0001 1 2 * * * * * * * * * * * * * * * * * * * * * * * * * * 3 4 5 TEXAS LOTTERY COMMISSION 6 MEETING 7 8 OCTOBER 16, 2003 9 10 * * * * * * * * * * * * * * * * * * * * * * * * * * 11 12 13 14 15 16 17 18 BE IT REMEMBERED that the TEXAS LOTTERY 19 COMMISSION meeting was held on the 16th of OCTOBER, 20 2003, from 8:30 a.m. to 2:55 p.m., before Steffanie 21 L. Decker, CSR in and for the State of Texas, 22 reported by machine shorthand, at the Offices of the 23 Texas Lottery Commission, 611 East Sixth Street, 24 Austin, Texas, whereupon the following proceedings 25 were had: 0002 1 2 APPEARANCES 3 4 Chairman: 5 Mr. C. Tom Clowe, Jr. 6 Commissioners: Mr. Roland Olvera 7 Mr. James A. Cox, Jr. 8 General Counsel: Ms. Kimberly L. Kiplin 9 10 Executive Director: Mr. Reagan Greer 11 12 Deputy Executive Director: Mr. Gary Grief 13 14 Charitable Bingo Operations Director: Mr. Billy Atkins 15 16 17 18 19 20 21 22 23 24 25 0003 1 INDEX 2 3 Appearances................................. 2 4 5 AGENDA ITEMS 6 Item Number 1.............................. 4 Item Number 2.............................. 5 7 Item Number 3.............................. 5 Item Number 4.............................. 5 8 Item Number 5.............................. 23 Item Number 6.............................. 45 9 Item Number 7.............................. 47 Item Number 8.............................. 50 10 Item Number 9.............................. 60 Item Number 10.............................. 61 11 Item Number 11.............................. 91 Item Number 12.............................. 146 12 Item Number 13.............................. 151 Item Number 14.............................. 154 13 Item Number 15.............................. 156 Item Number 16.............................. 158 14 Item Number 17.............................. 161 Item Number 18.............................. 162 15 Item Number 19.............................. 164 Item Number 20.............................. 199 16 Item Number 21.............................. 201 Item Number 22.............................. 166 17 Item Number 23.............................. 185 Item Number 24.............................. 193 18 Item Number 25.............................. 199 Item Number 26.............................. 201 19 20 Reporter's Certificate...................... 202 21 22 23 24 25 0004 1 OCTOBER 16, 2003 2 3 CHAIRMAN CLOWE: It is 8:30 4 a.m., October the 16th, 2003. Commissioner Cox is 5 present, and I'm Tom Clowe. We have a quorum of the 6 commission present. Commissioner Olvera is en route 7 and travelling. He will be here shortly. 8 We will begin the meeting with 9 item number two, consideration of and possible 10 discussion and/or action, including proposal, on a 11 new charitable bingo rule relating to advisory 12 opinions. 13 Counselor, are you going to -- 14 MS. KIPLIN: Commissioners -- 15 CHAIRMAN CLOWE: -- handle these 16 items for us? 17 MS. KIPLIN: Commissioners, we 18 have two staff attorneys, Assistant General -- 19 Assistant Generals Counsel who are involved in 20 the process. Ms. Wilkov is handling the first 21 three proposals; Mr. Oldham will be handling 22 the last three. Mr. Sanderson -- Mr. Sanderson 23 with the Bingo Division is with her now. 24 CHAIRMAN CLOWE: Good morning. 25 MS. WILKOV: Good morning. May 0005 1 I begin? 2 CHAIRMAN CLOWE: Certainly -- 3 MS. WILKOV: Commissioners, you 4 have before you today three proposed new rules 5 that are an outgrowth of House Bill 2519 6 relating to bingo. And those three rules are 7 the advisory opinions, that's proposed new rule 8 402.531; the registry of approved bingo 9 workers, that's proposed new rule 402.530; and 10 gift certificates, which is proposed new rule 11 402.573. And in each of these rules working 12 groups were formed. And if I may, I'll give 13 you some background on these particular rules. 14 In regards to the Advisory Opinion Rule, we had 15 a working group consisting of the staff, which 16 was myself, Mr. Sanderson, the Assistant 17 Director of Bingo; Terry Shankle provided 18 valuable input; and of course, the Legal 19 Division helped with this rule, and the BAC 20 Commentor was Mr. Fenoglio, Steve Fenoglio. 21 The highlights of House Bill 22 2519 that -- with regards to the advisory 23 opinion is that any person may request an 24 advisory opinion, and the Commission shall 25 respond not later than the sixtieth day after 0006 1 the date a request is received. 2 If insufficient facts are 3 provided, then the Commission must request 4 additional facts not later than the tenth day 5 and then respond within the sixtieth day. A 6 person may act in reliance on the opinion. 7 The Commission may request an 8 Attorney General opinion, and the Commission 9 may delegate all or part of the authority and 10 procedures for issuing an advisory opinion to 11 an employee of the Commission. 12 The Bingo Advisory Committee met 13 on August 21st, 2003, and voted to recommend 14 that the Texas Lottery Commission publish the 15 Advisory Opinion rule in the Texas Register for 16 public comment with the provision that the 17 remarks and suggestions offered at the meeting 18 be considered and revised into the rule. 19 Based on this recommendation and 20 working closely with the Commentor, the staff 21 addressed the areas of concerns raised at the 22 meeting. These were things like the 23 notification in writing of the receipt of the 24 request for the opinion, the request the 25 Commission consider web site postings, the 0007 1 response to similarly situated requesters, the 2 reliance that they may place on an opinion and 3 the contested case proceedings and it's 4 ramifications on the response. 5 As part -- as far as the 6 registry of approved workers -- bingo workers; 7 that's proposed new rule 402.530, that had a 8 working group of the staff, which was Bruce 9 Miner, the Licensing Services Manager, Mr. 10 Sanderson, at my right, Meagan Ahmad, who is a 11 licensing examiner, and Joe Franco from the 12 Security Division. The BAC subcommittee 13 consisted of Larry Whittington, who is -- who 14 was the chair of the subcommittee and Patricia 15 Greenfield who is a member; then we had the 16 industry representatives, which was Mr. 17 Fenoglio and Steve Bresnen. 18 The highlights of House Bill 19 2519 with regards to the registry of approved 20 bingo workers is that the Commission shall 21 maintain a registry of approved bingo workers 22 to minimize duplication of criminal history 23 background checks and costs. The registry 24 information must be available to the public via 25 web site and by telephone, Email, and 0008 1 facsimile. A person can be refused or removed 2 from the registry if, after notice at hearing, 3 they're determined to have been convicted of an 4 offense, converted bingo equipment, taken any 5 action which affects the integrity of the game 6 or acted for a licensed organization without 7 being listed. And also a licensed organization 8 must report any conduct. 9 The highlights of House Bill 10 2519 with regards to an identification card, 11 which is part of this registry rule, is that 12 the Commission may require a person listed on 13 the registry to wear the identification form 14 and the Commission shall provide the card and 15 form to be completed that allows a person to 16 prepare the card. And lastly, that the 17 Commission shall collect a reasonable charge to 18 cover the cost. 19 As far as the Bingo Advisory 20 Committee, they met on August 21, 2003, and 21 they made the following recommendation; that 22 the Bingo Advisory Commission voted at the 23 August 21, 2003, meeting not to recommend that 24 the Texas Lottery Commission publish the rule 25 in the Texas Register for public comment. 0009 1 Based on the recommendation, and 2 working from the transcript of the meeting, and 3 with industry representatives and BAC 4 subcommittee members, the staff convened 5 further meetings of the working group and 6 presented and circulated numerous drafts and 7 revisions. Staff concurred with a large 8 majority of the suggested revisions and revised 9 the rule accordingly. Specifically the areas 10 addressed since the August 21st, 2003, meeting 11 of the BAC Committee, which were revised and 12 included in the rule in response to the 13 commentary and suggestions were more 14 streamlined definitions, a simplification of 15 the instructions on the listing and remaining 16 on the registry, restructured and better 17 organized subsections, removal of overly 18 complex language, a more user-friendly method 19 for obtaining identification cards or blank 20 forms, the re-working of language concerning 21 designation of an operator. 22 There is, however, one 23 outstanding issue; that regards the fee for an 24 identification card or identification card form 25 may not exceed $5 dollars, which is in -- in 0010 1 the proposed rule. And we will address this in 2 the comment period. The rule that's finally 3 adopted will indicate that this fee will be 4 gradually phased in and notification will be 5 given. And there will be a fee -- will not be 6 a fee assessed in the first year, and that will 7 be expounded upon during the formal comment 8 period. 9 The last rule I have is the gift 10 certificate, and that's proposed new rule 11 402.573. That had a working group of the 12 staff, Roy Gabrillo, Jody Mehaffey, Phil 13 Sanderson; and the BAC subcommittee was Larry 14 Whittington -- was the chair; and the industry 15 representatives were Mr. Fenoglio and Bresnen. 16 The highlights of House Bill 17 2519 with regard to gift certificates is that a 18 licensed, authorized organization may sell or 19 redeem a gift certificate that entitles the 20 bearer to play a game of bingo; and that the 21 licensed, authorized organization that sells or 22 redeems a gift certificate must keep adequate 23 records. 24 At the August 21st, 2003, 25 meeting the Bingo Advisory Committee voted to 0011 1 recommend the Texas Lottery Commission publish 2 the Gift Certificate Rule in the Texas Register 3 for public comment with the provision that the 4 remarks and suggestions offered at the meeting 5 be considered and revised into this rule. 6 Based on this recommendation, and working from 7 the transcript of the meeting and with industry 8 representatives, the staff addressed the areas 9 of concerns raised at the meeting in an 10 affirmative manner, but was not able to concur 11 in all areas raised at the meeting. 12 Specifically the areas addressed which were 13 revised and included in the rule was the 14 suggestion that the gift certificates could be 15 awarded either as a prize or a door prize at a 16 bingo occasion. However, the staff was not in 17 concurrence with the Bingo Advisory 18 Commission's -- Committee, I'm sorry, Bingo 19 Advisory Committee's recommendation that the 20 name of the hall that is authorized to accept 21 the bingo's gift certificate be removed. 22 And additionally, two concepts 23 which were not considered by the Bingo Advisory 24 Committee were added to the rule to maintain 25 safeguards with the record-keeping requirement; 0012 1 and that's a requirement that the gift 2 certificate log be maintained collectively and 3 that the gift certificates be commercially 4 printed. 5 And the revised rule was once 6 again circulated among the BAC subcommittee 7 members and industry representative with a 8 result and include -- and inclusion of many of 9 the suggestions and comments. 10 If I may discuss a little about 11 the process that we used in these proposed 12 rules and address some anticipated issues. The 13 Bingo Advisory Commission -- Committee met on 14 June 19, 2003, where the subcommittees were 15 formed; and at that meeting, Chairman Clowe and 16 Mr. Atkins both briefly discussed their vision 17 of the role of the BAC in the process informing 18 these subcommittees in rulemaking and stated 19 that these subcommittees would bring to the 20 table input, advice and counsel on these rules. 21 As you can see from the time lines assembled by 22 the staff, that is exactly what occurred in 23 this rulemaking. The BAC and their 24 subcommittees brought input, advice, and 25 counsel to the rulemaking process. 0013 1 Specifically, there were initial BAC 2 subcommittee meetings in July and early August 3 where the preliminary discussions and drafting 4 occurred and where this language was fleshed 5 out. And then there was the BAC meeting in 6 August where these rules were brought back to 7 the general group and thoroughly discussed. 8 Thereafter, the staff reviewed the transcript 9 and went back to the table again to negotiate 10 and revise the proposed rules and that's -- 11 and -- what you have before you today. There 12 were negotiations back and forth; there were 13 meetings, suggestions made as late as last week 14 that were incorporated into this proposed 15 language, and the fluid dynamic of the 16 rulemaking -- rulemaking process was in full 17 play. 18 And then, too, an issue that I 19 anticipate will be raised today is why it is 20 necessary to go forward with these rules at 21 this time; why not postpone the process until 22 after the November BAC meeting. My response in 23 this regard is that there was ample discussion 24 both at the initial meetings of the 25 subcommittees since July and at the August BAC 0014 1 meeting and continuing thereafter, as was 2 envisioned, to provide input, advice and 3 counsel on these rules; that this process 4 formed the basis for further examination and 5 negotiation to iron out this language, and that 6 a delay will prevent the staff from moving 7 forward with the certainty and clarity that the 8 proposed rule provides. There's much work to 9 be done by the staff to fully execute these 10 statutory provisions, and this work should be 11 accomplished without further delay. 12 Additionally, I would point out that there 13 would be a comment period in the rulemaking 14 process that would provide ample opportunity 15 for further input. 16 In conclusion, it is the staff's 17 recommendation that the Commission vote to 18 propose new rule 402.531 related to advisory 19 opinions, new rule 402.530 relating to the 20 registry of approved bingo workers, and new 21 rule 402.573 relating to gift certificates for 22 public comment in the Texas Register. 23 MS. KIPLIN: Mr. Chairman, I 24 would say to you, you noticed up the -- or 25 called just the first agenda item on the 0015 1 Advisory Opinion Rule. And as you can see, Ms. 2 Wilkov's comments go into the first three 3 rulemaking issues. 4 CHAIRMAN CLOWE: Thank you. If 5 I had had the opportunity, I would have 6 clarified that myself. 7 Any questions, Commissioner? 8 MR. COX: I have a specific 9 question related to the rule on advisory 10 opinions. And then I have a specific 11 question -- a general -- a more general 12 question about the process. How would you like 13 to do that, Mr. Chairman? 14 CHAIRMAN CLOWE: I'd like to 15 have you just ask your questions and go into 16 your question about the general process. And 17 that is noticed, I think, under item ten in the 18 agenda. And I believe that your comments will 19 precede perhaps some comments from staff and 20 from members of the public, as well. I think 21 those issues are properly raised in a proposal 22 of these rules. 23 MR. COX: Yeah, I think I'll 24 keep my general comment for item ten and ask 25 the specific comment about the advisory 0016 1 opinions. 2 CHAIRMAN CLOWE: Very good. 3 MR. COX: Ms. Wilkov, what 4 binding affect, as a practical matter, will the 5 opinions have? Will they provide a total safe 6 harbor for someone to act totally within the 7 facts disclosed and be completely safe in what 8 they're doing? 9 MS. WILKOV: The House Bill 2519 10 addresses that, and it states that a person who 11 requests an opinion--and that's a person--may 12 act in reliance on the opinion in the conduct 13 of any activity under any license issue if the 14 conduct is substantially consistent with the 15 opinion and the facts stated in the request. 16 So in other words, they may rely on it if the 17 facts are consistent with the opinion and the 18 facts stated in the request. 19 One comment that we did receive 20 when we were fleshing out this language is that 21 there was a concern that we would have to do -- 22 if one VFW brought a -- an opinion on whether a 23 flag could be used on a -- in a tombstone, or 24 whatever, that -- then we could have to have 25 the other 39 VFW's request the same 0017 1 information. And we did address that in the -- 2 in this proposed rule that -- let's see, I have 3 it in here -- an advisory opinion may be relied 4 upon by the requester, as well as any other 5 person whose conduct is substantially 6 consistent with the opinion and the facts 7 stated in the request. So we would not have to 8 have the other 39 organizations ask the very 9 same question. 10 MR. COX: Okay. Thank you. 11 CHAIRMAN CLOWE: Mr. Sanderson, 12 do you have any further comment on these three 13 rules? 14 MR. SANDERSON: Chairman, Phil 15 Sanderson, Charitable Bingo Assistant Director. 16 Chairman and Commissioner Cox, I have no 17 further comments. We did meet on all three of 18 these rules with members of the staff and some 19 members of the industry and the BAC. And these 20 three rules, I believe, are -- in my opinion, 21 are ready for publish in the Texas Register. 22 CHAIRMAN CLOWE: Mr. Atkins? 23 MR. ATKINS: Mr. Chairman, I 24 would just like to thank everyone for the work 25 that they put into these rules. And Ms. 0018 1 Wilkov, I think, very clearly laid out the 2 amount of time that went into it. Even in the 3 cover memo on the Gift Certificate Rule, you'll 4 notice that that's a concept that's been 5 discussed since 1999. So these are issues that 6 have been out there available for input for the 7 public for some period of time, and I just 8 appreciate everyone's efforts. 9 CHAIRMAN CLOWE: Mr. Fenoglio, 10 you've indicated a desire to speak on all three 11 of these rules and we'd be happy to hear from 12 you. Good morning. 13 MR. FENOGLIO: Good morning, Mr. 14 Chairman and Commissioner Cox, Ms. Wilkov, Mr. 15 Sanderson and Mr. Atkins. Thank you. My 16 comments will be brief. I'm Stephen Fenoglio 17 representing over 950 charitable business 18 organizations. 19 We have worked diligently with 20 staff, and I would say that the staff have been 21 very diligent in seeking out comments. As to 22 the issues in the rule that I would like to 23 briefly make a comment on -- and Commissioner 24 Cox, thanks again for your meeting with us on 25 some other matters that affect the rulemaking 0019 1 procedures. 2 The rule dealing with the 3 registry of workers, we are glad to hear that, 4 at least for the first year, there won't be a 5 charge imposed on the charities. Initially, 6 there was talk of a $5 dollar fee, and that 7 would have purported in over $100,000 in 8 charges to the charitable organizations, so we 9 are happy about that. 10 As to the -- there are some 11 issues that we intend to take up with the 12 staff. And some of my clients have discussed 13 whether we want to have a rule hearing on one 14 or more of these issues. And we'll -- we'll 15 address those issues later with the staff. All 16 in all, it has been a pleasure to work with the 17 staff. Although, some of the work load has 18 increased, as you might expect, Mr. Chairman, 19 but we are happy with where we stand today. 20 I'll be happy to answer any questions. 21 CHAIRMAN CLOWE: Thank you, sir. 22 MR. FENOGLIO: Thank you. 23 CHAIRMAN CLOWE: Mr. Bresnen, 24 you've indicated a desire to speak on item 25 number three, the registry of approved bingo 0020 1 workers. Good Morning. 2 MR. BRESNEN: Thank you, Mr. 3 Chairman. My name is Steve Bresnen. I'm here 4 on behalf of the Bingo Interest Group. And I 5 would like to say that my comments today are 6 not nearly as strenuous as Ms. Wilkov's defense 7 of the process. So if you'll weigh those -- if 8 you'll weigh it in that manner. 9 The staff could not have been 10 more accessible to Steve and I and the people 11 we represent. There has been a lot of 12 discussion about these issues, lots and lots of 13 improvement and change and recognition of very 14 real interest and concerns of people in the 15 regulated community out there. So I can't 16 fault any of that. 17 I would like to say that I think 18 the BAC process as it developed over time and 19 vision, at least a couple of readings by the 20 full BAC and then followed by a recommendation 21 to y'all. I think the reason I signed up for 22 the registry rules, because I know -- I'm not 23 sure it followed exactly that process. I don't 24 want to be too strident about it, because I 25 think the rule is in good condition and is 0021 1 ready to go forward for public comment. We 2 will have some public comment. I think there 3 is two or three things that should be resolved. 4 But I would like to say, going forward, I think 5 that a adherence to that process, while we have 6 had plenty of input, there may be other people 7 who we don't represent or speak for that would 8 have had a little more input had -- had that 9 process been strictly adhered to. 10 Having said that, I think that 11 the staff has shown a willingness to look at 12 legislative intent and study these issues, and 13 hear from the people that worked on this 14 legislation, and to come around on some issues 15 that -- since they weren't directly involved in 16 the process, they may not have been aware of -- 17 of or -- or fully knowledgeable of the 18 background of it. And I'd like to thank them 19 for that and their intellectual honesty in 20 approaching these issues, and I look forward to 21 participating in the public comment period. 22 CHAIRMAN CLOWE: Very good. 23 Thank you, sir. 24 MR. BRESNEN: And if I might say 25 one more thing. Commissioners Cox and Clowe, I 0022 1 really appreciate your openness to us and your 2 availability to meet with us when we've -- when 3 we've asked. And I promise you that we'll get 4 to know Commissioner Olvera now that he has his 5 feet wet and try to make sure that he's fully 6 informed about the industry's interests and 7 concerns, as well. Thank you. 8 CHAIRMAN CLOWE: Thank you. 9 MR. BRESNEN: Yes, sir. 10 MS. KIPLIN: Just to clarify, 11 that was when you met individually -- 12 MR. BRESNEN: Oh, yeah. 13 MS. KIPLIN: -- with each 14 commissioner? 15 CHAIRMAN CLOWE: Any further 16 comment on these three proposed rules? 17 Let's see, Penny, I want to make 18 sure I get the numbers correctly. I make a 19 motion that the Commission approve for 20 publication new rule TAC 402.531, new rule TAC 21 402.530, and TAC 402.573; are -- is that 22 correct? 23 MS. WILKOV: That's what I'm 24 showing also. 25 CHAIRMAN CLOWE: Is there a 0023 1 second? 2 MR. COX: Second. 3 CHAIRMAN CLOWE: All in favor, 4 please say aye. Opposed, no. The vote is 5 two-zero in favor. Thank you. 6 We are now ready to move on to 7 item five. I believe -- 8 Good morning. Counselor, how 9 many items are we going to cover at one time? 10 MS. KIPLIN: Mr. Oldham, would 11 you -- would it be better to pick up all three 12 at one time or do you -- 13 MR. OLDHAM: Actually, 14 Commissioners, it -- it -- by the way, for the 15 record, my name is Kevin Oldham. I'm Assistant 16 General Counsel here at the Lottery. 17 Actually, it would be better for 18 me if we just did them one at a time, but if -- 19 I will defer to the Commissioners. 20 CHAIRMAN CLOWE: Let's do one at 21 a time. 22 MR. OLDHAM: Commissioners, for 23 your consideration, first of all, under item 24 five, we have proposed new rule 402.590, which 25 relates to general audit. The proposed -- the 0024 1 proposed rule would set out the general steps 2 involved in an audit such as notification, 3 entrance conference, field work, records 4 required, and the exit conference. The 5 proposed rule allows licensees to be better 6 informed and have a clearer understanding of 7 the Charitable Bingo Division's procedures in 8 connection with an audit. 9 If I might be indulged, I'd like 10 to give you a little background on this rule 11 and the steps it's taken through the process. 12 Staff first presented a draft of this rule to 13 the Bingo Advisory Committee at it's meeting 14 held on June 19, 2003. The BAC at that time 15 appointed a subcommittee of two members, that 16 being Marilyn Matthews; she was the chair of 17 the subcommittee, and Larry Whittington. Also 18 joining them in a working group was Sharon 19 Ives, representing the public, and Mr. Stephen 20 Fenoglio. The staff was represented by Roy 21 Gabrillo; at that time was the Audit Manager, 22 and Tom Leick, who also works in the Audit -- 23 Audit Division. 24 The subcommittee members and the 25 working group got together and they -- they 0025 1 made recommendations, worked on the draft, took 2 input from each other and from others, and they 3 came up with a draft, which was presented for 4 the BAC on August 21, 2003. At that meeting on 5 August 21st, the BAC took informal comment from 6 members of the public related to certain issues 7 with the rule. 8 I'd like to lay out for you some 9 of the issues that were mentioned to the BAC 10 and how the staff has -- and the working group, 11 including BAC members and those from the 12 public, have tried to address those concerns 13 leading up to today's Commission meeting. At 14 the BAC meeting, it was noticed that there was 15 information related to summary of charitable 16 activity in the general audit rules, and there 17 was a concern raised that that information 18 should not be in there. Upon working with 19 members of the working group, that language was 20 deleted. In addition, there was concerns 21 raised about the incorporation of the generally 22 accepted auditing standards and how that would 23 impose a burden on charities and licensees with 24 regard to interpreting and understanding the 25 rule, and that language was also stricken from 0026 1 the rule -- from the draft before you today. 2 There were also issues related 3 to costs that would be imposed against 4 licensees. In particular, if you would like to 5 look with me, there is a -- in subparagraph E3 6 of the Audit Rule, it provides that an audit 7 routinely takes place at the Commission's 8 regional field office wherein the licensee 9 wants to, say, have the audit take place at 10 their location, or if they don't want to 11 provide original records but copies of records, 12 then the licensee would be required to pay the 13 costs according to established principles under 14 the Texas Travel Allowance Guide. That issue 15 is something that we -- we have taken comment 16 on and we have looked at, and we believe that 17 it is a reasonable -- it's a statutory -- it's 18 provided by statute under Occupations Code 19 2001o56d. And it's also reasonable in that the 20 Commission is not imposing costs on a licensee 21 in every situation, but only in those 22 situations where the auditor is asked to 23 deviate from their normal audit process. 24 In addition, some issues were 25 raised as to confidential records. The staff 0027 1 has tried to address that, incorporate language 2 in subparagraph E1 related to the confidential 3 records that a licensee may have in their 4 possession and may be asked to give over during 5 the audit process. The staff has worked with 6 members of the public and the working group and 7 BAC to make changes related to that. And we 8 believe any outstanding issues related to 9 confidentiality will be addressed -- may be 10 addressed in the comment period -- the formal 11 comment period. 12 There was also an indication at 13 the BAC meeting that there was a -- the dates 14 for the exit conference for a licensee to 15 respond to audit findings or to show compliance 16 with audit findings, they were too short. The 17 arbitrary didn't give the licensees enough 18 time. In the working group -- in the working 19 with members of the public, we have extended 20 those times and tried to make those -- those 21 reasonable under the circumstances. 22 Commissioners, it's important to 23 note that staff has worked very hard with 24 members of the public and with the working 25 group, including Mr. Fenoglio who represents 0028 1 many, many charities, and they have provided 2 time and effort -- a lot of people have 3 provided time and effort and tried to work 4 through this rule. I think we have addressed 5 many of the concerns raised at the BAC. And it 6 is -- I think it's a consensus -- I will let 7 them speak to that -- but that we can address 8 any further concerns during the -- during the 9 formal comment period. 10 And attached to your rule, right 11 after the cover memo, is a brief outline of the 12 events that occurred subsequent to the first 13 time the draft of the rule was presented to the 14 BAC. This basically gives you a better 15 understanding of -- of the people that were 16 involved and what took place on -- on a daily 17 basis. 18 Based -- based on this 19 information, the staff would recommend that the 20 Commission publish the new rule 402.590 General 21 Audit Rule in the Texas Register for public 22 comment for a period of 30 days. And I'll be 23 happy to take any of your questions. 24 CHAIRMAN CLOWE: Mr. Sanderson, 25 do you have anything to add? 0029 1 MR. SANDERSON: (Indicating.) 2 MR. COX: Kevin, it's my 3 understanding that Ms. Melvin, our auditor, has 4 reviewed these drafts, all of these drafts 5 related to auditing? 6 MR. OLDHAM: Yes, sir. 7 Catherine Melvin, our -- our internal auditor, 8 has reviewed the three audit rules before you 9 today, and she has had input, and she has -- 10 she is -- she is okay with those rules. 11 MS. MELVIN: (Indicating.) 12 MR. OLDHAM: Just 13 double-checking. 14 CHAIRMAN CLOWE: Now Mr. 15 Sanderson? 16 MR. SANDERSON: Chairman and 17 Commissioner Cox, one other thing I'd like to 18 add about the General Audit Rule and the other 19 two, meaning the same thing, is these were 20 rules, along with the other audit rules, that 21 have previously been published and adopted that 22 were presented back in April of 2001 and -- or 23 2002 and subsequently withdrawn from 24 publication. 25 CHAIRMAN CLOWE: Mr. Atkins? 0030 1 MR. ATKINS: Again, I appreciate 2 everyone's efforts, and I echo what Mr. 3 Sanderson said; these rules in some form or 4 another have been around for quite sometime. 5 Additionally, I think that these rules which we 6 had started talking about earlier will also 7 help us address some of the issues raised in 8 the Sunset Commission report. They address the 9 need for rules to cover certain of our 10 processes, and these rules will help us meet 11 those requirements. 12 CHAIRMAN CLOWE: Mr. Fenoglio. 13 MR. FENOGLIO: Good morning 14 again, Mr. Chairman and Commissioner. My name 15 is Stephen Fenoglio and I introduced myself 16 earlier. 17 We have -- and thanks again, 18 Billy, and Phil, and Kevin for working with us. 19 There is one issue that arrived -- that arrived 20 late in the discussion, and it has to do with a 21 nuance of federal law and records that say 22 Family Elder Care, which is a charity in Austin 23 that conducts bingo in Austin. It's about a 24 three-and-a-half million dollar charity. And 25 it provides a number of counseling services to 0031 1 senior citizens with Alzheimer's. 2 Under the Health Insurance 3 Portability and Accountability Act, there are 4 certain records, client files, that under no 5 circumstances can be produced. And I would 6 submit to you -- and I visited briefly with Ms. 7 Kiplin this morning, and Mr. Oldham and I have 8 had an ongoing discussion about this. I would 9 submit to you that on page four of your rule, 10 subparagraph E1, the third sentence that reads, 11 if the licensee believes information contained 12 in the requested record is confidential by law, 13 the licensee must identify and clearly mark the 14 information when provided to the Commission. 15 That sentence is illegal under HIPAA, because 16 if Family Elder -- if an auditor requests 17 records to substantiate use of bingo proceeds, 18 part of those funds are used to maintain 19 healthcare records. Under the Health Insurance 20 Portability and Accountability Act, HIPAA, 21 H-I-P-A-A, they can't -- they can't produce 22 those records. They can mark them as 23 confidential, but they can't produce them. 24 Now this morning Ms. Kiplin and 25 I discussed this and Mr. Oldham had produced -- 0032 1 had circulated to me about 3:00 yesterday 2 afternoon some language. And my suggestion to 3 that, if you want to proceed with publication 4 for public comment is the following--and Kevin, 5 this is almost verbatim what you circulated 6 yesterday with an additional added--if 7 disclosure -- and the language would read as 8 follows, if the -- if disclosure of the 9 individual information during the audit would 10 impair a contractual -- I'm sorry 11 constitutional, statutory, or contractual right 12 of privacy with a governmental agency, then the 13 information may be withheld so long as the 14 licensee provides the Commission with a brief 15 description of the information withheld, the 16 statutory, constitutional, or contractual basis 17 for nondisclosure and the records necessary to 18 substantiate compliance with Occupations Code 19 Chapter 2001 and applicable Commission rules. 20 So that would address the issue of HIPAA where 21 you cannot under penalty of violation of 22 federal law produce those records. 23 Kevin had also suggested an 24 additional sentence, which we don't object to, 25 which would read, the ability of a licensee to 0033 1 withhold certain information based on privacy 2 rights or privileges, and there's -- the 3 sentence that follows talks about, for example, 4 attorney-client privilege -- does not in any 5 way relieve the licensee of it's burdens to 6 substantiate compliance with Occupations Code 7 Chapter 2001 and applicable rules. So that, 8 for example, if a charity had records that they 9 felt they could not produce because of federal 10 or state law or a contract with an agency, 11 nonetheless they would have to produce records 12 that -- that substantiate the use of those 13 bingo proceeds for approved purposes. And it 14 could be in the form of, for example, an 15 affidavit from the agency's auditor or 16 something like that or -- or summary that -- 17 that the agency, the charity, and the 18 Commission could agree to. And with those 19 changes, I think you're then constitutional -- 20 constitutionally sound. 21 I have not had a chance to 22 circulate that obviously to client contacts, 23 but I believe that would meet -- and if you 24 wanted to publish for public comment, then I 25 would strongly recommend that that language be 0034 1 substantiated and -- and put into the rule that 2 would be published for public comment. 3 CHAIRMAN CLOWE: Mr. Oldham, is 4 that agreeable to you? 5 MR. OLDHAM: Staff's not opposed 6 to that language. I just want to give the 7 Commissioners a little background on this 8 though. 9 The reason we have to approach 10 this issue. I visited with a member of the 11 Internal Revenue Service and also with members 12 of the Comptroller's office, and they have 13 particular statute -- statutory authority which 14 allows them to withhold information that they 15 gather during an audit; so I mean, it's 16 confidential by statute. That's both with the 17 IRS federal and with the Comptroller under the 18 Sales Tax Code and then General Tax Code. 19 We have to address that issue, 20 because our only statute relates to 21 manufacturers and distributors under the Bingo 22 Enabling Act. So when we deal with charities 23 and other licensees, this is an issue that -- 24 that -- that Steve and I have talked about 25 for -- for about a week-and-a-half. And -- and 0035 1 I think that it's -- we are not opposed to the 2 language, and we have no problem with that 3 going under -- published under the proposed 4 rule. And any additional -- any additional 5 issues with it I think could be handled during 6 the comment period if there's a word here or 7 there. 8 MS. KIPLIN: Mr. Oldham, you did 9 raise a good point with me when I went over and 10 talked to you, and I think you should put it on 11 the record. I think it's just a matter of 12 wording, so I want you to go into it. It has 13 to do with the word contractual right to 14 privacy versus a contractual, say, prohibition 15 to disclosure. But Mr. Oldham, if -- put 16 your -- put your comments, because I thought 17 they were good. 18 MR. OLDHAM: My understanding of 19 the law--and this is based on an amount of 20 research done this week; it could be more 21 developed during the comment period--was that a 22 party would not be able to contractually bind 23 each other through a right of privacy. 24 However, they can state in a contract that 25 there's a right of privacy here if it's based 0036 1 by some kind of underlying statute or 2 constitutional authority whether that be case 3 law interpreting statute, case law interpreting 4 the constitution. So basically, in other 5 words, parties could not create privacy based 6 on an agreement. However, parties would be 7 able to state in their agreement that there's 8 privacy if it's based on an underlying 9 statutory or -- or legal, constitutional basis. 10 MS. KIPLIN: And then the 11 contract would make clear that neither party 12 could disclose the terms of the contract? 13 MR. OLDHAM: Correct. 14 MS. KIPLIN: So I guess what I'm 15 suggesting is that instead of saying 16 contractual right to privacy with the 17 governmental agency, it says contractual 18 prohibition of disclosure. Mr. Fenoglio, it's 19 the first time you've heard it. I don't know 20 whether the Commission would consider -- or 21 entertain staff recommendation to make a motion 22 to propose based on what the parties could work 23 out with regard to this particular three words 24 of language. 25 MR. FENOGLIO: Mr. Chairman, if 0037 1 I may? 2 CHAIRMAN CLOWE: Certainly. 3 MR. FENOGLIO: I'm okay with 4 contractual prohibition of disclosure for now 5 at least, to keep the ball rolling. 6 The other thing that's in -- 7 rumbling in the back in the garage, if you 8 will, or in the attic, just for example, Family 9 Elder Care has 500 -- over 500 contracts with 10 individuals. So you can imagine if an auditor 11 asked for that information, then I'd have to 12 look at all the contracts in that light. But 13 you know, you may have to rewrite over 500 14 contracts, many of whom are with Alzheimer's 15 patients who -- the individual does not have 16 the contractual capacity to sign a contract. 17 So with that clarification, I'm -- I'm ready to 18 move on, and we'll continue to address it. 19 CHAIRMAN CLOWE: Commissioner? 20 MR. COX: Kevin, if I understood 21 you with respect to this word contractual, you 22 said that contractual right to privacy could 23 only arise out of a statute, not out of the 24 contract itself. 25 MR. OLDHAM: Maybe I wasn't 0038 1 particularly clear, and I probably wasn't, but 2 what I was -- based on my research, the two 3 parties could contract; and in that contract 4 they could say that we are bound to privacy on 5 these issues. However, the actual reason for 6 the privacy is based on an underlying statute. 7 Mr. Fenoglio raised the Health Insurance 8 Portability Act; that would be -- in other 9 words, if there was a contractual term that 10 addressed a medical condition, whether that be 11 physical or mental, then the contract is not 12 the basis for the privacy. The -- the actual 13 act, HIPAA, the HIPAA Act is the basis even 14 though they have it in a contractual form. In 15 other words, the contract parties, party A and 16 party B, could not contract and say we want 17 this information to be private if there's no 18 underlying statutory or constitutional ground 19 for the privacy. 20 MR. COX: Your clarification 21 said exactly what I thought you said the first 22 time. 23 MR. OLDHAM: Okay, great. 24 MR. COX: My question then is, 25 if the ultimate reliance is on statute and not 0039 1 the contract itself, why can't we just leave 2 out the word contractual? 3 MR. OLDHAM: Well, I know Mr. 4 Fenoglio has some concerns and maybe he would 5 like to see some of my research related to 6 this. And -- and if I might, the research I've 7 done is -- this comes as a result of the Public 8 Information Act, especially with Texas and 9 Freedom of Information Act where it wants to 10 prohibit government agencies from contracting 11 out the right to keep documents private that 12 are not otherwise private under the law. So 13 that's where that's coming from. But I'll be 14 happy to work with him and talk with him during 15 the comment period -- 16 MR. COX: My concern, Kevin, is 17 that what we are saying is that there's not any 18 right to privacy that isn't ultimately based on 19 federal or state statutes, that the contract 20 may mention it, but that doesn't do anything. 21 It just refers you to its source. So my 22 question is, what value does the word 23 contractual add? Because I see a detriment 24 that it offers; that is it confuses the issue. 25 And ten years down the road, somebody may say 0040 1 well, it says right there contractual, and I 2 contracted with him, and we said we wouldn't 3 disclose anything, and we're sticking with it. 4 It's not based on statute at all, but it's not 5 clear. 6 MR. OLDHAM: If Mr. Fenoglio was 7 in agreement, what we perhaps could do is -- 8 for purposes of moving forward and getting it 9 published, strike the word contractual. And 10 then during the comment period, I -- you know, 11 we could visit with him and -- and find out 12 maybe his reason for -- behind having that word 13 in there. There may be a reason that I have 14 not been able to uncover, if you will, for 15 that. My research may not have extended that 16 far, and so I'll be happy to work with him, 17 if -- if a need be in order to protect privacy 18 interest and we could add it back in later, if 19 that would address your concerns. 20 MR. COX: That would address my 21 concerns. 22 CHAIRMAN CLOWE: Okay. Anything 23 further Mr. Fenoglio? 24 MR. FENOGLIO: My only comment 25 on the contractual issue is, for example, 0041 1 Family Elder Care contracts with Department of 2 Protective and Regulatory Services, and they 3 hand out a standard contract. And if they're 4 receiving federal -- well, funds, part of which 5 may be federal in nature, for applying -- 6 providing a service, the contract with that 7 Department says that information is 8 confidential. It may not be related to a 9 constitutional or statutory directly -- it's 10 constitutional or statutory exclusion, but it's 11 the contract you have with your agent, you 12 know, your funder. And then, I don't want 13 Family Elder Care to get caught in the middle 14 when Department of Protective and Regulatory 15 Services says you can't produce this type of 16 information; and the auditor is saying you have 17 to; and the charity is in the middle saying 18 okay, if I produce the records, I'm in 19 violation of my contract with another state 20 agency and I could lose a lot of money, perhaps 21 more money than the bingo funds, or -- or I 22 could be held in contempt of court by the 23 Department itself. And then your in a -- 24 the -- the charity would be in the position, 25 Commissioner Cox, of having to go to court, 0042 1 hiring an attorney to remain -- to get a court 2 to give them an order that says either you're 3 going to produce it or you're not. And that's 4 what I don't want to get these type of 5 charities. 6 I'm not trying to create an 7 exclusion where a charity uses some contract 8 right with a third party, not a governmental 9 agency, to say okay, we can't produce any 10 records. That -- that -- I'm not trying to 11 make that argument for a charity. Because 12 if -- as I've said before publicly, if it has 13 to do with bingo funds, they have to account 14 for and substantiate the use of those funds. 15 But if -- if they're federal funds or state 16 funds involved in a contract, I don't want to 17 get that charity in the middle. 18 MR. COX: Mr. Chairman, I'd be 19 comfortable going forward on the basis that 20 Kevin suggested, leaving out the word 21 contractual with the understanding that staff 22 will work with Mr. Fenoglio and others to 23 insert appropriate language that says 24 contractual but appropriately modifies and 25 restricts it to the circumstances that we 0043 1 intend for it to apply in. 2 CHAIRMAN CLOWE: Counselor, I 3 think we are hearing a general agreement. Do 4 we have a clear enough record in the agreed 5 upon changes to go forward with a motion on 6 this rule? 7 MS. KIPLIN: I believe we do. 8 Mr. Fenoglio has the language. The -- the 9 sentences that he read into the record -- 10 pardon me, the words that he read into the 11 record that will not be part of the proposed 12 rule that you all will vote on will be, 13 contractual right to privacy with a 14 governmental agency. That will not be part of 15 it. And that will be something that we will 16 work on during the comment period. 17 CHAIRMAN CLOWE: And that gives 18 consideration to Commissioner Cox's comments, 19 as well? 20 MS. KIPLIN: Commissioner Cox, I 21 believe it does. 22 MR. COX: Sounds like it does. 23 MS. KIPLIN: Okay. Then your -- 24 the recommend -- recommended motion would be a 25 motion to propose the General Audit Rule 0044 1 402.590 for public comment. 2 CHAIRMAN CLOWE: As amended 3 or -- 4 MS. KIPLIN: As read into the 5 record with that particular language Mr. 6 Fenoglio read with the -- the phrase, 7 contractual right to privacy with a 8 governmental agency, that phrase being removed. 9 CHAIRMAN CLOWE: And we have 10 that clearly understood and on the record. So 11 the rule that we would be voting on will be 12 published for comment as a result of this 13 discussion so modified. Are we clear on that? 14 MR. OLDHAM: Yes, Commissioner. 15 CHAIRMAN CLOWE: So moved. 16 MR. COX: Second. 17 CHAIRMAN CLOWE: All in favor, 18 please say aye. Opposed, no. The vote is 19 two-zero in favor. 20 MR. FENOGLIO: Mr. Chairman, if 21 I could, one brief comment, and I'm not going 22 to argue the vote at all. There are some other 23 issues that we want to address, and we look 24 forward to addressing those in the comment 25 period, having to do with costs on the charity. 0045 1 Thank you. 2 CHAIRMAN CLOWE: Good. 3 Next, item six. Mr. Oldham, I 4 believe you have it, as well -- 5 MR. OLDHAM: Yes, Commissioners. 6 For your consideration, we have before you 7 today the proposed new rule 402.592, which 8 relates to books and records inspections. The 9 basic purpose of the proposed rule is to 10 provide a uniform means of educating licensees 11 regarding their obligations and in compliance 12 with the Bingo Enabling Act and applicable 13 Commission rules. 14 Just to give you a little 15 background, this was -- this was also presented 16 before the Bingo Advisory Committee on June 19, 17 2003. They again formed a working group with 18 the same two members of the BAC; that being 19 Marilyn Matthews and Larry Whittington, Mr. 20 Fenoglio was involved, Sharon Ives, Roy 21 Gabrillo and Tom Leick. The working group came 22 together, formed a draft of the rule, presented 23 it before the August 24th Bingo Advisory 24 Committee meeting. At that meeting, the BAC 25 voted to recommend that the Texas Lottery 0046 1 Commission publish the version -- that version 2 of the draft rule in -- in the Texas Register 3 for public comment. The rule subsequent -- 4 subsequently to that, the rule was shown to our 5 internal auditor, Catherine Melvin, and -- and 6 also the changes were made to the rule to make 7 it uniform with the other audit -- audit rules 8 and to also make it in compliance with the 9 storm -- the -- excuse me, the form and style 10 guidelines of the Texas Register. 11 Enclosed, you also have a -- an 12 activity sheet which shows the work that went 13 into this rule, the dates and who -- who was 14 involved. There was one change brought up at 15 the BAC meeting relating to the words, 16 including but not limited to. That language 17 was stricken. That concern was raised at the 18 BAC and the language was stricken, so we took 19 the BAC's recommendation on that rule. 20 Based on that, the staff 21 recommends that the Commission vote to publish 22 the new rule 402.592, Books and Records 23 Inspection in the Texas Register for public 24 comment for a period of thirty days. And I'll 25 answer any questions. 0047 1 CHAIRMAN CLOWE: Mr. Sanderson? 2 MR. SANDERSON: I have no 3 additional comments on this rule other than 4 what I made previously. It just outlines the 5 process and procedures of the Division, and 6 it's, once again, a rule that was -- has been 7 out there since April, I believe, or February 8 of 2002. 9 CHAIRMAN CLOWE: Mr. Atkins? 10 MR. ATKINS: No comments. 11 CHAIRMAN CLOWE: I move the 12 Commission publish for consideration new rule 13 402.592. 14 MR. COX: Second. 15 CHAIRMAN CLOWE: All in favor, 16 please say aye. Opposed, no. The vote is 17 two-zero in favor. 18 Mr. Oldham, next item, is number 19 seven. 20 MR. OLDHAM: Thank you, Mr. 21 Chairman. 22 For your consideration this 23 morning we have proposed new rule 402.596 24 related to compliance reviews for bingo. This 25 rule would set out the general step in -- steps 0048 1 involved in a compliance review such as 2 notification, entrance conference, field work, 3 records required, and the exit conference. 4 The proposed new rule informs 5 licensees of the compliance review process and 6 provides licensees with a clearer understanding 7 of the Charitable Bingo Division's purpose and 8 scope during a compliance review. 9 A brief background, as well, 10 this was on parallel tracks with the two 11 previous rules we have talked about this 12 morning. It first was presented to the Bingo 13 Advisory Committee on June 19, 2003. The 14 work -- the same working group was formed to -- 15 to make recommendations regarding the rule. A 16 draft was presented to the Bingo Advisory 17 Committee on August 21st, 2003. And at that 18 meeting the Bingo Advisory Committee 19 recommended to the Commission that -- that they 20 publish the version -- that version of the 21 draft rule in the Texas Register for public 22 comment. It again was presented to members of 23 the staff, including our internal auditor 24 and -- and Assistant Bingo Director. And 25 subsequent changes were made to come into 0049 1 compliance with the form and style requirements 2 of the Texas Register. 3 Based on this, the staff 4 recommends that the Commission vote to publish 5 the new rule 402.596 Compliance Review in the 6 Texas Register for public comment for a period 7 of thirty days. And I'll be happy to answer 8 any questions. 9 MR. COX: No questions. 10 CHAIRMAN CLOWE: Mr. Sanderson? 11 MR. SANDERSON: No additional 12 comments. 13 CHAIRMAN CLOWE: Mr. Atkins? 14 MR. ATKINS: No comments. 15 CHAIRMAN CLOWE: I move the 16 Commission publish for comment new rule 17 402.596. 18 MR. COX: Second. 19 CHAIRMAN CLOWE: Is that your 20 number? 21 MR. OLDHAM: Yes, sir, 402.596. 22 MS. KIPLIN: Relating to 23 Compliance -- 24 MR. OLDHAM: Relating to 25 Compliance Reviews. 0050 1 CHAIRMAN CLOWE: All in favor, 2 please say aye. Opposed, no. The vote is 3 two-zero in favor. 4 Next item, Mr. Oldham, is number 5 eight, delegation of Commission authority 6 regarding issuance of advisory opinions to the 7 Charitable Bingo Operations Director. 8 MR. OLDHAM: Thank you, Mr. 9 Chairman. You have before you for your 10 consideration and possible discussion a -- a 11 proposed order which would delegate the 12 Commission's authority to the Charitable Bingo 13 Operations Director to issue advisory opinions 14 in accordance with Occupations Code 2001.059. 15 I've included with your cover memo a copy of 16 the relevant statute and the proposed order 17 follows that. 18 I'll be happy to answer any 19 questions regarding this. I know Ms. Wilkov 20 has discussed advisory opinions a little bit 21 with you earlier today, so I'm -- I'm available 22 to answer any additional questions or perhaps 23 she could -- she could help us out, if -- if 24 need be. 25 MS. KIPLIN: Commissioners, if I 0051 1 could kind of expand, the rule that you voted 2 to propose this morning did contain a provision 3 to delegate authority to the Bingo Director 4 or -- or his or her delegatee to issue advisory 5 opinions. That rule of course was proposed 6 this morning. It's got to run it's course 7 through the comment period and come back to you 8 all for adoption. 9 In the interim, we anticipate 10 that we will receive requests for advisory 11 opinions. In fact, we have received two 12 already; one has been withdrawn. But we still 13 have one that's live. And so this is what we 14 are doing as a stopgap measure, but it does 15 come down to your authority and whether you 16 want to delegate that. 17 The practical logistics of it is 18 that we have got a sixty-day clock that's 19 running on us in terms of issuing advisory 20 opinions. The statute does provide the 21 authority to the Commission to delegate. And 22 the issue -- really just to kind of develop 23 that for you is, do you want to delegate broad 24 authority, or do you want to delegate it on a 25 case-by-case basis in connection with a request 0052 1 for advisory opinions. I hope that -- that 2 helps set -- set that out a little bit further 3 for you. 4 CHAIRMAN CLOWE: Any questions 5 Commissioner Cox? 6 MR. COX: Well, that's -- 7 counsel seems to want to add something. 8 MR. OLDHAM: I just want to make 9 the Commission aware that -- that we do have 10 one request for advisory opinion currently 11 sitting on my desk -- actually it's in a folder 12 next to me -- but it was received on October 6, 13 2003. And so the date the Commission is 14 looking at that that will be due under the 15 statutory guidelines is December 5th, just to 16 keep that in mind when making your decision. 17 MR. COX: Mr. Chairman, I 18 understand the question that Ms. Kiplin has 19 asked, which is do we want to delegate 20 authority -- specific authority. I think a 21 further question is do we want to delegate this 22 authority solely to the Director of Charitable 23 Bingo with the understanding that there is a 24 process that would probably involve the General 25 Counsel, and perhaps the Bingo Commissioner, or 0053 1 do we want to specifically delegate the 2 authority to the Charitable Bingo Operations 3 Director, the General Counsel and the Bingo 4 Commissioner? 5 MR. ATKINS: Mr. Chairman? 6 CHAIRMAN CLOWE: Mr. Atkins. 7 MR. ATKINS: If I can address 8 part of that, Commissioner Cox. We do have a 9 process in place now that involves both the 10 Charitable Bingo Division and the General 11 Counsel's Office. And whenever a request for 12 advisory opinions are made, to make sure that 13 those come in, that they're -- that they're 14 logged and that they're referred to the General 15 Counsel's Office in a timely fashion for 16 review. And then, of course, they're always 17 able to draw on staff in the Charitable Bingo 18 Division if they need any technical assistance 19 in drafting the responses to those requests. 20 Now, the process that we have in 21 place right now does not involve the designated 22 representative from the Commission, but we can 23 amend that process. That's our internal 24 working process, and we can amend that as -- as 25 needed. 0054 1 CHAIRMAN CLOWE: The order 2 that's been furnished is -- Commissioner Cox, 3 as a proposal, is very broad. 4 MR. COX: Yes. 5 CHAIRMAN CLOWE: And it doesn't 6 cover whatever is the internal process that the 7 Charitable Bingo Operations Director might 8 staff. It leaves it up to him. If we want to 9 cover the points that you made, I think it 10 ought to be in the motion. 11 MR. COX: I agree with that. 12 CHAIRMAN CLOWE: And I think it 13 would be appropriate to delegate the authority 14 with the condition of direction in the motion 15 that the General Counsel and -- representing 16 the Legal Division be included, and whether or 17 not the Charitable Bingo -- or the designated 18 commissioner from the Commission should have to 19 give approval as a judgment call for us to make 20 seems to me -- but I think clearly the General 21 Counsel and the legal should be included in the 22 motion. 23 MR. COX: And I think that is 24 the essential element, and I think that our 25 staff knows that if there's something that 0055 1 needs to come to the commissioners, that 2 they'll bring it to the commissioners, I would 3 be very comfortable with that. 4 CHAIRMAN CLOWE: Would you make 5 that motion, if you're ready. 6 MR. COX: The sense of the 7 motion is that we would delegate this advisory 8 opinion authority to the Charitable Bingo 9 Operations Director and the general counsel, 10 for both -- for general purposes, for all 11 opinions that would -- all requests for 12 opinions that would come, not specifically for 13 any one, but for all of them. 14 MR. OLDHAM: If I might, I was 15 looking at the statute and in subparagraph F, 16 it says that the Commission may delegate all or 17 part of the authority and procedures for 18 issuing advisory opinions under the section to 19 an employee of the Commission. So perhaps if 20 the Commission would like for the Bingo 21 Director and/or the General Counsel to have 22 input, perhaps there should be two orders 23 delegating part of the authority to -- to -- to 24 the Bingo Director, or -- or perhaps expressing 25 the exact authority that's going to be 0056 1 delegated to the Bingo Director under -- under 2 the statute. 3 MS. KIPLIN: I'll tell you what, 4 why don't we -- why don't we pass this. We 5 understand the general thinking from the 6 Commission. We will work on language, present 7 it either later in this commission meeting or 8 take it up in the November meeting. We have 9 got a sixty-day clock on the one that is live 10 right now. And obviously we don't have any 11 more, so we'll have a longer period. 12 The issue that I think he raised 13 that I wanted him to was it says, employee of 14 the Commission, so I wonder about Commission 15 involvement. I think it's fine to have a -- a 16 Commissioner involved -- 17 CHAIRMAN CLOWE: I think we 18 stepped away from that. 19 MS. KIPLIN: Yeah. 20 CHAIRMAN CLOWE: I don't think 21 we followed through on involving the designated 22 Bingo Commissioner in the amended language that 23 we have been discussing, but I -- I -- I don't 24 understand the logic for two motions. I would 25 rather have the General Counsel and the 0057 1 Charitable Bingo Division Director named in one 2 motion. 3 MS. KIPLIN: Oh, I agree with 4 that. 5 CHAIRMAN CLOWE: And I think 6 that we are ready to go forward if you'll -- 7 MS. KIPLIN: That's fine. 8 CHAIRMAN CLOWE: -- just come up 9 with that motion for us to sign. We are ready 10 to move forward. 11 MS. KIPLIN: Because we'll -- 12 I'll tell you what we will do is we will come 13 back later in the meeting with an order that 14 has the language -- my understanding is that 15 you want two employees involved and obviously 16 their respective staff, but ultimately the 17 advisory opinion would be issued by the Bingo 18 Director but with the involvement of the 19 General Counsel. 20 MR. COX: That's right. 21 MS. KIPLIN: Okay. We'll get 22 you an order -- it does invite the question, 23 would you like to revisit your -- your action 24 on the proposal of the Advisory Opinion Rule, 25 because that does delegate to the Bingo 0058 1 Director or his delegatee -- his or her 2 delegatee to issue opinions, and would you like 3 to at this point go back to that and supersede 4 that motion, make a new motion that would be 5 consistent with what -- with where you are with 6 regard to this order? 7 CHAIRMAN CLOWE: I think so. I 8 don't think we want his delegatee to be 9 included. 10 MS. KIPLIN: Okay. So it would 11 be the same in which it would be clear that 12 it's the Bingo Director and the General 13 Counsel -- General Counsel -- Bingo Director 14 issuing the opinion, but with the involvement 15 of the General Counsel. 16 CHAIRMAN CLOWE: That's right. 17 MS. KIPLIN: Okay. 18 CHAIRMAN CLOWE: Does that 19 require a motion? 20 MS. KIPLIN: Yes. I think I 21 would like to be clear on the record that under 22 the rule for -- proposed rule for Advisory 23 Opinion, there's a motion to retract your 24 action, and that you're making a new motion 25 that will pick up this new language. 0059 1 CHAIRMAN CLOWE: For the rule to 2 be proposed for comments as now amended. 3 MS. KIPLIN: Yes. 4 CHAIRMAN CLOWE: So moved. 5 MR. COX: If I could -- could 6 understand that the word for the counsel's 7 participation is not involvement, but approval, 8 then I'll agree. 9 MS. KIPLIN: That's fine. 10 MR. COX: Second. 11 CHAIRMAN CLOWE: All in favor 12 say aye. Opposed, no. The vote is two-zero in 13 favor. 14 And we'll vote on your motion -- 15 or your rule -- your motion it is that you want 16 the Commission to make. 17 MR. COX: Order. 18 CHAIRMAN CLOWE: Your 19 order--thank you--when you bring it back to us 20 with the new language. 21 I also want to give you this 22 direction, which is not part -- part of the 23 motion. We want issues brought to the 24 commissioners, as has been the practice in the 25 past, when they are of a significant interest, 0060 1 or sensitivity, or general interest to the 2 Commission. And that's just a policy 3 recommendation on behalf -- or desire on behalf 4 of the commissioners. That's not in the 5 motion. 6 MS. KIPLIN: I'll tell you what. 7 We will make it very clear that which you 8 delegate you also retain the authority to make 9 your own decision on. 10 CHAIRMAN CLOWE: And -- and I 11 think we have a good practice established. 12 That doesn't in any way indicate 13 dissatisfaction on the part of this 14 Commissioner, but we want to reinforce that 15 good practice and keep it in place. We'll look 16 forward to having that order come back to us as 17 a result of the changes of this discussion. 18 MR. OLDHAM: Yes, Chairman. 19 Thank you. 20 CHAIRMAN CLOWE: Next is item 21 number nine, regarding delegation of authority 22 on Douglas Press' request for an advisory 23 opinion. Is that the one you have pending? 24 MR. OLDHAM: No, Chairman. 25 This -- actually, the -- this request for an 0061 1 advisory opinion was withdrawn by Douglas 2 Press, and so this order to delegate authority 3 for this advisory opinion is -- is a moot 4 point. And -- and I would ask the Commission 5 to -- to bypass this -- this particular order. 6 CHAIRMAN CLOWE: All right. 7 Item number nine will be passed then. We have 8 word that Commissioner Olvera's plane has been 9 delayed due to fog, so we'll continue on the 10 agenda with item ten. And then for notice to 11 those involved, we'll skip over items 11, 12 12 and 13 and take up number 13 -- sorry, 10, 11, 13 and 12 and take up number 13, holding those 14 Mega Million items for the agenda until his 15 arrival. 16 MR. COX: Mr. Chairman, can we 17 take a short break? 18 CHAIRMAN CLOWE: Yes, certainly. 19 We'll take a break now of ten minutes. 20 (RECESS.) 21 CHAIRMAN CLOWE: The meeting has 22 come back to order. Now we are ready to take 23 up item number ten, consideration and possible 24 discussion and/or action on the Bingo Advisory 25 Committee's participation in the rulemaking 0062 1 process, including frequency of meetings. 2 Mr. Atkins, you're listed as 3 sponsoring this item. Do you have comments? 4 MR. ATKINS: I do, Mr. Chairman, 5 and I think Ms. Kiplin has some also when she 6 returns, but I'm happy to start. And I believe 7 this came about from conversations that Ms. 8 Kiplin's had with Mr. Bresnen. He referred to 9 it briefly in one of his presentations earlier 10 on the Bingo Advisory Committee and their 11 participation in the rulemaking process. 12 So I wanted to just start out 13 today and give the Commission just a very brief 14 history relating to the concept of taking rules 15 to the Advisory Committee twice. And actually 16 these discussions, I think, date back to 17 March 2002. This was discussed in an Advisory 18 Committee meeting at that time. And one of the 19 things I would ask the Commission to keep in 20 mind is that that discussion didn't center 21 around the creation of any hard and fast rules. 22 It was just a discussion about ways the process 23 could be made better. Now, it was also pointed 24 out at that time that if we went to this type 25 of process, it would possibly require more 0063 1 frequent meetings of the Advisory Committee. 2 Then, if you'll recall, in 3 February of this year, we had the orientation 4 for the Bingo Advisory Committee. And that's 5 something that we provided to the commissioners 6 also and outlined for you what we were going to 7 discuss. And we talked a little more about the 8 rulemaking process and the fact that it was a 9 work in progress. 10 And additionally, there was an 11 exchange at that meeting in February between 12 Danny Moore, whose a member of the Advisory 13 Committee, and myself; and I explained that we 14 would try and bring rules to the Advisory 15 Committee twice. 16 Finally, what occurred at the 17 August 2003 meeting is that I made a statement 18 very early in the meeting that the staff was 19 probably going to be recommending that the 20 rules that were presented at that meeting, I 21 guess, technically, for the first time, the 22 staff was going to recommend that they move 23 forward. And I even explained that the 24 Advisory Committee later -- that should the 25 Advisory Committee vote to not recommend the 0064 1 rule to the Advisory Committee, it would be my 2 intent to still bring them forward to the 3 Commission for your consideration. 4 One of the things that we have 5 found that we think is occurring with something 6 that we anticipated back at the February 7 meeting, and that is if we have taken rules to 8 the Advisory Committee and read them -- you 9 know, we call them reading; we have read them 10 once, and then in the interim period before the 11 next Advisory Committee has been the time when 12 subcommittees were supposed to be meeting, the 13 rules were supposed to be available -- or the 14 rules are available for public comment, et 15 cetera, and then at the second Advisory 16 Committee meeting, the action would be taken 17 and then the rules could move forward to the 18 Commission. 19 We have had a couple of 20 situations where even after the second meeting, 21 it didn't seem like we have been able to get 22 enough work done to bring them forward. So I 23 don't know that -- that this process has worked 24 out that well. 25 Additionally, there have been a 0065 1 couple of occasions where at the end of a 2 subcommittee meeting or process, the staff has 3 been under the impression that all of the 4 issues had been discussed and had felt that 5 they had a consensus from everyone on the 6 subcommittee as to an agreement, even if that 7 agreement involved certain disagreements, but 8 that this was the rule that was going to be 9 brought forward and ultimately be brought to 10 the Commission. But we have had some 11 situations in -- where issues that weren't 12 discussed in subcommittee meetings have been 13 brought up, sometimes by subcommittee members, 14 at these second readings. So we really haven't 15 felt that we have gotten kind of the work 16 product that we had hoped to. 17 Now having said that, I'm very 18 proud of the bingo staff and all of the work 19 they've done. And I'm very proud of all of the 20 work they did to come up with these 21 recommendations for the Advisory Committee and 22 to improve their process, but I don't know if 23 we have gotten to that point yet. 24 And I was re-reading the Sunset 25 Commission report as it related to the audit 0066 1 rules that I mentioned earlier, and I was 2 glancing through the one on the Advisory 3 Committee meeting, and they stated in their 4 report that the Advisory Committee meetings 5 appear to be more of an open forum than a 6 working public meeting. And I don't know if 7 this process that we have put in place has 8 helped address any of that or not. 9 CHAIRMAN CLOWE: Commissioner 10 Cox, I know that you have a comment on this 11 item. We have an appearance form from Mr. 12 Bresnen. Would you like to hear his comments 13 before you comment or -- 14 MR. COX: You bet. 15 CHAIRMAN CLOWE: Steve come up, 16 please. 17 MR. BRESNEN: Thank you, Mr. 18 Chairman and Commissioner Cox. My name is 19 Steve Bresnen. And I'm here on behalf of the 20 Bingo Interest Group. I hadn't intended to 21 address this today and I was only going to 22 speak once, but as you know, I'm no good for my 23 word on that -- on those kinds of things. 24 CHAIRMAN CLOWE: We would have 25 been disappointed. 0067 1 MR. BRESNEN: I'm sure you 2 would. 3 My concern here is we have spent 4 about two years in a sometimes contentious 5 effort to establish some legitimacy in a -- a 6 real function for the Bingo Advisory Committee. 7 I understand the staff's interests, I think, 8 having served in government for a long time. 9 This is an advisory committee. They don't -- 10 they're not the regulator. The staff and the 11 agency have interests that are sometimes 12 different from and opposed to the industry. 13 They have a desire to move forward on things 14 and put things in place frequently that they 15 believe are, if not necessary, then very good 16 policy. 17 On the other hand, people in the 18 regulated community and in the Bingo Advisory 19 Committee have an interest in a stable process 20 that produces a -- an outcome that is informed 21 by their legitimate interests. I thought the 22 two-reading process was a good one and 23 advisable. I believe in watching the people 24 involved that they have accepted that their 25 role is a limited but important one. I think 0068 1 the quality of performance in those meetings is 2 far superior at this time than it ever has 3 been. 4 Frankly, before we started to 5 try to improve this process, I was for getting 6 rid of the Bingo Advisory Committee altogether, 7 because it was mostly a shouting and 8 complaining match and very seldom was getting 9 down into the -- you know, the nitty-gritty. 10 I think the August meeting was 11 probably less productive than it should have 12 been. And I -- I think that it was probably 13 because there was way too much on the plate for 14 that process to digest. And at the same time, 15 you know, you -- we are government people, 16 y'all. I mean, let's face it. We are 17 government people. We understand these 18 processes. You know, I didn't get up and talk 19 about every aspect of the rules this morning 20 that I might still have a problem with, because 21 I know that the process is going to move along 22 and I'm going to get my two cents in during the 23 comment period and all of that. 24 These other people are everyday 25 citizens of Texas. And their primary deal is 0069 1 to make a living, take care of elderly people, 2 respond to tornado victims, and that sort of 3 thing. And so there's a learning process going 4 on there. 5 I don't think that I can 6 rationally advocate, nor do I think I would win 7 if I did, a process that straight-jackets the 8 Commission or the Commission staff, but I do 9 think we should have an understanding that 10 those things that are exigent should move on 11 forward if the agency and the staff in it's 12 judgment feels like it needs to move on forward 13 on those things. And those things that are 14 not -- don't need to move forward due to 15 exigent circumstances should go through that 16 process, so the people who we have gone to 17 great lengths to get to participate in the 18 process will feel like their participation 19 counts for something, so they will learn over 20 time to make that participation more effective 21 in the kinds of issues and things that need to 22 get ironed out. 23 I have sensed that feeling 24 amongst people arising and developing, and 25 sensed that they're having to come to grips 0070 1 with some issues. They -- you know, nobody 2 likes to be regulated. Nobody wants to do what 3 they're told to do. I certainly don't. But 4 people are coming to understand more of the 5 agency's concerns and what's necessary to have 6 integrity in the bingo industry. And I think 7 it's through that process that that's been 8 developing. 9 The reason there's not a crowd 10 of people here today to participate in 11 discussion of these rules or this issue is 12 frankly because I discouraged it. People 13 are -- they're tired. They've spent a lot of 14 money and they -- out of their own pockets and 15 a lot of time. And they've come down here and 16 participated, I think, to an extraordinary 17 degree. And Mr. Chairman, you in particular 18 deserve a high degree of credit for having lit 19 a fire under people and told them if you're 20 going to participate, get down here and 21 participate regularly. 22 Because the -- these rules -- 23 the current rules that you guys have voted to 24 publish have been out there for a long time and 25 people have had a lot of input, I recommended 0071 1 to them that they save their energy, keep their 2 powder dry, don't spend their money, don't come 3 down, and we would participate in the public 4 comment period rather than trying to come down 5 and -- and just keep, you know, pounding on 6 these issues over and over and over until we 7 got absolutely every jot and tittle that we 8 wanted. 9 So I would strongly advise that 10 the wisest course of action is to adhere to a 11 two-reading process, absent some good 12 justification for deviating from that process. 13 And let me give a couple of examples of what 14 I -- if I can come up with a couple. Let me 15 give one example where I -- that I think fits 16 the current case. The Opinion Rule, I think, 17 that -- that -- although people in the -- in 18 the bingo world are concerned with the outcome 19 of those opinion requests and they have 20 questions; we have diligently worked, and I 21 think effectively so, to keep an avalanche of 22 opinions coming to the agency until there was a 23 process and a rule in place. I think Ms. 24 Kiplin will verify that we have -- we have 25 helped substantially in that role. The 0072 1 day-to-day workings of individual people in the 2 regulated community are not going to be 3 immediately impacted by the contours of that 4 rule. And yet, the agency does have, I think, 5 an overriding interest to getting a process 6 into place so people understand how to ask -- 7 ask the questions, so the question process 8 doesn't get gamed and all of those things. So 9 I would -- I can put that into a separate 10 category and not worry about -- I don't even 11 know if it's been through two readings or if 12 the BAC has already said, okay, we are done 13 with it, but... 14 On the other hand, the Registry 15 Rule, even though it's come a long way, and 16 I've got a couple of nuances that I'd like to 17 see fixed, and even though I think it's -- as I 18 said earlier, it's perfectly ready to be 19 published, there's no exigent circumstance to 20 have gone forward on that rule and not to have 21 gone back to a second reading on that. So you 22 all have already done that. I did not oppose 23 doing that. I advised my clients not to come 24 down and oppose doing that, but what I would 25 say to you is I think we do need to follow a 0073 1 process that people understand and to adhere to 2 that process as often as we can. If they need 3 to meet more frequently -- and I think Ms. 4 Kiplin and I have talked about this, there's a 5 desire in the agency to keep the process 6 moving. If they need to meet more frequently, 7 while that will entail more work for me and 8 more travel for my clients, we would support 9 that provided there's an orderly process of 10 regular -- regular meetings. If you get 11 through two readings and the staff is not in 12 agreement or the BAC votes something down and 13 the staff wants to go forward, well, then I 14 think that just speaks to the -- to the nature 15 of the process and their limited advisory role. 16 And in light of Commissioner 17 Olvera's attendance, I'll shut up. 18 CHAIRMAN CLOWE: I'd like to 19 note that Commissioner Olvera was able to join 20 us at 9:58. 21 And Commissioner, we are on item 22 ten on the agenda. We have covered items one 23 through nine relative to bingo rules which have 24 been proposed for public consideration. And we 25 are now talking -- taking input from Mr. 0074 1 Bresnen as a representative of the bingo 2 industry following Mr. Atkins' comments about 3 the activity of the Bingo Advisory Committee 4 relative, mostly at this point, to rulemaking 5 and some of the things that have -- have come 6 to the surface as a result of this process. 7 MR. OLVERA: Thank you, Mr. 8 Chairman. And please excuse the delay. I've 9 been in Austin for approximately an hour, but 10 evidently arriving and landing are two 11 different issues, so please excuse the delay. 12 CHAIRMAN CLOWE: You don't 13 control the fog, do you? 14 MR. OLVERA: That's right. 15 CHAIRMAN CLOWE: Commissioner 16 Cox, did you have some comments that you'd like 17 to make now? 18 MR. COX: I do. 19 CHAIRMAN CLOWE: Please go 20 forward. 21 MR. COX: Mr. Bresnen just said 22 that nobody wants to be regulated, but everyone 23 wants timely guidance. And that's the issue 24 that I think we are questioning here is how do 25 you trade off the participation of the industry 0075 1 with getting timely guidance out there for the 2 industry? To me, this -- this issue is not 3 about whether the -- right now the industry is 4 getting two bites of the apple; they're getting 5 one through the Advisory Committee process, and 6 they're getting one in the public comment 7 process. The two readings at the -- at the 8 Bingo Advisory Committee would give the 9 industry three bites -- bites of the apple. 10 That's not my issue. My issue is that if the 11 rules that came to the Bingo Advisory Committee 12 back in July or whatever, the rules that we see 13 today, had come to us in July, right now they 14 would be being published. And so the question 15 to me is just cost and benefit. There is cost 16 to this process and it has some benefit and 17 which outweighs the other. And I don't know 18 what the answer is. 19 For me, if you look at some of 20 these things, I would say -- gosh, if I were 21 the industry, I would be begging for you to 22 forego the BAC on the Unit Accounting Rule, get 23 it before the Commission, get it exposed and 24 get it in place so we could start doing it. 25 And so, Mr. Chairman, I'm just -- I don't have 0076 1 an answer to this, but I -- that's the 2 question, I think. And I'd like to see us 3 frame the work that we do toward this with the 4 understanding that both participation and input 5 and time are important. 6 CHAIRMAN CLOWE: Thank you, 7 Commissioner Cox. 8 Steve, as you know, I've been on 9 your side of the table more than I've been on 10 this side of the table. 11 MR. BRESNEN: Yes, sir. 12 CHAIRMAN CLOWE: And I am very 13 responsive to the comments that you made, and I 14 think you and Steve Fenoglio are effective on 15 behalf of your bingo clients, and for the most 16 part, I think your involvement has been very 17 positive. You have -- you have helped the 18 staff, in my opinion, overall and for that, I'm 19 appreciative. 20 The Commission, in my opinion, 21 wants to help the communications process in 22 dealing with these issues in the bingo 23 industry. And I know Commissioner Cox has 24 attended a number of Bingo Advisory Committee 25 meetings. He, in my knowledge, attended the 0077 1 meeting in August that I missed in its 2 entirety. And although I didn't hear from him 3 directly, I heard from staff, as you've 4 indicated, your feeling is that meeting was not 5 very productive or as productive as some of the 6 prior meetings. And I don't know the details 7 on that, but it is unfortunate because I 8 thought up to that time from the meetings I was 9 attending this rulemaking process was moving 10 along very effectively. So we seemed to have 11 slipped a cog there somehow. 12 I understand the individual 13 interests of the members of the Bingo Advisory 14 Committee. That's the seat I've been in for 15 many years in other associations, trying to 16 represent my own company in an association. 17 But the Bingo Advisory Committee is not a trade 18 association; it is a group of individuals to -- 19 brought together, at their own expense now -- I 20 think the law's been changed. They're not even 21 being compensated for their travel expenses, if 22 I'm recalling that correctly. 23 MR. BRESNEN: You're right. 24 CHAIRMAN CLOWE: And so, you 25 know, if they only now want to meet once a 0078 1 quarter--and apparently the August meeting was 2 the last meeting until the next meeting which 3 is scheduled in November--now, I can't say that 4 I don't understand that. 5 MR. BRESNEN: Sure. 6 CHAIRMAN CLOWE: And they do, in 7 addition to their travel expense, which now 8 they personally or their organizations pay for, 9 I guess, if that's within the use of proceeds, 10 and that's a question too, maybe it just has to 11 come out of their own pocket; they have to give 12 up their time; and they have to be away from 13 employment on behalf of their organization. So 14 it's a -- it's an added burden. 15 I wanted the progress that I saw 16 us make over the period of time that we had 17 almost some raucous meetings, where I was 18 advising, to speak your piece, come down here, 19 be involved, go to the legislature. And I 20 think a lot of that took place. It's a 21 difficult problem for me as a commissioner to 22 try to see that all the things that your 23 industry wants to achieve are accomplished. 24 I'm not sure that that's my role as a 25 commissioner. I think there has always been a 0079 1 divergence of wants between a regulated 2 industry and the regulating agency, and you 3 come down hopefully somewhere in the middle. 4 And that's where, I think, you and others in 5 your industry, the individuals, as well as the 6 paid representatives are an effective group for 7 input to the staff and the Commission. That's 8 a general response to some of the things that I 9 think you have said and maybe some things that 10 you and others have in your mind. 11 The Sunset recommendation, if I 12 remember correctly, advised doing away with the 13 Bingo Advisory Committee. And -- 14 Am I right in that, Billy? 15 MR. ATKINS: No, sir. I 16 don't -- I don't think they recommended doing 17 away with the Advisory Committee. I think they 18 recommended the Commission assess the 19 usefulness of the Advisory Committee and 20 decide -- 21 CHAIRMAN CLOWE: Okay. Well, we 22 have a little different recollection, and I'm 23 sure you're right, but I think my take on it 24 was that they didn't think it was very 25 effective and they wanted to make it more 0080 1 effective. And whatever their recommendation 2 is stands for itself in the record. 3 MR. BRESNEN: Sure. 4 CHAIRMAN CLOWE: But it hasn't 5 been as effective as -- as I hope it is now and 6 can be in the future. You know, Commissioner 7 Cox and I have attended those meetings separate 8 and apart from each other--Commissioner Olvera 9 has not had the opportunity because he wasn't 10 on the Commission--and I think you can expect 11 us to be involved in the future as part of our 12 responsibility. I don't think I'm ready to 13 instruct the staff to give it two readings for 14 sure when there's a meeting once a quarter. I 15 just don't see that as a practical, orderly 16 conducting of business in rulemaking on the 17 Commission's behalf. 18 MR. ATKINS: Mr. Chairman, can 19 I -- real quickly, I want to clarify something 20 that I think you -- that I heard you say that 21 the Advisory Committee only wants to meet once 22 a quarter. And I don't know that I recall them 23 actually making that statement; that's just 24 what they've been doing. That's the practice 25 that they've fallen into in compliance with 0081 1 the -- with the act. They have not so far been 2 asked to meet more frequently. 3 MS. KIPLIN: If I might -- if I 4 might be able to weigh in and let you know that 5 your Bingo Advisory Committee Rule says that 6 they shall meet quarterly or at the call of the 7 Commission. So one -- you know, one thought is 8 to instruct the Bingo Division that if he, in 9 the rulemaking process, believes that they need 10 to meet more frequently than once a quarter to 11 call them together. I'm just raising that as 12 an option, but it is the rule that says, 13 quarterly or at the call of the Commission. 14 CHAIRMAN CLOWE: Well, it seems 15 to me that prior to Virginia becoming the 16 Chair, the committee was meeting pretty 17 regularly once a month and that practice 18 continued. She -- she conducted meetings once 19 a month for sometime. 20 MR. BRESNEN: Yes, sir. 21 CHAIRMAN CLOWE: And I'm not 22 aware of how the quarterly process got into 23 place, but I bring that up relative to 24 rulemaking and the moving of that process 25 along, as well as dealing with other issues. 0082 1 This Commission, I don't think, could do it's 2 business meeting once a quarter. We have to 3 meet once a month, not that the BAC should be 4 compared to the Commission. 5 MR. BRESNEN: Sure. 6 CHAIRMAN CLOWE: It just is an 7 illustration that comes to mind. 8 MR. BRESNEN: Mr. Chairman, if I 9 might, I think -- I hate to see the partial 10 dysfunctionality of that August meeting drive 11 the agency away from a process that, by your 12 statement, was working. 13 CHAIRMAN CLOWE: That's fair. 14 And -- and maybe I shouldn't have even made 15 that comment, but I -- 16 MR. BRESNEN: No, I think 17 it's -- 18 CHAIRMAN CLOWE: I'm expressing 19 some personal concern and maybe some 20 disappointment, because I thought we were 21 moving along so well. 22 MR. BRESNEN: And nobody is more 23 disappointed than I am about that. And nobody 24 is more disappointed that we're not further 25 along on the Unit Accounting Rule and the 0083 1 Charitable Distribution Rules. I believe that 2 those entail some issues that are a little 3 meatier and a little more difficult, but at the 4 same time, they were brought up originally with 5 a whole lot of other stuff around them that 6 again didn't meet Bresnen's exigent 7 circumstances proposal. And so I think we -- 8 and I fully participated in the, you know, 9 development of the agenda. And I don't recall 10 myself ever saying, you know, whoa, this is too 11 much too soon here. But I think looking back 12 at it, I was a participant in setting that 13 meeting up for a problem and being less 14 productive than it should have been. And you 15 know, it's just -- you're -- you both know that 16 it's a matter of balance and sort of how do we 17 split this baby in a wise way. And all I'm 18 suggesting is, is that if we, generally 19 speaking, follow that process and then indicate 20 that the BAC needs to meet as often as -- as 21 necessary to accommodate the agency's interest 22 in having a methodical approach to its 23 business, then I think that that will all work 24 out. And I'm suggesting to you that as a 25 matter of people, it is a -- it would be a -- 0084 1 not a good thing to retreat from something that 2 we have worked so hard to put in place. 3 CHAIRMAN CLOWE: And -- and I 4 think those comments are well made, and -- and 5 I'm a little concerned about the suggestion of 6 directing the committee to meet once a month, 7 because I think I know those folks fairly well. 8 And I don't think it would be successful if we 9 said to Billy, you tell them to come here every 10 month. I -- I think that they need to feel 11 like they want to come every month, and they 12 want to come and do business and they come 13 prepared -- 14 MR. BRESNEN: Yes, sir. 15 CHAIRMAN CLOWE: -- to do their 16 business. And I don't think I'd like that if I 17 were them. 18 MR. BRESNEN: Didn't they put 19 together a work plan? 20 MR. ATKINS: Yes. 21 MR. BRESNEN: Wasn't that part 22 of the deal? And, you know, I don't know if -- 23 what -- what the work plan envisions, but 24 certainly it ought to envision the issues that 25 the agency and the staff are bringing forward. 0085 1 And if it doesn't, I would suggest an amendment 2 to the work plan. And they -- I'm not here 3 as -- I'm not on the committee and nobody 4 deputized me, but I've done a heck of a lot of 5 organizing in the last year-and-a-half or two 6 years, and I've seen people get involved as you 7 requested. And I think if we -- if we don't 8 keep on keeping on with that, then we'll -- you 9 know, you know how people are, they'll go off 10 and they'll say, well, our involvement doesn't 11 count. And there's, you know, a certain amount 12 of that you can't do anything about, but... 13 CHAIRMAN CLOWE: But you don't 14 feel that this last August meeting was a sort 15 of throwing up of hands and saying well, we -- 16 something negative? You feel we have still got 17 the momentum? 18 MR. BRESNEN: I think the reason 19 that the rules that are on the agenda today are 20 in the condition that I can come down here and 21 say, hey, you know, maybe the process didn't go 22 like it was supposed to, but they got on the 23 agenda, I think is largely due to that August 24 meeting. A lot of issues got raised in that 25 August meeting, and so -- you know, it's -- it 0086 1 was a little ugly, but you know -- I guess I 2 could make some inappropriate analogies now and 3 I won't, but the bottom line is -- 4 CHAIRMAN CLOWE: Some come to my 5 mind. 6 MR. BRESNEN: Sorry. I guess 7 I'll -- with members of the press present, I'll 8 just -- 9 CHAIRMAN CLOWE: We may have 10 been thinking of the same things. 11 MR. BRESNEN: The bottom -- the 12 bottom line is, the people were -- it was 13 meaty. People were talking about issues there. 14 And they were, I think, legitimate issues to be 15 addressed in rules. And so, you know, while it 16 may not have been as neat as, you know, a few 17 of us meeting behind the scenes and parcel the 18 language and swapping Emails, I think it did 19 have the salutary effect of -- of people being 20 involved and feeling invested in the 21 Commission's work. And I don't -- this is 22 probably more time than we -- than you all 23 intended to spend on the subject matter, but... 24 CHAIRMAN CLOWE: No. I think 25 it's important. And I hope you and Steve 0087 1 Fenoglio will take some of the benefits of this 2 discussion back with you and -- 3 MR. BRESNEN: We certainly will. 4 CHAIRMAN CLOWE: I think what 5 you're hearing is the expression on behalf of 6 Commissioner Cox and myself, and you know, we 7 want the Bingo Advisory Committee to be 8 effective. We want the members to understand 9 their advice to the Commission is sought; it's 10 important. We want the staff to interact with 11 you and others representing -- I think you've 12 been named almost in every case on these 13 rules -- 14 MR. BRESNEN: Yes, sir. 15 CHAIRMAN CLOWE: -- that have 16 been presented. To me, that's the process that 17 is most beneficial to the staff in coming up 18 with rules to recommend to the Commission. We 19 just -- Commissioner Cox said that, you know, 20 he doesn't have the answer. I don't have the 21 answer either. 22 MR. BRESNEN: Yes, sir. 23 CHAIRMAN CLOWE: I hope we are 24 working towards the answer, and we want to 25 improve the regulation of this industry as best 0088 1 we can. But as you know, Steve, because you've 2 been in the other role, we have constraints, 3 and requirements, and needs that we must 4 fulfill. 5 MR. BRESNEN: Sure. I do -- I 6 do understand that. And I'm -- I'm hoping that 7 we have been cognizant of those. I know during 8 the legislative session, I believe that we were 9 responsive in our negotiations over the bill on 10 things -- for -- for example, the whole reason 11 that a person has to be on the registry to work 12 at a bingo hall was that the staff raised the 13 concern that there were some bad actors that 14 would get in trouble at one hall and get fired 15 and go down the road. I like to think I played 16 a constructive role in resolving that. It's 17 not only an interest to the agency to be able 18 to do that; it's an interest to the industry to 19 be able to get bad actors out of it. So I 20 think we are doing that. My name was mentioned 21 a lot today, and I can't fault -- I can't fault 22 my personal participation in it. I'm just -- I 23 guess I'm just saying after the couple of 24 decades of doing this that to keep these -- 25 keep the people involved and invested in the 0089 1 process as much as you can within the agency's 2 interest, if you'll adhere to that process that 3 they've come to understand, I think it will pay 4 benefits in the short and the long run. 5 CHAIRMAN CLOWE: Mr. Atkins, 6 I'll give you another bite at the apple, if 7 you'd like it. 8 MR. ATKINS: Well, I don't know, 9 Commissioners, how long you want to go on or 10 how many hairs you want to start splitting, but 11 the -- I think the intent of the process that 12 we put in place was to gain as much public 13 input to proposed rules before they got to this 14 point. And even if it hasn't necessarily 15 always been a pretty process, I think we have 16 done that. I'll go back and use the example 17 that Steve used on the Advisory Opinion. The 18 Advisory Opinion is the only rule that I think 19 truly was only seen by the Advisory Committee 20 one time. On the other two rules, the Gift 21 Certificates and the Registry of Workers, even 22 though there wasn't a draft rule for the 23 committee to see, the Advisory Committee had 24 appointed a subcommittee to begin working on 25 that rule at the June meeting. So you know, 0090 1 that's when we started the public input 2 process. And -- I mean, I'm not prepared to 3 tell you today that on every single rule, I'm 4 going to recommend that it be read at two 5 different times by the Advisory Committee, 6 because I just -- I can't do that. But I -- I 7 do agree wholeheartedly that the public input 8 that we have been able to gain before the rule 9 is published in the Texas Register has been 10 very beneficial to us. 11 CHAIRMAN CLOWE: And I don't 12 think you had any commissioner direct you 13 towards that response. 14 MR. ATKINS: Right. 15 CHAIRMAN CLOWE: And I think 16 there's been a good opening of conversation 17 here of wants, and desires, and capabilities, 18 and I think it's been time well spent. And 19 I -- I think we are going to have to have some 20 more of these maybe here in Commission meetings 21 and before the BAC. 22 MR. BRESNEN: Yes, sir. 23 CHAIRMAN CLOWE: Commissioner 24 Cox, do you want to add anything? 25 MR. COX: No, I don't. 0091 1 MR. BRESNEN: Thank you for your 2 time. I appreciate it. 3 CHAIRMAN CLOWE: Thank you, sir. 4 Commissioner Olvera, anything to 5 add? 6 MR. OLVERA: No, sir. 7 CHAIRMAN CLOWE: We are now, I 8 believe, ready to take up the much anticipated 9 item number 11. 10 Are you finished, Mr. Atkins? 11 MR. ATKINS: For the time being. 12 CHAIRMAN CLOWE: For the time 13 being. That's the best we can hope for from 14 you, I guess. 15 Okay. We are ready, then, to 16 take up number 11, the possible discussion and 17 consideration of action on the Commission's 18 participation in Mega Millions 19 multijurisdiction lottery game. 20 MR. GREER: Commissioners, good 21 morning. Commissioner Olvera, good to see you. 22 You guys ready to roll, Robert? 23 MR. TIRLONI: Yes, sir. 24 MR. GREER: We are going to 25 start this morning with an overview 0092 1 specifically for you, Commissioner Olvera, to 2 give you some institutional knowledge on what 3 brings us to this point today, as a general 4 review. 5 I'm going to turn it over at 6 this point to Robert Tirloni, who is our 7 On-line Product Manager and our new acting 8 Marketing Director, Toni Erickson, who I will 9 talk about in -- in a moment I'll mention her. 10 To kind of begin the process by 11 this overview and -- and Commissioner Olvera, 12 specifically, I think there will be some things 13 in here that will give you a much clearer 14 perspective as we move forward into the 15 discussion. 16 Robert? 17 MR. TIRLONI: For the record, my 18 name is Robert Tirloni. I am the On-line 19 Product Manager for the Texas Lottery 20 Commission. Good morning, Commissioners. 21 Commissioners, the last meeting where a formal 22 presentation was made about the Mega Millions 23 game was in early August. Since that time, 24 staff from almost every division within the 25 agency has been planning, preparing and working 0093 1 towards an eventual Mega Millions game launch 2 in the state of Texas. Staff has travelled to 3 observe the live Mega Millions drawings in 4 Atlanta. We have attended the financial 5 processing that takes place after every drawing 6 in Virginia. We have participated in and 7 observed the Mega Millions jackpot estimation 8 conference calls. And we have witnessed 9 firsthand how many Mega Millions party 10 lotteries successfully participate in a draw 11 process that in some cases takes place across 12 the country. 13 Today, I'm here to present to 14 you a brief recap of the Mega Millions game. 15 And because at the Texas Lottery Commission we 16 like for our games to be as unique as possible, 17 I will present a special new game feature that 18 only Texas players will be able to enjoy at 19 game launch. So to begin our recap, the Mega 20 Millions game is jointly operated by ten party 21 lotteries. Those ten party lotteries perform 22 all the game functions to operate the Mega 23 Millions game. There are currently at this 24 time five standing committees. And those 25 committees include legal, finance, operations, 0094 1 marketing and communications. Staff from all 2 lotteries participate in each of those 3 committees. And at certain times, ad hoc 4 committees are created in order to study, or 5 research, or consider any type of special game 6 enhancement, or game feature, or just the 7 overall operation of the game. And staff from 8 party lotteries would also participate in those 9 ad hoc committees. 10 The party lotteries include 11 Georgia, Illinois, Maryland, Massachusetts, 12 Michigan, New Jersey, New York, Ohio, Virginia, 13 and the State of Washington. Next we'll hit on 14 some of the highlights of the Mega Millions 15 games, some of the game features. The jackpots 16 start at $10 million dollars. The drawings are 17 held every Tuesday and Friday at 10:00 p.m. 18 central time. The second prize in the game is 19 an attractive prize, it's $175,000 dollars. It 20 does cost $1 dollar per play. There are nine 21 different ways to win or nine prize categories. 22 The player chooses an annual payment option or 23 a cash value option if they win the jackpot 24 prize. And the matrix is a 5 of 52, 1 of 52. 25 That's a bonus ball style matrix, similar to 0095 1 our own Lotto Texas matrix, and actually, very 2 similar to our Texas Two-step matrix. 3 To continue the recap, I just 4 mentioned the attractive second tier prize of 5 $175,000 dollars. This chart is actually a 6 draft chart. This is a graphic that we hope to 7 place in our How to Play brochure. We like 8 this chart because we feel it gives players and 9 retailers a very good visual graphic 10 representation of how you play or how you win 11 the game. So, for example, to win the jackpot 12 prize, players have to match all five numbers 13 drawn from the first set of 52 and the gold 14 mega ball drawn from the second set of 52. 15 You'll also notice that the $175,000 dollar 16 prize all the way down to the $2 dollar prize, 17 those are guaranteed prize levels. However, 18 the second, third, fourth and fifth prize can 19 in some drawings become paramutual if a 20 liability cap were to be hit. To date, that 21 liability cap has never been hit and those 22 prizes have never gone -- they've never been 23 other than the amounts that you see there. I 24 mentioned earlier about a special multiplier 25 feature or a special game feature, and that 0096 1 game feature is the multiplier feature. During 2 our very initial player research when we were 3 considering a multijurisdiction game, we went 4 out and did player research. And we discovered 5 during that research that a multiplier feature 6 adds excitement to the game. During subsequent 7 financial analysis, we realized that the 8 multiplier feature or a multiplier feature, 9 when introduced simultaneously with the base 10 game will gain acceptance quicker and will 11 generate higher sales than if the multiplier 12 feature were to be introduced, say, five or six 13 months after the base game were introduced. 14 Back in August, Executive 15 Director Greer made a recommendation to the 16 Commission and there were three critical 17 factors that he considered in terms of 18 participating in the Mega Millions game. And 19 those factors were revenue to the state, 20 cannibalization of our existing games, and the 21 game that was the best fit for the State of 22 Texas. And a part of that recommendation was 23 to launch Mega Millions with a Texas 24 multiplier, known as Megaplier. 25 And here, Commissioners, for the 0097 1 first time, you'll see our proposed Texas 2 Lottery Mega Millions logo. You'll notice that 3 the Megaplier is a very important part of the 4 game, and therefore, it is a very prominent 5 part of the actual game logo. 6 So how does the Megaplier work? 7 Well, the Megaplier is offered to Texas players 8 only, and it costs an additional $1 dollar per 9 play with your Mega Millions purchase. 10 CHAIRMAN CLOWE: Robert, when 11 you say Texas players only, you don't have to 12 have a Texas birth certificate to qualify, do 13 you? 14 MR. TIRLONI: No, sir. You have 15 to just be in the state of Texas when you make 16 your purchase. 17 CHAIRMAN CLOWE: Oh, okay. 18 MR. TIRLONI: The -- the best 19 way to sum up the Megaplier feature is to say 20 that it allows players to multiply their 21 non-jackpot prize winnings up to four times. 22 You cannot increase the jackpot prize amount by 23 playing the Megaplier feature. The Megaplier 24 number, which will be either a two, three, or 25 four, will be selected in a drawing that will 0098 1 occur before every Mega Millions drawing. 2 The Megaplier number will be 3 chosen or selected from a field of 21 numbers, 4 and I've given -- I've provided a chart that 5 shows the relative frequencies. So out of the 6 21 numbers, there are 12 number fours, there 7 are seven number three's, and there are two 8 number two's. And the corresponding odds 9 are -- are listed in that table, as well. So 10 the odds of a four drawn -- being drawn in a 11 Megaplier drawing are one in 1.75; the odds of 12 a three being drawn are one in three; and the 13 odds of a two being drawn are one in 10.5. So 14 any non-jackpot prize that a player wins on a 15 Mega Millions play will be multiplied by the 16 Megaplier number drawn if you've purchased or 17 participated in the feature. And I -- for an 18 example, if a player wins $150 dollars on Mega 19 Millions and the Megaplier drawn is three, the 20 player would win $450 if they elected to 21 participate in the Megaplier feature. 22 Here is a chart -- another chart 23 that we hope to put into our How to Play 24 brochure to illustrate how the Megaplier number 25 can affect the player's total prize. I think 0099 1 the prize amount that's of -- of greatest 2 interest or significance to a player would be 3 the $175,000 dollar prize. If a player won 4 that prize, they matched all five balls from 5 the first set of 52, and they won the $175,000 6 dollar prize, if they elected to purchase the 7 Megaplier feature, and let's just say a three 8 was drawn, they would win $525,000 dollars. 9 So how does a player actually 10 play the Megaplier feature? The player could 11 use a play slip when they make their Mega 12 Millions purchase. They would choose five, 13 again, out of the first set of 52, or they 14 could use the quick pick feature; then they 15 would select their one Mega ball number from 16 the second set of 52 or they would use the 17 quick pick feature. This whole play board or 18 that play costs $1 dollar. If they wanted to 19 elect to participate in the Megaplier feature, 20 all they would do is fill in this yes box on 21 the play slip where it says Megaplier. Their 22 purchase then becomes a $2 dollar purchase, and 23 they are -- their wager is -- is considered to 24 be a Megaplier wager. The player does not 25 choose a number when they're playing the 0100 1 Megaplier drawing. They don't choose the two, 2 the three, or the four. They just choose to 3 participate in that feature of the game. 4 So how is our drawing schedule 5 going to work on Tuesday and Friday nights here 6 in Texas? 7 CHAIRMAN CLOWE: Did you want to 8 tell us how they get the Megaplier number at 9 this point? 10 MR. TIRLONI: How do we draw the 11 Megaplier number? 12 CHAIRMAN CLOWE: How do they get 13 the Megaplier number? If they're playing, how 14 do we hear the Megaplier number? 15 MR. TIRLONI: I'm -- that's 16 coming next. 17 CHAIRMAN CLOWE: Oh, well, 18 sorry. 19 MR. TIRLONI: Two more slides. 20 At approximately 9:45 on 21 Tuesdays and Fridays, the Mega Millions draw 22 break begins, and that basically means that 23 Mega Millions sales stop in all party -- in all 24 party lotteries. At approximately 9:50 to 25 9:55, the Megaplier drawing will be held in 0101 1 Texas and will be taped by the Texas Lottery's 2 broadcast production vendor. At 10:00 o'clock 3 p.m. central time, the Mega Millions drawing is 4 held live in Atlanta, Georgia. And that live 5 drawing feed will be received here in Texas via 6 satellite and will also be taped. 7 There are other in-state games 8 that are also drawn on Tuesday and Friday 9 nights. So at 10:00 o'clock, the draw break 10 will begin for our in-state Tuesday games, 11 which are currently Texas Two-Step, Cash Five 12 and Pick Three. Between 10:00 and 10:12, our 13 broadcast production vendor -- vendor will 14 merge the taped Texas Megaplier drawing with 15 the taped Mega Millions drawing program. So 16 here's just a quick summary of what would -- 17 what would occur at 10:12 p.m. We'd go live 18 with our Texas Two-Step drawing, followed by 19 our Cash Five drawing, followed by our live 20 Pick Three drawing, and then we would -- we 21 would broadcast the tape-delayed Megaplier 22 drawing and the tape-delayed Mega Millions 23 drawing. 24 How will the Megaplier drawing 25 work? A random number generator will be 0102 1 certified by an independent third party to 2 ensure that the number selected by the RNG 3 represent a fair lottery drawing. The 4 Megaplier number will be selected using the 5 certified RNG and broadcast using an animated 6 drawing system. The Megaplier drawing will be 7 treated as any on-line game drawing in Texas. 8 The drawing will be conducted by Texas Lottery 9 security in the presence of an independent 10 auditor, and as are -- all our draw results are 11 currently, these drawing results will be 12 analyzed by the Texas Lottery's independent 13 statistical consultant, Dr. Randy Eubank. 14 I just wanted to give you a 15 breakdown of some lottery jurisdictions that 16 are currently using the random number generator 17 technology. Some of these states use random 18 number generator technology for all their 19 drawings; some of them use it for daily 20 drawings; some of them use it for just -- for 21 keno quick draw drawings, but all of these 22 jurisdictions are using some RNG technology in 23 their draw program. 24 We are now going to show you a 25 clip of an animated drawing. This -- this clip 0103 1 has a lot of graphics in it, so it's going to 2 take a few seconds for it to load. It's doing 3 that currently. And this is an animated 4 drawing from Minnesota. We're just showing 5 this to you so you get a feel for what some 6 states or what -- or from -- what jurisdictions 7 are doing in terms of their animated draws. 8 Some -- this drawing that you're going to see, 9 it was from February. And you'll notice that 10 in the drawing, as it zooms in on a lake, it's 11 snowing and the lake is frozen over; and when 12 it's springtime and they're airing their 13 drawings, they can go in and change the 14 animation. 15 (Clip being shown.) 16 MR. TIRLONI: That was the 17 Minnesota drawing. Now what I'd like to show 18 you is a 15-second roughcut of what a Megaplier 19 drawing could look like in the state of Texas. 20 This has been developed -- I want to just make 21 you aware that this is a roughcut, and I 22 emphasize the word rough. This is not 23 broadcast quality, nor is it TV quality, but we 24 wanted to kind of just paint the picture for 25 you of the direction that we're moving in 0104 1 for -- for this particular drawing program. 2 There is audio with it, and in the audio you 3 will hear the announcer read what the Megaplier 4 number is. You won't see that actually happen, 5 because it was much easier, of course, for us 6 to just record that audio, and we weren't 7 exactly that far along on the video, but we 8 wanted you all to get an idea of where we were 9 at with this. And again, when you see this, 10 it's going to play -- as soon as I get to the 11 next slide, you'll see a Pick Three screen, and 12 that's pretty much the close of our Tuesday 13 night drawing program, as it stands now with 14 Pick Three, and it would go right into the 15 Megaplier drawing, and then followed by that 16 would be the Mega Millions drawing. 17 (Clip being shown.) 18 MR. TIRLONI: And right from -- 19 would you like to see that again? I just 20 wanted to make sure everybody got it. 21 MR. GREER: Well, I'd like to 22 make a comment. You know, this is something 23 that we have been discussing. From a 24 technological perspective, it will give us a 25 chance to sort of put our toe in the water, so 0105 1 to speak, and you know, let us look at this. 2 It's something that we are testing out. One of 3 the aspects of it that I personally think is 4 nice is, similar to what Robert mentioned in 5 Minnesota, that we'll have an opportunity from 6 an animation perspective to do a lot of 7 different things with our drawings. 8 Specifically, we will start with the Mega 9 Millions. An example would be -- you know, 10 have different themes of different cities, 11 different, you know, events like yesterday, 12 which I'll talk about further in a minute, I 13 was at the State Fair. I mean something like 14 that. The opportunity there is limitless, and 15 that's -- just like Robert, I want to reiterate 16 that was a roughcut -- good job getting us to 17 that point, because we want to just give you a 18 feel for what we are talking about. 19 CHAIRMAN CLOWE: There will be 20 no cabins in the snow for us. 21 MR. GREER: No cabins in the 22 snow. 23 MR. TIRLONI: From a marketing 24 and sales point of view, Commissioners, the 25 initiatives that are planned are, of course, 0106 1 play slip production, how to play brochure 2 production, retailer and sales rep selling 3 sheets, and we have a lot of advertising 4 initiatives planned, including in-store 5 point-of-sale, TV and radio campaigns, and 6 outdoor jackpot billboards. Excuse me. 7 Commissioners, as I said at the 8 beginning of the presentation, staff has been 9 working diligently on this project for months. 10 Our salesforce is geared up, ready, and I think 11 Lottery staff is very excited and also ready to 12 move forward according to your direction today. 13 Thank you. 14 MR. GREER: Great. Good job, 15 Robert. Thank you. 16 I'm going to make some basic 17 comments at this point that brought us to this 18 juncture, and -- I want to thank the marketing 19 staff, specifically, for all their work on 20 putting that presentation together. 21 Commissioner Olvera, I hope that 22 gives you a little better idea since you came 23 in after we were kind of moving the process 24 along on what we are talking about and what the 25 game involves. 0107 1 As you know, over the past 2 weeks, months, I've been diligently working and 3 pursuing an agreement for Texas to enter into 4 the Mega Millions jurisdictional game. To that 5 end, the staff and I have been in negotiations 6 with Mega Millions, and as of today, finalized 7 those negotiations. I'm pleased to report to 8 you that the terms of the agreement have been 9 finalized with the other ten states that 10 participate in Mega Millions, so I'm prepared 11 today to execute the agreement on behalf of the 12 Texas Lottery Commission. This agreement will 13 move Texas Lottery to a new level. I'm 14 excited, obviously, about the potential for 15 additional revenue going into the Foundation 16 School Fund as a result of Texas entering into 17 this game, which is part of our mission 18 statement and what we are all about. 19 As with any business agreement 20 or activity, joining the Mega Millions game 21 will provide the Texas Lottery with not only 22 opportunities to generate additional revenue 23 for the state, but also with these 24 opportunities and this particular scenario of 25 joining Mega Millions, we are going to be able 0108 1 to form business relationships with new 2 colleagues, specifically with the ten states 3 currently in the Mega Millions game. I've had 4 discussions and met with these people 5 personally, with the executive directors from 6 across the country, the NASPL convention in New 7 Orleans, specifically, I was a part of their 8 meeting, and understood the significance of 9 what it means to build these relationships. 10 And I think it will be good for the Lottery as 11 a whole. 12 Over the last past weeks, we 13 have really been working toward getting to this 14 agreement phase, and I'm confident that we'll 15 be able to work together over time to achieve 16 further positive results for all the respective 17 jurisdictions within Mega Millions. 18 When I mentioned that during the 19 course of negotiations, agency staff identified 20 some business risks that are inherent with 21 joining the game. While I believe that the 22 benefits of joining the game far outweigh these 23 risks, obviously one of my goals as the 24 Executive Director of the Texas Lottery and as 25 a voting member soon-to-be hopefully, pending 0109 1 this action today, that I will be working with 2 the Mega Millions group in a leadership role 3 with the other directors as part of the 4 management and the operation committees of the 5 game, and I'll be looking for opportunity to -- 6 opportunities to assist in identifying and 7 working through some of these issues that I'm 8 going to touch on with you now. 9 Specifically, I want to share 10 with you information about some of the main 11 issues that I think we need to focus on as a 12 part of Mega Millions in the coming weeks and 13 months. The first is a shared prize liability. 14 The concept currently is utilized by Mega 15 Millions, and it's an issue that staff has 16 really studied very closely. To insure no 17 party lottery in Mega Millions game bears a 18 disproportionate share of the -- of the prize 19 liability for the payment of prizes at the 20 second through the ninth prize levels, which 21 Robert went over with you a moment ago on the 22 slide, each party lottery is responsible for 23 the payment of these prizes in an amount equal 24 to their state's percentage of sales for that 25 particular draw. While this shared prize 0110 1 liability process allows each state to better 2 provide a predictable stream of income in their 3 particular state and exists as a safeguard 4 against the risk of any state suffering an 5 inordinate loss or -- of revenue due to higher 6 than expected player prizes at the prize levels 7 below the jackpot level, the concept and this 8 process is new to Texas, and we will be closely 9 monitoring this scenario by staff to ensure 10 that it operates as expected. 11 The second point is that I will 12 be working closely with our staff and 13 specifically the agency's internal auditor, 14 Catherine Melvin, to identify where the audit 15 standards that are currently being employed by 16 Mega Millions might be improved for all the 17 states that are involved. Although it is my 18 understanding that all of the audit reports 19 that we examined were clean and looked good, we 20 believe that we can work together with the 21 member states to look at a more uniform 22 approach in the manner and the timing of these 23 important audit functions. 24 The third thing is there's 25 another issue that I'll be focusing on which is 0111 1 the current validation requirements in place 2 for the grand prize jackpot matching ticket in 3 the Mega Millions game. As I'm sure you can 4 understand, having ten states, now Texas 11 if 5 we move forward today, involved in one lottery 6 game, leads to different versions of similar 7 ticket validation software and hardware in each 8 of the various states. Trying to utilize a 9 one-size-fits-all approach for validating grand 10 prize jackpot tickets across the country is a 11 challenge. The Texas Lottery has one of the 12 most advanced and secure validation systems 13 available, and I'll be working with my 14 colleagues in Mega Millions to look at this 15 issue overall, keeping in mind the technology 16 currently available in their particular and 17 each individual jurisdiction. 18 The final point that I want to 19 bring to your attention today involves 20 obtaining all the relevant documents from other 21 states involved in Mega Millions. My 22 understanding is that there are some 23 contractual documents related to Mega Millions 24 game that have been entered into by one or more 25 of the Mega Million states, which for noted 0112 1 security reasons, have not been provided to 2 staff for review at this point. While my sense 3 is that these agreements are not critical in so 4 far as impacting a decision to join the Mega 5 Millions game, I believe that we should review 6 all documents that may impose an obligation on 7 the Texas Lottery Commission and obviously be 8 working toward getting ahold of those and 9 working through that process. 10 There are some other issues that 11 I also want to put out on the table, they were 12 raised and discussed at length by our staff 13 with the Mega Millions states as we worked 14 through the negotiation process. And those 15 would include the Megaplier concept, which we 16 just talked about. Texas will be a pilot state 17 for this program. We'll be the only Mega 18 Millions state that will be participating in it 19 at this point. And we discussed that at great 20 length, and there was a -- a comfort level with 21 that by the other executive directors. And 22 they'll be monitoring our progress on the 23 Megaplier. 24 Jackpot management was another 25 topic that we touched on. The location of the 0113 1 drawings is something that we initially had 2 given consideration to and are not ruling it 3 out in the future, but at this point don't feel 4 it's what we want to do. 5 There was also discussion by our 6 finance group, specifically looked into 7 extensively the prize reserve fund, an 8 installment payment length scenario still 9 exists, and we're going to continue to pursue 10 that with them. A post-draw election cash 11 versus annual payment for the grand prize prize 12 will also be looked at, purchase and specific 13 types of security for the annual payments is an 14 issue that we have discussed and negotiated, 15 subscription sales, some states do that. We 16 talked about that. The intellectual property 17 issue is certainly timely and one that we spent 18 quite a bit of time on as recently as, you 19 know, the last few days, and were working 20 toward an agreement in that scenario, which we 21 achieved. Arbitration for disputes is another 22 area that was a little bit different. We are 23 going to continue to study each of these issues 24 with our fellow Mega Million states after 25 formally moving ahead today, if that be your 0114 1 wish. Each of these issues were worked on 2 thoroughly by staff and addressed to my 3 satisfaction. I think at this point it's worth 4 saying that obviously in the state of Texas we 5 have a way of doing things. And it was an 6 opportunity for me a different -- to see a 7 different way of doing things in other states. 8 And a -- there was a lot that went into getting 9 us to this point today from an agreement 10 perspective. I enjoy the opportunity, but 11 realize there are some challenges and felt like 12 I needed to bring those to your attention as we 13 look down the road. 14 In summary, I'm pleased and 15 excited that we've reached a point that I can 16 bring this to you today where we can talk about 17 it further. I'm ready with your concurrence to 18 sign the Mega Millions agreement, which is back 19 here behind me. With the adoption of the 20 Emergency Rule that is also on the agenda 21 today, we are prepared to go forward without 22 delay and make the necessary procurements to 23 acquire goods and services necessary to ensure 24 an expedited game launch so that Texas lottery 25 players can begin playing Mega Millions as soon 0115 1 as possible and the Commission can begin 2 generating additional money for the Foundation 3 School Fund. The additional revenue to this 4 game will provide obviously a -- a new level of 5 excitement for players. People were asking me 6 about it yesterday at the State Fair. Because 7 of the higher jackpots, it will also provide 8 our players new opportunities on -- on the 9 other prize levels and with the new Megaplier 10 feature. And I feel that these more than 11 offset the business risks that I've outlined 12 here for you today. 13 At this point, I'm going to stop 14 and, let's -- you know, work through some 15 questions you may have, but I do have some 16 further comments that I want to come back to 17 after we have had an opportunity to -- to ask 18 questions and answer questions. 19 MR. COX: Reagan, I think of all 20 the issues that you mentioned, I've been 21 briefed on all but one, and maybe I've been 22 briefed on it under another -- another name. 23 MR. GREER: Okay. 24 MR. COX: You indicated that 25 there was a discussion of jackpot management. 0116 1 MR. GREER: Right. 2 MR. COX: Could you tell me what 3 that issue involves? 4 MR. GREER: I'll ask some of the 5 staff members to step forward that helped work 6 on this issue, specifically finance and Gary 7 can help talk about that as well. Gary Grief 8 has been the lead negotiator through the 9 process. I'll let Gary start. 10 I'll kind of do the clean-up, 11 and if you want to bring other staff members 12 up -- 13 MR. GRIEF: I'd ask Lee Deviney 14 to come forward. And while he's coming 15 forward, Commissioners, in general, this -- 16 jackpot management was a concept that we looked 17 at with the Mega Millions game because it's 18 currently being utilized by the power ball 19 group. And their strategy is when a jackpot 20 reaches a record level, a jackpot level that 21 has never been reached before, then the way 22 they work it is to only increase for future 23 rolls of that same jackpot before it's won in 24 increments of $25 million dollars. And the 25 additional sales that might come in as a result 0117 1 of the higher jackpots, instead of being 2 allocated towards the jackpot level, it is 3 rolled down to the lower level prizes. We were 4 intrigued by that approach, thought it worthy 5 of a discussion with the Mega Millions group. 6 And we did discuss that at length. And we are 7 today at a process where once we able -- are 8 able to join the game, if indeed that's what 9 the Commission decides, we will continue that 10 discussion. But the jackpot management 11 approach will not be utilized in the Mega 12 Millions game as it stands today. 13 Lee, do you have anything to 14 offer? 15 MR. DEVINEY: No, not on the 16 jackpot management, just agreed to look at it 17 and discuss it. 18 MR. GREER: I brought this issue 19 up with the directors in New Orleans 20 specifically as the Mega Millions meeting 21 ended, and it is something that they're willing 22 to look at. There's a number of things, you 23 know, that we were able to agree upon, and that 24 was something that they wanted to continue to 25 have on the table. 0118 1 MR. OLVERA: Mr. Greer, I do 2 have a quick question. In briefly reviewing 3 the agreement that's before us, and you 4 mentioned briefly the issue of arbitration, I 5 notice Texas elected to select non-binding 6 arbitration clause. What was the basis for 7 that decision? 8 MR. GREER: I'll ask Andy 9 Marker -- was our lead attorney on this, did a 10 great job. I want to thank him publicly for 11 all his work behind the scenes, and our general 12 counsel -- to address that issue. 13 MR. MARKER: Good morning, 14 Commissioners. For the record, my name is Andy 15 Marker. I'm Assistant General Counsel for the 16 Commission. 17 With regard to the arbitration 18 provision, there are two issues. You asked 19 about the non-binding arbitration, the 20 multistate lottery agreement, which Texas will 21 sign upon joining the Mega Millions group, 22 includes a dispute resolution provision, which 23 basically provides for a committee or 24 committees of party lotteries to hear disputes 25 of other party lotteries. There is also a 0119 1 provision for binding arbitration to resolve 2 disputes; some states have opted out of that 3 pursuant to their own state law. Texas' 4 position was that we agreed to binding 5 arbitration in light of our waiver of our 6 sovereign immunity, so we elected -- we opted 7 to only choose non-binding arbitration which 8 the Mega Millions group agreed to. 9 The other issue with regard to 10 arbitration disputes that Texas had proposed is 11 that any communications involved during 12 arbitration or mediation be kept confidential 13 pursuant to state and federal law. That 14 provision was not accepted by the Mega Millions 15 directors. 16 MR. OLVERA: And please let me 17 be clear, I -- I am an advocate of alternative 18 dispute resolution, and I strongly believe in 19 the merits of either mediation or arbitration. 20 Just so the Commission is aware, though, if you 21 go through non-binding arbitration, that 22 usually entails two bites at the apple; because 23 the losing party usually then proceeds with 24 their -- their remedies during -- with respect 25 to the -- legal remedies at the judicial level, 0120 1 so as long as we are aware of that and that 2 decision has been decided upon -- 3 MS. KIPLIN: Commissioner 4 Olvera -- 5 MR. OLVERA: That's the reason 6 for my question. 7 MS. KIPLIN: Sure. If I could 8 weigh in, we are a state agency, and as -- as a 9 state agency, we are -- we enjoy sovereign 10 immunity. The Attorney General's Office was 11 consulted within two different divisions. The 12 contracts were -- matters were consulted with 13 one division, the General Counsel Division, and 14 then the rule issue was with the Administrative 15 Law Division. 16 The position of the Attorney 17 General's Office, as I understand it, has been 18 longstanding that state agencies cannot agree 19 to binding arbitration because that would be 20 considered to be a waiver of sovereign 21 immunity, and we are not in a position to be 22 able to do that. 23 MR. OLVERA: Thank you. That 24 answers the question. 25 MR. COX: One more specific 0121 1 question. 2 CHAIRMAN CLOWE: Yes, sir. 3 MR. COX: One of the issues that 4 we had was the issue of there being two winners 5 in different states, one of those being Texas, 6 and the possibility that the other state might 7 buy and hold the investments that would satisfy 8 that liability which was a joint liability of 9 that state and Texas. Did -- how did that come 10 out, and was the State Comptroller okay with 11 how that came out? 12 MR. GREER: Lee Deviney, our 13 Financial Director, handled that, which I'll 14 let him address that. 15 MR. DEVINEY: I believe we are 16 in good shape there. We actually had a 17 conference call including some representatives 18 of the Comptroller's Office, Safekeeping Trust 19 Company and some Mega Millions representatives. 20 And what we found is that the way the -- the -- 21 the investments would be purchased would be a 22 delivery versus payment process. And that if 23 there is a -- a split trade, if you will, where 24 there is two different lotteries involved, and 25 two different -- so they will buy two sets of 0122 1 equal investments, Texas would pay directly for 2 Texas investments to be delivered directly to 3 Texas. You know, which we didn't know -- 4 MR. COX: That worked out better 5 than it looked like it was going to work out. 6 MR. DEVINEY: Yes, sir. 7 CHAIRMAN CLOWE: Reagan, I'd 8 like to hear some conversation about the 9 revenue production estimates. 10 MR. GREER: Pat? Do you want to 11 cover that? 12 MR. DEVINEY: Yeah, I'll get 13 started. I'd also like to invite Patty Leo up 14 here. She did quite a bit of the work on this. 15 I'll just lead off, then I'll let Patty join 16 in. 17 The estimates that we are 18 looking at for the Mega Millions -- joining the 19 Mega Millions game with the multiplier feature 20 as part of the game at game launch, we felt 21 that based on research that there would be a 22 bigger impact and be greater player interest if 23 we did the two things simultaneously. And what 24 we are hoping to produce in -- you know, 25 starting off -- and this would be a partial 0123 1 year, obviously, but it would -- you know, ten 2 months into 2004, we would be looking at about 3 $258,000,000 million dollars in sales about 4 $479,000,000 million dollars in sales the 5 following year. Net revenue for the first 6 partial year, about ninety-one-and-a-half 7 million dollars and about $120,000,000 million 8 dollars fiscal year '05, and then increase a 9 little bit each year beyond that. We feel like 10 we are estimating that the Megaplier would 11 generate about 26. -- 12 MS. LEO: 14.7. 13 MR. DEVINEY: Oh, on percentage 14 basis, yeah. 15 MS. LEO: Right, of sales. 16 CHAIRMAN CLOWE: Patty, anything 17 to add? 18 MS. LEO: Well, yes. I'm Patty 19 Leo, Financial Analyst Financial 20 Administration. These estimates are based on 21 extensive research both into Mega Millions and 22 power balls experiences, particularly power 23 balls experiences with power play. I was able 24 to get a -- a lot of very good in depth data 25 for all the states going back historically and 0124 1 was able to generate their per capita sales, 2 that's what our estimate -- estimates are based 3 on, you know, a conservative estimate of sales 4 per week times the Texas population and growing 5 with it, with an estimate of extra revenue from 6 the Megaplier, which also was conservative. 7 One of the facts that was 8 discovered in my analysis of experiences for 9 both Mega Millions and power ball was that the 10 launch of the multiplier feature at the time of 11 launching the multistate game made a big 12 difference to the state revenue-wise. If the 13 players in -- in states that had been playing 14 the multistate lottery game when the power play 15 was introduced; they had a learning curve; they 16 weren't as enthused about it, but the new 17 states that introduced it at the same time that 18 they joined the multistate, they had 19 significant sales from their multiplier 20 feature. So that was the basis on which we 21 looked at our estimates. 22 MR. GREER: And you know, I'd 23 like to add to this. As we went into the 24 process from a comparison of power ball and 25 Mega Millions, certainly a conservative revenue 0125 1 estimate was a key aspect of what we looked at 2 in coming forward with this recommendation on 3 Mega Millions. 4 CHAIRMAN CLOWE: And yet these 5 estimates are considerably higher than the 6 State Comptroller's estimates. 7 MR. DEVINEY: That's correct. 8 The State Comptroller's estimate looked at 9 Texas joining a multijurisdictional lottery. 10 We don't know what -- what assumptions they 11 used. We do know that the Comptroller's Office 12 tends to be very conservative, as well. And we 13 don't know if the Comptroller's estimate 14 were -- you know, included something like an 15 add-on game or multiplier, so yes, our numbers 16 are higher than theirs. 17 CHAIRMAN CLOWE: You're 18 comfortable with that? 19 MR. DEVINEY: We hope that 20 they're conservative and that will show better 21 results even than what we have estimated. 22 In -- you know, the net we are looking at on 23 average -- looking at about a four or five-year 24 period net -- annual net revenue, we are -- we 25 are shooting for $121,000,000 million dollars a 0126 1 year. 2 MS. LEO: Commissioner, I'd like 3 to comment on that. I used to work for the 4 Comptroller's Office as a revenue estimator. 5 CHAIRMAN CLOWE: You're one of 6 them. 7 MS. LEO: Yes, in a very erratic 8 estimate source and that was oil so -- in the 9 '80s, so -- the Random Number Generator, you 10 know, might have done as good an idea -- as 11 good a job estimating oil prices as I did. 12 CHAIRMAN CLOWE: They always 13 blamed it on the Railroad Commission. 14 MS. LEO: Your estimates are -- 15 that are done for the -- by the Comptroller's 16 Office for this, I looked at -- at their 17 write-up on it. And a -- a lot of times, they 18 don't have, one, the in-depth knowledge of what 19 they're estimating that -- like this agency is 20 going to have. And two, they don't have the 21 level of data that -- for analysis, so they 22 used what was available to them, you know, to 23 come up with their estimates. And then also, 24 from a revenue estimating perspective, they 25 need to -- they feel that they need to be 0127 1 prepared to guarantee that that money is going 2 to come in, because they have to certify the 3 revenue estimates. So there is a built-in very 4 conservative approach for numbers that they 5 feel that they might have to certify to the 6 legislature that they will actually bring into 7 the state, so -- I had a lot better data. 8 CHAIRMAN CLOWE: I understand 9 that. And I think their estimate probably did 10 have some impact on the legislature in passing 11 of this permissive legislation. I also know 12 that now you've made your mark on the wall. 13 And if, in fact, the Commission does authorize 14 this and the Executive Director goes forward, 15 now we are going to look to you and see how 16 accurate your forecast is. You know, we -- we 17 really are serious about this revenue 18 production, and we are going to hold you to 19 your estimates. 20 MS. LEO: I was -- I'm used to 21 that. 22 CHAIRMAN CLOWE: Good. Because 23 we like accountability. 24 Lee, while you and Patty are 25 talking to us, I'd like to hear some more about 0128 1 this prize reserve fund aspect. 2 MR. DEVINEY: That was a 3 question that we spent a lot of time working 4 on, the question of whether or not to have a 5 prize reserve. Back in August, at the August 6 meeting, we discussed the possibility of having 7 a prize reserve fund, perhaps, of one percent. 8 The staff is recommending today that we not 9 have a prize reserve fund. And the reason -- 10 primary reason for that is because of the 11 shared liability policy of the Mega Millions 12 game. And what we will do is, you know, after 13 the draws, we will just show -- we will report 14 prize expense and then we will settle out with 15 the other Mega Millions participants. But we 16 see no need for a prize reserve fund. 17 CHAIRMAN CLOWE: I think the 18 question that I will always ask from now on is, 19 there's been no money spent on -- 20 MR. GREER: Waiting for your 21 direction, sir. 22 CHAIRMAN CLOWE: -- any of this 23 Mega Millions equipment, supplies, or anything 24 else? 25 MR. GREER: We have everything 0129 1 right up to the edge -- 2 CHAIRMAN CLOWE: You've done 3 your research -- 4 MR. GREER: -- preparing to move 5 forward. 6 CHAIRMAN CLOWE: -- had 7 communications, but you've spent no money? 8 MR. GREER: We have spent staff 9 time obviously bringing this recommendation and 10 giving you a thorough overview. 11 CHAIRMAN CLOWE: Commissioners, 12 this is the first time we've had an opportunity 13 to discuss this among ourselves. My 14 expectation is that each of us has spent 15 considerable time looking at this issue, and 16 gathering information, and coming to a point 17 where we are ready to cast votes on this today. 18 I'd like to express to you, and for the public 19 record, some feelings I have, and I hope that 20 we can have some discussion about it in this 21 forum. And it will be beneficial to staff, and 22 Reagan, and anyone else who's interested. 23 This is a departure from the 24 Texas Lottery Commission from anything it's 25 done since the Lottery was created roughly 0130 1 twelve years ago. We have always had control 2 over our activity. And Texans like that. We 3 want to be in control of our destiny. And in 4 joining a multijurisdictional lottery, if the 5 Mega Millions is the choice and the action is 6 taken on that today, we become one of 11. And 7 we don't have control over Mega Millions. Our 8 Executive Director, I know, would represent us 9 effectively and do the things that he can do as 10 that group evolves, but we cannot hold him in 11 the same level of responsibility, in my 12 opinion, that we do for the Texas Lottery 13 results. And I think we need to be aware of 14 that. It's giving up some control. It's a 15 business agreement. And in my business 16 experience, as I've discussed mergers, or 17 acquisitions, or sales--and this could be 18 considered more along the line of a 19 merger--it's always best to know the details, 20 the pluses and the minuses, going in to 21 eliminate the surprises after you do the deal. 22 And for one of three commissioners, I spent a 23 lot of time, perhaps more time, looking for the 24 negatives than I have the positives. They seem 25 to jump out at you. And Reagan and the staff 0131 1 have done an excellent job of presenting those 2 this morning. 3 I want to emphasize, for the 4 record, that this staff, and as far as I know, 5 these commissioners, have spent a lot of time 6 looking at the negatives of the entering into 7 an agreement with Mega Millions, specifically 8 the shared prize liability. That's an unknown 9 to some extent, and it is investigated. And in 10 a reasonable judgmental business decision, you 11 feel like you're comfortable going ahead with 12 that? 13 MR. GREER: Yes, sir. We spent 14 a lot of time on that issue, numerous meetings. 15 And my initial pass was similar to yours on 16 this topic. After extensive research and 17 talking to the other financial directors and 18 other executive directors, I'm comfortable with 19 and satisfied with the answers I found in the 20 process. 21 CHAIRMAN CLOWE: And then the 22 second item is the audit standards. We spent 23 considerable time with our internal auditor and 24 financial director talking about that and we 25 want improved audit standards in Mega Millions. 0132 1 We are not satisfied with what we see there 2 now, if I understand correctly. And we want to 3 see improvement in that group in the future. I 4 see our internal auditor shaking her head in an 5 affirmative way. 6 And so far as current validation 7 requirements, which is the third area that you 8 mentioned, my understanding is the Texas 9 standard is far and above what is acceptable in 10 Mega Millions. And we are going to have to -- 11 to a certain extent, adopt some standards to 12 get into their mode. And we hope to see some 13 improvement on upscaling or updating on behalf 14 of the group in that regard in the future. 15 The fourth area is obtaining 16 relative documents. The fact is that we 17 actually don't have some documents now that we 18 are going to receive after -- if the Commission 19 determines that it will authorize you to sign 20 these agreements, if that occurs, then we get 21 some other documents, which our staff would 22 like to have and feels are important in this 23 process. 24 MR. GREER: Yeah, I'd like to 25 specifically address that. Primarily, from a 0133 1 security perspective, it was oriented around 2 the drawing procedures, which are currently in 3 Georgia. The Mega Millions officials' decision 4 not to share that with us at this point was 5 based on the fact that we are not a member yet. 6 And I'm confident that once we become a member, 7 certainly we'll be privy to that information, 8 and then we'll follow up with you individually 9 on any issues that we may have with that 10 process. 11 CHAIRMAN CLOWE: And I 12 admittedly have my critical eye on these four 13 items. And we have had extensive discussions 14 about how to upgrade what we feel are areas 15 that need to be improved and get progress 16 working as a member of this group to achieve a 17 more comfortable level that would meet Texas 18 standards as far as our lottery operation. 19 MR. GREER: Yes, sir. 20 CHAIRMAN CLOWE: They have a 21 loose structure as it's been related to me. 22 They -- they, in fact, have a executive 23 director who is acting as the chief executive 24 officer, but in fact is not elected or 25 designated in a formal way, choosing power 0134 1 through the executive director committee. 2 MR. GREER: Yes, sir. 3 CHAIRMAN CLOWE: And we'd like 4 to see some more formality to that structure so 5 that we can feel more comfortable with 6 responsibilities, and practices, and 7 procedures. Is that correct? 8 MR. GREER: Yes, sir. The -- 9 you know, one of the aspects that we talked 10 about in comparing the games was the 11 flexibility in Mega Millions, which is, you 12 know, that balancing thing that you just talked 13 about. At the meeting that I went to in New 14 Orleans, basically I think the reason they did 15 that was just to have someone that sort of kept 16 things moving along. And certainly, that will 17 be one of the things that I will be looking at. 18 CHAIRMAN CLOWE: In light of 19 this, you have to look at the performance of 20 the game. It started in, what, 1996? 21 MR. GREER: '96 is the Big Game. 22 CHAIRMAN CLOWE: As the Big 23 Game. And then the name was changed to Mega 24 Millions is 2002? 25 MR. GREER: Yes, sir, when they 0135 1 added New York, Washington, and one other state 2 being -- Ohio. 3 CHAIRMAN CLOWE: And during that 4 period of time, their performance has been 5 quite good. They have not had any problems 6 that we are aware of. And there are no 7 concerns as far as track record of the 8 organization? 9 MR. GREER: Certainly we dug way 10 into that. To the point of, as Robert stated a 11 moment ago, of sending teams to the states to 12 see it. I mean, it's one thing to talk about 13 it and look at the documents, but it's another 14 thing to see the operation and have a 15 comfort -- comfort level with that. Certainly 16 after, you know, reviewing that and getting 17 into the next level, that would be a true 18 statement. 19 CHAIRMAN CLOWE: And 20 Commissioners, as I understand the contract 21 that Reagan's bringing to us for approval 22 today, there is an exit provision which can be 23 exercised after six months following notice 24 given, and that's a reasonable time period, in 25 my opinion, for tickets to run off and the 0136 1 process to run it's length. 2 Our Executive Director, in my 3 opinion, has done an excellent job of 4 evaluating, with the staff, this game. And 5 he's bringing to us, what I believe to be a 6 value judgment in a business sense asking for 7 our approval to enter this game. The deal is 8 not one that is without any concerns at all, 9 but I think almost like any business 10 arrangement, there are areas that you want to 11 see improved and some you'd like to see 12 changed. 13 Now, with that in mind, 14 following what I consider to be a prudent 15 course, if the Commission approves the entering 16 of the Texas Lottery Commission to Mega 17 Millions, it would be my intention to make a 18 motion following that, that we instruct the 19 Executive Director to closely monitor our 20 activity in this game--which I think he will do 21 anyway--but specifically, to bring us a six 22 months and then a 12 months in-depth review of 23 his progress in upgrading these areas of 24 concern. He's given us four areas, which he's 25 mentioned and I've spoken about. And I think 0137 1 we ought to have a formal review at the end of 2 12 months to see what progress has been made 3 and what our level of comfort is. My hope is 4 that that would send a message to Mega Millions 5 that we really want to see some improvement in 6 practices and standards involved for the group. 7 And I want to give him some strength, so to 8 speak, in speaking on behalf of this Lottery 9 Commission as he joins--assuming that there 10 would be approval this morning--that group of 11 11. 12 MR. GREER: From my perspective, 13 I certainly have no issue -- you know, we are 14 going to be monitoring this on a monthly basis 15 and certainly I'm very comfortable with 16 bringing you up to speed. And I've already 17 taken steps to get into some leadership roles, 18 which I'll talk about in a minute. I hope to 19 bring back good information to you on that. 20 CHAIRMAN CLOWE: Well, you know, 21 not all people like it when Texans come into a 22 group and -- you're going to have an 23 interesting task to go into a group that's 24 already established and start saying from the 25 outset, and I think you've already done it, we 0138 1 want to see change and we want to see 2 improvement. But you've made a value business 3 decision. You came to us some time ago and 4 said this is a more attractive group, and you 5 feel like this is a good thing for the Lottery 6 Commission and for the people of the state. 7 And -- and I want to make the commissioners 8 aware on the record, in the public, the hard 9 work that you and your staff have done and what 10 are some of the concerns that I have that I 11 want you to pursue. And I want to put a 12 requirement, if this deal is approved, for 13 continuing examination and for a formal review. 14 MR. GREER: I'm good with that, 15 sir. 16 CHAIRMAN CLOWE: Commissioners, 17 how do you -- any discussion? How do you feel? 18 I don't want to ask for a motion until you've 19 satisfied yourselves. 20 MR. COX: Well, I have -- I 21 second all the things you've said. The staff 22 has been very thorough. They've been very 23 generous in their time briefing me. They've 24 followed up on my questions, and I appreciate 25 the extent that you've gone to to make me feel 0139 1 as comfortable as possible with this. 2 The -- one of the most 3 attractive features of Mega Millions is that it 4 has an extremely efficient organization. There 5 is -- there are no employees. They're using 6 part of the time of people from all over the 7 states. And as a result of that, there's no 8 overhead. It's slick as can be. The other 9 side of that is, since there's no central 10 organization, there's not someone who has 11 direct responsibility with the taking care of 12 central matters. And as a result, 13 metaphorically, you not only don't have all the 14 I's dotted and all the T's crossed, you've got 15 some misspelled words and some incomplete 16 sentences. There's a lot of things that I 17 think we can do to help these folks with 18 respect to getting those I's dotted and those 19 T's crossed, and I know we'll do that. 20 There's one additional area, in 21 addition to the four you all have already 22 mentioned that I'd like for us to work on, and 23 that is the method of determining the amount 24 paid. We went through, as the State of Texas, 25 the issue of well, do you pay the advertised; 0140 1 do you pay the actual, or do you pay the higher 2 of those two? And we reached a point that we 3 believe is optimal. Mega Millions is not at 4 that point. And I'd like to see us work toward 5 persuading them that the way Texas does it is 6 the best way. 7 MR. GREER: Yes, sir. I'll be 8 happy to put that on my list of things to do. 9 MR. COX: And Reagan, I totally 10 concur with what you said, this is not a 11 perfect deal, but the benefits far outweigh the 12 costs of the risks, and I move we should go 13 forward. 14 MR. GREER: There is -- I did 15 want to mention, as counsel just pointed out as 16 well, that there are some operating costs that 17 are involved that we share as a group, as a 18 part of Mega Millions which, Lee, help me with 19 the figure, but I think it's about 24,000 or 20 $26,000 dollars last year. 21 MR. DEVINEY: $24,420, I think 22 is the number they gave us. 23 MR. GREER: There's a -- there's 24 a shared aspect of that. And we'll bring that, 25 as a part of our report to you to keep you 0141 1 apprised of what figures might come in the 2 future. 3 MR. OLVERA: Mr. Chairman, I 4 want to reiterate -- 5 COURT REPORTER: Excuse me. 6 MS. KIPLIN: Mr. Olvera, I'm 7 sorry. She needs to flip over. 8 MR. OLVERA: No problem. 9 (OFF THE RECORD.) 10 MR. OLVERA: This reminds me of 11 my courtroom days. What the public doesn't 12 understand is the court reporter controls the 13 courtroom not the judge. 14 I want to reiterate the concerns 15 of the commissioners. I think what the public 16 needs to understand is that in the process of 17 negotiating any contract, there are positions 18 of strength and positions of weakness. And the 19 fact that we have numerous areas of concern 20 does not necessarily dictate that Mega Millions 21 needs to follow those concerns. And that is 22 why we are concerned with this six -- six-month 23 update and an annual update in terms of these 24 concerns being addressed. 25 On the same token though, I 0142 1 concur that the benefits of this contract and 2 this -- this association with Mega Millions, 3 the benefits far outweigh the potential 4 weaknesses or cons that our concerns are 5 addressed with at this time, as far as I can 6 see. And that's all my comments. 7 CHAIRMAN CLOWE: Thank you. 8 MR. GREER: I'd like to -- thank 9 you, Commissioners. I'd like to also point out 10 that there are four documents that we have been 11 working on. It wasn't just one. It was a 12 series of things. And they are in front of 13 you. One is the specific amended -- it says, 14 Amended and Restated Multistate Lottery 15 Agreement; one is the Official Game Rules; one 16 is the Finance and Operations Procedures; and 17 one is the Mega Millions On-line Drawing 18 Procedure. Honestly, that's a lot of things 19 for us to have gone through. And again, I want 20 to thank the staff, specifically Gary Grief and 21 the directors for their work in continuing the 22 process to move forward when we were in a 23 negotiating phase that, at times, certainly 24 gave us opportunities to excel as a group. 25 CHAIRMAN CLOWE: Any further 0143 1 discussion? Is there a motion? 2 MR. OLVERA: So moved. 3 MS. KIPLIN: Could I -- could I 4 phrase it for you? 5 MR. OLVERA: Go ahead. 6 MS. KIPLIN: A motion that the 7 Commission would vote to authorize the 8 Executive Director to enter into 9 multijurisdictional lottery game agreement with 10 the other ten Mega Millions states. 11 MR. OLVERA: So moved. 12 MR. COX: Second. 13 CHAIRMAN CLOWE: All in favor, 14 say aye. All opposed, say no. The vote is 15 three-zero in favor. I believe you want to 16 sign those right now. 17 MR. GREER: I do. That's for a 18 couple of reasons, one, to do it in front of 19 you, and I've held off -- but I did want to 20 make a couple of comments prior to putting my 21 signature on these documents. The first one is 22 I wanted to reiterate my involvement in the 23 Mega Millions organization in a positive way. 24 With this motion that you've just taken, I will 25 be accepting two appointments to be approved in 0144 1 the Mega Millions group; one as the co-chairman 2 of the operations committee, which we talked 3 about some of those issues; and one in 4 conjunction with three other lotteries, Buddy 5 Roogaw from Maryland, Joe Sullivan from 6 Massachusetts, and Margaret Defrancisco of New 7 York, that is working on an ad hoc committee on 8 how to make the game better, talking about the 9 future of the game. A lot of those things that 10 you've talked about. 11 I'm very appreciative of my 12 brief time in this that they would put me in 13 that role. And I plan to really dig in, staff 14 will be digging in with me and we move into a 15 leadership role with them. Specifically, and 16 for the record, I wanted to thank Penny Kyle, 17 who is the Executive Director of the Virginia 18 Lottery. She's the Chairman of the Legal 19 Committee. Certainly, she in her group with 20 Kim and Andy working in conjunction spent many 21 hours on this, as well as Dennis Kennedy, who 22 is the Executive Director of the Ohio Lottery, 23 who was in charge of the finance committee. 24 You know, I've told you from the 25 beginning, and as we get into -- you know, this 0145 1 agreement is going to be no different from my 2 philosophy of other things that we are now part 3 of a team. And you, you know, mentioned and I 4 fully support the fact that -- that we are not 5 in full control here, and so being a team 6 player and having one vote for our state is 7 going to be critical. I plan to build 8 relationships and to work with them to make the 9 Mega Millions game a -- a great success for the 10 people of Texas. 11 With that, I'll sign these 12 agreements. 13 CHAIRMAN CLOWE: And to help you 14 do that, Commissioners, I want to move that the 15 Commission direct the Executive Director to 16 scrutinize the activities of our involvement in 17 Mega Millions closely, and to that end, give us 18 an interim report on his progress, and six 19 months after our entry into Mega Millions 20 relative to all aspects, but in particular 21 these areas he's pointed out to us, and give us 22 a more formal, complete review at the end of 12 23 months on his progress in these areas, as well 24 as any others that come to his attention. So 25 that this Commission, in a formal way, may 0146 1 review how our activities are progressing with 2 this organization. Is there a second? 3 MR. COX: I second. 4 CHAIRMAN CLOWE: All in favor, 5 please say aye. Opposed, no. The vote is 6 three-zero in favor. 7 And we are going to take a ten 8 minute or so recess so Reagan can meet with the 9 members of the media who would like to 10 interview him at this time. And then we'll 11 come back. 12 (RECESS.) 13 CHAIRMAN CLOWE: We'll now come 14 back to order. We'll come back to order. We 15 are on the record, and we are ready to move to 16 item number 12, consideration of and possible 17 discussion and/or action, including adoption, 18 on an emergency rule reverting -- relating to 19 Mega Millions On-line Game. 20 General counsel, Ms. Kiplin. 21 MS. KIPLIN: Commissioners, 22 what's before you is a consideration to adopt 23 Emergency Rule 16 Texas Administrative Code 24 Section 401.315 relating to the Mega Millions 25 On-line Game rule for Texas. This is an 0147 1 unusual rule. As a matter of fact, I think 2 it's the first time that you all have been 3 asked to consider adopting an emergency rule. 4 The specific authority for adopting this 5 particular emergency rule is under House Bill 6 3459, which was enacted into law as a result of 7 the 78th legislative session of the regular 8 session. In particular, the authority for the 9 emergency adoption of this rule is under 10 Section 79 of that particular House Bill. And 11 it provides that the Texas Lottery Commission 12 may adopt an emergency rule without -- and I'm 13 paraphrasing -- under subsection A of this 14 section, without prior notice or hearing or 15 with any abbreviated notice of hearing as the 16 Commission finds practicable for the 17 implementation of the changed law made by 18 subchapter J for multijurisdiction lottery 19 games, Chapter 466 of the government code 20 specifically says in section 2001.034 of the 21 government code does not apply to emergency 22 rule adopted under this section. 23 The reference to 2001.034, the 24 government code, is the Administrative 25 Procedures Act, authority for emergency 0148 1 rulemaking, and that particular authority 2 requires that there be a finding of imminent 3 peril to the public health, safety or welfare, 4 or a requirement of state or federal law that 5 requires adoption on fewer than 30 days notice. 6 We are not under that provision. We are under 7 specific special authority under House Bill 8 3459. 9 The rule that's been presented 10 to you, and you all have received drafts of 11 this particular rule, specifically indicate 12 that you are adopting this rule, if you do, 13 without notice and hearing. Part of the notice 14 is the opportunity for people to provide public 15 comment. That has not occurred. I will say 16 that the -- that the agency and staff did 17 invite public input on the concept of a 18 multijurisdiction lottery game, and if -- if 19 so, which one. And that public input was 20 solicited by a variety of different media; one 21 was through the mail. We also had an 22 opportunity for people, over the agency's web 23 site, to provide public input. And also, if 24 you'll recall, you conducted a Commission 25 meeting at the -- the State Capitol auditorium 0149 1 on June 30th, where in fact I -- as I recall, 2 you did receive public input. We did have over 3 3,800 folks that did offer public input, and it 4 was varied. It was for and against the concept 5 of a game -- pardon me of a -- of a 6 multijurisdiction game. And for those that 7 were in favor, it was varied as to whether they 8 wanted to participate in power ball or the game 9 that you've just voted on to authorize -- 10 CHAIRMAN CLOWE: We were there. 11 MS. KIPLIN: I know. And so, as 12 a result -- 13 CHAIRMAN CLOWE: We got a record 14 on that, too. 15 MS. KIPLIN: As a result of the 16 public -- public input on the concept and on 17 the -- the terms of the -- the rule, we are 18 here today before you asking you to adopt this 19 emergency rule. The practical -- 20 practicalities of the situation precluded an 21 opportunity for us to move forward in the 22 normal rulemaking, given the fact that we were 23 still trying to finalize the terms of the 24 agreement up until, I would say, until the 11th 25 hour. That necessarily -- the agreement that 0150 1 you all voted necessarily is interlinked -- 2 it's linked to this rule. And so that's why we 3 are exercising that authority, as well as the 4 fact that the authority exists. So the staff 5 is recommending that you do make a motion to 6 adopt this emergency rule, and there be a 7 second and there be a vote for -- in favor of 8 that. 9 I would caution you -- and I am 10 a little concerned about this, so I want to put 11 this on the record. I would caution you about 12 taking anything that would be construed as 13 public comment on this rule for the fact that 14 I'm trying to avoid any sort of procedural flaw 15 or challenge thereto as it relates to the 16 Administrative Procedure Act of rulemaking in 17 the sense that I would be concerned that then 18 there would be an obligation to summarize that 19 comment and then set out the reasons why the 20 agency disagrees with it, if it does. And so I 21 would -- that -- that would be my 22 recommendation, not to take public comment 23 before -- 24 CHAIRMAN CLOWE: Move the 25 adoption in the Emergency Rule. 0151 1 MR. COX: Second. 2 CHAIRMAN CLOWE: All in favor, 3 say aye. Opposed, no. The vote is three-zero 4 in favor. 5 MS. KIPLIN: Commissioners, I do 6 have an order. 7 CHAIRMAN CLOWE: Toni, you'll be 8 up next, if you'll come on up. 9 MR. GREER: Commissioners, as 10 you're signing that document, I would like to 11 introduce you to Toni Erickson. Toni has been 12 in our IT Department and has stepped up to 13 become the Acting Marketing Director. She's 14 done a great job for us in just a -- a brief 15 tenure that she's been in there, and been a 16 pleasure to work with. She will be bringing 17 you information today on the lottery sales and 18 trends update, item 13, when you're ready. 19 CHAIRMAN CLOWE: Mike Fernandez 20 was back there complaining about you. You've 21 got some bridges to repair with him. 22 MR. GREER: I am. 23 CHAIRMAN CLOWE: Good morning. 24 MS. ERICKSON: Good morning, 25 Chairman and Commissioners. For the record, 0152 1 Toni Erickson, Acting Director of Marketing. I 2 want to say, first off, that I'm honored that 3 Mr. Greer and Mr. Grief have given me this 4 opportunity. I truly appreciate their support 5 and their confidence and hope I can do well by 6 that. 7 That said, I'm going to turn 8 this over immediately to Lee. He's generously 9 offered to -- 10 CHAIRMAN CLOWE: You've learned 11 the first rule. 12 MS. ERICKSON: I'm going to turn 13 this one over to Lee, and then I will take the 14 next one. Thank you. 15 MR. DEVINEY: I have no one to 16 my right. Good morning, again, Commissioners. 17 I'm Lee Deviney, Financial Administration 18 Director. 19 Under tab 13, titled lottery 20 sales and trends, you will find three memos 21 regarding lottery sales. And this morning you 22 were actually provided with updated memos. The 23 first memo indicates that unaudited fiscal year 24 2004 sales through October 11th amount to 25 322 million, which is a 4.3 percent increase 0153 1 over fiscal year 2003 sales of $308.9 million 2 dollars for the same time period. At the 3 bottom of the memo, you'll also find sales by 4 product group thus far in fiscal year '04. 5 The second memo describes fiscal 6 year 2004 sales by product group compared with 7 fiscal year 2003 sales for the same time 8 period. 9 And finally, the third memo 10 compares sales for the last two full weeks 11 ending October 4th and October 11th. Total 12 lottery sales increased by 1.3 percent week to 13 week. And I'll be pleased to answer any 14 questions you have or call on Liz if I can't. 15 MR. COX: Lee, or Toni, or Gary, 16 sales are up 4.3 percent from last year. Now, 17 last year we had a big increase in our instant 18 sales. Was that big increase already being 19 seen in the comparative period that we have 20 here? So that we can say not only did we do 21 great last year, but we're doing better this 22 year? Or are we looking at a comparative 23 period where the instant sales really hadn't 24 taken off at this time last year? 25 MR. GRIEF: Your -- your first 0154 1 example is correct, Commissioner. This is at a 2 point in time last year where the instant sales 3 had improved and we are, in fact, seeing an 4 even -- even bigger increase this year, in 5 particular, in the instant product. 6 MR. GREER: I'd like to 7 interject, as well, that certainly one of the 8 goals that we have set for this year is to 9 continue to see that rise. This new sweep 10 process that we're using with some flexibility 11 and some new games we're going to be rolling 12 out will be a part of that. There's a lot of 13 enthusiasm towards those higher price tickets, 14 and I think that has a lot to do with the 15 numbers you're looking at. 16 CHAIRMAN CLOWE: Any questions? 17 Thank you. And Toni, I believe 18 you have the next item, as well, regarding 19 advertising and promotions. 20 MS. ERICKSON: Exactly. 21 Provided for your information under tab 14 is 22 an advertising update. I -- I don't have 23 anything to add to that today, but I am willing 24 to answer questions if you have any. 25 CHAIRMAN CLOWE: It's my 0155 1 understanding that the advertising for Mega 2 Millions is required to come out of our 3 authorized advertising budgets since we don't 4 have any increased appropriation for that. Can 5 you tell us what that amount will be on a 6 fiscal year basis and how it's going to be 7 spent? 8 MS. ERICKSON: I cannot at this 9 time, but I can -- I'm -- I'm working on that 10 information right now with Gary and Reagan, and 11 I will get back to you on that. 12 CHAIRMAN CLOWE: Will you do 13 that? 14 MS. ERICKSON: Absolutely. 15 CHAIRMAN CLOWE: And furnish 16 each of the commissioners that information. 17 MS. ERICKSON: Okay, I will. 18 MR. GREER: We'll actually come 19 forward with a -- a whole plan for you of what 20 we are going to do as far as the roll out. 21 Obviously, we were waiting on this scenario to 22 unfold today to see whether everything was 23 going to be okay or not before we did that. 24 A lot of what we are going to 25 do, which I think is going to be really fun, is 0156 1 that we're going to tag the games together. 2 There will be ways that we can utilize that 3 money efficiently to continue the interest in 4 playing the games of Texas, this being one of 5 the games. And I think you're going to be 6 really pleased with what you see that they've 7 done so far, as far as conceptual ideas now 8 moving into the formulative stage and making 9 that happen. 10 CHAIRMAN CLOWE: Very good. 11 Thank you. 12 Thank you very much. 13 MS. ERICKSON: Thank you. 14 CHAIRMAN CLOWE: Next is item 15 15, report, possible discussion or action on 16 the 78th Legislature and/or implementation of 17 legislative -- legislation affecting the Texas 18 Lottery Commission. 19 Ms. Trevino, good morning. 20 MS. TREVINO: Good morning, 21 Commissioners. For the record, I'm Nelda 22 Trevino, the Governmental Affairs Director. 23 I have a very brief report today 24 regarding the 78th Legislature. First of all, 25 the third called special session that adjourned 0157 1 sine die on Sunday October the 12th, there were 2 no bills that passed during this special 3 session that had any direct impact either on 4 the lottery or on charitable bingo. As we have 5 previously reported to you, we are holding a 6 legislative briefing on October the 28th. This 7 is an opportunity we have taken to brief staff 8 from leadership offices, and legislators and 9 their staff from our oversight committees on 10 various issues related to the agency. Included 11 in your notebook is a copy of the agenda for 12 our briefing on October the 28th. 13 With regard to an update on the 14 agency's legislative implementation project, 15 the Commission today has already taken action 16 on several rulemaking matters related to House 17 Bill 2519, and obviously now House Bill 3459 18 regarding the multijurisdiction lottery game. 19 Additionally, the agency has 20 received notice from the Comptroller's Office 21 related to budget reductions as a result of 22 implementing provisions related to 23 staff-to-management ratios that are contained 24 both in House Bill 3442 and the General 25 Appropriations Act. And the agency is acting 0158 1 accordingly in regards to that notice. 2 This concludes my report. And 3 I'll be happy to answer any questions that you 4 might have. 5 CHAIRMAN CLOWE: Thank you, 6 Nelda. 7 Next, report, possible 8 discussion on -- or action on HUB and/or 9 minority business participation. 10 Mr. Deviney. 11 MR. DEVINEY: Again, I'm Lee 12 Deviney, Financial Administration Director. 13 Under a recent reorganization, the Lottery's 14 historically underutilized business development 15 and contract compliance functions are now 16 within the Financial Administration Division. 17 Tab 16 to 17 of your notebook 18 include the agency's historically underutilized 19 business report and also the weekly contract 20 compliance report. I'd like to introduce Joyce 21 Bertalocini, who has been appointed as the 22 agency's Historically Underutilized Business 23 Coordinator. And Joyce will present the 24 Lottery's HUB activity reports. 25 MS. BERTALOCINI: Good 0159 1 afternoon, Commissioners. For the record, my 2 name is Joyce Bertalocini, and as Lee said, I 3 am the agency's recently designated 4 Historically Underutilized Business 5 Coordinator. 6 There are several items related 7 to our HUB and minority participation included 8 in your notebook. 9 And I apologize, Commissioner 10 Olvera, if you don't have that behind your tab. 11 It should have been sitting in the stack that 12 was in front of your place earlier today. 13 The first item is the TLC's most 14 current monthly HUB and minority contracting 15 activity report. And that report includes all 16 fiscal year 2004 expenditures that have been 17 paid from September 1st, 2003, through 18 September 30, 2003. You will see that the 19 number -- the percentage is actually quite 20 high, which is due to large subcontracting 21 payments that have been made by our prime 22 vendors that were made during the month of 23 September. So our HUB percentage is currently 24 escalated. The percentage of payments made to 25 HUB vendors should begin to level out within 0160 1 the next several months. 2 The second report, which is 3 behind the blue sheet, is actually revised 4 monthly HUB or minority contracting activity 5 report for fiscal year 2003. The previous 6 report was prepared when fiscal year 2003 7 transactions were in progress and did not 8 include a large non-HUB expenditure, which was 9 made at fiscal year-end. As a result, the 10 Commission's HUB percentage appeared to be 11 slightly elevated. We have updated the report 12 to include this expenditure in order to adjust 13 the HUB percentage accordingly. 14 And the third item relates to 15 the Texas Lottery Commission's metro protege 16 program. We have no updates to report on the 17 program at this time. Commissioners, I'd be 18 happy to answer any questions that you might 19 have regarding any of these reports. 20 CHAIRMAN CLOWE: Thank you very 21 much. 22 MR. GREER: Commissioner, I'd 23 like to add that we've had a restructure in 24 this area. Joyce will be now working in Lee's 25 area, and I'm very confident we'll continue to 0161 1 see some positive results out of that group. 2 Joyce and I have similar goals in this realm, 3 and I think we are on target to, you know, see 4 a continuing good and progressive mode in that 5 area. And I want to thank Joyce for her work 6 and for stepping up and for working through the 7 transition. 8 MS. BERTALOCINI: Thank you. 9 CHAIRMAN CLOWE: Thank you. 10 Lee, you have the next item, 11 report, possible discussion and action on the 12 agency's contracts. 13 MR. DEVINEY: Yes. Under tab 14 17, you will find an updated weekly report for 15 the Lottery Commission's contracts, those 16 contracts having an estimated value of $25,000 17 dollars or more, just indicating where we are 18 in progress in getting those contracts renewed 19 or extended. 20 CHAIRMAN CLOWE: Any questions? 21 MR. COX: I have a general 22 question. 23 CHAIRMAN CLOWE: Yes, sir. 24 MR. COX: Lee, will we be 25 getting a report soon about how your department 0162 1 will handle the activities that have previously 2 been handled by the separate division? I kind 3 of know how they work with contracts. But I'll 4 be interested in hearing as soon as you work 5 that out, how you plan to pick that role up. 6 MR. DEVINEY: Okay. Yeah, we 7 are going to integrate this function because it 8 has a tie-in to purchasing and, you know, some 9 of the other functions in our division. We are 10 pretty excited -- and trying to look for some 11 efficiencies and -- don't have it all figured 12 out yet, but yes, we'll provide you with a 13 report. 14 CHAIRMAN CLOWE: Thank you, Lee. 15 Mr. Anger. Number 18. 16 Consideration of and possible discussion or 17 action on the agency's business plan. 18 MR. ANGER: Good afternoon, 19 Chairman, Commissioners. For the record, my 20 name is Michael Anger, and I'm the Lottery 21 Operations Director here at the agency. 22 I'm here this morning to report 23 to you on the Commission's business plan. I'm 24 continuing to work in seeking consulting 25 services that may be available to the agency in 0163 1 development of the business plan and 2 facilitating our long-range planning 3 activities. I recently explored services that 4 might be available to the agency via an 5 interagency contract with personnel at the 6 University of Texas. Some of the contracting 7 guidelines in place at the University limit our 8 ability to pursue that option. I have notified 9 Executive Director Greer and Deputy Executive 10 Director Gary Grief on my findings and have 11 received approval to pursue a request for 12 proposals for these services. I'll be working 13 with the Legal Division in the coming weeks to 14 develop a comprehensive request for proposals 15 for release. If you have any questions or if 16 there's any feedback I can receive for -- from 17 you, I'd be glad to do that. 18 CHAIRMAN CLOWE: How did you 19 like Rhode Island? 20 MR. ANGER: Very nice. Very 21 nice. Very interesting. Very educational. 22 CHAIRMAN CLOWE: How was the 23 weather up there? 24 MR. ANGER: It was very 25 pleasant, as a matter of fact. Lows in the 0164 1 50s, highs in the mid-70s. It was very nice. 2 CHAIRMAN CLOWE: They have ice 3 and snow like Wisconsin has. 4 MR. ANGER: It's not this time 5 of year, thank goodness. 6 CHAIRMAN CLOWE: Thank you, 7 Michael. 8 MR. ANGER: Thank you. 9 CHAIRMAN CLOWE: Next, the 10 report by Ms. Melvin on internal audit 11 activity. 12 MS. MELVIN: Good morning, 13 Commissioners. For the record, my name is 14 Catherine Melvin, and I'm the Internal Audit 15 Director. The Texas Internal Auditing Act, 16 Government Code Chapter 2102 requires each 17 internal audit function to prepare and submit 18 an annual report by November 1st of each year. 19 The report is required to be submitted to the 20 Governor's office, the Legislative Budget 21 Board, the Sunset Advisory Commission, the 22 State Auditor's Office, our commissioners, and 23 our Executive Director. 24 This report does not require 25 Commission approval; however, I'd like to bring 0165 1 it to your attention at this time just to 2 advise you that I will be preparing and 3 submitting a report, as required, by the end of 4 this month. 5 Per the statute, the State 6 Auditor's Office prescribes the contents. And 7 this year they have not made any significant 8 changes, so the report should look similar to 9 annual reports you've seen in the past. 10 Basically, it is a summary of internal audit 11 activity for the year. And I'm happy to answer 12 any questions you might have. 13 MR. COX: Catherine, we have got 14 the state auditors doing some work over here 15 now? 16 MS. MELVIN: Yes, we do. 17 MR. COX: What are they doing? 18 MS. MELVIN: I actually have two 19 groups of state auditors -- 20 MR. COX: Okay. 21 MS. MELVIN: -- that are 22 assisting us. One group is actually doing an 23 audit; they're looking at instant tickets, 24 controls, accountability. The scope has not 25 been narrowed just yet. They continue to 0166 1 remain in the planning preliminary phase. But 2 as soon as they close out that phase, they have 3 promised us that they will sit down with us and 4 let us know exactly what that scope will be. 5 MR. COX: So that work is going 6 to be at Gtech? 7 MS. MELVIN: No. Actually, 8 they're doing some work here on-site. They 9 have visited with Gtech, and they actually have 10 visited Scientific Games in Georgia, too, but 11 they continue to tell me that they are still 12 planning, so I'm very interested in seeing what 13 that narrow scope will be like. 14 We also have another group of 15 auditors that are just assisting us on an 16 investigation. We have requested them to come 17 in and they've provided assistance there. 18 MR. COX: Thank you. 19 CHAIRMAN CLOWE: Thank you, 20 ma'am. 21 Commissioners, with your 22 approval, I'd like to move into the remainder 23 of the public agenda and go to item 22, 24 consideration of the status and possible entry 25 of orders in cases A through M. If Ms. Kiplin 0167 1 will take us through those, please. 2 MS. KIPLIN: Commissioners, what 3 you have before you are contested case 4 proceedings with the exception of the last one, 5 which is an agreed order, because it's a bingo 6 matter. All of the cases are lottery cases. 7 All of them are revocations -- recommended 8 revocations as a result of insufficient funds 9 being available at the time that we selected 10 the money that was owed to us. 11 Staff does recommend that you 12 enter into the order that would revoke these 13 licenses. I do need to bring to your attention 14 one item that was noticed for your 15 consideration that was not -- not appropriate 16 for you to consider, and that's Docket D -- 17 item D, Docket Number 362-03-3250 Salazar 18 Grocery & Market. Commissioners, that was a 19 matter that should have gone to the Lottery 20 Operations Division Director. Under the 21 statute, the Director is the one that -- that 22 rules on application denials. And that was an 23 application denial based on a -- on a moral 24 turpitude crime, so I apologize for not picking 25 that up. But with that, the staff would 0168 1 recommend -- 2 CHAIRMAN CLOWE: I was missing 3 that docket in my -- 4 MS. KIPLIN: I asked that it be 5 pulled, so that it wouldn't -- 6 CHAIRMAN CLOWE: So that's -- 7 that's the reason? 8 MS. KIPLIN: Yes. But I -- but 9 it was on the open meetings notice, and so I 10 wanted to clarify that for -- for purposes of 11 notice to the public. 12 CHAIRMAN CLOWE: Any questions? 13 MR. OLVERA: Commissioners, if I 14 may interject. I would like to recuse myself 15 with respect to item A. The reason being, I 16 represent a client by the name of Wright III 17 Foods Services, Inc. that is a corporation 18 doing business in the Valley. I have not been 19 able to speak to my client. I do not believe 20 that it is the same entity that is referenced 21 as Wright Stop Number One, but because the last 22 name is the same spelling, out of an abundance 23 of caution, I will recuse myself of that item. 24 MS. KIPLIN: And we will note 25 that on the signature page as a recusal. 0169 1 CHAIRMAN CLOWE: And you'll need 2 to get up and leave the room so we can vote on 3 that. 4 MR. OLVERA: I will do that. 5 Are we voting on A at this time? 6 CHAIRMAN CLOWE: Yes, sir. And 7 then we will bring him back. And if I didn't 8 ask you to leave, the lawyers would bodily 9 carry you out of the room. 10 MR. GREER: They're all lined up 11 right there waiting. 12 CHAIRMAN CLOWE: Move the 13 adoption of docket number 362-03-3802 as 14 recommended by the staff for revocation of a 15 license. 16 MR. COX: This is on the A part 17 only? 18 CHAIRMAN CLOWE: On A part only. 19 MR. COX: Second. 20 CHAIRMAN CLOWE: All in favor, 21 please say aye. Opposed, no. The vote is 22 two-zero in favor. 23 Would you bring the commissioner 24 back in, please. 25 Thank you, sir. 0170 1 MR. OLVERA: Thank you, Mr. 2 Chairman. 3 CHAIRMAN CLOWE: Any questions 4 on Dockets B through -- B, C and E through L? 5 MR. COX: I have a general 6 question on the process. 7 CHAIRMAN CLOWE: Yes, sir. 8 MR. COX: We have these every 9 month. We sometimes have eight of them. We 10 sometimes have 17 of them. They must involve a 11 lot of work on the part of the lottery staff, 12 the legal staff, the administrative law judge. 13 And I guess that in large part these are before 14 us because we don't have the authority to 15 withhold a retailer's license from someone that 16 is not financially capable. 17 MS. KIPLIN: These are 18 revokes -- these are people that have actually 19 been issued a license. 20 MR. COX: No, I understand that. 21 But would these people in large part have been 22 issued a license if we had been allowed to have 23 some standards as to who we gave licenses to? 24 MS. KIPLIN: We do have those 25 standards in terms of -- 0171 1 MR. COX: So we have found 2 these -- all these people every month to be 3 financially capable, and that many of them turn 4 over on us every month? 5 MS. KIPLIN: Yes, sir. There -- 6 the -- and Mr. Anger is here. He might want to 7 speak to that. There is a process when an 8 applicant files an application, and part of it 9 is running a credit history on the applicant to 10 determine whether they're a risk. And if 11 there's a window where we think, well, they 12 might be risky, we'll actually ask them to put 13 up security in the form of a -- of a 14 certificate of deposit. If they're not a risk, 15 we'll issue a license. 16 Under the summary of suspension 17 on authority, if we sweep your account, you 18 know your retail -- your account is not there, 19 we shut you down immediately. Under our rules, 20 we give you three opportunities, and on the 21 fourth one we are done with you. We go forward 22 and we revoke. That's one -- that's one 23 situation. So we actually let them work with 24 us three times, fourth their gone. 25 The other one is if you do it 0172 1 the first time and you don't pay us, you're 2 gone. 3 MR. COX: Mike, I guess to -- to 4 keep this question very general and very 5 simple, do you believe that the requirements 6 that we are placing on -- the financial 7 capability requirements that we -- we are 8 placing on these licensees, these sales agents 9 are set at such a level that we are not 10 excluding too many people but not including too 11 many people? 12 MR. ANGER: Yes, sir, I believe 13 that is correct. Right now -- and counsel 14 described the process very accurately, what we 15 do is we look at a licensee when they apply 16 with us. We look at their credit rating. We 17 look to see if they have any kind of past 18 history with the agency. We look at that past 19 payment history. And using that information, 20 we make a determination as to whether they 21 should provide us with a CD as basically 22 financial security to insure payment against 23 their account with us. So we go through that 24 process. The reality is that with the large 25 number of licensees we do business with on a 0173 1 regular basis, there are some that due to 2 various reasons, financial liabilities that 3 might arise in their business or other issues 4 that may arise, we just have a large number of 5 these that come before the Commission on a 6 monthly basis. 7 MR. COX: Well, you're always 8 going to have one or maybe you're going to have 9 100. And how many you have obviously is a 10 function of how stringent your requirements 11 are. And so I just really wanted to see do -- 12 do -- Reagan, do you and your staff believe 13 that this is a reasonable number considering 14 the fact that we want sales applicants, and 15 yet, we don't want administrative expense? 16 MR. GREER: Well, in the overall 17 picture, you know, when you look at 16,375, I 18 think is the last number I -- I heard. 19 MR. ANGER: That's correct. 20 MR. GREER: Retailers out there, 21 you know, certainly that's some -- you know, 22 would weigh it out. I think they're doing a 23 good job, you know, keeping people abreast -- 24 apprised of the issues that come up. And I'm 25 comfortable -- 0174 1 MR. COX: So turnover would be 2 maybe one percent per year? 3 CHAIRMAN CLOWE: It's actually 4 less. There's no business I know of that 5 wouldn't leap on that as a bad credit 6 percentage. 7 MR. COX: Particularly when our 8 risk of bad credit is much lower than that. 9 CHAIRMAN CLOWE: Absolutely. 10 MR. COX: Right. It's just a 11 matter of -- 12 CHAIRMAN CLOWE: It's 13 particularly sweet. 14 MR. COX: It's just a matter of 15 a little bit of collection efforts. 16 MR. GREER: And they've -- and 17 they've done a great job, I will say, on the 18 whole collection angle. I mean, they basically 19 don't mess around with us in this scenario. 20 And they've done a great job following through 21 on that. 22 CHAIRMAN CLOWE: Thank you, 23 Michael, Penny. 24 Next is letter M, Case Number 25 2002-519. 0175 1 MS. KIPLIN: Commissioners, this 2 is an agreed order between the Lottery 3 Commission and AMVETS 52 Auxiliary. And it was 4 a negotiated -- negotiated settlement. It 5 really had to do with inadequate documentation 6 regarding, I believe, charitable distribution. 7 Ms. Wilkov was the attorney on that. But I 8 would point out that there was no prior history 9 violations with this particular licensee and 10 she could set out in more -- in greater details 11 if she'd like what the terms of the agreed 12 order are. 13 MS. WILKOV: Thank you. Penny 14 Wilkov, Assistant General Counsel. This was 15 the end result of a contested case hearing 16 where we did have -- start the beginning of a 17 hearing. It went on for hours -- five or six 18 hours. And it was right before Christmastime. 19 They did have a lawyer. We had seriously 20 underestimated the amount of time that was 21 going to be taken when we had this lawyer on 22 the other side, so the judge recessed it. 23 In the meantime, before the next 24 setting, we made extensive efforts on both 25 parts to try to resolve the issues. I think we 0176 1 had a clear understanding at that point what 2 the issues were. And we worked very hard on 3 getting them to provide receipts and 4 documentation that was necessary to 5 substantiate their use of charitable proceeds. 6 And it was a long process and involved many 7 meetings. And we were able to come up with the 8 terms that you see before you. And Mr. 9 Fenoglio was here earlier, but I guess he left. 10 MS. KIPLIN: He was the attorney 11 that represented the respondent. And part of 12 the order language is that they will be 13 required to redeposit into the bingo bank 14 account the sum of $3,843 dollars. 15 CHAIRMAN CLOWE: And it's an 16 agreed settlement, there's nobody here 17 representing the other side, and you want us to 18 sign it? 19 MS. WILKOV: Yes. 20 CHAIRMAN CLOWE: I move we adopt 21 this agreement. All in favor, please say aye. 22 Opposed, no. The vote is three-zero. 23 Thank you, ma'am. 24 MS. KIPLIN: Mr. Chairman, I -- 25 I'm -- I don't recall that you -- there was a 0177 1 motion on the -- the lottery orders. I know 2 there was with the one -- 3 CHAIRMAN CLOWE: Well, let's 4 have that, as well, then. I move that we 5 approve Lottery orders B, C and E through L. 6 MR. COX: Second. 7 CHAIRMAN CLOWE: All in favor, 8 please say eye. Opposed, no. The vote is 9 three-zero in favor. 10 And we are going to call on the 11 Executive Director next. If you'll just let us 12 sign these orders, Reagan. 13 MS. KIPLIN: Mr. Chairman, would 14 you like to take up, in the interim, the 15 language on the Advisory Opinion Rule and the 16 delegation order? 17 CHAIRMAN CLOWE: Certainly. 18 MS. KIPLIN: I'd like to provide 19 you copies of the new language so you get an 20 opportunity to read it. I've circled it -- for 21 the rule. I think it's consistent with your 22 deliberations today. 23 CHAIRMAN CLOWE: Commissioner 24 Olvera, this is an item that came up prior to 25 your joining the commission. 0178 1 And Kim, I think you should 2 explain that to the Commissioner so that he 3 understands what's before him. 4 MS. KIPLIN: I'll be glad to. 5 Commissioner Olvera, what was in the notebook 6 was the two things that to some extent are 7 linked; one was the proposal of the Advisory 8 Opinion Rule and the other one was the order if 9 the Commission were delegating authority to 10 issue opinion -- advisory opinions. There's a 11 sixty day clock statutorily that's running on 12 us when you get an Advisory Opinion request to 13 issue it. The statute in House Bill -- it's 14 House Bill 2519 is the bill. This -- the Bill 15 does authorize the Commission to delegate that 16 authority to an employee -- a Commission 17 employee. And the rule did not contain 18 language that had to do with the general 19 counsel being required to approve the advisory 20 opinion prior to the Bingo Director issuing it. 21 Commissioner Cox, as I recall, was the one who 22 began that discussion and wanted that language 23 actually in the order. And if it's in the 24 order, it really needs to be in the rule. So 25 what you have in front of you is new language; 0179 1 it's part of the rule. I circled it for you. 2 The first one is the insertion of the general 3 counsel, and the fourth -- the fourth paragraph 4 is new. And it clearly says that that which 5 you delegate you retain. So just because 6 you're going to propose and ultimately possibly 7 adopt an order -- pardon me, adopt a rule, by 8 delegating it, you still retain it. And that's 9 consistent with the order. I've run out of 10 copies. I'm sorry for that. 11 Kevin, do you have any extras? 12 Maybe if I can just share a mic. 13 CHAIRMAN CLOWE: This is a clean 14 order? 15 MS. KIPLIN: That's a clean 16 order. This is one that's a mark-up here. So 17 you can see that we have added several 18 different parenthesis -- language in 19 parenthesis. 20 CHAIRMAN CLOWE: Commissioner 21 Olvera can either agree to sign this order if 22 the Commission adopts it by a motion or he 23 can -- because he was absent earlier, he can 24 opt not to vote and not to sign, can't he? 25 MS. KIPLIN: I think that's -- 0180 1 that's the case. I think where you left it was 2 with the rule -- you had retracted your motion 3 and made a different motion on the rule itself. 4 And this is just to make sure that you're clear 5 on the language. I believe that's the case. 6 And if I'm fuzzy on my memory, I'd like for 7 somebody to speak up, because I want to make 8 sure that's -- 9 CHAIRMAN CLOWE: I think that's 10 right. He didn't -- he didn't vote because he 11 wasn't here. We did make the motion, so we are 12 ready to sign the order if it reflects what the 13 motion was. 14 MS. KIPLIN: I believe that's 15 correct. 16 Mr. Oldham, you keep me on track 17 now. 18 CHAIRMAN CLOWE: You can sign or 19 not sign. 20 MS. KIPLIN: He can sign or not 21 sign. He's here. 22 CHAIRMAN CLOWE: All right. 23 Okay. 24 MR. OLVERA: Well, I -- before I 25 sign -- I do have a quick question, just in 0181 1 general terms. The -- the advisory opinions 2 that shall be initiated by the Bingo Operations 3 Director, is there any possibility or danger 4 that he may be practicing law without a license 5 in the sense of giving a legal opinion? 6 MS. KIPLIN: It's considered to 7 be an advisory opinion. It wasn't considered 8 to be a legal opinion. I think that's a good 9 point. It is in the statute. And we -- we can 10 certainly ask for an Attorney General opinion 11 on that -- on that very matter. I'd like to 12 have that voted -- Ms. Wilkov was the -- 13 MR. COX: Wouldn't the fact that 14 we have said that you have to approve -- 15 wouldn't that police that concern, which is a 16 very good concern -- 17 MS. KIPLIN: It is a good -- 18 MR. COX: -- and one of the 19 reasons I wanted general counsel to have to 20 sign off on any of these before they went out. 21 MS. KIPLIN: It is a good -- it 22 is a really good issue. And I don't know that 23 we targeted that as we went through that. I 24 looked at it as an advisory opinion, and then 25 obviously I would be approving them before he 0182 1 actually would be -- 2 MR. OLVERA: And Commissioner 3 Cox has basically issued my concerns. If 4 the -- if the underlying opinion entails legal 5 issues, perhaps the legal department should be 6 the only entity that signs off on the advisory 7 opinion and not a non-lawyer. Even though you 8 review it, I mean, you shouldn't have a 9 non-lawyer issuing a legal opinion is my 10 opinion. 11 MS. KIPLIN: Ms. Wilkov and Mr. 12 Oldham, did -- you know, I don't know -- in any 13 of the discussions that we had with the 14 industry rep, Mr. Fenoglio or Mr. Bresnen, did 15 that issue ever arise? Was there any venting 16 of that issue? 17 MS. WILKOV: Not specifically 18 any idea about that. This is statutorily 19 required that the Commission -- it says the 20 Texas Lottery Commission issue an Advisory 21 Opinion. So we have -- we have a whole process 22 where the legal division is involved, but it's 23 not specifically stated in the rule, but -- it 24 does -- 25 MS. KIPLIN: What it does -- 0183 1 what it does say in the statute is that the 2 Commission may delegate the authority to an 3 employee of the Commission. So it doesn't 4 actually specify the Bingo Division Director. 5 I don't think I'm troubled with regard to 6 moving forward with the rule proposal to 7 that -- to that end, because it's not -- it's 8 not an action -- a final action, because it 9 will have to come back for adoption, and then 10 that issue on the rulemaking as we go through. 11 But the issue that you raised with regard to 12 the order, I think, is -- is a good -- a good 13 issue. And I -- 14 Mr. Oldham. 15 MR. OLDHAM: I also think it's a 16 good point raised. My understanding of 17 reading the statute in looking at it was though 18 that we wouldn't necessarily be issuing legal 19 advice, but the Advisory Opinion itself states 20 the commission's position at this time under 21 the facts and circumstances given, so that 22 the -- the charity or the manufacturer, 23 distributor, whatever would have an 24 understanding of how to handle that situation 25 and be in compliance with our view or our 0184 1 stated position of -- of what that statute or 2 rule -- or how we're going to -- to -- to 3 enforce it. 4 MS. KIPLIN: But it does have to 5 do -- I mean, it is -- it is on point with 6 regard to compliance of the acting rules. 7 CHAIRMAN CLOWE: Does that 8 satisfy your question? 9 MR. OLVERA: It does. It does. 10 If, in fact, this order is not a final order, I 11 will sign it. 12 MS. KIPLIN: The order of 13 delegation, I think it would be considered to 14 be a final order. The rulemaking is a 15 different deal, but the order of delegation as 16 we -- as we implement it would be. 17 MR. OLVERA: Well, with respect 18 to my execution, I don't want to sign a final 19 order, because I have not been involved in the 20 process from the beginning. 21 MS. KIPLIN: Okay. 22 MR. OLVERA: If it were going to 23 be an intermediate rather than jumping in at 24 this stage, that would be a different story. 25 CHAIRMAN CLOWE: And I wanted to 0185 1 call this to your attention, and I thought it 2 was proper to give you that option. 3 MR. OLVERA: Thank you, sir. 4 CHAIRMAN CLOWE: We pass the 5 motion. 6 And the order suits your opinion 7 of what the intention was? 8 MR. COX: It does. 9 CHAIRMAN CLOWE: I'm ready to 10 sign if you are. 11 MS. KIPLIN: But we will bat 12 that issue. 13 CHAIRMAN CLOWE: Well, Mr. 14 Greer, we are ready for your presentation, 15 please. 16 MR. GREER: Great. Thank you. 17 First off, I just wanted to reinforce my thanks 18 and appreciation to the staff, true teamwork, 19 the whole aspect of putting together the Mega 20 Millions agreement was a monumental task. It 21 took a lot of time, specifically the Megaplier 22 issue and going into that whole uncharted water 23 was great. So I just wanted to reinforce to 24 each of you how fortunate I feel to have a 25 competent, caring, devoted team. It's very 0186 1 rewarding to me. 2 Rhode Island, as you mentioned a 3 moment ago, was on our radar screen this past 4 month. Gary and Mike and I went to Rhode 5 Island actually last week. We went up there 6 specifically for two reasons; one to visit the 7 Gtech headquarters. I came away with a much 8 clearer understanding of their manufacturing 9 capabilities, which I don't think I really got 10 before this, to be honest with you. And we 11 looked at the boards, and the way they put the 12 chips on the board, and how it was -- the whole 13 process, and how they put the machines 14 together, and everything that goes with that 15 whole situation. 16 We also had some great meetings 17 with their staff in reference to some 18 technology issues that we're talking about, not 19 the least of which SST's. And I did want to 20 mention to you that we have an SST, the new 21 self service terminal, in the Austin Claims 22 Center right here. And hopefully, before you 23 get off campus today, you'll take a look at it 24 and we'll -- let us show you what that's all 25 about. They do make those right there on-site 0187 1 in Rhode Island. And it just shipped out to 2 California -- shipment, prior to us getting 3 there. So that was great. 4 We also went to a couple of race 5 tracks in a strictly fact-finding motion -- 6 mission, I will tell you, to look at video 7 lottery terminals. Rhode Island has two race 8 tracks with sales over a billion dollars last 9 year, and felt like it was, you know, prudent 10 for us to look at that as it continues to be an 11 issue on the legislative track. Came away from 12 there with a whole different understanding of 13 video lottery terminals. And if we do see that 14 coming back on board, hope that each of you as 15 commissioners may want to take another journey 16 with us to go look at that, because it totally 17 changed my perspective on what video lottery is 18 all about. 19 We went to the jai alai track 20 and to the Lincoln Park Track, kind of a behind 21 the scenes tour. Also, as a part of that, we 22 went and visited with the Executive Director of 23 the Rhode Island Lottery and talked to them 24 about not only video lottery, but just in 25 general lottery issues, as well. So it was a 0188 1 great trip, a quick trip. Just spent a few 2 days up there, but it was well worthwhile. 3 I mentioned earlier, and just 4 wanted to reflect on the fact that I had been 5 to the State Fair yesterday. I think you're 6 all aware that we have a show up there that we 7 sponsor and a booth kind of deal, selling -- 8 selling instant and on-line tickets as a part 9 of that process, giving away prizes. I had no 10 idea what I was going to. It was a big deal. 11 I really enjoyed being up there. The Paul 12 Allen Show was the main theme of -- you know, 13 what we are delivering is kind of a game show 14 type of scenario. 15 As a part of that, I wanted to 16 let you know that it looks like we are going to 17 set record sales this year at the Sate Fair. 18 Through yesterday, we did 288,000 worth of 19 sales, and I think that we are going to hit 20 even a much higher mark than that, probably in 21 the low to mid three's. And people were lined 22 up there. It reflects again on the fact that 23 they love those higher price tickets. And I 24 was able to interact with a lot of people and 25 got a lot of feedback and was glad I went, and 0189 1 plan to do it again. 2 We are in the process right 3 now -- our theme this month is the SECC 4 volunteering campaign, the employee -- the 5 employee -- the state employee's charitable 6 campaign is what the SECC stands for. And I've 7 set some high goals for the agency. We'll let 8 you know that we set a -- a goal of $5,000 9 dollars, and we are 99 percent there. And I'm 10 setting a goal of 117 employees, 53 to being 11 there. So it's kind of a new concept here 12 at -- at the agency. I don't think it's ever 13 really been, you know, embraced before. I'm 14 really big on giving back to the community and 15 sending a strong message that we are a caring 16 organization, and feel like we are going to 17 continue to make strides in that area. And 18 this is just a part of that process. 19 Looking forward to Nelda's 20 legislative overview here in a couple of weeks. 21 And we'll be a part of that process, just to 22 let you be aware of that. 23 Next week, I'll be going to 24 Tyler to our retailer forum that's on October 25 23rd to visit with retailers throughout that 0190 1 area. 2 In front of you, this is 3 really -- this is great. As you know, we have 4 good people in graphics. And I gave you one of 5 these. This is the -- the information that's 6 moving forward on our play responsibly campaign 7 that I touched on with you at the last meeting. 8 These are flyers that we'll be using. This is 9 a brochure that we'll be sending out if people 10 come in and have questions about playing 11 responsibly or gambling issues. We have 12 identified -- and I -- I want to thank Kevin 13 again and the legal staff that helped me put 14 this all together. It's really a neat thing. 15 We are also printing a half a million wallet 16 size cards that will go in play stations so if 17 there's somebody there that has a family member 18 or somebody that does have gambling issues, 19 they can pick up their little wallet size card 20 and take it with them. But I'm focused on this 21 play responsibly campaign -- 22 CHAIRMAN CLOWE: Reagan, will 23 you make certain the gentleman who appeared and 24 testified on this subject for us at the 25 multijurisdictional game hearing in the Capitol 0191 1 gets this information? 2 MR. GREER: Okay. Yeah. That's 3 a good idea. I haven't -- we haven't done that 4 reach out. I'll get Nelda's help with that. 5 MR. COX: That was -- that was 6 Dr. Weston Ware. 7 MR. GREER: Yeah, Weston Ware. 8 We met with Sue Cox who was another individual 9 of that whole hot line issue, the compulsive 10 gambling thing, she came in. We had a long 11 meeting with her that was very good and shared 12 with her that this stuff would be coming out. 13 CHAIRMAN CLOWE: Well, all the 14 folks that are interested in it and are 15 involved in it should get this information. 16 MR. GREER: Well, we are taking 17 an aggressive posture to get the information 18 out. You know, the web page has been well 19 received. And working with these various 20 organizations, I think will be positive. I -- 21 I just again wanted to -- to reinforce to the 22 players that that is in our psyche as we think 23 through these games on what we're doing that 24 playing responsibly is -- is a key aspect of 25 what we are all about. 0192 1 The Deputy Executive Director 2 and I have been accepted into the Governor's 3 leadership training school through the 4 University of Texas LBJ School. And we will be 5 participating in a program that's a three month 6 program starting in November, next month. I 7 will be gone for a week a month -- I mean, a 8 week a month -- a week out of the month for the 9 next three months. 10 CHAIRMAN CLOWE: Where is that, 11 southern California? 12 MR. GREER: No. The first one 13 is in Galveston. The second one at Lakeway 14 here in Austin. And the third here at UT. 15 CHAIRMAN CLOWE: That's good. 16 MR. GREER: Yeah, it will be 17 good. We had been to the orientation session, 18 and it was great. It's made up of other 19 directors and leaders of various state 20 agencies. And we are excited about it. It 21 will be a good experience -- good for the 22 agency that we are a part of that, and I just 23 wanted you to be aware that we are doing that. 24 And lastly, it was just again to 25 thank you for the opportunity to be the 0193 1 Executive Director. Today was a big day, big 2 step. And I'm really proud of the work we did 3 on this project. 4 CHAIRMAN CLOWE: Any questions? 5 MR. COX: I think this is great, 6 Reagan. 7 CHAIRMAN CLOWE: Thank you very 8 much. 9 Mr. Atkins. 10 MR. ATKINS: Commissioners, 11 there are just a couple of items I'd like to 12 draw your attention to in my report. We are 13 moving forward on filling the senior audit 14 position and we have received a number of 15 applications. Those have been screened. And 16 we will start scheduling the interviews for 17 that position in the near future. 18 As was discussed earlier, the 19 next BAC meeting is tentatively scheduled for 20 November 6th. This is the first quarter since 21 House Bill 2519 took effect that the due date 22 of the quarterly reports has been pushed back 23 to the 25th of the month. So those quarterly 24 reports have gone out. The licensees have been 25 notified of the new due date. I bring that 0194 1 information forward to you, because it will 2 naturally push back the time when we will have 3 the information back and be able to provide you 4 with updates on financial and statistical 5 information for the quarter. 6 I want to draw your attention to 7 two of the items in the notebook; one is 8 regular information you receive on the pending 9 count -- the pending number of applications in 10 the Charitable Bingo Division. I do want you 11 to note this number is up. It's due primarily 12 again to the implementation of 2519 and the 13 authorization of 12 temporary licenses as 14 opposed to six temporary licenses for 15 organizations. We are averaging probably at 16 least 150 additional temporary applications 17 alone. So that's what accounts for that 18 increase. We are a total of about 250 19 applications up over the same period last year, 20 applications that have been submitted. So I 21 still think the staff is working those as 22 efficiently as they can. 23 The other item I want to point 24 out, this is an item that's been regularly 25 included in your notebooks, and what it is, 0195 1 several years ago when the Lottery introduced 2 their bingo lottery ticket, they included on 3 the back of it a toll-free number where 4 individuals could call and find the location of 5 a charitable bingo hall. And we began tracking 6 the number of calls that we get on that number. 7 That has averaged out to be about 50 a day that 8 we get from that number. It hasn't changed. 9 With your permission, we would like to stop 10 supplying this information in the notebooks 11 since there's -- there's very little change to 12 it. Should you have an interest in what those 13 numbers are, we still receive that information 14 and -- and can supply it -- supply it to you if 15 you're interested in getting that. 16 CHAIRMAN CLOWE: I hear no 17 objection. 18 MR. ATKINS: Then the last 19 thing, there were several conferences that we 20 have either attended or are coming up. The 21 staff went to a conference that was called 22 Crossroads Conference that was held October 2nd 23 here in Austin. And it was an opportunity for 24 nonprofit and charitable organizations to 25 gather together and hear a variety of work 0196 1 sessions on different topics. They also had a 2 small convention where we had a booth. We had 3 staff at that booth that were able to hand out 4 copies of the acts, the rule, applications. 5 And we had over 50 individuals with different 6 organizations stop by and express an interest 7 in charitable bingo. So we were glad that we 8 could get information out to organizations that 9 way. 10 Next week is the North American 11 Gaming Regulators Association Conference. That 12 is, Mr. Chairman, in Southern California. I 13 will be attending that, along with some 14 additional staff from the Bingo Division. 15 Kevin Oldham is attending from the Legal 16 Division. There are a number of interesting 17 sessions, some of which our staff is even 18 moderating. But what we really have our eye on 19 is the conference, which is scheduled for June 20 of next year, which is going to be in San 21 Antonio. And one of the things that we wanted 22 to do and we have done is we prepared a 23 promotional video to take with us to Long Beach 24 to show to the participants to try and generate 25 their interest in the San Antonio conference. 0197 1 And I asked Commissioner Clowe, as the Chairman 2 of the Commission and as also a designated 3 bingo representative if he would like to appear 4 in that video and offer some welcoming remarks. 5 And he very graciously agreed. And about a 6 week before we were set to film that he Emailed 7 me wanting to know what our costume was going 8 to be. And so I thought, well, he's really 9 getting into it. My idea had been that we 10 appear in our gray pinstripe suits in front of 11 the Lottery Commission seal and -- and film it 12 there. And he kind of looked at me and he 13 explained to me that that was very boring. So 14 it's at that time that Tom Clowe left the room 15 and Tom Spielberg came into the room. And he 16 wanted us to film something, you know, in a 17 sweeping field with longhorns with the camera 18 coming in, and he went on and on and on. And 19 so we did do something, I think, that will give 20 a real Texas flair to the video, and I'd like 21 to show that to you now. And I do understand 22 that Ms. Trevino saw it yesterday, and after 23 she was able to stop her uncontrollable giggles 24 of laughter, I heard her say that she thought 25 it was very good. 0198 1 MS. KIPLIN: What about the 2 outtakes? 3 MR. ATKINS: There are no 4 outtakes. 5 MS. KIPLIN: That's not what I 6 hear. 7 CHAIRMAN CLOWE: The first time. 8 We did good. Anybody that laughs has to go to 9 detention hall. We can laugh. 10 MS. KIPLIN: Where's the 11 popcorn? 12 MR. ATKINS: I like my costume. 13 I'm taking it with me. 14 CHAIRMAN CLOWE: You're -- 15 you're esteemed. There's no question about 16 that. 17 (Video shown.) 18 MR. ATKINS: Mr. Chairman, you 19 can have your own commemorative copy of that. 20 We appreciate your help. 21 CHAIRMAN CLOWE: I don't think I 22 have the guts to show that to my wife. 23 MR. ATKINS: Bobby Heith and his 24 staff did a great job in putting that together. 25 Our marketing division came up with the logo 0199 1 you saw there at the end. And we are really 2 pushing this convention. Normally 3 jurisdictions haven't gone to this effort to 4 promote it, but as you'll recall, we hosted a 5 very successful conference for NASPL and we're 6 hoping to bring a lot of that experience to 7 make the upcoming NAGRA conference in San 8 Antonio just as successful. 9 And that's all I have. 10 CHAIRMAN CLOWE: Any questions? 11 MR. COX: You mentioned that 12 you're going to be interviewing for your audit 13 position. 14 MR. ATKINS: Yes, sir. 15 MR. COX: Is Catherine helping 16 you with that? 17 MR. ATKINS: She has agreed to 18 serve on the interview committee, yes, sir. 19 MR. COX: Great. 20 CHAIRMAN CLOWE: Thank you, 21 Billy. 22 Commissioners, if you're ready, 23 I'll move that we go into executive session. 24 Is there anyone wishing to make 25 public comments to the Commission at this time? 0200 1 At this time, I move the Texas 2 Lottery Commission go into executive session to 3 deliberate the duties of the Executive Director 4 and/or Deputy Executive Director, Internal 5 Auditor Director, Charitable Bingo Operations 6 Director, General Counsel, and Security 7 Director, pursuant to Section 551.074 of the 8 Texas Government Code 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 TPFV Group, Inc. versus Texas Lottery 16 Commission; Retired Sergeant Majors' 17 Association et al. versus Texas Lottery 18 Commission et al; Scientific Games and Pollard 19 Banknote versus Texas Lottery Commission and 20 Linda Cloud, Executive Director; Patsy Henry 21 versus Texas Lottery Commission; Sandy Surber 22 et al. versus GTECH Corporation; Linda Cloud 23 versus Mike McKinney et al.; Employment law, 24 personnel law, procurement and contract law, 25 evidentiary and procedural law, and general 0201 1 government law. 2 Is there a second? 3 MR. OLVERA: Second. 4 CHAIRMAN CLOWE: All in favor, 5 please say aye. Vote is three-zero in favor. 6 The Texas Lottery Commission will go into 7 Executive Session. The time is 12:56 p.m., the 8 date is October the 16th, 2003. 9 (EXECUTIVE SESSION.) 10 CHAIRMAN CLOWE: The Texas 11 Lottery Commission is out of executive session. The 12 time is 2:51 p.m. 13 Is there any action to be taken 14 as a result of the executive session? If not, is 15 there any other business to be brought before the 16 commission at this time? 17 Then if not, we are adjourned. Thank you all very 18 much. 19 20 21 22 23 24 25 0202 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, STEFFANIE L. DECKER, Certified 7 Shorthand Reporter for the State of Texas, do hereby 8 certify that the above-captioned matter came on for 9 hearing before the TEXAS LOTTERY COMMISSION as 10 hereinafter set out, that I did, in shorthand, 11 report said proceedings, and that the above and 12 foregoing typewritten pages contain a full, true, 13 and correct computer-aided transcription of my 14 shorthand notes taken on said occasion. 15 Witness my hand on this the 28TH day of 16 OCTOBER, 2003. 17 18 19 20 _______________________________ STEFFANIE L. DECKER, 21 Texas CSR No. 3926 Expiration Date: 12-31-04 22 WRIGHT WATSON STEN-TEL Registration No. 225 23 1609 Shoal Creek Blvd., Ste.202 Austin, Texas 78701 24 (512) 474-4363 25