1 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 REGULAR MEETING OF THE § 6 TEXAS LOTTERY COMMISSION § FRIDAY, SEPTEMBER 10, 2010 § 7 8 9 COMMISSION MEETING 10 FRIDAY, SEPTEMBER 10, 2010 11 12 BE IT REMEMBERED THAT on Friday, the 10th day 13 of September 2010, the Texas Lottery Commission meeting 14 was held from 9:05 a.m. to 10:44 a.m., at the Offices of 15 the Texas Lottery Commission, 611 East 6th Street, 16 Austin, Texas 78701, before CHAIRMAN MARY ANN 17 WILLIAMSON and COMMISSIONER J. WINSTON KRAUSE. The 18 following proceedings were reported via machine 19 shorthand by Aloma J. Kennedy, a Certified Shorthand 20 Reporter of the State of Texas, and the following 21 proceedings were had: 22 23 24 25 2 1 APPEARANCES 2 CHAIRMAN: 3 Ms. Mary Ann Williamson 4 COMMISSIONER Mr. J. Winston Krause 5 GENERAL COUNSEL: 6 Ms. Kimberly Kiplin 7 DEPUTY EXECUTIVE DIRECTOR: Mr. Gary Grief 8 DIRECTOR, CHARITABLE BINGO OPERATIONS: 9 Mr. Philip D. Sanderson 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS - FRIDAY, SEPTEMBER 10, 2010........... 7 4 AGENDA ITEM NO. I - Meeting Called to Order........ 5 AGENDA ITEM NO. II - Report, possible discussion and/or action on calendar year 2nd quarter 6 conductor information............................. 10 7 AGENDA ITEM NO. III - Consideration of and possible discussion and/or action, including 8 proposal, on amendments to 16 TAC §402.604 relating to Delinquent Purchaser.................. 12 9 AGENDA ITEM NO. IV - Consideration of and 10 possible discussion and/or action on a petition for rulemaking regarding 16 TAC 11 §402.302, Card-Minding Systems relating to placing a limit on the number of card-minding 12 devices available in licensed authorized locations.......................................... 15 13 AGENDA ITEM NO. V - Report by the Charitable 14 Bingo Operations Director and possible discussion and/or action on the Charitable Bingo 15 Operations Division’s activities, including updates on staffing, licensing, accounting and 16 audit activities, pull-tab review, special projects, and upcoming operator training........... 20 17 AGENDA ITEM NO. VI - Report, possible discussion 18 and/or action on lottery sales and revenue, game performance, new game opportunities, advertising, 19 market research, trends, and game contracts, agreements, and procedures......................... 21 20 AGENDA ITEM NO. VII - Report, possible discussion 21 and/or action on transfers to the State............ 26 22 AGENDA ITEM NO. VIII - Consideration of and possible discussion and/or action, including 23 proposal, on amendments to 16 TAC §401.315 relating to Mega Millions On-Line Game Rule........ 31 24 25 4 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. IX - Consideration of and possible discussion and/or action, including 4 proposal, on amendments to 16 TAC §401.308 relating to Cash Five On-Line Game Rule............ 34 5 AGENDA ITEM NO. X - Report, possible discussion 6 and/or action on the agency’s contracts............ 35 7 AGENDA ITEM NO. XI - Report, possible discussion and/or action on the lottery operations and 8 services procurement............................... 36 9 AGENDA ITEM NO. XII report, possible discussion and/or action on the 81st Legislature and/or 10 82nd Legislature................................... 36 11 AGENDA ITEM NO. XIII - Consideration of and/or report, possible discussion and/or action on 12 external and internal audits and/or reviews relating to the Texas Lottery Commission, 13 and/or on the Internal Audit Department’s activities, including the FY2011 Internal 14 Audit Activity Plan................................ 37 15 AGENDA ITEM NO. XIV - Report, possible discussion and/or action on GTECH Corporation...... 43 16 AGENDA ITEM NO. XV - Report by the Executive 17 Director and/or possible discussion and/or action on the agency’s operational status, 18 agency procedures, and FTE status.................. 7 19 AGENDA ITEM NO. XVI - Consideration of the status and possible entry of orders in: 20 A. Docket No. 362-10-4894 – Garcia’s Convenience Stop 21 B. Docket No. 362-10-4865 – Stak-A-Sak C. Docket No. 362-10-4862 – Big Willy’s 22 D. Docket No. 362-10-4859 – Fondren Food Market 23 E. Docket No. 362-10-4861 – Step N Go F. Docket No. 362-10-4858 – Cordell Corner 24 G. Docket No. 362-10-5386 – Lee’s Chevron 25 5 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. XVI - (continued) 4 H. Docket No. 362-10-5389 – Justin Grill I. Docket No. 362-10-5112 – Movie Mart 5 J. Docket No. 362-10-5388 – Ramsey Food Mart 6 K. Docket No. 362-10-2963 – Village Market L. Case No. 2010-396 – Tommy’s #19 7 M. Case No. 2010-521 – 3 Star Food Mart N. Case No. 2010-349 – Palmer Drug Abuse 8 Program O. Docket No. 362-10-2668.B – Ysleta Del 9 Sur Pueblo Volunteer Fire Department Motion for Rehearing........................ 43 10 AGENDA ITEM NO. XVII - Public comment.............. 55 11 AGENDA ITEM NO. XVIII - Commission may meet in 12 Executive Session: A. To deliberate the duties and evaluation 13 of the Executive Director pursuant to Section 551.074 of the Texas Government 14 Code. B. To deliberate the duties and evaluation 15 of the Internal Audit Director pursuant to Section 551.074 of the Texas Government 16 Code. C. To deliberate the duties and evaluation 17 of the Charitable Bingo Operations Director pursuant to Section 551.074 of 18 the Texas Government Code. D. To deliberate the duties of the General 19 Counsel pursuant to Section 551.074 of the Texas Government Code. 20 E. To deliberate the duties of the Human Resources Director pursuant to Section 21 551.074 of the Texas Government Code. 22 23 24 25 6 1 TABLE OF CONTENTS (continued) 2 PAGE 3 F. To receive legal advice regarding pending or contemplated litigation pursuant to 4 Section 551.071 (1) (A) and/or to receive legal advice regarding settlement offers 5 pursuant to Section 551.071 (1) (B) of the Texas Government Code and/or to receive 6 legal advice pursuant to Section 551.071(2) of the Texas Government Code, including but 7 not limited to: First State Bank of DeQueen et al. 8 v. Texas Lottery Commission Texas Lottery Commission v. Leslie 9 Warren, Texas Attorney General Child Support Division, Singer 10 Asset Finance Company L.L.C., and Great-West Life & Annuity 11 Insurance Company Department of Texas, Veterans of 12 Foreign Wars et al. v. Texas Lottery Commission et al. 13 John Doe v. Texas Lottery Commission and Greg Abbott, Texas Attorney 14 General Employment law, personnel law, 15 procurement and contract law, evidentiary and procedural law, and 16 general government law Lottery Operations and Services 17 procurement and/or contract........... 55 18 AGENDA ITEM NO. XIX - Return to open session for further deliberation and possible action 19 on any matter discussed in Executive Session...... 56 20 AGENDA ITEM NO. XX - Adjournment.................. 56 21 REPORTER'S CERTIFICATE............................ 58 22 23 24 25 7 1 P R O C E E D I N G S 2 FRIDAY, SEPTEMBER 10, 2010 3 (9:05 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN WILLIAMSON: Good morning. I 6 would like to call the meeting of the Texas Lottery 7 Commission to order. Today is September 10, 2010; the 8 time is 9:05. Commissioner Krause is present, so we 9 have a quorum. 10 AGENDA ITEM NO. XV 11 CHAIRMAN WILLIAMSON: The first thing, I 12 would like to move Item XV up and start that one. That 13 one is report by the Executive Director and/or possible 14 discussion and/or action item on the agency's 15 operational status, agency procedures and FTE status. 16 Gary, this is your item, please. 17 MR. GRIEF: Very good. Thank you, Madam 18 Chair. Good morning. Good morning, Commissioner 19 Krause. 20 Other than the normal information that I 21 have in your notebooks today, I'm very pleased to 22 introduce someone to you this morning. For quite a 23 while I have been searching and trying to find an 24 appropriate person to fill the ombudsman function here 25 at this agency. That's an important position to our 8 1 staff; it's an important position to me as well. 2 And we have Ms. Shirley Culver here this 3 morning. And I want to turn this over to Janine if I 4 could and have Janine give you a formal introduction to 5 Ms. Culver. 6 MS. MAYS: Good morning, Commissioners. 7 I'm here this morning to introduce to you our new 8 ombudsman-Ms-Shirley-Culver. Just to give you a little 9 history, after Lauren Bloom left, Gary and I had a 10 lengthy -- several lengthy discussions on how to proceed 11 with the program or even if we wanted to proceed with 12 the program, if the need was still there. 13 His decision was to continue with the 14 program and to allow this function to continue to help 15 us with moving forward as an agency. We have made some 16 great strides in keeping our employee relations moving 17 in a positive direction, and we believe that Shirley 18 will be able to assist us in continuing to accomplish 19 this goal. 20 Shirley comes to us with many years of HR 21 experience, most of which was in state government. 22 She's currently the HR manager for a private company, IT 23 called HBMG, Inc. Prior to this position, Shirley was 24 an HR director for the Department of Information 25 Resources, and that's where she retired in state 9 1 government. 2 And Gary and I wanted to give you the 3 opportunity to meet here and to welcome her to the TLC 4 team, as she helps us to continue to move forward. 5 MS. CULVER: Thank you. 6 Good morning, Commissioners and audience. 7 I would just like to say that it is my privilege to take 8 on this role on behalf of the leadership of the Texas 9 Lottery Commission. When I was introduced at the all- 10 staff meeting on the 2nd, I did point out to the staff 11 that they're fortunate to work for an organization that 12 is interested enough in giving them a forum, an 13 intermediary to put issues and concerns on the table on 14 behalf of management. It is a role I hope I am able to 15 fulfill successfully and do not disappoint. 16 And thank you very much. 17 CHAIRMAN WILLIAMSON: Well, thank you for 18 agreeing to join us. I think you'll find -- and I'm 19 going to brag on all the employees here at the Texas 20 Lottery. I think this is an incredible group of people. 21 And hopefully you won't have too many situations that 22 you have to deal with, other than positive. 23 MS. CULVER: Right. 24 CHAIRMAN WILLIAMSON: And so we welcome 25 you here. 10 1 MS. CULVER: Thank you, Chairman 2 Williamson. And it has certainly been my experience in 3 my interactions with the staff here so far that this is 4 a delightful, positive group who are definitely 5 interested in creating a positive work environment for 6 the staff. 7 CHAIRMAN WILLIAMSON: All right. Thank 8 you. 9 Commissioner? 10 COMMISSIONER KRAUSE: We're really happy 11 to have you. Welcome aboard. 12 MS. CULVER: Thank you very much, 13 Commissioner Krause. 14 CHAIRMAN WILLIAMSON: All right. Thank 15 you. 16 And thank you, Gary and Janine, for 17 bringing this lady to us. 18 MS. MAYS: Sure. 19 AGENDA ITEM NO. II 20 CHAIRMAN WILLIAMSON: Now we'll go back 21 and we'll go on to No. II. The next item is report, 22 discussion and or action on the second quarter conductor 23 information. 24 Bruce Miner, I believe this is your item, 25 please. 11 1 MR. MINER: Good morning, Commissioners. 2 For the record, my name is Bruce Miner. I'm the manager 3 of the Taxpayer Services Department, and I'm here to 4 present to you a quick summary of the first and second 5 quarter information for 2010, as reported by our 6 licensed authorized organizations. 7 This chart shows a comparison of gross 8 receipts for the first two quarters of each year, from 9 2007 through 2010. As you can see, the total gross 10 receipts, the top line here, have dropped slightly from 11 2009 to 2010. Please note the gross receipts for 12 instant bingo sales showed a slight decrease from the 13 170.7 million to 170 million even. 14 This chart shows a comparison of net 15 receipts for the first half of each year for 2007 16 through 2010, and this slide captures the trend of net 17 receipts which are gross receipts minus prizes. Total 18 net receipts shown with the green line are down 19 3.9 percent, as compared to last year. 20 These next slides will overlay the 21 comparison between the required distribution, net 22 proceeds and the actual reported distributions. And 23 first we have the required distributions utilizing the 24 35 percent calculation prior to October 1, 2009, and it 25 shows that the required distributions for the first 12 1 quarters of 2007 through 2010 range from a high of 2 $6.2 million last year to a low of $5.2 million this 3 year. We compare these figures to the net proceeds, as 4 defined in the revised Bingo Enabling Act, as gross 5 receipts minus prizes and expenses. And net proceeds 6 have increased 25 percent over the past four years. 7 This slide overlaid the actual reported 8 charitable distributions and shows you how the reported 9 distributions compare to the amount required to be 10 distributed and the net proceeds. Organizations 11 continue to distribute more than that required for their 12 charitable purposes. In your notebook is additional 13 information from an analysis performed by Arlette 14 Taylor, our operational planning and performance 15 coordinator. 16 And that concludes my report for this 17 agenda item. And I'm open to any questions you might 18 have. 19 CHAIRMAN WILLIAMSON: Thank you, Bruce. 20 Commissioner, do you have any questions? 21 COMMISSIONER KRAUSE: I don't. 22 CHAIRMAN WILLIAMSON: Thank you. 23 AGENDA ITEM NO. III 24 CHAIRMAN WILLIAMSON: Let's go on to Item 25 No. III, consideration of and possible discussion and/or 13 1 action on, including proposal, on amendments to 16 TAC 2 402.604 relating it delinquent purchaser. 3 Sandy, I believe this is your item. 4 MS. JOSEPH: Yes. Good morning, 5 Commissioners. For the record, my name is Sandra 6 Joseph, Special Counsel. 7 Before you, Commissioners, are proposed 8 amendments to 16 TAC Section 402.604 related to 9 delinquent purchaser. The purpose of the proposed 10 amendments is to provide clarification of standards for 11 enforcement of Texas Occupations Code Section 2001.218, 12 payment due. Specifically at Subsection (f), new 13 Paragraphs (1) and (2) have been added, setting forth 14 requirements for payments by check from a licensee who 15 is on the delinquent purchaser list. 16 The submission prepared for the Texas 17 Register includes notice of a public hearing to be held 18 at 10:00 a.m., on Thursday, October 14th. The staff 19 recommends that the Commission vote to initiate the 20 rulemaking process by publishing the attached amendments 21 in the Texas Register in order to receive public 22 comments for a period of 30 days. 23 CHAIRMAN WILLIAMSON: Thank you. 24 Commissioner, do you have any questions? 25 COMMISSIONER KRAUSE: Can you just give me 14 1 a one-minute summary on what this does -- maybe a 2 30-second one? 3 MS. JOSEPH: Yes. Phil, would you like to 4 do that? 5 MR. SANDERSON: I'll try to provide 30 6 seconds' worth of information. If an organization does 7 not pay their invoice for bingo supplies within 30 days, 8 the distributor or manufacturer has to put that 9 organization on a delinquent purchaser list, at which 10 point they have to pay for their supplies upon delivery 11 or prior to delivery. 12 We've had instances where someone would 13 write a check, and the distributor or manufacturer would 14 not cash it for over 30 days, thus defeating the purpose 15 of the immediate payment clause. So we're adding this 16 to clarify that term. 17 COMMISSIONER KRAUSE: Sounds reasonable to 18 me. 19 CHAIRMAN WILLIAMSON: All right. Thank 20 you. 21 This is an action item. Right? 22 MS. KIPLIN: Yes, it is. 23 CHAIRMAN WILLIAMSON: And I make a motion 24 that we post the proposed amendment for the 30-day 25 period. 15 1 MS. KIPLIN: Yes, propose the amendments 2 in the Texas Register for the 30-day comment period. 3 CHAIRMAN WILLIAMSON: Is there a second? 4 COMMISSIONER KRAUSE: I second that. 5 CHAIRMAN WILLIAMSON: In favor? 6 COMMISSIONER KRAUSE: Aye. 7 CHAIRMAN WILLIAMSON: Aye. 8 The vote is 2-0. 9 AGENDA ITEM NO. IV 10 CHAIRMAN WILLIAMSON: All right let's go 11 on Item No. IV, consideration of and possible discussion 12 and/or action on a petition for rulemaking regarding 13 16 TAC 402.302, card-minding systems relating to placing 14 a limit on the number of card-minding devices available 15 in licensed authorized locations. 16 Sandy, I believe this is your item, too, 17 please. 18 MS. JOSEPH: Yes. 19 MS. KIPLIN: And if I could, just as a 20 housekeeping matter, Mr. Kris Keller is the petitioner 21 on this petition for rulemaking. And he was notified of 22 the Commission meeting today but is unable to attend due 23 to a prior scheduling conduct. 24 He sent a letter yesterday, asking that 25 that letter be read into the record. I think rather 16 1 than reading a page and a half letter into the record, 2 my suggestion would be that we provide a copy to the 3 court reporter, who already has a copy, and request that 4 she make this an attachment to the transcript, so it 5 would be incorporated into the record today and would go 6 on the website and people can read that. 7 We've also made this record in the 8 petition available to folks that are in attendance 9 today, out in the hall. So hopefully those that have 10 got an interest in this will have had access to 11 Mr. Keller's letter and the comments that he intended to 12 make today. 13 So if that's agreeable to the Commission, 14 I don't see any need to read this letter into the 15 record. 16 CHAIRMAN WILLIAMSON: Commissioner, do you 17 have any problems with that? 18 COMMISSIONER KRAUSE: Not a bit. 19 CHAIRMAN WILLIAMSON: That's fine. We'll 20 do that. Thank you. 21 (TLC Attachment 1 re Agenda Item No. IV 22 attached at end of transcript) 23 MS. JOSEPH: All right. On July 23, 2010, 24 the Commission received a petitioner from Mr. Keller 25 requesting amendment of Bingo Administrative Rule 17 1 402.302 related to card-minding systems. His request is 2 to add a provision limiting the number of available 3 card-minding devices to 250 devices available for sale 4 or use during any licensed or temporary session. The 5 petition states that the requested change would allow 6 equitable sales of electronic bingo in charitable bingo 7 halls and more strictly follow the charge of this rule 8 to fairly conduct bingo and fairly give the opportunity 9 for players and charities that make available electronic 10 card-minding devices to keep a fair and level bingo 11 environment. 12 It's not clear, however, to the staff how 13 the proposed amendment would create equitable sales and 14 positively affect their conduct of the game. In fact, 15 limiting the number of card-minding devices could 16 produce unfair playing situations, where all players 17 could not play as many machines as they desired, because 18 of limited availability. 19 Furthermore, the requested limitation 20 could drive up charities' costs for card-minding 21 machines. Manufacturers and distributors might 22 necessarily increase prices per unit to recover 23 development costs if there is a limit on the number to 24 be sold per occasion. 25 The Administrative Procedures Act requires 18 1 that when an agency receives a rulemaking petition, that 2 not later than 60 days after the submission of the 3 petition, the Commission must act on that petition by 4 either denying the petition in writing or initiating a 5 rulemaking proceeding. That 60-day period for this 6 petition will expire on September 21st. The Staff 7 recommends that the petition be denied. 8 CHAIRMAN WILLIAMSON: Thank you. 9 Commissioner, do you have any questions or 10 comment? 11 COMMISSIONER KRAUSE: Well, I think that 12 we have lots of rules for these people, and I'm not sure 13 they need another one, so I would be in favor of denying 14 it. 15 CHAIRMAN WILLIAMSON: Okay. To me this is 16 sort of in the same vein of trying to control prices. I 17 mean, this is a market society. And I just -- I'm with 18 you. I think there's enough rules out there for the 19 bingo industry. I don't believe that I would be in 20 favor of this. 21 However, this is an action item. Is that 22 correct? 23 MS. KIPLIN: Yes, it is. It sounds as 24 though the motion would be to deny the petition for 25 rulemaking, based on the reasons that y'all articulated. 19 1 CHAIRMAN WILLIAMSON: Right. 2 And before that, Mr. Bresnen, I see you 3 have a witness affirmation. You don't want to say 4 anything? Okay. 5 Just to let you know, Steve Bresnen has 6 filed a witness affirmation form but does not want to 7 speak -- no testimony. And he's against it. Okay. 8 So a motion? 9 COMMISSIONER KRAUSE: I make a motion that 10 we deny this petition. 11 CHAIRMAN WILLIAMSON: I second. 12 All in favor? 13 COMMISSIONER KRAUSE: Aye. 14 CHAIRMAN WILLIAMSON: Aye. 15 Passes 2-0. 16 MS. JOSEPH: I would like to note that the 17 staff recommends denial, so it would be appropriate for 18 you to initial this under the "Approved" column. I 19 don't want you to get confused by that, because you'll 20 be approving the staff recommendation. 21 CHAIRMAN WILLIAMSON: Okay. 22 MS. JOSEPH: Thank you. 23 CHAIRMAN WILLIAMSON: Thank you. 24 25 20 1 AGENDA ITEM NO. V 2 CHAIRMAN WILLIAMSON: All right. Let's go 3 on to Item No. V, report by Charitable Bingo Operations 4 Director and possible discussion and action on the 5 Charitable Bingo Operations Division activities. 6 Phil, this is your item. And first tell 7 them your new office. 8 MR. SANDERSON: Good morning, 9 Commissioners, Chairman and Commissioner. 10 The first thing I would like to report 11 under this item is, on August the 23rd, I was elected 12 President of the North American Gaming Regulators 13 Association, which is an association of regulators in 14 Mexico, Canada and the U.S. that regulate everything 15 from bingo, charitable gaming, horse racing, casinos, 16 Indian gaming and lotteries. So I will serve a one-year 17 term in that capacity. 18 CHAIRMAN WILLIAMSON: Well, 19 congratulations -- 20 MR. SANDERSON: Thank you. 21 CHAIRMAN WILLIAMSON: -- I guess. We'll 22 see. 23 (Laughter) 24 That's wonderful. 25 MR. SANDERSON: And then the other 21 1 information is in your notebook for the report of the 2 activities for the Bingo Division, and I'll be glad to 3 answer any questions. 4 CHAIRMAN WILLIAMSON: Commissioner, do you 5 have any questions? 6 COMMISSIONER KRAUSE: No, ma'am. 7 CHAIRMAN WILLIAMSON: Thank you, Phil. 8 AGENDA ITEM NO. VI 9 CHAIRMAN WILLIAMSON: Let's go on to Item 10 No. VI, report, possible discussion, action on lottery 11 sales, revenue, game performance, market research. 12 Kathy and Robert, this is your item, 13 please. 14 MS. PYKA: Good morning, Commissioners. 15 My name is Kathy Pyka, Controller for the agency. With 16 me to my right is Robert Tirloni, our Products Manager. 17 Commissioners, this morning we're going to 18 provide you an overview of final Fiscal Year 2010 sales 19 activity. So the first chart that we have for you this 20 morning reflects the comparative sales for the fiscal 21 year ending August 31, 2010, to our previous fiscal 22 year. 23 Total Fiscal Year 2010 sales amounted to 24 $3.74 billion, an increase of $18.3 million over the 25 prior fiscal year. Commissioners, this represents our 22 1 fourth highest sales total since the inception of the 2 lottery. 3 And then on our instant side, we wrapped 4 up the year with 2.761 billion in total sales. This is 5 a $30.6 million decline from the prior fiscal year. 6 However, it is also our fifth highest instant sales 7 total since the inception of the lottery. 8 Our on-line sales for Fiscal Year 2010 9 wrapped up with a figure of $977.4 million, as noted on 10 the red bar, which is $48.8 million gain over the prior 11 fiscal year. 12 And so our next chart includes the 13 cumulative average daily sales for Fiscal Years 2008, 14 2009 and 2010. As noted, we completed the fiscal year 15 with a daily average of $10.375 million, which is a 16 3.4 percent increase over Fiscal Year 2008 and a 17 1.8 percent increase over Fiscal Year 2009. 18 We have included the jackpot games on this 19 side in the white font. And you'll note that our daily 20 average for Fiscal Year 2010 for our jackpot games is 21 $1.7 million, which is a significant increase over the 22 prior two fiscal years. 23 That is attributed to two things, Lotto 24 Texas at $701,000, which generated a large sum of those 25 sales as a result of the $97 million role that we had 23 1 earlier this fiscal year. And then also we've got the 2 introduction of Powerball that was introduced at the end 3 of January, which can be attributed to the balance of 4 the increase. 5 Our daily games are noted in the green 6 font and came in just under $1.1 million for the fiscal 7 year. While we have declines on the Pick 3 and Cash 5 8 games, we did wrap up Daily 4 with the highest sales 9 total for the fiscal year from beginning -- the highest 10 sales total since we introduced game in Fiscal Year 2008 11 is what I wanted to note. And then again, you can see 12 the instants wrapped up at $7.56 million. 13 So with that, Robert is going to give you 14 an overview of games with actual totals. And I also 15 wanted to note, on the average daily slide, we're going 16 to discontinue that slide after this presentation. I 17 think it's served its purpose in trying to highlight the 18 discrepancies that we had in sales as a result of the 19 hurricane that we had last fiscal year. So unless 20 something like that should come up again, we'll 21 discontinue presenting that particular document. 22 MR. TIRLONI: Good morning, Commissioners. 23 For the record, my name is Robert Tirloni. I am the 24 Products Manager for the Texas Lottery. And, as Kathy 25 said, this next slide is the total sales comparison for 24 1 Fiscal Year 2010 compared to Fiscal Year 2009. This 2 slide has the same layout as the one you just saw 3 moments ago. The jackpot games are at the top of the 4 slide in white. Lotto Texas is at the very top, 5 realizing the $55 million gain in Fiscal Year 2010 6 compared to Fiscal 2009. 7 We had slight declines in Mega Millions, 8 mostly as a result of lower jackpots in this most 9 recent -- or this past fiscal year, especially right at 10 the end of August. August of 2009 had a very large Mega 11 Millions jackpot, and we were not lucky enough to have 12 that occur again in the end of August of 2010. 13 As Kathy mentioned, positive sales, 14 obviously, from Powerball and Powerplays. That is new 15 to our on-line portfolio. And the jackpot games, end of 16 fiscal year, up $63 million. The daily games again are 17 in green, middle of the slide. Overall the daily games 18 are showing a slight decline, $14 million year over 19 year. But we have seen positive results on the Daily 4 20 game, and that's the six and a half million dollar game 21 right in the middle. 22 As Kathy mentioned, the on-line games 23 overall had a very good year, up $48 million just under 24 $49 million, actually, for Fiscal 2010. And our instant 25 games, they were down just under $31 million in Fiscal 25 1 Year '10. We mainly attribute that to the competition 2 we were up against from the spotlight game which we 3 introduced in Fiscal 2009 and which had spectacular 4 sales for us, pretty much from May of 2009 through the 5 end of August 2009, when that game first launched, and 6 we didn't have the benefit of that in Fiscal 2010. 7 But as Kathy mentioned, all told, even 8 with that decline, we were very happy overall with the 9 results of our instant sales, with them being the fifth 10 highest since 1992. And again, overall for the year, 11 total sales are up $18 million. 12 We have been showing you this slide pretty 13 much on a quarterly basis. This is a good time to kind 14 of wrap up the entire fiscal year. This shows you the 15 total instant ticket sales for the year, broken down by 16 price point. So this represents $2.76 billion in 17 instant ticket sales, not much change from what we 18 experienced and what we looked at in these meetings 19 through the year. 20 The $5.00 price point is our best- selling 21 price point. That comes in at $844 million for the 22 year, followed by the $10 price point, second best price 23 point for the year, coming in at just under 24 $400 million. And the rest of the sequence is the two 25 and then the 20. That's the top four. 26 1 And that concludes our year-end summary. 2 We're happy to try to answer any questions that you 3 might have for us. 4 CHAIRMAN WILLIAMSON: Thank you. 5 Commissioner? 6 COMMISSIONER KRAUSE: It looks like we had 7 a good year. 8 MR. TIRLONI: Yes, sir. 9 MS. PYKA: We did. 10 COMMISSIONER KRAUSE: Good work. 11 MR. TIRLONI: Thank you. 12 CHAIRMAN WILLIAMSON: In light of 13 everything else that was going on in the economy. 14 MR. TIRLONI: Yes, ma'am. 15 CHAIRMAN WILLIAMSON: So great! Thank 16 you. 17 AGENDA ITEM NO. VII 18 CHAIRMAN WILLIAMSON: All right. Let's go 19 on to Item VII, Kathy. That's report, discussion and 20 action on transfers to the state. 21 MS. PYKA: Thank you, Commissioners. 22 Commissioners, this morning we've got the information in 23 your notebooks that takes us through transfers as of 24 July 31st. While I'm happy to answer any questions 25 about that July data, what I would like to do is proceed 27 1 and give you an overview of where we wrapped up the 2 fiscal year on revenue to the state as of August 31st, 3 since we've wrapped up all of those cash transfers. 4 So I've got a slide for you this morning, 5 and I wanted to start with noting that we completed 6 Fiscal Year 2010 with a transfer of total revenue of 7 $1,095,000 to the State of Texas. This is an increase 8 of $51.1 million over the transfer that was made last 9 fiscal year. And this is our largest transfer to the 10 state that we've made since Fiscal Year 1998. 11 Included in the transfer was a transfer of 12 just over a billion dollars to the Foundation School 13 Fund. We also made a transfer of $7.3 million to the 14 Texas Veterans Commission, and this was from the sales 15 of the new instant ticket game that was dedicated to 16 veterans' assistance. This was our first year to make a 17 transfer to that agency. 18 And then also from unclaimed prizes, we've 19 had a transfer of $86.9 million, which included a 20 $10 million transfer to the multi-categorical teaching 21 hospital, and then the balance of that, $76.9 million, 22 that went directly to the General Revenue Fund. 23 So, Commissioners, in summary of our final 24 sales total of $3.74 billion, 95 percent of that sales 25 total was returned to the state and our players in the 28 1 form of prizes, contributions to the Foundation School 2 Fund, to our retailers, as in retailer bonuses and 3 commissions, and to other state programs here in the 4 State of Texas. 5 I would be happy to answer any questions 6 that you might have. 7 CHAIRMAN WILLIAMSON: Thank you. 8 Commissioner, do you have any questions? 9 COMMISSIONER KRAUSE: I sure don't. 10 MR. GRIEF: Madam Chair, could I make a 11 couple of comments? 12 CHAIRMAN WILLIAMSON: Please. 13 MR. GRIEF: As you mentioned, Fiscal Year 14 2010, particularly in light of the challenging economy 15 that we've been dealing with during that period of time, 16 was an extraordinary year for this agency. And in order 17 for these kind of accomplishments to be made, it takes a 18 true team effort. Everyone on the lottery side of our 19 business has to be coordinated and going in the same 20 direction, from our phone bank staff to our claim center 21 staff, to our legal staff and throughout the agency. 22 I do want to recognize our marketing staff 23 who lead us in that regard. First, Michael Anger, our 24 Lottery Operations Director; Robert Tirloni, our 25 Products Manager; Julie Terrell, our On-Line 29 1 Coordinator; Dale Bowersock, our Instant Game 2 Coordinator; and Andrew Leeper, our creative 3 coordinator. Those are the key folks in our agency who 4 come up with ideas and keep us focused, keep pushing, 5 et cetera. 6 I also want to make mention of our 7 valuable vendor partners that we have, in particular 8 GTECH Corporation who, as you all know, serves as our 9 field staff. They have done a great job this year in 10 ensuring that our retailer locations are properly 11 serviced and that our product is distributed, and it's 12 on time when it needs to be there. Scientific Games and 13 Pollard and now GTECH, our three instant ticket 14 printers, have done a tremendous job in making sure we 15 have product available. 16 In all, again, I'll just tell you: 17 Fantastic team. We think the year ahead is going to be 18 just as good. We have some great ideas as far as some 19 tweaking of our products, perhaps some additional 20 products that we'll be able to offer. And then, as 21 always, we look to run a lean organization, and we're 22 going to look for ways where we can operates even more 23 efficiently, because we recognize every dollar we can 24 save in the operation of the Texas Lottery goes directly 25 to the Foundation School Fund, and we take that charge 30 1 very seriously. 2 So I want to congratulate the staff and 3 our vendors on a tremendous year. 4 CHAIRMAN WILLIAMSON: And thank you. 5 Kathy, before you come down, a question. 6 On the veterans ticket, what do we project that we 7 thought the sales would be this year? 8 MS. PYKA: We actually projected an amount 9 slightly below that. It was $5 million. And the reason 10 the projection was a bit lower was that we did not plan 11 to start that game as early as we did. But as a request 12 of the Commission, we tried to get that game moving in 13 November, to launch with Veterans Day. And so Robert 14 and his team accelerated all the work they had done in 15 order to get that game out earlier. 16 CHAIRMAN WILLIAMSON: That's great! So 17 they ended up with an extra $2.3 million. 18 MS. PYKA: They did. 19 CHAIRMAN WILLIAMSON: They did. 20 Congratulations on all of you. 21 MR. GRIEF: Madam Chair, let's not be 22 stoned the next time I go in front of a group of 23 retailers. I also want to mention and remind everyone, 24 retailers around the state, they don't have to sell 25 lottery tickets. There is no requirement that they 31 1 apply for a license. They choose to do so because they 2 feel like it's a valuable product in their stores, and 3 they also choose to do so because of the direct efforts 4 of our staff and of GTECH staff in going out and 5 promoting our products and explaining to these retailers 6 how they can be a valuable addition to their bottom 7 line. 8 So I want to also express our deep 9 appreciation to the almost 17,000 retailers around the 10 State of Texas who carry our lottery products, without 11 whom none of us would be sitting here today. 12 CHAIRMAN WILLIAMSON: How true. As I'm 13 driving everywhere, I always look for a lottery sign, 14 whether it's one of those that does this (indicating) or 15 the one in the store. I always keep my eyes peeled, and 16 I hope you are, too. Thank you. 17 MS. PYKA: Thank you, Commissioners. 18 AGENDA ITEM NO. VIII 19 CHAIRMAN WILLIAMSON: All right. Let's go 20 on to Item No. VIII, consideration of and possible 21 discussion, including proposal, on amendments to 16 TAC 22 401.315 relating to Mega Millions on-line game rule. 23 Pete, this is your item, please. 24 MR. WASSDORF: Good morning, 25 Commissioners. For the record, my name is Pete 32 1 Wassdorf. I'm in the Legal Services Division, and I'm 2 here to suggest to you some changes to a couple of 3 rules. 4 The first one is the Mega Millions rule, 5 and we're proposing changes at 16 TAC 401.315. And the 6 purpose of the proposed amendment is to authorize -- 7 there are several small changes that we're suggesting 8 here. The first one is to authorize a non-multiplied 9 guaranteed second tier prize when a megaplier option is 10 purchased. Specifically that guaranteed non-multiplied 11 prize for the second tier will be a one million dollar 12 prize. And also to clarify, that the multiplier does 13 not apply to the second tier prize or to the grand 14 prize. 15 The next proposed change is to delete the 16 limitation on the number of play boards on a play slip, 17 deleted the limitation of the number of plays per ticket 18 and to delete the number of plays for consecutive draws. 19 And then we reworded some of the language in the cost of 20 the multiplier that were not -- it's nothing substantive 21 there, I don't believe. 22 We are proposing to amend Subsection (e) 23 just to change the terminology. It was previously 24 defined as the multiplier feature when we, in fact, 25 refer to it as the megaplier feature, and so we changed 33 1 the terminology to be consistent with the agency's 2 practice. 3 And we reorganized in this Paragraph 4 (e)(4), just to make it a little clearer. We divided 5 that section -- retitled that section to "Application of 6 multiplier number" and divided it into three 7 subparagraphs which specified that the multiplier will 8 operate on the third through the ninth tier and that the 9 second tier prize will be a million dollars if the 10 Megaplier purchase is made. And to restate again, that 11 the Megaplier feature does not apply to the grand 12 jackpot prize. 13 And those are essentially the changes that 14 the staff is asking you to propose. We have scheduled a 15 public hearing at 2:00 p.m., on Thursday, October 14th, 16 should you decide to authorize us to go forward with 17 this. And we recommend these proposed changes to you. 18 CHAIRMAN WILLIAMSON: Thank you. 19 Commissioner, do you have any questions? 20 COMMISSIONER KRAUSE: I do not. 21 MR. WASSDORF: The next -- 22 CHAIRMAN WILLIAMSON: Should we go ahead 23 and hear both of them and then -- or go ahead and -- 24 MS. KIPLIN: Well, I think they're 25 different -- 34 1 CHAIRMAN WILLIAMSON: Okay. 2 MS. KIPLIN: -- items, I mean distinctly 3 different. And so my preference would be if y'all would 4 be willing to just go ahead and take the action now -- 5 CHAIRMAN WILLIAMSON: Okay. 6 MS. KIPLIN: -- on the rulemaking. And so 7 if you're a mind to proposing the amendments to the Mega 8 Millions, I think the motion would be to propose the 9 amendments to the Mega Millions game for publication in 10 the Texas Register for the 30-day public comment period. 11 CHAIRMAN WILLIAMSON: I make that motion. 12 Is there a second? 13 COMMISSIONER KRAUSE: Second. 14 CHAIRMAN WILLIAMSON: All in favor? 15 COMMISSIONER KRAUSE: Aye. 16 CHAIRMAN WILLIAMSON: Aye. 17 Motion passes 2-0. 18 AGENDA ITEM NO. IX 19 CHAIRMAN WILLIAMSON: Next item is 20 proposal on amendments to 16 TAC 401.308 relating to 21 Cash 5 on-line game rule. 22 MR. WASSDORF: Thank you. This is two 23 very minor changes. The first one is on delete the 24 limitation on the number of plays per ticket, and the 25 second is to correct an erroneous statutory reference 35 1 that was contained in the rule that was just recently 2 discovered. And that's all. 3 CHAIRMAN WILLIAMSON: Okay. 4 Commissioner, do you have any questions? 5 COMMISSIONER KRAUSE: No. And I'm happy 6 to make a motion that we initiate that rulemaking. 7 CHAIRMAN WILLIAMSON: There is a second. 8 All in favor? 9 COMMISSIONER KRAUSE: Aye. 10 CHAIRMAN WILLIAMSON: Aye. 11 Motion passes 2-0. 12 AGENDA ITEM NO. X 13 CHAIRMAN WILLIAMSON: All right. On to 14 Item No. X, report, possible discussion and/or action on 15 the agency's contracts. 16 Mike, this is yours. 17 MR. FERNANDEZ: Good morning, 18 Commissioners. My name is Mike Fernandez. I am the 19 Director of Administration. 20 Item No. X is our standing quarterly 21 report on the status of agency contracts, and we've 22 included those in your notebook. And I would be happy 23 to answer any questions. 24 CHAIRMAN WILLIAMSON: Commissioner, do you 25 have any questions on the contracts? 36 1 COMMISSIONER KRAUSE: No, ma'am. 2 CHAIRMAN WILLIAMSON: I don't either. 3 MR. FERNANDEZ: I also have the next item. 4 AGENDA ITEM NO. XI 5 CHAIRMAN WILLIAMSON: Yes. Go on to 6 No. XI, please. 7 MR. FERNANDEZ: No. XI is our standing 8 meeting item for the ongoing review of our RFP for 9 lottery operations. And I can say that the committee is 10 well into the review process. 11 Mr. Grief, do you have anything you would 12 like to add to that? 13 MR. GRIEF: No, I do not. 14 MR. FERNANDEZ: All right. That's all I 15 have, Commissioners. 16 CHAIRMAN WILLIAMSON: All right. 17 Commissioner, do you have any questions? 18 COMMISSIONER KRAUSE: I do not. 19 CHAIRMAN WILLIAMSON: Thank you. 20 AGENDA ITEM NO. XII 21 CHAIRMAN WILLIAMSON: Item XII is report 22 on the 81st and 82nd Legislature. and I know Nelda is 23 not here, but I know there are no items. 24 25 37 1 AGENDA ITEM NO. XIII 2 CHAIRMAN WILLIAMSON: So we will go on to 3 Item No. XIII, consideration of and report, discussion 4 and/or action on external and internal audits and/or 5 reviewing relating to the Texas Lottery Commission, and 6 report on the Internal Audit Department's activities. 7 And, Cat, if you would share that with us, 8 please. 9 MS. KIPLIN: Thank you. 10 For the record, Catherine Melvin, Director 11 of the Internal Audit Division. Chairman, Commissioner, 12 let me provide first a brief update on ongoing audits of 13 the agency. First is the State Auditor's audit of the 14 Charitable Bingo Operations Division. I have mentioned 15 this previously. That audit has concluded, and 16 management has provided their responses to the State 17 Auditor's draft report, and we anticipate that report 18 being released later this month. 19 Secondly, I believe I mentioned in the 20 last Commission meeting the State Auditor has also 21 provided us notice that they will be performing an audit 22 of our historically underutilized business or HUB 23 program. They conducted an entrance conference last 24 week, and they will be here on-site starting next week 25 to conduct that audit. In that audit, the Lottery 38 1 Commission is included with several other agencies. 2 When they do that audit, they do it over a group of 3 state agencies and institutions of higher education. 4 In addition to the two State Auditor's 5 audits, we have our annual financial audit that's 6 ongoing and then, of course, the security study. And 7 both of those, we will get full reports later this year. 8 CHAIRMAN WILLIAMSON: Thank you. 9 Commissioner, do you have any questions? 10 COMMISSIONER KRAUSE: No, ma'am. 11 MS. MELVIN: And then I have the Internal 12 Audit Plan that I would like to lay out. I appreciate 13 the opportunity to provide our vision of Internal Audit 14 efforts at the Texas Lottery Commission for Fiscal Year 15 2011. The document before you provides the Internal 16 Audit Activity Plan. This is required by those 17 professional auditing standards and the Texas Internal 18 Auditing Act. 19 The Internal Audit Division is committed 20 to being a valuable resource in improving the agency's 21 operations, and so we're proposing a plan that's focused 22 on key processes and activities but still allows time 23 for special requests that might come up throughout the 24 year. 25 I believe it's important to note that this 39 1 plan is not intended to cover all risks of the agency, 2 so it's important that commissioners and management be 3 aware of the limitations of Internal Audit coverage. 4 Having said that, I do believe that the plan focuses our 5 resources where they best be utilized. 6 CHAIRMAN WILLIAMSON: Thank you. 7 Commissioner, any questions? 8 COMMISSIONER KRAUSE: No, ma'am. 9 CHAIRMAN WILLIAMSON: All right. I have a 10 question for you. 11 MS. MELVIN: Sure. 12 CHAIRMAN WILLIAMSON: Just off the top of 13 your head, how many external and internal audits has 14 this agency been subject to in the last 12 months? 15 MS. MELVIN: In the last 12 months, oh, at 16 least four to five. Texas Lottery Commission is 17 subjected to a lot of audits. A couple of audits are 18 required by statute, of course, our annual financial 19 audit. Most state agencies don't have a required 20 financial audit. We are one of a handful that do. And 21 then, of course, our security study which is not an 22 audit but is conducted in a very similar manner. 23 So in addition to those mandatory external 24 audits, we are always subjected to audits by the State 25 Auditor's office and also audits by the Controller of 40 1 Public Accounts. They've come in in the past and done 2 post-payment audits and then, of course, internal 3 audits. 4 CHAIRMAN WILLIAMSON: I know you don't 5 really oversee bingo, but do you know about how many 6 they're had? 7 MS. MELVIN: The Bingo Division had this 8 audit by the State Auditor's office this last year. 9 That was a pretty big audit. Their scope was large. It 10 covered licensing and their monitoring audit function, 11 too. But prior to that, they had been audited fairly 12 extensively by Internal Audit. And then I think their 13 last State Auditor's audit was maybe 10 years ago. 14 MR. SANDERSON: About 10 years ago, 15 '99-2000, somewhere in there. 16 CHAIRMAN WILLIAMSON: Okay. I just 17 simply -- every time I talk to you guys, there's always 18 another audit going on, so I feel like we're thoroughly 19 audited and vetted every time we turn around -- having 20 fun. 21 MR. SANDERSON: About the last four years, 22 there's been an auditor living in Bingo, yes. 23 MS. MELVIN: That would be Internal Audit. 24 CHAIRMAN WILLIAMSON: Well, that as well. 25 MR. GRIEF: But, Madam Chair, just from 41 1 management's perspective, we always look forward to the 2 next audit. 3 (Laughter) 4 CHAIRMAN WILLIAMSON: I am sure that you 5 do. As an accountant, I am glad that you have that 6 opinion. 7 COMMISSIONER KRAUSE: Oh, pleeeeeez! 8 Well, so I can assume that all the rocks have been 9 turned over and looked under? 10 MS. MELVIN: I can say that Internal 11 Audit, we changed our risk assessment to a process-based 12 risk assessment. And so what we did was, we have 13 developed an inventory of key processes, and that gets 14 refined every year. That's, you know, not a perfect 15 system. But through that, we're systematically or 16 methodically going through those key responsibilities 17 and functions in the agency and those things that we 18 count on to be right every time. 19 So as an example, the most recent Internal 20 Audit, which you will be seeing a report of fairly soon, 21 is an audit of prizes paid at claim centers. So that's 22 a core function, that's something that we want to be 23 right every time, and so we'll be providing a report on 24 that. 25 CHAIRMAN WILLIAMSON: All right. Thank 42 1 you. 2 Commissioner, do you have any other 3 comments? 4 COMMISSIONER KRAUSE: No, ma'am. 5 CHAIRMAN WILLIAMSON: Thank you. 6 Let's go on to Item XIV, report, 7 discussion -- 8 MS. MELVIN: Excuse me, Madam Chair. 9 CHAIRMAN WILLIAMSON: Yes. 10 MS. MELVIN: My apologies. I will need 11 Commission approval on that. 12 CHAIRMAN WILLIAMSON: Right. Is that an 13 action item or just -- 14 MS. KIPLIN: Yes, it is. And the 15 recommended motion would be that you make a motion to 16 approve the Fiscal Year 2011 Internal Audit Activity 17 Plan. 18 CHAIRMAN WILLIAMSON: Commissioner? 19 COMMISSIONER KRAUSE: I would be happy to 20 make that motion. I move that we approve the Fiscal 21 Year 2011 Internal Audit Activity Plan held in my hot 22 little hand right here. 23 CHAIRMAN WILLIAMSON: I second. 24 Let's vote. 25 COMMISSIONER KRAUSE: Aye. 43 1 CHAIRMAN WILLIAMSON: All in favor? 2 Passes 2-0. 3 MS. MELVIN: Thank you. 4 CHAIRMAN WILLIAMSON: Thank you. 5 AGENDA ITEM NO. XIV 6 CHAIRMAN WILLIAMSON: Item XIV -- we're 7 going to that now -- report, discussion and/or action on 8 GTECH. 9 Gary. 10 MR. GRIEF: Commissioners, other than 11 what's in your notebooks, I have nothing further to 12 report. 13 CHAIRMAN WILLIAMSON: All right. Before 14 we go to the entry of orders, let's take a 15-minute 15 break, and we'll be back and wrap the meeting. 16 (Recess: 9:49 a.m. to 10:04 a.m.) 17 CHAIRMAN WILLIAMSON: We're back in 18 session. It's 10:04. 19 AGENDA ITEM NO. XVI 20 CHAIRMAN WILLIAMSON: Go on to Item XVI. 21 This is consideration of status and possible entry of 22 orders. 23 This is yours, Kim, and I'll just let you 24 be in charge, please. 25 MS. KIPLIN: Thank you. Commissioners, if 44 1 you-all will allow me, I would like to take Letters A 2 through J all together. Those are all standard lottery 3 revocation cases in which each of the retailers had 4 insufficient funds available at the time that the 5 lottery swept their account. 6 In each of those cases, the Administrative 7 Law Judge recommended revocation of the licenses, and 8 the staff would request that the Commission vote to 9 adopt the ALJ's recommendation and revoke each of the 10 licenses in Letters A through J. 11 CHAIRMAN WILLIAMSON: Commissioner, do you 12 have any questions? 13 COMMISSIONER KRAUSE: May I make a motion? 14 CHAIRMAN WILLIAMSON: Please. 15 COMMISSIONER KRAUSE: I move that we adopt 16 the recommendation to revoke these licenses. 17 CHAIRMAN WILLIAMSON: Second. 18 All in favor? 19 COMMISSIONER KRAUSE: Aye. 20 CHAIRMAN WILLIAMSON: Aye. 21 Motion passes 2-0. 22 MS. KIPLIN: Commissioners, I'll leave 23 these orders right here and go on to the next group. 24 With your permission, I would like to take Letters K, L 25 and M together. In Letters K, L and M, we have similar 45 1 conduct, and the similarity of the conduct are the 2 redemption of coupons from an 8-liner machine for 3 lottery tickets. That is a violation of the State 4 Lottery Act, because the coupons from the 8-liner 5 machines are not coupons that were issued by the 6 Lottery, and they have to be issued by the Lottery. 7 That's the violation. 8 What makes them different is, in 9 particular, Letter K, which is a proceeding that came to 10 you before in the form of an agreed order in which the 11 staff had recommended a 30-day suspension. At that time 12 Commissioner Schenck was a Commissioner, along with the 13 two of you, and you-all requested that the staff take 14 that to SOAH for an evidentiary finding, evidentiary 15 proceeding. And the Administrative Law Judge did 16 recommend revocation in that matter, based on the 17 direction to the staff. 18 Letters L and M are agreed orders. And 19 for the same conduct, because of the past cases that 20 have been before the Commission and because of the 21 standard penalty guideline, the staff has recommended 22 and negotiated a 30-day suspension. 23 The staff would request that, 24 notwithstanding the direction from the Commission at 25 that time, that the Commission take a different 46 1 perspective in connection with this particular violation 2 and approve a 30-day suspension so that the disposition 3 for each of these three licensees is the same for the 4 same conduct. 5 And I have an order prepared, if the 6 Commission is inclined to enter a 30-day suspension on 7 Tommy's Market, to make that disciplinary action 8 consistent with the recommended disciplinary action on 9 3 Star Food Mart -- I'm sorry. Village Market was the 10 docketed case -- to make that disposition the same as 11 the recommended disposition in the other two cases, 12 Tommy's #19 and 3 Star Food Mart. 13 I would be happy to answer any questions 14 that you have. 15 CHAIRMAN WILLIAMSON: Thank you. 16 Commissioner, do you have any questions? 17 COMMISSIONER KRAUSE: No. I'm happy to 18 follow the staff's recommendation on that. 19 CHAIRMAN WILLIAMSON: Kim, in the past, 20 has this been normally what we have done with this sort 21 of behavior? 22 MS. KIPLIN: Yes, it is. It is up until 23 the Village Market. And, like I said, that was in the 24 form of a memorandum of agreement and a recommended 25 agreed order to the Commission. And I think based on 47 1 the discussion that occurred that day, there was a 2 request to send this back. 3 But prior to that case, the entry of the 4 orders have been in the form of an agreed order, with 5 the 30-day suspension. And so the staff would recommend 6 that the Commission continue to follow its standard 7 penalty guideline as it relates to the nature of this 8 kind of offense. 9 CHAIRMAN WILLIAMSON: Okay. You know, 10 while we all feel strongly about the 8-liner activity, I 11 think we need to be consistent on how we deal out the 12 punishment, as you were, with the different violations, 13 so I think that they all need to be the same. 14 So I believe at this point, then, we need 15 to have a motion. Do you want us to put all three of 16 those in one motion or -- 17 MS. KIPLIN: I'm fine with that. And I 18 would request that the motion be that -- well, actually, 19 you know what? Let me take that back. The request 20 would be on the motion as it relates to Docket No. 21 362-10-2963 -- that's Village Market -- that the 22 Commission vote to adopt the Administrative Law Judge's 23 Findings of Fact and Conclusions of Law, with the 24 exception of one Conclusion of Law -- that's No. 7 -- 25 and instead you-all -- rather than revoke, you-all 48 1 suspend the license for 30 days. That would be the 2 request of the motion. 3 CHAIRMAN WILLIAMSON: All right. 4 COMMISSIONER KRAUSE: Do you want me to do 5 that? 6 CHAIRMAN WILLIAMSON: All right. 7 COMMISSIONER KRAUSE: I make a motion that 8 on Docket No. 362-10-2963 concerning Village Market that 9 we adopt the Findings of Fact and Conclusions of Law 10 adopted by the Judge, except for No. 7, and that we go 11 with the staff's recommendation on that particular item. 12 CHAIRMAN WILLIAMSON: Second. 13 All in favor? 14 COMMISSIONER KRAUSE: Aye. 15 CHAIRMAN WILLIAMSON: Aye. 16 Passes 2-0. 17 MS. KIPLIN: And I have a order for that. 18 And then the remaining two, the staff 19 would recommend that you approve the staff's 20 recommendation to enter an agreed order that would 21 suspend each of these licensees for 30 days. 22 CHAIRMAN WILLIAMSON: Is there a motion? 23 COMMISSIONER KRAUSE: I make a motion that 24 we adopt the staff's recommendation on the agreed order. 25 CHAIRMAN WILLIAMSON: Second. 49 1 All in favor? 2 COMMISSIONER KRAUSE: Aye. 3 CHAIRMAN WILLIAMSON: Aye. 4 Passes 2-0. 5 MS. KIPLIN: And so those were for Letters 6 L and M, and in particular Tommy's #19 and 3 Star Food 7 Mart. 8 CHAIRMAN WILLIAMSON: All right. 9 MS. KIPLIN: And, Commissioners, I have 10 the orders for these three cases, and I'll leave these 11 next to Commissioner Krause. 12 And with that, I would like to take up 13 Letter N, which is Palmer Drug Abuse Program. This is a 14 bingo-agreed order. And in this case -- I will say that 15 this was a self-report by the bingo conductor. Palmer 16 Drug Abuse Program notified the Bingo Division that 17 there was apparently missing money, a theft, and they 18 did their own audit, as I understand it. And there was 19 a failure of the conductor to pay prize fees in a 20 substantial amount. It was over $8,000. 21 The staff is recommending that the 22 Commission enter into an agreed order, and the nature of 23 the agreed order would be that the conductor remit the 24 money that was required to be remitted, and that amount 25 was $8,284.15. In the event that the conductor does not 50 1 remit that money, then the license would be revoked or 2 voluntarily surrendered. Obviously, if they're not 3 going to voluntarily surrender it, then it would be 4 revoked. And then they would pay an additional 5 administrative penalty in the amount of $1,675. 6 As I understand it, it was a self-report, 7 and the conduct was attributed to a sole employee who 8 was the one who apparently withheld the proceeds and did 9 not forward them and falsified records. Staff does 10 recommend that you enter into this agreed order. 11 CHAIRMAN WILLIAMSON: Any questions? 12 What's the time period, Phil, that they 13 have to make this payment? 14 MR. SANDERSON: I believe it's 90 days. 15 MS. KIPLIN: That's correct. It's 90 16 days. 17 CHAIRMAN WILLIAMSON: All right. Is there 18 a motion? 19 COMMISSIONER KRAUSE: I make a motion that 20 we adopt staff's recommendation concerning the Palmer 21 Drug Abuse Program. 22 CHAIRMAN WILLIAMSON: Second. 23 All in favor? 24 COMMISSIONER KRAUSE: Aye. 25 CHAIRMAN WILLIAMSON: Aye. 51 1 Motion passes 2-0. 2 Next item. 3 MS. KIPLIN: Commissioners, the remaining 4 item is Letter O and that's Docket No. 362-10-2668.B, 5 and that's the Ysleta Del Sur Pueblo Volunteer Fire 6 Department motion for rehearing. 7 Commissioners, if you'll recall at the 8 last Commission meeting, you heard the matter of the 9 denial of the application for license by the volunteer 10 fire department to conduct bingo, and you-all voted 2 to 11 1 to deny that license application. And that was a 12 matter that came to you as a result of a contested case 13 proceeding that occurred at the State Office of 14 Administrative Hearings. 15 The first matter of housekeeping, when we 16 processed that order, Chairman Williamson, you voted 17 "No." You did not sign the order, and it was later 18 shown to be a recusal by your part. That's incorrect. 19 That's not an accurate order in terms of the record that 20 was made. In fact, it was a 2 to 1 vote. 21 And so as a matter of housekeeping, the 22 first item is a nunc pro tunc order to correct the 23 record and then to make it clear that you did not recuse 24 yourself from the vote; in fact, you voted "No." 25 And so the staff would recommend first 52 1 that you enter an order that just corrects that. And 2 it's drafted in such a way that that can occur. It's 3 just an accurate reflection. My apologies for the 4 error. 5 CHAIRMAN WILLIAMSON: That's not an action 6 item, is it? 7 MS. KIPLIN: Yes, it is. And the 8 recommendation from the staff is that you vote to 9 approve the nunc pro tunc order correcting the error in 10 terms of the order that was entered showing you as a 11 recusal. 12 CHAIRMAN WILLIAMSON: I make a motion that 13 we approve and enter the nunc pro tunc order to correct. 14 COMMISSIONER KRAUSE: I second that, 15 because I clearly heard her vote against this. 16 MS. KIPLIN: Yes. 17 CHAIRMAN WILLIAMSON: All in favor? 18 COMMISSIONER KRAUSE: Aye. 19 CHAIRMAN WILLIAMSON: Aye. 20 Motion passes 2 to 0. 21 MS. KIPLIN: I will give that to you. 22 CHAIRMAN WILLIAMSON: Okay. 23 MS. KIPLIN: And now the matter that is 24 before you has to do with the motion for rehearing that 25 was filed by the Ysleta Del Sur Pueblo Volunteer Fire 53 1 Department. And Mr. Hayward Rigano is here on behalf of 2 the applicant, and Mr. White is here as an Assistant 3 General Counsel on behalf of the staff. 4 The nature of the motion for rehearing is 5 to request that you-all grant the motion so that new 6 evidence can be taken into the record. I will tell you 7 that the staff does not oppose that motion for 8 rehearing. And my recommendation would be that you do 9 grant the motion for rehearing, to remand it back to the 10 State Office of Administrative Hearings so that the 11 record can be reopened to take in additional evidence. 12 It strikes me that this is not a good, 13 effective forum for evidence to be taken and to be 14 heard. And if there is new evidence, then the State 15 Office of Administrative Hearings, the Administrative 16 Law Judge is the one who can receive that evidence. The 17 staff can controvert that evidence in a proceeding 18 there. And then the trier of the facts, that being the 19 Administrative Law Judge, can weigh that and find 20 whatever facts the judge believes are appropriate in 21 that matter. 22 CHAIRMAN WILLIAMSON: Thank you. 23 Commissioner, do you have any comments, 24 questions? 25 COMMISSIONER KRAUSE: No, I don't. I 54 1 think that we need to send it back so that SOAH can do 2 the fact-finding and let us know what they find. 3 CHAIRMAN WILLIAMSON: Great! 4 COMMISSIONER KRAUSE: If we need a motion, 5 then I'm happy to make a motion that we adopt staff's 6 recommendation and remand the case back to SOAH for a 7 fact-finding. 8 CHAIRMAN WILLIAMSON: I second. 9 All ready to vote? 10 COMMISSIONER KRAUSE: Aye. 11 CHAIRMAN WILLIAMSON: Aye. 12 MS. KIPLIN: And, Commissioners, I have an 13 order to that effect that I'll pass to you. 14 CHAIRMAN WILLIAMSON: All right. Vote 15 passes 2-0. 16 And we have -- Mr. "Ray-gan" is here. 17 MR. RIGANO: "Re-gan-o." 18 CHAIRMAN WILLIAMSON: Rigano. I'm sorry. 19 MR. RIGANO: I thank y'all. Without 20 having to say anything, you know, apparently I got my 21 motion passed, so I appreciate that. 22 CHAIRMAN WILLIAMSON: You didn't know it 23 was going to be so short, did you? 24 MR. RIGANO: I didn't. And for an 25 attorney, that's -- well, disappointing. 55 1 (Laughter) 2 MR. RIGANO: But thank y'all. 3 COMMISSIONER KRAUSE: But we're going to 4 let you go back and make another fee over at SOAH. 5 MR. RIGANO: Well, don't say that so loud. 6 (Laughter) 7 MR. RIGANO: Thank y'all. 8 CHAIRMAN WILLIAMSON: All right. Thank 9 you. 10 And I believe I believe that's all of 11 them. Is that correct? 12 MS. KIPLIN: Yes, ma'am, that's correct. 13 AGENDA ITEM NO. XVII 14 CHAIRMAN WILLIAMSON: All right. And 15 there were no public comments. 16 AGENDA ITEM NO. XVIII 17 CHAIRMAN WILLIAMSON: At this time I move 18 the Texas Lottery Commission go into executive session 19 to deliberate the duties and evaluation of the Executive 20 Director, Internal Audit Director and Charitable Bingo 21 Operations Director and to deliberate duties of the 22 General Counsel and Human Resources Director and to 23 receive any legal advice necessary on pending or 24 contemplated litigation. 25 Is there a second? 56 1 COMMISSIONER KRAUSE: Second. 2 CHAIRMAN WILLIAMSON: All in favor? 3 COMMISSIONER KRAUSE: Aye. 4 CHAIRMAN WILLIAMSON: Aye. Motion passes 5 2-0. We will go into executive session at 10:17 today, 6 September the 10th. 7 MS. KIPLIN: And for the record, the 8 proper statutory citations to convene in executive 9 session are Texas Government Code, Section 551.074 for 10 the employment matters and then Texas Government Code 11 Section 551.071(1)(A), (1)(B) and 551.071(2) 12 (Recess for executive session: 10:17 a.m. 13 to 10:43 a.m.) 14 AGENDA ITEM NO. XIX 15 CHAIRMAN WILLIAMSON: The Texas Lottery 16 Commission is out of executive session. The time is 17 10:43 a.m. 18 Is there any action to be taken as a 19 result of the executive session? And the answer is 20 "No." 21 AGENDA ITEM NO. XX 22 CHAIRMAN WILLIAMSON: There are no other 23 agenda items. So is there a motion to adjourn? 24 COMMISSIONER KRAUSE: There is. I move 25 that we adjourn. 57 1 CHAIRMAN WILLIAMSON: I second. 2 All in favor? 3 COMMISSIONER KRAUSE: Aye. 4 CHAIRMAN WILLIAMSON: Aye. 5 Motion passes 2-0. 6 (Meeting adjourned: 10:44 a.m.) 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 58 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Aloma J. Kennedy, a Certified Shorthand 5 Reporter in and for the State of Texas, do hereby 6 certify that the above-mentioned matter occurred as 7 hereinbefore set out. 8 I FURTHER CERTIFY THAT the proceedings of 9 such were reported by me or under my supervision, later 10 reduced to typewritten form under my supervision and 11 control and that the foregoing pages are a full, true 12 and correct transcription of the original notes. 13 IN WITNESS WHEREOF, I have hereunto set my 14 hand and seal this 21st day of September 2010. 15 16 17 ________________________________ 18 Aloma J. Kennedy Certified Shorthand Reporter 19 CSR No. 494 - Expires 12/31/10 20 Firm Registration No. 276 Kennedy Reporting Service, Inc. 21 Cambridge Tower 1801 Lavaca Street, Suite 115 22 Austin, Texas 78701 512.474.2233 23 24 25