0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 REGULAR MEETING OF THE § TEXAS LOTTERY COMMISSION § 6 FRIDAY, MARCH 27, 2009 § 7 8 COMMISSION MEETING 9 FRIDAY, MARCH 27, 2009 10 BE IT REMEMBERED THAT on Friday, 11 the 27th day of March 2009, the Texas Lottery 12 Commission meeting was held from 9:05 a.m. to 13 p.m., at the Offices of the Texas Lottery 14 Commission, 611 East 6th Street, Austin, Texas 78701, 15 before CHAIRMAN JAMES A. COX, JR., and COMMISSIONERS 16 DAVID SCHENCK and MARY ANN WILLIAMSON. The following 17 proceedings were reported via machine shorthand by 18 Aloma J. Kennedy, a Certified Shorthand Reporter of 19 the State of Texas, and the following proceedings were 20 had: 21 22 23 24 25 0002 1 APPEARANCES 2 CHAIRMAN: 3 Mr. James A. Cox, Jr. 4 COMMISSIONERS Mr. David Schenck 5 Ms. Mary Ann Williamson 6 GENERAL COUNSEL: Ms. Kimberly L. Kiplin 7 DEPUTY EXECUTIVE DIRECTOR: 8 Mr. Gary Grief 9 DIRECTOR, CHARITABLE BINGO OPERATIONS: Mr. Philip D. Sanderson 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 TABLE OF CONTENTS 2 PAGE 3 PROCEEDINGS - FRIDAY, FEBRUARY 20, 2009........... 9 4 AGENDA ITEM NO. I - Meeting Called to Order....... 9 5 PARTING REMARKS BY CHAIRMAN COX................... 9 6 AGENDA ITEM NO. II - Report by the Bingo Advisory Committee Chair, possible discussion 7 and/or action regarding the Bingo Advisory Committee’s activities, including the 8 February 4, 2009 Committee meeting................ 36 9 AGENDA ITEM NO. III - Report, possible discussion and/or action on calendar year 10 2008 bingo conductor information.................. 37 11 AGENDA ITEM NO. IV - Report, possible discussion, and/or action on Enforcement 12 action process.................................... 44 13 AGENDA ITEM NO. V - Report, possible discussion and/or action on the Bingo 14 Advisory Committee................................ 55 15 AGENDA ITEM NO. VI - Report by the Charitable Bingo Operations Director and possible 16 discussion and/or action on the Charitable Bingo Operations Division’s activities, 17 including updates on status of licensees, rulemaking and form revisions, audits, 18 pull-tab review, special projects, and upcoming operator training........................ 61 19 AGENDA ITEM NO. VII - Report, possible 20 discussion and/or action on lottery sales and revenue, game performance, new game 21 opportunities, advertising, market research, and trends.............................. 62 22 AGENDA ITEM NO. VIII - Report, possible 23 discussion and/or action on game closing procedures................................ 71 24 25 0004 1 TABLE OF CONTENTS 2 PAGE 3 AGENDA ITEM NO. IX - Report, possible discussion and/or action on transfers 4 to the State...................................... 86 5 AGENDA ITEM NO. X - Report, possible discussion and/or action on Lottery 6 Operations and Services Contract Amendment No. 8 credit calculation................ 89 7 AGENDA ITEM NO. XI - Report, possible 8 discussion and/or action on the 81st Legislature....................................... 90 9 AGENDA ITEM NO. XII - Report, possible 10 discussion and/or action on the agency’s FY 2010-2011 legislative appropriations 11 request........................................... 96 12 AGENDA ITEM NO. XIII - Report, possible discussion and/or action on HUB and/or 13 minority business participation including the agency’s Mentor Protégé Program and 14 the agency’s FY 2008 Minority Business Participation Report.............................. 101 15 AGENDA ITEM NO. XIV - Report, possible 16 discussion and/or action, including extension on the agency’s advertising services contract, 17 extension on the agency’s drawing audit services contract, extension on the agency’s 18 instant ticket manufacturing and services contracts, and/or extension on the agency’s 19 outside counsel contracts for intellectual property matters, and/or on procurement on 20 the agency’s lottery security study services...... 107 21 AGENDA ITEM NO. XV - Report, possible discussion and/or action on external and 22 internal audits and/or reviews relating to the Texas Lottery Commission, and/or on the 23 Internal Audit Department’s activities............ 109 24 AGENDA ITEM NO. XVI - Report, possible discussion and/or action on the Mega 25 Millions game and/or contract..................... 70 0005 1 TABLE OF CONTENTS 2 PAGE 3 AGENDA ITEM NO. XVII - Report, possible discussion and/or action on GTECH 4 Corporation....................................... 110 5 AGENDA ITEM NO. XVIII - Report, possible discussion and/or action on Scientific Games...... 10 6 AGENDA ITEM NO. XIX - Report by the 7 Executive Director and/or possible discussion and/or action on the agency’s 8 operational status, agency procedures and FTE status.................................... 111 9 AGENDA ITEM NO. XX - Consideration of and 10 possible discussion and/or action on Order Nunc Pro Tunc regarding 16 TAC §401.101 11 (Lottery Procurement Procedures).................. 111 12 AGENDA ITEM NO. XXI - Consideration of and possible discussion and/or action, including 13 adoption, on new rule 16 TAC §403.501 regarding custody and use of criminal 14 history information............................... 113 15 AGENDA ITEM NO. XXII - Consideration of the status and possible entry of orders in: 16 A. Docket No. 362-09-1568 – East Side Food & Beverages, LLC 17 B. Docket No. 362-09-1738 – Hannas Deli #2 C. Docket No. 362-09-1773 – Stop N Grab 18 D. Docket No. 362-09-1570 – TT Market E. Docket No. 362-09-1772 – Sierra 19 International Mart F. Docket No. 362-08-3475 – Super Corner 20 G. Docket No. 362-08-3474 – El Amigo H. Docket No. 362-08-3473 – Lucky 1 Food 21 Mart I. Docket No. 362-08-3476 – 7 am Food 22 Store J. Docket No. 362-08-3953 -- E-Z #486 23 24 25 0006 1 TABLE OF CONTENTS 2 PAGE 3 K. Docket No. 362-09-990121.B-R – In the Matter of the Removal of Certain 4 Respondents from the Texas Lottery Commission’s Registry of Approved 5 Bingo Workers: Chris Lockey and Krystal Rodriguez 6 L. Docket No. 362-09-2613.B – In the Matter of the Refusal to Add Certain 7 Names to the Texas Lottery Commission’s Registry of Approved Bingo Workers: 8 Dalia Lopez M. Docket No. 362-09-990121.B-D – In the 9 Matter of the Refusal to Add Certain Names to the Texas Lottery Commission’s 10 Registry of Approved Bingo Workers: Virgil Barnes, Jesus Bernal, Gina 11 Christopher, Gary Gladd, Lucinda Hearn, Crystal Holcomb, Robert Medina, Robert 12 Merrett, Shari Nettles, and Tammy Walker N. Case No. 2009-136 – In the Matter of VFW 13 Post 2773................................. 114 14 AGENDA ITEM NO. XXIII - Public comment............ 139 15 AGENDA ITEM NO. XXIV - Commission may meet in Executive Session: 16 A. To deliberate the appointment, employment, and duties of the 17 Executive Director pursuant to Section 551.074 of the Texas Government Code. 18 B. To deliberate the duties and evaluation of the Deputy Executive Director pursuant 19 to Section 551.074 of the Texas Government Code. 20 C. To deliberate the duties and evaluation of the Internal Audit Director pursuant 21 to Section 551.074 of the Texas Government Code. 22 D. To deliberate the duties and evaluation of the Charitable Bingo Operations 23 Director pursuant to Section 551.074 of the Texas Government Code. 24 E. To deliberate the duties of the General Counsel pursuant to Section 551.074 of 25 the Texas Government Code. 0007 1 TABLE OF CONTENTS 2 PAGE 3 F. To deliberate the duties of the Human Resources Director pursuant to Section 4 551.074 of the Texas Government Code. G. To deliberate the duties and evaluation 5 of the Ombuds pursuant to Section 551.074 of the Texas Government Code. 6 H. To receive legal advice regarding pending or contemplated litigation 7 pursuant to Section 551.071(1)(A) and/or to receive legal advice 8 regarding settlement offers pursuant to Section 551.071 (1) (B) of the Texas 9 Government Code and/or to receive legal advice pursuant to Section 551.071 (2) 10 of the Texas Government Code, including but not limited to: 11 First State Bank of DeQueen et al. v. Texas Lottery Commission 12 James T. Jongebloed v. Texas Lottery Commission 13 USA v. David Crawford and TLC Texas Lottery Commission v. Leslie 14 Warren, Texas Attorney General Child Support Division, Singer 15 Asset Finance Company L.L.C., and Great-West Life & Annuity Insurance 16 Company Employment law, personnel law, 17 procurement and contract law, evidentiary and procedural law, and 18 general government law Lottery Operations and Services 19 contract Mega Millions game and/or contract 20 Request for Attorney General Opinion No. RQ-0771-GA 21 Billy Williams complaint to OAG..... 139 22 AGENDA ITEM NO. XXV - Return to open session for further deliberation and possible action 23 on any matter discussed in Executive Session...... 140 24 25 0008 1 TABLE OF CONTENTS 2 PAGE 3 AGENDA ITEM NO. XXVI - Adjournment................ 144 4 REPORTER'S CERTIFICATE............................ 145 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0009 1 P R O C E E D I N G S 2 FRIDAY, MARCH 27, 2009 3 (9:05 a.m.) 4 AGENDA ITEM NO. 1 5 CHAIRMAN COX: Good morning. It's 9:05. 6 Today is March 27, 2009. Commissioner Schenck is 7 here. Commissioner Williamson is here. I'm Jim Cox. 8 PARTING REMARKS BY CHAIRMAN COX 9 CHAIRMAN COX: I have been informed by 10 the Governor's Office that my replacement as 11 Commissioner has been designated and it's likely to be 12 confirmed before the next meeting. So this will in 13 all likelihood be my last meeting to serve as your 14 Commissioner. I want to acknowledge all the kindness 15 that's been sent my way in the last seven years as 16 I've served here. 17 We have a strong organization. It's 18 quite a different organization than Chairman Clowe and 19 Commissioner Whitaker and I looked at seven years ago, 20 but it is stronger. It has stronger external 21 relationships, both with the Legislature and the 22 leadership and with our vendors. And I am pleased 23 with what we have done in the last seven years, and my 24 thanks to all of you. 25 0010 1 COMMISSIONER WILLIAMSON: Thank you. 2 (Applause) 3 AGENDA ITEM NO. XVIII 4 CHAIRMAN COX: Gary has asked that I 5 call initially for Agenda Item No. XVIII, which is 6 report, possible discussion and/or action on 7 Scientific Games. 8 MR. GRIEF: Thank you, Mr. Chairman and 9 Commissioners. I appreciate you taking this item 10 first. We have two members of the senior management 11 team of Scientific Games here this morning. As you 12 know, Scientific Games is one of our prime vendors. 13 They do the vast majority of all the printing of our 14 instant tickets and have done so for the last several 15 years. 16 We have with us this morning Mike 17 Chambrello who is the President and Chief Operating 18 officer at Scientific Games, as well as s Jim Kennedy 19 who is the Senior Vice President, Sales and Global 20 Marketing, for Scientific Games. 21 And if it's the Commission's pleasure, I 22 believe Mr. Chambrello would like to address the 23 Commission. 24 CHAIRMAN COX: Welcome, Mike. 25 MR. CHAMBRELLO: Thank you, Gary. Thank 0011 1 you and good morning. 2 A little change up here. I don't have a 3 PowerPoint presentation, and I think you all have seen 4 plenty of those. What I would like to do, however, is 5 just to give you a brief overview of Scientific Games. 6 Some of it might be a little bit repetitive. I'll try 7 to keep my comments relatively brief but hopefully 8 informative, and that I do look forward to what I'm 9 sure will be a number of questions and a good and 10 healthy dialogue. 11 So I would like to start with just a 12 brief overview of Scientific Games, followed by a 13 recap of 2008 and a little insight into where our 14 company and the industry is heading, at least as 15 Scientific Games sees it, as we get a little deeper 16 into 2009. 17 Scientific Games has been in the lottery 18 business for about 35 years, and we're fortunate to be 19 in the position of providing value-added services and 20 technology to about 150 customers worldwide, and that 21 equates to about 300,000 points of sales around the 22 world. Our lottery operations are based in 23 Alpharetta, Georgia. We've got about 1,100 employees 24 there. We've got about 4,500 employees worldwide. 25 At SG, we do consider ourselves the most 0012 1 experienced and diversified full-line lottery services 2 company. We're proud to be, by virtually any measure, 3 first in instant ticket products, first in game 4 offerings, first in pari-mutuel racing, second in 5 lottery gaming systems. But, as they say, we are 6 trying hard. And we are a strong presence, global 7 presence in sports betting and video lottery. 8 This footprint and the breadth of our 9 offerings around the world really provide us with 10 experience and technology base that can be leveraged 11 in the U.S. when new activities such as Internet and 12 mobile wagering are embraced from a legal and 13 regulatory perspective. We don't see that as 14 imminent, but we certainly have the technology and 15 capability. 16 One of the questions I'm often asked, 17 whether it's with customers in forums such as this or 18 analysts or other stakeholders is, you know, what's 19 the financial health and strength of the company and 20 how are you enduring, you know, the current recession? 21 I'm proud to say that our financial 22 health and the worldwide footprint that we have across 23 a number of different business lines really allows us 24 to be in a position of strength and allows us the 25 ability and opportunity to pick and choose those 0013 1 opportunities, large and small, that we see that add 2 most value to our customers, to our stakeholders and 3 to our company overall. 4 In 2008 we did experience our eighth 5 consecutive year of record revenue. We exceeded sales 6 of $1.1 billion for the second time, over the billion 7 mark, a big mark for us. Roughly 50 percent of our 8 revenue is generated through Printed Products system 9 such as we provide here in Texas, about 25 percent 10 through Lottery Systems -- you know, your traditional 11 online games, daily lotto and things of that nature -- 12 and about 25 percent through what we call our 13 diversified gaming system -- our racing, pari-mutuel, 14 sports wagering and video lottery type activities. So 15 we do have a pretty good mix. 16 Almost 60 percent of our revenue is 17 outside of the United States; a little over 40 percent 18 is within the United States. This type of geographic 19 and business diversity really does provide for a solid 20 foundation to withstand some of the sort of ups and 21 downs in various segments of the different businesses 22 that we see on a regular basis but more so, you know, 23 in these difficult times. 24 Let me talk a little bit about the 25 specific business lines. As Gary mentioned, from a 0014 1 service perspective, we are your primary provider of 2 instant tickets and we like to think we've been a good 3 partner in some of the success that this lottery has 4 experienced in the instant side over the years. 5 But from an overall perspective, 6 Scientific Games is the largest provider of instant 7 tickets in the world today, with the addition of two 8 presses, one operating -- one being set up in China 9 and one in Montreal later this year, plus the existing 10 five presses that we have in Alpharetta, Georgia, and 11 production facilities in the UK, Chili and Australia. 12 We've got production capacity of just over 50 billion 13 tickets by the middle of this year. We're proud of 14 this capacity. Capacity is important. 15 But the level of flexibility, redundancy 16 and disaster recovery that this type of diversity 17 provides we think serves as great security for all of 18 our customers. And as a result of the experience in 19 our business, we recognize that capacity is one issue 20 and it's important, but you need to be able to meet 21 the very demanding requirements of our customers 22 related to game programming, graphics, pre-press, 23 finishing and packaging, and not to mention the 24 specific depth and expertise in creating and marketing 25 product to achieve the type of performance that all of 0015 1 our customers demand. 2 In 2008 we were very fortunate. We were 3 either awarded or extended in 16 jurisdictions, and 4 those extensions or awards range from one to four 5 years. We were fortunate enough to win the Florida 6 contract; that's a six-year contract. We'll have 7 90 percent of the overall volume and capacity in 8 Florida. There are four years' worth of extension 9 options, so that's certainly one that's very secure. 10 It's a little unique because we do have 11 as part of that contract a unique and I think 12 unparalleled partnership with the lottery as it 13 relates to their marketing, and it's one of those sort 14 of paradigm changes in a pricing perspective; whereas, 15 if we are successful in working with the lottery to 16 drive sales to higher levels, we actually receive a 17 higher rate at higher sales, than a lower rate. So 18 it's sort of a real incentive risk/reward driven 19 proposition and one that we hope will serve as a 20 guideline going forward. 21 We were also successful in getting an 22 extension in Georgia through 2013. That situation was 23 a little unique, because Georgia didn't have any 24 extension opportunities or options left. And they 25 chose in this market, both from their systems provider 0016 1 and their instant ticket provider, to do an assessment 2 that resulted in extensions for both companies, so I 3 think that's quite good. 4 I think we've all seen in Q4 overall 5 retail sales were soft compared to prior years but I 6 think pretty remarkably resilient for a consumer 7 product in this type of environment in, obviously, a 8 whole-hearted recession. The softening in retail 9 sales has driven many of the lotteries to become much 10 more aggressive in their marketing, retail sales, game 11 design and distribution. 12 And we are seeing some success in 13 certain areas as a result of those actions; whereas, 14 in recent weeks, over the last 12 or 14 weeks, we're 15 seeing an upward trend, still down year-over-year, but 16 increasing pretty significantly from Q4. So we're 17 hoping adjustments that lotteries have made and their 18 providers are making will help to drive sales back to 19 the level of growth that we've all become accustomed 20 to. 21 Internationally, which again is 22 increasingly a larger part of our business, we're 23 thrilled with our relationship in Italy with Gratta 24 Vinci. It's sort of ironic. We're partnered there 25 with Lottomatica. That's been a long-term and 0017 1 excellent relationship and will continue to be so, I'm 2 sure, for many years in the future. That's a lottery 3 at this time that's grown to 9 billion Euros in sales 4 last year, which is pretty incredible. And they did 5 sustain a growth rate of about 16 or 17 percent year- 6 over-year. It's too early to forecast what will 7 happen in 2009, but again, off to a pretty good start, 8 particularly in these uncertain times. 9 Camelot is another big one. We were 10 awarded as part of, you know, the Camelot consortium 11 or the instant ticket contract. We have been with 12 Camelot since its inception in 1994. And again, that 13 contract has been restructured. So the more we're 14 able to support and drive sales, the higher the return 15 to Scientific Games is. 16 So that's a trend that this risk/reward 17 trade-off, which my company hates when I say the word 18 "risk," but I guess that's what it is, is something, 19 you know, that we're increasingly focused on and 20 something that, as you consider your future 21 opportunities, you may consider as well. 22 From a SciGames perspective, probably 23 the biggest event of last year is, we were successful 24 in gaining a national contract -- actually, two 25 national contracts -- in China to provide instant 0018 1 ticket services and systems. This was directly 2 related to the Olympics. 3 And in a pretty remarkable feat, we were 4 able to install and implement 31 provinces in a matter 5 of four or five months. And I equate that to 6 implementing, you know, 31 Texases but no one speaking 7 a common language. So that was a pretty remarkable 8 feat. And in their first year, which is really a 9 partial year, they did about a billion and a half in 10 sales, and we expect to double that this year with 11 them. 12 As I mentioned earlier, we will have by 13 the end of May two presses up and operating in China 14 and have significant capacity there. In China alone, 15 we expect their point of sale network to grow to about 16 200,000 retail locations by the end of this year. So 17 it's a strong business and fortifying business, but I 18 would like to say that based on our 2008 activities, 19 our printed products related business is really very, 20 very secure for the foreseeable future, you know, well 21 into 2010, '11, '12 and '13, so we're in very good 22 shape there. 23 Maybe a little more interest to this 24 group, given the timing of things, is our system or 25 Lottery Systems Group. We have consolidated a 0019 1 worldwide systems under Steve Beason. Some of you may 2 actually know him. He's a long-term veteran of the 3 gaming industry. He's a technologist with a unique 4 spin. He recognizes that technology is simply a tool 5 and simply a forum to drive sales and services, so 6 that is the sort OF technologist that we like leading 7 our business. 8 I think this consolidation does 9 reinforce our commitment to that business. We are 10 committed to it. It did allow us to streamline some 11 of our activities and, yes, reduce costs. But 12 ultimately I believe it will improve customer 13 satisfaction and new product development. 14 Of note in 2008, in the early part of 15 this year, we have fully executed a new online 16 contract with the Pennsylvania Lottery, and that 17 implementation is well underway. This contract 18 includes a deployment of our latest system technology, 19 including the "Wave" terminal, which is the newest 20 generation lottery terminal in the industry. It 21 includes expanded marketing services designed to help 22 the Pennsylvania Lottery continue their remarkable 23 growth. Over the term of our last online contract 24 with Pennsylvania, retail sales grew from $1.7 billion 25 to -- what? -- $3.1 billion. So that's a relationship 0020 1 that we are proud of. 2 With the PA contract in hand, similar to 3 instant tickets, our core systems business is very 4 solid. We've got Maryland and Connecticut alone that 5 are contracted with extensions through 2016, so it's a 6 very good and solid core base for us. Obviously, 7 we've got another dozen or so contracts, but these are 8 longer term and of greater magnitude. 9 We will -- and I'm guessing we will talk 10 about this a little later -- we will continue our 11 process of prudent bidding, creative partnering and 12 ensure that anything we bid on is within, you know, 13 responsible measure for the lottery that we look to 14 serve as well as a reasonable business return on our 15 investment. 16 One thing I would like to comment on, 17 for the first time in my view -- literally decades -- 18 there seems to be a pretty uniform movement between 19 lotteries, suppliers, vendors such as ourselves, and 20 regulators to change the scope of the online product 21 mix, really something that hasn't changed in, you 22 know, 20 or 30 years. You've got lotto, you've got 23 daily, you've got keno at the same price point, but 24 you haven't had an awful lot of change as you've had 25 in the instant side. 0021 1 As we see a new -- an increased 2 commitment to new content, aggregated games like a 3 gaming version of the Wheel of Fortune. We just went 4 through a Powerball change with our customers in 5 January of this year that included Florida joining the 6 Powerball group, something that had been, I think, 7 long in coming. 8 And due to significant budget 9 shortfalls, Texas I think being one of only a half a 10 dozen states that doesn't face that dilemma -- so 11 you're to be congratulated on that -- but many do, and 12 they are looking toward new types of games and 13 technologies that can dramatically increase sales, and 14 that is in the form of keno -- again, aggregated games 15 and new content. It's something we're excited about. 16 And again, I do want to emphasize that this is really 17 the first time in my experience that vendors are 18 working together, regardless of whether you have 19 common contracts, but looking to implement a paradigm 20 change in the online, and I just think that's 21 terrific. 22 Finally, we do see a change to price 23 points in the online world that we haven't seen. And 24 I would be surprised if, by the end of this year or 25 early next year, you know, a $1.00 game, you know, 0022 1 becomes a two and maybe a five. And that's not the 2 only type of change that's required, but it is a 3 significant change in view and attitude for that part 4 of the business. 5 You may want to know just a little bit 6 about our other gaming business, Global Draw Video 7 Lotteries. We actually have a business that I did 8 mention the last time I was here called Global Draw, 9 which is in the UK. They really provide services to 10 fixed odds betting terminals in betting shops 11 primarily in Europe, in the UK. It's an acquisition 12 we made about 18 months ago, and it's been 13 tremendously successful, and it's one that we're now 14 leveraging some of their technology in other parts of 15 our business, particularly content and content-driven 16 in the online world and environment. So that's worked 17 out very well and we're very proud of that. 18 On sort of a couple of housekeeping 19 issues, since the last time I had the opportunity to 20 come before you, we have had some changes in our 21 executive management team. Lorne Weil, who had been 22 our long-term Chairman and CEO, has moved on to become 23 Chairman alone. And Joe Wright, who was a former 24 board member of ours, has assumed the role of CEO. I 25 think that was in January 1st. 0023 1 Lorne, as I was mentioning to the 2 Chairman before, remains very, very active. And, as I 3 said, if I look at my level of e-mails and phone 4 calls, I can tell you that he remains an active part 5 of the company. And as Joe is coming up to speed on 6 the lottery industry, he does bring an awful lot in 7 terms of financial community process and other things. 8 So we're strengthened, we're fortified. We had a 9 pretty good year in 2008. 2009 is filled with 10 excitement, a little bit of uncertainty, but we look 11 forward to the challenge. 12 And just to end, at least my comments, I 13 do want to thank you and the Texas Lottery for the 14 long-term relationship that we have had with you. I 15 think it's a great partnership. I wouldn't stand 16 before every Commission and say that. I'm proud to 17 say that here. And I thank you for the opportunity 18 and look forward to answering any question you may 19 have. 20 CHAIRMAN COX: Thank you, Mike. 21 Commissioner? 22 COMMISSIONER SCHENCK: Thank you. 23 And thank you for coming; thank you for 24 not having a PowerPoint. I have a housekeeping matter 25 I would like to start off with first. 0024 1 MR. CHAMBRELLO: Sure. 2 COMMISSIONER SCHENCK: Thank you again. 3 This is the second time I think you have presented to 4 me, and it's been very informative both times. 5 MR. CHAMBRELLO: Thank you. 6 COMMISSIONER SCHENCK: I'm not sure if 7 you know, but I, in my real job, am a partner at the 8 Law Firm of Jones Day. By virtue of my work, I do all 9 kinds of interesting and exotic, strange matters. 10 They have not been lottery-related matters, for 11 obvious reasons. But my understanding is that you 12 have had a controversy in Ohio where my firm has been 13 involved, I believe, in representing you. Is that 14 correct? 15 MR. CHAMBRELLO: In representing 16 Scientific Games? 17 COMMISSIONER SCHENCK: Yes. 18 (Brief pause) 19 MR. CHAMBRELLO: No. We actually were 20 not -- I just wanted to make sure I was accurate in my 21 response. We have not had a dispute in Ohio. We were 22 not -- 23 COMMISSIONER SCHENCK: Okay. Our mutual 24 ignorance on this is a consequence of my walling 25 myself off -- 0025 1 MR. CHAMBRELLO: Okay. 2 COMMISSIONER SCHENCK: -- from these 3 litigations. I know there is a controversy in Ohio on 4 a bid that was accepted there. I know only what I've 5 seen in the papers -- 6 MR. CHAMBRELLO: Okay. 7 COMMISSIONER SCHENCK: -- and I can't 8 talk to anyone about it in my firm. So I just wanted 9 to make sure, if you were involved in litigation, if 10 you were using my firm, that I don't want you 11 discussing it with me -- 12 MR. CHAMBRELLO: Okay. 13 COMMISSIONER SCHENCK: -- or having 14 anyone else discuss it with me. And I think that's 15 obviously not going to be a problem. 16 (Laughter) 17 MR. CHAMBRELLO: I would like to say we 18 were controversy-free. Unfortunately, we're not, but 19 we are controversy-free in Ohio. 20 COMMISSIONER SCHENCK: I'm glad to hear 21 that. Well, let me ask you the next question, which I 22 have been asking everyone who is a potential bidder. 23 First, I hope that you will participate in our bid 24 process here. I've had a good experience -- I think 25 we've had very good experience with you -- 0026 1 MR. CHAMBRELLO: Great! 2 COMMISSIONER SCHENCK: -- on the instant 3 ticket side, and I think competition is healthy. I've 4 been making this point to everyone who has come, that 5 because of that representation, whoever it is that 6 we're representing, which I'm not fully familiar with, 7 obviously, if you have any concerns about the fact 8 that my firm has a role in some litigation in some 9 other jurisdiction, I would like to know about it now 10 or as soon after now as I can so that we don't get to 11 the point where we're in a bid process and in the 12 middle of it, someone raises a concern that could have 13 been addressed well beforehand. So if you can give 14 any thought to that. 15 MR. CHAMBRELLO: I guess the first -- 16 well, let me answer the second part first, and I can 17 tell you that we're not concerned about it. 18 COMMISSIONER SCHENCK: Well, I 19 appreciate that. 20 MR. CHAMBRELLO: It's not an issue for 21 us. 22 COMMISSIONER SCHENCK: And I'll make you 23 the assurance that I will have no personal role or 24 knowledge of any litigation involving lottery matters 25 anywhere -- well, in North America, China, where we do 0027 1 have offices, or Europe. So I have been walling 2 myself off, obviously, rather effectively from those 3 matters. 4 I'm curious about this partnership you 5 say you have with Lottomatica in Italy. Can you 6 expand on what you've told us, a little bit. 7 MR. CHAMBRELLO: Yes, sure. We have -- 8 there is a consortium in Italy to provide instant 9 tickets, which is Gratta Vinci game. We are a 10 20 percent shareholder in that consortium, Lottomatica 11 being the majority shareholder, and a couple of local 12 Italian entities forming the balance. So we've got a 13 20 percent partnership and we provide the overwhelming 14 majority of instant tickets into the consortium, 15 whether they're produced in Europe or in the U.S. or 16 other places. 17 But that relationship has been in place 18 since the inception. And, you know, we have a great 19 relationship with them. I've been on sort of a 20 whirlwind worldwide journey, and I was just in Italy 21 with Lottomatica last week. And it's just a -- it's a 22 great partnership, and it's been an overwhelming 23 successful lottery and it's worked out very well. I 24 think it's an indication that groups with maybe 25 divergent objectives in certain jurisdictions can work 0028 1 together and work together to their mutual strength 2 and provide a better service. 3 COMMISSIONER SCHENCK: Is it only to 4 this point happening in Italy? In China, for 5 instance, is it just you operating with the -- 6 MR. CHAMBRELLO: Yes, it is. 7 COMMISSIONER SCHENCK: -- provinces or 8 the national government -- 9 MR. CHAMBRELLO: Yes. 10 COMMISSIONER SCHENCK: -- at this point? 11 MR. CHAMBRELLO: Well, I think the trend 12 will be that you will see more partnering in different 13 jurisdictions where it's appropriate and permissible, 14 between a wide array of providers. I think the days 15 of one vendor or one provider providing every service, 16 you know, A to Z, maybe is something that's not going 17 to happen in the future. And from Scientific Games' 18 perspective, we're perfectly okay with that. You 19 know, we know we have the ability to provide all 20 services across all requirements or all activities. 21 It doesn't necessarily mean in every case that we 22 should. And so, you know, we're fairly bullish on 23 partnering, and Italy is just one example that I think 24 may be replicated in form, if not with the same 25 entities, to the success of, you know, whatever the 0029 1 jurisdiction is. 2 COMMISSIONER SCHENCK: Thank you. I 3 just have one more question about your printing 4 capacity. Say you're up to 50-billion-ticket-per-year 5 capacity by the middle or end of this year -- 6 MR. CHAMBRELLO: Yes. 7 COMMISSIONER SCHENCK: -- are you 8 looking at expanding your printing operations any 9 further in the United States? 10 MR. CHAMBRELLO: I think what we'll 11 see -- you know, 50 billion tickets is a lot of 12 tickets. I think what you'll see us doing is probably 13 refreshing technology as opposed to expanding 14 capacity. 15 COMMISSIONER SCHENCK: That won't change 16 your footprint, then? I mean, you'll -- 17 MR. CHAMBRELLO: I don't envision it 18 changing our footprint in the near term, no. 19 COMMISSIONER SCHENCK: Well, I would 20 encourage you, if you're thinking about additional 21 printing facilities, we have the knowledge here in 22 Texas, and we have people in San Antonio and elsewhere 23 who have done it for a living. 24 MR. CHAMBRELLO: And I appreciate that. 25 COMMISSIONER SCHENCK: This is a very 0030 1 business-friendly state. So I have no questions 2 beyond that. 3 CHAIRMAN COX: Commissioner? 4 COMMISSIONER WILLIAMSON: Just a 5 question about China, which I find interesting that 6 you did that much for that area, because I've been 7 there twice in a business capacity -- 8 MR. CHAMBRELLO: Yes. 9 COMMISSIONER WILLIAMSON: -- and I know 10 it's difficult to do business there, despite what you 11 hear in the news. How long did it take you to get 12 from the letting of the contract to actually up and 13 running there? 14 MR. CHAMBRELLO: Well, if I could, 15 Commissioner, let me take a half a step back. We 16 probably spent about two and a half years working with 17 the lottery, you know, through the process of defining 18 what the system should be, what the marketing plan 19 should be, what capacity should be and all that. So 20 we didn't end up actually signing a contract until 21 December of 2007, and we were up and operating in -- 22 it was actually Easter Sunday -- I think it was 23 March 22nd of 2008. So that's an extremely short 24 period of time. 25 But we had done an awful lot of 0031 1 pre-planning leading up to that. And what we did to 2 start was produce the tickets in the United States and 3 then export them to China. Our press, our first press 4 was actually up and operating in -- December 20th is 5 when we were formally certified. And all games and 6 all tickets are now printed for China in China. But 7 the roll-out of 31 provinces, I will tell you that our 8 sort of contract agreement and handshake agreement was 9 that we would attempt to get eight to ten provinces up 10 before the Olympics, and we were able to get all 31 up 11 before the Olympics. 12 I've spent quite a bit of time there 13 myself in the last few years and was there earlier 14 this week, as a matter of fact, and really a great 15 experience. But, you know, between the language 16 barriers and the cultural differences, you know, and 17 the government regulatory environment and all that, it 18 was a full four-year process to get to the point where 19 we are today. 20 COMMISSIONER WILLIAMSON: Thank you. I 21 was just curious. 22 MR. CHAMBRELLO: Thank you. 23 COMMISSIONER WILLIAMSON: That's all I 24 have. 25 CHAIRMAN COX: Mike, I understand that 0032 1 SciGames and Interlott bid jointly on the New York 2 contract. Can you tell us about that relationship, 3 how that was dividend up, what it portends for the 4 future, perhaps? 5 MR. CHAMBRELLO: Sure, Mr. Chairman. 6 It's actually -- we didn't actually bid jointly. What 7 Scientific Games was, was a subcontractor in the bid 8 submission to Interlott, and what we were providing do 9 them were sort of the distribution and logistic 10 services that I think you're probably familiar with 11 here in Texas. 12 We currently have the instant ticket 13 contract. And from our perspective, the integration 14 of CSP, of distribution, telesale and things of that 15 nature were a very, very nice fit. So we were 16 interested in sort of having a much more vertical 17 integration of that component. 18 So we did bid, you know, with Interlott. 19 It was as a subcontractor. It was not -- you know, 20 not a consortium that I just described that we had a 21 percentage of. We do not have a strategic 22 relationship or agreement with Interlott, which is not 23 to say if the right opportunity came along in the 24 right area, that we wouldn't have some type of 25 relationship with them. But I wouldn't exclude anyone 0033 1 from that comment. We just happened to do it in New 2 York with Interlott. 3 CHAIRMAN COX: Okay. I know a lot of 4 folks have had reductions in force recently, and I 5 understand that many plan additional ones. How does 6 Scientific Games stand in that respect? 7 MR. CHAMBRELLO: Well, we have been 8 through the, you know, sort of the similar process 9 over the last -- oh, maybe the last six months, we've 10 reduced about 6 or 8 percent of our workforce. That's 11 been through a combination of proactive reductions as 12 well as not filling, you know, certain roles or 13 certain positions. 14 I would say it's sort of been more at 15 the -- you know, at the corporate SG&A level, you 16 know, than on the direct labor level, although 17 certainly it's been a little combination of the two. 18 I don't see -- won't make any prediction that we're 19 done and we'll never have another reduction. But I 20 don't foresee any major changes or reductions beyond 21 where we have gone. We will continue to selectively 22 sort of reduce or reallocate. And, in fact, in some 23 areas, you know, we've added staff, depending on what 24 the business requirements are and where our area of 25 focus is. 0034 1 CHAIRMAN COX: And then the question, of 2 course, that you know I'm going to ask, and that is, 3 as you look at things right now, do you see yourself 4 as a bidder for our contract when we put out our RFP 5 next year? 6 MR. CHAMBRELLO: We're certainly capable 7 of bidding. It's our intent and desire to bid. As 8 I've said before, you know, before this Commission in 9 the past, this ultimately will be a business decision. 10 We don't know what your RFP looks like at this point. 11 We don't know what your requirements will be. So 12 before I could, you know, sit before you and commit 13 that as a company, you know, we're in a position to 14 commit, you know, 100, 150, or 200 million dollars' 15 worth of capital, we need to know and recognize what 16 the business model would be and what our return would 17 be. 18 I would say that on the financial end, 19 we're capable. On the execution end, I'm very 20 confident that we're capable. And, you know, if the 21 RFP allows for what I would call significant 22 flexibility, I would look -- our desire as a provider 23 would be, we recognize that there are certain things 24 that each lottery must have and must be included and 25 incorporated in your bid. 0035 1 If you, as you go through the process, 2 are able to provide your prospective vendors with 3 greater flexibility to provide for you the solution, 4 then I think that allows for a more creative approach 5 to our bid submission. I think it would also open up 6 the bidding to maybe more companies and providers. 7 And I do think that this will be one in particular 8 where it will be interesting to see, you know, whether 9 consortiums are formed, similar to the UK or in Italy. 10 And again, I'm not doing that by specific vendors. 11 So if there is that freedom and 12 flexibility, I think you will have good competition. 13 I will say, though, there has been a fairly recent 14 trend in the industry where price is king and price is 15 driving everything. So that if your RFP, as recent 16 ones have come out, are driven by what it costs as 17 opposed to what level of sales and return to the state 18 most importantly it can drive, then we'll have much 19 less appetite and desire. 20 And an example of some is, some recent 21 RFPs have based 40 to 50 percent of the evaluation on 22 price, which means really nothing else matters, 23 because you can't overcome that pricing scenario. And 24 if that's the case, then we take a harder look than 25 say, "There's greater flexibility. Provide us a 0036 1 solution. If you're willing to take risk as a vendor, 2 we're willing to provide you with some upside and that 3 what you're looking for is a provider to help you 4 drive bottom line sales and bottom line return to your 5 state," then that's something we would certainly be 6 very, very interested in. 7 CHAIRMAN COX: Well, Mike Fernandez is 8 heading up our effort to develop the RFP, and he just 9 heard everything you said. And we appreciate your 10 thoughts on that. We hope that you will be a 11 competitor. 12 MR. CHAMBRELLO: Great! We look forward 13 to it. Thank you very much. 14 CHAIRMAN COX: Thank you very much, 15 Mike. Appreciate you and Jim being here. 16 MR. CHAMBRELLO: Great! Thank you. 17 AGENDA ITEM NO. II 18 CHAIRMAN COX: Agenda Item No. II, 19 report by the Bingo Advisory Committee Chair, possible 20 discussion and/or action regarding the Bingo Advisory 21 Committee activities, including the February 4, 2009 22 committee meeting. 23 I haven't seen Kimberly Rogers. 24 MR. SANDERSON: I have not seen Kimberly 25 or Suzanne here this morning, so -- 0037 1 CHAIRMAN COX: Okay. We'll pass that 2 item, Phil. And if they appear, then we'll call on 3 them then. 4 MR. SANDERSON: Okay. 5 CHAIRMAN COX: Does that work for you? 6 MR. SANDERSON: That's fine. 7 CHAIRMAN COX: Good. 8 AGENDA ITEM NO. III 9 CHAIRMAN COX: Agenda Item No. III, 10 report, possible discussion and/or action on Calendar 11 Year 2008 bingo conductor information. 12 Mr. Miner. 13 MR. MINER: Good morning, Mr. Chair, 14 Commissioners. For the record, my name is Bruce 15 Miner. I'm the Manager of the Taxpayer Services 16 Department, and I'm here to present to you the 2008 17 information as reported by our licensed charities. 18 Let me begin by pointing out that 19 charitable bingo in Texas for the Calendar Year 2008 20 was the highest grossing since the game was legalized 21 in 1981, with total receipts surpassing $684 million. 22 Players also won more than $512 million in prizes in 23 2008. The biggest winners, however, were the 24 charities that conducted the charitable bingo games. 25 Charitable distributions increased for 0038 1 the fifth year in a row, with organizations reporting 2 that they distributed $32.7 million for charitable 3 purposes, and that brings the total distribution since 4 1981 to more than $900 million. And we'll touch on a 5 few of those numbers in these slides. 6 This first slide shows prize payout 7 percentages for regular bingo in 2008 was 76.8 percent 8 of gross receipts, prize payout percentages for 9 instant bingo, 72.4 percent of gross receipts. 10 This pie chart is a graphical 11 representation of what percent each expense is as it 12 relates to total expenses. These expenses do not 13 include prize payouts or charitable distributions. 14 And again, the highest disbursements continue to be 15 salaries and rent payments. Salaries account for 16 approximately 33 percent of total expenses and rent 17 payments are another 23.1 percent. 18 This pie chart shows that the instant 19 bingo sales continue to exceed regular bingo card 20 sales. In 2008, instant sales represented almost 21 45 percent of the total sales, while regular card 22 sales represented 31.9 percent and electronics was at 23 23.5 percent. 24 This chart shows a comparison of gross 25 receipts for each year for 2005 through 2008. As you 0039 1 can see, gross receipts for instant bingo sales, as 2 shown by the white line, have increased each year 3 since 2005, while at the same time gross receipts for 4 regular bingo sales, as shown in the red line, 5 continue to decline. Total gross receipts for 2008 6 are approximately four and a half percent greater than 7 they were in '07 and almost 8 percent greater than 8 they were in '05. 9 This slide compares the gross receipts 10 for regular bingo, which includes paper and electronic 11 bingo sales, and the prize payouts reported for each 12 of the past four years. It shows the trend of gross 13 receipts shown in red and prize payouts for regular 14 bingo shown in yellow. 15 This next slide shows the instant bingo 16 has had an increase of $82 million in gross receipts 17 over the past four years and an increase of 18 $57 million in prize payouts for the same period. 19 This slide charts the prize payout 20 percentage for regular and instant bingo for the past 21 four years. The payout percentage for regular bingo, 22 as previously discussed, increased from 74.9 percent 23 to 76.8, while the payout percentage for instant bingo 24 dropped 73.4 in 2005, to 72.4 percent in 2008. 25 This slide shows the average players per 0040 1 occasion as compared to the average spend per player. 2 And this shows that even though the average attendance 3 has continued to decline since 2005, there has been a 4 22.7 percent increase in the average spend rate per 5 player over the same four years. 6 This slide illustrates the comparison 7 between reported charitable distribution as opposed to 8 the minimum amount required to be distributed by the 9 Bingo Enabling Act. Charitable distributions 10 increased for the fifth year in a row with 11 organizations reporting that they distributed 12 $32.7 million for their charitable purposes. As you 13 can see, the actual reported charitable distributions 14 have consistently been more than three times the 15 required distributions amount. 16 This chart shows a comparison of net 17 proceeds and charitable distributions. Total net 18 proceeds for 2008 was 10 percent greater than 2005, 19 while reported charitable distributions increased 20 7.6 percent since 2005. 21 These last slides contain additional 22 information as it relates to the decline in the number 23 of licensees. This shows that the number of active 24 licensed authorized organizations and active 25 commercial lessors have declined during each of the 0041 1 past five years. 2 This next slide breaks out the number of 3 licensed authorized organizations by organizational 4 type. The types are religious, non-profit medical, 5 fraternal, volunteer fire department and veterans. 6 Each of the organization's type show a decline in the 7 number of licensees, except for fraternal, which has 8 risen almost 10 percent since 2004. 9 And finally, this slide shows the 10 gradual decline in the number of actual playing 11 locations for each year since 2004. In your notebook 12 is additional information from an analysis performed 13 by Arlette Taylor, our Operational Planning and 14 Performance Coordinator. 15 And that concludes my report for this 16 agenda item. Are there any questions? 17 CHAIRMAN COX: Commissioner? 18 COMMISSIONER SCHENCK: None for me. 19 Thank you. 20 COMMISSIONER WILLIAMSON: Phil, I just 21 find it interesting, we see the declines in so many of 22 these; but, yet, you know, the net revenue and the 23 sales is up. Could you kind of enlighten us how that 24 could happen? 25 MR. SANDERSON: Well, I think, 0042 1 Commissioner, part of it is the -- I think we can 2 attribute to the instant tickets, the event tickets. 3 They have a lot of small winners -- $1.00, $5.00 and 4 $10.00 winners in those ticket counts. And I think 5 people buy a lot of those tickets and they replay that 6 $1.00 and $5.00 ticket, so it kind of drives that 7 gross receipts up and the prizes up as well. 8 The decline in the number of 9 organizations and the number of occasions I think also 10 plays into individuals, when they do play, they may be 11 playing less but are spending a little bit more when 12 they play. And that's about the only analysis that I 13 can draw from those numbers. 14 COMMISSIONER WILLIAMSON: Thank you, 15 Phil. 16 MR. MINER: Might I add also that -- 17 COMMISSIONER WILLIAMSON: Sure. 18 MR. MINER: -- prior to 2002, when we 19 had pull-tabs, event tickets were legalized in 2002. 20 There has been a 259 percent increase in instant sales 21 since that time. So apparently pull-tabs is a large 22 part of that. 23 COMMISSIONER WILLIAMSON: Okay. Thank 24 you. 25 CHAIRMAN COX: Phil, the slide on 0043 1 charitable distributions showed that the charities are 2 distributing three times the amount that they're 3 required to distribute, on the aggregate. I remember 4 that when we went through Sunset last time, they were 5 very concerned about charitable distributions. Did 6 they change any -- did we change anything as a result 7 of that Sunset review? 8 MR. SANDERSON: There was some 9 legislation in the -- we have not changed anything. 10 And there's been legislation filed the last two 11 sessions and currently in this session that would 12 change the way that that minimum distribution is 13 calculated. But up until this point, nothing has 14 changed. 15 CHAIRMAN COX: So nothing has changed 16 here, nothing has changed with the Legislature? 17 MR. SANDERSON: That's correct. 18 CHAIRMAN COX: And despite their concern 19 that the charities weren't being required to 20 distribute enough, the charities are distributing, in 21 the aggregate, three times as much as they're required 22 to? 23 MR. SANDERSON: Yes, sir. 24 CHAIRMAN COX: Thank you. 25 Thank you, Bruce. 0044 1 MR. MINER: Yes, sir. 2 AGENDA ITEM NO. IV 3 CHAIRMAN COX: Agenda Item No. IV, 4 report, possible discussion and/or action on 5 enforcement action process. 6 Ms. Kiplin. 7 MS. KIPLIN: Commissioners, the question 8 arose by a commissioner on what extent can a 9 commissioner be informed of a pending enforcement 10 matter, pending at some point here at the agency? So 11 I committed to providing a memorandum, and that 12 memorandum is in your notebook. 13 The short answer on that question is 14 that a commissioner can be kept informed of a pending 15 enforcement matter to the extent a commissioner would 16 want to, up until really it becomes a contested case. 17 And at that point, the Administrative Procedures Act 18 has a provision that prohibits ex parte communications 19 from occurring between a decisionmaker and a party to 20 the matter, either directly or indirectly. 21 There is a carve-out on the APA's 22 prohibited ex parte communication that does allows the 23 decisionmaker to utilize an agency employee who has 24 got a skill or knowledge that's necessary; for 25 example, a lawyer, an independent counsel. And, as 0045 1 you know, we've done that. We've carved out the 2 Special Counsel to provide independent legal advice to 3 decisionmakers. 4 The rub has to do with the due process 5 issue. And so what that means is that a person is 6 entitled to due process rights where there is a 7 property interest, and there is a property interest in 8 a license. This is really controlled more by case law 9 in terms of where is the line on a decisionmaker being 10 so biased or pre-disposed to an outcome that the 11 person's rights, due process rights, have been 12 violated. And it's really driven by case law. 13 I think as a general proposition, it 14 would be very -- it would be a tough burden for 15 somebody to overcome to claim that a decisionmaker was 16 so biased by an ex parte communication that occurred 17 before a contested case proceeding that their due 18 process rights were violated. 19 But in an effort to try to carve out a 20 bright line for Commissioners to be able to be kept 21 informed of enforcement matters -- and really I think 22 this results in those matters that are extraordinary 23 or significant in some form or fashion, not the 24 run-of-the-mill. 25 I've made a recommendation -- and, you 0046 1 know, you can cut to the back of the memo -- and the 2 recommendation is on those matters that are 3 significant or extraordinary in some form or fashion, 4 that the staff provides a process report, some kind of 5 report, status report on the process, to let you know, 6 "We did receive a complaint," the nature of the 7 complaint and where it is within the agency. 8 And then to the extent that a 9 Commissioner would want more information based on that 10 report, my recommendation is that we look at that on a 11 case-by-case basis to determine at what point should 12 we then carve out, once again, an agency employee 13 that's independent of the process to be able to 14 provide information to a Commissioner? 15 With the ex parte communication under 16 the Administrative Procedures Act, the prohibited 17 ex parte communications, that's such a bright line 18 that the point that we know that there is a contested 19 case matter, and that's triggered by us referring a 20 matter, the agency referring a matter to the State 21 Office of Administrative Hearings and a docket number 22 being assigned, that's when we now have a contested 23 case. 24 We would continue -- my recommendation 25 is, we would continue the process and continue to have 0047 1 the Special Counsel be identified as somebody that you 2 all can talk to, because she would not have any part 3 of the matter that's pending and that further, the 4 communication really has to do with talking to 5 somebody regarding a matter of fact or law in that 6 proceeding, not process. 7 And that's pretty much what's in your 8 notebook. And I'll be happy to answer any questions 9 that you-all have. I don't know that it requires an 10 action from the Commission. This is simply a 11 recommendation. And if there is no objection, then 12 we'll endeavor to proceed in that fashion. 13 CHAIRMAN COX: Commissioner? 14 COMMISSIONER SCHENCK: Well, I think one 15 thing we've talked about is the possibility of having 16 a docket sheet that's publicly available. 17 MS. KIPLIN: Yes. 18 COMMISSIONER SCHENCK: So if the 19 Commissioners are interested in seeing what is 20 currently pending, they could have a place to go, 21 along with the general public, to see what's there. I 22 share your concern. 23 And the obvious problem is that we wear 24 multiple hats, and ultimately we're responsible for 25 the proper handling of the investigation process. And 0048 1 if that's not being conducted appropriately, someone 2 needs to be in a position to move that along, 3 notwithstanding the fact that ultimately we may in a 4 position to act as effectively, in a judicial capacity 5 at some point. 6 So my understanding, from what you're 7 telling me, is that, for instance, Sandy, as Special 8 Counsel, might be assigned to allow us to carry out 9 that function -- 10 MS. KIPLIN: Yes. 11 COMMISSIONER SCHENCK: -- without 12 impeding your ability to process the report or 13 complaint? 14 MS. KIPLIN: Yes, I think so. But I 15 also think -- and we've had discussions, you know, 16 with Pete Wassdorf on the staff and also Sandy and 17 myself, in terms of: Where is the line? And there 18 really is no clear line on due process rights being 19 violated, and it is a heavy burden. 20 So I tend to be cautious because I'm 21 trying to protect the process and, frankly, protect 22 decisionmakers on opportunistic challenges on due 23 process rights and then depositions and so forth. But 24 I think what I would recommend is that we proceed -- 25 and we can look at the docket sheet -- you're right; 0049 1 that's public information -- whether we've got a case 2 that's docketed at the State Office of Administrative 3 Hearings or not and have that available. 4 And then depending on the nature of the 5 inquiries from the commissioner, we would have to make 6 a decision at that point whether the recommendation 7 is: Well, now is the time to carve Sandy out or 8 whether you can continue to talk with staff. 9 COMMISSIONER SCHENCK: But you can 10 see -- I mean, anyone can see that there will be 11 concerns that from time to time in a particular case, 12 for instance, may have been filed, a complaint against 13 someone who is concerned that there is no action on 14 it, it's sitting there like a cloud over them, and we 15 would be in a position at some point I would think to 16 funnel that concern back down and make sure the case 17 is moving in some way, without jeopardizing the 18 ability to act in an impartial -- 19 MS. KIPLIN: Yes, absolutely; 20 absolutely. I think that's the idea of the safeguard. 21 If we get to the point where, gee, you know, there is 22 that balance, the risk of three, losing a 23 commissioner, so now you're down to two in a decision- 24 making, or carving out somebody independent who can 25 act in your stead, then certainly we can -- 0050 1 COMMISSIONER SCHENCK: I'm okay with it, 2 as long as if, in fact, you guys aren't doing as 3 quickly or as well what we would like done, that that 4 information can get back in a way that doesn't 5 communicate that we want a particular outcome, because 6 I am confident no one on this Commission would ever be 7 interested in actually involving themselves in the 8 decisionmaking process in any way, other than to get a 9 fair outcome. But I think that we do need so acquit 10 ourselves of this obligation, to make sure that this 11 administrative process is moving in an appropriate and 12 timely way. 13 MS. KIPLIN: I understand. And I don't 14 see any reason why we could not accomplish that. I 15 will say -- and I neglected to mention that one of the 16 commitments I made is that we would take a look at 17 what other agencies do in terms of decisionmakers. 18 And there are three agencies that we readily identify 19 in the look that we did that do actually, by statute, 20 carve out a board member to participate in the 21 enforcement matter. That's the Optometry Board and 22 the Board of Public Accountancy. And each of those 23 boards, by statute, that carve this out, they've got 24 19 and 15 members. 25 COMMISSIONER SCHENCK: Wow! What do you 0051 1 think? 2 MS. KIPLIN: Nineteen, 15 -- 3 COMMISSIONER SCHENCK: With three, to 4 carve one out, we get two. One-to-one is a tie. 5 MS. KIPLIN: Right. 6 COMMISSIONER SCHENCK: So that's not 7 helpful. 8 MS. KIPLIN: And so that's not helpful 9 at all. I think that was right. Yes, it's -- no, I'm 10 sorry. Optometry Board is nine. The Board of Public 11 Accountancy is 15. The Board of Medical Examiner also 12 does it. They do it by rule. In both of the Board of 13 Public Accountancy and the Optometry Board, they have 14 the statute. 15 There is also a companion statute that 16 says, and if you're a decisionmaker that participated, 17 you must recuse yourself. So even from a legislative 18 perspective, there is an acknowledgment. If you are a 19 decisionmaker that's going to participate, you really 20 should not be the decisionmaker in terms of the 21 ultimate decision. 22 COMMISSIONER SCHENCK: Well, you know, 23 in a lot of corporations when they have these 24 problems, what they do is, they insulate the board by 25 creating a special litigation committee or something 0052 1 else, and just delegating the authority to them. Why 2 couldn't we do something like that? 3 MS. KIPLIN: Well, I don't think you 4 can -- I think that's different than a state agency. 5 I think you-all are charged -- you're charged to 6 making the decision on disciplinary actions on that 7 level, and I don't believe you can delegate that 8 authority. In terms of -- 9 COMMISSIONER SCHENCK: I'm talking about 10 just monitoring the process to make sure it's moving. 11 MS. KIPLIN: Yes, you could do that, you 12 know, somewhat like a -- 13 COMMISSIONER SCHENCK: Because I can 14 assure you, I don't want the role of getting involved 15 in a factual investigation in terms of -- 16 MS. KIPLIN: Right. 17 COMMISSIONER SCHENCK: -- any particular 18 complaint. But I am -- 19 MS. KIPLIN: You could certainly carve 20 somebody out. I would say to you that, you know, you 21 do have direct reports and it's their job -- for 22 example, the Bingo Division Director -- to move things 23 accordingly. And so not to throw, you know, 24 Mr. Sanderson into the mix of it, but it seems to me 25 that that's, you know, certainly something that's a 0053 1 job responsibility on his part you're looking to 2 somebody who is independent that can somewhat provide 3 an oversight of that, is what I'm sensing. And to the 4 extent that that's the Commission's desire, we can 5 certainly work on that and talk to Special Counsel 6 about that so she can communicate directly with you- 7 all. 8 COMMISSIONER SCHENCK: And I'm just 9 suggesting that as a possibility. I'm not implying 10 that even I would be in favor of it necessarily, but I 11 think on a case-by-case basis, if we had worked more 12 to insulate ourselves from the day-to-day knowledge of 13 what's going on, of making sure that it's actually 14 moving, that would be one way to proceed. 15 Thanks. 16 CHAIRMAN COX: Commissioner? 17 COMMISSIONER WILLIAMSON: In doing this, 18 would this be like every enforcement action, so there 19 will be some discretion? I mean, obviously, there's 20 some that are not what I consider extremely egregious 21 that we would need to necessarily oversee or just have 22 knowledge of at that point? 23 MS. KIPLIN: That's right. We're really 24 looking at filtering out what I would call the 25 ordinary run-of-the-mill cases from those that are 0054 1 extraordinary and significant. And then certainly, 2 you know, you'll look to our judgment in terms of 3 identifying those. And we may miss it on occasion. 4 I'm sure you'll make that clear in terms of what you 5 consider to be significant and extraordinary. 6 But I think we've got enough experience 7 that we ought to be able to know what needs to come to 8 the attention of a commissioner or not and then put 9 that on one of these periodic reports so that you know 10 where that complaint is within this agency. 11 COMMISSIONER WILLIAMSON: Okay. Thank 12 you. That's all I have. 13 CHAIRMAN COX: Kim, I think this is a 14 good report, and I like the area where you've landed. 15 I think this would be helpful to the board on an 16 ongoing basis. Now, you said we need only acknowledge 17 that you've made this report, we don't need action? 18 MS. KIPLIN: I don't believe you need to 19 take action, unless you desire to do so. I have made 20 the recommendations, and I hear no objection to us 21 proceeding. I do hear a bit of a modification on 22 fashioning some type of a docket sheet. 23 COMMISSIONER SCHENCK: I think your 24 recommendations are excellent, Kim. I'm just trying 25 to engage you in this thought process, that's all. 0055 1 MS. KIPLIN: Sure. 2 CHAIRMAN COX: Commissioner, are you 3 okay with this? 4 COMMISSIONER WILLIAMSON: Yes, I'm good 5 with that. 6 AGENDA ITEM NO. V 7 CHAIRMAN COX: Okay. Agenda Item No. V, 8 report, possible discussion and/or action on the Bingo 9 Advisory Committee. Mr. Sanderson and Ms. Kiplin. 10 MR. SANDERSON: Commissioners, I'll take 11 the lead on this agenda item. It was placed on your 12 agenda today to discuss what items a BAC member or 13 actions by a BAC member the Commission would like to 14 be made aware of in order to make the decision on 15 whether or not they should remove the individual. 16 By rule, there are three instances, I 17 believe, where an individual can be removed from the 18 BAC. The first is if there is a conviction, of 19 course, they can be removed. The second one would be 20 that if they miss two consecutive meetings, they can 21 be removed. And then the third is that they serve at 22 the pleasure of the Commission. So if the Commission 23 desires to have someone removed, then they can take 24 that action just to remove an individual. 25 We're seeking guidance from the 0056 1 Commission on what activities or what actions by a 2 member that the Commission feels they would like to be 3 made aware of in order to make that decision on 4 whether or not an individual continues to serve on the 5 Bingo Advisory Committee. 6 And then I'll turn it over to Kim, if 7 she needs to add anything to that. 8 MS. KIPLIN: Well, I think that's it in 9 a nutshell. I can tell you that I don't believe there 10 has ever been any information that's been brought to 11 the attention of the Commission under any of these 12 criteria. So I think the staff, the Bingo staff is 13 really looking to some kind of guidance and direction. 14 And certainly, you know, there is no 15 general rule, but at least some guidance and direction 16 on the things that you-all really do want to know 17 about, a particular Bingo Advisory Committee member, 18 so that you can consider, don't know what the outcome 19 would be, but you can consider and deliberate whether 20 that's something that triggers the serve-at-the- 21 pleasure of the Commission and then removed for the 22 serve-at-the-pleasure. 23 I think it goes without saying, but I 24 will put it on the record, that there are certain 25 things I don't think you could remove somebody from, 0057 1 even under the serve-at-the-pleasure. And I would put 2 those more in the Title VII EEO type prohibitive 3 classes. And I can't imagine that a commission would 4 do that, but I'll just put that on the record. And 5 then I'll be quiet and be glad to answer any questions 6 that we can. 7 COMMISSIONER SCHENCK: Well, I have a 8 couple of questions. And I want to be clear that I'm 9 speaking just for myself. 10 And, Phil, I appreciate that you're in 11 an interesting position on this, and I think this is 12 an interesting topic. I don't want to get too 13 specific to it. 14 But I think it comes as no surprise we 15 have a challenge in your industry and that the Bingo 16 Advisory Committee serves as an arm of this 17 Commission, and the members are having a title in 18 connection with this Commission. So I think -- 19 obviously, I'm concerned about -- I will call Items 1 20 and 2 on the list of missing multiple meetings or have 21 been convicted of a crime. 22 But service on this Commission is not a 23 guaranteed right. Obviously, I would never advocate 24 removing somebody because of their national origin, 25 their race, their gender, their age. But at the same 0058 1 time, there is no mystery here that we have some 2 challenges with respect to 8-liners in this state. 3 And it's my view -- and I'll just state this 4 clearly -- it is my view that the Bingo Advisory 5 Committee is not a position that should be sought out 6 by someone whose interest is in maintaining a business 7 that is operating beyond the limits of the law or 8 testing the limits of the law. It serves the purpose 9 of advancing the interests of bingo as it's been 10 authorized by the state, and nothing else. 11 So in my view, if a person cannot 12 conduct their affairs in keeping with the interests of 13 the bingo community as it's been lawfully authorized 14 but is in the position where they need to test the 15 limits, whether or not they have been convicted, 16 whether or not there is something of that specific 17 nature, I think it may not be the best place for the 18 person to be. 19 And I would like to be aware of those 20 circumstances, and I think that it's going to be a 21 tough position for you to be in, Phil. But, 22 particularly after the end of this current legislative 23 session, we may or may not have more guidance from the 24 Legislature. I think we have some more rules to pass 25 in this area ourselves, and I understand there may be 0059 1 some confusion there. But I think if you are at this 2 point operating a bingo enterprise, whether it's as a 3 conductor or lessor or anything else, and you're also 4 at the same time operating 8-liners, particularly from 5 that same facility, I have concerns about that. And 6 for the time being, I think I'll just leave it. 7 MR. SANDERSON: Commissioner, I believe 8 that I understand your concerns. And what we'll do 9 is, we'll take each of the nine members that way 10 currently on the BAC and we'll do some research to see 11 if there is any information that we can bring to you 12 at the next Commission meeting. Would that be 13 sufficient? 14 COMMISSIONER SCHENCK: That would be 15 sufficient for me. And again, I want to make clear, 16 I'm just speaking for myself. I have this concern. 17 It may be that I'm overly concerned about this, or 18 maybe not, but that's my view. I think if we set a 19 brighter line when we're talking about service at our 20 pleasure that's not as a matter of right, we avoid the 21 potential for getting into problems that are otherwise 22 avoidable. 23 MR. SANDERSON: Yes, sir. 24 CHAIRMAN COX: Commissioner? 25 COMMISSIONER WILLIAMSON: I have similar 0060 1 concerns that David has, Commissioner Schenck has. My 2 concern is, one, how the bingo industry is perceived 3 and reflected ultimately gets reflected on the Texas 4 Lottery Commission as a whole, and that concerns me a 5 great deal. 6 What I would like to see, as you're 7 talking to the Bingo Advisory Group, have that 8 discussion with them and kind of throw it back to them 9 and say, "What would you suggest? What are your ideas 10 that you can bring back to us?" to maybe counteract 11 some of that possible perception of that industry in 12 light of David's and my concerns about that. I would 13 like to see what they could bring back to us, what 14 they would suggest, because I would like to keep, you 15 know, the perception of the bingo industry as high as 16 possible. And let's get some feedback from them as 17 well. 18 MR. SANDERSON: Yes, ma'am, 19 Commissioner. And the next BAC meeting I believe is 20 tentatively scheduled for May the 6th. So I don't 21 know if that will be, you know, shortly after your 22 next meeting or when your next meeting may be. 23 COMMISSIONER SCHENCK: I don't know. 24 But I'll tell you, I would like to be here for it -- 25 MR. SANDERSON: Okay. 0061 1 COMMISSIONER SCHENCK: -- come down for 2 it. 3 MR. SANDERSON: We'll keep in touch with 4 your staff and make arrangements. 5 CHAIRMAN COX: Phil, I think that we 6 have a consensus here that the integrity, the 7 objectivity and independence, real and perceived, of 8 the Bingo Advisory Committee is very important to it 9 being an effective arm of this agency and that the 10 undertaking that you proposed is something that we 11 would like to have. 12 MR. SANDERSON: Yes, sir. Thank you. 13 AGENDA ITEM NO. VI 14 CHAIRMAN COX: Okay. Again Item No. VI, 15 report by the Bingo Operations Director. 16 Mr. Sanderson. 17 MR. SANDERSON: Commissioners, in your 18 notebook is the Activity Report of the Bingo Division 19 for the month of February. And I would be glad to 20 answer any questions you may have. 21 COMMISSIONER SCHENCK: None from me, 22 Phil. Thank you. 23 COMMISSIONER WILLIAMSON: None from me. 24 And I like your -- 25 CHAIRMAN COX: Thank you, Phil. 0062 1 MR. SANDERSON: Thank you. 2 AGENDA ITEM NO. VII 3 CHAIRMAN COX: Agenda Item No. VII, 4 report, possible discussion and/or action on lottery 5 sales and revenue, games performance, new game 6 opportunities, advertising, market research and 7 trends. 8 Ms. Pyka, Mr. Tirloni. 9 MS. PYKA: Good morning, Commissioners. 10 My name is Kathy Pyka. I'm the Controller for the 11 Lottery Commission. And with me to my right is Robert 12 Tirloni, our Products Manager. 13 The first chart that we have for you 14 this morning reflects revenue from sales and net 15 revenue to the state through the week ending March 21, 16 2009, this reflects the 29-week period, and sales 17 amounted to $2.04 billion, with prize expense of 18 $1.28 billion for a sales contribution of 19 $754.4 million for this period. 20 Estimated net revenue to the state 21 reflects four-tenths of a percent increase as compared 22 to the $507.2 million figure for same period in Fiscal 23 Year 2008. The $1.2 billion amount recorded as prize 24 expense as a percentage of sales is 63.1 percent for 25 the current period, as compared to 63.6 percent of 0063 1 sales for the same period of last fiscal year as well. 2 Moving to the next slide, this provides 3 the change in sales for games from Fiscal Year 2008 to 4 2009. As noted before, the total decline from Fiscal 5 Year 2008 sales is $40.3 million, or 1.9 percent. The 6 overall decline includes $3.5 million for our online 7 product, which is a seventh-tenth percent decrease. 8 And, Commissioners, last time we were 9 before you, this decline was $13.4 million and 10 3.3 percent. So you can see the three great weeks. 11 We had three 80 million total sales dollar weeks that 12 had great instant and online sales since the last 13 Commission meeting. 14 Our instant ticket game reflects 15 $36.8 million in overall decline, or 2.3 percent. And 16 again, the last time we were before you this decline 17 was $43 million and 3.3 percent. 18 The jackpot games are portrayed with the 19 white font, reflecting an overall gain of $2.6 million 20 as compared to this period last fiscal year. And you 21 can see Mega Millions, Megaplier and Two Step were all 22 reflecting year-over-year gains as compared to 2008. 23 And then our daily games are presented 24 with the green font, reflecting a $6.1 million 25 decline, or 2.6 percent, from last year. 0064 1 Chairman Cox, at our last meeting, we 2 had visited on the overall net revenue, and you had an 3 inquiry about net revenue and how that trend might 4 appear if we were to go back and see if we were 5 looking at an overall gain. So this chart reflects 6 our transfers to the state on a cash basis with the 7 cumulative totals by month, noting what that 8 year-over-year change is. 9 We began the fiscal year in September, 10 with $76 million transferred to the state. That 11 reflects total transfers, which would be Foundation 12 School Fund as well as any unclaimed prizes. So we 13 began with the 10.57 percent year-over-year decline 14 the first month of the fiscal year. And, of course, 15 that was the month that we experienced Hurricane Ike. 16 That was followed by a 2.25 percent decline. And as 17 you can see as we work through each month and get to 18 the cumulative figures, through month ending 19 February 28, 2009, we are now reflecting four-tenths 20 of a percent increase over Fiscal Year 2008 cumulative 21 sales. 22 COMMISSIONER SCHENCK: Cumulative sales 23 or transfers? 24 MS. PYKA: I'm sorry. Cumulative 25 transfers. Thank you, Commissioner. 0065 1 MR. GRIEF: I would like to just add 2 something, if I could, to Kathy's presentation on 3 this. In September we had Hurricane Ike and we had 4 the general state of the economy all coming together 5 in the perfect storm, if you will. And it just so 6 happens today, we've got all the players -- we've got 7 our instant ticket printer, we've got our lottery 8 operator, we've got our advertising vendor and we've 9 got -- I don't want to leave out our critical 10 marketing team in-house. 11 I want to congratulate all of them on 12 digging themselves out of a very deep hole that we 13 had, as you can see, down 11 percent to kick off the 14 fiscal year. We're back up in positive territory now. 15 And we have I would can consider reserved optimism for 16 the rest of the fiscal year. 17 We have some exciting new products 18 coming out that we hope will continue to push us a 19 little bit more forward on this. So I just want to 20 offer my thanks to all those different entities who 21 contributed to bringing us back from where we were. 22 CHAIRMAN COX: That's a very appropriate 23 recognition, Gary, and I think we all join you in 24 that. 25 MS. PYKA: Commissioners, with that, 0066 1 Robert will now move to sales by product category. 2 MR. TIRLONI: Thank you, Kathy. 3 Good morning, Commissioners. For the 4 record, my name is Robert Tirloni. I am the Products 5 Manager for the Commission. 6 This slide or this pie chart shows the 7 four hundred and almost 95 million dollars in online 8 game sales for the fiscal year, through the week 9 ending March 21st. Pick 3 continues to be our best 10 selling online game, followed by Lotto Texas and then 11 Mega Millions. 12 Last time we were here, we talked about 13 the large jackpot run we were in on Mega Millions, and 14 we once again thought Mega would eclipse Lotto in 15 terms of overall sales. And Lotto continued to roll 16 just as Mega Millions was rolling, and so it continues 17 to be our second best-selling game. 18 But as Kathy mentioned, we did have a 19 good three solid weeks in online sales, especially 20 Mega Millions rolled up to $212 million, Lotto rolled 21 up to $28 million, and Two Step actually rolled up to 22 $2.15 million, so we had the luck of the rolls with us 23 in March. 24 This next slide -- and we apologize. We 25 had some of our headings reversed on this previous 0067 1 slide and this slide. This is a sales comparison. 2 This is comparing instant and online, and this 3 represents the total sales for the fiscal year of 4 slightly over $2 billion. And instant ticket sales 5 continue to make up almost 76 percent of the total, 6 with online making up the other 24 percent. And 7 again, this is steady, and we've been seeing this 8 trend for quite some time. 9 This is our fiscal year-to-date instant 10 sales broken down by price point. So this is 11 representing about $1.5 billion in instant ticket 12 sales through March 21st. Again, Commissioners, no 13 change. $5.00 price point is our best seller, 14 followed by the $2.00 and the $10 price points. 15 On this slide, I will make note that we 16 do have a new $50 game starting next week, on Monday, 17 March 30th. That's a revamped game for us. It does 18 have a higher prize payout. It has a $10 million top 19 prize instead of a $5 million top prize. And so we 20 will keep you updated on the progress of that game in 21 these monthly meetings. 22 And I do have one other update for you. 23 We always notify you and give you information when we 24 do sell a jackpot ticket. As I noted, Lotto did roll 25 up to $28 million. There was a winning ticket sold in 0068 1 Houston at one of our corporate accounts, our Kroger 2 location. That was on Saturday, March 14th, or it was 3 for the Saturday, March 14th drawing I should say. It 4 was a cash value option prize. That cash value option 5 is valued at just under $19 million. And the Kroger 6 has already actually received their retailer bonus, 7 slightly under $286,000, and we sent that off to them 8 this week, working with them on a check presentation. 9 And I will also let you know that we have had initial 10 contact from a potential claimant for this prize. 11 And that concludes our presentation on 12 sales for this morning, but we're happy to answer any 13 questions that you might have. 14 COMMISSIONER WILLIAMSON: I don't have 15 any. Thank you. 16 COMMISSIONER SCHENCK: I have one. 17 Robert, I've asked this question before, but I heard 18 it during the SciGames presentation, so I'll ask it 19 again. 20 The $1.00 scratch-off is I think, if I'm 21 recalling right, less than eight percent, or about 22 that. Do you see a future -- I recall asking what the 23 incremental cost was of printing those tickets and 24 whether they were, in fact, profitable. As I recall, 25 the cost was about a penny. 0069 1 MR. TIRLONI: Yes. 2 COMMISSIONER SCHENCK: Do you see a 3 point at which -- or, Gary, do you see a point at 4 which we would say the $1.00 is just consuming 5 opportunities that could be taken up more efficiently 6 by the $2.00 or the $5.00 even? 7 MR. TIRLONI: Well, at the beginning of 8 this fiscal year, we actually -- comparing '09 to 9 Fiscal Year '08, our one and $2.00 price points were 10 in the negative. But at we've made our way through 11 this fiscal year, that trend has reversed. So our 12 $1.00, $2.00, $3.00, $5.00 and $20 price points are 13 all up compared to the same time period for last year. 14 I think that might be a result of the economy, of 15 people spending down. 16 But at this point, based on what we've 17 seen and how both of those price points have 18 rebounded, I still continue to believe that the one 19 and $2.00 price points are entry price points, and I 20 believe they're still an important part of the overall 21 mix for the instant games. 22 COMMISSIONER SCHENCK: Thank you. 23 MR. GRIEF: I completely agree, yes. 24 COMMISSIONER SCHENCK: Thank you, Gary. 25 CHAIRMAN COX: Thank you, Kathy and 0070 1 Robert. 2 AGENDA ITEM NO. XVI 3 CHAIRMAN COX: Gary, do you want to do 4 Agenda Item No. XVI right here, report on the Mega 5 Millions? 6 MR. GRIEF: Be glad to, Commissioners. 7 CHAIRMAN COX: Okay. Why don't we do 8 that. 9 MR. GRIEF: What I have to report on 10 Mega Millions is that in the first week of April, I'll 11 be going to Washington D.C., and I'll be participating 12 in our next Mega Millions directors meeting. And we 13 will also, subsequent to that meeting, have a smaller 14 meeting with some members of MUSL, the Powerball 15 group. We continue to have substantive discussions 16 about the possibility of each group selling each 17 other's games in their respective jurisdictions. 18 We've now gotten into more of the details. We have 19 discussions ongoing amongst security, legal, financial 20 groups. And I'll continue to keep you apprised of 21 those as they develop. 22 COMMISSIONER SCHENCK: Thank you, Gary. 23 COMMISSIONER WILLIAMSON: I don't have 24 any questions. 25 CHAIRMAN COX: Why don't we take about a 0071 1 15-minute break. 2 (Recess: 10:20 a.m. to 10:38 a.m.) 3 CHAIRMAN COX: Let's come back to order. 4 AGENDA ITEM NO. VIII 5 CHAIRMAN COX: Agenda Item No. VIII, 6 report, possible discussion and/or action on game- 7 closing procedures. 8 Mr. Grief and Mr. Tirloni. 9 MR. GRIEF: Commissioners, in late 10 February, we were contacted by Sen. Glenn Hegar's 11 office regarding some concerns that the senator had 12 with certain aspects of our closing procedures for 13 instant games. His concern focused on some recent 14 articles in the press about certain instant games that 15 we had closed that still had top prizes remaining. 16 Specifically, the senator was focused on ensuring that 17 our game-closing process maintained the public trust 18 and did not in any way misrepresent our commitments to 19 the public regarding the number of prizes that were 20 available in each game. 21 On February 26th, I, along with our 22 Governmental Affairs Director, Nelda Trevino, met with 23 the senator to discuss his concerns. And in that 24 meeting, we gained an understanding of his issues. 25 And I made a commitment to him that we would 0072 1 re-examine our processes and get back to him with some 2 ideas and concepts that ultimately might address his 3 concerns. 4 We followed up with the senator shortly 5 thereafter with a letter dated March 4th from me which 6 identified several modifications to our processes that 7 would clearly identify to the public what games were 8 closing, when they would be closing and, most 9 importantly, give the public ample notice and time to 10 purchase games that still had top prizes remaining, 11 before they were pulled from the various retailer 12 locations. Staff also met with the senator personally 13 to go over each of those proposed modifications in 14 great detail. 15 I have since received a letter from the 16 senator which was dated March the 9th in which he 17 expressed appreciation for our attention to his 18 concerns. And we have moved forward with the 19 modifications that we suggested to him to our game- 20 closing procedures. And so this morning I've asked 21 Robert Tirloni, our Products Manager, to lay out those 22 modifications that we have made and are making to the 23 Commission. 24 MR. TIRLONI: Good morning. 25 Commissioners. Once again, my name is Robert Tirloni. 0073 1 I am the Products Manager for the Commission. 2 Commissioners, as Gary just mentioned, 3 we have implemented changes to our game-closing 4 processes and the way we communicate game-closing 5 information, and I'll take you through those changes 6 at this time. 7 Our brand-new process is what we are 8 calling a pre-call process, and this is a new 30-day 9 time period in which we're going to provide public 10 notice that games in a pre-call status will be closing 11 soon. And the whole purpose for this is to allow 12 players the opportunity to play for prizes that are 13 remaining in those games or prizes that are unclaimed 14 in those games, prior to the call date. 15 Sales reps will be notified of the 16 pre-call status, but they will not begin to pick up 17 games from retailer locations during the pre-call time 18 period. These games will be picked up at the start of 19 the call period. 20 The next three bullets are existing 21 processes. They are not new, but I included them just 22 to make sure you were familiar with the process. So 23 after the new pre-call period, that 30-day period, we 24 then call the game, and then that starts the clock on 25 a 45-day time period. And during that time period, 0074 1 sales reps are going out to retail locations and 2 picking up those games. 3 The next step in the process is the 4 close date, and then that officially marks the end of 5 sales or the end of the game. And at that point, 6 tickets have been picked up from retail locations and 7 they're no longer for sale. 8 And then the last step of the process is 9 the end validation date. Tickets can be validated or 10 redeemed for 180 days after the close date. 11 COMMISSIONER SCHENCK: Robert, I have a 12 quick question. 13 MR. TIRLONI: Yes, sir. 14 COMMISSIONER SCHENCK: Is the close date 15 automatically the 46th day after the call or is the 16 close date when we've actually confirmed that the 17 tickets have all been picked up? 18 MR. TIRLONI: It's automatically the 19 day. 20 COMMISSIONER SCHENCK: So then we're 21 committing that we're going to get, within 45 days 22 after the call, all those tickets out of the retail 23 locations? 24 MR. TIRLONI: Yes. And what our 25 Retailer Services Department does is, after that close 0075 1 date, they run a report to be able to find any packs 2 or any tickets that are still remaining at retail that 3 may have not been picked up, and then they actually 4 dispatch sales reps to those locations to pick up any 5 of those tickets. 6 COMMISSIONER SCHENCK: What are we going 7 to do if they can't find them? I mean, I can tell you 8 from experience in litigation, you can tell people, 9 "We've got to have all the documents. We've got to 10 have all your boxes. The Court will impose sanctions; 11 it will be bad." Everyone promises you they have 12 produced them, they have found them or they're lost, 13 and then a week before trial, somebody finds a box of 14 documents. What do we do? 15 MR. TIRLONI: I think Michael is going 16 to weigh in on the Retailer Services side of the 17 equation. 18 MR. ANGER: For the record, I'm Michael 19 Anger, and I'm the Lottery Operations Director. 20 The process that Robert was talking 21 about is kind of our fail-safe process for ensuring 22 that the packs are out of the field. So what the 23 Retailer Services group does is, they run a program 24 that causes a financial transaction and settlement of 25 any full packs of tickets that are out there in 0076 1 retailer inventory. It also creates a list for us to 2 identify if there were any packs that were not picked 3 up during that 45-day call period. So, one, there is 4 a financial impact to the licensee immediately -- 5 COMMISSIONER SCHENCK: So the retailer 6 will be charged for the tickets if they haven't been 7 picked up? 8 MR. ANGER: And there is a motivation. 9 I mean, we want the tickets back, obviously. We want 10 to ensure that they're not available for sale to the 11 public. If we've struggled during that collection 12 period -- and it's not uncommon, you know, when it's a 13 situation where it's an absentee business owner or 14 something like that, maybe they're the only ones that 15 have access to the safe -- that a rep has to go out on 16 several occasions during that 45-day period to try to 17 collect the pack. 18 So come to the last stopping point is 19 that that game closed, where we create the financial 20 transaction, we immediately dispatch personnel in the 21 different districts, LSRs, to go out to those stores 22 to collect those packs, because we now know which 23 packs are out there remaining. 24 And then ultimately, though, you know, 25 if the retailer says, "I don't have it. I can't find 0077 1 it," you know, at that point there is an opportunity 2 for them to go under our stolen ticket policy, file a 3 police report, you know. And we would, you know, 4 possibly do an adjusting transaction, if there weren't 5 any pickets validated from that pack. 6 But basically it puts the financial 7 responsibility on that retailer, and we do everything 8 we can to notify them about their responsibility not 9 to sell those tickets. If, in worst-case scenario, we 10 find that a licensee has violated that and at some 11 point after the close of the game, they've made those 12 tickets available for sale, we take action with regard 13 to, you know, performance on the licensee's part with 14 regard to selling tickets for a game they shouldn't 15 have sold. 16 COMMISSIONER SCHENCK: Would you remind 17 me how many retail locations, how many thousands of 18 retail locations we have in Texas? 19 MR. ANGER: Approximately 16,400. So 20 you've got a lot of moving pieces out there and a lot 21 of, you know, various different business structures. 22 COMMISSIONER SCHENCK: I think what 23 we're finding with this -- I think is an improvement, 24 I agree, but we're going to be testing the interests 25 of our less organized retailers in maintaining 0078 1 relationships with us if we're going to be pushing 2 harder on -- if we haven't picked it up and you 3 haven't acted timely, you're going to have to file a 4 police report or do something to claim these tickets 5 as unsold? 6 MR. ANGER: You know, actually, those 7 elements of the process have been in place for some 8 time. The pre-call is really the new activity here. 9 And, really, that's just the public notice function. 10 We're also letting retailers know as well, and Robert 11 is going to talk about some things that we put in 12 place to give that same notice to the retailers. But 13 those challenges that you're talking about, you know, 14 are challenges that licensees are currently facing. 15 What I will say is because we've been 16 doing it with them for a pretty long period of time, 17 retailers for the most part are pretty familiar with 18 the process. And, you know, we have a pretty small 19 number of packs that auto-settle when we reach that 20 closing date for the game. And it's very manageable 21 and, you know, we find that's a pretty effective 22 process. 23 The one thing I'll add to it is, is that 24 by auto-settling that pack and creating a financial 25 burden to the retailer at the closing date for the 0079 1 game, if we've had somebody who maybe was less than 2 cooperative in providing those packs during the call 3 period, that's usually an incentive for them to all of 4 a sudden discover where that pack is and provide it 5 back to us, because they're now out of pocket for 6 those tickets. 7 COMMISSIONER SCHENCK: Thank you. 8 MR. ANGER: Sure. 9 MR. TIRLONI: We've also made changes to 10 our website, and this goes to the communication aspect 11 of our game closings. We have a new page which will 12 announce all of the pre-call games, and we have 13 distinguished between games that are closing due to 14 zero top prizes and games that are closing that have 15 prizes unclaimed, and we're doing that on each 16 individual games page. 17 So there will be a big colorful 18 starburst at the top of each page that says that, you 19 know, the game is closing because of zero top prizes 20 or the game is closing and there are prizes left, you 21 know, to be played for or to be claimed. 22 We've also made a change and we are now 23 posting the Instant Ticket Game Closing Analysis 24 Summary Report, and that's a big name for the analysis 25 that we do every month when we're getting ready to 0080 1 close games. It's the analysis that looks at number 2 of prizes paid, what it costs us to print the tickets. 3 It's basically the analysis that we use and that we 4 route for approval in order to close a game. 5 And we're posting that in a similar 6 fashion to the way we do with all of our jackpot 7 estimation documents and when there is a jackpot 8 winner or jackpot payment documents, so that the 9 public can go and click on a link on the web page and 10 actually look at all the documentation that we have to 11 support our decision to make a game closing. 12 COMMISSIONER WILLIAMSON: And just a 13 question or an observation. 14 MR. TIRLONI: Yes, ma'am. 15 COMMISSIONER WILLIAMSON: Do you know of 16 any other state that has this much transparency in how 17 it does this process? 18 MR. TIRLONI: No, ma'am, I don't. I 19 think we have a pretty -- first of all, I will say I 20 think we have a pretty extensive analysis that we go 21 through. We've done research before in the past on 22 what other states do when they're making a 23 determination to close a game, and I think we have a 24 very thorough analysis in place. 25 If a game is going to be closed because 0081 1 it's a slow mover, or for a business reason, that gets 2 very thorough review. It gets initiated by somebody 3 in my department. I sign off on it; Michael signs off 4 on it; Kathy Pyka signs off on it. And then it goes 5 to Mr. Grief for final approval. 6 The only games that we close without 7 going through that routing process are games that are 8 closing due to zero top prizes, because that's an 9 automatic, or games that are mature, that are over 10 85 percent sold. And those are initiated within my 11 department on their own. 12 So I think we have a very thorough 13 analysis. And then I think we have had a lot of 14 information on our website about games that are 15 closing, and we're just adding to that and making it 16 even clearer and more transparent. 17 We have also, or I should say we've made 18 changes on the website already to our disclaimer 19 language. We're working to make changes to the 20 disclaimer on the back of our tickets. And this is 21 one of the bullets that is on the back of all of our 22 scratch-off games that we produce, and it basically 23 says, "Game-closing procedures may be initiated for 24 documented business reasons. These games may have 25 prizes unclaimed, including top prizes. Game closing 0082 1 procedures will be initiated when all top prizes have 2 been claimed. During closing, games may be sold even 3 after all top prizes have been claimed." 4 We've already made that change on the 5 website. We obviously have the ability to do that 6 very quickly. I will note that because with our 7 scratch-off games, we work out pretty far in advance, 8 we are working with our instant ticket manufacturers 9 to change the back of ticket language on all of those 10 games that have not yet printed. But I do have to 11 note that it will take us a few months to be able to 12 cycle through all of our existing inventory in the 13 field and all existing inventory that's already in our 14 warehouse before this disclaimer actually hits the 15 streets on the back of actual tickets. 16 I will make a note that we also provide 17 players with additional information on the back of 18 ticket. We provide our 1-800 number. We provide the 19 website address, where players can go and get more 20 information about prizes unclaimed in a scratch-off 21 game. Our website updates nightly. 22 So today if you go and you pull up one 23 of our games, you can see the number of prizes 24 available by prize tier, and you can see the number of 25 prizes claimed by prize tier. So that's updating 0083 1 every single night, so that's the most current 2 information that we have out there. Players could 3 also call the 1-800 number and talk to customer 4 service staff to get updated information as well, 5 about prizes unclaimed. 6 COMMISSIONER SCHENCK: If it were up to 7 me, I would switch the order of those sentences, the 8 third and the second, although it's not up to me. If 9 I were a skeptic, I read the first sentence and I see 10 that the game-closing procedures are initiated for 11 documented business reasons. Then the next thing I 12 read is, these games may have unclaimed prizes, 13 including top prizes. And if I'm skeptical, I'm 14 thinking that the business reasons are to pull down 15 games, only hoping that the losing tickets have been 16 sold, which I'm sure is not our objective here. 17 The third sentence I think makes the 18 point more clearly: "Game-closing procedures will be 19 initiated when all top prizes have been claimed." I 20 would like that as a first reason listed after 21 documented business reasons. But I think it's fine as 22 it is, but just the sequencing there makes it appear 23 that our first interest or first business reason is 24 perhaps not really our first business reason. 25 MR. TIRLONI: We can look at the 0084 1 sequence. And I know we worked with some of Kim's 2 staff on that. We can certainly revisit that and talk 3 about that. 4 And one last point, Commissioners, that 5 I want to make about this whole process. In the event 6 that we would need to close a game due to, let's say, 7 for example, a printing defect where we would release 8 a game and we would later find out there was some type 9 of defect with it, if we needed to close a game to 10 protect the security and integrity of all of our 11 games, we would forego this process, we would skip the 12 pre-call process that I identified today, and we would 13 immediately go to a call process in order to be able 14 to get that type of game off the street as quickly as 15 possible to protect, you know, public interest. 16 So we have stated all that in our 17 procedures that we've just recently changed, to make 18 sure we are very clear about that, that in the event 19 that did happen, we would not follow this process in 20 terms of a pre-call. So I just wanted to let you know 21 about that. 22 And that's the presentation on this 23 process for you, but I'm happy to answer any other 24 questions that you might have. 25 COMMISSIONER SCHENCK: Well, further to 0085 1 Commissioner Williamson's point a minute ago and to my 2 suggested restructuring of that paragraph, the whole 3 purpose of this is to take care of the players. I 4 mean, we're wanting to make sure that the players, 5 when they're playing, know what they're playing, know 6 that there is a reasonable and fair opportunity to win 7 and to be transparent and open, which is why I -- and 8 I fully endorse your second point about if there is a 9 printing mistake on the tickets, we need to protect 10 the playing community and get those tickets pulled as 11 quickly as possible and bypass that procedure. I 12 fully support that. 13 MR. TIRLONI: Yes, sir, absolutely. 14 COMMISSIONER WILLIAMSON: I just want to 15 commend Gary and Nelda and you and your staff for 16 attending to this so promptly to Senator Hegar's 17 concern and request, and I just appreciate that very 18 much. 19 MR. TIRLONI: Thank you. 20 CHAIRMAN COX: As do I. Thank you very 21 much. 22 Gary, is there any possible conflict 23 between the normal closing procedures and the 24 pre-closing procedures? Do we have the gaps all 25 filled in or -- 0086 1 MR. GRIEF: I believe we do, 2 Mr. Chairman. 3 CHAIRMAN COX: It looks like to me that 4 we do. 5 MR. GRIEF: We have analyzed this to the 6 nth degree, we believe, and talked about it at length 7 and brought in everyone that we believe could add some 8 value to the process. I think we've addressed 9 everything. I hope. 10 CHAIRMAN COX: Thank you very much. 11 MR. GRIEF: Thank you. 12 COMMISSIONER SCHENCK: Thank you. 13 AGENDA ITEM NO. IX 14 CHAIRMAN COX: Okay. Ms. Pyka again, 15 transfers to the state. 16 MS. PYKA: Commissioners, again for the 17 record, Kathy Pyka, Controller for the Commission. 18 This tab includes information on the 19 agency's transfers to the state. The first report in 20 your notebook reflects transfers and allocations to 21 the Foundation School Fund and the allocation of 22 unclaimed prizes for the period ending February 28th 23 of 2009. Total cash transfers to the state amounted 24 to $498.8 million for the first six months of the 25 fiscal year. 0087 1 The second page in your notebook 2 reflects the detailed information for the monthly 3 transfers. Of the $498.8 million transfer to the 4 state, $467.4 million was the amount transferred to 5 the Foundation School Fund, with the balance of 6 $31.4 million transferred from unclaimed lottery 7 prizes. This represents two-tenths of a percent 8 increase, or one million dollars over the total 9 cumulative amount transferred to the Foundation School 10 Fund in February of 2008. 11 The next document in your notebook 12 includes a report of lottery sales, expenditures and 13 transfers from Fiscal Year 1992 to date. Total 14 cumulative transfers to the Foundation School Fund now 15 amount to $11.1 billion. 16 This concludes my presentation, 17 Commissioners. I would be happy to answer any 18 questions. 19 COMMISSIONER SCHENCK: Kathy, I 20 noticed-- and thank you for your presentation. I 21 noticed from an earlier presentation and your 22 presentation now that we're $498 million six months in 23 which is, by my calculations, half of a fiscal year. 24 Last year came in, if we were reporting it fairly and 25 accurately, over a billion dollars in transfers to the 0088 1 state, if not the Foundation School Fund; and, yet, 2 we're ahead of where we were last year. But by my 3 math, 498 is less than half of a billion. So it must 4 be that our sales, at least last year, in the second 5 half of the fiscal year are a little stronger than in 6 the first half. Do we have reason to expect that to 7 be true this year? 8 MS. PYKA: Well, when we look at it, it 9 was a little bit over a billion for transfers to the 10 state and then $983 million for transfers to the 11 Foundation School Fund. So as we look at that, I do 12 agree, and certainly we did have a higher six-month 13 period as we closed out Fiscal Year 2008. 14 A big factor, as we look at this year's 15 transfers, is the sales mix and the fact that prize 16 payout is slightly down compared to where we were last 17 year as this point in time. And then the other factor 18 that we have to add in is unspent administrative funds 19 that we'll add the last month of the fiscal year. 20 COMMISSIONER SCHENCK: Now, refresh my 21 recollection. Did we have an accounting change on 22 that issue last year? 23 MS. PYKA: We did elect to make a 24 transfer of unspent administrative funds in the last 25 month of the fiscal year and then accrued the balance 0089 1 following the end of the fiscal year. So we would 2 look at making another unspent administrative 3 calculation in August of this year, which would 4 represent any of the unspent funds that we know of for 5 the large lottery operator contract where we know 6 we're not going to spend that full appropriation. 7 COMMISSIONER SCHENCK: So our 8 determination in the accounting decision we made at 9 the end of last year, beginning of this year, is one 10 that is not necessarily permanent? 11 MS. PYKA: I mean, I think we'll 12 continue that practice this year for consistency, 13 would be my preference. We haven't gotten there yet, 14 and I certainly haven't discussed that further. But I 15 would recommend that we do that at this point in time, 16 because we know we have unspent administrative funds 17 on that line item again. 18 COMMISSIONER SCHENCK: But it looks like 19 we're going to be close to a billion again? 20 MS. PYKA: Yes. 21 COMMISSIONER SCHENCK: Okay. 22 CHAIRMAN COX: Thank you, Kathy. 23 MS. PYKA: Yes. 24 AGENDA ITEM NO. X 25 CHAIRMAN COX: And then report, possible 0090 1 discussion and/or action on Lottery Operations and 2 Services Contract Amendment No. 8 credit calculation. 3 Ms. Pyka. 4 MS. PYKA: Again for the record, Kathy 5 Pyka, Controller for the Commission. 6 Commissioners, this morning I wanted to 7 provide you an update on Amendment No. 8 of the 8 Lottery Operations and Services Contract and the 9 amount due to the Commission for the second quarter of 10 Fiscal Year 2009. 11 We will not be receiving a credit for 12 the second quarter under Sections 10.3.3 or 10.3.4 of 13 the contract, as again there was a decline in prize 14 payout percentage from Fiscal Year 2008 to Fiscal Year 15 2009. A copy of the credit calculation computation is 16 included in your notebook for reference purposes. 17 And I would be happy to answer any 18 questions. 19 COMMISSIONER SCHENCK: None from me. 20 Thanks, Kathy. 21 COMMISSIONER WILLIAMSON: None. 22 CHAIRMAN COX: Thank you, Kathy. 23 AGENDA ITEM NO. XI 24 CHAIRMAN COX: Agenda Item No. XI, 25 report, possible discussion and/or action on the 81st 0091 1 Legislature. 2 Ms. Trevino. 3 MS. TREVINO: Good morning, 4 Commissioners. For the record, I'm Nelda Trevino, and 5 I'm the Director of Governmental Affairs. And I have 6 some updates to provide you today. 7 In your notebook we provided you a 8 complete tracking report of all the bills the agency 9 is tracking this legislative session. We are 10 currently tracking 178 bills out of the over 7,500 11 bills that have been filed. In addition to those 12 bills with specific impact to the agency, many of the 13 bills on the tracking report relate to state agencies 14 across the board. For example, there are bills 15 related to purchasing and contracting, open records, 16 open meetings and human-resource related legislation. 17 Today we have provided you four separate 18 tracking reports that we thought would be helpful in 19 highlighting some of the 178 bills the agency is 20 tracking, and I'll be referring to these four reports 21 during my report. 22 The first tracking report is a list of 23 bills specifically related to the administration of 24 the State Lottery. The second report is a list of 25 bills specifically related to the operation and 0092 1 regulation of charitable bingo. The third report is a 2 list of bills filed authorizing new responsibilities 3 to the Lottery Commission, and the last report is a 4 listing of bills filed generally related to gaming or 5 gambling. At this time I would like to mention those 6 bills on three of the reports we have provided you 7 today where there has been some resent action. 8 Beginning with the tracking report of 9 bills related to the administration of the State 10 Lottery, there are four bills that I would like to 11 note. These include House Bill 357 by Rep. Chente 12 Quintanilla. This is the bill that would authorize 13 the sale of lottery tickets at locations for which a 14 person holds a permit issued under the Alcoholic 15 Beverage Code for on-premise consumption of alcoholic 16 beverages. The bill was considered by the House 17 Licensing and Administrative Procedures Committee and 18 was voted favorably out of the committee. Mike Anger 19 served as the agency resource to the committee. 20 However, no questions were asked of Mike. 21 The second bill is House Bill 1299 by 22 Rep. Chris Turner. This bill was the companion bill 23 to Senate Bill 421 by Sen. Van de Putte that requires 24 the Lottery Commission to create and market a scratch- 25 off game to benefit the Veterans Assistance Fund. The 0093 1 bill has been considered by the House Licensing 2 Committee. And as of this date, there has been no 3 further action taken by the committee. Gary Grief 4 served as the agency resource to the committee and 5 responded to several questions during the hearing. 6 House Bill 1963 by Rep. Edmund Kuempel, 7 this bill repeals the provision in the State Lottery 8 Act that correlates the Lottery Commission's 9 advertising budget with the percentage paid out in 10 prizes. The bill was considered by the House 11 Licensing Committee, was voted favorably by the 12 committee and has been recommended for the local and 13 consent calendar. Commissioner Williamson provided 14 testimony at the committee hearing, and Gary Grief 15 served as the agency resource and provided responses 16 to several questions that were asked. 17 The third bill is House Bill 2509 by 18 Rep. Charlie Geren. This is a bill the Rep. Geren 19 filed on the agency's behalf, and the purpose of this 20 bill is to primarily clarify the definitions of 21 "adult" and "minor" in the State Lottery Act and to 22 address the inconsistency that currently exists 23 between the definitions in the property code and in 24 the State Lottery Act. The bill was considered by the 25 House Licensing Committee and was voted favorably and 0094 1 recommended for the local and consent calendar. Gary 2 also served as the agency resource for this particular 3 bill; however, no questions were asked of him. 4 Referring now to the tracking report of 5 bills related to charitable bingo, I would like to 6 bring to your attention House Bill 1474 by 7 Rep. Charlie Geren. You may recall the agency, and 8 specifically Phil Sanderson, served as a resource to a 9 workgroup formed by the House Licensing Committee 10 during the legislative interim to address the 11 committee's interim charge related to bingo. This 12 bill is a result of that effort. 13 The bill generally includes provisions 14 related to the regulation and operation of bingo, 15 including provisions to streamline licensing and other 16 administrative processes. It also provides for 17 reforms on the accounting and reporting requirements 18 for licensees, increases the allowable number of 19 temporary licenses for organizations wanting to 20 conduct bingo, from 12 to 24, amends the charitable 21 distribution formula and deletes obsolete and 22 unnecessary language. This bill was also considered 23 by the House Licensing Committee earlier this week and 24 has been left pending in the committee. Phil 25 Sanderson served as the agency resource to the 0095 1 committee; however, no questions were asked of Phil. 2 With regard to the tracking report of 3 bills authorizing new responsibilities to the 4 Commission, I want to bring to your attention House 5 Bill 222 by Rep. Jose Menendez. And this bill is the 6 bill that relates to authorizing poker gaming and 7 creates a Poker Gaming Division of the Lottery 8 Commission for the regulation of these activities. 9 The bill was also considered by the 10 House Licensing Committee earlier this week and has 11 been left pending in the committee. In response to an 12 earlier request from Rep. Menendez, Phil provided him 13 some information related to the conduct of Texas Hold 14 'Em by charitable organizations in other state 15 jurisdictions. And Phil also served as the agency 16 resource at the committee hearing; however, no 17 questions were asked of Phil. 18 Lastly, some very brief comments related 19 to a few other items. It is anticipated that the 20 Senate Nominations Committee will be scheduling the 21 appearance of the Governor's appointees to the Lottery 22 Commission in the very near future. Once this occurs, 23 the committee will make its recommendations to the 24 full Senate for its consideration on confirming the 25 appointments to the Commission. 0096 1 And finally, the Senate Finance 2 Committee and the House Appropriations Committee have 3 each adopted their recommendations related to the 4 agency's appropriations for the 2010-2011 biennium. 5 And Kathy Pyka will be providing a report on those 6 actions during the next agenda item. 7 And this concludes my report, and I will 8 be happy to answer any questions. 9 COMMISSIONER SCHENCK: None from me, 10 Nelda. Thank you. A very thorough report. 11 COMMISSIONER WILLIAMSON: Thank you. 12 CHAIRMAN COX: Thank you, Nelda. Good 13 report. 14 MS. TREVINO: Okay. 15 CHAIRMAN COX: I really like this 16 format. 17 MS. TREVINO: We'll continue to provide 18 these reports in that format during the session, then. 19 AGENDA ITEM NO. XII 20 CHAIRMAN COX: Agenda Item No. XII, 21 report, possible discussion and/or action on the 22 agency's Fiscal Year 2010-2011 legislative 23 appropriations request. 24 Ms. Pyka. 25 MS. PYKA: Thank you, Mr. Chairman. For 0097 1 the record again, Kathy Pyka, Controller for the 2 commission. 3 Commissioners, to date the Commission 4 has appeared before the House Appropriations Committee 5 as well as the Senate Finance Committee for budget 6 markup. It is anticipated that Senate Bill 1 will be 7 considered and voted on by the Senate on the floor on 8 Monday, March the 30th. And I provided each of you an 9 updated document to reflect current action taken by 10 both of those committees to date, or as of yesterday. 11 Walking through the document before you, 12 the document reflects each outstanding budget item 13 that has been considered by each of the committees. 14 There is a column for the Senate Finance action as 15 well as a column for House Appropriation action, 16 followed by Conference Committee action. 17 Under the "Conference Committee" column, 18 those items that are shaded in green are items that 19 have been agreed upon by both the House and the Senate 20 and will not require a Conference Committee action 21 that are in the base budget. The items shaded yellow 22 have been voted on by one of the two committees and 23 will then be a Conference Committee item. 24 Items that have been approved to date 25 include the acquisition of Information Resources 0098 1 equipment, which includes our studio surveillance 2 equipment as well as an upgrade to the agency's 3 bingo -- or update to the agency's telephone system. 4 The second item related to the ACBS 5 system and the automated charitable bingo system to 6 date has been adopted by Senate Finance but is adopted 7 as a rider to the appropriation bill, contingent upon 8 us exceeding the lottery dedicated account biennial 9 revenue estimate. So they've elected to fund it out 10 of lottery proceeds as long as we exceed the BRE 11 amount. The House has elected not to take action on 12 this ACBS request this session. 13 On Page 2, the fourth item relates to 14 bingo indirect. And the Senate has approved the 15 funding of bingo indirect out of lottery proceeds, but 16 that is contingent upon passage of legislation 17 modifying Chapter 466 of the Government Code. So that 18 particular item does not have legislation at this 19 point in time, and it was only in the Senate Finance 20 Committee. The House has not taken action there. 21 Item 5 on Page 2 relates to our request 22 to delete Rider 5, which is the restriction on 23 transferring funds into the advertising strategy. 24 That item has been adopted by Senate Finance, and it 25 has been placed in Article IX by House Appropriation, 0099 1 contingent upon the passage of Rep. Kuempel's bill, HB 2 1963, or either similar legislation. 3 Moving to Page 3, Item 6, we asked for 4 an amendment to Rider 11, providing for an extra half 5 percent for retailer commissions. That item was 6 adopted by the Senate Finance Committee, has not been 7 considered or adopted by -- or it's been considered 8 but not adopted by House Appropriation. 9 Item 7 on that page, which provides for 10 unexpended balance authority in Rider 13, both 11 committees adopted that so that will be in our base 12 bill. 13 Item 9 on that page relates to agency 14 Rider 701, which was a new rider in which we requested 15 a mechanism to ask for an increase to FTEs, capital 16 budget authority, or transfer authority should we 17 elect to utilize more than one vendor for Lottery 18 Operator Services or bring those services in-house. 19 That rider has been adopted by both committees. 20 And then moving to Page 4, we've covered 21 Items 1 and 2, adopted by the Senate. Item 3, the 22 House has adopted their Rider 5 deletion provision 23 again, based on contingency of HB 1963, and they've 24 placed that in Article XI. 25 Item 4, the House has also adopted a new 0100 1 rider that provides for a base advertising 2 appropriation or it outlines the intent of a base 3 advertising appropriation in the second year of the 4 biennium, to be no less than one percent of lottery 5 sales or proceeds. And that's been placed in Article 6 XI by the House. 7 And then on Page 5, there's two 8 contingency riders that have been placed by the House 9 Appropriation Committee in article XI. The first is a 10 contingency rider for House Bill 222. That is the 11 bill that Nelda mentioned earlier related to poker 12 gaming. And the House has provided for 32 FTEs and 13 $7.2 million in appropriation for the Commission, 14 should that pass, followed by a contingency rider for 15 HB 1299. The House again has provided for a 16 contingency, to give us $100,000 in increased 17 advertising appropriation should that bill pass. 18 That sums up where we stand at this 19 point. House Appropriation is still meeting on all of 20 their agencies, so we recognize they still have 21 pending work ahead of them. 22 I would be happy to answer any 23 questions. 24 COMMISSIONER WILLIAMSON: No, I have 25 none. 0101 1 CHAIRMAN COX: Thank you, Kathy. 2 MS. PYKA: Yes. 3 AGENDA ITEM NO. XIII 4 CHAIRMAN COX: Agenda Item No. XIII, 5 report, possible discussion and/or action on HUB 6 and/or minority business participation, including the 7 agency's Mentor Protégé Program and the agency's FY 8 2008 Minority Business Participation Report. 9 Mr. Bertolacini. 10 MS. BERTOLACINI: Good morning, 11 Commissioners. For the record, my name is Joyce 12 Bertolacini, and I'm the coordinator of the Texas 13 Lottery Commission's Historically Underutilized 14 Business Program. 15 A copy of the agency's finalized Fiscal 16 Year 2008 Minority Business Participation Report has 17 been included in your notebooks today. This report, 18 which is required by Section 466.107 of the State 19 Lottery Act, must be made available annually to the 20 Governor, Lt. Governor, Speaker of the House and 21 members of the Texas Legislature. The report requires 22 your formal approval prior to being printed and 23 published on our website. 24 The current Minority Business 25 Participation Report documents the level of minority 0102 1 and HUB participation in the agency's contracting 2 activity during Fiscal Year 2008. It also includes 3 information on the number of licensed minority lottery 4 retailers. 5 During Fiscal Year 2008, the agency 6 achieved an overall participation rate of 26.97 7 percent in its minority and HUB contracting activity. 8 In addition, during this report period, the agency had 9 6,826 minority retailers, which represented 41.54 10 percent of the total lottery retailer base. 11 I would be happy to answer any questions 12 you might have or entertain any suggested revisions to 13 the report at this time. 14 If there are none, the staff recommends 15 your approval of the FY 2008 Minority Business 16 Participation Report. Did you have any questions? 17 COMMISSIONER SCHENCK: I don't. I just 18 want to -- I have made this point before. I'm proud 19 of the fact that we have such a good record, Mike and 20 others. There is a lot of hard work that goes into 21 this, and I congratulate you for your efforts here. 22 They have been successful and I'm very happy with the 23 report. 24 COMMISSIONER WILLIAMSON: Could you 25 define what "minority" is for the purpose of this 0103 1 report? 2 MS. BERTOLACINI: Okay. The State 3 Lottery Act contains a definition of "minority" that 4 varies a little bit from the definition of 5 "Historically Underutilized Businesses." Basically it 6 is a member of a group -- I would say the definition 7 of Hispanic varies slightly from the one used in HUB. 8 I don't have it on the top of my head, but I believe 9 there might be a reference to it in the report. Let 10 me just look at it real quick. 11 MS. KIPLIN: If it's helpful to y'all, 12 I've got the definition in front of me, out of the 13 State Lottery Act. 14 COMMISSIONER WILLIAMSON: I was just 15 curious. 16 MS. KIPLIN: Sure. 17 A minority business means a business 18 entity that's at least 51 percent owned by minority 19 group members. So then you go to minority group 20 member. It includes African-Americans, American 21 Indians, Asian-Americans and Mexican-Americans and 22 other Americans of Hispanic origin. 23 Of particular notice, I think one 24 difference is that under HUB, women-owned businesses, 25 51 percent or more are considered to be a HUB if 0104 1 they're not -- the women-owned businesses are not 2 considered to be a minority business under the State 3 Lottery Act. 4 COMMISSIONER WILLIAMSON: That's 5 interesting. Anyway, I was curious. Thank you. 6 MS. BERTOLACINI: Yes. That definition 7 is on Page 1 of the report in the introduction. We 8 try to include information that is responsive to the 9 minority piece but also include the HUB numbers. And 10 sometimes, you know, it may be not simple to 11 differentiate, but we've tried to break it out in this 12 report so that you can see what pertains to minority 13 and what pertains to HUB. We are following the HUB 14 program, but we are still required by the State 15 Lottery Act to do the minority report. So hopefully 16 that answers your question. 17 CHAIRMAN COX: Counsel, what action are 18 we going to take here? 19 MS. KIPLIN: Your action is to approve 20 the report, then to report it, consistent with the 21 statute, which is to the Governor and then the 22 legislative leadership. 23 CHAIRMAN COX: And would that 24 automatically then authorize me to sign this 25 transmittal letter? 0105 1 MS. KIPLIN: Yes. I think you would be 2 signing in your representative capacity on behalf of 3 the Commission as the Chairman. 4 MS. BERTOLACINI: And, Kim, you 5 should -- I'm sorry. 6 CHAIRMAN COX: Go ahead. 7 MS. BERTOLACINI: Kim, you should have a 8 copy of a letter on letterhead there for the Chairman 9 to sign. 10 MS. KIPLIN: I have the original. I saw 11 it this morning. 12 MS. BERTOLACINI: Okay. 13 MS. KIPLIN: I guess it was placed here. 14 COMMISSIONER SCHENCK: Is it appropriate 15 for me to make a motion? 16 CHAIRMAN COX: Please. 17 COMMISSIONER SCHENCK: I move that we 18 adopt staff recommendation and accept the report and 19 publish it. 20 COMMISSIONER WILLIAMSON: I would 21 second. 22 CHAIRMAN COX: All in favor, say "Aye." 23 COMMISSIONER SCHENCK: Aye. 24 CHAIRMAN COX: Aye. 25 Motion carries 3-0. 0106 1 MS. KIPLIN: I will note that the letter 2 is dated March 31, 2009. And my speculation is, 3 that's to give time for printing or whatever is 4 necessary, yes. 5 MS. BERTOLACINI: That's correct. 6 CHAIRMAN COX: Thank you, Joyce. 7 MS. BERTOLACINI: I just have a few more 8 items to mention to you. I wanted to let you know 9 that the next statewide HUB Report will be released by 10 the Comptroller of Public Accounts on April 15th. 11 This report will measure the agency's HUB 12 participation for the first six months of Fiscal Year 13 2009. I will plan to present some detailed summary 14 reports to you which analyze the agency's 15 performance -- at the May Commission meeting. 16 And finally, I would like to give you a 17 brief update on the agency's Mentor Protégé Program. 18 We currently have five mentor protégé relationships in 19 place that will expire in December of this year. I 20 recently followed up with all three of the mentor 21 companies and can report that progress is being made 22 in three of the five current relationships. 23 I have also developed an improved report 24 form to be used by the mentor protégé pairs to 25 document their activities and progress. I will be 0107 1 able to provide a complete update following the 2 expiration of the relationships, in December of this 3 year. 4 If you have any other additional 5 questions, I would be happy to answer those at this 6 time. 7 COMMISSIONER SCHENCK: I do not. 8 COMMISSIONER WILLIAMSON: No. 9 MS. BERTOLACINI: Thank you. 10 CHAIRMAN COX: Thank you very much. 11 AGENDA ITEM NO. XIV 12 CHAIRMAN COX: Agenda Item No. XIV, the 13 agency's contracts. Mr. Fernandez. 14 MR. FERNANDEZ: Good morning, 15 Mr. Chairman and Commissioners. My name is Mike 16 Fernandez. I'm the Director of Administration. 17 Item No. XIV in your notebook is an 18 information item, and it lists six contracts that the 19 staff intends to exercise an option to renew each of 20 the six. Each of those contracts do have that ability 21 currently in the contract, and it's our intent to move 22 forward with executing those options. 23 Item No. 7 is regarding our biennial 24 security study. And this is to inform you that the 25 State Auditor's Office has once again given the agency 0108 1 approval to conduct that study, and it is the staff's 2 intent to issue an RFP to do so. 3 If you have any questions, I'll be happy 4 to answer them. 5 CHAIRMAN COX: Okay. So you're 6 extending the contracts with TracyLocke, with Davila 7 Buschhorn, with Scientific Games, with Pollard, and 8 with Meyertons, Hood, Kirlin? 9 MR. FERNANDEZ: That's correct, 10 Mr. Chairman. 11 CHAIRMAN COX: And then you're going to 12 publish an RFP for the Lottery -- 13 MR. FERNANDEZ: Conduct a security 14 study. 15 CHAIRMAN COX: -- security study. 16 MR. FERNANDEZ: And that will be 17 conducted in 2010. 18 CHAIRMAN COX: 2010. 19 COMMISSIONER SCHENCK: Mike, your 20 plan -- just refresh my recollection if you would. 21 You're going to give us the more detailed study on a 22 quarterly basis of the -- 23 MR. FERNANDEZ: Of the -- 24 COMMISSIONER SCHENCK: -- high risk 25 contracts? 0109 1 MR. FERNANDEZ: -- high risk contracts 2 and the prime contracts. All of the contracts that 3 are listed here today, Commissioner, are prime 4 contracts. And that's why they're coming in front of 5 you, as you recall. 6 COMMISSIONER SCHENCK: But I'm just 7 thinking back from my memory, is we used to have the 8 chart. 9 MR. FERNANDEZ: That's correct. 10 COMMISSIONER SCHENCK: Will we get that 11 chart again? 12 MR. FERNANDEZ: I will be in front of 13 you next month with the charts, with both of those 14 charts, yes, sir. 15 COMMISSIONER WILLIAMSON: I have no 16 questions. Thank you, Mike. 17 CHAIRMAN COX: Thank you, Mike. 18 MR. FERNANDEZ: Yes, sir. 19 AGENDA ITEM NO. XV 20 CHAIRMAN COX: Agenda Item No. XV, 21 report, possible discussion and/or action on external 22 and internal audits and/or reviews relating to the 23 Texas Lottery Commission and/or the Internal Audit 24 Department's activities. 25 Ms. Melvin. 0110 1 MS. MELVIN: Good morning, 2 Commissioners. For the record, Catherine Melvin, 3 Director of the Internal Audit Division. 4 This morning I don't have any items of 5 update for you, but I'm happy to answer any question 6 you may have. 7 COMMISSIONER SCHENCK: I don't have any 8 questions. Thank you. 9 COMMISSIONER WILLIAMSON: I don't have 10 any questions either. 11 CHAIRMAN COX: Nor do I. Thank you, 12 Catherine. 13 MS. MELVIN: Thank you. 14 CHAIRMAN COX: Okay. Agenda Item No. 15 XVI has been covered. 16 AGENDA ITEM NO. XVII 17 CHAIRMAN COX: Agenda Item XVII, report, 18 possible discussion and/or action on GTECH 19 Corporation. 20 Mr. Grief. 21 MR. GRIEF: Commissioners, other than 22 the items in your notebook, I have nothing further to 23 record on that item. 24 CHAIRMAN COX: Okay. 25 0111 1 AGENDA ITEM NO. XIX 2 CHAIRMAN COX: Agenda Item No. XIX, 3 report by the Executive Director. Mr. Grief. 4 MR. GRIEF: In your notebooks, 5 Commissioners, you have the regular FTE report for the 6 agency. Other than that document, I have nothing 7 further to report under that item. 8 CHAIRMAN COX: Okay. Any questions? 9 COMMISSIONER SCHENCK: No, thank you. 10 COMMISSIONER WILLIAMSON: No, I have 11 none. 12 AGENDA ITEM NO. XX 13 CHAIRMAN COX: Okay. Agenda Item No. 14 XX, consideration of and possible discussion and/or 15 action on an order -- Pete, I'm going to let you 16 pronounce that. 17 MR. WASSDORF: "Nunc pro tunc." I was 18 asked this morning whether that was a Chinese food 19 take out order or not. 20 For the record, I'm Pete Wassdorf in the 21 Legal Services Division. And the order nunc pro tunc 22 is to correct a clerical error that was made. At the 23 last Commission meeting, the Commissioners were 24 debating some language in the proposed procurement 25 rules, and I was texted messaged and asked to prepare 0112 1 some alternate pages for that, depending on what the 2 Commission settled on. 3 And as it would happen, you settled on 4 the original language, but the substitute language was 5 inserted in the document that you signed. And so the 6 order that will be before you today that Kim has is to 7 correct that, just the clerical error, and set the 8 record straight with respect to that language. 9 And I don't believe there's any action 10 that needs to be taken, other than signing that order. 11 Is that -- 12 MS. KIPLIN: Just to vote to sign the 13 order nunc pro tunc. 14 COMMISSIONER SCHENCK: So if we change 15 our minds again, we can just sign another nunc pro 16 tunc, go back to the -- 17 MR. WASSDORF: Well, no. If you change 18 your minds, you will have to do a new order. This was 19 just to correct a clerical error. 20 MS. KIPLIN: Good lesson on my part. 21 And I've said it before, until y'all are done 22 deliberating, I won't put pen on the original order, 23 because that's really what caused the problem. You 24 landed where you were originally, but I had already 25 marked up that order. 0113 1 COMMISSIONER SCHENCK: I have no 2 questions. 3 MR. WASSDORF: Thank you. 4 COMMISSIONER WILLIAMSON: I have no 5 questions. 6 COMMISSIONER SCHENCK: I move we adopt 7 staff recommendation and enter the order nunc pro 8 tunc. 9 COMMISSIONER WILLIAMSON: I second. 10 CHAIRMAN COX: All in favor, say "Aye." 11 COMMISSIONER WILLIAMSON: Aye. 12 COMMISSIONER SCHENCK: Aye. 13 CHAIRMAN COX: Aye. Motion carries 3-0. 14 AGENDA ITEM NO. XXI 15 MR. WASSDORF: Item No. XXI is the 16 adoption of rules respecting the custody and use of 17 criminal history record information. These rules are 18 required by Section 466.205(b) of the Lottery Act. 19 And the agency had never adopted any, and it was 20 brought to our attention by the internal auditor. And 21 so we proposed rules. We have received no comment, 22 and they're ripe now for adoption, and the staff 23 recommends that you adopt these rules. 24 COMMISSIONER SCHENCK: I don't have any 25 questions. I remember we talked about this months 0114 1 ago. 2 COMMISSIONER WILLIAMSON: I have no 3 questions. 4 CHAIRMAN COX: Move approval of the 5 staff recommendation. 6 COMMISSIONER SCHENCK: Second the 7 motion. 8 CHAIRMAN COX: All in favor, say "Aye." 9 COMMISSIONER SCHENCK: Aye. 10 COMMISSIONER WILLIAMSON: Aye. 11 CHAIRMAN COX: Aye. 12 Motion carries 3-0. 13 Thank you Mr. Wassdorf. 14 MR. WASSDORF: Thank you, sir. 15 AGENDA ITEM NO. XXII 16 CHAIRMAN COX: Okay. Kim, we've got the 17 cases. How do you want to do these? 18 MS. KIPLIN: Well, first, with your 19 permission, if we could pass Items F, G, H and I. 20 Those are all items that are related to one issue, and 21 there is an attorney that represents those entities 22 that was not able to be here today and he's requested 23 we pass it. And the staff doesn't have any objection. 24 CHAIRMAN COX: Okay. 25 MS. KIPLIN: And then if I could, I 0115 1 would like to go ahead and take Items A through E. 2 Commissioners, these are all lottery license 3 revocations, and they're all for the same reason. 4 It's a failure to have funds available that are owed 5 to the Lottery at the time that the Lottery swept the 6 account. 7 Hearings occurred over at the State 8 Office of Administrative Hearings. In each of those 9 cases, the Administrative Law Judge did recommend 10 revocation of the license, and the staff would request 11 that you vote to adopt the proposal for decision in an 12 order. 13 COMMISSIONER SCHENCK: Kim, were any of 14 these actively contested or are these defaults? 15 MS. KIPLIN: These are all defaults, as 16 best I can remember. 17 COMMISSIONER SCHENCK: Not much to ask, 18 then. I move we adopt staff recommendation and adopt 19 the proposal for decision -- 20 MS. KIPLIN: Let me just make sure. 21 COMMISSIONER SCHENCK: -- in each of 22 these matters. 23 MS. KIPLIN: Let me just confirm that. 24 COMMISSIONER WILLIAMSON: Okay. 25 MS. KIPLIN: They're generally defaults. 0116 1 COMMISSIONER SCHENCK: Kim, let me reask 2 the question. To the best of your recollection, these 3 were all defaults? 4 MS. KIPLIN: Yes. 5 COMMISSIONER SCHENCK: Good enough. 6 COMMISSIONER WILLIAMSON: And I second. 7 CHAIRMAN COX: All in favor, say "Aye." 8 COMMISSIONER SCHENCK: Aye. 9 COMMISSIONER WILLIAMSON: Aye. 10 CHAIRMAN COX: Aye. 11 Motion carries 3-0. 12 MS. KIPLIN: Then we passed the other 13 outstanding lottery, with the exception of J. J, 14 Commissioners, is a matter involving a retailer that 15 had an employee that was pin-pricking. The retailer 16 would not agree to the standard 10-day suspension -- I 17 believe it was 10-day suspension of the license. And 18 so we needed to go to the State Office of 19 Administrative Hearings. And the State Office of 20 Administrative Hearings did agree with the staff that 21 that suspension was warranted and recommended that. 22 This is an employee, not the owner. In 23 an owner, I think the Lottery Operations Division 24 takes a more strident view of that behavior. Staff 25 recommends that you adopt the Administrative Law 0117 1 Judge's recommendation and you suspend the license for 2 the requisite period of time. 3 COMMISSIONER SCHENCK: Kim, did I miss 4 it or did you tell us whether or not these employees 5 have been fired? 6 MS. KIPLIN: The employees are no longer 7 there. 8 COMMISSIONER SCHENCK: Okay. Is there 9 any other action being pursued against the employees? 10 MS. KIPLIN: At this point I'll need to 11 ask Mike to come up to the table. I can say, as a 12 general rule, when we're aware of it and it's 13 involving criminal behavior, that there are proper 14 referrals that are made. 15 COMMISSIONER SCHENCK: Do we recall what 16 county this occurred in? 17 MS. KIPLIN: Texarkana. 18 MR. ANGER: Actually, my recollection 19 was, this involved -- we did an internal 20 investigation, and I believe a criminal referral was 21 made, based on some of the information from the 22 investigation. But additionally, the Garland Police 23 Department -- there were two employees that activities 24 were identified associated with, one that was 25 identified and reported by the retailer and I believe 0118 1 the Garland P.D. was involved in that matter. And 2 then in a subsequent follow-up investigation that we 3 did, we identified another individual, and I believe 4 that was referred out as a criminal matter. So I'm 5 thinking in the same -- 6 COMMISSIONER SCHENCK: I think in a 7 referral we're referring to the police department or 8 the local district attorney? 9 MR. ANGER: Local district attorney. 10 COMMISSIONER SCHENCK: Okay. Would it 11 help to -- I don't like this, obviously. I don't 12 think anyone does. But it's in our interest, I think, 13 to pursue this aggressively. It doesn't sound like we 14 have any information leading us to believe that the 15 licensee was complicit in this in any way. But the 16 employees, I think we need to do everything we can to 17 encourage an enforcement action outside of our 18 jurisdiction. 19 I have spoken to Mr. Watkins in the 20 past. I may do that again. This is now the second or 21 third case we've had arising in Dallas County, if my 22 recollection is correct, and I would like to see us 23 aggressively pursue these things. You're doing 24 everything you're supposed to. It just seems to me 25 that this is a problem that goes to the integrity of 0119 1 the lottery; obviously, not here, but beyond 2 individual employees who are acting beyond course and 3 scope of what they're supposed to be doing. But I 4 think we want these people prosecuted to the full 5 extent of the law. 6 MR. ANGER: Sure. 7 COMMISSIONER SCHENCK: Thanks. 8 MS. KIPLIN: Those are the lottery 9 cases, and I will hold those if you would like and we 10 can -- 11 CHAIRMAN COX: Did we have a motion on 12 J, Kim? 13 MS. KIPLIN: Staff would recommend that 14 you vote to adopt the proposal for decision and the 15 order suspending the retailer's license for the 10 16 days. 17 COMMISSIONER SCHENCK: I move that we 18 adopt staff recommendation. 19 COMMISSIONER WILLIAMSON: I second. 20 CHAIRMAN COX: All in favor, say "Aye." 21 COMMISSIONER WILLIAMSON: Aye. 22 COMMISSIONER SCHENCK: Aye. 23 CHAIRMAN COX: Aye. 24 Motion carries 3-0. 25 MS. KIPLIN: And so those are the 0120 1 lottery cases, and I'm forwarding those on to you, 2 passing them on to you. 3 What remains are bingo cases. And if I 4 could, I would like to take Items K, L and M. And 5 these were contested case proceedings. These were 6 registry of bingo worker cases. They're either 7 removing a worker from the registry or refusing to add 8 the name of a person to the registry, and they're all 9 for the same reason, disqualifying criminal 10 conviction. 11 And the staff does recommend that you 12 vote to adopt the proposal for a decision in each of 13 these cases and the order that will either remove 14 somebody from the registry or refuse to add them. 15 COMMISSIONER SCHENCK: Kim, can you 16 remind me and the other Commissioners, what is a 17 disqualifying criminal conviction for purposes -- 18 MS. KIPLIN: Sure. 19 COMMISSIONER SCHENCK: -- of the Bingo 20 Enabling Act? 21 MS. KIPLIN: Sure. It's a felony. It's 22 a misdemeanor involving moral turpitude. It's a 23 gambling-related offense or fraud, fraudulent offense. 24 COMMISSIONER SCHENCK: Is there a time 25 limitation on the moral turpitude conviction? 0121 1 MS. KIPLIN: It's 10 years. It's the 2 same whether it's a felony, it's a gambling-related. 3 It's 10 years from date of last -- 4 COMMISSIONER SCHENCK: These people have 5 all filed applications for licenses? 6 MS. KIPLIN: They've either -- not 7 licenses. This is the registry. And so -- 8 COMMISSIONER SCHENCK: Okay. So making 9 applications to work at a licensed bingo location? 10 MS. KIPLIN: They are either application 11 to be added to the registry or they popped up, they're 12 on the registry and we are removing them. 13 COMMISSIONER SCHENCK: It occurs to me, 14 this happens with some frequency. I would think that 15 our regulated community knows better than to hire 16 felons, and the word needs to get out. 17 Obviously, Phil, it's not I think any 18 deficiency on our part, but you might -- maybe at the 19 next BAC meeting, we can bring this up. But I'm glad 20 that we're catching people when we are, but we 21 obviously don't want felons and people with gambling 22 convictions overseeing the conduct of a bingo event. 23 So I think we're doing a good job here in catching 24 these, but it surprises me how many people with these 25 felony convictions and gambling convictions seem to 0122 1 not get the message. 2 MR. SANDERSON: There's a number of 3 individuals, I want to say like about 18,000 on the 4 worker registry. So while there are numerous names 5 each meeting that we're removing or denying to, you 6 know, put on the registry, it's still a small 7 percentage. 8 And some of these are individuals that 9 are actually just trying to get on the registry and 10 they don't -- they're not being hired by anybody in 11 particular; they're trying to get an opportunity to go 12 to work at a bingo hall, and they may or may not have 13 even talked to someone at the bingo hall. 14 COMMISSIONER SCHENCK: Yes. But I 15 wonder why these people think they want to go work at 16 a bingo hall? 17 MR. SANDERSON: Well, I think -- 18 COMMISSIONER SCHENCK: I mean, if I'm a 19 felon, I pretty well remember that I was convicted of 20 a felony and think when I might be filing an 21 application of some kind, that that might come up as 22 relevant in someone's mind. 23 MR. SANDERSON: I'm not aware of what 24 the actual disqualification for each one of these 25 individuals are. 0123 1 MS. KIPLIN: I can get you the -- 2 COMMISSIONER SCHENCK: Well, I can tell 3 you it's either a felony, a misdemeanor involving 4 moral turpitude, within the last decade. 5 MR. SANDERSON: And I think that is 6 probably the latter more than the felony part. 7 MS. KIPLIN: I got one that's theft by 8 check, one that is conspiring to import a quantity of 9 marijuana greater than 50 kilograms, one that was 10 found guilty of three counts of possession of cocaine, 11 one that was guilty of possession of cocaine. 12 COMMISSIONER SCHENCK: I hear the 13 argument, and "I forgot I possessed cocaine" at one 14 point. But "I forgot that I was indicted. I stood in 15 front of a judge and did a plea colloquy in which I 16 agreed to at least probation," that one doesn't fly 17 with me. 18 You're doing everything right, Phil. I 19 just think it would be good to get the message out -- 20 MR. SANDERSON: Okay. 21 COMMISSIONER SCHENCK: -- that we need 22 to continue this vigorous screening process. 23 Obviously, it's working. I understand there is a big 24 community out there. 25 MS. KIPLIN: I will say it's working to 0124 1 the extent that information is reported to -- I mean, 2 it's on the Department of Public Safety. That's how 3 we get this information. And I think there have been 4 reports about -- it's not 100 percent certainty of the 5 criminal history that's reported, and he rely on the 6 Department of Public Safety. So I just need to put 7 that on the record. 8 COMMISSIONER SCHENCK: I suspect there 9 are people nibbling just to see if they can get 10 through, and I like to think that none of them are, 11 but maybe they're not. 12 MR. SANDERSON: We try our best. 13 COMMISSIONER SCHENCK: I know you do, 14 and you're doing a very good job. Thanks, Phil. 15 MR. SANDERSON: Thank you. 16 MS. KIPLIN: So the staff recommends 17 that you vote to adopt the proposal for decision in 18 each of these cases as well as the order and that 19 we'll either remove an individual from the registry or 20 it will refuse to add the names of an individual. 21 CHAIRMAN COX: And those are Items K, L 22 and M? 23 MS. KIPLIN: Yes, sir, they are. 24 CHAIRMAN COX: Okay. Move approval of 25 the staff recommendation. 0125 1 COMMISSIONER WILLIAMSON: Second. 2 CHAIRMAN COX: All in favor, say "Aye." 3 COMMISSIONER WILLIAMSON: Aye. 4 COMMISSIONER SCHENCK: Aye. 5 CHAIRMAN COX: Aye. 6 Motion carries 3-0. 7 MS. KIPLIN: Commissioners, there is one 8 remaining case. This is a settlement agreement and 9 proposed agreed order in the matter of VFW Post 2773. 10 That's Item N on the case list on the notice. 11 Commissioners, this is a conductor who 12 purchased 12 deals of pull-tabs from a person who is 13 not a licensed distributor in the State of Texas. It 14 was a business organization, business entity located 15 in New York. They failed to report the gross receipts 16 and prizes awarded in connection with these 12 deals, 17 withhold the five percent prize fee, pay and report 18 taxes. 19 Staff is recommending that you enter 20 into an agreement. The penalty that is part of this 21 agreement is a payment of an administrative penalty in 22 the amount of $8,664. It's to be paid out over a 23 period of 12 months. Also the remittance of the prize 24 fees and penalties in the amount of $1,735.20 be paid 25 no later than 90 days after signing this order. The 0126 1 Post is agreeing to provide the Commission with a 2 current list of its officers and operators. There are 3 two individuals that are no longer affiliated with 4 this organization. 5 COMMISSIONER SCHENCK: Kim, this was 6 just an error, this was misfeasance? 7 MS. KIPLIN: I'm going to turn that over 8 to Mr. Sanderson, as the Bingo Division Director. And 9 I think he's got more of the underlying facts of the 10 matter that he can probably -- 11 MR. SANDERSON: There was an 12 investigator at the VFW post conducting an 13 investigation of a complaint and not related to this 14 activity here. And while she was there, she observed 15 them selling pull-tabs in the cantina or the bar area. 16 And when she walked in there, she got 17 copies of the tickets, and these were tickets that 18 were not -- they didn't have the Texas Lottery seal. 19 And so we asked for copies of invoices from where they 20 purchased these tickets, found that they came from a 21 distributor in New York State. We contacted the 22 distributor and received invoices from them and found 23 that over the eight or nine-month period, they had 24 purchased three -- they had three invoices for a total 25 of 12 deals of pull-tabs. And -- 0127 1 COMMISSIONER SCHENCK: Was somebody else 2 regulating this New York distributor to make sure that 3 at least the game that they were distributing was 4 fairly printed? 5 MR. SANDERSON: The actual game itself, 6 the ticket itself from that game, it's a veteran's 7 type theme. And we do have -- the form number is 8 approved in Texas, but it was not purchased from a 9 Texas licensed distributor and it didn't have our seal 10 on it. 11 COMMISSIONER SCHENCK: Okay. There is 12 no evidence that this was a nefarious -- 13 MR. SANDERSON: No. 14 COMMISSIONER SCHENCK: -- treatment of 15 the players, this is just we weren't involved in it -- 16 what would be fair? 17 MR. SANDERSON: They were just basically 18 purchasing it from an unlicensed distributor and, of 19 course, not reporting the sales transactions to us 20 when they sold the tickets, or pay the prize fee tax. 21 COMMISSIONER SCHENCK: And I'm assuming 22 we agreed to this 12-month term for the payout of the 23 penalty, because of the inability of the licensee to 24 pay the -- 25 MR. SANDERSON: The full amount up 0128 1 front, yes, sir. 2 COMMISSIONER SCHENCK: Okay. Well, it 3 sounds like it was an innocent mistake, hopefully. 4 MR. SANDERSON: From all indication, it 5 appears to be. They found the distributor on the 6 Internet and saw these tickets and purchased them. 7 And as far as I understand, once we told them they 8 could no longer have those tickets, they have not 9 purchased any more and the quit selling the ones they 10 had. 11 COMMISSIONER SCHENCK: How did we arrive 12 at that $8,000 amount? 13 MR. SANDERSON: The penalty is arrived 14 at -- of course, the statute allows for $1,000 per 15 violation. We counted each deal as a violation. 16 However, the $8,000 is the actual net profit from the 17 transactions of what the gross receipts are and the 18 prizes they paid out. 19 COMMISSIONER SCHENCK: Okay. Thank you. 20 COMMISSIONER WILLIAMSON: No questions. 21 CHAIRMAN COX: I'm having a hard time 22 with this one. Now, was this game available from a 23 Texas distributor? 24 MR. SANDERSON: I believe so, yes, sir. 25 CHAIRMAN COX: Okay. Did VFW Post No. 0129 1 2773 know that they could only buy from a Texas 2 distributor? 3 MR. SANDERSON: I can't answer -- I'm 4 not aware one way or the other. 5 CHAIRMAN COX: But we probably could go 6 through and determine whether they went to any 7 training, which certainly would have covered that 8 fact, or whether they signed any kind of statement 9 when they got their license, that they had read and 10 would comply with the statutes and rules relating to 11 the operation of bingo? 12 MR. SANDERSON: Yes, sir. And all the 13 other products that they sold in the actual bingo hall 14 they were purchasing from licensed distributors. 15 CHAIRMAN COX: So they just happened to 16 buy one from somebody else and just happened to not 17 record the revenue and the prize fees on that 18 particular set of games? 19 MR. SANDERSON: Yes, sir. They were 20 selling these tickets in their cantina. They were not 21 actually even part of the bingo -- they weren't being 22 sold in the bingo hall while bingo was being 23 conducted. 24 CHAIRMAN COX: Is that a violation? 25 MR. SANDERSON: In a roundabout way, I 0130 1 believe it is, sir. 2 CHAIRMAN COX: Is it or not? 3 MR. SANDERSON: Well, see, they're 4 licensed, so it's -- 5 CHAIRMAN COX: But aren't they supposed 6 to conduct games in a designated place at a designated 7 time? 8 MR. SANDERSON: Yes, sir. 9 CHAIRMAN COX: And were they? Was this 10 cantina a designated place? 11 MR. SANDERSON: I don't believe it was, 12 sir. 13 CHAIRMAN COX: And were the tickets 14 being sold during a designated time? 15 MR. SANDERSON: That we don't know for 16 sure. When we were there, they were being sold during 17 the licensed times. 18 CHAIRMAN COX: Okay. Is this cantina 19 something that is open only during the hours that 20 they're operating bingo? 21 MR. SANDERSON: I would assume that it's 22 probably open more than the hours of the bingo and 23 more times during the week than what bingo could be 24 conducted. 25 CHAIRMAN COX: This just seems like way 0131 1 too many coincidences for me, and it just seems that 2 when you're selling in a place where you shouldn't be 3 selling, perhaps at a time when you shouldn't be 4 selling, a product that you shouldn't be selling and 5 you're not reporting the proceeds or the prize fees to 6 the state, I mean, that just seems like a bad deal. 7 MR. SANDERSON: I think in my mind, if 8 the aggregation, if it had been several hundred deals, 9 that I probably would have thought in that mindset 10 that they were circumventing the statute and 11 circumventing the law by selling these in the bar or 12 cantina. 13 Seeing it just as, you know, a couple of 14 the pull-tab deals that they purchased and the two 15 individuals that were in charge of the bar and 16 participating in the activity, the organization, you 17 know, kicked them out of the VFW once they found out 18 that the operation -- what their activities were and 19 that it is a violation. 20 COMMISSIONER SCHENCK: And, Phil, can 21 you remind me, you did check with the distributor up 22 in New York and you found out how many times they had 23 made these purchases? Was it twice? 24 MR. SANDERSON: They had three invoices. 25 COMMISSIONER SCHENCK: Three. 0132 1 CHAIRMAN COX: Phil, did you contact the 2 licensing authority in New York and report that this 3 distributor had been making out-of-state sales, which 4 I'm going to guess is contrary to New York law? 5 MR. SANDERSON: We did not contact the 6 New York Commission or agency that's overseeing the 7 operation. This distributor was -- they were 8 cooperative in our investigation when we contacted 9 them and provided us invoices for this organization as 10 well as potentially any other organizations in Texas 11 that they had shipped product to. And we sent them a 12 letter indicating that they could not sell in Texas 13 unless they were appropriately licensed. 14 CHAIRMAN COX: Okay. First of all, I 15 guess I would like to see you contact the State of New 16 York. And perhaps after you find out whether what 17 these people did was or was not a violation of law or 18 rule and that you contact the State of New York and 19 ask them to pursue these folks in whatever appropriate 20 manner. Maybe that will help people not make sales to 21 folks in Texas. 22 Secondly, I'm wondering about the 23 adequacy of the penalty. As I understand it, you have 24 only asked them to give up the profits that they made 25 on this unauthorized deal where they bought the stuff 0133 1 from people they weren't authorized to buy it from and 2 sold it without reporting the revenue and without 3 reporting the prize fees. All you've done is take 4 back the ill-gotten gain. There's no punitive measure 5 here that I can see. 6 MR. SANDERSON: Well, the penalty, other 7 than -- additionally would be the tax on the prizes, 8 having them pay the tax on the prizes, which would be 9 another $1,700. 10 CHAIRMAN COX: And that's something that 11 you are doing? 12 MR. SANDERSON: Yes, sir. 13 CHAIRMAN COX: So all they're doing 14 again, though, is paying what they should have paid in 15 the first place? 16 MR. SANDERSON: As far as the tax goes, 17 yes, sir. 18 CHAIRMAN COX: Okay. Now, the proceeds 19 are going to be paid to the State of Texas or to the 20 charity? 21 MR. SANDERSON: The $8,600? 22 CHAIRMAN COX: Yes. 23 MR. SANDERSON: That will be paid to the 24 State of Texas. 25 CHAIRMAN COX: So the charity is still 0134 1 out $8,600 or some net number, based on that gross 2 number? 3 COMMISSIONER SCHENCK: Well, is the 4 charity the VFW? This is not a commercial lessor, is 5 it? 6 MR. SANDERSON: Correct. The charity is 7 the VFW. 8 COMMISSIONER SCHENCK: So it's basically 9 self-running this -- they are self-administering the 10 bingo operations? 11 MR. SANDERSON: Yes, sir. 12 COMMISSIONER SCHENCK: See, my sense of 13 this is that we've got a veterans group that's not in 14 the business primarily of operating bingo and somebody 15 working behind the bar saw on a website somewhere that 16 there was a distributor of bingo products and thought 17 they could make some money selling from behind the 18 bar. 19 My principal concern is the players 20 being potentially cheated by an unscrutinized game, 21 and it's not sounding to me like that's what happened 22 here. And I have some sympathy for the idea that a 23 charity is running its own games and may not be as 24 sophisticated in monitoring its own activities as it 25 should be. That's not an excuse; they need to know 0135 1 the rules and follow them. 2 But the culpability here I think is 3 unclear, which we have only two or three purchases 4 coming from New York. And the question is whether the 5 people who were ultimately responsible for the VFW 6 were aware that this was going on out of the cantina. 7 The proof that we have is only of two occasions when 8 our investigator observed -- 9 MR. SANDERSON: Observed the 10 transactions. 11 COMMISSIONER SCHENCK: -- the 12 transactions. So I just don't know in my mind that 13 there is a whole lot of proof of nefarious intention 14 on the part of these veterans of foreign war. 15 CHAIRMAN COX: The people that did this 16 are gone? 17 MR. SANDERSON: The two individuals that 18 were responsible for ordering the tickets through the 19 cantina are no longer with the organization. 20 CHAIRMAN COX: Okay. How do we know 21 that they're not buying, as we speak today, other 22 tickets from distributors in other states? How 23 widespread is the practice of distributors, apparently 24 licensed distributors selling products out of state? 25 MR. SANDERSON: Well, there's no -- 0136 1 Texas doesn't have a prohibition for a licensed 2 distributor in Texas to sell outside of the state. 3 And we have a licensed distributor in Louisiana that 4 sells in Texas. So there are businesses that do cross 5 state lines. 6 How widespread are individuals 7 purchasing the product off the Internet? I can't 8 answer that. It's probably by coincidence more than 9 anything else that the investigator, you know, walked 10 into this cantina at this particular time when they 11 were selling these tickets. 12 One of the things during our 13 investigations and our inspections and our operations 14 in viewing the conduct of the game is, we obtain 15 copies of what they're selling during the occasion. 16 And then when we get back, we check it against our 17 database to see if it's an approved product. And then 18 when we do an audit, we check to make sure it's on an 19 invoice from an approved distributor. So part of our 20 audit process can detect it, but it's not in a 21 realtime manner such as the lottery may have in 22 realtime transactions of the lottery ticket sales. 23 CHAIRMAN COX: Well, you don't know 24 where they got it but you do know it doesn't have the 25 seal of the State of Texas on the back of it? 0137 1 MR. SANDERSON: And the way we found -- 2 we got the ticket. The ticket has a serial number on 3 it and a form number, which are specific identifiers. 4 We contacted the manufacturer, and they can tell us 5 who they sold it to, and that's how we found out it 6 came from a distributor in New York. It was a 7 manufacturer that gave us that information. 8 CHAIRMAN COX: Okay. Well, my 9 compliments to you and your staff for catching this. 10 That took some vigilance. I don't look at that as a 11 matter of routine; I look at that as fairly 12 extraordinary that you caught these folks. And we've 13 learned another trick that people might be pulling, 14 and we've got another checklist or question on our 15 audit checklist, I would assume, as a result of this, 16 if it wasn't already there. 17 MR. SANDERSON: It was already there on 18 the audit checklist if we come across it in the audits 19 and inspections. We've always cross-referenced items 20 that were sold during occasions that we observed. 21 Whenever we did an audit, we would cross-check those 22 to the invoices. 23 COMMISSIONER SCHENCK: You wouldn't have 24 found it in an audit, because they weren't reporting 25 it. 0138 1 MR. SANDERSON: That's correct. We 2 would not have found it in an audit, because it was 3 outside of the bingo operations, so to speak. 4 COMMISSIONER SCHENCK: We may also have 5 a rule issue here. It seems to me that -- I don't 6 know that we could legally, given commerce clause 7 considerations, stop a manufacturer from selling 8 outside of the state, but we sure could condition 9 their receipt of a license to distribute in this 10 state, based on their sales to unauthorized or 11 unlicensed entities anywhere, and that maybe we should 12 be considering doing that: If you want to hold a 13 distribution license in Texas, your sales on the 14 Internet to all-comers seems to me to be potentially 15 problematic, not just here but in other states. 16 CHAIRMAN COX: Okay. Phil, thank you 17 for your patience on that. I did have a number of 18 questions on it, and I think you have covered them. 19 I'm prepared to move approval of the 20 staff recommendation. 21 COMMISSIONER SCHENCK: I'll second the 22 motion. 23 CHAIRMAN COX: All in favor, say "Aye." 24 COMMISSIONER WILLIAMSON: Aye. 25 COMMISSIONER SCHENCK: Aye. 0139 1 CHAIRMAN COX: Aye. 2 Motion carries 3-0. 3 MS. KIPLIN: Commissioners, that 4 concludes the orders. 5 AGENDA ITEM NO. XXIII 6 CHAIRMAN COX: Okay. Agenda Item No. 7 XXIII, public comment. I don't have any witness 8 affirmation forms. Is there any public comment? 9 Kim, do you have for me an abbreviated 10 version of this? 11 MS. KIPLIN: Yes, sir. 12 CHAIRMAN COX: Where? I'm sure it's 13 sitting right her under my nose, and I don't see it. 14 Thank you. 15 AGENDA ITEM NO. XXIV 16 CHAIRMAN COX: Agenda Item No. XXIV. At 17 this time I move the Texas Lottery Commission go into 18 executive session: (A), to deliberate the 19 appointment, employment and duties of the Executive 20 Director, the duties and evaluation of the Deputy 21 Executive Director, Internal Audit Director, 22 Charitable Bingo Operations Director and Ombuds and to 23 deliberate the duties of the General Counsel and Human 24 Resources Director, pursuant to Section 551.074 of the 25 Texas Government Code; 0140 1 (B) to receive legal advice regarding 2 pending litigation or contemplated litigation pursuant 3 to Section 551.071(1)(A) and/or to receive legal 4 advice regarding settlement offers pursuant to 5 Section 551.071(1)(B) of the Texas Government Code 6 and/or to receive legal advice pursuant to Section 7 551.071(2) of the Texas Government Code, including but 8 not limited to those items posted on the open meetings 9 notice for purposes of receiving legal advice. 10 Is there a second? 11 COMMISSIONER WILLIAMSON: Second. 12 CHAIRMAN COX: All in favor, say "Aye." 13 COMMISSIONER SCHENCK: Aye. 14 COMMISSIONER WILLIAMSON: Aye. 15 CHAIRMAN COX: Aye. 16 The vote is 3-0. The Texas Lottery 17 Commission will go into executive session. The time 18 is 11:58 a.m. Today is March 27, 2009. 19 (Off the record for executive session: 20 11:58 a.m. to 1:28 p.m.) 21 AGENDA ITEM NO. XXV 22 CHAIRMAN COX: The Texas Lottery 23 Commission is out of executive session. The time is 24 1:28 p.m. 25 Is there any action to be taken as a 0141 1 result of executive session? 2 COMMISSIONER SCHENCK: Yes. I move we 3 adopt or approve the evaluation of Catherine Melvin. 4 COMMISSIONER WILLIAMSON: Second. 5 CHAIRMAN COX: All in favor, say "Aye." 6 COMMISSIONER SCHENCK: Aye. 7 COMMISSIONER WILLIAMSON: Aye. 8 Aye. 9 Motion carries. 10 Is there any further action? 11 COMMISSIONER SCHENCK: Yes. I move that 12 the Commission approve a salary increase of 9.4 13 percent -- 14 CHAIRMAN COX: 43. 15 COMMISSIONER SCHENCK: -- 9.43 percent 16 for Catherine Melvin. 17 CHAIRMAN COX: And effective as of what 18 date? 19 COMMISSIONER SCHENCK: As of April 1, 20 2009. 21 CHAIRMAN COX: As of April 2. Is there 22 a second? 23 COMMISSIONER WILLIAMSON: Second. 24 CHAIRMAN COX: All in favor, say "Aye." 25 COMMISSIONER WILLIAMSON: Aye. 0142 1 COMMISSIONER SCHENCK: Aye. 2 CHAIRMAN COX: Aye. 3 Motion carries 3-0. 4 MS. KIPLIN: That's 9.43 percent of 5 annual salary, yes. 6 CHAIRMAN COX: Yes, that's correct. 7 COMMISSIONER SCHENCK: Yes. 8 CHAIRMAN COX: I guess it could be 9 monthly either. 10 COMMISSIONER SCHENCK: Even daily. 11 (Laughter) 12 It's not a leap year. 13 CHAIRMAN COX: Okay. And is there any 14 further action? 15 COMMISSIONER SCHENCK: No. 16 COMMISSIONER WILLIAMSON: No. 17 CHAIRMAN COX: I would like to recommend 18 the approval of the evaluations for Phil Sanderson. 19 COMMISSIONER SCHENCK: Second the 20 motion. 21 CHAIRMAN COX: All in favor, say "Aye." 22 COMMISSIONER WILLIAMSON: Aye. 23 COMMISSIONER SCHENCK: Aye. 24 CHAIRMAN COX: Aye. 25 Motion carries 3-0. 0143 1 Is there any further action? 2 COMMISSIONER WILLIAMSON: No. 3 COMMISSIONER SCHENCK: No. 4 COMMISSIONER WILLIAMSON: No. 5 COMMISSIONER SCHENCK: I'll say it more 6 confidently. 7 CHAIRMAN COX: Okay. The meeting is 8 adjourned. 9 COMMISSIONER SCHENCK: Phil? 10 MR. SANDERSON: I was inquiring if the 11 Commission would like to discuss the schedule for the 12 next meeting? 13 COMMISSIONER SCHENCK: The meeting in 14 May, you mean? 15 MR. SANDERSON: If that is the next 16 meeting. 17 COMMISSIONER SCHENCK: I think that's 18 the Commission's pleasure. 19 MR. SANDERSON: Very good. 20 COMMISSIONER WILLIAMSON: Yes, wait and 21 have the next one in May at our regularly scheduled 22 time. 23 MR. GRIEF: That answers my question. 24 Thank you. 25 0144 1 AGENDA ITEM NO. XXVI 2 CHAIRMAN COX: Meeting is adjourned. 3 (Meeting adjourned: 1:29 p.m.) 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0145 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 5 Shorthand Reporter in and for the State of Texas, do 6 hereby certify that the above-mentioned matter 7 occurred as hereinbefore set out. 8 I FURTHER CERTIFY THAT the proceedings 9 of such were reported by me or under my supervision, 10 later reduced to typewritten form under my supervision 11 and control and that the foregoing pages are a full, 12 true and correct transcription of the original notes. 13 IN WITNESS WHEREOF, I have hereunto set 14 my hand and seal this 7th day of April 2009. 15 16 17 ________________________________ 18 Aloma J. Kennedy Certified Shorthand Reporter 19 CSR No. 494 - Expires 12/31/10 20 Firm Certification No. 276 Kennedy Reporting Service, Inc. 21 Cambridge Tower 1801 Lavaca Street, Suite 115 22 Austin, Texas 78701 512.474.2233 23 24 25