0001 1 2 3 4 5 6 *************************************************** 7 8 TEXAS LOTTERY COMMISSION 9 MEETING 10 11 May 30, 2001 12 *************************************************** 13 14 15 16 17 18 BE IT REMEMBERED that the TEXAS LOTTERY 19 COMMISSION meeting was held on the 30TH day of MAY, 20 2001, beginning at 8:30 a.m. and ending at 21 2:29 p.m., before Suzanne T. Lane, RPR, CSR in and 22 for the State of Texas, reported by machine 23 shorthand, at the Offices of the Texas Lottery 24 Commission, 611 East Sixth Street, Austin, Texas, 25 whereupon the following proceedings were had: 0002 1 APPEARANCES 2 Chairman: 3 Mr. C. Tom Clowe, Jr. 4 Commissioners: Ms. Elizabeth D. Whitaker 5 Mr. Walter H. Criner, Sr. 6 General Counsel: Ms. Kimberly L. Kiplin 7 Executive Director: 8 Ms. Linda Cloud 9 Charitable Bingo Operations Director: Mr. Billy Atkins 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 CHAIRMAN CLOWE: It's 8:30, 2 Wednesday, May the 30th, 2001. I'll call the 3 meeting of the Texas Lottery Commission for this 4 day to order. 5 I'm Tom Clowe. Commissioner 6 Whitaker and Commissioner Criner are here. We have 7 a hundred percent attendance, and we're ready to go 8 forward on the agenda as published. 9 There are no public appearance forms 10 filed with the Commission at this time, so we 11 assume that there are no citizens who wish to 12 address the Commission, but we will revisit that 13 later in the agenda. 14 We'll go immediately to Item No. 2, 15 report, possible discussion and/or action on 16 lottery sales and trends. 17 Good morning, Toni. 18 MS. SMITH: Good morning, 19 Commissioners. 20 For the record, I'm Toni Smith, 21 marketing director of the Texas Lottery Commission. 22 We'll talk about year-to-date total 23 sales for week ending May 26. Total sales to date 24 are 2,157,046,059. This is up 9.93 percent from 25 fiscal year 2000 total sales of 1,962,206,088. The 0004 1 fiscal year 2001 weekly sales average is 2 55,308,873, which also reflects a 9.93 percent 3 increase over FY 2000 weekly sales average of 4 50,312,976. 5 To look at the year-to-date 6 comparison in a couple of our products, for fiscal 7 year 2001, instant tickets are at 1,291,300 -- I'm 8 sorry, 1,291,387,248. Currently, it represents 9 59.87 percent of sales. This is a 5.3 percent 10 increase over fiscal year 2000 of 1,225,683,268. 11 Lotto Texas is at 566,920,963. It's 12 currently 26.28 percent of sales, and we have seen 13 a 32 percent increase over fiscal year 2000 Lotto 14 Texas sales of 429,404,020. And at that time, it 15 represented 21.88 percent of sales. 16 Texas Two Step, we've had two weeks' 17 worth of sales. And Robert is with me this 18 morning. He's going to show you a little bit more 19 about Texas Two Step. But year to date, we've had 20 3,388,243. 21 And then we'll just take a quick 22 look at last week. For the week ending May 26, 23 sales were 46,562,358. This is down 13.05 percent 24 from the previous week ending 5-19, with total 25 sales at 53,552,211. And the primary factor for 0005 1 this decrease was Lotto Texas jackpots, for the 2 week ending May 26th were 4 million and 6 million 3 for Wednesday and Saturday. And the previous 4 week's jackpot was 22 and 28 million, respectively. 5 And you also have in front of you 6 the report that Robert had prepared for you in the 7 last meeting regarding the Lotto Texas draw 8 patterns. And it shows the number of times that we 9 have been hit versus what our original projections 10 were, and we're still pretty much on track. 11 We have been hit four times at the 12 4 million to 11 million range; five times at the 13 16 million to 29 million range; five times at the 14 37 to 67 million range; and we had a one 85 million 15 jackpot. So we're still waiting for one more big 16 one yet this fiscal year. 17 And we also have a memo -- and 18 Chairman Clowe, this is one that you had requested, 19 and I wanted to ask if you want us to continue the 20 one that shows the Lotto Texas jackpot summary that 21 shows the number of times the jackpot was hit 22 versus those same number of weeks the previous 23 year -- or previous two that the matrix changed. 24 On this report, which went through 25 May 26th, you can see that the Lotto Texas jackpot, 0006 1 since the matrix change, has only been hit or won 2 15 times during the past 45-week period. And prior 3 to the matrix change, it was hit 29 times the 45 4 weeks before. 5 CHAIRMAN CLOWE: I really 6 appreciated you making this report for us, and I'd 7 like to continue to gather this data. 8 MS. SMITH: Okay. 9 CHAIRMAN CLOWE: But if the other 10 commissioners are in agreement, I don't think we 11 have to look at this in this form on an ongoing 12 basis if you can reduce this to a couple of 13 sentences in your other report and just give us 14 this information maybe once a month or once a 15 quarter. And let's keep gathering this information 16 because I think at some point in time, we're going 17 to want to look back. 18 MS. SMITH: Yes, sir. 19 CHAIRMAN CLOWE: So it would do away 20 with the length of this report if the commissioners 21 are in agreement with that. 22 COMMISSIONER WHITAKER: That's fine. 23 COMMISSIONER CRINER: Fine. 24 CHAIRMAN CLOWE: Thank you. 25 MS. SMITH: Thank you. 0007 1 I'm going to turn it over to Robert 2 to show a little more about our Texas Two Step 3 kickoff. 4 MR. TIRLONI: For the record, my 5 name is Robert Tirloni. I am the on-line product 6 manager in the lottery's marketing division. 7 Commissioners, I've been talking to 8 you-all for about a month now about the 9 introduction of Texas Two Step, and I'm happy to be 10 here to give a quick synopsis of what has happened 11 during the past two weeks since we've launched the 12 Two Step game. You have an update in front of you 13 if you want to follow along. 14 On Sunday, May 13th, sales for Texas 15 Two Step began at 6:00 a.m., right on target as 16 scheduled. Sales continued through that whole 17 first week. We did not have a draw on that 18 Tuesday. We did have our first draw on Friday, 19 May 18th. 20 That was the same night that we had 21 our Texas Two Step dance contest in Pasadena at the 22 Pasadena Strawberry Festival. We were very pleased 23 with the response we had, Commissioners. We had 24 500 people who attempted to register to participate 25 in that dance contest, and we were only going to be 0008 1 able to have 20 couples compete. So the response 2 was overwhelming. We had four winning couples 3 selected -- 4 CHAIRMAN CLOWE: What did you do? 5 MR. TIRLONI: What's that? 6 CHAIRMAN CLOWE: What did you do? 7 MR. TIRLONI: Well, we teamed up 8 with a radio station in Houston, and they heavily 9 promoted our dance contest and heavily promoted the 10 Two Step game for us. And we had registration via 11 mail, fax, and on the radio station's website. And 12 that's how we received the 500 entries. 13 MS. CLOUD: He wants to know how you 14 eliminated the 500 down to 20. 15 MR. TIRLONI: Oh, that was randomly 16 selected by the radio station. That wasn't our 17 task, thank goodness, to do that. 18 CHAIRMAN CLOWE: Those Harris County 19 folks like to dance, don't they? 20 MR. TIRLONI: Yes, they do. 21 From that contest, we had four 22 winning couples selected, and the grand prize 23 winning couple received -- 24 CHAIRMAN CLOWE: Were you in that 25 dance contest? 0009 1 COMMISSIONER CRINER: That's not my 2 dance. 3 CHAIRMAN CLOWE: Oh, all right. 4 MR. TIRLONI: The grand prize couple 5 received a trip for two to Tampa, Florida to see 6 the Brooks and Dunn Neon Circus Concert. That trip 7 was a very good trip, Commissioners. It included 8 air fare, hotel accommodations, ground 9 transportation, and tickets to the concert. 10 The other winning couples received 11 Justin boots, gift certificates, and other 12 promotional items from the Lottery. After that 13 contest, on large screen televisions, the crowd was 14 able to watch the very first Texas Two Step draw. 15 We were very pleased with everything 16 at the contest. The Pasadena Strawberry Festival 17 organizers were very happy to have the lottery at 18 that event. That was a first-time event for the 19 lottery -- it was the first time for the lottery to 20 be at that event, and they have told us they would 21 love to have us back to do any type of a similar 22 event in the future. 23 We did sell three jackpot tickets 24 for that very first drawing on the 18th. Those 25 tickets were sold in Corpus Christi, Dallas, and in 0010 1 Houston. I can tell you the Corpus Christi 2 claimant has already claimed their prize, as has 3 the Dallas claimant. We're still waiting on the 4 Houston claimant to come forward. 5 Sales for that first draw and for 6 the first week were over $1 million. Just this 7 past -- last Monday, the 21st of May, we started 8 our statewide in-store promotions. The GTECH 9 lottery sales representatives are conducting those 10 in-store promotions, and those will continue 11 through late June. 12 On Tuesday, the 22nd, we had our 13 very first Tuesday draw for Texas Two Step. We did 14 not sell any jackpot tickets for that draw. The 15 jackpot rolled to $350,000, and sales for that 16 Tuesday draw were over $800,000. 17 Last Friday, the 25th, we did have 18 one jackpot ticket sold for that $350,000 draw. 19 The ticket was sold in Fort Worth. That claimant 20 has already come into Austin to claim their 21 ticket -- to claim their prize. And sales for that 22 week topped $2 million. 23 It's not on your update, but there 24 was no winner last night for our Two Step drawing 25 last night on Tuesday, and our Two Step jackpot has 0011 1 rolled from 200 up to $500,000 for our Friday draw. 2 COMMISSIONER WHITAKER: Why did it 3 go from -- sell so fast? Just the number of 4 tickets sold or -- 5 MS. CLOUD: The sales that we had 6 from the previous draw, we were able to roll 7 $100,000 into this jackpot amount from the previous 8 draw. 9 MR. TIRLONI: And Commissioners, we 10 continue to hear very positive information from our 11 retailers about this game. They're very excited 12 about it. They like the play style. 13 And when I was in Pasadena at the 14 Strawberry Festival, I talked to some of the clerks 15 that were in the lottery sales trailer. They were 16 thrilled about the new game, and I talked to a lot 17 of players, too, while I was there, and everybody 18 is very enthusiastic about Two Step. So we are 19 going to be working hard to keep the momentum 20 going. 21 MS. CLOUD: The feedback that I get 22 on Texas Two Step is it's a Texas game and it's 23 easy to play, it's easy to understand, and they 24 love the commercials. And I'll give Fogarty a pat 25 on the back for the commercials for this game. 0012 1 COMMISSIONER WHITAKER: Do they 2 compare it to the Texas Million, and if so, what do 3 they say? 4 MS. CLOUD: The responses -- I had 5 people come up to me at the Pasadena Strawberry 6 Festival and tell me that they thought they could 7 win this game, that Texas Million didn't have 8 enough winners and it was too confusing. So I 9 think we've made the right move in pulling down the 10 Texas Million game and putting a game out there 11 that the players really seem to like. 12 CHAIRMAN CLOWE: Any questions? 13 COMMISSIONER CRINER: Just one 14 statement. 15 I noticed that there is a map of 16 Texas in the back, back there, about charitable 17 bingo. And I asked Toni earlier, is there a map 18 like that for the lottery that just basically shows 19 where the lottery winners have been. Occasionally, 20 folks say, "I never win in my area" or "I never 21 win." 22 MS. CLOUD: Yes. 23 COMMISSIONER CRINER: I always -- 24 the statement that I use is, just keep playing, you 25 know. 0013 1 MS. CLOUD: You can't win if you 2 don't play. 3 COMMISSIONER CRINER: Just pick the 4 numbers and play. I think it would be beneficial 5 if we just kind of had a map of Texas to just show, 6 by counties, where there have been winners. And I 7 just -- for ignorance on my part, it would just 8 help me understand where we -- where the game is 9 being played and -- 10 MS. SMITH: We're already working on 11 it. We had done a piece of point of sale that 12 needs to be updated, and it was a piece that went 13 in our play stations. So we'll get that together 14 and make sure that all the commissioners will get a 15 copy. 16 COMMISSIONER CRINER: It's just for 17 information. 18 MS. CLOUD: We do have that 19 information, and within -- for the legislative 20 session, we provided that to the leaders of their 21 particular districts: how many winners we had, how 22 many retailers, how much commissions we pay. So we 23 do have that information available. 24 COMMISSIONER CRINER: Okay. 25 MS. CLOUD: Billy just beat us to 0014 1 the draw on doing something for the commission 2 room. We'll have to not let that happen again. 3 COMMISSIONER CRINER: I just saw it, 4 where folks are playing. I thought that wasn't -- 5 I said -- anyway, I'm not -- it's just for 6 information. 7 MS. CLOUD: That's a really good 8 idea. We will do something and get it put up in 9 here. 10 COMMISSIONER CRINER: Oh, you don't 11 have to put it up here. 12 MS. CLOUD: Yeah, we need it where 13 people can see it. 14 MS. SMITH: Commissioner Criner 15 wants it for himself, so we'll get it for him. 16 MS. CLOUD: Okay. 17 COMMISSIONER CRINER: This was a 18 question for ignorance. And now that folks have 19 found out that I'm on the Commission, they're 20 asking me questions, and I'm, like, go away, play. 21 Just go away. 22 So I need to be a little smarter. 23 CHAIRMAN CLOWE: Okay, Billy. We'll 24 put a mark on the wall for you. 25 MS. CLOUD: Yeah. Get some Brownie 0015 1 points. 2 CHAIRMAN CLOWE: Toni, I'm not sure 3 whether this a question for you or for Bart. 4 Currently, for 268 days, you show 2,157,000,000, an 5 increase of 9.93 percent on a year-to-date basis. 6 At the current running rate, have you projected 7 what the total will be for this fiscal year, the 8 total revenue? 9 MS. SMITH: Actually, that is the 10 number that we supplied Bart. 11 MR. SANCHEZ: Good morning, 12 Commissioners. 13 For the record, my name is Bart 14 Sanchez. I'm the financial administration 15 director. 16 And the projection I would have that 17 we calculated for the fiscal year '01 is between 18 the ranges of 2.8 billion to 3 billion. It all 19 depends how the summer months are going to pick up. 20 But for budget, conservatively, I'm forward 21 projecting probably about 2.8. 22 CHAIRMAN CLOWE: I'm showing about 23 maybe 2.93 if we keep the current running rate. 24 MR. SANCHEZ: You're even more 25 optimistic. 0016 1 CHAIRMAN CLOWE: Well, you know, I 2 think that there is every reason now to be 3 optimistic about it, where this time last year, we 4 were scratching. 5 MR. SANCHEZ: Yes. 6 CHAIRMAN CLOWE: And what is our 7 budget number, Bart, for this fiscal year? 8 MR. SANCHEZ: The budget in the 9 sense of the -- 10 CHAIRMAN CLOWE: Projection of 11 the -- 12 MR. SANCHEZ: -- sales? 13 The sales, I think we projected 14 about 2.75 billion. 15 CHAIRMAN CLOWE: So we look within 16 striking range of that, don't we? 17 MR. SANCHEZ: Yes. Yes. It all 18 depends right now -- I'm really monitoring it by a 19 week-to-week basis, because I think last week, it 20 was a low week, I think. 21 MS. SMITH: Uh-huh. It was. 22 MR. SANCHEZ: But it's -- you know, 23 usually the summer months -- I think Toni and Linda 24 can probably say how they would be. 25 CHAIRMAN CLOWE: Well, I think the 0017 1 marketing people ought to keep their finger on this 2 pulse. It appears to me that the instants and the 3 Texas Two Step now are gaining momentum. And the 4 lottery, depending on what the size of the jackpot 5 is, is going to go up and down. But when these 6 larger jackpots -- 20 million or in that 7 vicinity -- come on, the people are there playing 8 the Texas Lottery. 9 MR. SANCHEZ: Yes. 10 CHAIRMAN CLOWE: And that -- we need 11 to get a comfort level with projecting these 12 revenues so we can see where we are and control our 13 expenses against that and provide, you know, for 14 contingencies. Keep that black hat handy. Don't 15 put it away. 16 MR. SANCHEZ: I will. Thank you. 17 MS. SMITH: Commissioner, we do plan 18 that our -- we have the summer planned already, and 19 the biggest for the summer is the promotion of the 20 Texas Two Step game. We have sales rep promotions 21 that are going through the whole summer in-store, 22 customer appreciation days. 23 Everything that we do and the other 24 events or fairs and festivals we participate in 25 will all be geared towards promoting Texas Two 0018 1 Step. So we think that will help us through what 2 is typically a slower season for us. 3 CHAIRMAN CLOWE: One thing that I 4 think bears mentioning is that we are getting very 5 positive comments, I think, uniformly, on our 6 advertising now. The firm seems to be doing a good 7 job of advertising the games, but doing it in a 8 non-offensive way to those people who are sensitive 9 to gambling in the state. 10 And my conclusion from the last 11 session of the legislature is that the leadership 12 is satisfied with the level of promotion, based on 13 the comments I have received about our activity in 14 those areas. And it's very important to tell 15 people about the games, it seems to me, and let 16 them know they're there and encourage them to be 17 involved if they want to, but not be aggressive 18 about that. And I think currently, we're in that 19 middle ground. A good job is done by 20 Fogarty & Klein and all of your staff involved in 21 that. 22 MS. SMITH: Thank you, sir. 23 CHAIRMAN CLOWE: Any other comments? 24 COMMISSIONER WHITAKER: No. 25 CHAIRMAN CLOWE: Thank you, Toni and 0019 1 Robert. 2 MR. TIRLONI: Thank you. 3 CHAIRMAN CLOWE: Do you have 4 anything to add, Linda, on the Item No. 3; or Toni, 5 on the discussion on advertising and promotions, 6 media criteria? 7 MS. CLOUD: Not at this time. 8 CHAIRMAN CLOWE: All right. 9 We'll move on then to Item No. 4, 10 status report, possible discussion and/or action on 11 the lottery operator procurement and/or lottery 12 operator consultant. 13 Is there a comment on that? 14 MS. KIPLIN: Commissioners, Ridgely 15 Bennett, the deputy general counsel, has taken a 16 break. He's on vacation. And I'm filling in for 17 him, and I'm here to report that the procurement is 18 on schedule. 19 CHAIRMAN CLOWE: Thank you very 20 much. 21 Then we'll move on to Item No. 5, 22 consideration of and possible discussion and/or 23 action on internal and external audit reports 24 relating to the Texas Lottery Commission and/or the 25 Internal Audit Department's activities. 0020 1 Debra McLeod. Good morning, Debra. 2 MS. MCLEOD: Good morning, 3 Commissioners. 4 For the record, I'm Debra McLeod, 5 director of internal audit. 6 I would first like to report on 7 external activities. To my knowledge, the 8 comptroller has come in and done their usual 9 audit -- it's a desk audit, analysis of accounts. 10 From what I understand from the director of 11 finance, field work is complete, and we're 12 expecting a report. 13 We also currently have a contract 14 with the state auditor's office. Their MAS group 15 has come in, and my understanding from Patsy Henry 16 is that this is proceeding on schedule. They have 17 completed one division. They're currently in two 18 other divisions doing their analysis. 19 With internal audit activities, peer 20 review that is being done on internal audit 21 function, I'm expecting a draft report next week. 22 As soon as I get a copy, I will be certain to 23 forward it to the commissioners. 24 The other two audits, we completed 25 the game plan verification on it. We've provided a 0021 1 draft report to the executive director. And once 2 we receive management's responses, we'll be happy 3 to forward it on to the commissioners for your 4 review before it goes public. 5 The second audit we're working on is 6 in the bingo compliance area, and we're working 7 with Billy's staff. We're about 65 percent through 8 with that audit and expect to be complete in June 9 with that. 10 And that's the status of where we 11 are. Do you have any questions? 12 CHAIRMAN CLOWE: Thank you, Debra. 13 Any questions? 14 Thank you. 15 COMMISSIONER CRINER: I just have -- 16 CHAIRMAN CLOWE: Oh, excuse me. 17 COMMISSIONER CRINER: -- one. 18 Is there a schedule of audits that 19 is prepared at the beginning of each year? Can I 20 get a copy? 21 MS. MCLEOD: Yes, sir, there is. 22 COMMISSIONER CRINER: Do I have 23 that, or can I get a copy of that? 24 MS. MCLEOD: Yes. 25 COMMISSIONER CRINER: Okay. Thank 0022 1 you. 2 MS. MCLEOD: Certainly. 3 CHAIRMAN CLOWE: Good. Thank you, 4 Debra. 5 Now we're ready to move to 6 Item No. 6. 7 Linda, would you give us a report on 8 the progress of the production studio, please. 9 MS. KIPLIN: Commissioners, I'm 10 filling in for Ridgely Bennett, the deputy general 11 counsel, also on this item. 12 CHAIRMAN CLOWE: Why does it have 13 Linda's name by it? 14 MS. KIPLIN: Because she's the 15 executive director, and she gets to delegate who 16 she wants to talk on items. And I'm happy to do 17 that. 18 CHAIRMAN CLOWE: Very good. 19 MS. KIPLIN: I'm reporting to you 20 today that the contract was issued earlier this 21 week. We are in a time period, 72-hour clock, in 22 which a protest can be received. We have not yet 23 received a protest. That clock expires, on my 24 calculations, tomorrow. 25 CHAIRMAN CLOWE: So who is going to 0023 1 talk about the construction? 2 MS. KIPLIN: The construction has 3 begun, and I think there is a schedule on that. 4 And Linda probably can fill you in on that. 5 MS. CLOUD: Commissioners, the 6 construction has begun for the studio. 7 Commissioner Clowe, you've seen -- 8 and I have copies here for the other two 9 commissioners -- this is going to be -- we're 10 flipping the claim center with the studio. The 11 claim center is going to be at this end of the 12 building where our winners' lounge is now, and the 13 studio will be at the far end of the building on 14 Sixth Street and Red River. 15 We're moving right along. We're on 16 schedule. We're supposed to be able to turn the 17 studio over to M&S Works, who has been awarded the 18 contract, by the 25th of July. We're supposed to 19 be completed with the project by August 31st. 20 We have inconvenienced some of our 21 employees by taking their parking spaces in the 22 areas that we have blocked off for construction. 23 However, we have rented spaces at the Sheraton, and 24 our employees now have parking -- first come, first 25 served -- in this lot, at the Sheraton, and across 0024 1 the street. We lose the parking lot across the 2 street August the 1st. 3 And we will be reporting as we get 4 along, since this is just starting right now. 5 CHAIRMAN CLOWE: Linda, if you 6 would, take just a minute to explain to the 7 commissioners what this diagram is. And starting 8 with the northwest corner of the building with the 9 studio, take us through that plot. 10 MS. CLOUD: The studio is going to 11 be -- what you have there, it shows the control 12 room, the security's -- the security staff's area. 13 The first room off of the floor where the drawings 14 are would be for the security staff that conducts 15 the drawing. 16 The next room over will be a control 17 room. The two rooms to the right of the hallway 18 would be the announcers, where the announcers would 19 be sitting, and they would have monitors that would 20 be focused on the drawing machines and the actual 21 balls that were dropped. So they're announcing 22 from a monitor. 23 The room to the far right is where 24 the equipment will be secured and stored. That 25 room will have a sink in it so that the balls can 0025 1 be washed, and the procedures that we carry through 2 for the drawing can all take place in that room. 3 There will be carpet on the floor, 4 except for in the room where the storage of the 5 machines will be, and that will be a finished-off 6 concrete slab floor. 7 COMMISSIONER WHITAKER: Why that 8 distinction? 9 MS. CLOUD: Well, I asked that same 10 question because I was worried about the dust. But 11 the question is that their -- the machines being 12 rolled in the room, rolled around, or either the -- 13 having the sink in there for washing the balls, 14 it's a lot easier for that type of thing to take 15 place on a finished concrete floor than on the 16 carpeted floors. 17 The windows that you see in the 18 studio area will be totally closed off, sealed. 19 There won't be any windows on the Sixth Street side 20 of the building. 21 The doors, where they -- here on the 22 left-hand side, the north side, which would be 23 facing Red River, those two doors will remain 24 there, although they will have -- and they're there 25 for us to be able to bring machines in and out of 0026 1 the building as we need to, and backdrops of 2 whatever we might need to get into the studio area. 3 Those two doors will have a 4 barricaded steel door. The doors are steel doors, 5 but then they will have the wrought iron doors on 6 each side so that they cannot be breached in any 7 way. 8 There is a lobby. The lobby will be 9 for our players to -- and the glass -- the lobby 10 will be totally glassed in so that our players will 11 have a view of the drawings at all times. 12 The area you see in the studio area 13 that's got the broken lines, that's an area we've 14 laid out for the media in the event -- for the 15 larger drawings when the media shows up. 16 This far right of the drawing is our 17 claim center area. And as you can see, the lobby 18 area will come out into the courtyard just a little 19 bit to increase that area. And it's laid out real 20 nicely. 21 And the claim center's staff has 22 been really inconvenienced. We've got them 23 scattered all over this building right now. And as 24 you can see, we're processing claims right outside 25 the door here of the commission room. But this 0027 1 will be a nice area, and this puts them in a closer 2 proximity to this building than they were before. 3 And then, of course, upstairs is the 4 training room, the security lab. And security 5 will -- we will have -- as part of this, our 6 security drawings team will have offices upstairs. 7 But right now, we have kind of displaced them 8 there, wherever they can find a place to sit 9 outside of being at work in the studio. 10 COMMISSIONER CRINER: I've got one 11 question. 12 MS. CLOUD: Okay. 13 COMMISSIONER CRINER: You've got to 14 close the windows on the Sixth Street side? 15 MS. CLOUD: Yes. 16 COMMISSIONER CRINER: Wouldn't that 17 be a lot of fun -- 18 MS. CLOUD: It would be a lot of 19 fun -- 20 COMMISSIONER CRINER: -- to have the 21 street -- 22 MS. CLOUD: -- but when we've got 23 Mardi Gras or -- we've had those windows get broken 24 before. And right now, we do have steel bars on 25 them because a lot of activity takes place on Sixth 0028 1 Street, as you well know. 2 And we don't need the light. 3 Actually, it's more to make better a view of the 4 drawing. It's not really meant to shut the public 5 out. It was meant to close off the light, more 6 than anything. 7 COMMISSIONER CRINER: I just thought 8 it would be real neat. 9 CHAIRMAN CLOWE: I had the same 10 question. And I think her answers are valid, 11 Commissioner Criner. The light is a factor, but 12 when there are events on Sixth Street, it could be 13 disruptive. And we've actually had one window 14 broken in this building by a gunshot, which -- 15 MS. CLOUD: Uh-huh. But they were 16 shooting at the bingo director, not me. 17 (Laughter.) 18 CHAIRMAN CLOWE: You would think 19 maybe it was the executive director of the lottery 20 because she was afraid of him getting ahead of her. 21 MS. CLOUD: Yeah, right. 22 CHAIRMAN CLOWE: In Chicago, the 23 place where you walk by and you can see them 24 broadcasting on the radio, and they're always -- 25 what is that famous Chicago radio station? People 0029 1 are always standing there. I thought it would be a 2 neat idea, too, but -- 3 MS. CLOUD: Well, our drawings are 4 open to the public at all times, and it will 5 continue to be open to the public, and they can 6 come in through the courtyard to see the drawings. 7 CHAIRMAN CLOWE: But they can't 8 bring their alcoholic beverages in. 9 MS. CLOUD: No, they can't party in 10 here. 11 COMMISSIONER CRINER: I just feel it 12 would -- okay. 13 COMMISSIONER WHITAKER: Any thought 14 of putting, say, like, a screen, a television 15 screen, on the other side so the people could 16 watch? 17 MS. CLOUD: That's a great idea. I 18 have a -- 19 COMMISSIONER CRINER: Or on the 20 courtyard side, just have some windows. 21 MS. CLOUD: We have such signs 22 coordinates with the City of Austin. We would have 23 to check into that to see if they would let us put 24 a big screen. That's a great project for Glenn. 25 Where is he? 0030 1 CHAIRMAN CLOWE: That's a great 2 idea. 3 MS. CLOUD: Yeah. 4 Glenn was able to broadcast our 5 drawings for Texas Two Step at Pasadena, so we 6 should be able to do something like that. 7 CHAIRMAN CLOWE: If you can show 8 that on Sixth Street -- 9 MS. CLOUD: Uh-huh. 10 CHAIRMAN CLOWE: -- from a 11 second-story level, maybe that would protect it. 12 That's a great idea. 13 MS. CLOUD: Yeah. A real good idea. 14 CHAIRMAN CLOWE: Yeah, that's right. 15 MS. CLOUD: But the drawings are 16 definitely open to anybody that wants to view the 17 drawing. We encourage people to come to the 18 drawing. 19 COMMISSIONER CRINER: The big 20 convention center is going to be right down the 21 street. 22 MS. CLOUD: Yes. 23 COMMISSIONER CRINER: And so what a 24 draw, you know, if you're visiting Austin or 25 visiting Texas, and the lottery is going to -- 0031 1 we're going to have a drawing tonight, and what a 2 draw that would -- 3 MS. CLOUD: Well, Keith has already 4 come up with that idea, putting passes at the 5 hotels to allow people to come for -- to view our 6 drawings. So he came up with that some time ago 7 before we ever got into planning -- 8 COMMISSIONER CRINER: Is the studio 9 encased in glass? 10 MS. CLOUD: That's right. 11 COMMISSIONER CRINER: Awesome. 12 CHAIRMAN CLOWE: This is so much 13 better than the location where we've been, and I 14 think we have yet to realize what a great 15 improvement this is going to be until it's open and 16 operating. 17 MS. CLOUD: I agree, and the 18 convenience of having our staff in our building 19 here where they aren't making trips back and forth 20 to the studio. 21 CHAIRMAN CLOWE: Well, it was a 22 sell, with a lot of information being required by 23 the Legislature. 24 Linda, you did a great job. Nelda 25 did a great job. Everybody on staff worked hard to 0032 1 see that we had funding and that this operation was 2 able to be created. So I think it's going to be a 3 great thing for the lottery, and I'm very pleased 4 that we're moving forward. 5 Vince was here a minute ago, and I 6 don't think he is here now, but I think the 7 commissioners would like to know what the square 8 footage of this property is, if you'll get that for 9 us. 10 MS. CLOUD: Okay. 11 CHAIRMAN CLOWE: And then give us 12 the completion dates on the studio and the final 13 date on the claim center that you have this 14 morning. 15 MS. CLOUD: Okay. The completion 16 date for turning the studio over to M&S Works so 17 they can get their equipment in and tested is 18 July 25th. The contract expires on August 31st. 19 So we want to have plenty of time for them to test 20 their equipment and be ready to go. The claim 21 center construction is to be completed by August 22 the 31st. 23 CHAIRMAN CLOWE: So we've got the 24 months of June, July, and August where we're going 25 to have disruption here -- 0033 1 MS. CLOUD: Right. 2 CHAIRMAN CLOWE: -- on the property 3 in addition to what's going on south of us. And 4 then it will all be finished in 90 days. 5 MS. CLOUD: Yes, sir. And right 6 now, we're -- everything is -- the permits -- 7 everything is on schedule. 8 CHAIRMAN CLOWE: Great. And this 9 gate is closed now because that's been turned into 10 construction -- 11 MS. CLOUD: Right. 12 CHAIRMAN CLOWE: -- for the 13 operation we've just been discussing. The only -- 14 the driving entrance and exit is on the east side 15 of the building. 16 MS. CLOUD: Right. On Sabine. 17 CHAIRMAN CLOWE: Okay. Very good. 18 Any other questions or comments? 19 Thank you, Linda. 20 We'll then move to Item No. 7, 21 consideration of and possible discussion and/or 22 action on the general market advertising services 23 contract. 24 MS. KIPLIN: Commissioners, the 25 contract is in effect right now. It's under its 0034 1 first renewal, first one-year extension. There is 2 one remaining year's extension on this contract. 3 It's my understanding that the staff recommends 4 extending this contract and would look to the 5 Commission for its approval of that recommendation. 6 MS. CLOUD: This would be 7 Fogarty & Klein's contract, and we do recommend to 8 extend it this one last year. 9 CHAIRMAN CLOWE: And there is only a 10 one-year extension left on this contract? 11 MS. KIPLIN: That's correct. 12 CHAIRMAN CLOWE: Are there any 13 questions or any discussion? 14 Is there a motion? 15 COMMISSIONER WHITAKER: So moved. 16 COMMISSIONER CRINER: Second. 17 CHAIRMAN CLOWE: Moved and seconded. 18 All in favor, say aye; opposed, no. 19 The vote is 3-0 in favor. 20 Anything further on this item? 21 MS. KIPLIN: No. 22 CHAIRMAN CLOWE: We'll move on to 23 the next item, No. 8, the minority market 24 advertising services contract. 25 MS. KIPLIN: Commissioners, this 0035 1 contract has also been extended for one of its two 2 potential extensions. The staff is recommending 3 that the Commission approve exercising the second 4 extension on this contract. This is the minority 5 market advertising services contract currently held 6 by the King Group, Incorporated, out of Dallas. 7 CHAIRMAN CLOWE: They also have done 8 an excellent job, and I think since they have been 9 under contract to this agency, we have seen that 10 area of our advertising become more professional. 11 They have done, from what I have seen, an excellent 12 job. 13 MS. CLOUD: They have. Their 14 commercials have been really good commercials. 15 CHAIRMAN CLOWE: Any questions or 16 comments? 17 COMMISSIONER WHITAKER: No. 18 CHAIRMAN CLOWE: Do I hear a motion? 19 COMMISSIONER CRINER: So moved. 20 COMMISSIONER WHITAKER: Second. 21 CHAIRMAN CLOWE: All in favor, say 22 aye; opposed, no. 23 The vote is 3-0 in favor. 24 Anything further, Linda? 25 MS. CLOUD: Not on that. 0036 1 CHAIRMAN CLOWE: This is a report I 2 think we've all looked forward to. 3 Nelda, will you tell us about the 4 session. 5 MS. TREVINO: Good morning, 6 Commissioners. 7 For the record, I'm Nelda Trevino, 8 the director for the governmental affairs 9 department. 10 I guess first of all, the session 11 did end on Monday, May 28th. It was sine die, the 12 regular legislative session. Out of the 187 bills 13 that we were tracking, 43 passed both the House and 14 the Senate and have either been acted on by the 15 Governor or are pending his action. The last day 16 for the Governor to take action on bills is 17 June 17th. 18 I want to briefly highlight some of 19 the bills that we were tracking that have some 20 direct impact to the agency. First of all, Senate 21 Bill 1, the General Appropriations Act. You have a 22 copy of the agency's bill pattern in your notebook. 23 And I want to mention just a couple of things that 24 are in our final bill pattern in the Appropriations 25 Act. 0037 1 The appropriated dollars for each 2 fiscal year of the biennium to operate the lottery 3 is based on 7 percent of the comptroller's revenue 4 estimate. And that estimate is approximately 5 $2.6 billion for each year of the biennium. A 6 direct appropriation of $2.7 million for each 7 fiscal year of the biennium is budgeted for 8 charitable bingo. The number of FTEs authorized 9 remains unchanged, and that stays at 335 FTEs. 10 On a couple of riders that I want to 11 highlight -- I'm not going to go through each of 12 them, but a couple of them I do want to mention 13 very briefly. 14 Rider No. 1, having to do with our 15 capitol budget. We're happy to report that all 16 capitol budget items requested, including the 17 equipment for the drawings and broadcast studio, 18 were approved. 19 Rider No. 4 is a contingency rider 20 to provide the lottery with additional funding for 21 contractual obligations if sales exceed the 22 budgeted amounts. 23 Rider No. 5 is the continuation of 24 the lottery funding 375,000 for each fiscal year in 25 the biennium to the Texas Commission on Alcohol and 0038 1 Drug Abuse for the compulsive gambling hotline 2 number. 3 Rider No. 8 is a rider that was 4 added two sessions ago, and this restricts our 5 out-of-country travel, with the exception of travel 6 to Mexico and Canada, which is reimbursable by a 7 third party. And our out-of-state and in-state 8 travel for each fiscal year of the biennium may not 9 exceed 80 percent of the travel expenditures in 10 fiscal year FY '98. 11 Rider No. 13 is a new rider related 12 to media and lottery advertising practices. This 13 provides that a study be conducted by the Council 14 on Competitive Government to evaluate the policies, 15 practices, and procedures regarding public 16 information, media, and lottery advertising. The 17 Council is to submit their recommendations and 18 report to the Governor and the LBB by January 15th 19 of 2002. 20 In regards to a very critical issue 21 to all state employees -- and that's the pay raise 22 issue -- state employees who have at least 12 23 months of service will receive a 4 percent or a 24 100-month raise, whichever is greater, on 25 September 1st. And if the comptroller can certify 0039 1 funds, state employees will receive an additional 2 3 percent, or $65 a month, in fiscal year 2003. 3 Before I go on to some of the other 4 bills, I just want to make sure there's not any 5 questions in regard to the bill pattern or to the 6 Appropriations Act. 7 Okay. I passed out an updated 8 legislative tracking report. And again, I just 9 want to mention a couple of the bills that we were 10 tracking that do have some direct impact to the 11 agency. 12 House Bill 965, which was part of 13 the agency's legislative proposals. This related 14 to the eligibility requirements for an applicant 15 for a lottery retailer license. The Governor has 16 signed this bill, and it will be in effect on 17 September the 1st. 18 House Bill 2119, also part of the 19 agency's legislative proposals. This authorizes 20 progressive bingo games. This bill is pending the 21 Governor's action. 22 Senate Bill 170. This is relating 23 to the application of the open meetings law to 24 attendance at a legislative committee or a 25 legislative agency hearing by a quorum of another 0040 1 governmental body. This will be extremely helpful, 2 I think, for this commission, and particularly as 3 we go through the sunset process and as the agency 4 will be appearing before the Sunset Commission at 5 their hearings. 6 Senate Bill 187. This is relating 7 to the creation of a commission and project to 8 provide government services through a secure and 9 uniform on-line system. This legislation creates 10 the Texas On-Line Commission, which will create a 11 common electronic system, in part to send documents 12 to and receive documents and payments from members 13 of the public, regulated by a state agency. This 14 bill has also been signed by the Governor. 15 Senate Bill 257. This is relating 16 to the purchase of a lottery ticket by a person 17 younger than the age of 18. This legislation makes 18 it an offense punishable by a fine of up to $250. 19 This bill is pending the Governor's action. 20 Senate Bill 311. This is the 21 General Services Commission, the GSC sunset bill. 22 And an amendment was added in the House that 23 included language relating to the preference to 24 Texas bidders on procurements. But the Conference 25 Committee did strip that language from the bill. 0041 1 It appears that the final version of 2 the bill does include language which provides that 3 a state agency may consider, along with nine other 4 factors, the vendor's anticipated economic impact, 5 including potential tax revenue and employment. 6 Senate Bill 390 -- 7 COMMISSIONER WHITAKER: Let me stop 8 you there. 9 Does it spell out any more factors, 10 any more specifics, on what you take into account, 11 other than tax revenue or employees? 12 MS. TREVINO: I believe there are 13 seven other -- there are other factors that were 14 already included in the GSC's procurement 15 practices. But for this particular one that was 16 added, I believe it was just the potential tax 17 revenue and employment in considering the economic 18 impact. 19 Senate Bill 390, which was also part 20 of the agency's legislative package. This bill 21 would allow for an exception to the Open Meetings 22 Act for the commissioners to discuss and deliberate 23 a lottery operator contract in Executive Session. 24 This bill is pending the Governor's action. 25 Senate Bill 817, which was also part 0042 1 of the agency's legislative proposals. This is 2 relating to a surveillance vehicle used in our 3 enforcement functions being exempt from the 4 transportation code requirement that a state agency 5 vehicle bear the agency's name. This bill has been 6 signed by the Governor and will be effective 7 September 1st. 8 Senate Bill 587. This is relating 9 to the analysis and certain measures that address 10 staffing needs of a state agency. This will 11 require us to include in our strategic plan a 12 workforce plan. This bill is also pending the 13 Governor's action. 14 And lastly, Senate Bill 695, which 15 is relating to consultations between a governmental 16 body and its attorney. This bill amends the Open 17 Meetings Act to allow governmental bodies to 18 consult with an outside attorney by telephone 19 conference call, video conference call, or through 20 the Internet to conduct a public or private 21 consultation meeting. 22 There are a few bills that I also -- 23 COMMISSIONER WHITAKER: Nelda, what 24 was the law before? The telephones don't make or 25 break a privilege, at least to my understanding. 0043 1 MS. KIPLIN: It was very limited in 2 the way that a governmental body at a meeting, 3 formerly called open meeting -- 4 COMMISSIONER WHITAKER: Okay. 5 MS. KIPLIN: -- could use 6 teleconferencing equipment. It required that on 7 both sides of the conversation -- that both sides 8 of that conversation be open to the public, and 9 therefore really created a limitation on government 10 agencies where there were commissioners that were 11 full time. 12 I'll just give you, by way of an 13 example -- say, for example, the Board of Medical 14 Examiners. If an appointed commissioner who 15 happened to be a licensed physician wanted to 16 actually participate in a meeting in his office, 17 his office would then need to be open to the 18 public. 19 This, in my opinion, makes it clear 20 that it does not need to be open to the public, the 21 side where the counsel is. And it also makes it 22 clear that if it's a privileged communication that 23 would otherwise be taken up in an executive session 24 environment, it still maintains that type of an 25 environment. 0044 1 COMMISSIONER WHITAKER: Who was 2 really pushing for this legislation? 3 MS. TREVINO: It was 4 Senator Wentworth's bill. He was the bill's 5 sponsor. 6 Just very briefly, I do want to 7 mention several bills that were part of the 8 agency's package that did not make it this session, 9 but some of them were given some consideration. 10 This is House Bill 1521. This was 11 the bill relating to the employee retirement 12 benefits for our law enforcement officers. This 13 bill was considered by the House Pensions 14 Committee. No action was ever taken by the 15 committee, but it was given a hearing. 16 House Bill 2578. This was relating 17 to the subpoena power for the regulation of bingo. 18 This bill was approved, considered by the full 19 House, and approved by the House, and was just not 20 given a Senate committee hearing. 21 House Bill 3234 and its companion 22 bill, Senate Bill 1504. This was the omnibus bill 23 relating to bingo that included the elimination of 24 the 40 percent requirement on electronic 25 cardminding devices and the 5 percent prize fee 0045 1 being eliminated on prizes less than $5. The House 2 bill was considered by the House Licensing 3 Committee and voted out of committee with some 4 substituted language and was never put on the House 5 calendar. 6 House Bill 3360. This was relating 7 to expanding the time and location where pull tabs 8 could be sold. While the bill was filed, it was 9 never given a committee hearing. 10 And the same with House Bill 3361. 11 This was relating to providing authority to 12 summarily suspend bingo licenses for failure to pay 13 taxes or fees required under the Bingo Enabling 14 Act. 15 What we will be doing now, 16 Commissioners, is working on the implementation 17 process that directly -- on bills that directly 18 impact the agency. We will be forming the 19 Legislative Implementation Task Force with the help 20 of each of the divisions. And as we go through the 21 implementation process, we certainly will be 22 providing you any sort of necessary updates. 23 And that's my report, and I'm happy 24 to answer any questions. And I do want to thank 25 all three of you for your involvement during the 0046 1 legislative process; to Linda, Billy, Kim; to 2 Colin, especially, who is now injured from all the 3 walking; and to a temporary employee that we had 4 during the session, Gabriela Santis; and also to 5 Melissa Villasenor-Dye; and to everybody else, all 6 the division directors and their staff. 7 COMMISSIONER WHITAKER: I want to 8 thank you and Colin. This has been a -- I think a 9 very successful session. Although we didn't get 10 everything, there was just a sense of momentum and 11 of careful, thoughtful presentation of the key 12 matters on the -- up there in the Legislature. And 13 there is just a real sense of a job very well done, 14 and I want to thank you. 15 MS. TREVINO: Thank you very much. 16 COMMISSIONER CRINER: I also thank 17 you. 18 MS. TREVINO: Thank you. 19 CHAIRMAN CLOWE: We certainly all 20 echo that. And I might add that I think so much of 21 the work you did prior to the legislative session. 22 It was of great importance: the legislative 23 briefings, the visits that both Linda and Billy 24 have made prior to issues coming to the table and 25 being focused on, and the fact that the 0047 1 commissioners themselves take into consideration 2 the needs of the leadership to hear from them and 3 to be available. 4 It's a team effort, and this session 5 sets a standard, I hope, that we can meet and even 6 exceed in the future in dealing with the leadership 7 and giving them information and letting them know 8 what they want to hear from us. 9 MS. TREVINO: Absolutely, 10 Commissioner. And I will just say that our intent 11 is to continue to do these legislative briefings 12 during this upcoming interim. And it's probably 13 even more critical based on the agency going 14 through the sunset process, and I know you're going 15 to hearing about that topic on the next agenda. 16 CHAIRMAN CLOWE: Very good. 17 MS. TREVINO: Thank you again. 18 CHAIRMAN CLOWE: Thank you all. 19 COMMISSIONER CRINER: Thank you. 20 CHAIRMAN CLOWE: And the next item 21 is the discussion and action on the sunset process 22 involving this agency. 23 MS. CLOUD: Commissioners, I would 24 like to have Gary Grief come up. I have appointed 25 Gary as the chairperson for the Sunset Commission 0048 1 evaluation study that we're going through right 2 now. And I'm going to let Gary lay out his plans 3 for the commissioners. 4 CHAIRMAN CLOWE: How did you get 5 this job, Gary? 6 MR. GRIEF: Just lucky. I was 7 standing in the wrong place probably. 8 COMMISSIONER CRINER: Gary, you just 9 made my day. 10 MR. GRIEF: Excuse me? 11 COMMISSIONER CRINER: You just made 12 my day. I love these charts. 13 COMMISSIONER WHITAKER: It just 14 takes a chart. You know what I mean? 15 MR. GRIEF: My presentation is over. 16 (Laughter.) 17 MR. GRIEF: Good morning, 18 Commissioners. 19 And for the record, my name is 20 Gary Grief, and I'm the director of lottery 21 operations for the Texas Lottery. 22 I've been asked by Linda Cloud to 23 serve as the project director for our agency's 24 sunset review process, and also to act as our 25 agency liaison with the Sunset Commission. 0049 1 I'm before you today to give you a 2 brief overview of the sunset process in general and 3 touch on some of the details of the first critical 4 part of the project, which is the self-evaluation 5 report, and then lay out the schedule for 6 completing this report. 7 You were provided with some 8 information in your commission notebooks regarding 9 the sunset process. That information included the 10 guide to the sunset process, the self-evaluation 11 report instructions, and the overall time sequence 12 for the agency reviews. 13 The Sunset Commission is composed of 14 a ten-member body appointed by the Lieutenant 15 Governor and the Speaker of the House. And it's 16 made up of four state senators and four state 17 representatives, along with two public members. 18 There will be significant changes to 19 the makeup of the Sunset Commission, as six of the 20 ten members' terms expire this September. Our hope 21 is that all of the new appointees will be made by 22 the month of September as well. 23 For your information, 35 other state 24 agencies are going to be going through the sunset 25 process at the same time as the Lottery Commission. 0050 1 As you know, the question raised in the sunset 2 process is, do the agency's functions continue to 3 be needed. That profound question creates not only 4 an opportunity for the Legislature to review an 5 agency's operation in detail, but it also provides 6 the agency with a very unique opportunity to bring 7 forward issues and suggest improvements, including 8 legislative changes. 9 The first step in this important 10 process will be to prepare the agency's 11 self-evaluation report. The document I've just 12 handed to you today is the project calendar that I 13 have put together to complete this report. 14 The self-evaluation report is due to 15 the Sunset Commission by August 17, 2001. The 16 project calendar was developed with that date in 17 mind and also with the assumption that the 18 commissioners wish to be kept apprised of our 19 progress as we work through this important report. 20 At the Commission's pleasure, I would be happy to 21 provide you with regular status reports or provide 22 you with draft copies of the self-evaluation report 23 as we develop them. 24 My understanding of this process is 25 that the self-evaluation report, unlike the 0051 1 legislative appropriations request or the agency's 2 strategic plan, does not require specific formal 3 commission action or approval. However, my intent 4 is to keep the commissioners informed as to our 5 progress and to make myself available to answer 6 questions from the commissioners whenever needed. 7 The self-evaluation report provides 8 us, as an agency, with an opportunity to explain 9 our operation in detail, to provide justification 10 for our various business strategies, to expound on 11 all of our major accomplishments, and to suggest 12 our biggest opportunities for improvement. 13 Also of significance is the 14 opportunity to discuss policy issues that, if 15 addressed appropriately, could result in 16 legislative changes. The focus of this opportunity 17 should be on major policy issues that can be 18 addressed through changes in statute. 19 After the self-evaluation report is 20 turned over to the Sunset Commission, the sunset 21 staff will take some time to review the report, and 22 then they will develop a review plan for our 23 agency. The review generally takes anywhere from 24 three to nine months, depending on the size of the 25 agency and the scheduling needs of the sunset 0052 1 staff. 2 During the review period, the sunset 3 staff will interview the Lottery Commission staff, 4 they will evaluate our agency and division level 5 performance reports, and then will examine all 6 aspects of our operation. They will also solicit 7 input from interest groups like the Bingo Advisory 8 Committee or our lottery retailer organizers to 9 determine additional issues that may be important, 10 either to our customers or to the general public. 11 Once the review is complete, the 12 Sunset Commission will publish a staff report, and 13 they will have a public hearing that will provide 14 the sunset staff with an opportunity to share their 15 recommendations and give us, as an agency, an 16 opportunity to respond to those recommendations and 17 also allow for public comment. Additional hearings 18 will take place to finalize recommendations and 19 solicit additional, specific testimony if that is 20 needed. 21 At the beginning of the 22 78th Legislative Session in January 2003, the 23 Sunset Commission will provide the Legislature with 24 their report on all agencies that went through the 25 sunset process. The Sunset Commission's report on 0053 1 a particular agency must include a recommendation 2 to either abolish or continue the agency. It may 3 also include other recommendations, including 4 statutory changes. 5 If the Sunset Commission recommends 6 that an agency be continued, the Sunset Commission 7 must draft legislation to the Legislature to 8 continue that agency for a time period up to 9 12 years. Traditionally, the Sunset Commission's 10 legislative members have always carried and 11 introduced the sunset legislation. 12 For your reference, the Sunset 13 Commission maintains a website with a wealth of 14 detailed information, including recent sunset 15 reports on other agencies and other self-evaluation 16 reports that were prepared by other agencies. 17 And as noted on the project plan, 18 our first formal, internal sunset task force 19 meeting will take place next Tuesday, June 5th. In 20 this meeting, we're going to determine division and 21 staff responsibilities, we're going to form some 22 subcommittees, and we're going to communicate 23 schedules and deadlines, all of this relating 24 specifically to the self-evaluation report. 25 That concludes my presentation. 0054 1 I'll be happy to answer any questions that you 2 might have. 3 COMMISSIONER WHITAKER: Who is on 4 the task force currently? 5 MR. GRIEF: Each division director 6 has sent me the name of the person that they would 7 like to serve as their division liaison. With the 8 exception of four divisions, it is the division 9 director. I'd be happy to provide you a complete 10 list of those names, if you'd like. 11 COMMISSIONER WHITAKER: And what do 12 you anticipate are, say, the two key items that you 13 will be focusing on in the self-evaluation? Or 14 have we gotten to that point? 15 MR. GRIEF: I don't believe we've 16 gotten to that point yet. 17 COMMISSIONER CRINER: Question: In 18 the self-evaluation, are you going to take under 19 advisement the internal audit reports? 20 MR. GRIEF: Yes, sir. As part of 21 the self-evaluation report, all audit reports have 22 to be made a part of that self-evaluation report. 23 So not only will they be included in whole in the 24 self-evaluation report, but will also, I'm sure, 25 have comments regarding those reports. 0055 1 CHAIRMAN CLOWE: I think all the 2 commissioners are vitally interested in this 3 project and our review. And you offered some 4 means, in your comments, to keep the commissioners 5 informed. I'd like to hear what the commissioners 6 say about how they would like that reporting 7 procedure to be established and give you some 8 guidance on that. 9 Do you-all have any thoughts at this 10 time? 11 COMMISSIONER WHITAKER: Well, my 12 sense is that this (indicating) is very helpful. 13 And I'm going to go to that website and educate 14 myself on some of the more specifics. But my 15 preference is to just call Gary from time to time 16 and get a briefing, because I find otherwise that 17 reports tend to not necessarily be where I'm hungry 18 for information. And by calling up, I can get 19 exactly what I want. 20 I think maybe as we get closer to 21 the end, once you've got a substantial draft, I 22 would like to see that. 23 COMMISSIONER CRINER: My only input 24 would be that this (indicating) makes me happy. 25 And if I can just know if we're on target 0056 1 periodically, Mr. Chairman, that's fine. 2 And we're going to see a draft 3 before you get there. And if there is anything 4 that comes up that makes us uncomfortable... 5 CHAIRMAN CLOWE: Gary, you're going 6 to give us those draft reports as part of your 7 procedure. You made that clear. 8 MR. GRIEF: I certainly will. 9 CHAIRMAN CLOWE: I'd like to add one 10 thing to that. At the end of each week, I would 11 ask you to send each of the commissioners a short 12 e-mail and tell us in a very few sentences where 13 you think we are. I would like in that e-mail to 14 have you tell us any particularly notable 15 accomplishments or good things that are happening 16 as the process moves forward, and to highlight any 17 problems that have developed which you want to make 18 us aware of. And if any commissioner doesn't want 19 to receive it, they can tell you that after maybe a 20 few of those come to us. 21 But for my part, I really want you 22 to know that the commissioners are interested in 23 this, and we're going to be following you. And I 24 would like to hear from you on a weekly basis. 25 Don't make it a formal, lengthy document; just a 0057 1 short, few-sentence e-mail. 2 And Gary can communicate with us in 3 that way, Kim, and not be in violation of the Open 4 Meetings Act. Right? 5 MS. KIPLIN: Gary can communicate in 6 that way with the commissioners. But the 7 commissioners, when responding, if they do respond, 8 please be mindful of who you're replying -- to whom 9 you are replying so that it doesn't go to all, 10 because that could be considered to be a 11 deliberation if you're replying and you've got a 12 commissioner also out there -- 13 CHAIRMAN CLOWE: So we should reply 14 only to Gary, and not reply to all? 15 MS. KIPLIN: Yes. And Gary must be 16 careful not to, on all of the e-mails, indicate to 17 one commissioner the communications from other 18 commissioner. 19 CHAIRMAN CLOWE: And that's easy to 20 do, Gary. I think we can conform with those 21 requirements. But I would like us to begin hearing 22 from you on a weekly basis. And hopefully, that 23 would help you in dealing with the staff and your 24 group in reminding them that we are very interested 25 in this and are supportive and want to be involved 0058 1 where we may help them. 2 MS. KIPLIN: Commissioners, let me, 3 if I could, weigh in a little bit on the 4 self-evaluation report. And it's my understanding 5 that there were two days where people could go over 6 and be a part of the orientation. On the second 7 day, the sunset staff did indicate that the 8 commission approval on the self-evaluation report 9 is unnecessary or not required. 10 I will tell you that as part of the 11 example of the self-evaluation report, if you go to 12 page 29, it does lay out a policy issue example. 13 So to the extent that the Commission, the Lottery 14 Commission, wants to be a part and approve those 15 items that the Commission is thinking are policy 16 recommendations, that will require commission 17 approval. 18 The reason that I'm laying this out 19 is from a logistics point of view. In terms of 20 reviewing a draft and having the Commission, the 21 three of you, having an opportunity to deliberate 22 amongst yourselves, will require a commission 23 meeting. 24 And so that is something that I 25 would like for you-all to keep in mind in terms of 0059 1 looking at scheduling commission meetings, because 2 it's our experience -- and I think you've all had 3 this, that with -- for example, I'll use the 4 strategic plan as an example. You-all would have 5 deliberation and want words changed and then would 6 want to see it again. 7 And so it may be that your 8 instructions to me or to Linda are to set some 9 back-to-back commission meetings for that 10 opportunity to weigh in, to the extent the 11 Commission wants to weigh in, on matters that you 12 believe are going to be part of this policy issue 13 example. And I'm thinking in the abstract because 14 I don't know what, obviously, is going to be part 15 of the staff's work on the self-evaluation report 16 at this time. 17 COMMISSIONER WHITAKER: Well, let me 18 weigh in on that. 19 Policy changes are very important to 20 me. And I know that our input needs to come in, 21 not at the end after it's pretty much been set in 22 stone, but as it's starting to jell. You know, 23 you-all need a time to get your own thoughts 24 together and have that interactive process. And 25 that's healthy. 0060 1 But before it gets past the point of 2 no return, it would be -- I would request that 3 whoever is kind of keeping their finger on the 4 pulse use that as an opportunity to get it before 5 us, I guess through e-mail or through draft; and 6 then, if it's significant, have that meeting, yes. 7 And I would absolutely echo what 8 Chairman Clowe just said. We are very, very 9 interested in this process. We very much 10 appreciate your proactive approach so far. And 11 keep us informed. 12 COMMISSIONER CRINER: You've got it 13 on your Gant Chart. You've got a three-day period 14 in there for a draft for executive management 15 changes made to -- so we can work in that window, 16 basically -- it's all the way down at the bottom on 17 Item 27 -- which gives us a window for that. 18 MS. KIPLIN: What it would also -- 19 if we do it right -- and I will do it right -- it 20 would give you an opportunity, potentially, for two 21 commission meetings, I think, in late July and 22 early August -- probably mid to late July. And I 23 think that's about where we are. Right? In -- 24 say, it would be July 20th, in that period of time. 25 MR. GRIEF: Right. And I'll remind 0061 1 everyone that the last day on the Gant Chart is 2 August 3rd. The report is not due until 3 August 17th, so we have a two-week window there 4 also. 5 COMMISSIONER WHITAKER: But because 6 vacations and other things are definitely going to 7 be interfering, so... 8 MS. CLOUD: Commissioners, we take 9 this sunset review very serious, and that was one 10 of the reasons that I brought the MAS Group in to 11 take an overview of our business practices up to 12 this point. We're going to be able to use their 13 study as well. So we're optimistic going into 14 this, but we do take it very seriously. 15 COMMISSIONER WHITAKER: I know you 16 do. 17 COMMISSIONER CRINER: I just want to 18 say this because Kim said it a minute ago. One 19 thing I would like to just make clear, I don't 20 think that we should be submitting anything to 21 anybody that the three of us haven't had an 22 opportunity to play a role in. I think the key 23 part with the Legislature is to -- that they know 24 that we are involved. And whether they require it 25 or not, I think the three of us are saying we want 0062 1 to be involved. 2 CHAIRMAN CLOWE: Absolutely. 3 MS. CLOUD: We certainly found out 4 how important that was in this last session by 5 having our commissioners be with us at our meetings 6 and our hearings. That made a big difference. 7 CHAIRMAN CLOWE: We tried not to 8 embarrass you. 9 MS. CLOUD: You didn't embarrass me 10 at all. Thank you very much for that. 11 CHAIRMAN CLOWE: Very good. 12 Anything further on that? 13 MR. GRIEF: No, sir. 14 CHAIRMAN CLOWE: Good discussion. 15 Thank you, Gary. 16 MR. GRIEF: Thank you. 17 CHAIRMAN CLOWE: We're ready to move 18 to Item No. 11, which is the consideration of 19 rules. 20 And Kim, I believe you're going to 21 take us through this. 22 MS. KIPLIN: Yes. Commissioners, 23 you should have received, either by e-mail or in 24 delivery -- I think, Commissioner Criner, for you, 25 it was a hand delivery -- a draft rule making. If 0063 1 you did not, please let me know and I'll be glad to 2 provide it to you right now. (Tenders documents.) 3 Commissioners, if you will recall, 4 at the May commission meeting -- or pardon me, the 5 April, the end of April commission meeting on the 6 26th -- the Commission voted to propose rule making 7 in a package. And it was on Subchapter D of 8 Chapter 401 of the game rules. Two of those rules 9 were the Lotto Texas rule and the Texas Two Step 10 rule. The proposed amendments were proposed to 11 respond to a couple of issues. 12 One, it was a rule review process, 13 and it was to make the rule making amendment -- the 14 rules consistent with existing law and clarify 15 current agency practices and procedures relating to 16 those game rules. 17 There were additional rule makings 18 to the Lotto Texas and Texas Two Step that related 19 to the advertised jackpot and the fact that the 20 Commission -- in particular, with the Lotto 21 Texas -- was going to pay the advertised jackpot, 22 and not the jackpot driven necessarily by sales. 23 We received a comment in that rule 24 making -- and since the preparation of this draft, 25 I've also received another comment -- that 0064 1 indicated that the language in that proposed rule 2 making on these two particular rules, from that 3 reader's perspective, was not clear and contained 4 potentially conflicting language. 5 We took a look at that and decided 6 that the best way for the staff to proceed would be 7 to come to the Commission at this commission 8 meeting and request that you withdraw those two 9 rules from that Subchapter D rule making, and to 10 propose additional amendments to those two rules, 11 being the Lotto Texas and the Texas Two Step rule, 12 to try to respond to what I would characterize as a 13 perceived potential of conflicting language. 14 And that is the purpose of the rule 15 making that is before you today. It is to make 16 very, very clear that if the Commission does vote 17 eventually to approve to adopt these two rule 18 makings, that the Commission will be paying the 19 advertised jackpot. And that amount is the amount 20 that the Commission authorizes its vendors to 21 publicize. And there is an additional definition 22 of advertised jackpot in this rule making that did 23 not exist and does not exist today in the 24 Subchapter D rule making. 25 Let's make it very clear. Right 0065 1 now, the Texas Two Step rule, the way it is 2 currently written and was adopted by the Commission 3 prior to the rule making at the April meeting, does 4 indicate that the Commission is going to pay the 5 advertised jackpot amount. 6 However, in the light of receiving 7 comment, the staff has recommended to come before 8 you today to propose the amendments to make very, 9 very clear and to respond to a comment that there 10 is potential conflicting language. At this point, 11 the staff doesn't believe that there is the 12 conflicting language in Texas Two Step, but we are 13 responding to any sort of perception, perceived 14 potential conflict in the language. 15 And that's the purpose of this rule 16 making today. It also carries forward the other 17 reasons why we proposed it as part of the 18 Subchapter D rule making. 19 So, having said that, the staff does 20 request and recommend that you vote today for two 21 things: one, to withdraw from the preceding rule 22 making these two rules, Lotto Texas and Texas Two 23 Step -- we're going to need to withdraw those from 24 that package to be able to propose these; and 25 secondly, the staff recommends and requests that 0066 1 you vote today to propose this rule making for the 2 required public comment period and publish it in 3 the Texas Register to begin that public comment 4 period. 5 I'll be glad to answer any questions 6 that you have on this rule making or the other rule 7 making, to the extent that it relates to the rule 8 making that's before you today. 9 CHAIRMAN CLOWE: Questions? 10 COMMISSIONER CRINER: This is -- 11 excuse me. This is to say -- we had a discussion 12 one day about the fact that when we had the 13 $85 million deal, the prize kept rising because 14 there were so many tickets sold. We are saying 15 that if we're still going to pay $80 million, 16 that's what we're going to pay -- 17 MS. CLOUD: Right. 18 COMMISSIONER CRINER: -- whether it 19 goes up or down. 20 MS. CLOUD: Right. 21 COMMISSIONER CRINER: The number 22 that we forecast is the number -- 23 MS. CLOUD: Right. Let me give you 24 another example of that. A $4 million jackpot, 25 which is our minimum jackpot, we don't have the 0067 1 sales to pay a $4 million jackpot. So in order to 2 supplement the jackpot at the lower level, being 3 able to roll over an excessive amount that's 4 advertised would be beneficial to the lottery, 5 versus reducing the minimum to a $2 million 6 jackpot, which is about where we would be. 7 MS. KIPLIN: I will say, all of the 8 comment that was received as part of the other rule 9 making was opposed to the Commission paying the 10 advertised jackpot and wants the Commission to 11 continue to pay the jackpot based on the 12 contributions to the prize categories; in other 13 words, what is driven by sales. So I want to make 14 sure that you are informed of the comment that has 15 been received. 16 This rule making does not concur 17 with that comment. In other words, this rule 18 making is to make clear it is the advertised 19 jackpot that the Commission will pay. 20 MS. CLOUD: Commissioners, when we 21 have a big jackpot and we see that the sales are 22 greater than the advertised jackpot, it has been 23 the policy -- or my procedure that we bump the 24 jackpot in order to cover the span of dollars as 25 best we can in projecting where we're going to be 0068 1 when that draw is over, so that the player does get 2 the benefit of the higher jackpot amount that was 3 not anticipated at the time the estimate was 4 forecasted. 5 We do a really good job of 6 forecasting our jackpots. It's only at the lower 7 levels, as you know -- and that's the reason we 8 changed the matrix on the Lotto game to start 9 with -- it's at the lower levels that we don't have 10 the participation in the game that we need in order 11 to remain where we are with that jackpot. At four, 12 six, and nine, we're subject to having to pay for 13 the reserve. 14 So this is a way that we would be 15 able to roll any excess over the advertised into 16 the jackpot amount for the beginning levels or the 17 next jackpot level. 18 COMMISSIONER CRINER: Let's just -- 19 what you're saying is it's just good business. If 20 we're going to pay $50 million and we raise 21 $60 million, that difference of 10 goes into a 22 reserve. 23 MS. CLOUD: Right. Well, in order 24 to -- it won't really be acted -- it won't be 25 treated the same way that the reserve is treated. 0069 1 The reserve is there to make up a difference if 2 we're short on a jackpot and -- but it will be 3 automatically, hopefully, rolled back into the next 4 future jackpot that it can be rolled back into. 5 But it is part of the reserve. The way the rule is 6 set up, it would be looked at as part of the 7 reserve. 8 COMMISSIONER WHITAKER: In other 9 words, Linda, you try to estimate as closely as you 10 can -- 11 MS. CLOUD: Yes. 12 COMMISSIONER WHITAKER: -- what the 13 actual percentage is. 14 MS. CLOUD: Right. 15 COMMISSIONER WHITAKER: This is to 16 make it clear what happens if you're slightly off 17 to the high end or the low end. 18 MS. CLOUD: That's correct. And 19 players look at what we're advertising in the 20 jackpot. That's what they're playing for. They're 21 playing for what we say the jackpot is. If you go 22 in and pay a player less than what you 23 advertised -- more states have gotten in trouble 24 doing that than not. The players then really feel 25 cheated. 0070 1 COMMISSIONER WHITAKER: So moved. 2 COMMISSIONER CRINER: Seconded. 3 CHAIRMAN CLOWE: Moved and seconded. 4 Discussion. I have a couple of 5 items. Wow, you-all are moving. 6 I just wanted to make sure that I 7 understood what your policy is, because I think 8 that's very important in this decision. What I 9 think you've told us is that your policy is if you 10 come out with the advertised jackpot and if sales 11 are very positive, that you will then increase the 12 jackpot advertising. 13 MS. CLOUD: Right. Increase the 14 jackpot amount before the -- 15 CHAIRMAN CLOWE: For the 16 advertising. 17 MS. CLOUD: Yeah. Right. 18 CHAIRMAN CLOWE: So what you are 19 doing in that policy is, if we announce an 20 $80 million jackpot and the sales are very strong, 21 you now announce that the jackpot will be 82 or 84 22 or 85. That makes it an advertised amount. 23 MS. CLOUD: Right. 24 CHAIRMAN CLOWE: So you are -- by 25 virtue of reading the sales, you're putting the 0071 1 floor under that. And that's within this rule. 2 MS. CLOUD: Is that -- 3 COMMISSIONER WHITAKER: What do you 4 mean by "the floor under that"? I didn't quite -- 5 CHAIRMAN CLOWE: Well, it's the 6 minimum. It raises the advertised amount from 80 7 to 82 or 84 million, and you have increased that 8 and put the floor under that. 9 MS. CLOUD: That's correct. 10 CHAIRMAN CLOWE: You've increased 11 the amount of the advertised jackpot, so -- 12 MS. CLOUD: During the draw period. 13 CHAIRMAN CLOWE: During the draw -- 14 so you are creating, with your policy, that 15 flexibility to increase. You don't decrease it, 16 ever. 17 MS. CLOUD: No. 18 CHAIRMAN CLOWE: But you increase 19 it. So then we could have the draw and it's 20 84 million and the sales exceed that, and maybe we 21 have 87 million; then 3 million rolls into the next 22 drawing. 23 MS. CLOUD: To the reserve -- 24 CHAIRMAN CLOWE: The reserve 25 funds -- 0072 1 MS. CLOUD: -- that can be used in 2 the next drawing. 3 CHAIRMAN CLOWE: Towards the -- 4 MS. CLOUD: Right. 5 CHAIRMAN CLOWE: -- let's say, 6 4 million -- 7 MS. CLOUD: Right. 8 CHAIRMAN CLOWE: -- that is our 9 minimum. 10 And it's my understanding that you 11 intend to continue that policy. 12 MS. CLOUD: Yes. Yes, absolutely. 13 CHAIRMAN CLOWE: And I want that 14 clarified in my mind, because if you announce a 15 jackpot and you change that policy -- and 16 80 million, and maybe the sales go to 87, where you 17 now, under the current policy, are increasing it, 18 you stop that. That would be a change which I 19 would not anticipate you'd want to make based on -- 20 MS. CLOUD: No. And Commissioners, 21 I have -- this is the policy that I've had since 22 I've been in this job. That was not the policy, 23 necessarily, prior to my administration. However, 24 I want you to know -- and you know this without me 25 telling you -- Lotto Texas is jackpot driven. 0073 1 In order to bump those jackpots, 2 you're driving sales. And that's what we do it 3 for. We don't want to leave a jackpot stagnant if 4 sales are greater. We want to bump that jackpot so 5 players get more excited and it gets more Lotto 6 fever and you get more sales and the excitement of 7 the whole thing. 8 CHAIRMAN CLOWE: I understand that 9 now that we've discussed it. And I want the 10 commissioners and the staff to understand it. And 11 I want it on the record so that we can look back 12 and say, well, what was the intent here. Because, 13 you know, we're not all going to be the 14 commissioners forever, and you're not going to be 15 the executive director forever. And this a policy 16 that we're following and supporting with this rule 17 change. 18 MS. CLOUD: Absolutely. 19 CHAIRMAN CLOWE: And I want a good 20 discussion on the record about why we're doing this 21 and what the intent is. 22 COMMISSIONER WHITAKER: Let me add 23 this, also; and that is, if you anticipate it or 24 estimate it at 84 million, in your hypothetical, 25 and advertise 84 million, but it actually came in 0074 1 at 83 and a half -- 2 MS. CLOUD: We'd pay 84. 3 COMMISSIONER WHITAKER: -- you would 4 pay 84, and you'd take that half a million out of 5 the reserve. 6 MS. CLOUD: That's correct. 7 COMMISSIONER WHITAKER: And that, 8 again, is to give some stability and predictability 9 to the players. 10 MS. CLOUD: Right. So the players 11 are not faced with less than what they thought they 12 were going to win. 13 CHAIRMAN CLOWE: And that's 14 happened. 15 MS. CLOUD: And that has happened. 16 COMMISSIONER WHITAKER: Right. And 17 I just wanted to get both sides of it, up or down. 18 CHAIRMAN CLOWE: So that's what I 19 meant when I said she's putting a floor under it 20 when she advertises an increased amount. She can 21 never pay less than that amount, but sales can 22 exceed that. 23 MS. CLOUD: And all the more 24 reason -- I mean, we watch the $80 million jackpot 25 daily, hourly, with sales. And we increase that -- 0075 1 you've only got a window time of, like, three days 2 before the draw. So we increased that $85 million 3 jackpot, I think, on a daily basis there for a 4 while. 5 It was the last day of sales that 6 kicked that jackpot over what we had forecasted, 7 and that was because we had $30 million in one day 8 in sales. So it did go over, and it went over by 9 just -- several -- about $3 million or $4 million 10 over what we had projected. But there was no way 11 we could have done anything about increasing it at 12 that time because it was in the last day. 13 COMMISSIONER WHITAKER: How fast can 14 we change the numbers on those billboards? 15 MS. CLOUD: Well, the numbers on the 16 billboards are automatically -- we call -- we send 17 the numbers in to the billboard company, and they 18 key it into a computer, and they change all over 19 the state at the same time. 20 COMMISSIONER WHITAKER: Because as I 21 recall, with the larger jackpot, it was still 22 advertising at the lower level. 23 MS. CLOUD: We had a -- 24 COMMISSIONER WHITAKER: That is the 25 common perception of people I ran into. 0076 1 MS. CLOUD: We had problems with our 2 billboard company. I think we have resolved those 3 problems. 4 MS. KIPLIN: And the billboard 5 vendor is actually a subcontractor of the general 6 market advertising, our vendor. 7 One thing I would like to point out 8 is that there is a definition in this rule making 9 of an advertised jackpot, primarily to respond to 10 the issue that Commissioner Whitaker just touched 11 on; that is, you know, what is the advertised 12 jackpot. 13 And this makes clear -- I think it's 14 pretty clear anyway, but just to be very, very 15 clear, the jackpot amount is the amount that the 16 Commission establishes for each drawing and 17 authorizes commission vendors to publicize. 18 And there is a process in place 19 within the Commission in which vendors are 20 authorized to publish the amount. There is 21 paperwork and documentation on what has been 22 approved as the jackpot and what is communicated to 23 those vendors to publicize. 24 COMMISSIONER CRINER: What's -- I'd 25 go back to the sales chart, since I'm a salesman, I 0077 1 guess. That's what I always look at. What's our 2 season? Every business has a season. 3 MS. CLOUD: The fall, Christmastime, 4 and the first of the year. 5 COMMISSIONER CRINER: And that's 6 what it shows. 7 MS. CLOUD: Yeah. 8 COMMISSIONER CRINER: It's, like, 9 man, everybody that's getting ready to go to 10 Thanksgiving dinner has to buy a ticket. And it 11 runs into March. 12 MS. CLOUD: December is very, very 13 strong for the Lottery Commission -- 14 COMMISSIONER CRINER: Right. 15 MS. CLOUD: -- but the summer months 16 are not. This is our slow season we're coming 17 into. 18 COMMISSIONER CRINER: And it's on 19 here (indicating). 20 MS. CLOUD: Uh-huh. 21 CHAIRMAN CLOWE: I have a second 22 issue I'd like to discuss before we vote; and that 23 is, in this rule, the use of the term "net present 24 cash value." Would you give me a definition of how 25 you view that? What does that mean in this use? 0078 1 MS. KIPLIN: Well, I probably would 2 call upon Mr. Sanchez to -- 3 CHAIRMAN CLOWE: I thought maybe you 4 would. And he's here. 5 MS. KIPLIN: -- to respond to that 6 question. I will tell you, Commissioner, that the 7 amendment is within this package and was also 8 within the Subchapter D package to respond to the 9 comment that we received -- not part of any rule 10 making -- that was just received from a consumer 11 action group that said, you know, the way you've 12 got it right now, in terms of cash value, you don't 13 make it clear that what you're paying is the net 14 present cash value. So that when it shows the -- 15 you know, let's call it the 80 million -- that 16 80 million is actually what would be paid out over 17 the 25 years. 18 And so the amendment that's within 19 this package, and also the other one, was really to 20 respond to the letter that we received, and saying, 21 you know, you're right, and we ought to go ahead 22 and do that and make it clear to our public. 23 CHAIRMAN CLOWE: I understand that. 24 But I want an understanding about the term "net 25 present value." 0079 1 Are we using it in the financial 2 sense, Bart? 3 MR. SANCHEZ: Yes, we are, 4 Commissioners. 5 Again, my name is Bart Sanchez. I'm 6 the financial administration director. 7 I think it's a financial term that I 8 think some of you have heard. "Net present value," 9 are you familiar with that? And I think this was 10 just expanded to a comment -- 11 CHAIRMAN CLOWE: Let's get it on the 12 record. State it for us, all the uses -- 13 MR. SANCHEZ: Net present value 14 is -- for example, using the -- we have a 15 $25 million jackpot that we're going to pay in 16 25 years. We buy investments that would yield 17 sufficient moneys to pay the prize winners. 18 So, for example, that will cost us, 19 just in the example, maybe 20 million. That is, to 20 me, what I consider an interpretation -- that the 21 net present cash value that we will pay, 20 million 22 to yield 25 million in 25 installments. 23 So basically, with the comptroller, 24 the treasury, we put the order in. For example, 25 it's a $25 million jackpot, and they yield -- how 0080 1 many investments -- 24 investments, individual 2 investments. And then, depending on the market, 3 depending on the rates, that will determine what 4 the actual cost of those investments will be. And 5 that, to me, is the net present cash value that we 6 will pay. 7 CHAIRMAN CLOWE: That's almost 8 looking at it backwards. In the financial world, 9 if you have an obligation that's due in 20 years 10 and you say I want to pay it off today, what's the 11 net present value of this? And the net present 12 value comes back, and it's considerably less than 13 what the maturity is at the date. 14 MR. SANCHEZ: Correct. 15 CHAIRMAN CLOWE: And so we're doing 16 it almost backwards and figuring forward. And what 17 we need to make sure we don't have any confusion 18 about is when people say "cash value." They don't 19 ask for net present value ticket. They ask for 20 cash value ticket, as opposed to -- what's the most 21 popular term for the long term payout? 22 MS. CLOUD: Annuity. 23 CHAIRMAN CLOWE: Do they use the 24 word "annuity"? 25 MS. CLOUD: That's the word that's 0081 1 used. 2 CHAIRMAN CLOWE: Is that what a 3 player asks for when they step up to the counter? 4 COMMISSIONER CRINER: I don't think 5 so. 6 CHAIRMAN CLOWE: I don't think so. 7 MS. CLOUD: Well, no. 8 CHAIRMAN CLOWE: What's the word, 9 Robert? What's the common term for it? 10 MR. TIRLONI: They would probably 11 ask for annual payment, an annual payment option, 12 as opposed to a cash payment option. 13 CHAIRMAN CLOWE: I think that's 14 correct. And it's important that we understand 15 those differences, because in adopting these rules, 16 we want to make sure we all understand what we're 17 doing. 18 COMMISSIONER WHITAKER: Well, then, 19 let me add this, since you added that. 20 COMMISSIONER CRINER: Yeah. 21 Straighten that out. 22 COMMISSIONER WHITAKER: There are 23 different ways of calculating net present value. 24 And do you see a need, Ms. Kiplin, to put in a 25 standard that we use, a particular formula we use? 0082 1 MS. KIPLIN: No, I don't. And the 2 reason for that is that when a player purchases a 3 ticket, they abide by all of our rules, our 4 statutes, our procedures, and directives. We've 5 got two reported decisions, not quite on point, 6 that had to do with a couple of tickets: one, in 7 particular, that had a problem with it on the 8 printing, and the other one was a person that says 9 that they got wrong numbers back. 10 But it's clear that it's the player 11 who is agreeing to abide by all of our rules and 12 directives. And this is one of our procedures. 13 They have got this very well documented down in the 14 financial administration division about how they go 15 about purchasing these investments. So my answer 16 to you is, no, I don't believe that we need to get 17 into that level of detail because those procedures 18 are already incorporated into the game rules. 19 COMMISSIONER CRINER: Well, you just 20 kind of got me a little nervous here now. I'm kind 21 of with Tom. Let's not use some backwards terms 22 with the public. If they walk up to the -- what's 23 your window called -- if they walk in to cash their 24 tickets -- 25 MS. CLOUD: The claim center. 0083 1 COMMISSIONER CRINER: If they walk 2 into the claim center -- there we go -- if they 3 walk into the claim center, the public is going to 4 use the words we frame for them to use. And so 5 let's make it easy for them. If they want all the 6 money at one time, what do they say: I want my 7 cash value? Just give them the cash value. If I 8 want it paid for in annual, let's say "annual." 9 If we start using "net present 10 values" and start turning around and being very 11 financial about it -- which is good if we all have 12 a financial background, but nine times out of ten, 13 the person standing there asking for money with the 14 winning ticket is not going to have a financial 15 background. 16 So I'm kind of like, let's just make 17 it very simple to ask for the money in the rules, 18 and let's give them the money. 19 MS. KIPLIN: Okay. Well, let me be 20 very clear, because the time that the player must 21 designate how they want to be paid in the event 22 that they actually win is at the time they purchase 23 the ticket. So that entire communication is -- 24 COMMISSIONER CRINER: Well, we're 25 making the rules for purchasing the tickets right 0084 1 now. 2 MS. KIPLIN: Sure. But I want to be 3 clear, because you, on the record, have said that 4 at the time they come to the claim center -- for 5 all those people who are going to read this 6 transcript and understand that this is part of the 7 rule making deliberation -- that player must 8 designate that at the time of the purchase of the 9 ticket. 10 Now, to go to your question -- 11 COMMISSIONER CRINER: Wait a minute. 12 Let me go back and just make it very -- let me make 13 it as clear as I can. 14 We're talking about a rule here. 15 Okay? Let's make the rule as easy for a person to 16 collect as possible. And that's my point. And so 17 whether they buy the ticket yesterday or today -- 18 and in deliberation, my point is, let's not use 19 terminology that's going to be confusing to the 20 player, because that turns people off. 21 MS. CLOUD: But in paying the claim 22 for a cash -- what we call today a "cash value 23 option," we have to pay the net present value. We 24 have to pay what it was going to cost to purchase 25 the 25-year annuity at the time the prize is 0085 1 claimed. Okay? So whether we say it in the rule 2 or leave it as cash value option -- 3 COMMISSIONER CRINER: Then I just 4 need to ask Tom. 5 Would it be better to define "net 6 present value," because it's -- the way you look at 7 it as kind of backwards? 8 CHAIRMAN CLOWE: Well -- 9 COMMISSIONER CRINER: That's where 10 I'm confused. 11 CHAIRMAN CLOWE: I think I'm 12 comfortable with our practice and the rules of the 13 game. But this is an issue that comes up from time 14 to time. And I thought it was a good idea to air 15 it out right here, because we do have people who 16 have assumed, I think, that everybody understands 17 the rules. And we're finding that in some cases, 18 folks don't understand the rules. 19 COMMISSIONER WHITAKER: What's the 20 nature of the confusion that you have picked up? 21 CHAIRMAN CLOWE: When people opt for 22 the cash option. My take on the players is that's 23 what they ask for. And they have seen the 24 advertised amount, which is the annual payout, and 25 they get a substantial reduction in the amount of 0086 1 money that they receive. I think that's where the 2 point of confusion comes up. Now, my -- 3 MS. CLOUD: The actual difference is 4 basically around 50 percent, about half of the 5 annuitized jackpot amount. It is roughly that. 6 It's not that, exactly. That's why it has to be on 7 the net value at the time the purchase is made. 8 CHAIRMAN CLOWE: And that's the 9 amount that I had in my mind when people have asked 10 me; not the difference in 20 to 25 million. I 11 think it's a lot more than that. 12 MS. CLOUD: It is. 13 CHAIRMAN CLOWE: Close to 14 50 percent. 15 MR. SANCHEZ: If I may add, I 16 thought we were just clarifying what the cash 17 option was, how we calculate the cash option, 18 because if even one person doesn't understand 19 how -- what we do to come up with that amount -- 20 MS. KIPLIN: To respond, 21 Commissioner Whitaker raised it and asked the 22 question, do I think it's necessary for it's being 23 here, and I responded we have procedures. 24 Commissioner Criner has also raised that issue in 25 terms of the player; what does the player know. 0087 1 It's your rule. If you-all would 2 like to have some definition of net present cash 3 value in this rule so that it's clear, then that's 4 your direction and I'll be glad to work with 5 Mr. Sanchez to get that language, and we'll put it 6 in here. And then you can have me bring it back to 7 you at the next commission meeting or vote to work 8 with him. And if he is -- 9 CHAIRMAN CLOWE: We're having a 10 discussion now to get to that level -- 11 MS. KIPLIN: Okay. 12 CHAIRMAN CLOWE: -- of comfort. 13 And -- 14 COMMISSIONER WHITAKER: The term I 15 use is "net present value." And then I would 16 separately, if you want a simple term for it, say 17 "cash option." Right? 18 COMMISSIONER CRINER: Well, whatever 19 we thought the public -- 20 COMMISSIONER WHITAKER: Well, 21 there's two different points here, I guess. One is 22 what the public can quickly call it and understand 23 it in a general sense. And then the second would 24 be the precise definition in the rules -- 25 CHAIRMAN CLOWE: And I want to -- 0088 1 COMMISSIONER WHITAKER: -- that the 2 technocrats we go to -- 3 CHAIRMAN CLOWE: I want to write a 4 definition because I want an understanding that 5 we're actually figuring it forward and what the 6 value will be, as opposed to -- present value, to 7 me, has always meant, in a financial sense, what 8 it's worth right now. Take this lease and mature 9 it. Take this note and mature it. And we're going 10 to do it in an opposite way. That's okay. Nothing 11 wrong with that. 12 Now, Robert, give us what the 13 players have in their minds, if you will, when they 14 step up to the ticket counter and buy the ticket. 15 What are the two things that they can ask for? 16 Give us that verbiage. 17 MR. TIRLONI: I believe what the 18 players ask for when they purchase a Lotto Texas 19 ticket, they -- if they haven't already marked it 20 on their playslip, they will be asked by the clerk 21 which they want. And I think the terminology that 22 our players use are "cash value" or "annual 23 payments." I think that's how they break it down. 24 CHAIRMAN CLOWE: Or maybe: Will you 25 take the cash option, or do you want the annual 0089 1 option? 2 MR. TIRLONI: Or -- yes. Most of 3 the clerks probably say do you want cash or do you 4 want the annual payments. 5 CHAIRMAN CLOWE: Okay. Okay. I 6 think that's right. I agree with that. Now, 7 that's an issue we're trying to define and then -- 8 do I understand, Linda, you're coming down in these 9 rules on committing to the advertised amount as 10 being what the Commission is going to pay? 11 MS. CLOUD: Yes. 12 CHAIRMAN CLOWE: And you're 13 comfortable with that and you're satisfied with 14 that? 15 MS. CLOUD: I'm comfortable with 16 that. I want the commissioners to be comfortable 17 with that. If there is any more explanation 18 needed -- 19 CHAIRMAN CLOWE: All right. Now, 20 are we also dealing with the issue of what the 21 advertised amount is, whether it is the cash option 22 or the annual payment option? 23 MS. CLOUD: I don't know of any 24 lottery that would advertise a cash option. They 25 would advertise an annuitized option. 0090 1 CHAIRMAN CLOWE: Then let's get that 2 understood -- 3 MS. CLOUD: Right. 4 CHAIRMAN CLOWE: -- in this 5 discussion. We are talking about advertised amount 6 being the annual payment amount. 7 MS. CLOUD: That's correct. 8 CHAIRMAN CLOWE: The greater of the 9 two. 10 MS. CLOUD: That's correct. 11 MR. TIRLONI: That's correct. 12 That's what we advertise. 13 MS. CLOUD: In years past, there was 14 not an option for any lottery. It was -- they paid 15 the annuitized value. They bought -- they paid 16 long term. It wasn't a cash value option. It has 17 not been up until the last maybe ten years that 18 lotteries have looked at cash value option for 19 allowing players to claim a prize. 20 CHAIRMAN CLOWE: What's the history 21 of this lottery on that issue? 22 MS. CLOUD: This lottery started out 23 with an annuitized jackpot, an estimated -- 24 CHAIRMAN CLOWE: It didn't have a 25 cash option? 0091 1 MS. CLOUD: There wasn't a cash 2 option until -- Robert, what year did we go with 3 the cash option? Was it '97? 4 MR. TIRLONI: I believe that was 5 back in '97, yeah. 6 MS. CLOUD: Yeah. 7 CHAIRMAN CLOWE: So that's the 8 history of this lottery? 9 MS. CLOUD: Yes. And players like 10 having the option to get their money up front. And 11 in order to do that, they are signing up or putting 12 on their playslips or telling the clerks they want 13 the cash option. The annuitized options is -- 14 we're not seeing a whole lot of players going with 15 the annuitized jackpots at this time. 16 CHAIRMAN CLOWE: Okay. 17 MR. TIRLONI: Commissioners, we've 18 got -- if I can add and piggyback onto what Linda 19 was saying, we do have a lot of requests in 20 correspondence from our players about what players 21 choose. And as Linda said, most of our players are 22 right now choosing the cash option because they 23 would prefer to get back the cash value and make 24 whatever investment choices they would like to 25 make. 0092 1 So right now, on our ticket sales on 2 Lotto Texas, we have -- a higher percentage of 3 tickets that are sold are our cash value tickets, 4 as opposed to annual payment tickets. 5 CHAIRMAN CLOWE: What would you say 6 that current percentage is? 7 MR. TIRLONI: Off the top of my 8 head, I would probably say a 60/40 split. 9 Sixty percent of the tickets, I would say, are cash 10 value, as opposed to the 40 percent being annual 11 payments. 12 MS. CLOUD: I don't disagree there 13 is a lot of confusion out there about what is the 14 jackpot amount when we pay a cash value prize 15 versus the advertised estimated jackpot for an 16 annuitized jackpot. 17 And we are constantly on the "ask 18 the director" questions from the players. We're 19 responding to that with each and every one of the 20 players that write in. So I would prefer to make 21 it as clear as possible in the rule to make sure 22 that it's understood, the difference between the 23 two. 24 CHAIRMAN CLOWE: I think that's 25 right, Linda. I think this is an opportunity for 0093 1 us to clarify this, and we want to do a good job in 2 this rule making and clear up some of these things 3 so that there is as broad an understanding as 4 possible. I don't think there is much confusion in 5 players' minds, but any misunderstanding can be 6 eliminated by virtue of clarification of the rules. 7 I think we want to do that. 8 I think it's an excellent 9 discussion. We have a motion that has been made 10 and seconded, but we're in the discussion period. 11 Where does this bring us down, 12 Commissioners? What do we want to -- 13 COMMISSIONER CRINER: Friendly 14 amendments. 15 CHAIRMAN CLOWE: Sir? 16 COMMISSIONER CRINER: Some friendly 17 amendments. 18 CHAIRMAN CLOWE: Well, we could 19 withdraw the second and motion and direct the staff 20 to rework this proposed rule, leaving the present 21 rules in place, and come back to us in the next 22 meeting, based on this discussion, with 23 clarifications that would satisfy us. 24 COMMISSIONER CRINER: I think I made 25 a motion. I made a motion. 0094 1 COMMISSIONER WHITAKER: I made the 2 motion. 3 CHAIRMAN CLOWE: I believe 4 Commissioner -- 5 COMMISSIONER CRINER: I withdraw my 6 second. 7 CHAIRMAN CLOWE: You withdraw the 8 second. 9 And what's your pleasure? 10 COMMISSIONER WHITAKER: That's fine. 11 I withdraw. 12 CHAIRMAN CLOWE: Okay. The motion 13 and the second have been withdrawn. General 14 counsel is instructed, by virtue of this broad 15 discussion and the expression of the sentiments, to 16 reform the rule to meet the needs discussed. We'll 17 leave the present rules in place. 18 MS. KIPLIN: Just to be clear, the 19 present rules in place -- the Texas Two Step is an 20 advertised jackpot. We'll continue to pay the 21 advertised jackpot. The Lotto Texas is a jackpot 22 driven by sales. 23 MR. TIRLONI: And just to be clear, 24 too, the Texas Two Step has no annual payment 25 option on that game. That game is a cash game. We 0095 1 do pay -- regardless of what the jackpot climbs up 2 to, we do pay that jackpot in cash in a lump sum 3 payment. So the 25 annual payment or the cash 4 value discussion really does not apply to the 5 Two Step game, per se. 6 CHAIRMAN CLOWE: That's an excellent 7 discussion. 8 And Kim, I'm glad it came up. It is 9 very beneficial to all of us. You always make 10 these things so interesting. 11 MS. KIPLIN: I take that as a 12 compliment. 13 CHAIRMAN CLOWE: It certainly was 14 intended as one. 15 MS. KIPLIN: We'll come back at the 16 next commission meeting with a proposal that may or 17 may not contain revised language. We'll just have 18 to qualify that on behalf of the staff. 19 CHAIRMAN CLOWE: I'm sure you and 20 your minions will be very successful in your task. 21 You have very effective minions. 22 MS. KIPLIN: Thank you. 23 CHAIRMAN CLOWE: Now, Item 12 is 24 next. 25 Billy, somehow, we've gotten to you. 0096 1 MR. ATKINS: Thank you, Mr. Chairman 2 and Commissioners. 3 Bill Neinast, the chair of the Bingo 4 Advisory Committee, apologizes for not being able 5 to be here today. Both he and his wife had 6 previously scheduled medical appointments that they 7 could not get out of. He has submitted his report 8 in the form of an e-mail, which is in your 9 notebook. 10 The three items that he wanted to 11 bring to your attention dealt with discussions that 12 the Advisory Committee had regarding proposed 13 changes to the Bingo Enabling Act that they wanted 14 to come back and recommend to the Commission for 15 consideration. Chairman Clowe was at that meeting, 16 and it was his recommendation to the Advisory 17 Committee that they provide a little more 18 substantive information with their recommendation. 19 So as a result of that exchange, the 20 chair of the Advisory Committee appointed a 21 subcommittee. And the staff of the division is 22 going to be working with that subcommittee to 23 develop a survey to administer to all of our 24 licensees regarding these three items. 25 And to discuss those briefly, the 0097 1 first deals with changing the date on which 2 quarterly reports are due to the Commission. 3 Currently, reports are due to the Commission on the 4 15th of the month following the end of the calendar 5 quarter. 6 And some organizations have 7 expressed that it's difficult for them to compile 8 those reports because they don't always get the 9 information from their financial institution on a 10 timely basis. So the discussion ranged from 11 changing the due date from the 15th to the 20th to 12 the 25th to the 30th. 13 So I think there is probably 14 universal agreement to extend the due date some. 15 We'll be working with licensees to attempt to get 16 some sort of consensus as to exactly how far to 17 extend that. 18 The other two things, I think, will 19 probably be a little more heavy. The second one 20 deals with increasing the number of temporary 21 licenses that an operator gets or can get. As you 22 know now, operators are limited to six temporary 23 licenses in a calendar year, so they wanted to 24 survey other -- the licensees and see if there was 25 any type of pressing need to increase that number. 0098 1 The third item dealt with extending 2 the hours that a bingo occasion can be conducted, 3 from four to six to eight; and increasing the 4 number of days on which a bingo occasion can be 5 conducted, from the current three. 6 Items No. 2 and 3, I think, dealt 7 with the desire of the Bingo Advisory Committee to 8 come up with some recommendations that they could 9 bring forward to the Commission that would result 10 in increased sales for the organizations conducting 11 charitable bingo. 12 So as I mentioned, staff will work 13 with the subcommittee on developing the actual 14 survey questions and instrument, and conducting 15 that survey. Additionally, the staff will be 16 surveying other jurisdictions to see what they do 17 regarding these items, specifically. That will 18 then go back to the Bingo Advisory Committee for 19 their formal consideration, and they will, at a 20 subsequent meeting, bring that back to you for your 21 consideration. 22 Two other items that were discussed 23 that Bill didn't include on this report. There was 24 also a discussion -- actually, a recommendation, by 25 Chair Neinast, that the Bingo Advisory Committee 0099 1 take part in some sort of self-evaluation: how 2 they are functioning as a committee and how they're 3 functioning as far as providing useful information 4 to you, as a commission. So I've also started work 5 with some of the staff here within the agency on 6 developing an instrument whereby that 7 self-evaluation can be done. 8 The third item that was discussed -- 9 and I don't know, Mr. Chairman, if you want to 10 discuss this further -- was the possibility of 11 maybe a future joint meeting between the Bingo 12 Advisory Committee and the Texas Lottery 13 Commission. 14 There was discussion that in the 15 past -- and this is where we're missing some of 16 that institutional knowledge; it was probably four 17 years ago or more -- there has been one joint 18 meeting between the two bodies. 19 And I think at that time, the 20 purpose of the meeting was that there was a great 21 deal of frustration on the bodies' parts: the 22 Bingo Advisory Committee and what it was that they 23 needed to be doing and how the Commission acted on 24 their activities; and then, I think, some 25 frustration on behalf of the Commission as to what, 0100 1 exactly, the Bingo Advisory Committee was providing 2 them. 3 I will say, additionally, at the 4 time, I think there were a lot of concerns as to 5 how the staff was interacting with the Advisory 6 Committee. So the purpose of that joint meeting 7 was to try and resolve some of those issues. 8 Again, it was my understanding that 9 from Mr. Neinast's point of view, that it was just 10 to, again, use it as an opportunity to determine if 11 the Advisory Committee, again, was meeting the 12 needs of the Commission. 13 And I don't know if you had anything 14 else on that. 15 CHAIRMAN CLOWE: Yeah. Let me try 16 to recap some of the things that I remember, 17 thoughts that I'd like for the commissioners and 18 staff to hear. 19 First of all, I think Billy is doing 20 an excellent job as director of the charitable 21 bingo division. And the progress that we're making 22 is a reflection on his leadership. The Bingo 23 Advisory Committee is very productive today, as I 24 understand it, compared to perhaps times in the 25 past, when there was not as effective participation 0101 1 and leadership as there is today. 2 My view is that charitable bingo is 3 very different from the lottery operation. And 4 it's an operation that is unique and one that I 5 think we, as commissioners, need to understand and 6 become more familiar with. And a way that we can 7 do that is in working with Billy, his staff, and 8 the Bingo Advisory Committee on issues such as the 9 changes that you mentioned, Billy, that they 10 discussed and wanted to come to the Commission. 11 Commissioners, I said to them in the 12 meeting, we need to have a sense of consensus and 13 an understanding of background before you just say, 14 well, we want this and this and this. It's going 15 to be -- in my view, the first thing that a 16 commissioner is going to say is, well, how broad is 17 this base of demand. And so that brought us around 18 to the discussion of a questionnaire or a survey 19 and trying to come back to the commissioners with 20 grounds for requests such as those. 21 And I personally think it would be a 22 good idea if the commissioners were exposed to the 23 Bingo Advisory Committee members through perhaps a 24 joint meeting. And I know that gives Kim 25 heartburn. And we just have to work with that, not 0102 1 in the sense of us trying to do our regular agenda 2 business, but maybe in the form of them briefing us 3 about their interests and then the segment of the 4 industry that they represent and helping us get a 5 broader understanding and a better education of 6 what goes on in charitable bingo. I'd like to 7 think that once a year, maybe, we could do that. 8 And it would be beneficial to all. 9 And that was the discussion that we 10 had. And I don't mean at all to suggest that the 11 commissioners do anything that they haven't thought 12 about or maybe they don't want to do, but I think 13 it's not improper for us to reach out a little bit 14 to the bingo industry and get a little more 15 intimate knowledge of what's going on in Billy's 16 area. 17 Is that a faithful representation of 18 what I said? 19 MR. ATKINS: Yes, sir. 20 CHAIRMAN CLOWE: I think, unless the 21 commissioners have some direction for you, Billy, 22 you might come back with a plan that we can look at 23 and react to. 24 MR. ATKINS: A plan for the joint 25 meeting? 0103 1 CHAIRMAN CLOWE: (Nods head.) 2 Is that all right? 3 MR. ATKINS: (Nods head.) 4 CHAIRMAN CLOWE: Okay. 5 COMMISSIONER CRINER: Let me ask one 6 question: What does the Bingo Advisory Committee 7 do? 8 MR. ATKINS: The Bingo Advisory 9 Committee advises the Commission, and they are 10 charged, under the statute, to advise the 11 Commission on the needs of the bingo industry in 12 the state. They also review administrative rules 13 before the Commission proposes them, and comments 14 on them; and any other duties prescribed by the 15 Commission. And then they are supposed to 16 submit -- it's page 1984, Section 2001.057, the 17 Bingo Enabling Act, 057 (E): The Committee may 18 advise the Commission on the needs -- 19 COMMISSIONER CRINER: That's okay. 20 MS. KIPLIN: Commissioners, you also 21 have a rule on the Bingo Advisory Committee that's 22 a little bit more in depth. It's 402.567. 23 MR. ATKINS: I will, Commissioners, 24 follow up with the Chairman's comment. I do think 25 that this committee has been much more productive 0104 1 than they have been in the past, especially as far 2 as bringing back -- bringing forward for 3 consideration possible changes to either the Act, 4 the rules, or processes, et cetera. 5 And I think that the -- it can only 6 be improved by Commissioner Clowe's comment that 7 those recommendations themselves involve actual, 8 concrete examples or recommendations as something 9 to back up or to serve as the justification. 10 CHAIRMAN CLOWE: Any further 11 comments? 12 COMMISSIONER WHITAKER: Huh-uh. 13 CHAIRMAN CLOWE: Anything further, 14 Billy? 15 MR. ATKINS: Not under that item, 16 no, sir. 17 CHAIRMAN CLOWE: Prior to making a 18 motion, we move then to Executive Session. I'd 19 like to just briefly go to Item 17 under the 20 executive director's report. And because so many 21 of the members of the staff don't come back after 22 Executive Session -- and that's certainly 23 understood, a good thing -- I wanted you to comment 24 on the fact book. I lugged this (indicating) down 25 here from Waco. I don't carry it outside on my hip 0105 1 every day, all day long, but this a great piece of 2 work. And I got it; I didn't know it was coming. 3 And I thought, what in the world is this. 4 And I've sat down and gone through 5 it. I don't know if other agencies produce this 6 kind of information on their history and their 7 workings, but I would like to know who is 8 responsible for this and who worked on it. And I'm 9 sure the other commissioners will join me in saying 10 that this is one wonderful document that we can 11 refer to, we can answer questions, we can use this 12 with the public. This is a great project. Tell us 13 about it. 14 MS. CLOUD: Initially, the fact book 15 was put together for us -- and Nelda, you may have 16 to help me with this -- but I think Melissa 17 Villasenor-Dye gets credit for actually putting the 18 major product together. The updates, the recent 19 updates, I think Yuvonne was instrumental in making 20 sure the updates got -- at the time that 21 Commissioner Criner came on board and we were 22 getting his book put together -- was making sure 23 that the information that we had in there was 24 updated. And I think all of you got maybe your 25 books with the updated version. 0106 1 But it's a -- it's been an 2 administrative effort of intergovernmental as well 3 as the executive staff in order to put this book 4 together. And it is very useful. It's getting to 5 be quite a book. Now we may have to go to another 6 volume here shortly. But it is pretty hard to 7 carry on your hip when you want to go somewhere. 8 CHAIRMAN CLOWE: It's great. Do 9 other agencies have this kind of a book? 10 MS. HENRY: I think they do 11 generally, but not anything this extensive that 12 I've ever seen. 13 MS. CLOUD: Patsy, would you come up 14 to comment? 15 CHAIRMAN CLOWE: Patsy is from the 16 LBB prior to this agency, so she has maybe a 17 broader view of other agencies that most of us 18 don't. 19 MS. HENRY: My name is Patsy Henry, 20 deputy executive director. 21 I have seen other books compiled. 22 Other agencies compile books of this nature, but 23 nothing this extensive. And it certainly is, I 24 think, going to aid us in our sunset review process 25 and the self-evaluation compilation effort that 0107 1 various divisions will be involved in. 2 MS. CLOUD: Keith is also putting 3 together a media fact book, which basically has 4 some of the same information. And it's out on the 5 Internet. It's on our website. 6 CHAIRMAN CLOWE: You know, there are 7 very few private sector companies that have a 8 document like this. They have the knowledge, and 9 it's all passed around the campfire late at night, 10 you know. And that's the way you get the history 11 of so many companies. And this is -- this 12 institutionalizes so much of what is in place in 13 this agency. It's a great job. 14 MS. CLOUD: Well, it's very 15 important that we keep it updated because it is the 16 history of the lottery in Texas. And I think 17 that's the fun part about it. It's got all the 18 highlights of everything that's ever happened to 19 us -- 20 CHAIRMAN CLOWE: Very good. Well, 21 we've come back to that -- 22 MS. CLOUD: -- good or bad. 23 CHAIRMAN CLOWE: At this time, 24 10:30 -- 25 COMMISSIONER WHITAKER: Are we going 0108 1 to cover Jim Richardson's report? 2 CHAIRMAN CLOWE: Oh, I'm sorry. I 3 was going to pass Jim. Thank you, Betsy. 4 Item 13. I overlooked you, Jim, and 5 I apologize for that. I saw the charitable bingo 6 operations director position, and I thought that 7 was Billy. And you've done the classification 8 studies. 9 MR. RICHARDSON: Yes, sir. 10 CHAIRMAN CLOWE: Would you report to 11 us on that, please. 12 MR. RICHARDSON: I was afraid I was 13 going to have change my speech from good morning to 14 good afternoon. Good morning, Commissioners. 15 For the record, my name is Jim 16 Richardson. I'm the human resources director. 17 At a previous commission meeting, 18 Commissioner Sadberry requested that human 19 resources review the classification of the 20 charitable bingo operations director's position. 21 Based upon the exclusiveness of decisions made with 22 regard to personnel matters, budgets, or 23 operations, the charitable bingo operations 24 director's position does operate at a level higher 25 in responsibility than do other directors' 0109 1 positions at the TLC. Also, this position is a 2 direct report to the commissioners. 3 Human resources finds that the 4 charitable bingo operations director's position 5 would better fit within the position classification 6 plan as a Director IV B20, rather than its current 7 classification as Director III B19. And human 8 resources recommends this reclassification. 9 CHAIRMAN CLOWE: What action is 10 required on this, Jim? 11 MR. RICHARDSON: I would have -- the 12 current employee in the position is Billy Atkins. 13 If you want to make the reclassification, we would 14 do a payroll action form, and I have that prepared 15 for your signature. 16 MS. KIPLIN: It would require a vote 17 and approval. And then, Commissioner Clowe, you 18 would sign off in your capacity as Chairman, based 19 on the vote of the Commission to approve it. 20 MR. RICHARDSON: As well as, we 21 would need to update the job description to B20. 22 CHAIRMAN CLOWE: That doesn't 23 constitute any change in the position compensation 24 by virtue of that reclassification; it gives 25 options that the commissioners can look at at some 0110 1 point in time. Is that correct? 2 MR. RICHARDSON: The salary can 3 change, but it does not have to. And he does fit 4 within the salary range at this time. 5 CHAIRMAN CLOWE: Fits in both the 6 grouping and the B19 as it now is applicable, and 7 under the proposed change it fits in that? 8 MR. RICHARDSON: Correct. His 9 salary currently would map over from B19 to B20 10 without any change in salary. 11 CHAIRMAN CLOWE: And you're not 12 proposing a change in compensation, are you? 13 MR. RICHARDSON: Not at this time. 14 CHAIRMAN CLOWE: Any questions? 15 COMMISSIONER WHITAKER: I don't have 16 any questions. 17 CHAIRMAN CLOWE: Is there a motion? 18 COMMISSIONER CRINER: So moved. 19 COMMISSIONER WHITAKER: Second. 20 CHAIRMAN CLOWE: All in favor, say 21 aye; opposed no. 22 I'll sign that now for you, Jim. 23 Any other action, Jim, under this 24 item? 25 MS. CLOUD: Commissioner Clowe, 0111 1 before you announce the Executive Session, Vince is 2 in the room if you'd like to get his report real 3 quick. 4 CHAIRMAN CLOWE: Great. 5 Vince, would you come forward and 6 help us with some of the questions we had earlier, 7 please. 8 MS. KIPLIN: So we are back to the 9 item relating to the production studio procurement. 10 CHAIRMAN CLOWE: That would be 11 No. 6, I believe. 12 MR. DEVINE: Good morning, 13 Commissioners. 14 For the record, my name is Vincent 15 Devine. I'm the operations report services manager 16 for the Texas Lottery Commission. 17 It's my understanding you have some 18 questions regarding square footage for the claim 19 centers. 20 CHAIRMAN CLOWE: What is the total 21 square footage of the project as we have it laid 22 out in this plat, Vince? 23 MR. DEVINE: Yes, sir. The claim 24 center building first-floor area that's affected is 25 3,641 square feet. 0112 1 CHAIRMAN CLOWE: That's the lower 2 floor or the two floors? 3 MR. DEVINE: The lower floor. 4 CHAIRMAN CLOWE: And what's the 5 upper floor? 6 MR. DEVINE: Identical. It's an 7 identical footprint. 8 CHAIRMAN CLOWE: And Linda told us 9 earlier that you're beginning with the studio 10 work -- it's under way, actually, now -- the claim 11 center work follows, and it will all be completed 12 by the end of August. 13 MR. DEVINE: Yes, sir. 14 CHAIRMAN CLOWE: We've got that now 15 on the record. 16 Anything else, Vince? I know you 17 and Gary have worked closely on this, and you've 18 done a great job. Anything else you'd like to tell 19 the commissioners about this project? 20 MR. DEVINE: No, sir. We're staying 21 very progressive on the calendar and also on the 22 use of the existing footage, so we feel very 23 confident we're meeting all the guidelines and 24 expectations of our executive officer. 25 CHAIRMAN CLOWE: Commissioners 0113 1 Criner and Whitaker had some great ideas earlier. 2 I think we got shut out on having the glass wall 3 onto Sixth Street, but a big television screen is 4 still on the table. So Commissioner Whitaker 5 suggested that some way, we might be able to show 6 that to the street. I don't know whether you heard 7 that from Gary, but all three commissioners like 8 that idea. 9 MR. DEVINE: Yes. We have actually 10 listened to some suggestions on that. One of our 11 situations we're dealing with is obviously any kind 12 of vandalism or any kind of damage, so we would 13 really have to do some planning in that aspect. 14 We also -- you know, the windows, 15 unfortunately, on the Sixth Street side will 16 probably have to be closed up because of sound. 17 We're dealing with a studio that, although not 18 live, is right on Sixth Street. For example, 19 last -- just three weeks ago at the Pecan Street 20 Festival, they had hard rock bands right in the 21 street. 22 So we'll be dealing with those 23 issues. It kind of makes it exciting, though, in 24 some ways, your having a studio right in the middle 25 of where things are going on. 0114 1 COMMISSIONER CRINER: How long does 2 it take us to do a drawing? 3 MR. DEVINE: Well, I'm not privy to 4 the exact details. I know they start around 5 7:00 p.m. in the evenings for predraw testing. And 6 they are out of there, it seems like, about 11:00. 7 Again, I'm a facility officer, so... 8 MS. CLOUD: Mike, can you talk us 9 through the drawing? 10 Mike, do you want to -- 11 COMMISSIONER CRINER: The point I 12 have in question, if we've got a live rock band out 13 there, could we ask them to just shut up -- 14 (Laughter) 15 MS. CLOUD: We can ask them. I'm 16 not sure they would listen. 17 MR. DEVINE: We'd definitely ask 18 them for you. 19 COMMISSIONER WHITAKER: Who do you 20 want to designate to go out there? 21 MS. CLOUD: Mike can do it. 22 COMMISSIONER CRINER: You know, the 23 point is the excitement of having a drawing. 24 MS. CLOUD: Yeah. 25 COMMISSIONER CRINER: Whatever is 0115 1 going on on Sixth Street, if you just had a drum 2 roll -- a drawing is getting ready to happen and 3 everyone turns around and looks at the drawing. 4 You have a big drum roll, and whatever festival is 5 going on is going to be rallied around the fact 6 that somebody is getting ready to win something. 7 MR. DEVINE: Yes, sir. There has 8 been some suggestions of even putting up some kind 9 of signage that shows we're about to go to a live 10 draw, things like that. We have a viewing 11 vestibule that is now very secure. It's on the 12 interior of our courtyard -- this is on paper right 13 now -- and so people could come around and actually 14 stand in the viewing area, watch the monitors, hear 15 the sound, but we won't be affected interior to the 16 sound. 17 So, yeah, we're trying to get those 18 ideas incorporated. 19 COMMISSIONER CRINER: In a little 20 short kind of way, I'm still kind of pushing for a 21 glass view on Sixth Street. 22 MR. DEVINE: Oh, I absolutely agree. 23 You know, from a security and facilities 24 standpoint, we're scared to death of that, to be 25 honest. 0116 1 COMMISSIONER CRINER: My question, 2 Mike, was really -- 3 MR. PITCOCK: Mike Pitcock, director 4 of security. 5 I feel like the security is the key 6 thing, and then the noise factor, are the two 7 things that I look at. And whatever he puts up on 8 that sign on Sixth Street, you know -- the draw -- 9 the process starts at 7:00, and it's a very 10 sophisticated type of process, a lot of steps that 11 they have got to go through. Any interruptions 12 that cause us delays in that can cause us problems. 13 So, you know, we're trying to limit the possibility 14 of that interference. 15 I don't have problems with people 16 watching us. I don't have a problem with them 17 going to the studio now to watch us. But if -- you 18 know, if my team is in there working and they're 19 working with auditors, they're having to pay 20 attention to that. So that causes me to have to 21 pay attention to those people watching them, 22 because they don't have any time to do anything but 23 do that draw. 24 COMMISSIONER WHITAKER: How long is 25 the actual exciting time? I mean, in other words, 0117 1 the setup is really exciting to you, and very 2 important. 3 CHAIRMAN CLOWE: For less than a 4 minute. 5 MR. DEVINE: It's about a minute and 6 45 seconds to two minutes. 7 CHAIRMAN CLOWE: It happens so 8 quick. 9 MR. PITCOCK: Tuesdays and Fridays, 10 you know, we have the Texas Two Step. You know, 11 that's a little more lengthy process, about a 12 minute and a half or two minutes. There are some 13 people that like to watch the pretest of the draws 14 that we're doing to, you know, test the machines 15 involved, stuff like that. There is an interest 16 there, but, you know, it's one of those that -- I 17 think if more people were, you know, knowledgeable 18 of what we do in the draw process, we'd probably 19 get more audiences, because there is not that many 20 that show up at our studio to watch us. 21 CHAIRMAN CLOWE: If you had a glass 22 wall, people would come and watch it. They really 23 would. You know what? Commissioner Criner is 24 right. 25 MR. PITCOCK: I think this patio 0118 1 area, this area here, would be good -- you know, 2 I'm not a marketing person, but this area that we 3 have set up for people to come watch, with the 4 glassed in area that we're having for them watching 5 it, they could set up some kind of deal that will 6 attract them into that area. 7 I think it's safer for people to 8 come watch and get them -- I've watched Esther's 9 Follies many times. And they have, through their 10 windows over there, people to watch Esther's 11 Follies from the outside because they come out and 12 do all their things on the sidewalk. So I know it 13 draws crowds, because they're packed over there. 14 COMMISSIONER CRINER: Put a drape 15 up, just a big, nice, pretty drape. 16 MS. CLOUD: That we can pull. 17 COMMISSIONER CRINER: And this is 18 stage one. Just close the drapes -- 19 MR. PITCOCK: One with about 20 six-inch bulletproof glass. 21 COMMISSIONER CRINER: Yeah. Close 22 the drapes. And then, you know, you've got your 23 big sign up there saying in 30 seconds, there is 24 going to be a drawing. And then the drapes start 25 to open slowly. All right? They open in 30 0119 1 seconds. And then you have the draw for a minute 2 and 45 seconds, and then close the drapes. 3 CHAIRMAN CLOWE: He's been watching 4 the Today Show, Mike. That's what they do on the 5 Today Show. 6 MR. PITCOCK: Well, I encourage you 7 to see some of the sights. You know, my team, as 8 long as they can't get distracted -- but if Leslie 9 is standing out there, for example, I mean, you 10 know, it's going to be a madhouse out there. 11 Also, one of the -- a while ago, I 12 heard you mention about the cement floor in the -- 13 back in the back room back there, the reason why it 14 is cement. You know, I always explain that in this 15 building, there's upstairs rest rooms and there's 16 drainage in back of them, situations that he has to 17 build to. And then that room is going to be a 18 backup drain site for -- if there is -- if the sink 19 overflows or if there is any kind of water backed 20 up upstairs, it's going to catch it and drive down 21 into that cement floor and take it outside. 22 So that's the reason we did the 23 cement floor. It's not really the machines, 24 because we've got a sophisticated rolling mechanism 25 on the machines. But, you know, we've got to have 0120 1 an emergency exit for backups on any kind of 2 plumbing problems that we might have. 3 COMMISSIONER WHITAKER: But that 4 would not in any way interfere with the machines? 5 MR. PITCOCK: No, it would not 6 interfere with the machines, because the way he has 7 set it up, the way he has explained to me -- that 8 was my first concern is if this is going to be a 9 problem. 10 You know, since we've been in this 11 building, we haven't had that problem, number one; 12 and number two, if it's that big of an emergency or 13 a disaster, I can assure you that we're going to be 14 up here in a hurry with pumps or whatever we have 15 to do to prevent any kind of damage to the 16 machines. 17 We'll get the machines out of there. 18 They're easy to roll -- you can see these machines 19 here (indicating) -- and if we have to get them out 20 of there in a hurry, those exit doors out through 21 the studio, we'll be out in a hurry. 22 COMMISSIONER WHITAKER: So you're 23 saying that has actually never occurred, that 24 backup issue? 25 MR. PITCOCK: My understanding in 0121 1 this is that a backup issue has not occurred in 2 this facility since we've been here. 3 MR. DEVINE: Yeah, that's correct. 4 And we're also going to be placing an extra pan 5 above the rest rooms. And actually, the cement 6 floor is a better application for equipment, 7 machines. 8 They do clean the equipment and the 9 ball sets and related types of gaming devices. And 10 that's where they do it, inside that room. A 11 carpet is really not conducive to that environment, 12 so we're sticking with a cement floor. That's what 13 we've had in the past, and it's been real, real 14 effective. 15 MR. PITCOCK: And I agree. 16 CHAIRMAN CLOWE: Mike, Vince, and 17 Gary, we're just sort of entering into the spirit 18 of it, you know. And the responsibility is yours, 19 and you do what you think is right. But we just 20 kind of got caught up in it. We wanted to be fun. 21 MR. PITCOCK: We appreciate that. 22 CHAIRMAN CLOWE: Thank you both. 23 MR. DEVINE: Thank you. 24 CHAIRMAN CLOWE: Jim, anything 25 further? 0122 1 MR. RICHARDSON: Yes, sir. The job 2 description that was sent to you previously is 3 still in draft form. So I don't know if it is 4 going to require a vote for you-all to accept that 5 so that we can undraft that and present it to you. 6 MS. KIPLIN: You-all have not 7 approved the job description, to my knowledge -- is 8 that correct -- where it's I guess -- is the only 9 change this Director IV, the issue of Director IV 10 versus Director III? 11 MR. RICHARDSON: No. There were 12 some language changes as well. 13 MS. KIPLIN: Okay. So it would 14 require action by the Commission. 15 And your motion would be to approve 16 the position description for the Director IV, 17 charitable bingo operations director, effective 18 today. 19 CHAIRMAN CLOWE: I'd like to ask if 20 we can discuss that job description in some detail 21 under the duties of the charitable bingo division 22 director in the Executive Session prior to having a 23 vote on it, and then come back later in this public 24 meeting with any action the Commission might wish 25 to take. I'd like to have an opportunity to 0123 1 deliberate on that. 2 MS. KIPLIN: And I think you can. 3 It's specific to one position, so it's not an 4 agency-wide classification study. And I think you 5 can also, if you wish, receive legal advice on that 6 matter. 7 CHAIRMAN CLOWE: And the single 8 reason for that is, frankly, I need to refresh my 9 memory on it. I haven't looked at it since you 10 sent it to us. And since it requires a vote, I'd 11 like to have the opportunity to refresh my memory 12 and have the commissioners, if they wish, review 13 and discuss it and then take action. 14 MR. RICHARDSON: And Kim, job 15 descriptions can be reviewed at any time or changed 16 and discussed at any time, so there is really no 17 reason it can't be done after the -- 18 CHAIRMAN CLOWE: And if the 19 commissioners are ready, that's fine. I just -- I 20 can't get it in my mind. I want to see it again. 21 COMMISSIONER WHITAKER: I would 22 appreciate that as well. 23 COMMISSIONER CRINER: The more I 24 see -- okay. 25 MS. KIPLIN: Commissioners, if we 0124 1 can go back to the payroll action form, you know, 2 that you voted on to change the Director IV, the 3 one thing that I was remiss in was getting you to 4 establish an effective date. 5 CHAIRMAN CLOWE: I think Jim 6 suggested today. 7 MR. RICHARDSON: It can be today. 8 MS. KIPLIN: So if you wouldn't mind 9 amending your action to make it effective today. 10 And what I would recommend is that you make a 11 motion to amend your previous action to approve the 12 payroll action form, changing the bingo division 13 director's position from a Director III to a 14 Director IV level, effective today, May 30th. 15 COMMISSIONER WHITAKER: Who had the 16 motion on it? 17 All right. So moved. 18 COMMISSIONER CRINER: It was mine. 19 CHAIRMAN CLOWE: What was yours? 20 COMMISSIONER WHITAKER: Second. 21 CHAIRMAN CLOWE: All in favor, say 22 eye; opposed, no. 23 The vote is 3-0 in favor. 24 At this time, I move that the Texas 25 Lottery Commission go into Executive Session to 0125 1 deliberate the duties and evaluation of the 2 executive director, internal auditor, the 3 charitable bingo operations director, pursuant to 4 Section 551.074 of the Texas Government Code; 5 To deliberate the duties of the 6 general counsel and the security director pursuant 7 to Section 551.074 of the Texas Government Code; 8 To receive legal advice 9 regarding pending or contemplated litigation 10 and/or to receive legal advice pursuant to 11 Section 551.071 (1) (A) or (B) of the Texas 12 Government Code and/or to receive legal advice 13 pursuant to Section 551.071 (2) of the Texas 14 Government Code, including but not limited to: 15 State of Texas versus Ysleta Del Sur 16 Pueblo; 17 Matter involving the Department of 18 Justice pursuit of a complaint regarding the 19 Americans with Disabilities Act; 20 Matter involving Request for Open 21 Records Decision and Attorney General Open Records 22 file No. 119718-98 relating to request for 23 information in connection with the lottery operator 24 audit; 25 Matter involving brokerage 0126 1 arrangements insofar as HUB/minority business 2 participation is concerned; 3 Contract regarding the charitable 4 bingo system; 5 Request for Attorney General Opinion 6 in connection with the Commission's authority to 7 approve secondary components of cardminding 8 devices; 9 Employment law, personnel law, 10 procurement contract law, and general government 11 law. 12 Is there a second? 13 COMMISSIONER WHITAKER: Second. 14 COMMISSIONER CRINER: Second. 15 CHAIRMAN CLOWE: All in favor, say 16 aye; opposed no. 17 The vote is 3-0 in favor. 18 The Texas Lottery Commission will go 19 into Executive Session. The time now is 10:45 a.m. 20 Today is May 30th, 2001. 21 (EXECUTIVE SESSION) 22 CHAIRMAN CLOWE: The Texas Lottery 23 Commission is out of Executive Session. The time 24 is 1:58 p.m. Is there any action to be taken as a 25 result of the Executive Session? If not, let's 0127 1 move to the next agenda item. And I believe that's 2 consideration of various orders. 3 Kim, would you take us through that? 4 MS. KIPLIN: I'll be glad to. 5 Commissioners, you have items A 6 through -- this is Item 16, and of that, A through 7 R are contested case proceedings that went to the 8 State Office of Administrative Hearings for 9 consideration and recommendation by an 10 Administrative Law Judge. 11 All the cases that are contained 12 within A through R are lottery retailer cases. All 13 but one are recommending revocation as a result of 14 insufficient funds being available at the time that 15 the lottery swept the retailer's account for the 16 requisite number of times as laid out in our rules. 17 Item C, matter involving Quick Stop, 18 is a different case than I think you-all have seen 19 previously. Item C is a redetermination case. And 20 what it's really about is a retailer who believes 21 that we took more money from him than we were 22 allowed to take or than what was calculated to be 23 owing to us. 24 And that case did go to hearing over 25 at the State Office of Administrative Hearings, and 0128 1 the Administrative Law Judge agreed with the 2 Lottery Commission staff's position and did 3 determine that the retailer did owe us the amount 4 of money that is identified in the order. 5 With that, I would recommend that 6 you-all adopt the orders that were -- pardon me, 7 the Proposal for Decision that was recommended by 8 the Administrative Law Judge for all the cases 9 contained within A through R. 10 The remaining two cases, S and T, 11 are agreed orders. They are both bingo cases. 12 Both of them are for -- largely in part for playing 13 outside the licensed times. The particular facts 14 and circumstances and mitigating and aggravating 15 factors for those cases are laid out in the agreed 16 order. 17 The second case, the one regarding 18 Tejas Council of Camp Fire, Inc., this is the 19 second violation for this particular organization 20 for playing outside of licensed times. And the 21 staff's position was that it required more penalty 22 because it was the second time this has occurred. 23 And that's why, for Air Force 24 Sergeants, you'll see that the recommended 25 disposition is different than the recommended 0129 1 disposition for Tejas Council. Tejas Council, the 2 staff is requesting in the -- and it's an agreed 3 order, so of course, the organization has agreed to 4 the terms of this in lieu of us going forward on a 5 contested case proceeding to revoke their license. 6 But it's a $500 fine and a 7 one-occasion suspension and an inability for the 8 organization to amend its license so that another 9 organization can play in that place. And I believe 10 also that the bingo division wants a sign that 11 clearly says that the organization's occasion for 12 that particular occasion is suspended for 13 violations of the Bingo Enabling Act. 14 With that, the staff recommends that 15 you do sign the two agreed orders, as well as the 16 orders that are part of the contested case 17 proceedings. 18 I'll be happy to answer any 19 questions you have. 20 CHAIRMAN CLOWE: Any questions? 21 Is there a motion? 22 COMMISSIONER WHITAKER: So moved. 23 COMMISSIONER CRINER: Second. 24 CHAIRMAN CLOWE: Moved and seconded 25 that the Commission adopt all orders A through T. 0130 1 All in favor, say aye; opposed, no. 2 The vote is 3-0 in favor. 3 Linda, if you'll give us just a 4 minute and let us sign these orders, and then we 5 can listen to your report. 6 (Brief pause in proceedings) 7 CHAIRMAN CLOWE: We are now ready 8 for Item 17, the report from the executive 9 director. 10 Linda? 11 MS. CLOUD: Okay. 12 Commissioners, on May the 15th, 13 2001, we transferred to the Foundation School Fund 14 $56,848,951. 15 Now I'd like to have Robert Hall 16 come up and give the minority/HUB report. 17 CHAIRMAN CLOWE: Good afternoon, 18 Robert. 19 MR. HALL: Good evening, 20 Chairman Clowe, Commissioners. 21 For the record, my name is Robert 22 Hall, director of minority development services. 23 Commissioners, is the minority 24 subcontracting HUB participation report in your 25 packet? 0131 1 CHAIRMAN CLOWE: (Nods head.) 2 MR. HALL: Okay. I want to cover 3 for you the report. 4 Our total utilization to date, as of 5 the end of April, was over $10 million, and our 6 total percentage was 11.36 percent in HUB and also 7 minority utilization. 8 We have made a couple of changes to 9 this report, and I want to highlight those for you. 10 We've included in this report American Women in the 11 category. Since we are responsible for tracking 12 the utilization of HUB vendors for the state's HUB 13 report and also minority for our own minority 14 participation report, we're including women in this 15 report from this point on. 16 In addition to that, there was one 17 significant change that we found out in our 18 transition from one particular vendor, Scientific 19 Games. One of our vendors that was an American 20 Woman was being captured under African American. 21 And we clarified that with Scientific Games last 22 month sometime, and we corrected that to make sure 23 it was appropriately categorized in the right 24 category, as opposed to African American. 25 So we've actually spent, to date -- 0132 1 Scientific Games and subcontracting -- over 2 $100,000 on American Woman, and she is a HUB 3 vendor. And so we're tracking that more 4 appropriately down. 5 To assist all of our primary vendors 6 with this -- 7 COMMISSIONER CRINER: Excuse me -- 8 MR. HALL: Oh, I'm sorry. 9 COMMISSIONER CRINER: -- can you 10 define -- what's an American Woman? 11 MR. HALL: American Woman is other 12 than an ethnic minority woman that is 51 percent 13 other, and is also born and naturalized in the 14 United States. 15 COMMISSIONER CRINER: Basically an 16 Anglo? 17 MR. HALL: Yes. 18 COMMISSIONER CRINER: I just didn't 19 know. 20 MR. HALL: Okay. 21 MS. KIPLIN: It doesn't count -- it 22 does not count towards the minority participation, 23 as pointed out in the State Lottery Act, because 24 the women-owned businesses are not considered 25 minority-owned businesses for purposes of the State 0133 1 Lottery Act. That's what this is. 2 COMMISSIONER WHITAKER: Although I 3 thought there was an AG's opinion. 4 MS. KIPLIN: Huh-uh. 5 COMMISSIONER CRINER: A lot of us 6 didn't know. 7 CHAIRMAN CLOWE: Right. 8 MS. KIPLIN: Extended that -- not 9 for minority-owned businesses as defined by the 10 provisions in the State Lottery Act. That is -- 11 COMMISSIONER WHITAKER: I've got to 12 go back and refresh my recollection. I thought I'd 13 read something on point, but... 14 COMMISSIONER CRINER: All right. 15 CHAIRMAN CLOWE: Okay. 16 MR. HALL: In addition to that, 17 tomorrow we will be hosting a meeting with our 18 primary vendors. We're asking that their contact 19 person come in and meet with us tomorrow from 1:30 20 to 3:30 to actually talk about the reporting 21 requirements under the new HUB rules. 22 In addition to that, we will walk 23 them through the reporting format -- in a revised 24 format that we have sent to them already 25 electronically -- to walk through with them and 0134 1 make sure that they understand what the 2 requirements are and what information we want to 3 ascertain from them on a monthly basis; and also, 4 Commissioner Criner, to define which is a minority 5 vendor and which vendors are HUB vendors that are 6 certified through the General Services Commission. 7 And also, I wanted to update you 8 on -- we are also having a vendor fair on Friday 9 here at the Commission, hosting a vendor for 10 auditing services. And we've actually had over ten 11 vendors confirmed for participation in that event 12 on Friday morning, and we will be sharing that 13 information about auditing service where -- as it 14 relates to financial auditing and also security 15 auditing we conduct here. 16 And trying to locate and define HUB 17 vendors, which is in our authority and under the 18 proposed rules that we are updating, to locate and 19 define HUB vendors that can do the work that we -- 20 as they do now. So I just wanted to update you on 21 that as well. 22 COMMISSIONER CRINER: Would it 23 include our contractors, our vendor leaders, plus 24 what we spend -- we're at 11.36? 25 MR. HALL: Yes. That's including 0135 1 everything. 2 COMMISSIONER CRINER: And our target 3 is 25? 4 MR. HALL: Our overall -- we have 5 six procurement goals that we're actually -- 6 COMMISSIONER CRINER: Our overall 7 target that -- we're at 11.3. Where are we trying 8 to get? 9 MR. HALL: Well, again, we don't 10 have a specific target for the lottery. We are 11 operating -- utilizing the General Services 12 Commission's six procurement goals, which have 13 different percentage goals for each procurement 14 category. 15 So we're trying to ensure that we 16 try to meet or surpass each one of those goals for 17 the lottery operations in terms of special trade; 18 construction; services for them, being professional 19 services; other services and commodities, 20 et cetera. And if you want me to give you those 21 goals, I can. 22 COMMISSIONER CRINER: No, that's all 23 right. 24 MR. HALL: But we don't have one 25 specific goal we're trying to meet or exceed. 0136 1 CHAIRMAN CLOWE: Thank you, Robert. 2 MR. HALL: You're welcome. 3 MS. CLOUD: Commissioners, on our 4 FTE status at this time, we have 309 active FTEs. 5 We have 19 vacant positions, 4 of which are in the 6 selection/acceptance pending; 13 recruiting, 7 screening, and interviewing. We have no positions 8 being posted at this time, and we have two vacant 9 with no HR activity at this time. 10 For your information, we have made 11 an offer to an individual for the IT director 12 position. They will be on board the 6th -- 5th of 13 June. And if you need more information, I'll let 14 Patsy respond to that one for us. 15 Under lottery conferences, for the 16 commissioners' information, a couple of months ago, 17 I was approached by some racetrack owners who were 18 proposing to some legislative members the 19 possibility of us managing VLTs in the racetracks 20 and actually operating VLTs in the racetracks in 21 Texas. 22 We met with them. We told them 23 that, you know, right now it was not within our 24 ability to be able to do that, but that we were not 25 opposed to doing that if the leaders saw fit to put 0137 1 it into law. 2 In order for us to get better 3 educated on this, Kim and Bobby Beck and I are 4 going to make a trip to the West Virginia Lottery 5 on the 6th. The West Virginia Lottery manages and 6 operates, for the state, video lottery terminals in 7 the racetracks. They have 6,000 terminals, and 8 they were fixing to add another 10,000 or 11,000 9 terminals. 10 We were also going from there to the 11 Delaware Lottery and look at their operation as 12 well -- it's under two different vendors; GTECH has 13 one, and AWI has the other -- and see the 14 difference in the two states' operations. This is 15 strictly an educational trip for us. We don't know 16 anything about video lottery terminals, and we want 17 to be well educated before we are asked to be a 18 resource witness or anything from the legislative 19 side. 20 After -- Kim and Bobby will be 21 coming back on the 9th, and I will be going to 22 Atlantic City to the lottery director's conference 23 that will be held, unfortunately, in the Trump 24 Plaza. But that is a once-a-year meeting for all 25 lottery directors, and it's real informational and 0138 1 gives us an opportunity to hear what's happening 2 all over the United States. 3 Recently, we -- since the last 4 commission meeting, we've had two town hall 5 meetings, one in Dallas and one in Tyler. The 6 Tyler town hall meeting was extremely successful. 7 We had over 100 retailers at this town hall 8 meeting. It was very positive. We didn't -- both 9 meetings were very positive. And as usual, I 10 thoroughly enjoy being able to get out and meet 11 with our retailers one-on-one. 12 One of the things that I'd like to 13 propose in the upcoming commission meeting -- and 14 I'm fact finding at the moment -- is being able to 15 offer our retailers a cashing bonus for cashing our 16 prizes. The retailers have never had an increase 17 in their commission structure since the day the 18 lottery was created. They have had 5 percent 19 commission on sales across the board. 20 In most states, the retailers do 21 have a cashing bonus, and this is a bonus that is 22 based on their administrative costs and tying up 23 their capital for using their dollars to pay our 24 prizes until we actually -- until the end of the 25 week and the settlement takes place and they're 0139 1 given credit back for those cashes. 2 I think it's time. We are hearing 3 from our retailers constantly that they want more 4 money. And I certainly think that this is the way 5 that the Lottery Commission can help the retailers 6 in this respect, and it does -- it is more of a 7 reimbursement than it is any type of commission for 8 sales. This is more of an effort to try to provide 9 an incentive to those retailers to cash prizes, 10 number one. 11 And a lot of our retailers don't 12 cash our prizes. They send their players to other 13 stores, so all the more reason we need to set up a 14 cashing bonus for those retailers that do cash our 15 prizes. 16 This will be a proposal. Right now, 17 I'm looking into the financial side of this as to 18 what type of administrative costs that would be for 19 the Lottery Commission. And I would hope to have 20 that report ready for you -- and, of course, your 21 comments and approval or disapproval -- by the next 22 commission meeting. 23 CHAIRMAN CLOWE: Well, I have a 24 question on that. 25 MS. CLOUD: Okay. 0140 1 CHAIRMAN CLOWE: You didn't have a 2 question on the comments she just made? Did you 3 have a question? 4 COMMISSIONER CRINER: No. 5 COMMISSIONER WHITAKER: No. 6 CHAIRMAN CLOWE: I know you're not 7 ready to propose this, but it begs a couple of 8 questions, since you mentioned it. 9 What's the methodology for the 10 replacement of this cash when it's paid out? 11 MS. CLOUD: Are you talking about -- 12 CHAIRMAN CLOWE: Administrative -- 13 MS. CLOUD: -- the administrative 14 dollars -- 15 CHAIRMAN CLOWE: Uh-huh. 16 MS. CLOUD: -- that we would pay 17 out? 18 CHAIRMAN CLOWE: How -- what's the 19 mechanics of that? 20 MS. CLOUD: When we do the 21 settlement at the end of the week when the 22 retailer -- we settle the retailer with the number 23 of tickets he has sold, we deduct the prizes he 24 paid out, and then the 5 percent commission comes 25 off of that. And the net amount is what we 0141 1 actually sweep out of their bank account. 2 The 1 percent cashing bonus would be 3 like their 5 percent commission. It would be a 4 separate item, but it would show as a cashing 5 bonus. 6 CHAIRMAN CLOWE: Okay. I missed you 7 saying the 1 percent. I didn't hear that. 8 MS. CLOUD: 1 percent, yes. 9 CHAIRMAN CLOWE: One percent is the 10 number you're thinking of -- 11 MS. CLOUD: Right. 12 CHAIRMAN CLOWE: -- right now. And 13 that would apply to those moneys that the retailer 14 had paid out in a cashing activity for that weekly 15 period? 16 MS. CLOUD: That's correct. 17 CHAIRMAN CLOWE: Do you have any 18 experience with other lotteries, how that runs as a 19 percent, what amount that is? 20 MS. CLOUD: That's the information 21 that I'm trying to get from financial now, as 22 specific to the Texas Lottery. And that would be 23 based on all the prizes paid out, with the 24 exception of the claim centers. That would not be 25 part of this package. 0142 1 CHAIRMAN CLOWE: Sure. 2 MS. CLOUD: It would strictly be our 3 retailers. And we would have that -- we have -- 4 Bart hasn't been able to get that for me quite yet, 5 but we did have this in Florida, and we started out 6 with it. We had the 5 percent commission with 7 the -- for the retailer, as well as the cashing 8 bonus. And all lotteries -- I don't know of a 9 single lottery that doesn't pay a cashing bonus. 10 CHAIRMAN CLOWE: Of all the states 11 in the United States? 12 MS. CLOUD: Right. And that's 13 another part of the research that we're doing. 14 CHAIRMAN CLOWE: And I think it 15 would be very interesting to see what that impact 16 on revenue is to this lottery. 17 MS. CLOUD: Right. 18 CHAIRMAN CLOWE: And it's an 19 immediate assumption that the benefit inures to 20 those retailers who are most active in selling 21 lottery tickets and whether or not -- well, the 22 more winners they have, the higher percentage it 23 is, so -- 24 MS. CLOUD: For that retailer, yes. 25 And the fact that we do have retailers that flat 0143 1 refuse to pay over $50. And then in our statute -- 2 our rule says the retailers pay up to -- we 3 encourage the retailers to pay up to 599, but we 4 don't make the retailers pay that. And so our 5 players are the ones that are being inconvenienced 6 by a retailer not paying a prize. 7 CHAIRMAN CLOWE: Okay. That's going 8 to be very interesting. I look forward to the 9 report. And if you could give that to the 10 commissioners as much in advance of asking us to 11 consider it, we'll appreciate it -- 12 MS. CLOUD: Okay. 13 CHAIRMAN CLOWE: -- so we have time 14 to digest it and form our questions. 15 MS. CLOUD: Okay. 16 Thank you. That's my report. 17 CHAIRMAN CLOWE: Very good. 18 Billy, are you ready with your 19 report, please? 20 MR. ATKINS: I am, Commissioners. 21 And I am happy to report that the division is fully 22 staffed. We made allocations on May 18th to local 23 jurisdictions for their portion of the prize fee 24 collected. The charitable bingo division and the 25 financial administration division have started a 0144 1 process whereby they balance monthly allocations -- 2 they balance allocations on a monthly basis instead 3 of waiting until the end of the quarter. 4 That has resulted in us being able 5 to make an allocation about three weeks ahead of 6 schedule this time. So that's turned out to be a 7 good process change for us. 8 The charitable bingo system 9 redesigned -- the contractor has submitted a 10 revised statement of work following the JAD 11 sessions that were held. At this time, the 12 division has not accepted the revised statement of 13 work. Phil Sanderson -- the project manager -- and 14 I are scheduled to meet with the vendor tomorrow 15 regarding that. 16 The operator training program -- 17 again, as you know, September 1st is the deadline 18 for all organizations to have individuals trained 19 under the operator training program. At this time, 20 approximately 92 percent of our licensees have been 21 trained. 22 We've sent out reminders in two 23 issues of the Bingo Bulletin. It's on the website. 24 And the licensing section is starting to work with 25 licensees when they call in, reviewing to see if 0145 1 they have attended the training; if not, reminding 2 them of it. 3 I did want to report back to you -- 4 I had mentioned in my last report that the City of 5 Lubbock had a proposed nonsmoking ban ordinance 6 that was causing concern for a lot of our 7 licensees. The City of Lubbock did adopt a 8 nonsmoking ban, which exempted existing bingo 9 halls. So our current licensees aren't necessarily 10 facing anything, but it could prove troublesome for 11 any future halls that would want to open up in the 12 Lubbock area. 13 We are working on, and hope to have 14 out shortly, a special edition of the Bingo 15 Bulletin as we usually do after a legislative 16 session. We'll be reporting on this legislature, 17 specifically on House Bill 2119 and the progressive 18 bingo game, which leads me into the last point of 19 my report. 20 House Bill 2119 requires the 21 Commission to have adopted rules prior to 22 progressive bingo games being authorized. 23 Consequently, the bill was passed in the Senate on 24 the 23rd. The following day, I appointed a task 25 force in the division to begin working on that. 0146 1 They are going to review the other 2 states where progressive bingo games are conducted, 3 and we hope to have a draft rule in a fairly short 4 period of time to go before the Advisory Committee 5 and, ultimately, to the Commission. 6 CHAIRMAN CLOWE: Very good. 7 Anything further, Billy? 8 MR. ATKINS: No, sir. 9 CHAIRMAN CLOWE: Thank you. 10 Any questions? 11 COMMISSIONER WHITAKER: Not at this 12 time. 13 COMMISSIONER CRINER: Before we go 14 on -- 15 CHAIRMAN CLOWE: Yes? 16 COMMISSIONER CRINER: -- I have a 17 question. 18 We are a business, and so 19 consequently, we are vendors. And those vendors 20 have performance standards that we're held 21 responsible for. And when I say "we're held 22 responsible for," I speak of the three 23 commissioners. If something goes wrong, the 24 commissioners are going to be asked, well, why 25 didn't you pay attention to that and why wasn't 0147 1 this and that and the other, and why weren't you 2 aware of that. 3 I have noticed -- this is my second 4 meeting -- that we have discussions about a lot of 5 things, but we don't talk about the performance of 6 our vendors. It's a very difficult kind of 7 subject, and there's a lot of ifs, ands, and buts 8 about why you shouldn't do this why you shouldn't 9 do that. 10 But in all good faith and good 11 justice to the citizens of Texas, I think we should 12 know, as the commissioners of the lottery, in our 13 meetings, how well our vendors are performing; not 14 any particular vendor, just all of them. We're not 15 sure how that ought to look. It's an idea right 16 now. 17 And I'd like to ask you, Linda, to 18 just talk to the three commissioners and see what 19 our ideas are about that and how we could come up 20 with a way of presenting to the commissioners the 21 performance of the vendors -- and bingo as well, 22 Billy. 23 If we're spending money to buy goods 24 and services, on any given day that money is well 25 spent. And on some days, that money is 0148 1 questionable. It doesn't mean that a vendor can 2 perform excellent today and be the vendor of choice 3 tomorrow, but it just keeps us aware of their 4 performance. 5 And I hope and we hope -- the 6 Commission -- that it would be a way of keeping the 7 vendors on their toes and giving you a lot of bat 8 to carry around in terms of, you don't need this 9 reported, do you. 10 I think it would be a good -- just 11 good business for the commissioners to know in our 12 meetings or periodically. I've just jotted down a 13 few things: It could be monthly, it could be 14 quarterly, it could be annually. 15 Annually puts it a little bit too 16 far out, but monthly or quarterly, however it 17 fits -- we can work in the agenda with the 18 Chairman, how he thinks it fits in -- would be a 19 way of us managing our business, although you 20 actually do the managing of vendors. 21 And, Billy, we are held ultimately 22 responsible for the State of Texas to ask the hard 23 questions. And I don't want anybody to think I'm 24 saying let's point the finger at somebody for not 25 doing anything. 0149 1 But it's good to know that if we're 2 spending millions of dollars with a vendor, that 3 we're happy with them. Maybe we're not happy with 4 them next month, but it doesn't mean that they're 5 not the vendor of choice and they're not doing a 6 good job. It just says here's what happened this 7 month, and here's what happens next month. And we 8 go on from there with just a kind of a bird's eye 9 view from the commissioners on how we can come up 10 with that. 11 I'd like to ask, Linda, you and 12 Billy, to come up with a way to help us understand 13 that and get that information. 14 MS. CLOUD: Okay. 15 The other two commissioners that are 16 familiar with my working with these vendors, I 17 think -- what I want to say here -- and my legal 18 counsel is saying be careful, but -- and I'm not 19 going to say anything to get her into trouble. 20 But I do handle the vendors on a 21 daily basis, and we do have -- and I'll be glad to 22 do a report for the Commission -- with most of our 23 larger contracts, the millions of dollars 24 contracts, we have liquidated damages when a vendor 25 doesn't do his job. And I apply those damages on a 0150 1 weekly basis. 2 And like you say, they may make a 3 mistake and may engage liquidated damages, but then 4 the next week, we don't have those mistakes and we 5 keep trucking along and doing a good job. 6 But we do have -- right now, I've 7 got a specific issue between a vendor that I'm 8 working with -- and this is something that I'll be 9 more than happy to share with the commissioners. 10 COMMISSIONER CRINER: I'd like you 11 to know that our discussion would be -- and I guess 12 the other commissioners revolve around auditing -- 13 and what finally comes out is that rather than 14 audit -- just status -- that's an easier word to 15 swallow. How is the status. How is the 16 performance. 17 I don't know what we want to know. 18 I really don't. Like, I don't know how you want to 19 propose the retailers' incentives. So let's just 20 put it on the chopping block and chop it up and see 21 what comes out. But I think it's just good 22 business for the commissioners to understand and to 23 know some of the trials and tribulations you go 24 through in administering those contracts. 25 MS. CLOUD: I'll be glad to do that. 0151 1 And I'll talk to each one of you individually to 2 get a better view of what you're looking for. 3 CHAIRMAN CLOWE: Great. We'll look 4 forward to your comments. 5 MS. CLOUD: Okay. 6 CHAIRMAN CLOWE: Thank you, 7 Commissioner Criner. 8 Anything further? Are there any 9 comments from any public person? 10 Thank you all very much. We're 11 adjourned at 2:29 p.m. 12 (Proceeding concluded) 13 14 15 16 17 18 19 20 21 22 23 24 25 0152 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, SUZANNE T. LANE, Certified Court 7 Reporter for the State of Texas, do hereby certify 8 that the above-captioned matter came on for hearing 9 before the TEXAS LOTTERY COMMISSION as hereinafter 10 set out, that I did, in shorthand, report said 11 proceedings, and that the above and foregoing 12 typewritten pages contain a full, true, and correct 13 computer-aided transcription of my shorthand notes 14 taken on said occasion. 15 16 Witness my hand on this the _______ 17 day of ______________, 2001. 18 19 20 SUZANNE T. LANE 21 Texas CSR No. 6992 Expiration Date: 12/31/01 22 1609 Shoal Creek Boulevard Suite 202 23 Austin, Texas 78701 (512) 474-4363 24 25 JOB NO. 010530STL