0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 PUBLIC COMMENT HEARING ON PROPOSED CHANGES TO CHAPTER 402 6 BINGO RULES, INCLUDING 16 TAC §§402.400, 401, 402, 404, 405, 407, 410, 411, 413, 420, 422, 424, AND 402.603 7 8 9 10 NOVEMBER 8, 2017 11 10:00 a.m. 12 AT 13 TEXAS LOTTERY COMMISSION 14 611 East 6th Street Austin, Texas 78701 15 16 17 18 19 20 21 22 23 24 Proceedings reported by electronic sound recording; transcript prepared by Verbatim Reporting & Transcription 25 LLC. 0002 1 APPEARANCES 2 ASSISTANT GENERAL COUNSEL: Ryan Mindell 3 GENERAL COUNSEL: Bob Biard 4 CHARITABLE BINGO OPERATIONS DIVISION DIRECTOR: Alfonso D. Royal III 5 INDEX OF COMMENTERS 6 PAGE 7 KIMBERLY KIPLIN . . . . . . . . . . . . . . . . . . . . . . 5 8 EDDIE HEINEMEIER . . . . . . . . . . . . . . . . . . . . 11 9 STEPHEN FENOGLIO . . . . . . . . . . . . . . . . . . . . 11 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 P R O C E E D I N G S 2 MR. MINDELL: All right. We're on the record. 3 Good morning. The time is 10:01 a.m. on Wednesday, November 4 8th, 2017. My name is Ryan Mindell, I'm Assistant General 5 Counsel with the Texas Lottery Commission. With me today is 6 Alfonso Royal, Director of the Charitable Bingo Operations 7 Division of the Texas Lottery Commission. 8 The purpose of this hearing is to receive 9 public comment on the proposed amendments to the Chapter 402 10 Bingo Rules, including 16 TAC §§402.400, 401, 402, 404, 405, 11 407, 410, 411, 413, 420, 422, 424, and 402.603. In addition 12 to this public comment hearing, the Commission is accepting 13 written comments by mail, email and facsimile. Written 14 comments should be submitted no later than Monday, November 15 20th, 2017. 16 This hearing notice was published in the Texas 17 Register on Friday, October 20th, 2017, at 42 TexReg 5786. 18 The purpose of these amendments is to 19 implement statutory changes required by newly enacted HB 20 2578, SB 549, and SB 2065 from the regular session of the 21 85th Texas Legislature. 22 The proposed amendments remove all references 23 to bingo conductor and worker fees while revising the license 24 application and renewal process. In addition, the proposed 25 amendments facilitate the HB 2578 requirement that the 0004 1 Commission retain a portion of the bingo prize fees otherwise 2 allocated to counties and municipalities to fund the 3 administration of the Charitable Bingo Regulatory Program. 4 Further, the proposed amendments allow commercial lessors, 5 distributors and manufacturers to recover up to half of their 6 application fee if they withdraw their application before a 7 license is issued or if their application is denied. 8 The proposed amendments also remove the 9 licensing requirements for bingo unit managers while 10 maintaining those managers reporting and notification 11 requirements. 12 And last, the proposed amendments correct 13 typographical errors and make other non-substantive, 14 conforming changes to the rules. The proposed amendments 15 that will be submitted to the Commission for adoption on 16 December 7th may also include some other non-substantive 17 changes, including additional typographical or conforming 18 changes. 19 At this time we've received three witness 20 affirmation forms. If anyone has not turned in a form and 21 they wish to speak, you may submit a form now. I'm going to 22 take a short two minute break for anybody to have a chance to 23 do that before we resume our hearing. And we're off the 24 record at 10:04. 25 (Off record) 0005 1 MR. MINDELL: All right. We're back on the 2 record at 10:06 a.m. And with that, I will call Kimberly 3 Kiplin to offer comments. 4 MS. KIPLIN: Good morning. My name is 5 Kimberly Kiplin, I'm an attorney here in Austin, Texas. 6 I'm here today on behalf of the Department of 7 Texas Veterans of Foreign Wars. Veterans of Foreign Wars is 8 the oldest major Veteran service organization in the United 9 States and the mission of the VFW is to support the Veterans 10 and their families. 11 2.4-million members of the VFW and its 12 auxiliaries are located in 8500 VFW posts around the world. 13 While the VFW is a national organization, the work of the VFW 14 is conducted through local posts and programs to support 15 veterans, service members, and their families. 16 In Texas, we have about 330 local posts that 17 serve the mission of the VFW. Of those 330 local posts, over 18 90 posts conduct Charitable Bingo. And we do appreciate the 19 opportunity to comment on the proposed amendments today. So 20 I'm going to get right into it. 21 I'm going to first comment on 402.400, general 22 licensing provisions. In the 402.400, there's a Subsection 23 (f), and it does not set out the number of days for documents 24 to be filed and we -- we would like for there to be clarity 25 within the Rule on what the timelines are for the 0006 1 organizations so that they know. So we are requesting that 2 you look at that and you include a specific timeline. 3 Also, this is a staged-out process, so that 4 not all documents are necessary to be filed at the time of 5 the application, but later in the process, to be complete the 6 bond has to be submitted. We really would -- would not -- 7 would like the Commission, let me phrase it like that, to 8 wait until the very end of the process to then require the 9 bond, and that being the last -- the last step necessary, so 10 that if, for example, the Commission is going to actually 11 deny the license, we don't have an organization that went out 12 and paid a premium for the bond, had to go through the effort 13 of getting a bond. We'd like for that to be the last step. 14 In other words, everything's a go except for the bond. 15 In 402.400, there are references throughout 16 the Rule to supplemental forms. And I want to put this 17 comment on the record, and I did this through the stakeholder 18 group, and that is that if the Commission is going to use a 19 form and that form, by the nature -- just by the four corners 20 of that form, imposes a new regulatory requirement; that 21 needs to get through an APA, Administrative Procedures Act 22 rulemaking. It's not -- it's not fair and it's not -- and 23 it's a violation of the APA, just to create new forms and 24 have those forms impose new requirements. 25 And I'll just put on the record the APA 0007 1 definition of rule. It means, a state agency statement of 2 general applicability that implements, interprets or 3 prescribes law or policy or describes the procedure or 4 practice requirements of the state agency. It includes the 5 amendment or repeal of a prior rule, but it does not include 6 a statement regarding only the internal management or 7 organization of the state agency, and not affecting private 8 rights or procedures. 9 So when the Division or the Commission are -- 10 is looking at creating a new form, we'd like for that -- top 11 of mind would be by virtue of the creation of this form, is 12 this imposing a new regulatory requirement on a license 13 holder. 14 Okay. Going to 402.402, registry of bingo 15 workers, Subsection (s). There is a statement or sentence in 16 there that says payment for the employment of a provisional 17 employee as outlined in Subsection (a)(8) of this section is 18 an authorized expense, however, payment for non-registered 19 workers is not an authorized bingo expense. 20 This is underlined so it's suggesting it's 21 new. I did see it actually deleted in another provision, but 22 my point on this is the stated purpose for this particular 23 rulemaking is to implement the 2017 Legislation. So going 24 through this kind of proposed amendment, proposed rulemaking, 25 seems to be outside the scope of the rulemaking. 0008 1 My next comment is on Rule 404.404, license 2 classes and registry fees. We had quite a spirited 3 discussion regarding the concept of re -- continuing to 4 retain as a definition license class and then having ranges 5 of gross receipts connected to different license class 6 letters. I'll just look to Subsection (a)(2)(A) license 7 class is tied to dollar amount of gross receipts. 8 My continued question is why is this language 9 and any reference to gross receipts being retained? 10 Continuing to use gross receipts to define license classes 11 seems to be contrary to House Bill 2578, which repealed 12 Section 2001.104 of the Occupations Code and this language, 13 the license class language. Now, I know staff has indicated 14 that the language is necessary in order to calculate the 15 local share of the prize fee that's needed for the regulation 16 of bingo, and I don't -- I still don't understand that, so 17 I'm requesting that as part of the adopted preamble, there is 18 a -- an explanation on this particular process and this 19 approach. And it seems to me that if it's really just to 20 help the staff internally, and it doesn't -- it doesn't -- 21 it's not imposing anything on -- on the license holder, then 22 that fits within the definition of -- that part of the 23 definition of rule that says it's not -- it doesn't -- it's 24 not a rule if it includes a statement regarding only the 25 internal management or organization of the state agency. So 0009 1 if it's just for internal purposes, my request and my 2 preference would be to not continue characterizing a license 3 class based on the range of gross receipts. 4 I think Section 2001.507(c) of the Occupations 5 Code on how the -- the share -- pro rata share of the prize 6 fees are calculated is clear and it seems to me that the math 7 ought to be based on the pro rata share of prize fee for the 8 local government compared to the overall funds needed to 9 administer and regulate bingo. And I guess I'm still at a 10 point where I don't understand the need to bring gross 11 receipts into the equation. 12 Now, I recognize we have a bond rule and for 13 purposes of the bond rule in terms of trying to evaluate risk 14 and the price of the bond, that is connected to gross 15 receipts, and I recognize that. But my suggestion is to 16 remove from 404.404 -- Rule 404.404, the license class and 17 the whole gross receipts attributed to charities, the 18 nonprofit organizations, and if it's needed, put it in the 19 bond rule. And the reason that I like that better and I know 20 that it's, you know, different preferences, is because you 21 have it all in one rule. We don't have people having to jump 22 and skip through different rules to try to -- try to figure 23 out how to comply with the bond rule. 24 MR. MINDELL: I believe the reference is 25 402.404. 0010 1 MS. KIPLIN: Yes, I'm sorry. Thank you. 2 MR. MINDELL: I just want to make sure we're 3 clear for the record. 4 MS. KIPLIN: Thanks for -- yeah. Yeah. No, 5 that -- I stand corrected, thank you, it's 402.404. 6 That concludes my -- my comments. On behalf 7 of the VFW, I really do appreciate the opportunity for 8 convening this comment hearing under the circumstances. We 9 know that y'all are having to undergo some construction. We 10 do look forward to working with the Commission on this matter 11 and other matters that impact the VFWs Bingo Charitable 12 fundraising activities and happy to answer any questions. 13 MR. MINDELL: Thank you, Ms. Kiplin. And I 14 encourage you and everyone else that makes comments today to 15 also follow-up with written comments with these as well. But 16 we appreciate those comments. 17 MS. KIPLIN: Yes, sir, we will. 18 MR. MINDELL: And, you know, all of these are 19 substantive, so we'll take the time to respond to that. I 20 just -- a quick thing on 402, the things that was -- that you 21 noted was outside the scope. 22 MS. KIPLIN: Uh-huh (affirmative). Yes. 23 MR. MINDELL: That was just -- it's clearly -- 24 it's not -- there's no substantive change there, it's just 25 moving it from the earlier part of the rule to the later part 0011 1 of the rule. When we were deleting the rule, the -- the 2 reference to the fee, we realized that that was kind of out 3 of place. That's more of a kind of a conforming change 4 that's trying to, you know, just make it a little bit more 5 clear. There's no substantive change there. 6 MS. KIPLIN: So you're fitting that within the 7 scope of making non-substantive conforming changes? 8 MR. MINDELL: Exactly. 9 MS. KIPLIN: Okay. Thank you for the 10 clarification. 11 MR. MINDELL: All right. And with that, I 12 will call Eddie Heinemeier to offer comments. 13 MR. HEINEMEIER: At this time I'll pass. I 14 was just saying I was saving it for comments if I wanted to 15 later, but right now I don't have anything. Thank you. 16 MR. MINDELL: And I'll remind you that you saw 17 the time for written comments if you decide to at a later 18 date. 19 MR. HEINEMEIER: Yes. 20 MR. MINDELL: All right. And now I'll call 21 Stephen Fenoglio. 22 MR. FENOGLIO: Thank you. For the record, my 23 name is Stephen Fenoglio, I'm here representing Texas Charity 24 Advocates and its members in the Bingo Interest Group. 25 I handed out two documents. Here you go. So 0012 1 I have attached, and I've got an extra -- extra -- some extra 2 copies if anyone wants them, and in bold, 40 -- my comments 3 to 402.400, beginning at page 3, and it's a similar comment 4 to Ms. Kiplin's comment on Subsection (f)(2). 5 The draft rule states, and this is for an 6 application to conduct charitable bingo, the applicant must 7 submit certain information quote, within a number of calendar 8 days required by the Commission on the applicable forms. 9 Our point is, whatever that number of days is and 10 the forms should -- are part of the definition of the rule 11 and should be stated, stated a different way. It's 12 inappropriate and we believe contrary to Texas law, to say, 13 well, we can change our requirements, our processing 14 requirements, our deadlines, in a form because we've 15 referenced that in a rule. 16 Ms. Kiplin correctly cited the definition of a 17 rule under the Texas Government Code Chapter 2001 and it 18 seems to me that what is going on here is an attempt to evade 19 the rulemaking requirements. 20 The same comment at the end of the same 21 subsection, Subparagraph (f)(2), require -- seeming to 22 require that a licensee must have a bond in place before the 23 licensee knows whether they would actually get issued a 24 conductor license. 25 For a charity that's seeking to be admitted 0013 1 into a large commercial bingo hall, the minimum bond 2 requirement is $7000 and the cost for those bonds can be 3 anywhere from -- I've heard as low as $200 up to $1000, 4 depends on the financial fitness of the particular charity 5 and whether a company is willing to underwrite a bond. So we 6 would suggest that the best approach is to wait until the 7 last moment possible to say, okay charity, we're going to 8 issue the license conditioned upon a bond. 9 There are a number of other agencies that have 10 bond requirements that do the same thing. In particular, I'm 11 familiar with the Railroad Commission of Texas and their 12 significant bonding requirements and Texas Alcoholic Beverage 13 Commission. 14 Turning to page 9 of my handout regarding 15 Subparagraph (n) of 402.400, regarding representation, this 16 issue has come up a couple of times when I have been 17 representing licensees or applicants. And occasionally, the 18 Bingo Division will say, well, unless you're on our 19 government form, we can't talk to you, notwithstanding I may 20 have sent a letter of authorization to represent the 21 licensee. 22 I practice regularly in front of about eight 23 different state agencies and this is the only agency I've 24 ever dealt with that has a requirement where someone in the 25 Division will say, unless you're put on the form, we can't 0014 1 talk to you, we can't share information with you, unless and 2 until you're put on the form. 3 I would suggest to you that's contrary to 4 court practice and SOAH practice. And so my suggested 5 language quote, a licensed attorney filling a letter with the 6 Division stating the attorney represents the applicant or 7 licensee should be included as noted on page 9. 8 And I also included at the bottom of page 9 9 and the top of page 10, the editorial comment contrary to 10 court and SOAH requirements. 11 Turning to Rule 402.404, the proposed changes 12 under Subparagraph (1)(a), and we had a very spirited 13 discussion about why the Division feels the need 14 notwithstanding House Bill 2578 eliminated all license fees 15 for charities, that there has to be some sort of counting 16 placed upon the charities to have a license class related 17 amount that said it's in the rule -- draft rule says, quote, 18 used solely by the Commission to estimate the pro rata local 19 share prize fee related to licenses. 20 We don't think that's necessary under House 21 Bill 2578. We requested copies of anything that the Division 22 received from either legislators or the Comptroller, 23 suggesting that this was a requirement and I've attached the 24 email I received from Mr. Biard, along with the letter from 25 Ms. Thompson and the letter from the Comptroller of Public 0015 1 Accounts. Neither one of those letter says that this -- that 2 there's a requirement for a licensed authorized organization 3 to -- to be required to have anything filed with the 4 Commission since there -- there are no longer any license 5 fees. 6 We recognize that the Division may be required 7 to do some internal accounting for true up costs on the 8 amount of money that was paid by the licensees and license 9 fees that are now -- those fees are now being paid through 10 the House Bill 2578 provisions, where the money that it costs 11 regulate bingo comes from the prize fees. We recognize that 12 there is that internal accounting that has to occur. But 13 that shouldn't be a requirement for the licensed authorized 14 organizations to do. The Division, we believe, with their 15 new systems in place, have the ability to track all those 16 costs or phantom costs in the way of no longer having license 17 fees, and then do the true up to make sure the Division A, 18 gets the money it needs to regulate bingo, and then B, to 19 offset that amount from the prize fees. 20 So it seems to us that this is an unfunded 21 mandate requiring charitable organizations to provide 22 information to the Division that the Division can readily 23 obtain in the form of the quarterly reports that are filed by 24 these particular charities. 25 So we appreciate the fact that in the first 0016 1 sentence of Subparagraph (1)(a), the statement there is no 2 annual fee for a license to conduct bingo. That was a 3 requirement -- or a provision that we discussed during the 4 stakeholder meetings we had, but it still says that the 5 following -- that charities Class A license is 132 down to a 6 Class J license of 3200. 7 And so we think there's going to be confusion 8 on behalf of the licensed authorized organizations. There 9 may be confusion within the Division. I have regularly 10 represented licensees of the Commission and occasionally I'll 11 find that what an employee is saying is not quite what the 12 law is, and we can get that clarified. But if a licensee 13 isn't sure what the requirements are when they read that 14 rule, they would get confused between what says there's not a 15 license fee and yet the language says there is. 16 So those are all the comments I have. Thank 17 you for the opportunity to make the comments. 18 MR. MINDELL: Thank you, Mr. Fenoglio, and I 19 appreciate you providing the written comments on the 402.400. 20 And again, I would encourage you to follow-up with written 21 comments on the 402.404 as well. 22 MR. FENOGLIO: Okay. 23 MR. BIARD: Do you have an extra copy of that? 24 MR. FENOGLIO: Yes. I have handed you one, 25 but I do. 0017 1 MR. BIARD: I just wanted to give it to the 2 court reporter. 3 MR. FENOGLIO: Okay. 4 MR. BIARD: Sorry. For the record, I'm Bob 5 Biard, General Counsel. 6 MR. FENOGLIO: There you go. 7 COURT REPORTER: Thank you. 8 MR. FENOGLIO: Uh-huh (affirmative). 9 MR. MINDELL: We will take your comments to 10 the administration -- 11 MR. FENOGLIO: Sure. 12 MR. MINDELL: -- and respond to them at the 13 December 7th hearing. 14 MR. FENOGLIO: And if anyone else wants 15 comments -- or copies of what I've handed out, I've got -- 16 MS. KIPLIN: I'd like one, Steve. 17 MR. FENOGLIO: -- two sets. Okay. 18 MS. KIPLIN: Thank you. 19 MR. FENOGLIO: Uh-huh (affirmative). 20 MR. MINDELL: If there are no more witnesses, 21 I'd like to thank everybody for attending today's hearing, 22 for offering comments, officially incorporate the documents 23 that have been provided into the record. And the time is 24 10:25 a.m. and we stand adjourned. Thank you. 25 MR. FENOGLIO: Thank you. 0018 1 MR. MINDELL: The public comment session is 2 closed. 3 (Adjourned and concluded at 10:25 a.m.) 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0019 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF HARRIS ) 4 I, Kimberly C. McCright, Certified Vendor and 5 Notary in and for the State of Texas, do hereby certify that 6 the above-mentioned matter occurred as hereinbefore set out. 7 I FURTHER CERTIFY THAT the proceedings of such were 8 reported by me or under my supervision, later reduced to 9 typewritten form under my supervision and control and that 10 the foregoing pages are a full, true and correct 11 transcription of the original notes. 12 IN WITNESS WHEREOF, I have hereunto set my hand and 13 seal this 19th day of November, 2017. 14 15 /s/ Kimberly C. McCright Kimberly C. McCright 16 Certified Vendor and Notary Public 17 Verbatim Reporting & Transcription, LLC 1322 Space Park Drive, Suite C165 18 Houston, Texas 77058 281.724.8600 19 20 21 22 23 24 25