CLOWE: Well, I guess the 2 question -- let me rephrase the question. 08:55 3 MR. BENNETT: Certainly. 08:55 4 CHAIRMAN CLOWE: Are we comfortable 08:55 5 with the progress that's being made towards the 08:55 6 deadlines which are established? 08:55 7 MR. BENNETT: Yes, we are. 08:55 8 MS. CLOUD: The slowdown has been the 08:55 9 executive director. 08:55 10 CHAIRMAN CLOWE: Somehow that doesn't 08:55 11 surprise me. 08:55 12 Well, that's very important and we want 08:55 13 to make certain that we do all those things timely and 08:55 14 don't get in a crunch. 08:55 15 MR. BENNETT: Certainly. 08:55 16 CHAIRMAN CLOWE: Anything further? 08:55 17 MR. BENNETT: I have nothing further. 08:55 18 CHAIRMAN CLOWE: Thank you, Ridgely. 19 Debra, I think we're now to item number 08:55 20 five, consideration of and possible discussion and/or 08:55 21 action on state audit reports relating to the Texas 08:55 22 Lottery Commission. 08:56 23 MS. McLEOD: Good morning, 08:56 24 Commissioners. For this agenda item, I have nothing 08:56 25 to report. We have complied virtually with the 08:56 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 11 1 requirements by the state auditors in past reports. I 08:56 2 know we're still working on some of the print media 08:56 3 things from our standpoint, but there is nothing new 08:56 4 to report on anything. 08:56 5 CHAIRMAN CLOWE: All right. Fine. 08:56 6 Thank you. We're going to hear from you on the next 08:56 7 item, which is number six, report, possible discussion 08:56 8 and/or action on the agency's internal audits, 08:56 9 including the audit of the instant game plans. 08:56 10 MS. CLOUD: Can we pass this until 08:56 11 Commissioner Whitaker is in the room? 08:56 12 CHAIRMAN CLOWE: That's a good idea. 08:56 13 MS. CLOUD: She has a lot of questions 08:56 14 so -- 08:56 15 COMMISSIONER SADBERRY: I thought I -- 08:56 16 I may be wrong. I thought I saw her pass the window. 08:56 17 I thought she was walking in. Maybe not. 08:56 18 CHAIRMAN CLOWE: Let's hesitate just a 08:56 19 minute here and see if she arrives. 08:56 20 We'll pass item number six and go to 08:57 21 number seven. Report, possible discussion and/or 08:57 22 action on the production studio procurement. 08:57 23 MR. BENNETT: Thank you, Commissioners. 08:57 24 Once again, I am Ridgely Bennett. We do have 08:57 25 proposals in and those are currently being evaluated 08:57 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 12 1 by the evaluation committee, and we hope to have a 08:57 2 recommendation to the executive director within the 08:57 3 next couple of days. 08:57 4 CHAIRMAN CLOWE: Great. Anything 08:57 5 further on that, Linda? 08:57 6 MS. CLOUD: No, sir. 08:57 7 CHAIRMAN CLOWE: Thank you. Then we'll 08:57 8 go to item number eight. Report, possible discussion 08:57 9 and/or action on the 77th Legislature, including the 08:57 10 agency's legislative proposals. 08:57 11 Nelda, are you ready. 08:57 12 MS. TREVINO: Good morning. For the 08:57 13 record, I'm Nelda Trevino, the director of the 08:57 14 governmental affairs department. Commissioners, just 08:57 15 a brief update this morning. We've passed out some 08:57 16 updated tracking reports that you should have in front 08:58 17 of you. As of this morning, there have been over 2600 08:58 18 bills and resolutions that have been filed. We are 08:58 19 tracking 90 of them. And I want to briefly update you 08:58 20 on the status on several bills -- excuse me. 08:58 21 In regards to House Bill 1, the general 08:58 22 appropriations bill, as both Chairman Clowe and 08:58 23 Commissioner Sadberry know, we were before the general 08:58 24 government subcommittee on January the 31st, and we 08:58 25 did a follow-up with them on February the 13th, for 08:58 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 13 1 mark-up before that subcommittee. We anticipate, 08:58 2 based on the preliminary schedule that has been 08:58 3 provided by the committee, to go before the full 08:58 4 committee sometime either February 28th or a few days 08:58 5 thereafter. They have, again, put out a preliminary 08:58 6 schedule. They anticipate taking all the general 08:59 7 government agencies, again, beginning February 28th. 08:59 8 They have allotted four days to take up those 08:59 9 agencies. There are 40 agencies that are in the 08:59 10 general government category, so I don't have a 08:59 11 specific date to provide today, but at least wanted to 08:59 12 inform you that, again, they anticipate beginning on 08:59 13 the 28th, and I think it would be important to have 08:59 14 representation from our Commission attend that 08:59 15 appropriations committee hearing. 08:59 16 COMMISSIONER SADBERRY: Nelda, in that 08:59 17 regard, if I may, Mr. Chairman. Do you believe this 08:59 18 time we'll be able to get enough advance notice so 08:59 19 that we can attend and participate? I know we had 08:59 20 that problem last time, or is that just something you 08:59 21 don't know until you get there? 08:59 22 MS. TREVINO: I think we just -- as far 08:59 23 as getting a specific date, I know the committee is 08:59 24 working very diligently in trying to give as much 08:59 25 advance notice to agencies. But just based on their 09:00 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 14 1 schedule, sometimes it becomes very difficult. The 09:00 2 other thing that I will say that I was going to report 09:00 3 here shortly pertains to Senate Bill 170, and that's 09:00 4 the bill by Senator Wentworth addressing the quorum 09:00 5 issue before a legislative body. And that bill is 09:00 6 moving rather quickly and it has been scheduled for a 09:00 7 House committee hearing on Monday next week, so 09:00 8 depending on how fast that bill moves, that might 09:00 9 address our quorum issue before a legislative 09:00 10 committee. 09:00 11 MS. KIPLIN: If it does not before 09:00 12 February 28th, I would need the notice no later than 09:00 13 February 28th, and then for every day thereafter, it 09:00 14 is the same. 09:00 15 COMMISSIONER SADBERRY: Tell them we 09:00 16 don't mind being summoned if that's what it takes to 09:00 17 get us there, if that's the confusion or concern about 09:00 18 it. 09:00 19 MS. KIPLIN: And then that would allow 09:00 20 for us to notice up an emergency meeting. 09:00 21 MS. TREVINO: Again, as soon as we get 09:01 22 any further notification from the committee, we'll be 09:01 23 sure and inform each of the Commissioners of that 09:01 24 date. Again -- 09:01 25 CHAIRMAN CLOWE: Nelda, I just might 09:01 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 15 1 note that all three Commissioners were in attendance 09:01 2 before the Senate Finance Committee meeting, and 09:01 3 Commissioner Sadberry and I were present for the House 09:01 4 subcommittee on business. 09:01 5 MS. TREVINO: That's correct. 09:01 6 CHAIRMAN CLOWE: Chairman Heflin's 09:01 7 committee. And the Commissioners have had a high 09:01 8 level of interest, and wherever legally possible, they 09:01 9 have been in attendance. And I think there is a high 09:01 10 level of intent to continue that representation. 09:01 11 MS. KIPLIN: I would say just for the 09:01 12 record that the attendance by the Commissioners Clowe 09:01 13 and Sadberry at the last meeting where they were both 09:01 14 there was on one item, just one item. 09:01 15 CHAIRMAN CLOWE: That's correct. 09:01 16 MS. TREVINO: Okay. Again, just a 09:01 17 couple of bills that I wanted to bring you an update 09:01 18 on. And that -- if you look on your tracking report 09:02 19 on page seven, House Bill 891 by Representative Robert 09:02 20 Puente, that would authorize the Lottery Commission to 09:02 21 participate in a multi-state lottery game. That bill 09:02 22 was heard in the House licensing committee yesterday, 09:02 23 and Linda Cloud was there as a resource witness. I 09:02 24 will tell you that there was no questions from the 09:02 25 committee, but I did want to -- the Commission to know 09:02 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 16 1 that Representative Tony Goolsby made some very 09:02 2 flattering comments about the agency, about the staff, 09:02 3 and particularly about Linda, and so I wanted to be 09:02 4 sure and let you all know about that. Those kind of 09:02 5 comments don't happen very often, and so we were very 09:02 6 appreciative of his comments. 09:02 7 On page ten of the tracking report, 09:02 8 House Bill 1521, that's relating to the employee 09:02 9 retirement benefits for law enforcement officers here 09:03 10 at the Lottery Commission, and as you may recall, that 09:03 11 is part of the agency's legislative package, and so I 09:03 12 wanted to be sure and let you know that Representative 09:03 13 Ron Wilson had filed that bill. It's been referred to 09:03 14 the House Pensions and Investment Committee, and the 09:03 15 bill has not been scheduled for hearing, but we will 09:03 16 keep you posted as progress happens on that bill. 09:03 17 I've already mentioned Senate Bill 170 09:03 18 to you and, again, we'll keep you apprised as to any 09:03 19 progress in regards to that bill. 09:03 20 On page 13 of your tracking report, 09:03 21 Senate Bill 257 by Senator Carona, that would impose a 09:03 22 fine for a minor to purchase a lottery ticket. That 09:03 23 bill was heard in the Senate State Affairs Committee, 09:03 24 both on February the 15th and February the 12th. 09:03 25 There was a committee substitute that was reported 09:03 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 17 1 favorably out of the committee. The substitute 09:03 2 removed the enactment of a second offense by a 09:03 3 retailer and established the penalty to the minor to 09:04 4 be just a 250 dollar fine. And our director of 09:04 5 security, Mike Pitcock, was there as a resource 09:04 6 witness for both of those committee hearing dates. 09:04 7 In regards to our legislative package, 09:04 8 the one bill pertaining to -- to the agency as a whole 09:04 9 has to do with getting an exemption on a surveillance 09:04 10 van of having the name of the agency on the 09:04 11 surveillance van. And we do have commitments from 09:04 12 both a House member and a Senate member to have that 09:04 13 bill filed and we anticipate that happening very 09:04 14 shortly. 09:04 15 In regards to our bingo legislative 09:04 16 proposal, I know Mr. Neinast is here to provide an 09:04 17 update based on the advisory committee's meeting 09:04 18 yesterday. But I just very briefly wanted to update 09:04 19 you. There are basically five draft bills that the 09:04 20 agency has been working on, based on the proposals 09:05 21 that were either recommended by the advisory committee 09:05 22 or approved by the Commission. And one is the -- what 09:05 23 we're referring to as an omnibus bill that includes 09:05 24 several of the proposals. Primarily, the two -- what 09:05 25 I consider to be the two major sections of the bill 09:05 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 18 1 pertain to the removal of the 40 percent limit on the 09:05 2 electronic card minding devices and eliminating the 09:05 3 prize fee for prizes less than five dollars. Billy 09:05 4 and I have had some meetings with Representative Art 09:05 5 Reyna and he has agreed to file that bill. So we 09:05 6 anticipate seeing some progress on that. 09:05 7 In regards to the authorization of a 09:05 8 progressive bingo game, we have talked to 09:05 9 Representative Pat Haggerty and Senator Lucio and they 09:05 10 have informed us that they will be filing legislation 09:05 11 in regards to that proposal. 09:06 12 We continue to work with -- with our 09:06 13 legal staff and with some folks in the industry in 09:06 14 regards to the draft legislation pertaining to 09:06 15 summarily suspending a license. We have been in 09:06 16 discussions with Representative Tony Goolsby in 09:06 17 regards to that piece of legislation and hope to again 09:06 18 provide you a progress report on that proposal. 09:06 19 In regards to the authority to issue 09:06 20 and enforce subpoenas, we have talked to 09:06 21 Representative Pat Haggerty about that proposal, and 09:06 22 he has agreed to file legislation regarding that item. 09:06 23 And we continue to work on drafting 09:06 24 some language in regards to the extending the time and 09:06 25 location where pull tabs can be sold. I don't know if 09:06 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 19 1 Billy has any further updates in regards to those 09:06 2 legislative proposals and, again, I know Mr. Neinast 09:06 3 will be providing a report in regards to the advisory 09:07 4 committee's meeting. 09:07 5 CHAIRMAN CLOWE: I think we're going to 09:07 6 hear more about that shortly. 09:07 7 MS. TREVINO: That's basically my 09:07 8 report, and I'm happy to answer any questions. 09:07 9 CHAIRMAN CLOWE: Nelda, I think I can 09:07 10 say on behalf of Commissioner Sadberry and myself, 09:07 11 this is my first legislative session as chair of this 09:07 12 Commission. I am most appreciative and really 09:07 13 admiring the work that you and Colin have done to 09:07 14 prepare the staff, Linda, and myself, for testimony 09:07 15 before these committees, and the job that you all are 09:07 16 doing about these issues concerning legislation with 09:07 17 the various offices of the leadership. I have seen 09:07 18 other agencies that do not have the thoroughness and 09:07 19 the completeness that you all have. And our issues 09:07 20 are sometimes difficult to understand, and I just 09:07 21 think, you know, this agency is different from any 09:07 22 other state agency and the work that you two do helps 09:08 23 tremendously to help those who are going to be 09:08 24 deciding issues about our appropriations and our 09:08 25 funding and legislation that applies to this agency 09:08 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 20 1 and its great service, which makes it easier to do for 09:08 2 us and for them. So I wanted to say, at this point in 09:08 3 the session, where there is no victory or defeat, you 09:08 4 know, I'm appreciative of the good work that you all 09:08 5 are doing. 09:08 6 MS. TREVINO: Well, thank you very 09:08 7 much, Chairman Clowe, and I would just add that it 09:08 8 really takes a cooperative effort and we've got people 09:08 9 like Kim and Patsy and Linda and Billy, and I don't 09:08 10 want to leave anybody out. Bart Sanchez and his 09:08 11 group, and again, all the directors and their staff, 09:08 12 it really takes a cooperative effort because we do get 09:08 13 a lot of requests that impact different divisions 09:08 14 within the agency, and so Colin and I rely on each of 09:08 15 the directors and their staff to respond rather 09:09 16 quickly sometimes to a request that we might get. So 09:09 17 I appreciate your kind words but, again, I want to be 09:09 18 sure and emphasize that it really is a cooperative 09:09 19 effort. And I want to thank everybody within the 09:09 20 agency for -- 09:09 21 CHAIRMAN CLOWE: It's teamwork, isn't 09:09 22 it? 09:09 23 MS. TREVINO: It's teamwork. 09:09 24 CHAIRMAN CLOWE: Thank you. 09:09 25 MS. TREVINO: Okay. 09:09 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 21 1 CHAIRMAN CLOWE: Then we'll go to item 09:09 2 number nine, report by the bingo advisory committee 09:09 3 chair on the committee's activities, possible 09:09 4 discussion and/or action on such report. 09:09 5 Good morning, Bill. 09:09 6 MR. NEINAST: Good morning, Mr. 09:09 7 Chairman. For the record, I'm Bill Neinast, chairman 09:09 8 of the bingo advisory committee of the Texas Lottery 09:09 9 Commission. 09:09 10 Chairman Clowe and Commissioner 09:09 11 Sadberry, I think one of the functions of the bingo 09:09 12 advisory committee is to act as your eyes and ears 09:09 13 into the bingo industry in its broadest sense. And 09:09 14 recently we've had the opportunity, I think, to get a 09:10 15 good picture of that industry in certain respects. 09:10 16 And the only thing I can report to you is that the 09:10 17 troops or the Indians, or whatever you want to call 09:10 18 them, are unhappy. As a matter of fact, they are 09:10 19 pretty damn riled up. Their major concern at this 09:10 20 time is over some proposed legislation, and the 09:10 21 particular focus is on the proposal to grant summary 09:10 22 suspension authority to the Bingo Division. There 09:10 23 were just any number of witnesses here yesterday in 09:10 24 our meeting. I have received several e-mails on this. 09:10 25 And the perception is that it's not good. 09:10 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 22 1 To review the history just a little 09:10 2 bit, because I think it's important. There was a 09:10 3 subcommittee that the committee appointed and met in 09:10 4 October to review various proposals. One of those -- 09:11 5 and most of these came from the staff. One of those 09:11 6 was to grant the bingo division summary suspension 09:11 7 power, and that was the recommendation of the 09:11 8 subcommittee to the committee. You might say, 09:11 9 unlimited summary suspension power. At the committee 09:11 10 hearing, because of input from a number of concerned 09:11 11 individuals, the vote of the committee was to 09:11 12 recommend to you that that summary suspension power be 09:11 13 limited to financial matters, specifically, delinquent 09:11 14 fees and taxes. And that was the recommendation to 09:11 15 the Commission. The Commission, in voting on it -- I 09:11 16 don't remember the exact words, Billy can probably 09:11 17 help us, was to give it back to the division and say, 09:11 18 go with the legislation as you see fit. I don't know 09:11 19 whether that's a correct description of the final 09:12 20 action or the motion of the -- is that -- 09:12 21 MR. ATKINS: That's somewhat accurate. 09:12 22 MR. NEINAST: And that was the task 09:12 23 given to the division. The resulting legislation is 09:12 24 to -- or draft legislation is to give to the division, 09:12 25 summary suspension power, period. And there is a 09:12 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 23 1 tremendous amount of concern out in the bingo 09:12 2 community about this. And there is a perception that 09:12 3 you can't argue with that this is giving unnecessary, 09:12 4 unbridled power to the bingo director. I think there 09:12 5 would be a compromise that might be accepted. And 09:12 6 that would be to go back and give them summary 09:12 7 suspension power on those financial matters where 09:12 8 there are delinquent fees or taxes. 09:13 9 Gentlemen, I think we're jumping into 09:13 10 uncharted waters here, and I think a -- a better 09:13 11 approach might be to go at it a little slowly, step 09:13 12 into the water and test the water and give power -- 09:13 13 summary suspension power into those financial matters. 09:13 14 If it works, and if there is then developed to be a 09:13 15 useful technique for or need for it, look at it again 09:13 16 at the next legislative session. The industry has 09:13 17 operated for 19 years without this power. Another two 09:13 18 years wouldn't matter that much. I anticipate, if the 09:13 19 legislation goes in and is pushed by the Commission as 09:13 20 currently drafted, there is going to be a tremendous 09:13 21 lobbying effort within the legislature that may affect 09:13 22 other bills that might be more important. So I 09:14 23 think -- I would urge you to reconsider the action 09:14 24 that was taken at your November meeting and back off 09:14 25 and say, okay. Let's start first with summary 09:14 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 24 1 suspension power in those financial matters only, see 09:14 2 how it works, and then see if there is a need later. 09:14 3 I -- this is an opportunity, I think, for us to show 09:14 4 the bingo community that we are listening to them. 09:14 5 That we the committee are listening to them and that 09:14 6 you, the Commission, is listening to them. We in the 09:14 7 government, administrative, can't always be right. 09:14 8 Sometimes you can come up with -- each of you with 09:14 9 situations, I'm sure, where a government agency, 09:14 10 whether it's in Austin or Washington or down at the 09:14 11 county courthouse, said, hey, we know best, this is 09:14 12 what we're going to do, and the results have been 09:15 13 disastrous. I'm not saying they would be disastrous 09:15 14 in this case, but there is an opportunity for abuse 09:15 15 here that has the community scared. 09:15 16 I just thought of an example as I was 09:15 17 driving home last night of another action that we took 09:15 18 at the committee, and that had to do with a report 09:15 19 that the mandated training session for operators, 09:15 20 every operator has to have completed the mandated 09:15 21 training by September the 1st. 81 point-something 09:15 22 percent have already completed it, so it looks like we 09:15 23 may be at 100 percent. But the question was asked, 09:15 24 well, on September the 2nd, if there are several out 09:15 25 there who haven't completed it, what do you do? We 09:15 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 25 1 don't know. But that would be a case where this -- 09:15 2 they could throw it -- yeah, if the operator hadn't 09:15 3 completed the training for whatever reason, the -- 09:15 4 there is a summary suspension. 09:15 5 So again, we did not -- the committee 09:16 6 did not vote on this again. The vote at the November 09:16 7 meeting was unanimous for limiting the suspension 09:16 8 to -- 09:16 9 CHAIRMAN CLOWE: Pardon me, Bill. For 09:16 10 the record, Commissioner Whitaker has arrived and we 09:16 11 are very happy that she is here. 09:16 12 COMMISSIONER WHITAKER: There was a 09:16 13 wreck. 09:16 14 COMMISSIONER SADBERRY: We know all too 09:16 15 well about it. 09:16 16 CHAIRMAN CLOWE: Commissioner Whitaker, 09:16 17 if I may, Bill, I would like to bring her up to date. 09:16 18 We have convened the meeting and we 09:16 19 have progressed through and to item nine. The 09:16 20 chairman of the advisory committee is reporting at 09:16 21 this point in time. We passed item number six, 09:16 22 pending your arrival. 09:16 23 COMMISSIONER WHITAKER: Okay. 09:16 24 CHAIRMAN CLOWE: And if that catches 09:16 25 you up, we will ask Bill to continue his report. And 09:16 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 26 1 would you just briefly, for Commission Whitaker's 09:16 2 benefit, recap in encapsulated form what you've told 09:17 3 us? 09:17 4 MR. NEINAST: I'll try to encapsulate 5 it. Because Commissioner Whitaker was the one who 09:17 6 made the motion to go with the full power for summary 09:17 7 suspension. 09:17 8 Commissioner Whitaker, we're talking 09:17 9 about the proposed legislation to grant summary 09:17 10 suspension authority to the director the Bingo 09:17 11 Division. As a background, in October there was a 09:17 12 subcommittee meeting of the bingo advisory committee 09:17 13 that met, recommended to the full committee that 09:17 14 summary suspension authority in its broadest form be 09:17 15 sought from you and from the legislature. The 09:17 16 committee, in taking testimony on that issue, voted 09:17 17 instead to limit that summary suspension power to only 09:17 18 financial matters where there are delinquent fees or 09:17 19 taxes. One of the things I did not mention to the 09:17 20 other Commissioners before you arrived, it was brought 09:17 21 out repeatedly that when you suspend or revoke the 09:18 22 license of one operator, that has a ripple effect on 09:18 23 everyone else engaged not only in that hall, but in 09:18 24 other halls. Because if you take out one game that is 09:18 25 being played or one session that's being played, 09:18 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 27 1 people who came to play at all two or three sessions 09:18 2 that might be held that day, if there is a blank right 09:18 3 in the middle, they're going to leave, they're not 09:18 4 going to stay around, and they're going to go to other 09:18 5 halls and then habit forms, they lose customers. And 09:18 6 so that was one of the reasons why there was so much 09:18 7 concern about summary suspension. You could still 09:18 8 revoke licenses, and that would have the same effect. 09:18 9 But as I was telling the other commissioners, 09:18 10 yesterday there was just a tremendous outpouring of 09:18 11 concern. I had more requests to testify than any I 09:18 12 have had since I've been on the committee. Primarily, 09:18 13 on this issue. That they are concerned about granting 09:18 14 this unbridled power to summarily suspend. The 09:19 15 suggested compromise, which I was urging, was that the 09:19 16 Commission go back and recommend only legislation that 09:19 17 would authorize summary suspension in financial 09:19 18 matters, where there is a delinquency of fees or taxes 09:19 19 that are due, see how that works, and if there is 09:19 20 still deemed to be a need on the part of the bingo 09:19 21 advisory -- I mean the Bingo Division, that two years 09:19 22 from now, come in with -- and give some good 09:19 23 documented examples of, here is the situation where 09:19 24 summary suspension would really have worked and it 09:19 25 would have had this effect. We -- at least I'm not 09:19 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 28 1 aware of any -- if Billy has any examples like that, 09:19 2 he can give now. But if you want the respond -- the 09:19 3 perception in the bingo community, you would, I think, 09:20 4 reconsider the action and recommend that we go forward 09:20 5 with only the limited summary suspension authority. 09:20 6 COMMISSIONER SADBERRY: Bill, I think 09:20 7 when Commissioner Whitaker was walking in, you were 09:20 8 just saying that you as a committee did not vote on 09:20 9 it, and I believe that's where you stopped. I was 09:20 10 waiting to hear what you were going to say. 09:20 11 MR. NEINAST: Yes. We did not vote 09:20 12 again on this issue yesterday, but I feel confident in 09:20 13 saying I'm representing the unanimous feeling of the 09:20 14 committee members who were present yesterday, and the 09:20 15 vote originally was unanimous to have the limited 09:20 16 authority. 09:20 17 And Chairman Clowe, this isn't Roy D. 09:20 18 Mercer talking, this is -- this is giving you the word 09:20 19 from the bingo community. 09:21 20 CHAIRMAN CLOWE: I appreciate that 09:21 21 correctness. 09:21 22 Bill, I was there when Billy gave his 09:21 23 answer on the issue of the operators having to be 09:21 24 trained by the deadline, and I thought he gave a good 09:21 25 answer on that, in that the goal was to get the 09:21 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 29 1 operators trained and that they weren't going to -- 09:21 2 the division wasn't going to be -- on September the 09:21 3 2nd, I think, was the date that he used, trying to 09:21 4 jump on people and shut them down. The goal was to 09:21 5 get them trained. And you used that as an example, so 09:21 6 I wanted to refer to my recollection of his answer. I 09:21 7 thought he responded in a proper way for a regulator 09:21 8 at that point in time to that question. 09:21 9 I'm a little bit still in the dark 09:21 10 about what the concerns are of the folks that 09:21 11 testified to your committee yesterday, as to the 09:21 12 negative aspect of suspension. Can you be more 09:22 13 specific on that? What are they concerned about? I 09:22 14 understand the ripple effect that you mentioned. But 09:22 15 where do they perceive potential injustice or 09:22 16 incorrect action on the part of the division? Can you 09:22 17 be more specific for us there? 09:22 18 MR. NEINAST: I'm sorry, I can't, 09:22 19 because to the best of my knowledge, they have not 09:22 20 been more specific than that, other than being 09:22 21 concerned, a general concern of giving any agency, 09:22 22 regardless of what agency it is, this power over them 09:22 23 of having a summary power. That just scares people. 09:22 24 CHAIRMAN CLOWE: Okay. So it's just a 09:22 25 concern about the power itself being in place, not 09:22 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 30 1 anything -- no concern about the financial aspect. 09:22 2 Comfort there to some extent. 09:22 3 MR. NEINAST: Well, there -- I wouldn't 09:23 4 say they're overwhelmingly happy about that, but I 09:23 5 think they would accept it as probably a necessary 09:23 6 situation. Although we did not go into the details. 09:23 7 We did in some other cases where -- I think that was 09:23 8 probably at our November meeting where Billy pointed 09:23 9 out that some of these agencies -- not agencies, 09:23 10 operators, are delinquent and they go up to the very 09:23 11 last day when that final ax is going to fall before 09:23 12 they finally come in, and this goes over a period of 09:23 13 weeks and months in many cases. And so in those 09:23 14 cases, if that ax could fall a lot sooner, you would 09:23 15 get compliance a lot sooner. Now, there is just a 09:23 16 general concern. I recognize that. One of the -- 09:23 17 those testifying yesterday brought a case that you're 09:23 18 probably familiar with. You signed off the order, I 09:23 19 think, in October. The Victoria Community Theatre. 09:23 20 Again, it was brought as an example that we don't 09:24 21 think this would ever happen in our agency, but they 09:24 22 point out the ALJ, in that case, found that the 09:24 23 action -- or the reasons given for the action taken by 09:24 24 the division was not reasonable in the -- in the 09:24 25 names -- in the words of the ALJ. And although the -- 09:24 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 31 1 in that particular case, if you recall, the division 09:24 2 had recommended revocation of the license, and the 09:24 3 final result was to give a -- I think, a one-week 09:24 4 suspension. So there was some punitive action taken, 09:24 5 but not the Draconian measure in that case that the 09:24 6 division recommended. So that is the type of 09:24 7 perception, that's the type of fear that these 09:24 8 organizations are feeling. We had both individual 09:24 9 operators, people representing multitude of 09:24 10 organizations, and the lawyers who were representing a 09:25 11 number of agencies, and who are lobbies for those. 09:25 12 I think this is going to open up a 09:25 13 tremendous lobbying effort that could adversely affect 09:25 14 other legislation. 09:25 15 CHAIRMAN CLOWE: Bill, is this the 09:25 16 principal item in your report or are there other 09:25 17 issues that you want to tell us about? 09:25 18 MR. NEINAST: The other issue, it's 09:25 19 kind of related to it. The concern, also, about the 09:25 20 legislation to grant subpoena authority to the agency. 09:25 21 And there was -- is opposition to that generally on 09:25 22 the same basis of what I have just given, this 09:25 23 perceived fear of granting that type of authority. 09:25 24 There is not that much of a deep-seated opposition to 09:25 25 that provision as there is to the summary suspension 09:26 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 32 1 authority. 09:26 2 The other action that was taken that 09:26 3 relates to ongoing legislation, Nelda mentioned it, is 09:26 4 the final action -- I think it was the final action of 09:26 5 the committee was to recommend that the legislation 09:26 6 affecting when you collect prize fees, that no prize 09:26 7 fees be collected for prizes under 50 dollars. The 09:26 8 way it is now, it's under five dollars, which is not 09:26 9 going to have -- I say, not going to have too much of 09:26 10 an effect. Billy has some startling figures, I think, 09:26 11 on the effect of those actions, whether it's under 09:26 12 five dollars or under 50 dollars and what it'll have 09:26 13 on the income revenue of the State. The -- the 09:26 14 consensus of the committee, though, was that for a 09:26 15 number of reasons, we should go forward in this 09:26 16 session, recognizing not too much chance of success of 09:26 17 a proposal to exempt any bingo prize under 50 dollars 09:27 18 from the prize fee. And that was the recommendation 09:27 19 of the committee, which is a little different from 09:27 20 what Nelda is working on now. Not a little, a big 09:27 21 difference. 09:27 22 CHAIRMAN CLOWE: Those are the 09:27 23 principal issues? 09:27 24 MR. NEINAST: Yes. 09:27 25 CHAIRMAN CLOWE: Commissioners, with 09:27 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 33 1 your agreement, I think there may be some other 09:27 2 individuals who want to speak on this issue. I would 09:27 3 like to call on them now. And also, there are 09:27 4 individuals who are members of the bingo advisory 09:27 5 committee that may wish to add to the chairman's 09:27 6 comment. At this point, let me ask, are there any 09:27 7 individuals on that committee who are here this 09:27 8 morning who wish to elaborate on what the chairman has 09:27 9 reported to the Commission? I believe there are none 09:27 10 who wish to speak. 09:27 11 Mr. Fenoglio, I have an appearance form 09:27 12 for you and I may have passed over you. You indicate 09:28 13 item number eight. Is this the appropriate time for 09:28 14 you to come forward? 09:28 15 MR. FENOGLIO: Yes, it is, 09:28 16 Mr. Chairman. 09:28 17 CHAIRMAN CLOWE: If you would, please. 09:28 18 MR. FENOGLIO: And if I could bring 09:28 19 David Heinlein up, too. 09:28 20 CHAIRMAN CLOWE: Yes. And do we have 09:28 21 an appearance form for him? 09:28 22 MR. FENOGLIO: While Mr. Heinlein is 09:28 23 giving you his appearance form, for the record, my 09:28 24 name is Stephen Fenoglio. I'm an attorney in Texas 09:28 25 and represent at least 35 different charitable 09:28 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 34 1 organizations. On the two issues -- the appearance 09:28 2 slip said the Victoria Community Theatre charities. 09:28 3 In addition, the River City Bingo charities, and then 09:28 4 based upon conversations yesterday, Mr. Heinlein, who 09:28 5 represents 30 different charities in bookkeeping and 09:28 6 advising capacity, if you will, has authorized me to 09:28 7 speak on behalf of those charities. 09:28 8 CHAIRMAN CLOWE: And do you represent 9 also Mr. Fred M-i-c-c-i-o? 09:29 10 MR. FENOGLIO: No. Fred is here. 09:29 11 CHAIRMAN CLOWE: Did you want to speak 09:29 12 on this subject as well, sir? 09:29 13 MR. MICCIO: Yes, sir. 09:29 14 CHAIRMAN CLOWE: All right. I'll ask 09:29 15 you to speak next, if I may. I'm sorry. I thought 09:29 16 you were part of Mr. Fenoglio's group. 09:29 17 Go forward. 18 MR. FENOGLIO: I'm going to distribute 09:29 19 first a letter, Mr. Chairman and Commissioners, from 09:29 20 Don Truman, Truman's Transfer and Storage, Inc. The 09:29 21 original I'm giving to the Chairman, and then copies 09:29 22 that is directly relevant to the issue in front of the 09:29 23 Commission today. And we tried -- we prepared this 09:29 24 yesterday after his testimony so the Commissioners 09:29 25 could get the benefit. Unfortunately, business 09:29 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 35 1 required him to be in Victoria. He is a businessman 09:29 2 from Victoria active in all seven charities that 09:29 3 conduct bingo, coincidently, has been president of two 09:29 4 of the organizations and is currently president of one 09:29 5 of the charity organizations, the Victoria Community 09:30 6 Theatre, that the Commissioners will recall was the 09:30 7 subject of an enforcement measure that Mr. Neinast 09:30 8 described briefly. 09:30 9 Mr. Truman, I would suggest to you, is 09:30 10 not the typical charity representative you would see. 09:30 11 Very active in the community. Coincidently, was chair 09:30 12 of the Republican -- and is still chair of the 09:30 13 Victoria County Republican Committee and been so for 09:30 14 15 years when there wasn't much of a party in any 09:30 15 event. But having said that, to give you the bona 09:30 16 fides of him. He testified really on two issues, and 09:30 17 with -- as did I. But first, before we go into that. 09:30 18 Most of the legislative program, all the charities 09:30 19 support. And congratulations and kudos to the 09:30 20 Commissioners and to the staff for bringing those 09:30 21 legislative proposals to you. You always hear the 09:30 22 negative stuff, and before we talk about some of the 09:30 23 details, 80 percent, 90 percent of what y'all are 09:31 24 proposing, we hope is adopted. No question about it. 09:31 25 There are two issues, though, that 09:31 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 36 1 deserve special scrutiny. The first is the subpoena 09:31 2 power, and as Mr. Truman indicated on the second page. 09:31 3 The drafts that we have seen are lifted directly from 09:31 4 the Texas Racing Act that would give the Commission or 09:31 5 any designated representative subpoena power for any 09:31 6 reason or no reason, to come in and subpoena any 09:31 7 records the Commission desires or the staff that 09:31 8 prepares it. Two comments on that. Number one, in 09:31 9 discussions yesterday, what's the purpose? What has 09:31 10 been the problem that the agency has foreseen with 09:31 11 this? No example given whatsoever. One of the bingo 09:31 12 advisory committee members, a former regulator from, I 09:31 13 believe, Minnesota, said, well, he had to use it once 09:31 14 in Minnesota several years ago. Well, I would suggest 09:32 15 to you that if it ain't broke, don't fix it. And 09:32 16 there is no compelling reason for that extremely broad 09:32 17 authority. Presumably, they could obtain a subpoena 09:32 18 for my records. Under -- and under the draft, I don't 09:32 19 think anyone would question that they can obtain a 09:32 20 subpoena. I would be required to go file a motion to 09:32 21 quash. I think I can do that as an attorney. But 09:32 22 someone sitting in Baytown, Texas who gets the 09:32 23 subpoena and says, we're here for these records, give 09:32 24 them up right now. What does that person do? The 09:32 25 draft -- the drafts that we've seen do not make clear 09:32 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 37 1 what that person's rights would be. Does he have the 09:32 2 right to a counsel? Does he have the right to go ask 09:32 3 the person who actually has authority to review 09:32 4 those -- release those records? If he wants to quash 09:32 5 it, is a judge in Travis County the only authority or 09:32 6 can he get a district judge in Baytown to do it? The 09:32 7 draft is unclear, and I would suggest to you it's bad 09:33 8 policy and not needed. But if it is, it certainly 09:33 9 ought to be scrubbed more so that people who are only 09:33 10 going to deal with this issue maybe once in their 09:33 11 life -- if they call me, I think I can figure it out 09:33 12 in a hurry. And in one sense, that's good business 09:33 13 for me, but for the people out in Baytown, Texas or 09:33 14 south Texas or west Texas, how would they know quickly 09:33 15 where to go to get that. Clearly, it would require 09:33 16 legal talent to do so. 09:33 17 As to the temporary suspension 09:33 18 authority. Again, you have this concept, and I want 09:33 19 to make clear that my clients don't have a problem 09:33 20 with the temporary suspension authority that we have 09:33 21 heard discussed that there is an overwhelming need 09:33 22 for. And that is, derelict charities, and there are 09:33 23 only a few. There is a distinct minority of the 1700 09:33 24 charities that are licensed at any one time -- I 09:33 25 think, since I've been regularly coming to this 09:33 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 38 1 Commission, less than 50 cases in the last three years 09:34 2 of charities that have repeatedly, over a series of 09:34 3 quarters, have not paid either timely or at all. That 09:34 4 type of suspension authority, good. Go ahead. But 09:34 5 the drafts that we have seen go far broader than that. 09:34 6 And Mr. Truman goes into that, and it includes -- if 09:34 7 you're like me, you have a problem remembering exactly 09:34 8 what happened last week, much less November of 2000, 09:34 9 where the staff at the hearing said, we want a 09:34 10 one-year suspension, the death penalty. The ALJ said, 09:34 11 no. One week is fine. We would have accepted that. 09:34 12 But it came before the Commission. And can you -- 09:34 13 maybe you recall some of the testimony. Under the 09:34 14 drafts that we've seen, that charity could be shut 09:34 15 down or could be, could be shut down. And if the 09:34 16 director of the charitable division -- and Mr. Atkins 09:34 17 is a fine man. I don't -- this is isn't personal. 09:34 18 The next director, we don't know about. But that type 09:35 19 of broad authority, we submit, is too much. The 09:35 20 devil's in the details, and y'all know that. The -- 09:35 21 the notion of a -- if you're late or don't pay a 09:35 22 tax -- the Commission's auditors all the time do 09:35 23 audits, and they will discover many times 09:35 24 discrepancies, problems. I represent five charities 09:35 25 at the River City Bingo Hall. The auditors came in 09:35 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 39 1 and audited our books. One of the discrepancies that 09:35 2 they claimed was a disallow -- they challenged the 09:35 3 triple net rental payment. You know, and this is in a 09:35 4 strip center shopping center. We pay as a part of the 09:35 5 lease with the landlord, not only a base rent, 09:35 6 everyone does, but also our percentage portion of 09:35 7 triple net for property taxes, common area 09:35 8 maintenance, and common area insurance. The auditor 09:35 9 said, no, we're going to disallow that. Had we not -- 09:35 10 and we challenged it and provided documentation as to 09:36 11 why that is a reasonable expense. Every tenant at 09:36 12 Barton Creek Mall pays a triple net. It is a common 09:36 13 practice in the real estate industry. But the sum and 09:36 14 substance of the auditor's recommendation was, you owe 09:36 15 the tax. We're going to disallow that expense, so 09:36 16 therefore your -- your payment of taxes, your payment 09:36 17 on your calculation of charitable distributions, 09:36 18 your -- even your filing of those quarterly tax 09:36 19 payments is wrong. Well, under the draft legislation, 09:36 20 the entire five charities could have been shut down. 09:36 21 Would they be shut down? I would certainly hope not. 09:36 22 But that would be one of the powers that would have 09:36 23 been granted under a very broad analysis of some of 09:36 24 the draft legislation that we have seen. 09:36 25 The Commission already has in the 09:36 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 40 1 lottery side this type of suspension authority. There 09:36 2 is at least one case that I'm aware of that I happened 09:37 3 to handle where the Commission exercised their 09:37 4 temporary suspension authority. During that temporary 09:37 5 suspension authority, the staff has taken the position 09:37 6 that there is no discovery allowed, at all. We're not 09:37 7 entitled to see any of the documentation they have, 09:37 8 unless they choose to provide it. And, of course, 09:37 9 their argument is, well, it's either ten or 20 days, 09:37 10 you know, you'll have your opportunity for discovery 09:37 11 in this particular case. And I brought the docket 09:37 12 with me. The Lottery Commission made a mistake. They 09:37 13 got the wrong convenience store. And on February 9th 09:37 14 of 2000, the ALJ dismissed this enforcement case based 09:37 15 upon a temporary suspension because, in the words of 09:37 16 the notice of nonsuit that was filed by the assistant 09:37 17 general counsel of the Lottery Commission, the wrong 09:37 18 sales agent's license was suspended. We didn't find 09:37 19 that out until the day before the hearing when staff 09:38 20 did give us the investigative report, and in comparing 09:38 21 the investigative report with what my client said he 09:38 22 had or had not done, I noticed a different license 09:38 23 number and an identification of an employee that he 09:38 24 had never had. And in communicating with the staff -- 09:38 25 and to the staff's credit, within five hours of us 09:38 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 41 1 calling it to their attention, they canceled -- they 09:38 2 reinstituted our lottery retailer license. The point 09:38 3 is, mistakes can be made. That entity, One Stop 09:38 4 Convenience Store, in Dallas, Texas, was shut down 09:38 5 from lottery sales for three weeks. Conservatively 09:38 6 speaking, he lost 1500 to 2500 dollars in sales, 09:38 7 because people, as you know, come in to a lottery 09:38 8 retailer -- come in to a retailer to buy lottery 09:38 9 tickets and they'll also buy other items. So he lost 09:38 10 revenue. Under the doctrine of sovereign immunity, he 09:38 11 has no remedy, period, end of sentence. So if there 09:38 12 is a mistake that's made -- and mistakes will be made, 09:39 13 no question about it. No one on this earth that I'm 09:39 14 aware of is perfect. But if there is a mistake that 09:39 15 is made, where does a licensee go to be made whole? 09:39 16 And the answer is, nowhere. He pays for the legal 09:39 17 fees, he can't recover the legal fees from the State. 09:39 18 He pays for the lost revenue. He can't get that. In 09:39 19 the case of one charity in a seven-charity bingo hall, 09:39 20 the other charities have enough license time, they can 09:39 21 pick it up. But if you shut down a commercial lessor, 09:39 22 I mean, how long could an HEB stay in business if it's 09:39 23 shut down for two weeks? I would suggest to you that 09:39 24 it would not be in business very long if you were to 09:39 25 shut down, because there is a problem. Because 09:39 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 42 1 someone made a mistake, got the wrong license number. 09:39 2 The notion of payment of fees or taxes, those mistakes 09:39 3 are made. But the way the drafts that we have seen 09:39 4 would give the authority to unilaterally shut someone 09:39 5 down, and we think that's too broad. 09:40 6 I'll be happy to turn it to David 09:40 7 Heinlein. 09:40 8 MR. HEINLEIN: Thank you. I'm glad to 09:40 9 have the opportunity to speak to you on this matter. 09:40 10 First of all, I would, kind of like Steve, like to -- 09:40 11 this is a negative thing we're talking about, but 09:40 12 there are a lot of positive things. I appreciate 09:40 13 Billy Atkins and his staff and the way that they 09:40 14 professionally handle the bookkeeping, and that's what 09:40 15 I'm involved with, the accounting. And his audit 09:40 16 staff has just done an excellent job. I am impressed 09:40 17 with the quality of the individuals. We just 09:40 18 completed an audit down at Victoria in this hall where 09:40 19 this charity is that we've talked about, and it was a 09:40 20 good audit. The auditors gave us a very good report, 09:40 21 and yet when you read it, you know, there is -- there 09:40 22 is errors made. It's unavoidable that as careful as 09:40 23 you are in all the details that you do, there is a 09:40 24 mistake made. And when you make a mistake, then it's 09:40 25 written up in a way that it's scary to the charity, 09:41 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 43 1 because they look at it and it says, it's a violation 09:41 2 of code number -- you know. And while it's just a 09:41 3 reference that must be made to exactly why that is a 09:41 4 violation, it looks like to the charity, my gosh, what 09:41 5 did I do wrong, you know. And when they first get it 09:41 6 and it's a package this thick, you know, they're, man, 09:41 7 did we do all that wrong? Well, no, it's really not a 09:41 8 bad thing at all. I mean, you really didn't have any 09:41 9 real problems. But one of the mistakes made out of a 09:41 10 whole year's of bingo -- now, this is a hall that's 09:41 11 playing two sessions every day, at that time, seven 09:41 12 days a week. You have over 600 sessions in a year. 09:41 13 And all of that paperwork is brought in for audit. I 09:41 14 mean, boxes, you know. Your auditors had to carry out 09:41 15 with two-wheel dollies all the stuff to take back to 09:41 16 San Antonio to audit. In going through all that, we 09:41 17 found one daily cash report that had been wrongly 09:41 18 posted to the wrong charity. Its name on it, I posted 09:42 19 it on the sales journal to the name that was on the 09:42 20 daily cash report. Unfortunately, that was the wrong 09:42 21 charity. It was another charity's session that we 09:42 22 posted it to. And the money went to their bank. And 09:42 23 I caught it when I did the bank statement and said, 09:42 24 hey, y'all put that money in the wrong bank. You've 09:42 25 got to get it over here to this other one. I made 09:42 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 44 1 them transfer it. Wrong. The money belonged in that 09:42 2 account that it first went to. But we didn't discover 09:42 3 that until we went through the audit. Well, the net 09:42 4 result was that we had one charity that had overpaid 09:42 5 their winner's fees, another charity that had 09:42 6 underpaid their winner's fees. Therefore, we have one 09:42 7 charity in violation, who has failed to pay. Now, if 09:42 8 that charity, for failure to pay that, could be 09:42 9 summarily suspended, I think that would be a shame. I 09:42 10 don't think that would happen. You know, you can't 09:42 11 imagine that. But at least it's in place that they 09:42 12 could be suspended, and that's, you know, I don't 09:43 13 think a good thing. So I think we need to have it 09:43 14 written in such a way that in those kinds of cases 09:43 15 where there have been obvious clerical errors made 09:43 16 that have caused a violation. It is a violation. But 09:43 17 we didn't mean to make it, you know, and we corrected 09:43 18 it as soon as it was brought to our attention. And 09:43 19 when we went through exit conference, we brought a 09:43 20 check to the conference to pay the winner's fee for 09:43 21 the charity that was in default. So thank you. 09:43 22 MR. FENOGLIO: And just in summation, 09:43 23 two of the Commissioners are attorneys. I don't 09:43 24 think -- and Mr. Heinlein is a CPA. If you violate 09:43 25 the statute, would your license be taken away from you 09:43 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 45 1 for the short period of time. On an outrageous 09:43 2 example, perhaps it should. But day-to-day stuff, 09:43 3 where you don't file something on time, I would 09:43 4 suggest that's an extremely harsh result. Trucking, 09:43 5 Mr. Chairman is very familiar with, and the Railroad 09:44 6 Commission did regulate trucking at one time, and had 09:44 7 the Commission had the kind of authority that if 09:44 8 someone, for whatever reason, is hauling a product in 09:44 9 an area that they're not authorized to haul, that 09:44 10 happened every day of the year, 365 days a year. Most 09:44 11 of the time, it was unintentional. And I remember 09:44 12 looking at those circles and trying to figure out if 09:44 13 you were within 50 miles or a hundred miles, or 09:44 14 whatever. And that's how it was. Who the heck knew 09:44 15 if you were within 50 miles of San Antonio, Texas. 09:44 16 But the -- and the Commission, to my knowledge, never 09:44 17 sought this type of authority and I don't think the 09:44 18 legislature would have ever given it, for good reason. 09:44 19 Because we know there are going to be some violations, 09:44 20 but you don't want someone to be -- I mean, that 09:44 21 entire license to be grabbed and shut down for at 09:44 22 least ten days. And, of course, when you go to SOAH, 09:44 23 as I guess the two attorneys are aware, the SOAH judge 09:44 24 does not necessarily have to announce the decision on 09:45 25 that day. And in the fact of the Victoria Community 09:45 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 46 1 Theatre enforcement action, after the close of hearing 09:45 2 and after the briefs had been filed, I believe it was 09:45 3 almost 90 days before a decision had been made. 09:45 4 Under the temporary suspension 09:45 5 proposals we've seen, that suspension would remain in 09:45 6 effect during that entire period of time until someone 09:45 7 makes a decision to lift it. So we think it goes far 09:45 8 too far. Thank you for your time. 09:45 9 CHAIRMAN CLOWE: Any questions of these 09:45 10 two gentlemen? 09:45 11 COMMISSIONER WHITAKER: Well, I would 09:45 12 like to hear from the other gentlemen and Billy, and 09:45 13 then I might have a couple of questions. 09:45 14 CHAIRMAN CLOWE: I'm going to call 09:45 15 on -- Fred, help me with the correct pronunciation of 09:45 16 your last name. 09:45 17 MR. MICCIO: Good morning, Mr. 09:45 18 Chairman, ladies and gentlemen. My name is Fred 09:45 19 Miccio. Today I'm here -- 09:45 20 CHAIRMAN CLOWE: M-i-c-c-i-o. Fred, 09:45 21 I'm sorry. You and I met yesterday morning and I 09:45 22 didn't get the correct pronunciation of your name. 09:46 23 MR. MICCIO: It's Miccio, M-i-c-c-i-o. 09:46 24 Fred. 09:46 25 CHAIRMAN CLOWE: Very good. 09:46 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 47 1 MR. MICCIO: Today I'm here 2 representing the American Legion Department of Texas. 09:46 3 For the record, I'm also associated with several 09:46 4 charities and I also am a commercial lessor as far 09:46 5 down in Baytown, Texas, so I -- I'm completely 09:46 6 involved in this thing all the way. For the record, 09:46 7 I'm here today to talk about this suspension. And I 09:46 8 would like to go on the record, first, to say that if 09:46 9 I was sure Mr. Billy Atkins and his crew would be here 09:46 10 forever, I wouldn't have a problem with this. But as 09:46 11 we know, nothing is forever. And the reason I'm so 09:46 12 adamant about this. I'm going to relate a problem 09:46 13 that I had, a past experience that I had. 1986, I was 09:46 14 commander of Post 490, American Legion, by Lincoln 09:47 15 Field. I was sitting in the office about 10:00 09:47 16 o'clock in the morning, myself and several of my 09:47 17 officers, writing up checks, doing our business. The 09:47 18 knock on the door. Five State Police cars surrounding 09:47 19 the building. 09:47 20 What's the problem? 09:47 21 Came here to get your bingo license. 09:47 22 What do you mean, you came here to get 09:47 23 my bingo license? For what? 09:47 24 We came here to get your bingo license. 09:47 25 Give us your license or you're going to jail. 09:47 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 48 1 I said, you've got to be kidding. What 09:47 2 did I do wrong? It seems at the time, there was -- if 09:47 3 I remember correctly, there was some kind of change in 09:47 4 when the distributions were made, before or after such 09:47 5 and such a date. But anyhow, we had tried to get it 09:47 6 straightened out, and didn't. We goofed and we didn't 09:47 7 get it straightened out, but that's all the problem 09:47 8 was. Anyhow, to make a long story short, I finally 09:47 9 had to give up the license in order not to go to jail. 09:47 10 Now, you talk about an angry, frustrated GI that spent 09:48 11 five years during the War, fighting a police state, 09:48 12 having this happen to me right here in Texas. And 09:48 13 that -- that is why I am so adamant against giving 09:48 14 somebody this kind of power. Consequently, over the 09:48 15 years, we backed the legislation, we had the -- most 09:48 16 of them rules and regulations removed. And I don't 09:48 17 want to get back into that situation again. Like I 09:48 18 say, if I knew forever that Billy and his crew would 09:48 19 be there, I wouldn't have a problem with it. 09:48 20 Now, as far as this tax delinquency, 09:48 21 yes, we need to do something about it. It's unfair to 09:48 22 let these charities play and not pay their taxes and 09:48 23 compete with charities that are paying their taxes. 09:48 24 But there -- there has got to be another way to do it. 09:48 25 And if there is a suspension, especially if it's in a 09:48 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 49 1 commercial hall, if it's an individual by himself, 09:48 2 they're the only one getting hurt. But if it's in a 09:49 3 commercial hall, you've going to have four or five 09:49 4 charities involved and you're going to break up a 09:49 5 schedule. If you pull one out that's three days, that 09:49 6 schedule is going to be broke up and that's going to 09:49 7 kill the charity. The rest of the charities in that 09:49 8 hall are going to be penalized for that one charity 09:49 9 that didn't pay their taxes. So what I would suggest 09:49 10 is, if you must go that route and you do pull the 09:49 11 license, through legal procedures, then we need to 09:49 12 make some kind of rule, either give these -- this hall 09:49 13 additional temporary licenses to continue operating so 09:49 14 their schedule is not interrupted until such time as 09:49 15 they can replace the charity that is playing in the 09:49 16 hall there. That's my comments. 09:49 17 CHAIRMAN CLOWE: Thank you, sir. There 09:49 18 is another individual who has asked to appear and give 09:49 19 testimony, Mr. Philip Arnold. Would you come forward, 09:49 20 please, sir. 09:49 21 Good morning. 09:49 22 MR. ARNOLD: Good morning. I 09:50 23 appreciate the opportunity of being here today. My 09:50 24 name is Phil Arnold. I represent various charities 09:50 25 out of Houston, Texas, Reunion Ministries, Fine Arts 09:50 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 50 1 Foundation, and several others that are -- that are in 09:50 2 Houston. 09:50 3 I've been involved in bingo since 1986. 09:50 4 And I have seen many changes and many things happen 09:50 5 over the years, and I just wanted to speak very 09:50 6 briefly today to express my keen interest and 09:50 7 appreciation for some of the proposals that I see that 09:50 8 are going to go before the legislature. There are 09:50 9 some very good things, I believe, that are -- that 09:50 10 have a chance of passing. Things that would really 09:50 11 help bingo and the charities that are involved in 09:50 12 bingo. And I think the crucial thing in my thinking 09:50 13 these days about bingo is that the last year has been 09:50 14 very, very difficult. I don't think I'm telling you 09:51 15 anything new, but I just wanted you to hear it -- I 09:51 16 guess I just wanted to express that. It's been very, 09:51 17 very difficult on the charities, certainly in the 09:51 18 Houston area, and I think all over the state. For 09:51 19 example, our hall has excelled at selling pull tabs 09:51 20 over the last three or four years. We have had a 09:51 21 strong emphasis on that. And we have always been able 09:51 22 to sell a lot of pull tabs, and our instant bingo. 09:51 23 And not only have the crowds been somewhat down, but 09:51 24 it's just been very difficult to sell as many as we 09:51 25 used to. I think perhaps some of the novelty wore 09:51 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 51 1 off. And there is a -- I can see here that, according 09:51 2 to some of the proposed legislation, there is some 09:51 3 hope for some change in that area, where there will be 09:51 4 more variety and perhaps some different ways of 09:51 5 marketing the product. This would certainly help the 09:51 6 charities to be able to do that. 09:52 7 Also, I see there is talk of a 09:52 8 progressive game, and I want to underscore how 09:52 9 important that would be, to increase player interest 09:52 10 because the pots would somewhat higher, and it would 09:52 11 add another element to the whole bingo presentation. 09:52 12 And this would cause players to have more fun, have a 09:52 13 chance to winning a little bit more, add some 09:52 14 excitement to it, and the crowds will probably go up a 09:52 15 little and we would able to sell more product and 09:52 16 this, in turn, would help the charities greatly. So 09:52 17 I'm so much in favor of that -- of the progressive 09:52 18 game idea. 09:52 19 Also, the possibility of not paying 09:52 20 sales tax on -- nonprofits generally don't pay sales 09:52 21 tax, but here we are paying sales tax for the last 16 09:52 22 years on bingo equipment, paper and, recently, 09:52 23 electronics. And even saving 30 or 40 dollars a 09:52 24 session, two sessions per day for 300-something days 09:52 25 of a year, that 40 or 50 dollars adds up. So that 09:53 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 52 1 would be a big help to us, also. Those are some of my 09:53 2 thoughts about it. And I remember standing on the 09:53 3 floor of the legislature, I guess it was in '86 or 09:53 4 '87, and I think former President George Bush had just 09:53 5 recently said that charities represented a thousand 09:53 6 points of light. And I remember bringing that up at 09:53 7 that time when I said, if you see a bingo hall, that's 09:53 8 one of those thousand points of light. And I want to 09:53 9 particularly this year, in view of some of the recent 09:53 10 election results, that that idea of the nonprofit 09:53 11 sector assuming a very important role in helping 09:53 12 society and helping the community, once again, we see 09:53 13 the vision of a thousand points of light. And by 09:53 14 passing some of these new ideas and by helping to 09:53 15 encourage bingo in any way that we can, as individuals 09:54 16 and as committees and as organizations, as 09:54 17 Commissioners, and as the Lottery Commission itself, 09:54 18 this is keeping alive and helping those lights burn 09:54 19 more lightly. And that's what the whole purpose of it 09:54 20 all is about anyway. So some of these things are 09:54 21 very, very good and I just want to express those 09:54 22 thoughts and my appreciation. 09:54 23 CHAIRMAN CLOWE: Mr. Arnold, I think we 09:54 24 understand your message. Did you have any specific 09:54 25 comment about these two issues that the chairman of 09:54 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 53 1 the advisory committee reported to the Commission on? 09:54 2 I didn't hear you comment on those two items. 09:54 3 MR. ARNOLD: And would you specify the 09:54 4 two items so I'll know exactly what we're talking -- 09:54 5 CHAIRMAN CLOWE: The suspension power 09:54 6 and the elimination of tax on the 50 dollars or less 09:54 7 prizes. 09:54 8 MR. ARNOLD: The -- the issue of the 09:54 9 suspension power. Of course, you know, as someone who 09:54 10 has studied history quite a bit and that's my 09:55 11 specialty, I seem like I've always been on the side of 09:55 12 having less power in the hands of government. At the 09:55 13 same time, when there are infractions of rules that 09:55 14 make it unfair for those particular organizations that 09:55 15 are keeping the rules to be able to compete because 09:55 16 some people are avoiding following the rules, you do 09:55 17 need some kind of government power, I think, to be 09:55 18 able to handle those situations. So I would say, 09:55 19 particularly in the case of financial violations where 09:55 20 taxes or fees, winner fees are not being paid, then 09:55 21 that kind of power would be important to put in the 09:55 22 hands of government, of agents and authorities. 09:55 23 Otherwise, I would want to be very careful because we 09:55 24 don't know what the future brings as we go down the 09:55 25 road of history. 09:55 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 54 1 In reference to the tax or the winners 09:55 2 fees issue, I think that any relief in that area would 09:55 3 be very, very good, whether it's 50 dollars or below 09:55 4 or five dollars or below. The reason that's very 09:56 5 important to us, when it comes to selling a product 09:56 6 like pull tabs, think for a moment, go into one of 09:56 7 these thousand points of light, one of these bingo 09:56 8 halls where these charities are just trying to make a 09:56 9 little money. Think about it for just a moment. 09:56 10 You've got 200, 300 people in there and you're selling 09:56 11 pull tabs on the floor. You have four or five workers 09:56 12 at intermission, let's say, selling those pull tabs. 09:56 13 And you're trying to like -- by trying -- by 09:56 14 collecting the winners fees on the five -- on the 09:56 15 winners that are five dollars, sometimes you're 09:56 16 dealing with pennies and nickels, giving change, 09:56 17 interchange of the product, back and forth with the 09:56 18 player when time is moving very fast is very, very 09:56 19 difficult. You lose sales. So what you wind up doing 09:56 20 is losing maybe a hundred dollars worth of sales -- at 09:56 21 least a hundred dollars worth of sales, maybe 200, 09:56 22 when you have a big crowd and you have five or six 09:56 23 workers on the floor taking care of those people, 09:56 24 you're going to lose several hundred dollars over a 09:56 25 period of a few days. And that's also profit, which 09:57 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 55 1 also affects how much winners fees are collected, 09:57 2 because if you sell more product, you will actually 09:57 3 wind up paying more to the State in the way of winners 09:57 4 fees. The idea is to maximize the opportunity to 09:57 5 sell. So relief there would be of great help to us. 09:57 6 CHAIRMAN CLOWE: Very good. Thank you 09:57 7 very much. Again, Commissioners, any time you have a 09:57 8 question of any of these witnesses, I think we're 09:57 9 ready to hear from Billy now. And Billy, 09:57 10 particularly, I'm sure you will anyway, but I want to 09:57 11 point out two areas that I think we would like to hear 09:57 12 from you on. The chairman of the advisory committee 09:57 13 did not have specific concerns to list: It was a 09:57 14 generic or a -- a general concern about suspension 09:57 15 powers beyond those relating to financial activities. 09:57 16 Mr. Fenoglio and Mr. Heinlein, I believe it is, 09:57 17 mentioned specific concerns. Mr. Arnold has just 09:58 18 stated, I think it's fair to characterize, some 09:58 19 general concerns. If you can be specific about what 09:58 20 you're after in this rule in that regard, I think it 09:58 21 would be helpful to the Commission. And then I 09:58 22 particularly -- 09:58 23 MR. ATKINS: I'm sorry, Mr. Chairman. 09:58 24 You're talking specifically as it relates to summary 09:58 25 suspension? 09:58 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 56 1 CHAIRMAN CLOWE: Yes. And then 09:58 2 additionally, if you could be very specific about the 09:58 3 issue of suspension of -- what is the correct 09:58 4 termination? Of prize fees? 09:58 5 MR. ATKINS: Prize fees. 09:58 6 CHAIRMAN CLOWE: Prize fees, and 09:58 7 reduction of those or elimination of those. Is the -- 09:58 8 the issue below five dollars or below 50 dollars? 09:58 9 Clarify that for me. 09:58 10 MR. ATKINS: Okay. 09:58 11 CHAIRMAN CLOWE: Now, I heard five 09:58 12 dollars yesterday in -- 09:59 13 MR. ATKINS: All right. 09:59 14 CHAIRMAN CLOWE: -- the committee 15 meeting, and that -- this 50 dollar -- 09:59 16 MR. NEINAST: May I clarify that? 09:59 17 CHAIRMAN CLOWE: If you would. 09:59 18 MS. KIPLIN: Can you come -- we've got 09:59 19 audio. Sorry. 09:59 20 MR. NEINAST: After you were called 09:59 21 out, Chairman Clowe, the committee did take specific 09:59 22 action on that specific issue. The final vote was to 09:59 23 recommend that prize fees below 50 dollars not be 09:59 24 collected. 09:59 25 CHAIRMAN CLOWE: Okay. 09:59 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 57 1 MR. NEINAST: The way it is now, it's 09:59 2 five dollars. So there is a change from five to 50. 09:59 3 CHAIRMAN CLOWE: That's what I -- 09:59 4 MR. NEINAST: And while I have the 09:59 5 chair, if I may add one addenda before Billy addresses 09:59 6 subpoena power. A -- I mentioned the concerns of the 09:59 7 community on this subpoena power. One solution that 09:59 8 was -- not a solution, but a compromise that was 09:59 9 offered, and I throw that out only for your 09:59 10 consideration is, the concern is this unbridled power 09:59 11 on one administrative official. Some think it would 10:00 12 be more acceptable if there was a procedure, instead 10:00 13 of the director of the bingo division having that 10:00 14 authority, that he could use it only on getting the 10:00 15 permission of one of you Commissioners, putting it 10:00 16 directly into the political arena. That would not 10:00 17 be -- they didn't say, require a meeting of the 10:00 18 Commission, but Linda or Billy gets on the telephone 10:00 19 to Commissioner Sadberry and say, hey, this is the 10:00 20 problem, we need a subpoena, will you approve it. 10:00 21 Then the bee is on the -- the political appointee's 10:00 22 back. 10:00 23 COMMISSIONER WHITAKER: His back. 10:00 24 COMMISSIONER SADBERRY: Who was that 10:00 25 talking about things coming to an end? 10:00 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 58 1 CHAIRMAN CLOWE: That characterization, 10:00 2 Bill, was yours, not the Commission's. We do not 10:00 3 consider ourselves political people, I don't think. 10:00 4 Okay, Billy. If that helps you on how 10:00 5 to get started on this. Please come forward. 10:00 6 MR. ATKINS: It does. Thank you, 10:00 7 Mr. Chairman. I would like to start off by saying 10:01 8 that I appreciate the comments that everybody made 10:01 9 personally both about me and the staff. I don't know 10:01 10 that I am really actually as nice as they classify me. 10:01 11 I think it's a result of the talented people in the 10:01 12 division and the hard work that they do, and I've 10:01 13 mentioned that to you -- I know, to all of you before. 10:01 14 And I appreciate the members of the public reiterating 10:01 15 that today. However, I do have to tell you that I am 10:01 16 very troubled by Bill's characterization of the 10:01 17 representation at yesterday's meeting. You know, we 10:01 18 have over 2,000 licensees. And I actually misjudged 10:01 19 the number. There were only 20 people in attendance 10:01 20 at yesterday's meeting. There were no more than five 10:01 21 to six that gave testimony. And what concerns me the 10:01 22 most is that, again, these are the same people giving 10:01 23 the same testimony. There is -- you know, I take 10:02 24 exception with his characterization that there is this 10:02 25 ground swell of concern amongst the industry. I'll 10:02 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 59 1 address that a little more later. But we at the 10:02 2 Commission meeting back in December, discussed these 10:02 3 proposals, and it was discussed that the Commission 10:02 4 wanted as much input provided by members of the public 10:02 5 as possible. There was some discussion of a -- of a 10:02 6 bill-drafting session taking place, but there were 10:02 7 concerns among staff as to the time. So even after 10:02 8 holding six separate public hearings where testimony 10:02 9 could be provided by the public, we immediately set 10:02 10 about putting those recommendations on our website 10:02 11 with the means for the public to submit written 10:02 12 comments to us on those proposals. Besides being on 10:03 13 the website, we publicized that information at the 10:03 14 different conferences we've done, at the training 10:03 15 sessions, that we've given every opportunity that we 10:03 16 got. And just so you know, we received no comments. 10:03 17 I am -- you know, I'm -- I'm concerned 10:03 18 by some of, you know, the testimony that was given 10:03 19 yesterday and some that was given today that in my 10:03 20 mind is kind of -- contradicts, you know, one or the 10:03 21 other. There seems to be a general sense among the 10:03 22 members of the public that they want a clean, 10:03 23 respectable bingo industry, but they're concerned 10:03 24 about this unbridled power given to the agency in 10:03 25 order to enforce that industry and to make sure that 10:03 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 60 1 the laws and the rules are complied with. You know, 10:04 2 again, Bill stated that there were no specifics given 10:04 3 of, you know, instances where, you know, this agency 10:04 4 has, you know, got gone out and abused its authored or 10:04 5 its discretion or anything, taken any kind of 10:04 6 heavy-handed tactics, but there is always that 10:04 7 allusion. I think that, you know, it could occur. If 10:04 8 there is some sort of, you know, specific examples, I 10:04 9 would like to hear them. I don't know that I would 10:04 10 characterize them necessarily the same way. 10:04 11 Now, you know -- 10:04 12 COMMISSIONER WHITAKER: Bill, they did 10:04 13 mention the Victoria hall that they considered to be 10:04 14 an abuse. I'm not agreeing or disagreeing, I'm just 10:04 15 saying that's what they identified. And they also -- 10:04 16 Mr. Miccio talked about his circumstance, and then 10:04 17 there was one other that I am now forgetting. But 10:04 18 there were three different instances mentioned. 10:05 19 MR. ATKINS: Okay. Mr. Miccio's, I 10:05 20 think he said, took place in 1986. I'm talking about 10:05 21 by this agency. Now, as to the Victoria Community 10:05 22 Theatre, the -- you know, the heavy-handed tactics 10:05 23 that they were referring to then resulted in 66 10:05 24 unlicensed occasions being conducted by an 10:05 25 organization. This agency's or this division's 10:05 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 61 1 attempt to be a kinder, gentler division and not -- I 10:05 2 think as Commissioner Sadberry represented it first, 10:05 3 dropping the hammer at that time, but you know, we 10:05 4 said, okay. You did it, don't do it again. And they 10:05 5 did it again. They played additional unlicensed 10:05 6 sessions. So that's why we went to hearing and that's 10:05 7 why we ultimately got the suspension. And what's 10:05 8 frustration to the staff, Commission Whitaker, and 10:05 9 Mr. Fenoglio will remember this, because we discussed 10:05 10 this on a speaker phone with several of my staff 10:06 11 there. Less than 24 hours after this Commission 10:06 12 signed off on that suspension for Victoria Community 10:06 13 Theatre, we were getting frantic phone calls from the 10:06 14 hall the next day, at 10:00 o'clock. At 10:15, they 10:06 15 faxed in an amendment wanting to play at 10:00 10:06 16 o'clock. And, you know, we're like, what's up with 10:06 17 this? You come in front of the Commission, you say 10:06 18 you're going to manage your business and we're not 10:06 19 going to be doing this, and less than 24 hours, we're 10:06 20 up here jumping through hoops. We had to ask them 10:06 21 several times, are you playing bingo now? They were 10:06 22 like no, no, no. We just -- well, then, why do you 10:06 23 want it for 10:00 o'clock? Well, I don't know. How 10:06 24 about 11:00? So you know, Commissioner Whitaker, we 10:06 25 get some stuff that doesn't add up. And the -- I'm 10:06 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 LOTTERY - February 15, 2001 62 1 going to defer to Ms. Kiplin some in regards to the 10:07 2 summary suspension and the subpoena authority. But, 10:07 3 specifically, what I want to say to the Commission is 10:07 4 the fact that it would be easier, I think, to identify 10:07 5 or to name off those agencies that don't have that 10:07 6 authority than to name the agencies that do. And 10:07 7 after everything that I have heard so far, I am 10:07 8 convinced we probably need it more now than ever. 10:07 9 As to