0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 REGULAR MEETING OF THE TEXAS LOTTERY COMMISSION 6 TUESDAY, AUGUST 18, 2009 7 8 COMMISSION MEETING 9 TUESDAY, AUGUST 18, 2009 10 BE IT REMEMBERED THAT on Tuesday, 11 the 18th day of August 2009, the Texas Lottery 12 Commission meeting was held from 9:01 a.m. to 13 1:48 p.m., at the Offices of the Texas Lottery 14 Commission, 611 East 6th Street, Austin, Texas 78701, 15 before CHAIRMAN MARY ANN WILLIAMSON and COMMISSIONERS 16 DAVID J. SCHENCK and J. WINSTON KRAUSE. 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 Ms. Mary Ann Williamson 4 COMMISSIONERS Mr. David J. Schenck 5 Mr. J. Winston Krause 6 OFFICE OF THE GENERAL COUNSEL: Ms. Sandra Joseph 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 - TUESDAY, AUGUST 18, 2009............ 9 4 AGENDA ITEM NO. I - Meeting Called to Order....... 9 5 AGENDA ITEM NO. II - Consideration of and possible discussion and/or action on the 6 process for conducting Texas Lottery Commission meetings............................... 9 7 AGENDA ITEM NO. III - Report by the Bingo 8 Advisory Committee Chairman, possible discussion and/or action on the Bingo 9 Advisory Committees activities, including the August 5, 2009 Bingo Advisory Committee 10 meeting........................................... 13 11 AGENDA ITEM NO. IV - Report, possible discussion and/or action on the Bingo 12 Advisory Committee, including continuation of the Bingo Advisory Committee and FY09 13 and FY10 work plan............................... 21 14 AGENDA ITEM NO. V - Consideration of and possible discussion and/or action on a 15 petition for rulemaking on 16 TAC 402.200 General Restrictions on the Conduct of Bingo, 16 to set a minimum purchase price charged for card minding devices in the San Antonio 17 Metropolitan Statistical Area (SAMSA)............ 47 18 AGENDA ITEM NO. VI - Consideration of and possible discussion and/or action, including 19 proposal of repeal of 16 TAC 402.304 relating to System Service Provider.............. 61 20 AGENDA ITEM NO. VII - Consideration of and 21 possible discussion and/or action, including proposal, of new rule 16 TAC 22 402.420 relating to Qualifications and Requirements for Conductors License............. 62 23 AGENDA ITEM NO. VIII - Consideration of and 24 possible discussion and/or action, including proposal, on amendments to 16 TAC 402.406 25 relating to Bingo Chairperson.................... 63 0004 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. IX - Consideration of and possible discussion and/or action, including 4 adoption, on new rule, 16 TAC 402.104 relating to Gambling Promoter and 5 Professional Gambler........................... 66 6 AGENDA ITEM NO. X - Consideration of and possible discussion and/or action, including 7 adoption, on amendments to 16 TAC 401.153 relating to Qualifications for License........... 66 8 AGENDA ITEM NO. XI - Report by the Charitable 9 Bingo Operations Director and possible discussion and/or action on the Charitable 10 Bingo Operations Divisions activities, including updates on status of licensees, 11 rulemaking and form revisions, audits, pull-tab review, special projects, and 12 upcoming operator training....................... 111 13 AGENDA ITEM NO. XII - Report, possible discussion and/or action on lottery sales and 14 revenue, game performance, new game opportunities, advertising, market research, 15 and trends....................................... 113 16 AGENDA ITEM NO. XIII - Report, possible discussion and/or action on transfers to 17 the State and the agencys budget status......... 121 18 AGENDA ITEM NO. XIV - Report, possible discussion and/or action on the Request 19 for Finding of Fact for HB 1474, 81st Legislature, Regular Session..................... 124 20 AGENDA ITEM NO. XV - Report, possible 21 discussion and/or action on FY10 Operating Budget................................. 126 22 AGENDA ITEM NO. XVI - Report, possible 23 discussion and/or action on the 81st Legislature................................. 129 24 25 0005 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. XVII - Report, possible discussion and/or action on external and 4 internal audits and/or reviews relating to the Texas Lottery Commission, and/or on the 5 Internal Audit Departments activities........... 132 6 AGENDA ITEM NO. XVIII - Report, possible discussion and/or action on the agencys 7 contracts........................................ 133 8 AGENDA ITEM NO. XIX - Consideration of and possible discussion and/or action on the 9 lottery operator contract, including whether the negotiation of the lottery operator's 10 contract in an open meeting would have a detrimental effect on the Commission's 11 position in negotiations of the lottery operator contract................................ 134 12 AGENDA ITEM NO. XX - Report, possible 13 discussion and/or action on the agencys drawing studio security contract, including 14 amending the contract............................ 134 15 AGENDA ITEM NO. XXI - Report, possible discussion and/or action on the Mega 16 Millions game and/or contract.................... 135 17 AGENDA ITEM NO. XXII - Report, possible discussion and/or action on GTECH 18 Corporation...................................... 135 19 AGENDA ITEM NO. XXIII - Report by the Executive Director and/or possible 20 discussion and/or action on the agencys operational status, agency procedures, 21 and FTE status................................... 136 22 23 24 25 0006 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. XXIV - Consideration of the status and possible entry of orders in: 4 A. Docket No. 362-09-3797 Staples Food Mart 5 B. Docket No. 362-09-4429 Zavala Food Mart 6 C. Docket No. 362-08-3476 7 A.M. Food Store 7 D. Case No. 2009-1036 Time Out Food Mart #2 8 E. Docket No. 362-08-3473 Lucky 1 Food Mart 9 F. Docket No. 362-09-990519.B-D -- In the Matter of the Refusal to Add 10 Certain Names to the Texas Lottery Commissions Registry of Approved 11 Bingo Workers: Fidencio Aldaco, Gerardo Barrera, Elizabeth Danner, 12 Patrick Gonzales, Darlene Green, Susan Green, Shamika King, Elma Nava, Nathan 13 Nunn, Juan Vasquez, Jason Wagstaff, Bennett Watson, and Ryan Willis 14 G. Docket No. 362-09-990519.B-R In the Matter of the Removal of Certain 15 Individuals from the Texas Lottery Commissions Registry of Approved 16 Bingo Workers: Maria Josefina Ibarra...... 136 17 AGENDA ITEM NO. XXV - Public comment............. 152 18 AGENDA ITEM NO. XXVI - Commission may meet in Executive Session: 19 A. To deliberate the appointment, employment, and duties of the 20 Executive Director pursuant to Section 551.074 of the Texas 21 Government Code. B. To deliberate the duties and 22 evaluation of the Deputy Executive Director pursuant to Section 23 551.074 of the Texas Government Code. C. To deliberate the duties and 24 evaluation of the Internal Audit Director pursuant to Section 551.074 25 of the Texas Government Code. 0007 1 TABLE OF CONTENTS (continued) 2 PAGE 3 D. To deliberate the duties and evaluation of the Charitable Bingo Operations 4 Director pursuant to Section 551.074 of the Texas Government Code. 5 E. To deliberate the duties of the General Counsel pursuant to Section 6 551.074 of the Texas Government Code. F. To deliberate the duties of the Human 7 Resources Director pursuant to Section 551.074 of the Texas Government Code. 8 G. To receive legal advice regarding pending or contemplated litigation 9 pursuant to Section 551.071(1)(A) and/or to receive legal advice regarding 10 settlement offers pursuant to Section 551.071(1)(B) of the Texas Government 11 Code and/or to receive legal advice pursuant to Section 551.071(2) of the 12 Texas Government Code, including but not limited to: 13 First State Bank of DeQueen et al. v. Texas Lottery Commission 14 James T. Jongebloed v. Texas Lottery Commission 15 Texas Lottery Commission v. Leslie Warren, Texas Attorney 16 General Child Support Division, Singer Asset Finance Company L.L.C., 17 and Great-West Life & Annuity Insurance Company 18 Gametech International et al. v. Greg Abbott 19 Employment law, personnel law, procurement and contract law, 20 evidentiary and procedural law, and general government law 21 Lottery Operations and Services contract 22 Mega Millions game and/or contract Request for Attorney General Opinion 23 No. RQ-0771-GA H. To deliberate the negotiation of the 24 lottery operator's contract pursuant to Section 467.030 of the Texas Government 25 Code..................................... 152 0008 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. XXVII - Return to open session for further deliberation and 4 possible action on any matter discussed in Executive Session............................. 152 5 AGENDA ITEM NO. XXVIII - Adjournment............ 152 6 REPORTER'S CERTIFICATE........................... 153 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 TUESDAY, AUGUST 18, 2009 3 (9:01 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN WILLIAMSON: Good morning. I 6 would like to call the meeting to order of the Texas 7 Lottery Commission. It is 9:01. And we have 8 Commissioner Schenck and Krause present, so we do have 9 a quorum -- and I guess I should turn on that. Thank 10 you. 11 AGENDA ITEM NO. II 12 CHAIRMAN WILLIAMSON: All right. The 13 first item is -- we're going to discuss the process of 14 conducting our Commission meetings, particularly the 15 guidelines for public comment. And we had brought 16 this up before. So if anybody has any questions or 17 comments. 18 MS. JOSEPH: I would just, by way of 19 introduction, remind the Commission that pursuant to a 20 discussion that you had at your July meeting, 21 Ms. Kiplin drafted these proposed guidelines for your 22 consideration. The suggestion would be that if you 23 choose to adopt these, that they be adopted as 24 guidelines and placed on the website and also made 25 available at the sign-in table before each meeting, 0010 1 along with the witness affirmation forms. There had 2 been a question of general information as to about how 3 long does a person generally take to make a public 4 comment. And Ms. Kiplin did an informal notekeeping 5 about that and found that it was about three minutes 6 each, would be the average comment time. 7 CHAIRMAN WILLIAMSON: Thank you. 8 COMMISSIONER SCHENCK: My understanding, 9 Madam Chairwoman, is that we are imposing a general 10 time limit, but that there may be circumstances where 11 the Chair determines that we've understood the content 12 of the speaker's point and we might encourage them to 13 add any additional commentary but not necessarily 14 assure that, if we've understood the issue within that 15 time period, that we wouldn't thank them for the 16 comment and encourage them to continue to move on to 17 another subject. 18 CHAIRMAN WILLIAMSON: Yes, that's 19 correct. Since these are just guidelines and they're 20 not rules or anything, that's correct. 21 COMMISSIONER SCHENCK: The one thing, 22 Sandy, I see missing from -- and maybe I'm just not 23 paying close enough attention -- but we've had this 24 issue in the past of during the open comment period 25 where the speaker will be attempting to engage us on 0011 1 an issue that's not noticed for public comment. And 2 we have a problem in terms of trying to engage in a 3 colloquy, because we're depriving the public of the 4 community to know what we're going to be taking up. 5 So do we need to say something in this, if we're going 6 to post this on the website, that there's some 7 limitation in terms of the Commission's ability to 8 address or engage the speaker on issues that are not 9 noticed? 10 MS. JOSEPH: We could certainly add 11 that, the extent of the engagement would be to decide 12 to put it on a future agenda if the Commission so 13 chose. We could add that. 14 COMMISSIONER SCHENCK: I think that 15 might be helpful, because we will have people here 16 from time to time that aren't lawyers, they aren't 17 trained, and they may not think we're being even- 18 handed with them if they see us engaging all the other 19 speakers and then suddenly we are unwilling to engage 20 them and we've not said in this public posting why it 21 is we are unable to do that. I think we might benefit 22 ourselves for just adding that. 23 MS. JOSEPH: We could certainly add 24 something on that. 25 CHAIRMAN WILLIAMSON: Sure, I think 0012 1 that's fine. 2 Commissioner? 3 COMMISSIONER KRAUSE: Sounds good to me. 4 CHAIRMAN WILLIAMSON: Okay. Why don't 5 we do that, redraft it and -- 6 MS. JOSEPH: Okay. 7 CHAIRMAN WILLIAMSON: Probably let's 8 just -- do you want to look at it again and bring it 9 before the three of you? Or just we'll send it out 10 and, if everyone says it's fine, we'll go ahead and 11 post it with the additions? 12 MS. JOSEPH: We could do that. We could 13 show it to each of you individually. 14 COMMISSIONER SCHENCK: Thank you. 15 MS. JOSEPH: Okay. 16 CHAIRMAN WILLIAMSON: All right. I 17 guess we'll just take a vote to adopt, with the -- I'm 18 assuming that the proposed change is acceptable? 19 MS. JOSEPH: Yes. 20 COMMISSIONER SCHENCK: Yes. I would 21 consider that a nunc pro tunc, so I think we're fine 22 as we are. And I would make the motion, if we want to 23 have a decision now, that we adopt the rule subject to 24 that change. 25 CHAIRMAN WILLIAMSON: Okay. Let's do. 0013 1 COMMISSIONER SCHENCK: So I so move. 2 COMMISSIONER KRAUSE: I second. 3 CHAIRMAN WILLIAMSON: All in favor? 4 COMMISSIONER SCHENCK: Aye. 5 COMMISSIONER KRAUSE: Aye. 6 CHAIRMAN WILLIAMSON: Aye. 7 AGENDA ITEM NO. III 8 CHAIRMAN WILLIAMSON: All right. Sandy, 9 I believe the next item is yours. 10 MS. JOSEPH: I believe the next item is 11 the report by the Bingo Advisory Committee Chairman, 12 Item III. 13 MR. SANDERSON: Suzanne. 14 MS. TAYLOR: Good morning. My name is 15 Suzanne Taylor. I am Chair of the Bingo Advisory 16 Committee. 17 MS. JOSEPH: Excuse me just one moment. 18 Let me go ahead and just read this to be sure 19 everybody knows what item we're on. This is item III, 20 and this is report by the Bingo Advisory Committee 21 Chairman, possible discussion and/or action on the 22 Bingo Advisory Committee's activities, including the 23 August 5, 2009 Bingo Advisory Committee meeting. 24 All right. Thank you. 25 MS. TAYLOR: Thank you. Good morning, 0014 1 Commissioners. First, Commissioner Krause, I wanted 2 to thank you for coming to our meeting. We really did 3 appreciate having you there. It means an awful lot to 4 the entire committee when the Commissioners show 5 interest in the bingo portion of the agency and show 6 up at our meetings. So truly we all really, really 7 appreciate your being there. 8 I'm going to just go ahead and briefly 9 read over this report. I've already given a copy of 10 it to the transcriptionist, so I can read really fast 11 and it won't bother her too much I don't believe. 12 The Bingo Advisory Committee to the 13 Texas Lottery Commission met on August 5, 2009, in 14 Austin at 10:00 a.m. All members were in attendance. 15 Commissioner Krause was welcomed to the meeting. 16 It was moved, seconded and unanimously 17 passed to approve the May 6, 2009 Bingo Advisory 18 Committee meeting minutes as posted online with no 19 changes. 20 Suzanne updated the BAC members on the 21 Chair's activities. 22 Phil Sanderson reviewed changes created 23 by the implementation of House Bill 1474 on 24 October 1st. He noted there are 11 new rules, three 25 repealed rules and 25 amended or revised rules. The 0015 1 Commission has until April 1st to develop these new 2 rules. 3 Bruce Miner reviewed the first quarter 4 2009 conductor information with the committee. Card 5 sales have continued to decrease while electronic and 6 instant card sales have continued to increase, with 7 the greatest increase again seen in instant bingo 8 sales. Charitable distributions increased 12.6 9 percent from the first quarter 2008 and have 10 consistently been two to three times the required 11 amount. 12 Commission Schenck had requested input 13 from BAC members as to what information should be 14 conveyed and to whom relating to the fitness for 15 service of individual members on the BAC. Items that 16 could be considered included civil allegations, 17 convictions, felonies, allegations of criminal 18 wrongdoing in connection with any crime of moral 19 turpitude, gaming-related offense or violations of the 20 Texas gaming laws. 21 It was moved, seconded and passed to 22 convey to the Commissioners the BAC members feel 23 allegations of wrongdoing are no reason to deny a 24 person membership on the BAC. Our state has an 25 existing law that prohibits certain individuals from 0016 1 holding a bingo license or being listed on the worker 2 registry. These existing provisions are sufficient. 3 Francis Cian- -- oh, I'm sorry. I can't 4 pronounce his last name. 5 COMMISSIONER SCHENCK: "Sis-a-rel-li." 6 MS. TAYLOR: Could I have -- 7 MR. SANDERSON: "Sea-ancho-rel-li." 8 MS. TAYLOR: Okay. Francis Ciancarelli 9 gave members a presentation regarding an idea for 10 bingo promotions. 11 BAC members previously approved the work 12 plan used for 2008-2009 for the 2009-2010 year at the 13 May 2009 meeting. Members reviewed the 2008-2009 work 14 plan and the accomplishments that had been made 15 through the previous year, for presentation to the 16 Commissioners at the August meeting. 17 It was moved, seconded and passed to 18 recommend Suzanne Taylor, Larry Whittington and 19 Knowles Cornwell for positions on the BAC. 20 It was moved, seconded and unanimously 21 passed to support the petition for rulemaking related 22 to minimum purchase price charge for electronic card- 23 minding devices in the San Antonio Metropolitan 24 Statistical Area. 25 A workgroup consisting of David 0017 1 Heinlein, Kim Rogers, Suzanne Taylor and Knowles 2 Cornwell was created to work on updating the quarterly 3 report, including separate line items for instant and 4 event tab sales and separate line items for the cost 5 of goods sold for each product. 6 Clay Adair gave committee members an 7 overview of a reverse raffle that can be held at bingo 8 halls by participating charities to help increase 9 attendance and bingo income. 10 Earl Silver updated committee members 11 with work done by the Market Conduct Workgroup. He 12 requested help from the bingo staff to create a draft 13 rule incorporating the items discussed at workgroup 14 meetings for presentation at the next BAC meeting for 15 a comment from the committee. 16 There was no report from the Prize Board 17 Management workgroup at this time. 18 Phil Sanderson advised committee members 19 the report on the May and June Charitable Bingo 20 Division activities was included in their notebooks. 21 And we did not have any public comment 22 at this time. 23 The next meeting is tentatively 24 scheduled for October 21st. 25 And the meeting was adjourned at 0018 1 12:47 p.m. 2 If you have any questions, I would be 3 glad to try to answer them. 4 CHAIRMAN WILLIAMSON: Commissioners, do 5 y'all have any questions on this report? 6 COMMISSIONER KRAUSE: No, ma'am. 7 COMMISSIONER SCHENCK: I intended to be 8 able to attend the second half of the BAC meeting. 9 Unfortunately, I was unable to. I do have the video 10 from the meeting. And I appreciate your study and 11 recommendation on what information should be conveyed 12 to the Commission. I think we will probably take that 13 issue up at another meeting. I asked for your input, 14 and I appreciate your giving it. 15 MS. TAYLOR: Thank you. 16 COMMISSIONER KRAUSE: Well, I've got 17 some comments about the discussion that occurred at 18 the BAC around the information that the Commission was 19 requesting from the committee about, you know, 20 eligibility to serve on the Commission. And I was a 21 little disappointed to hear the discussion veer off 22 radically in a direction that was different than, you 23 know, what the spirit was in which it was requested, 24 and I've got three points on that. 25 First of all, the BAC is an advisory 0019 1 committee. And so anybody who wants to hire an 2 adviser to give them, you know, advice, information, 3 counsel, obviously is going to want to have the best 4 and brightest that they can obtain in order to give 5 them that kind of counsel. And so in order to have 6 the best and brightest, then we want to have the 7 people who are the most appropriate to give us advice 8 from a number of different perspectives. 9 Next, we don't really want to have 10 anybody on the BAC that could, you know, cause the BAC 11 to be held in an unfavorable light, or the Commission 12 for that matter, you know. I mean, what kind of 13 publicity would it be for the Commission to be taking 14 advice from, you know, committee members that, you 15 know, had questionable things going on in their 16 business practices or in their life? 17 Then the last part of it is, what's best 18 for bingo? And I think that's really kind of where 19 our focus should be, because bingo is something that's 20 legal in the State of Texas, charitable bingo. And I 21 heard comments, you know, praising the Commission for 22 comments about wanting to promote bingo, make bingo 23 larger, more successful. 24 Well, today on the front page of the 25 Austin American-Statesman is an article about a firm 0020 1 that was indicted, or they pleaded guilty, the firm 2 did, to felony charges of gambling, involving 3 8-liners. And, you know, in the article is mentioned 4 a person who serves on the BAC. Now, that person 5 wasn't convicted of anything but did plead no contest 6 to misdemeanor charges. 7 But the bottom line is, is that we've 8 been talking about 8-liners compete with charitable 9 bingo. And so is that the kind of person that I want 10 to have advising me on charitable bingo when he's 11 operating a business that is counter-productive, 12 competing with, you know -- and, frankly, it's 13 questionable business practice and especially if you 14 take into account that they pleaded -- that the firm 15 has pleaded guilty of felonies is unsavory. 16 And so I think that what our next move 17 is, is to either adopt our own rules on that kind of 18 thing because, again, this is not about removing 19 somebody, it is about keeping us aware of what's going 20 on with our advisers. And we want the best and 21 brightest. We want to feel like we are getting the 22 most advantageous advice for what our goal is. 23 And so I believe that we either make up 24 our own rules or we ask you-all to try again and give 25 you a mulligan, you know, and take into consideration 0021 1 what the spirit really is. And that is, we do want to 2 promote bingo. We want to make it successful, but we 3 also want to be getting good advice from people who 4 aren't going to try and steer us in the wrong 5 direction, you know, have their own agendas or trying 6 to, you know, promote something that advances their 7 business interest versus the business interest of 8 other entities in charitable bingo 9 And so those are the two options I see 10 for my fellow Commissioners. 11 AGENDA ITEM NO. IV 12 CHAIRMAN WILLIAMSON: And I think on 13 that note, we've just segued into No. IV. So, Phil, 14 if you'll go ahead with that. 15 MR. SANDERSON: I'll go ahead and lay 16 out Agenda Item No. IV. Agenda Item No. IV is a four- 17 part agenda related to the Bingo Advisory Committee. 18 The first part of it is, as Commissioner Krause just 19 discussed, was the recommendation of Commissioner 20 Schenck to get advice from the Advisory Committee on 21 what activities members had performed or engaged in 22 that the Commission would like to be made aware of. 23 The second part will be a report that 24 Earl Silver will give, in Kimberly Rogers' place, 25 relating to the accomplishments of the BAC for the 0022 1 Fiscal Year 2009. After that would be a vote to 2 continue the BAC or to discontinue the BAC for another 3 year. They expire by rule on August 31st of each 4 year. Should the vote be to continue the BAC, then in 5 your notebook is a proposed work plan for the 2010 6 fiscal year. And those are the -- 7 COMMISSIONER SCHENCK: Why don't we 8 start with Item 1 on that agenda, if we can. 9 MR. SANDERSON: Item 1 is the report 10 from the Bingo Advisory Committee as it relates to the 11 character and fitness of members and what the 12 Commissioners would like to be made aware of in 13 certain instances. 14 COMMISSIONER SCHENCK: Is there an 15 additional report beyond the -- 16 MR. SANDERSON: I'm not sure if she has 17 anything other than what she just mentioned in her 18 minutes. 19 CHAIRMAN WILLIAMSON: And, Commissioner 20 Schenck, I'm wondering if maybe we should hear what 21 they've accomplished this year to understand what 22 they've done and then go into -- 23 COMMISSIONER SCHENCK: That's fine. 24 CHAIRMAN WILLIAMSON: -- the other 25 items. 0023 1 COMMISSIONER SCHENCK: That's fine. 2 CHAIRMAN WILLIAMSON: Is that amenable 3 for you? 4 Suzanne, if you would, if y'all would go 5 ahead and report -- 6 MS. TAYLOR: Okay. 7 CHAIRMAN WILLIAMSON: -- on that second 8 part about the accomplishment as it relates to your 9 work plan. 10 MS. TAYLOR: Okay. We do have a written 11 report that Earl is going to hand out to you so that 12 if he is a speed reader, you will be able to -- 13 CHAIRMAN WILLIAMSON: Excellent. 14 MR. SILVER: Good morning. My name is 15 Earl Silver. I'm a member of the Bingo Advisory 16 Committee. 17 This is a written report on the Bingo 18 Advisory Committee Progress Report for work Plan 19 2008-2009. 20 Item 1, comment on improvement and 21 status of the bingo industry. The annual report was 22 submitted, with the BAC continuing to discuss the 23 state gross receipts, charitable distributions, 24 expenses and attendance. 25 Item 2, comment on existing and proposed 0024 1 rules. We worked closely with the staff to assist 2 with many different rules such as 402.412, 402.402, 3 402.409, 402.424, 402.420, 402.405, 402.100, are just 4 a few. The BAC discussed all the proposed rules 5 during the meetings and was able to provide valuable 6 information to the staff. 7 Item 3, comment of effect of 8 administrative rule and regulations on bingo 9 operations. The BAC has worked closely with the staff 10 to provide information on how the following rules are 11 affecting the industry. BAC workgroups have met with 12 many members of the industry to provide concise 13 information back to the staff and Commissioners. 14 Item 4, study of alternative styles of 15 bingo games not currently available in Texas. The 16 development of the V-2 video confirmation event game, 17 which has no bearing on the outcome, was worked on. 18 And there is a work group that is also studying and 19 keeping everybody apprised on technological changes in 20 the industry. 21 Item No. 5, review of new legislation 22 including utilization and impact study. The BAC 23 worked with staff to advise on parts of House Bill 24 1474. This bill was passed and will be in effect on 25 October 2009. There are many items in this bill that 0025 1 will greatly assist bingo. A few of the items that 2 are included in this bill are 24 temporary licenses 3 given to the charities, electronic submission for 4 bills and two days to deposit net proceeds. 5 Item No. 6, review specific 6 recommendations for positive public awareness of 7 charitable bingo. The BAC has still made many 8 comments on the public service announcements that are 9 available. The committee is looking into new ideas 10 such as tax-free bingo and other alternatives. 11 Item No. 7, review specific 12 recommendations for improvement of bingo operations. 13 The BAC has a current work group for this item. Some 14 things, such as reverse raffles, have shown great 15 improvement for the industry. The work group is also 16 looking into assistance of a minimum price for 17 electronics in and around San Antonio, Texas. 18 Item No. 8, advise the Commission on the 19 needs of the industry for operator training. The BAC 20 has examined and discussed many times the on-line 21 training course that is offered. A work group has met 22 and worked with staff over the on-line training. 23 Numbers now show that there are more than twice the 24 number of people taking on-line training than are 25 taking the -- numbers show that more than twice the 0026 1 number of people taking on-site training are taking 2 the on-line training course. For the month of May, 3 on-site training is 66, on-line training is 177. 4 This concludes our accomplishments for 5 the 2008-2009 work plan. I would be happy to answer 6 any questions if I can. 7 CHAIRMAN WILLIAMSON: Thank you. 8 Phil, do you have anything you would 9 like to he elaborate on this? 10 MR. SANDERSON: Well, you know, a couple 11 of items I would like to point out are the assistance 12 and the review and the rulemaking process. It's one 13 thing, that the great benefit that the division has 14 received as well as I think even Legal, as far as that 15 goes, that all the rules that we work on for the most 16 part go through the BAC either through a work group or 17 through the committee, some more than one time. And 18 by the time they come to the Commission for proposal, 19 the public comment is at a minimum at that point, 20 because a lot of the work is done on the front end and 21 so there is not as much public comment on the rules as 22 they go through the process. So I think the 23 accomplishment last year of the number of rules that 24 we went through is a great accomplishment that they 25 assisted on in that manner. 0027 1 And as far as the legislation and 2 implementation of that, I think there is benefit for, 3 you know, the same process with a number of rules that 4 we have to develop over the next year, as well as some 5 revisions to the forms. At the last meeting they 6 created a work group that will help develop a new 7 quarterly report form that we're working on. So I 8 think that those are two areas that they have really 9 been of great assistance. 10 CHAIRMAN WILLIAMSON: Thank you, Phil. 11 Commissioners, do y'all have any 12 questions? 13 COMMISSIONER KRAUSE: Well, I think it's 14 really hard to regulate an industry that you don't 15 have any experience in. And the problem with, you 16 know, some of our staff may be that, you know, they're 17 good administrators and that kind of thing but they 18 have never run a bingo hall, they haven't conducted a 19 bingo game and all that kind of stuff. 20 And so the bottom line is, is I think 21 it's important to have that kind of information flow, 22 you know, because we don't want to make rules that are 23 going to be counter-productive to what our goals are. 24 But at the same time, we've got legal responsibilities 25 to the State of Texas to make sure that the games are 0028 1 run according to law and to make sure that the 2 customers are handled fairly, and those are the 3 customers of the bingo halls, as those are our 4 ultimate customers, not bingo operators. 5 And so I see a lot of reason for working 6 together, and I see a lot of value. I just want to 7 make sure that I've got good people advising me on 8 that, and that means the staff that's working for us. 9 CHAIRMAN WILLIAMSON: All right. 10 COMMISSIONER SCHENCK: If I can join. 11 Winston, I appreciated your comments very much 12 earlier. I was uncharacteristically quiet on this 13 topic. And I wanted to engage you on one question you 14 raised in the course of your comments -- which are 15 very much appreciated -- on this first question on 16 this item of what the Commission needs to be informed 17 of with respect to its committee members. 18 One question you raise is whether we 19 want to send this question back to clear a mulligan 20 and have the BAC advise us again. My view on that is 21 no. I was I thought quite clear in the questions that 22 I asked. And the answer we got I think is to a 23 different question. The question I asked is, "What 24 information should be conveyed to the Commission in 25 connection with any member of the BAC?" And I think 0029 1 you've correctly identified exactly what it is we're 2 interested in. 3 Neither the BAC nor the Commission 4 itself exists to serve or perpetuate its own tenure. 5 In my view, if we're not carrying out as effectively 6 as we might the charge that we have from the Governor 7 and from the Legislature, we should politely and 8 quietly back away, without causing any harm to the 9 agency or those affected by its rulemakings. I think 10 that same principle applies to the BAC. 11 And so the answer -- the question I 12 asked was, "What information should the Commission be 13 obtaining about the membership on the BAC to assure 14 that the people who are in those positions are able to 15 most effectively carry out the mandate?" The answer I 16 think that we got back was, "There are already rules 17 in place. You don't need to act." 18 I think it's up to the Commission to 19 decide when it is we feel the need to act. And all we 20 need to know is whether or not we want information 21 about membership on the BAC that could, in our 22 judgment, affect our decision of who should serve at 23 will. My view on that is pretty clear. I think I've 24 conveyed that, perhaps too clearly, before we asked 25 the question of the BAC. Nonetheless, I wanted their 0030 1 input. In my view, we've gotten their input at this 2 point, and I think we just need to move on to another 3 stage where we'll need a decision. 4 And I don't want to engender any sense 5 of hostility between the Commission and the BAC. I 6 think, as Phil has identified or implied, the BAC 7 carries out a very important mission. It's helpful to 8 us, I think, that they're helpful to the industry, and 9 ultimately it's helpful to advancing the interests of 10 charitable bingo, which is ultimately to serve the 11 charities. 12 So in my view, we have to work 13 cooperatively here. I think we should continue to 14 work in that direction. I think we have the 15 information, as far as I'm concerned, that we need to 16 make a decision about this issue of what information 17 we want about the people serving on the Commission. 18 COMMISSIONER KRAUSE: Well, I don't have 19 a preference one way or the other on that, so I'm 20 happy to go along with you on what your suggestion is. 21 COMMISSIONER SCHENCK: I have not seen 22 that Austin American-Statesman piece, but that sort of 23 illustrates the point that I think we've been trying 24 to talk about the last several months of we just don't 25 need distraction of this sort when -- we're not 0031 1 talking about punishing people. And I appreciate the 2 concerns that I heard about punishing people who 3 haven't been yet convicted or who are convicted for 4 some lesser offense. The issue here is not 5 punishment. 6 There are how many million people in 7 this state? 17 million? 16 million 900 -- 8 17 million . 9 CHAIRMAN WILLIAMSON: 24 million. 10 COMMISSIONER SCHENCK: 24 million. All 11 right. 24 million -- 23,999,903 are not on our BAC. 12 None of them are being punished. We don't have the 13 power to punish people. We don't send people to 14 prison; we don't send people to jail. All we need to 15 do, all we can do is try to make bingo operate 16 effectively. And that's our only objective here. And 17 I understand and hope that the BAC is working on the 18 same direction. 19 CHAIRMAN WILLIAMSON: So let's go back 20 to the first item in this. 21 MR. SANDERSON: The first item on the 22 agenda for Item IV is the discussion that you just had 23 as it relates to your question of the BAC and their 24 reply back to you on what character and fitness you 25 need to be made aware of. 0032 1 Now, we have the BAC rule, the 2 administrative rule for the Bingo Advisory Committee, 3 and it's going to have to have amendments made to it 4 as a result of House Bill 1474, and we're working on 5 those right now. The staff can work with each of you 6 individually and see if there is language that you may 7 would like to have in that rule that would be a little 8 bit more clearer to any individual that requests to be 9 placed on the Bingo Advisory Committee or is appointed 10 to the BAC, and we can put that out through the 11 rulemaking process. 12 And I guess that would be -- you know, 13 should there be a decision to continue the BAC for 14 another year -- by rule, they expire on August 31st. 15 So if you want to look at discussing -- in that 16 discussion in this context right now to make the 17 determination that they be considered for another 18 year, then we can move forward with the rulemaking and 19 changes in that area, and then we can discuss the 20 nomination process. 21 There's three vacancies that are up at 22 the end of August. There's three nominees that are 23 the same three individuals whose term expire: Suzanne 24 Taylor, Larry Whittington and Knowles Cornwell. And 25 so those were the only three nominations that we 0033 1 received. The BAC in their meeting, that was their 2 recommendations to present to the Commission as their 3 recommended replacements themselves for the BAC. 4 The Commission has the option of 5 reappointing those individuals, not repointing those 6 individuals, or seeking additional nominations. We 7 can open up another nomination period, if you so 8 desire, to where we can receive additional 9 nominations, or the positions could stay vacant. That 10 would be the options laid out for the Commissioners. 11 CHAIRMAN WILLIAMSON: Okay. So it 12 sounds like to me first we need to decide if we're 13 going to continue the BAC for another year. Is that 14 correct? 15 MS. JOSEPH: That would be appropriate. 16 CHAIRMAN WILLIAMSON: All right. Does 17 that require like a -- 18 MS. JOSEPH: A motion, yes. 19 CHAIRMAN WILLIAMSON: -- motion? 20 MS. JOSEPH: Yes. 21 COMMISSIONER KRAUSE: Well, I move that 22 the BAC be continued for one more year. 23 COMMISSIONER SCHENCK: I'll second the 24 motion. 25 CHAIRMAN WILLIAMSON: All in favor? 0034 1 COMMISSIONER SCHENCK: Aye. 2 CHAIRMAN WILLIAMSON: Aye. 3 COMMISSIONER KRAUSE: Aye. 4 CHAIRMAN WILLIAMSON: All right. 5 MR. SANDERSON: So with that, then we 6 can discuss the options for -- one option will be the 7 work plan. In your notebook is the 2010 work plan 8 that they have laid out. If there are other items 9 that you would like to have on that work plan or items 10 taken off the work plan, that can be discussed. 11 We'll start working with amending the 12 rules for HB 1474 as well as any other changes that 13 the Commissioners would like to see in that rule. We 14 can have that probable at the October meeting for your 15 review. 16 CHAIRMAN WILLIAMSON: Would any of those 17 rule changes affect this work plan in any way that you 18 can think of? 19 MR. SANDERSON: Right now, no, they 20 would not. There will be no impact to the work plan. 21 COMMISSIONER SCHENCK: Are any of the 22 recommended assignments of personnel on the BAC 23 affected by the work plan? Or maybe the other way 24 around. Is the work plan necessarily dependent on the 25 staff, or the current makeup of the BAC? Because I 0035 1 think we -- 2 MR. SANDERSON: The current membership 3 of the BAC? 4 COMMISSIONER SCHENCK: Because I've 5 heard of certain items being assigned to work 6 committees within the BAC. 7 MR. SANDERSON: There are members of the 8 BAC on various work groups. I believe there's four or 9 five different work groups that have been -- 10 subcommittees, work groups put together. And, of 11 course, in the past if a member has been not 12 reappointed or resigned, they've just been replaced 13 with another member that's currently on the BAC. 14 CHAIRMAN WILLIAMSON: Suzanne, I have a 15 question for you. On these work groups, do you have 16 people that are not on the BAC that participate in 17 those? 18 MS. TAYLOR: Yes. There are non-BAC 19 members on all of the work groups. 20 CHAIRMAN WILLIAMSON: On all of them? 21 MS. TAYLOR: Yes. 22 CHAIRMAN WILLIAMSON: Okay. 23 COMMISSIONER SCHENCK: Well, I don't 24 have any concerns about the work plan. 25 CHAIRMAN WILLIAMSON: Okay. Do you have 0036 1 any comments or concerns, Commissioner? 2 COMMISSIONER KRAUSE: Well, the only 3 comment I have is that, you know, with respect to the 4 study of alternative styles of bingo, you know, one of 5 my prime examples of our concern is, is that, you 6 know, the development of the V-2 video confirmation 7 event game. And so, I mean, that's -- we're getting 8 in that gray area between, you know, what's legal and 9 what's not legal. We only want to do what's legal, 10 you know. 11 MS. TAYLOR: Commissioner, if I could 12 interrupt you just for a second. One of the 13 alternative styles of bingo that was introduced that 14 the BAC had asked for was the event tabs, which was a 15 legal entity and there was nothing wrong with it. It 16 just required a rule change by the Commission. So 17 that's the kind of alternative styles of bingo. 18 And you've seen what event tabs have 19 done for bingo in Texas. You see it on all of the 20 reports. And that came through the BAC, I can't 21 remember how many years ago, but we initially brought 22 that up through the alternative styles of bingo. 23 We're just looking for things that are legal within 24 the industry now that perhaps we're not doing that 25 maybe some other state is doing and we can piggyback 0037 1 off of them and copy them. But we're not looking to 2 do anything outside of what's legal but only what 3 could be legal with a possible rule change. 4 COMMISSIONER KRAUSE: Sure. And so 5 anyway, what my thinking is, is that, you know, given 6 that that's -- you know, what we want to do is, we 7 want to have alternatives, we want to make, you know, 8 the number in variety of options, you know, greater 9 than -- you know, I find it a little bit perilous that 10 we've got, you know, somebody on the committee that's 11 involved with 8-liners, which is plainly not legal. 12 And so that's just a example of, you know, some of the 13 conflict that we've got with, you know, this 14 particular item and, you know, that particular kind of 15 activity. 16 And so that's that. I don't really have 17 anything, you know, against instant confirmation. 18 But, you know, it starts -- it's -- I mean, it's got 19 competing aspects with something that is illegal. And 20 so I just want to make sure that we're getting good 21 advice from people who only have the best interest of 22 bingo at heart. 23 COMMISSIONER SCHENCK: I agree with you, 24 Commissioner Krause. And I would add, in my view, the 25 way this works is, we have advocates for expanding 0038 1 charitable bingo. And to some extent that includes 2 us, to the extent it's clearly within the law. And I 3 have we have creative thought on the BAC. And that 4 percolates up to Phil who is -- and his staff are 5 subject matter experts. And then it percolates -- 6 this is in an ideal world. Then it percolates through 7 the Legal Department. And then somebody doesn't 8 whisper in our ear but speaks through these 9 microphones and gives us advice on this. 10 But I agree, we have to be very cautious 11 about the kinds of things that we are promoting with 12 respect to charitable bingo. But at the same time, we 13 have this challenge of generating interest in the 14 games, and we have no advertising budget to speak of. 15 So I think -- I welcome creative 16 thoughts from the BAC. But to be clear, in my view I 17 don't take legal counsel from the industry itself. 18 And I think that you and I are on the same page -- I'm 19 sure all of us are -- in viewing with a cautious tint 20 the recommendations and terms of any changes to the 21 manner of the games. 22 CHAIRMAN WILLIAMSON: Phil or Suzanne, 23 whichever, the video confirmation, is this the one 24 that we approved? 25 MR. SANDERSON: That's the one we 0039 1 approved. And we had the demonstration at the 2 Commission meeting, I want to day last December. 3 CHAIRMAN WILLIAMSON: Okay. That's what 4 I thought that was. 5 COMMISSIONER SCHENCK: We have one more 6 item on this. 7 MR. SANDERSON: That item there would 8 be -- if you want to -- 9 CHAIRMAN WILLIAMSON: Do we need to take 10 a vote on the work plan? 11 MR. SANDERSON: Yes, an action item. 12 CHAIRMAN WILLIAMSON: All right. 13 COMMISSIONER KRAUSE: I vote that we 14 approve the work plan for next year -- oh, I move that 15 we approve the work plan for next year. 16 CHAIRMAN WILLIAMSON: Is there a second? 17 COMMISSIONER SCHENCK: I second the 18 motion. 19 CHAIRMAN WILLIAMSON: All in favor? 20 COMMISSIONER KRAUSE: Aye. 21 COMMISSIONER SCHENCK: Aye. 22 CHAIRMAN WILLIAMSON: Aye. The work 23 plan for the next year is approved. 24 And then the next item -- 25 MR. SANDERSON: I think that's all 0040 1 that's on this one. 2 COMMISSIONER SCHENCK: No. 3 CHAIRMAN WILLIAMSON: No. We still have 4 to take care of -- 5 COMMISSIONER SCHENCK: The current 6 staff -- 7 MR. SANDERSON: Oh, the current 8 membership. 9 CHAIRMAN WILLIAMSON: The current 10 membership and the nominations, fill the three spots 11 that are up to be filled. And so if you'll review for 12 us one more time what the options are for us in terms 13 of dealing with those nominations and possible 14 approvals or not. 15 MR. SANDERSON: The nominations -- and I 16 look to Ms. Joseph to see if I'm correct. The actual 17 appointment of members to the BAC was not noticed up. 18 And I don't know if the agenda item is broad enough to 19 where you can actually make those appointments at this 20 meeting. It's scheduled for the September meeting. 21 That would be when it would be on the agenda for 22 actual appointments. 23 Now, the options coming up at that point 24 would be, you've got three vacant positions. You can 25 fill one or all three or one, two or three of those 0041 1 with any of the current nominees that have been 2 submitted. You can ask the division to open up a 3 nomination period and seek additional nominations, and 4 we can publish information on our website. We've got 5 some mailings going out that we can send out. 6 And then the third option would be for 7 the actual bingo staff to go out and seek individuals 8 that would be interested to sit on the BAC. Or if you 9 have any individuals that you're aware of that is, you 10 know, interested in charitable bingo, because there 11 are public spots on the BAC -- they don't have to be 12 tied to a license application or licensee -- then you 13 can appoint any individual that you so desire. 14 CHAIRMAN WILLIAMSON: Okay. Just a real 15 quick question. Suzanne, did you have anybody that 16 expressed an interest in your nomination process to 17 fill these three spots, besides the three that are 18 nominated? 19 MS. TAYLOR: I asked that question at 20 the meeting. I wanted to know how many nomination 21 forms had been received. And I was unpleasantly 22 surprised to find out that there were no other 23 nomination forms received. 24 And I talked to Phil about that, because 25 I know the first year I got on the BAC, there was a 0042 1 booklet full of nomination forms. And I was very 2 disappointed to see that there wasn't any interest. 3 And I don't know if the lack of interest comes because 4 before they used to pay for travel and used to pay for 5 a hotel room. I don't know why there is such a lack 6 of interest. And I just was discussing that with Phil 7 this morning, of why we don't have a booklet full of 8 nomination forms of people interested in serving on 9 the BAC. 10 But unfortunately, no, they only 11 received the three of us, are the only ones that put 12 in a nomination form. Phil had a great reasoning for 13 me this morning that he thought might be the reason 14 why there wasn't further interest in the committee. 15 So if you would like to share that. 16 MR. SANDERSON: I think, you know, there 17 could be the -- when the Commission had their joint 18 meeting in 2004 with the BAC and they set them in a 19 new direction, which is based off these work plans, it 20 became more of the agenda for the industry. And I 21 think the individuals that served on the committee 22 prior to that point, with few exceptions, were serving 23 on the committee for personal gain, trying to get 24 their own personal agenda, trying to get their insight 25 into just their particular interests and not bingo in 0043 1 whole. 2 And I think the division over the last 3 several years has begun working very well with the 4 industry, have a very good working relationship with 5 the industry. And there is not the fires that need to 6 be put out, so to speak, as there were back in the 7 early -- late nineties, early 2000. 8 CHAIRMAN WILLIAMSON: Commissioners? 9 COMMISSIONER KRAUSE: Well, my 10 preference is going to be just to let those positions 11 go vacant for the time being. And if we can stimulate 12 some interest and see if we can get some more 13 applicants in, then that's what I would like to see, 14 you know. And whether that's, you know, current 15 members of the BAC talking it up, plus staff, you 16 know, talking it up, maybe even reaching out and 17 asking, you know, folks if they would consider 18 serving, then I would like to have a larger pool of 19 folks to look at. 20 MS. JOSEPH: I would like to point out 21 for the Commissioners that the current rule on the 22 Bingo Advisory Committee provides that each member is 23 appointed to serve for a three-year term or until the 24 Commission appoints a successor. 25 COMMISSIONER SCHENCK: So we don't have 0044 1 a vacancy provision within this rule? 2 MS. JOSEPH: That's correct. 3 COMMISSIONER KRAUSE: Well, my 4 preference is, is I want some vacancies, so I'm happy 5 to remove these three people so that there's some 6 vacancies. And if some of those people are 7 appropriate to be, you know, renominated, reappointed, 8 then I'm happy to do that. But if we have some 9 vacancies that exist because nobody is in that spot, 10 then I think that the industry will see that as 11 something that people will be willing to apply for. 12 So that's my attitude about it. 13 COMMISSIONER SCHENCK: I think I agree 14 with you, Winston. 15 Phil, I think you and I talked about 16 this separately. And in my view, we need some new 17 blood on the BAC. I would be willing to take each one 18 of these proposed candidates one at a time, once we 19 have the vacancies. But I think part of the reason I 20 posed the question I did to the BAC was to look for 21 what leadership was going to come back in the form of 22 an answer. 23 Larry Whittington is in Dallas. He is 24 in industry. 25 MR. SANDERSON: He is a charity lessor. 0045 1 COMMISSIONER SCHENCK: Yes. Okay. I 2 think, by law, we have to find a certain number of -- 3 we have to replace him with another licensed -- 4 MR. SANDERSON: We amended the rule. 5 The last time the rule was amended allows for us to 6 have any number of any of the positions as long as 7 there is at least one individual that represents a 8 conductor, one represents a commercial lessor, one 9 represents the general public and one represents a 10 conductor/lessor. Then a manufacturer and distributor 11 representative is optional. An SSP was required, but 12 the House Bill did away with that licensee, so that's 13 one that's being pulled out. 14 COMMISSIONER SCHENCK: All right. I 15 think that for the time being, I'm with Commissioner 16 Krause. I think we create vacancies and encourage 17 additional applications. But I would be willing to 18 look at the applicants that are there, more receptive 19 to some than others. 20 MR. SANDERSON: You know, we could 21 schedule a telephone conference, if you would like to 22 speak with them individually over the phone. We can, 23 you know, work on scheduling those for you with these 24 three and then any other nominees that come in. And 25 if you would like, we can work on that also. 0046 1 COMMISSIONER SCHENCK: Yes, that would 2 be fine by me. 3 CHAIRMAN WILLIAMSON: Okay. So then 4 what I'm hearing from you is, we're going to do 5 individual interviews with the current nominees and 6 then decide from there where we want to proceed, and 7 look for other nominees as well. And if there are 8 interested parties, will we also interview those? And 9 I would assume yes. 10 COMMISSIONER SCHENCK: Yes. I'm looking 11 at Commissioner Krause. Is that all right? 12 COMMISSIONER KRAUSE: Well, let me just 13 make a motion. I move that the three spots that are 14 up for renewal be declared vacant immediately or as of 15 the end of the term and that we, you know, 16 re-interview the folks that are in those spots and 17 decide whether or not we want to re-appoint them, and 18 then also to encourage the staff and then the current 19 BAC members to develop more prospects for us for our 20 consideration, in competition with the current members 21 that are up for renewal. 22 COMMISSIONER SCHENCK: I'll second that 23 motion. 24 CHAIRMAN WILLIAMSON: Okay. Before we 25 go to vote, Sandy, can we do this according to what 0047 1 our current laws are -- or current -- 2 MS. JOSEPH: Yes, because the rule also 3 provides that each member serves at the pleasure of 4 the Commission. So I think you're within the rule to 5 decide that you don't want those spots to be filled at 6 this time and re-interview. 7 CHAIRMAN WILLIAMSON: And we have a 8 motion and a second. 9 COMMISSIONER SCHENCK: I second. 10 CHAIRMAN WILLIAMSON: All in favor? 11 COMMISSIONER SCHENCK: Aye. 12 CHAIRMAN WILLIAMSON: Aye. 13 COMMISSIONER KRAUSE: Aye. 14 CHAIRMAN WILLIAMSON: Phil, is that all 15 the items on this? 16 MR. SANDERSON: I believe that covers 17 everything on this agenda item. 18 CHAIRMAN WILLIAMSON: Suzanne, thank 19 y'all for your report. 20 MS. TAYLOR: Thank you. 21 CHAIRMAN WILLIAMSON: And thank you for 22 your time and your serving. We do appreciate it very 23 much. 24 AGENDA ITEM NO. V 25 CHAIRMAN WILLIAMSON: Item V, 0048 1 rulemaking. Phil, I believe that's yours. 2 MS. JOSEPH: I'll be presenting that. 3 CHAIRMAN WILLIAMSON: Okay. Sandy. All 4 right. 5 MS. JOSEPH: On July 13, 2009, the 6 Commission received a petition from Kris Keller 7 requesting amendment of bingo administrative rule 8 402.200 concerning general restrictions on the conduct 9 of bingo. He asked for an amendment that would add a 10 provision setting a minimum price of $10 for card- 11 minding devices sold in the San Antonio Metropolitan 12 Statistical Area. 13 The Administrative Procedures Act 14 provides that not later than the 60th day after the 15 date the Commission receives a petition for 16 rulemaking, the agency will either deny the petition 17 in writing or act to initiate rulemaking proceeding. 18 That 60-day period will expire on September 11. And 19 the staff went ahead and put it on this agenda, 20 although there may be a meeting on September 10th or 21 before, in order to give you time to consider it. 22 This petition is similar to one that was 23 filed by Mr. Keller in 2007. The difference is that 24 in the 2007 petition, he requested statewide rates set 25 at $12 as a minimum price. And so this one is $2.00 0049 1 lower and is limited to the San Antonio area. 2 At the time of his previous petition, 3 the Commission at that time voted to deny his request 4 for a petition. This type of request has been 5 considered once previously, in the late nineties, I 6 believe. And at that time the Commission also decided 7 that it did not wish to pursue ratemaking for bingo. 8 CHAIRMAN WILLIAMSON: Also, would you 9 tell us, remind us -- or particularly me -- what the 10 statutes say on what we can and can't do in that as 11 Commissioners, as setting that. 12 MS. JOSEPH: Let's see. I'm sorry. I 13 don't have it open before me right now. But the 14 statute does say that the Commission may set rates on 15 charges for bingo games and equipment. 16 COMMISSIONER SCHENCK: Phil, I think you 17 have some more background on that. 18 CHAIRMAN WILLIAMSON: Right. 19 MR. SANDERSON: While the Commission 20 does have the statutory authority to set prices and it 21 also has, by rule, that organizations are not allowed 22 to sell a bingo product for a price that's not listed 23 on a schedule that the Commission creates, 24 historically, as Sandy mentioned, in the late nineties 25 in the Corpus Christi area, they came to the 0050 1 Commission. I think they even had a special public 2 hearing in Corpus Christi to discuss setting prices or 3 setting a minimum price for Corpus Christi. And the 4 Commission at that time chose not to pursue, as well 5 as with the previous, you know, petition that 6 Mr. Keller filed, they chose not to pursue that also. 7 The previous Commission members have 8 generally taken the stance to let the market drive the 9 price. They looked at it from the standpoint that 10 they offer the organizations the greatest flexibility 11 to market their product, and so that's one of the 12 reasons I believe they've chosen not to address, you 13 know, setting rates or setting prices. 14 Additionally, there's other items that 15 can be considered. There is a work group within the 16 Bingo Advisory Committee called the Market Conduct 17 Work Group. This item was initially part of that work 18 group's discussion. And for whatever reason, they 19 chose to pull it out separate. The Market Conduct 20 Committee did submit recommendations at the last BAC 21 meeting that the staff is working on right now to put 22 in a rule. And a lot of that is more driven towards 23 the standpoint of the overarching market activities 24 instead of just limiting one aspect of setting a price 25 for something. 0051 1 Other jurisdictions have price-setting 2 requirements. The other jurisdictions have a prize 3 payout limit to where you can only give out a certain 4 percent of what you take in. So by reverse, that 5 would also kind of set the price of what they sell 6 their paper for, their electronic for, because they 7 could only give out a percentage of what they take in. 8 So those are the different items that 9 have gone on out in the past. The staff would not 10 necessarily -- or staff would, you know, make the 11 recommendation that we not pursue this petition. The 12 BAC had a general discussion on it at their meeting, 13 which I believe you saw on the tapes, and it appeared 14 that they were in favor of this petition to go through 15 the process, but there were some comments made about 16 whether or not they didn't want it in their particular 17 area, so that's what transpired at their meeting. 18 And that's all the other additional 19 information I have. 20 CHAIRMAN WILLIAMSON: Okay. Thank you, 21 Phil. 22 Commissioners, comments? 23 COMMISSIONER SCHENCK: I was on the 24 Commission when we considered this last time. I 25 probably should not pollute the consideration of this 0052 1 issue by my own past views on this. So I think I'll 2 wait and speak to it after deliberations have 3 commenced. 4 COMMISSIONER KRAUSE: Now, I'm going to 5 display by lack of knowledge about this and ask for 6 somebody to explain to me what a mechanical card- 7 minding device is. 8 CHAIRMAN WILLIAMSON: I'm going to ask 9 Suzanne to come up and explain that, if you don't 10 mind, Suzanne, since she is the industry and she 11 probably knows it better than all of us. 12 COMMISSIONER KRAUSE: If I'm going to 13 participate in making a rule on it, I want to know 14 what it is. 15 MS. TAYLOR: We have two types of card- 16 minders available in the halls. And what they 17 actually do, you purchase -- and it's a computer. 18 It's just a -- they look like laptops. Some are 19 screens on the table. Others look like little 20 laptops. 21 Instead of marking with a dauber, 22 individual pieces of paper, you touch somewhere on the 23 screen, and it automatically marks your numbers for 24 you, thereby allowing customers to play a greater 25 amount of cards, because their cards are in the 0053 1 computer. 2 COMMISSIONER SCHENCK: They can hit 3 I-21, and it will light it up on all their cards that 4 have that. 5 MS. TAYLOR: Yes. 6 COMMISSIONER KRAUSE: Well, they have to 7 purchase their cards still, though? 8 MS. TAYLOR: They have to come up and 9 purchase a package, whatever package they're 10 purchasing at the hall. I believe what Kris is saying 11 is that some of the halls in San Antonio have an 12 unfair marketing competition, they will sell a card- 13 minder for a penny, trying to put other halls out of 14 business, which is why he was looking for some price 15 protection. 16 And I understand the Corpus thing 17 because I instigated that back in the early nineties, 18 trying to get some of that for Corpus Christi. And to 19 this day, we still have $2.00 books in Corpus Christi. 20 So I understand Kris' problem. I've been there and 21 suffered through that for many years. 22 But that's what it is. It's just an 23 electronic way to mark your cards. The customer still 24 has to touch the screen. It can't do it by itself. 25 The customer still has to yell "Bingo!" Most of them 0054 1 will play a little tune, "Ta-do, ta-do-do," you know, 2 play a little -- play a little song until you yell 3 "Bingo." And the customer does have to yell "Bingo" 4 in order to stop the bingo game. And then it will 5 display the winning number of the card. And when they 6 verify the card, it will come up on the monitors. The 7 TV sets will show the winning card face so that all 8 the customers can see what the winning card face 9 looked like. 10 COMMISSIONER KRAUSE: Well, when a hall 11 sells one of these machines for a penny, does the 12 customer get to take it home? 13 MS. TAYLOR: No. They are left at the 14 end of the session. They only work for the one 15 session or the two sessions, whatever the customer has 16 purchased. 17 COMMISSIONER KRAUSE: Okay. 18 COMMISSIONER SCHENCK: Do we have any 19 evidence of what the incremental -- how long is the 20 life of one of these machines? Years, I assume? 21 MS. TAYLOR: I would say, without being 22 plugged back in, the life of one of the machines is 23 probably a day, if that. 24 COMMISSIONER SCHENCK: Without being -- 25 MS. TAYLOR: It's a number of hours. 0055 1 They have to be plugged in at the end of every 2 session, because they don't have a cord going to them. 3 So at the end of every session -- 4 COMMISSIONER SCHENCK: Well, I 5 understand. So -- 6 MS. TAYLOR: -- that little hand-helds 7 which -- 8 COMMISSIONER SCHENCK: They need to be 9 recharged? 10 MS. TAYLOR: They have to be recharged 11 at the end of the day. They last for about three 12 sessions' worth, with six, seven hours. And after six 13 or seven hours, they're going to die. They have black 14 and white. They also have color. The black and 15 white, obviously, will last a little bit longer than 16 the color, but they wouldn't last for 24 hours without 17 being recharged, most of them. 18 COMMISSIONER SCHENCK: How often do you 19 throw them in the dumpster? 20 MS. TAYLOR: We don't throw them in the 21 dumpster at all. Each one of them is written down on 22 a paper. The Lottery Commission, when they come to 23 the hall to check us, we have to be able to provide 24 documentation of what number of these computers we 25 have in the hall. They're all numbered. 0056 1 COMMISSIONER SCHENCK: Do we know what 2 the unit cost is for each one of these electronic 3 minding devices? 4 MS. TAYLOR: The cost to the 5 distributor? 6 COMMISSIONER SCHENCK: To the conductor, 7 whoever owns the -- 8 MS. TAYLOR: Very few conductors own 9 their own computers. Most of the computer systems are 10 owned by the distributors. And the cost depends upon 11 what deal you've cut with a distributor. You might 12 pay -- depending upon the unit, you might be paying 75 13 cents a unit and paying a bulk cost where you pay a 14 certain charge per session. Some of them are rented 15 per session, and you might be paying three or $4.00 16 apiece per session to rent these per session that 17 they're played. 18 If you're paying the bulk cost, you just 19 automatically pay a set fee whether they've used or 20 cost. In each hall that's just a business decision 21 they need to make, is how they're going to lease 22 these. But I would bet 99 percent of them are leased. 23 Very few -- I am only aware of one organization that 24 owns their own computers. The rest of them are all 25 leased from distributors. 0057 1 COMMISSIONER SCHENCK: Well, let me ask 2 one important question. Is there any evidence, I'll 3 say, of any distributor or conductor in the San 4 Antonio area charging less than the lease, incremental 5 lease cost for these units? 6 MR. SANDERSON: I can't answer -- we 7 have not conducted any investigation into that, so I 8 don't have that information. 9 COMMISSIONER SCHENCK: Well, in 10 connection with the petition, has any evidence been 11 offered to us? 12 MR. SANDERSON: It has not. 13 COMMISSIONER SCHENCK: Okay. 14 CHAIRMAN WILLIAMSON: Thank you. 15 MS. TAYLOR: Thank you. 16 CHAIRMAN WILLIAMSON: And I guess from 17 my perspective, when you ask us to set prices -- based 18 on what besides just your anecdotal situation or 19 what's going on? I haven't seen any market studies, I 20 haven't seen any economic studies or anything like 21 that, which I would certainly like to look at before 22 we would -- I personally would even consider doing 23 that. 24 Being in an industry myself that is 25 subject to wild fluctuations in prices, I'm just not 0058 1 inclined personally to support any sort of price- 2 setting, price-fixing, whatever you want to call it. 3 I just don't believe that that's the basis of a free 4 market system. So that's my personal opinion. 5 And also the fact that this gentleman 6 has not shown up today to even speak to this, I have 7 to assume that he's not greatly concerned about the 8 end effect of what we decide today. So those are just 9 my comments and observations. 10 Do we need to even make any sort of a 11 motion or -- 12 MS. JOSEPH: Yes, you would need to vote 13 to deny or approve the petition. 14 CHAIRMAN WILLIAMSON: All right. 15 COMMISSIONER SCHENCK: I want to ask one 16 more question before we go to a vote. 17 Phil, do we have a rule in place that 18 gives any guidance to people like this gentleman 19 about -- 20 MR. SANDERSON: We have. We have a 21 card-minding rule that lays out all the manufacturing 22 requirements, distributors and conductors and all the 23 recordkeeping. When the rule was going through the 24 public comment period several years ago, we had a 25 provision in there that indicated that they could not 0059 1 sell a card face on a card-minding device for less 2 than what they would sell a card face paper for. And 3 based on a comment, that was taken out, that we 4 received from the industry. They did not want that 5 price set. 6 COMMISSIONER SCHENCK: I'm just thinking 7 that we do have this legislative authority, which to 8 me signals that we have a legislative mandate of some 9 kind this gentleman is trying to implement, and we 10 don't have a rule to guide ourselves or him as to when 11 we might consider setting a price. And I'm wondering, 12 not in connection with this petition necessarily, but 13 whether we might consider at some point what 14 circumstances we would consider appropriate for us to 15 entertain such a request. 16 It seems to me at a minimum, before we 17 would talk about setting a price, in my mind that it 18 would have to be as a remedy for some demonstrated 19 predatory pricing, some anti-competitive behavior. 20 We're not in the business of just thwarting 21 competition. If players want to go someplace where 22 they get a better deal, that's where they should go. 23 But if it's actually predatory, harmful 24 to competition, that's another situation. I don't 25 think we have that showing here. And so for that 0060 1 reason, I'm totally comfortable disposing of this 2 petition in this way. But at some point, if we have 3 this authority, we ought to be investigating exactly 4 what it is we're responsible for pursuing. And at 5 this point, I don't know that we have that clear 6 guidance. 7 MR. SANDERSON: And like I mentioned 8 earlier, that there was a workgroup called the Market 9 Conduct. And some of their recommendations for a rule 10 I think would offer up similar results, you know, as 11 this price-setting or price ratesetting would, so 12 we're working on that. And it may have some 13 information in it that would answer your questions 14 about under what conditions would the Commission step 15 in at what level. 16 CHAIRMAN WILLIAMSON: Thank you. 17 Would anybody like to make a motion? 18 COMMISSIONER KRAUSE: I make a motion 19 that we deny consideration of this change. 20 CHAIRMAN WILLIAMSON: Second? 21 COMMISSIONER SCHENCK: I second the 22 motion. 23 CHAIRMAN WILLIAMSON: All in favor? 24 COMMISSIONER SCHENCK: Aye. 25 CHAIRMAN WILLIAMSON: Aye. 0061 1 COMMISSIONER KRAUSE: Aye. 2 MS. JOSEPH: I will pass to you a memo 3 for you to initial and indicate your denial of the 4 petition. 5 AGENDA ITEM NO. VI 6 CHAIRMAN WILLIAMSON: Let's see. And I 7 believe the next item -- Sandy, it is yours as well. 8 MS. JOSEPH: Yes. The next item is also 9 a rulemaking. This is the proposed repeal of 16 TAC 10 402.304 related to System Service Provider. This 11 repeal is recommended by the staff due to the fact 12 that the Legislature repealed the statutes concerning 13 system service provider; therefore, there is no longer 14 a need for a rule pertaining to this. 15 Staff recommends that you approve 16 initiation of rulemaking proceedings to receive public 17 comment. 18 CHAIRMAN WILLIAMSON: Any questions or 19 comments about this? 20 COMMISSIONER SCHENCK: No. 21 CHAIRMAN WILLIAMSON: Motion? 22 COMMISSIONER SCHENCK: I move we adopt 23 staff's recommendation and propose a rule. 24 CHAIRMAN WILLIAMSON: Second? 25 COMMISSIONER KRAUSE: Second. 0062 1 CHAIRMAN WILLIAMSON: All in favor? 2 COMMISSIONER SCHENCK: Aye. 3 CHAIRMAN WILLIAMSON: Aye. 4 COMMISSIONER KRAUSE: Aye. 5 AGENDA ITEM NO. VII 6 CHAIRMAN WILLIAMSON: And item No. VII. 7 I believe that's yours as well. 8 MS. JOSEPH: Yes. Item VII is draft 9 proposed new rule 16 TAC 402.420 concerning 10 qualifications and requirements for conductor's 11 license. This is a new rule that is presented in 12 basically a chart form to provide potential applicants 13 and licensees clear information on what is required 14 and what sort of documentation is necessary in order 15 to receive a license to conduct bingo. 16 And this rule was drafted and proposed 17 at least partially in response to Internal Audit 18 recommendation that the requirements and guidelines be 19 set out clearly for potential licensees. 20 The staff recommends that this be 21 published for public comment for a period of 30 days 22 and proposes that there be a hearing held on this 23 matter on September 17th at 10:00 a.m. 24 CHAIRMAN WILLIAMSON: Commissioners, any 25 questions or comments? 0063 1 Motion? 2 COMMISSIONER SCHENCK: I move we adopt 3 staff's recommendation. 4 CHAIRMAN WILLIAMSON: Second? 5 COMMISSIONER KRAUSE: Second. 6 CHAIRMAN WILLIAMSON: All in favor? 7 COMMISSIONER SCHENCK: Aye. 8 CHAIRMAN WILLIAMSON: Aye. 9 COMMISSIONER KRAUSE: Aye. 10 AGENDA ITEM NO. VIII 11 CHAIRMAN WILLIAMSON: This is No. VIII. 12 I believe the next one is yours, Sandy. 13 MS. JOSEPH: Yes. The next item is also 14 a bingo rulemaking related item. It's proposed 15 amendments to 16 TAC 402.406 related to the bingo 16 chairperson. This amendment is also related to a 17 change in the Bingo Enabling Act as enacted by HB 1474 18 which will be effective October 1st. And this 19 amendment simply removes a statement, a sentence that 20 is no longer necessary, because the same statement 21 will now be included in the Act itself. So this is 22 more or less just to simplify our rule and clean it up 23 a little bit. 24 Staff recommends approval of rulemaking 25 proceedings to receive public comment. 0064 1 CHAIRMAN WILLIAMSON: Any questions or 2 comments? 3 COMMISSIONER SCHENCK: I have a general 4 question. A lot of the people that are going to be 5 reading these rules are not lawyers, they don't know 6 necessarily to look at both the statute and the 7 code -- or I'm sorry -- and our administrative code. 8 Are we comfortable, Phil, that the industry is going 9 to be able to understand fully the obligation of the 10 bingo chairperson? Or do we have a handbook separate 11 and apart from the rules that will canvass both the 12 statutory and code-based requirements? 13 MR. SANDERSON: We do. We have the 14 Operator Training Program, or the Bingo Training 15 Program we call it now. All bingo chairpersons are 16 required to take that training every two years. The 17 first time they take it, it's a longer course that 18 gives more information. And in that training program, 19 it outlines very specifically what the 20 responsibilities of that position are. 21 COMMISSIONER SCHENCK: Okay. And I 22 think this is a vague enough statement that people 23 ought to be able to understand that it basically says 24 what the bingo chairperson is, so I don't have a 25 problem. But I do have this concern, that we have a 0065 1 lot of rules regulating bingo. And unless you're a 2 lawyer -- and even if you are a lawyer -- it's hard to 3 keep track of exactly what all these rules are. So I 4 think to the extent we can simplify things, we're 5 better off I think in this case removing the statement 6 that the bingo chairperson is, in fact, the bingo 7 chairperson. It's like saying water is wet. And I 8 think that people should be able to understand that 9 without a lot more guidance from us. 10 CHAIRMAN WILLIAMSON: Thank you. 11 Is there a motion? 12 COMMISSIONER SCHENCK: Move we adopt 13 staff's recommendation. 14 CHAIRMAN WILLIAMSON: Second? 15 COMMISSIONER KRAUSE: Second. 16 CHAIRMAN WILLIAMSON: All in favor? 17 COMMISSIONER SCHENCK: Aye. 18 CHAIRMAN WILLIAMSON: Aye. 19 COMMISSIONER KRAUSE: Aye. 20 CHAIRMAN WILLIAMSON: It is 10:05. 21 We'll take a 15-minute break, and then we'll come back 22 with Item No. IX. 23 (Off the record: 10:05 a.m. to 24 10:22 a.m.) 25 CHAIRMAN WILLIAMSON: Okay. We are back 0066 1 at 10:22. And a quorum is back. 2 AGENDA ITEM NOS. IX AND X 3 CHAIRMAN WILLIAMSON: So let's go to 4 Item No. IX. And I believe, Pete, you are up on this 5 item. 6 MR. WASSDORF: Good morning, Chairman 7 and Commissioners. My name is Pete Wassdorf, of the 8 Legal Services Division. And if I may, I would like 9 to address Items IX and X together. 10 Last September, former Commissioner -- 11 or former Chairman Cox expressed some concern that 12 there was an anomalous situation that could occur 13 when, pursuant to the Lottery Act and the Bingo Act, 14 that a person convicted of felonies or fraud or 15 gambling-related offenses or crimes of moral turpitude 16 could be prohibited from licensure for a 10-year 17 period of time, while a person that was a professional 18 gambler, and even though they might be engaged in 19 legal gambling, might be prohibited for a lifetime, 20 under the statute, from participating in some sort of 21 license and queried whether or not the current 22 definition that was in the Lottery Act was the correct 23 definition or whether there was another definition 24 that might be obtained. And he asked that we do some 25 research in that area. 0067 1 And we indeed found that there were 2 other definitions that might be attached to the 3 meaning of professional gambler. And at the same 4 time, we also reviewed the promotion of gambling or a 5 gambling promoter. 6 As a result of that research, we 7 proposed some new definitions for the Commission. And 8 in their October 29th meeting, they voted to have 9 those published as proposals and have a 60-day comment 10 period and to set them for a public hearing. They 11 were published on November 14th. We had a public 12 hearing on December 4th. 13 As a result of the public hearing, the 14 public comment and then additional comments by the 15 Commissioners, the Commission in February withdrew 16 those rules, those proposed rules, and proposed new 17 rules. Those were published March 6th, and they will 18 expire by operation of law on September 6th of this 19 year, the proposals will, if no action is taken by the 20 Commission. 21 And so they are back before the 22 Commission to see whether it's your pleasure to take 23 any action or not to take any action at this time. I 24 might also remind the Commissioners that there was, on 25 December 3rd, I think, there was a request for an 0068 1 Attorney General's opinion made by Rep. Pena, and that 2 opinion has not yet come forth from the Attorney 3 General's office. 4 CHAIRMAN WILLIAMSON: Thank you, Pete. 5 I assume we Commissioners would like to 6 comment or -- 7 COMMISSIONER SCHENCK: Yes. It's been a 8 while since this has been before us. 9 MR. WASSDORF: It has. 10 COMMISSIONER SCHENCK: So knocking out 11 the cobwebs. We spent a lot of energy and time on 12 this issue. We have a statutory obligation to make a 13 rule here, if I'm remembering correctly, and we have 14 not done so for a very long time. 15 We have a challenge here in that the 16 statute's definition -- we want consistent definitions 17 of terms between our licensing of bingo and our 18 licensing of lottery, to the extent it's possible, and 19 consistent with the legislative directions, and I 20 think that it is possible. 21 We also have the question, unanswered in 22 the Lottery and the Bingo Act, where they use the 23 terms "professional gambler" or "gambling promoter," 24 whether the -- the Legislature was intending to apply 25 that standard extra-territorially to conduct that's 0069 1 taking place in jurisdictions outside of Texas. 2 And I think, after a lot of debates and 3 a lot of revisions to the rulemaking, this is the best 4 accommodation we can have, most consistent with what 5 is not a perfectly defined term in the statute. And I 6 understand that it's not making everyone happy. The 7 people who, as I recall, would favor no restrictions 8 are very unhappy with this rule. And the people who 9 would prefer to put their opponents out of business 10 are also not happy with this rule, which in my mind 11 means it's a pretty good approximation of where we 12 need to go. 13 But I think we have to do something 14 here. We have had a legislative mandate to make a 15 rule. We've opened it to public comment. Pete, can 16 you remind me, what did we get by way of open public 17 comment? 18 MR. WASSDORF: We had several people 19 that attended the public hearing and commented on it. 20 I think that you probably have fairly succinctly 21 summarized the positions there. 22 There were other comments made from 23 representatives of people in the industry that 24 commented favorably with respect to it. There are 25 people that have some agenda that commented 0070 1 unfavorably to it. And then I think that there are 2 people that are in the industry that also commented 3 unfavorably to it. They think basically that the 4 ordinary meaning -- the ordinary now meaning, current 5 ordinary meaning, should be attributed to it. 6 Gee, it's hard to -- you know, I don't 7 want to take a position with respect to this one way 8 or the other, but there are penal codes that the 9 Legislature has passed that make gambling unlawful in 10 Texas, and there are rules of construction that say 11 when the Legislature has taken a position or defined a 12 term in one statute, that when in another statute 13 they're referring to the same subject matter, that it 14 should have the same definition as it does in the 15 other. And so I have not found any evidence that they 16 intended this to be addressed extra-territorial 17 activity. 18 COMMISSIONER KRAUSE: Well, in my 19 briefing on Friday, it seemed like there was a 20 conversation about that at least some aspect of this 21 is being promoted by a person that had a personal 22 interest in it. 23 MR. WASSDORF: That's my understanding. 24 COMMISSIONER KRAUSE: Okay. And that 25 that person -- if we passed this rule, that would 0071 1 help, you know, him in a loss that he's got with a 2 former employer? 3 MR. WASSDORF: I don't know that there's 4 any current lawsuit involved there or not. 5 COMMISSIONER KRAUSE: Okay. 6 MR. WASSDORF: I think that there has 7 been past litigation with respect to this. 8 COMMISSIONER KRAUSE: Well, I'm going to 9 have to go on record as saying that I am not very 10 familiar with this issue and that, you know, if there 11 is a statutory duty for us to act, then I am all for 12 doing that. On the other hand, I have been in the 13 position before of having members of the public come 14 and ask, you know, when I was serving in a position 15 where I could -- you know, on a governmental body 16 where I could make a difference, for us to take some 17 action that would benefit them and harm someone else, 18 and we always refused to do that. 19 So I am wanting to do my job. But at 20 the same time, I want to know a little bit more about, 21 you know, what is going to be the cause and effect of 22 this? And so if today is the last day, I may have to 23 abstain on a vote, unless somebody wants to help me 24 out. 25 MS. JOSEPH: Well, I would just like to 0072 1 say that or clarify that there is actually no mandate 2 that there has to be a rule adopted on these terms. 3 However, the terms are used in the Lottery Act and the 4 Bingo Enabling Act. And there has been some 5 disagreement, obviously, on how those terms should be 6 defined and interpreted. 7 COMMISSIONER KRAUSE: Yes. 8 MS. JOSEPH: So these rules were 9 proposed to have the Commission speak on what it 10 believes should be the appropriate definition of these 11 terms. 12 In addition, we're seeking to have a 13 consistent approach to both the Lottery Act and the 14 Bingo Act in use of these terms and not somehow end up 15 with two different definitions. 16 COMMISSIONER SCHENCK: I'm not familiar 17 with the specific litigation matter. But my 18 understanding from this, having sat through several of 19 these meetings that were quite contested, actually, 20 with two extremes in the industry. We have people 21 who, not to put too fine a point on it, are making a 22 living from gaming activities that you or I would not 23 consider to be legal or something we would want to 24 promote necessarily, who want no definition of 25 gambling promoter or a professional gambler. Then we 0073 1 have a group, which I think you may be alluding to, a 2 smaller group, that would like to see those terms 3 given the most literal and narrow or biting 4 construction possible in order to basically de-license 5 their competition, which I agree with you, I would not 6 be for. 7 And then we have this question which I 8 think, Pete, you put together a memo some time ago 9 on -- this issue had been addressed I think in 10 Illinois some years ago. Am I remembering that 11 correctly? 12 MR. WASSDORF: A very similar situation 13 had been addressed in Illinois where there was such -- 14 nearly a verbatim prohibition in the racing act up 15 there, and the Attorney General in Illinois addressed 16 this. And basically he said, "When the Legislature 17 acts, they intend to act territorially within the 18 State of Illinois," and that they have passed criminal 19 prohibitions against gambling. And in the Illinois 20 racing act when they referred to professional gambling 21 there, they meant it in the same context as the penal 22 statutes which prohibited gambling there. 23 As I also mentioned, there probably are 24 about 10 states that still have statutes that 25 specifically make it a criminal offense to be a 0074 1 professional gambler. And in those states, 2 professional gambling is considered generally to be 3 engaged in unlawful gambling activities. They're not 4 talking about people that are engaged in lawful 5 gambling activities. 6 CHAIRMAN WILLIAMSON: And from what I 7 understand, this is basically what we're trying to 8 make more clear? 9 COMMISSIONER SCHENCK: Yes. 10 CHAIRMAN WILLIAMSON: Being not the 11 attorney here, so those of you that kind of have your 12 eyes crossed when you get a lot of extremely long -- 13 like you were saying, making simple -- I'm one of 14 those. But from what I understand, that's basically 15 what we have attempted to do, to say "unlawful" versus 16 "lawful" professional gambling or gambling promoter. 17 Is that it in two sentences? 18 COMMISSIONER SCHENCK: That's my 19 understanding -- 20 COMMISSIONER KRAUSE: Yes. 21 COMMISSIONER SCHENCK: -- is, we have 22 this challenge of the person who, let's say, is 23 working in connection with the lottery who at one 24 point was working for, let's say, a lottery operator 25 in another state that engages in conduct that wouldn't 0075 1 be lawful here but is lawful there, have we just 2 invalidated their ability to work in connection with 3 the Texas lottery because they were engaged in conduct 4 that was lawful in the state where they were engaging 5 in it but would not have been lawful had it taken 6 place here? 7 And then also we need to put some teeth 8 in this prohibition on professional gambler so that 9 the person who has not been convicted of an offense is 10 subject to the restrictions the Legislature attempted 11 to put in place because, to my knowledge, I don't 12 think we've ever taken action against somebody for 13 being a professional gambler in Texas, short of a 14 felony conviction which would be separately a 15 preclusive event. 16 MR. WASSDORF: That's my understanding, 17 that this provision has really never been enforced 18 independently of someone actually having been 19 convicted. There basically is -- a question on the 20 application is, "Are you or have you ever been a 21 professional gambler?" And if they checked "No," then 22 things go right through and there has never been any 23 action as a result of that. 24 COMMISSIONER KRAUSE: Well, I'm going to 25 ask, what is the practical effect of this rulemaking 0076 1 as opposed to the academic, you know, result of, you 2 know, we're trying to make sure that our definitions 3 are all, you know, in line with the different, you 4 know, statutes that we have to abide by. And what 5 I've heard is that it really only appears one place, 6 and that's in the application to be a bingo operator. 7 MR. WASSDORF: Yes, that's correct. And 8 I don't -- you know, I don't know if I could say what 9 the practical effect is going to be for sure. 10 Basically there's two definitions. One of them is a 11 very broad definition that says -- that currently is 12 found in the lottery rule -- in the lottery rules that 13 says anybody -- a professional gambler is anybody who 14 has made a substantial part of their living from 15 gambling. 16 Well, that encompasses both lawful 17 gambling and unlawful gambling. That means that if 18 somebody went to one of these poker tournaments and 19 won and said that he was, you know, going to be a 20 professional gambler, suddenly he's not going to be 21 able to be licensed in Texas for that activity. 22 Other people that are connected with 23 gambling activities that may be vendors of the states, 24 if they're connected with gambling, lawful gambling 25 activities outside of the State of Texas, then there 0077 1 is a possibility that this could apply to them, 2 because under the Lottery Act, every vendor is 3 required to be eligible as a -- they must meet the 4 same eligibility requirements as a retail licensee. 5 With respect to the other definition, 6 the other definition that we have proposed here is 7 basically acting territorially; that is, if somebody 8 is engaged in an activity that the Legislature has 9 said is unlawful and they're doing that for a 10 substantial part of their livelihood, then they would 11 be prohibited, but it's talking about the unlawful 12 activity there. I don't have any idea how many people 13 may or may not meet the criteria of being connected 14 with lawful gambling outside of this state. 15 COMMISSIONER SCHENCK: I think also, 16 Winston, we have to be direct. A group of people in 17 the state that are operating gaming activities that 18 are not -- let's say 8-liners -- that are not in my 19 opinion legal, they are potentially gambling 20 promoters, and some of them have bingo licenses. And 21 they do not want a rule that would prohibit them from 22 engaging in those activities. 23 And in my view, the rule needs to be 24 fairly applied and cleanly and consistently applied. 25 And the statute -- the Legislature was fairly clear. 0078 1 A gambling promoter is someone who is promoting 2 gambling, or a professional gambler is someone who is 3 engaged in gambling activities in the State of Texas 4 or that are not legal someplace else. And the rule is 5 the rule. And I think those people are not supposed 6 to have a license. 7 And as I think you are alluding to, 8 there is a gentleman or a group of bingo industry 9 people who would like to see these people put out of 10 business in connection with their bingo activities. 11 His motivation is his motivation. But if he is right 12 on the law, he is right on the law. So what we've 13 tried to do is compromise in terms of having the 14 statute apply to what the Legislature appears to have 15 intended, without leaving it toothless and yet at the 16 same time not disqualify the ability of the lottery to 17 operate, because the Lottery Act has similar statutory 18 definitions. And the ejusdem generis canon of 19 construction that Pete was referring to earlier -- 20 CHAIRMAN WILLIAMSON: Okay. What does 21 that mean? 22 COMMISSIONER SCHENCK: Construe like 23 thinks in a like way. So we have the Legislature 24 saying a professional gambler in the Lottery Act is 25 someone who should not be allowed to do business with 0079 1 a lottery but should, all things being equal, have the 2 same meaning with respect to bingo. So we have to be 3 careful that we construe these things together and at 4 the same time and not in such a way that it would 5 create an irrational result where someone who has 6 worked for, let's say, a state lottery in a place 7 where there's video lottery terminals, which would be 8 illegal here, is working for a vendor of the lottery 9 and is no longer able to conduct those operations or 10 perhaps the vendor itself is subject to those 11 considerations. So I think the critical question is 12 one here of timing. We have two -- Mary Ann, I can't 13 recall if you were on the Commission when we first 14 debated this rule. 15 CHAIRMAN WILLIAMSON: I was here for the 16 October meeting. 17 COMMISSIONER SCHENCK: Okay. 18 CHAIRMAN WILLIAMSON: I think that's 19 when it started. Right? 20 COMMISSIONER SCHENCK: Because I may be 21 laboring under a misunderstanding. I thought we were 22 compelled to act at some point -- and maybe I'm 23 confusing this act -- or I'm sorry -- this rule with 24 the second game of chance and also with a pending 25 Attorney General opinion, which I understand there is 0080 1 a pending Attorney General opinion. 2 CHAIRMAN WILLIAMSON: Right. And I was 3 going to ask you, Pete, will you explain to us the 4 impact of that or -- I have been told that that should 5 have -- supposed to get back to us on June the 1st. 6 And, obviously, we don't have that. So what happens 7 if we were to go ahead and proceed with this in terms 8 of regard to that pending opinion? 9 MR. WASSDORF: Well, first of all, let 10 me say that Sandy is correct, that you are not 11 mandated to act in this respect. You are authorized 12 to act; in other words, the Commission is authorized 13 to adopt rules necessary to implement the act, and 14 that includes a rule that's a delegation of 15 legislative authority from the Legislature or a 16 procedural rule or an interpretive rule. In this 17 case, this would be an interpretative rule, and you're 18 authorized to do that. 19 You're not mandated to -- you did 20 propose the rule, however, on March the 6. And the 21 rule is about to expire. With respect to -- the 22 proposal is about to expire. With respect to the 23 Attorney General's opinion, the Attorney General's 24 opinion was actually made in December of 2008, and it 25 was really addressing the original rule that was 0081 1 proposed by the Commission. 2 We did notify the -- and that was at the 3 request of Rep. Pena. After this legislative session 4 started, Rep. Pena was replaced on the committee by 5 Rep. Gallego. And the Attorney General's office, as 6 is their procedure, asked the new chairman whether or 7 not he wanted to have an answer to the question, and 8 Rep. Gallego said yes, he did. 9 After you withdrew the original rule and 10 proposed a substitute rule in March, we notified the 11 Attorney General of that action and what the new rule 12 was, and they thanked us for our request or for our 13 notification of that. And it still is left pending. 14 The Attorney General, by statute, is supposed to issue 15 their rules -- their opinions within 180 days, and 180 16 days from December 3rd was going to be about June 1st. 17 And it was due then but hasn't come out, and I don't 18 know whether it's going to or not. 19 With respect to your action today, you 20 can either let the proposed rule expire by operation 21 of law, in which case you can wait for the Attorney 22 General's opinion, whenever it comes out, and then 23 propose a new rule at that time that is in accordance 24 with the Attorney General's opinion. You can go ahead 25 and adopt the rule as currently proposed and then when 0082 1 and if the Attorney General's opinion comes out, if 2 it's consistent with your rules, then no further 3 action -- you may take no further action. If it's not 4 consistent with your rules, then you may elect to 5 amend it at that time. You can withdraw the rule 6 yourselves and say, "We'll take it up later." 7 COMMISSIONER KRAUSE: Is it possible to 8 resolve to extend the period for the rule one more 9 month so that we can get up to speed on it, or I can 10 at least? 11 MR. WASSDORF: Actually, the statute 12 doesn't provide for that. It just says that in 180 13 days, it will be considered to be withdrawn if no 14 action has been taken on it. And so either you are 15 willing to let it expire or you vote to withdraw it or 16 you vote to adopt it and then make later changes if 17 necessary, when and if the opinion comes out. 18 MS. JOSEPH: I do have two witness 19 affirmation forms that have been offered. 20 COMMISSIONER SCHENCK: Let's hear it. 21 CHAIRMAN WILLIAMSON: Here is one. 22 Mr. Minch and -- okay. I can't read your writing. 23 MS. JOSEPH: That's Joe Garcia. 24 CHAIRMAN WILLIAMSON: Oh, okay. 25 Mr. Garcia. 0083 1 MR. MINCH: Good morning. My name is 2 Jeff Minch. I'm here representing Littlefield 3 Corporation. Littlefield Corporation is the largest 4 owner of charitable bingo halls in the United States. 5 We operate in a number of different states. We're 6 intimately familiar with the regulatory environment in 7 the entire country. 8 I'm also the president of the Texas 9 Association for the Advancement of Charitable Bingo 10 which has as one of its distinctions for membership 11 that its members do not have any other form of 12 gambling in their bingo halls. So in the industry, we 13 would be folks who are opposed to any kind of 8-liner 14 or other illegal gambling. 15 I want to say first off that there is a 16 history to this, and this comes from a deposition that 17 was offered in a matter of litigation in which a 18 principal of a powerful firm, a large firm, self- 19 identified themselves as a professional gambler. In 20 the State of Texas, I believe that in the near term, 21 there is only one firm that benefits as a result of 22 this change in definition, and they're on the public 23 record and they were involved with a price-fixing case 24 in Texas. And it was settled, and they paid a fee to 25 the State of Texas. 0084 1 That conduct cost charities in the State 2 of Texas an enormous amount of money. So one of the 3 things I want to say to you is, the people who are not 4 represented in this discussion are the charities. The 5 No. 1 diverter of funds to legitimate charities who 6 were engaged in lawful charitable bingo in the State 7 of Texas is illegal gambling. 8 So the public policy reason as to why 9 it's important to the State of Texas that both 10 criminal behavior and undesirable behavior are both 11 outlawed by the rules is because of the amount of 12 money that's diverted both from charitable bingo, an 13 interest that I hold close, and the lottery itself. 14 To give you an example, in Abilene, 15 Texas about a year ago, there was a case in which 16 multiple law enforcement agencies raided a number of 17 8-liner establishments. We had had some small role in 18 bringing that to their attention. They confiscated 19 the day of the raid about a quarter of a million 20 dollars of cash that was in the possession of those 21 illegal establishments. They closed them all down. 22 And there was a bank deposit that had not yet cleared 23 the banking system of about $400,000. 24 This is all a matter of public notice. 25 It was reported in the local newspapers. So you do 0085 1 the math. That was only one day's take or two days 2 take in a city of 120,000 people. Our bingo 3 receipts -- we had two bingo halls in Abilene at the 4 time -- our bingo receipts went up. And so this 5 prospect that this has no bearing and this is just a 6 technical definition is, in fact, not correct. This 7 deals with the No. 1 diverter of funding from 8 legitimate charities who are using authorized 9 charitable bingo as a source of funding for their 10 noble causes. 11 Today as we sit here, in Corpus Christi, 12 Texas, there are four bingo halls that have 8-liners 13 that are operating in, adjacent to, or in close 14 proximity to four bingo halls, and they are providing 15 chips to their winning customers that are 16 transferable, redeemable for pull-tabs or for bingo 17 paper. Under the statute, you are only allowed to 18 spend cash, debit card or a gift certificate to buy 19 bingo paper, to buy pull-tabs. 20 So this illegal conspiracy, which can 21 only be undertaken with the witting accomplice of the 22 charities, which I think is most instances is driven 23 by the commercial lessor, somebody who owns the real 24 estate and who also is the gambling promoter of the 25 illegal 8-liner establishment, it can only be done 0086 1 with that witting accomplice. And so those funds are 2 also being diverted from legitimate purposes. 3 The charities receive none of the 4 proceeds of illegal gambling. That's going on today. 5 The Lottery Commission has investigated it. They're 6 intimately familiar with exactly what's going on in 7 real time, and there is no enforcement actions that 8 are being taken. So this issue, in addition to 9 calling out for a very clear definition, also calls 10 out for some action. And so these are things that 11 should be acted on now. 12 I would say to you that the current 13 policy is, in fact, the will of the Legislature. And 14 while there is no particular record of any particular 15 discussion, in fact, there is no record of any 16 discussion on the other side. There was no confusion 17 when they made these things. And, in fact, there is a 18 distinction that's routinely made in this industry 19 between criminal behavior, which is clearly dealt 20 with, with the first part of this rule, and 21 undesirable behavior, which is dealt with by the 22 second part of the rule. 23 In the rule that's before you, the 24 standard for undesirable behavior would be three times 25 as high as it is for criminal behavior. That's in 0087 1 effect -- that's tantamount to simply revoking the 2 rule. Somebody who has three felony convictions for 3 gambling has a whole world of other problems. They 4 may be life residents in prison somewhere. And so 5 this undesirable hurdle has got to be exactly what it 6 is. It has to be conduct-based as opposed to being 7 criminal-based. 8 In the last few days there was a case 9 that was settled, and the case was related to a 10 company called Aces Wired. And Aces Wired is the 11 largest bingo distributor in the State of Texas. It's 12 a matter of public record. I have no knowledge other 13 than what I have read in the newspaper and I've 14 inquired about. 15 But this enterprise, which knew 16 everything about charitable bingo, was operating 17 machines that were similar to 8-liner machines. 18 Several of their corporations have pled guilty. Their 19 principal has pled to a felony; other members have 20 pled to misdemeanors. They specifically targeted in 21 their public company -- so everything I'm saying to 22 you is from their own SEC filings -- they specifically 23 targeted being next to bingo halls. 24 And again, those funds which now, 25 obviously, have been derived illegally, those funds 0088 1 were diluting the performance of those bingo halls. 2 You could have the staff simply identify those bingo 3 halls, see what their receipts were and know that that 4 money was ending up in the hands of people who were 5 promoting gambling. They thought they were promoting 6 gambling legally. In fact, now it appears that by 7 their own admission, they were promoting gambling 8 illegally. 9 There was a point in time that the staff 10 could have enforced that, using this regulation, and 11 those funds that were diverted from charitable bingo, 12 in fact, could have ended up in the hands of 13 charities. These establishments in many instances 14 were under the same roof as a charitable bingo hall. 15 Their lessor, the person who controlled the real 16 estate, was in many instances a commercial lessor. 17 And so in that instance, the person's knowledge of 18 charitable bingo is exactly what drove them to promote 19 that gambling and thereby divert the funding from 20 charitable bingo. 21 I want to say to you that I believe the 22 position of the Commission should be similar to that 23 of a game warden. In addition to promoting the 24 industry, you also have a stewardship responsibility 25 to protect the industry from poachers, no differently 0089 1 if you were on a hunting lease and somebody was 2 shooting across your fence at your deer, the game 3 warden would come along and he would enforce those 4 rules and he would prevent poaching. 5 And so I believe that there is a valid 6 argument to make, that the policy of the Lottery 7 Commission should, in fact, have a similar stewardship 8 approach and a similar protection to the industry. 9 Absent this rule, absent these kinds of rules, absent 10 this kind of enforcement, this kind of poaching will 11 continue. And the magnitude of it is enormous. I 12 would say that the magnitude of it from the vantage 13 point of charitable bingo and the lottery, the lottery 14 ticket sales, may be the single largest contributor to 15 any degradation in those sales. 16 COMMISSIONER SCHENCK: Steve, I 17 appreciate this. I think it's informative. But let 18 me just ask you a question sort of to clarify things. 19 MR. MINCH: Sure. 20 COMMISSIONER SCHENCK: You are for or 21 against this rule? And if you are against it, is it 22 because it doesn't have enough teeth and would you 23 prefer to see us start over? Or what do you want? 24 MR. MINCH: What I want is, I want you 25 to enforce the rule as it exists right now. There is 0090 1 only one person who benefits from changing this rule 2 in the short term, and that's a company that has run 3 afoul of this in a matter of litigation in which a 4 principal has self-described himself as a professional 5 gambler, and the law firm that represents them is the 6 proponent of this change. I'm also saying to you that 7 in this particular instance -- 8 COMMISSIONER SCHENCK: Let me say first, 9 that's news to me. I have seen people debating this 10 rule back and forth, and it's been long enough now 11 that I can't remember. I sent this rule back for a 12 change, and I guess -- because my concern had been at 13 one point, as I recall it, we had required someone to 14 be convicted of an offense before we would term them 15 to be a professional gambler, and we've increased the 16 exposure. 17 You indicated earlier in your testimony 18 that you have to have been convicted three times 19 before you're a professional gambler, under the 20 proposed rule. But that's one of three possibilities 21 for being caught in this, professional gambler. So I 22 guess what you're telling -- definition of 23 professional gambler. 24 What you're telling me is, as applied to 25 this case of these, whoever this person is that's 0091 1 admitted in a deposition he was a professional 2 gambler, I guess he wouldn't be caught in this rule? 3 MR. MINCH: That's correct. 4 COMMISSIONER SCHENCK: Okay. I wasn't 5 aware of that. But we're not here to resolve disputes 6 on the merits that are ongoing in court somewhere. 7 We've got to have a rule of some kind, or maybe you 8 don't want us to pass a rule. 9 MR. MINCH: No. Well, I think actually 10 we do have a rule. The question is, do we have to 11 enforce it? And so I think on its plain face, one 12 part of the rule has to do with criminal behavior. I 13 think that's very clear. Another one has to do with 14 undesirable behavior. And what this rule proposes to 15 do is really make both of those things about criminal 16 behavior. 17 COMMISSIONER SCHENCK: Okay. Let me ask 18 you a question. Let's suppose somebody, when they 19 were 19, had no job -- as most 19-year-olds don't -- 20 they win $10,000 pulling a slot machine in Atlantic 21 City. They file an income tax return because they 22 have to. They write as their job the only source of 23 income they have, gambler while they're living in New 24 Jersey. 25 Twenty years later this person is 0092 1 working for, let's say, a major vendor of the Texas 2 lottery. Is the vendor now out of its license because 3 this person was once a professional gambler 25 years 4 ago when we would say Charlie Manson, which I think is 5 the analogy I gave before, if he got paroled out of 6 California and came to Texas right now, we couldn't 7 deny him a license, a convicted murderer and felon. 8 We have a 10-year limit on that. But someone who has 9 ever been a professional gambler or gambling promoter 10 in any state -- in Tierra del Fuego, if they were 11 engaged in professional gambling, you would say we 12 have to pull the license? 13 MR. MINCH: Well, no, that's not what I 14 would say. I think actually in the example that 15 you've set, the first thing is that a license is 16 likely to be held by a corporation. Most licenses in 17 the State of Texas are held by corporations. 18 The individual that you've identified 19 really would not be a person who would be pertinent to 20 the granting of that license. That's the first thing. 21 The second thing is, in my view, the status of an 22 individual at a point in time has something to do with 23 it. 24 I'm sure in your professional career, 25 you've been something other than a lawyer. You don't 0093 1 maintain that status. Today your professional 2 livelihood is practicing law. I was engaged in the 3 real estate business before I became involved with 4 this company. And so from that vantage point, I had a 5 former live in which I was a developer. 6 I think it really has to do with the 7 present tense of things, and that is that a fellow who 8 has a roomful of 8-liners adjacent to a bingo hall 9 where the charities are not making any money is 10 probably not suitable to be engaged in the charitable 11 bingo business in Texas. 12 COMMISSIONER SCHENCK: Yes, but the 13 statute doesn't say "is now." It says "is or has 14 been" a professional gambler or a gambling promoter. 15 I mean, it reaches to the past tense. 16 MR. MINCH: Well, again, in this 17 particular situation, I don't think that that's 18 pertinent, because I think that the license would be 19 held by a corporation. But there are things that 20 simply don't go away. I mean, if someone was a child 21 molester, as an example, it doesn't go away. And so 22 to be sympathetic under the law is simply to be 23 sympathetic. 24 I'm certainly sympathetic to the 25 example. I'm sympathetic to everybody who has been in 0094 1 the gambling business in Tierra del Fuego. But I 2 don't think that it's something that the Lottery 3 Commission is responsible for fixing. In that 4 particular instance, again you're likely to have a 5 corporation that's applied for and received that 6 license. And an individual employee of that 7 corporation is unlikely to have an influence on that 8 or even have to be a person who is reported under the 9 application for the license. 10 Let me conclude by saying that I think 11 that the argument for keeping undesirable conduct away 12 from charitable bingo is a very important 13 consideration. In the instance in Abilene, there is 14 evidence of the involvement of organized crime, there 15 was evidence of the involvement of drugs, and there 16 was serious criminal activity that was allowed to be 17 created by the generation of this money. So I do 18 think that there is a legitimate reason to keep 19 criminal behavior and undesirable behavior away from 20 the charitable bingo business. 21 Thank you very much. 22 CHAIRMAN WILLIAMSON: Thank you. 23 Mr. Garcia. 24 MR. GARCIA: Madam Chair, Commissioners, 25 good morning. Thank you. I represent Trend Gaming 0095 1 Systems. And the principal in that business is 2 Mr. Hieronymus. Unfortunately, he couldn't be here 3 due to a family emergency, but he is opposed to the 4 moving forward on the proposed rule. 5 I think he would like to see some 6 direction from the Attorney General's office. His 7 point is that he believes that the Legislature was 8 very clear and that if a change in terms of the terms 9 of what constitutes a gambler or a gambling -- a 10 professional gambler or gambling promoter needs to be 11 debated in the Legislature, and that is the forum for 12 it. And he believes that this proposed rule stretches 13 beyond what he thinks is the legislative intent of the 14 Legislature. And so we are here in terms of saying 15 that we would like for y'all to wait until there is 16 guidance from the Attorney General's office. 17 Secondly, I have talked to Rep. Pena's 18 staff to find out what is the -- in terms of what is 19 the status of the current opinion. What their office 20 indicated to me is that they have been asked by the 21 Attorney General's office to rephrase the question 22 based on the new rule as opposed to the old rule, and 23 I think they're in the process of doing that. So 24 that's just a little update that I -- information that 25 I had that I wanted to share with y'all. 0096 1 But that's our position here, is that we 2 ask you not to act and to get some guidance. 3 CHAIRMAN WILLIAMSON: Thank you. 4 MR. GARCIA: Thank you. 5 CHAIRMAN WILLIAMSON: Any other comments 6 or things you would like to -- 7 COMMISSIONER SCHENCK: Well, I want to 8 look back. On Page 17 of our materials is the actual 9 rule we're talking about. And I'm trying to recall 10 how we got to these changes. I objected and we added 11 more teeth, maybe not enough teeth to satisfy 12 everybody in this proposed rule, that we were going to 13 disqualify you from being licensed if you have ever 14 engaged in Texas in conduct prescribed by any of the 15 statutes prohibiting gambling as a primary source of 16 income. 17 So whether you're convicted or you're 18 not, if you're engaged in professional gambling in 19 violation of Texas law, you're out, or if you've been 20 convicted under laws of any other state or, in my 21 example, Argentina, you're out there also, or if 22 you've had three or more convictions anyplace else. 23 Now, obviously, that's not going to 24 satisfy -- and I agree with Commissioner Krause. I 25 don't really want to get engaged in the merits of an 0097 1 ongoing dispute. I'm not sure that the outcome of 2 that particular case would be directed by our rule, 3 but I frankly don't really want to know. And I'm 4 trying to remember back when Chairman Cox was 5 initiating this rule what the urgency was. 6 Obviously, we have an urgency now in 7 terms of being able to act on this rule. I'm not 8 against getting guidance from the Attorney General if, 9 in fact, the Attorney General is about to reconsider 10 the rule as we currently amended it. The problem we 11 have -- Pete, correct me if I'm wrong -- is we would 12 have to start over again and go through an 180-day 13 window before we could pass a rule again. 14 MR. WASSDORF: Well, we would have to 15 start over again. We don't have to spend 180 days on 16 it. But it would take -- it would have to be 17 proposed, it would have to be out for public comment 18 for at least 30 days. And then depending on when the 19 next Commission meeting was, there may be a further 20 delay. And then it would have to be adopted by the 21 Commission and then published in the Register for 22 another 20 days. And so basically, realistically, it 23 takes very, very, very minimum of 60 days and usually 24 90 to 120 days before you could adopt another rule. 25 If I may make one other just quick 0098 1 comment with respect to the different -- the 2 distinction between undesirable behavior and illegal 3 behavior. I think that was probably part of Chairman 4 Cox's concern, was that the undesirable behavior was a 5 lifetime ban; whereas, the illegal behavior was only a 6 10-year ban. 7 The other thing that I would mention 8 with respect to this is that there are requirements in 9 the Bingo Enabling Act I think that prohibit -- that 10 make the same criteria applicable to officers and 11 directors and 10 percent shareholders, greater than 10 12 percent shareholders of entities. So it wouldn't 13 matter that an entity was a corporate applicant if its 14 officers, directors or 10 percent shareholders had 15 been that guy 25 years ago. 16 COMMISSIONER SCHENCK: Well, and it's a 17 corporation itself, isn't it -- 18 MR. WASSDORF: Yes. 19 COMMISSIONER SCHENCK: -- that's engaged 20 in, let's say, operating Georgia's lottery or New 21 Jersey's lottery, and rules that would not be valid 22 here, they're a gambling promoter, we've got a problem 23 potentially? 24 MR. WASSDORF: Potentially that's 25 correct. 0099 1 COMMISSIONER SCHENCK: Unless we want to 2 decouple the meaning of these words used in these two 3 related statutes. Okay. 4 COMMISSIONER KRAUSE: Well, it might be 5 that that could be necessary, because they do do 6 different things. And we, I guess, execute each 7 statute differently. This sounds like it's pretty 8 important, and I do want to do something on it. 9 But -- 10 COMMISSIONER SCHENCK: I don't object. 11 COMMISSIONER KRAUSE: Okay. 12 COMMISSIONER SCHENCK: I mean, if we 13 want to table this, let this version of it die 14 immediately, republish it, let the Attorney General 15 speak to this, get some guidance from them and then 16 move forward. I fear the -- I have two concerns. As 17 much as we say the statutes rule, it's clear, the rule 18 is clear, have we ever, Phil, invalidated a license 19 for someone being a professional gambler or a gambling 20 promoter, to your knowledge? 21 MR. SANDERSON: To my knowledge, we have 22 not taken any action against a licensee for -- 23 COMMISSIONER SCHENCK: Well, apparently 24 there's somebody out there who has got to be a 25 professional gambler or gambling promoter. We've got 0100 1 to do something. So at some point, we just need to 2 have a rule and then start enforcing it, because I'm 3 sympathetic to the idea that there are people out 4 there running 8-liners and doing other things who are 5 carrying a license from us who shouldn't. So we need 6 to have a rule in place. 7 Now that we've talked this through, I 8 don't see a need to have this done today if we can 9 benefit from some guidance from the Attorney General. 10 But I'm sympathetic to the competing interests out 11 here about having a rule and having it actually be 12 enforced. And I'm not sure I want to know what the 13 details are with respect to the outcome in particular 14 pending cases someplace else. But I guess if we know 15 it, we know it, we just have to ignore that and 16 operate prospectively, thinking about how our rule 17 should be written. 18 COMMISSIONER KRAUSE: Was there any need 19 for any action, then, at all? 20 MR. WASSDORF: If it's the Commission's 21 pleasure that the rule be allowed to expire by 22 operation of law and consider a re-adoption at a later 23 time, there is no need for any action. 24 COMMISSIONER SCHENCK: Well, wouldn't we 25 need to re-adopt it so the Attorney General has 0101 1 something to be commenting on? 2 MR. WASSDORF: Yes. Yes, you could -- 3 yes, yes. I'm trying to figure out whether the 4 wording of the notice was broad enough to re-propose 5 the rule today. 6 MS. JOSEPH: No, I don't believe we can 7 re-propose today. 8 CHAIRMAN WILLIAMSON: No, we can't. 9 MS. JOSEPH: We can bring that back at a 10 later time. 11 CHAIRMAN WILLIAMSON: I guess my 12 comments would be, or observations, the Attorney 13 General has the latest version. Correct? 14 MR. WASSDORF: Yes. 15 CHAIRMAN WILLIAMSON: They are still 16 past the deadline statutorily? 17 MR. WASSDORF: Yes. 18 CHAIRMAN WILLIAMSON: We have no idea, 19 if we extended this one month, two month, six months, 20 if they'll ever give us an opinion. Correct? 21 MR. WASSDORF: That's correct. 22 CHAIRMAN WILLIAMSON: I mean, 23 practically speaking? 24 MR. WASSDORF: Yes. 25 CHAIRMAN WILLIAMSON: So we might not 0102 1 ever receive anything from them. That's possible. 2 And since this is an election period, I would -- well, 3 anyway. So regardless, I'm not sure that -- I would 4 be less inclined to hang my hat 100 percent on an AG's 5 opinion to help guide us at this point rather than if 6 we put something out there and then they may feel 7 compelled to go "Yea" or "Nay." And I don't even know 8 if that will happen. 9 COMMISSIONER SCHENCK: I agree. 10 CHAIRMAN WILLIAMSON: So secondarily, I 11 think I would like comments from Phil and Gary and 12 Sandy, from their perspective, the staff's perspective 13 on this whole situation and how that has impacted 14 them, or whatever else you want to share with us on 15 that. 16 MR. SANDERSON: As it relates to bingo, 17 the only licensees that are subject to 18 disqualification are manufacturers and distributors. 19 Commercial lessors and/or the organizations conducting 20 bingo, this restriction is not in there. It's just 21 only manufacturers and distributors. 22 So at the current time you're limited -- 23 we've got I think 33 of those license types, so 24 there's 33 individuals and/or corporations that hold 25 either a manufacture's or a distributor's license. 0103 1 So, you know, therefore, it's not going 2 to impact, you know, little Joe next door that's got 3 8-liners as it relates to a bingo hall if he's got a 4 commercial lessor license, other than the fact that, 5 you know, if he gets convicted of gambling, then he 6 will be disqualified but under the other provisions. 7 Professional gambler or gambling promoter only apply 8 to the manufacturers and distributors, so that's the 9 limit of the impact. 10 Now, depending on how you define 11 gambling promoter -- promotion of gambling is I think 12 the way it's worded in the penal code -- an individual 13 that is a marketing director for Harrah's in Las Vegas 14 is promoting gambling. Now, would that prohibit that 15 person, if they went and became an officer of a 16 manufacturer and/or a distributor from that 17 organization, holding a license in Texas, because at 18 one point in time they were a marketing director or a 19 sales director? 20 And that's what staff is looking for and 21 providing clear guidance to both staff for direction 22 as well as to the licensees, you know, what will the 23 Commission look at as it relates to those two terms? 24 There was the instance that was 25 discussed briefly about one of the executives of a 0104 1 manufacturing company that testified that he was a 2 professional gambler. It was investigated by Texas, 3 Louisiana and I believe Mississippi, and it was 4 determined at that point in time that because he made 5 that statement, he did not meet some term or some 6 definition of what a professional gambler was. 7 It's similar to the instance that 8 Commissioner Schenck mentioned. For a brief period of 9 his life in between jobs, he was playing black jack in 10 Las Vegas. And after that stopped, he moved on and 11 did other things. So that's the comments that I have. 12 CHAIRMAN WILLIAMSON: Okay. 13 MS. JOSEPH: I would just like to add on 14 and say also that it does put the staff in a difficult 15 position to try to interpret, you know, what is meant 16 by "professional gambler" and what the Commission's 17 viewpoint would be on that when we do receive a 18 complaint. 19 With the recent developments with Aces 20 Wired, I wouldn't be surprised if we receive a 21 complaint that someone involved in that is now, you 22 know, prohibited from being licensed in any way by the 23 Commission. And, you know, it would be helpful to 24 have guidance from the Commission. 25 MR. GRIEF: For the lottery side, it 0105 1 provides clarity. You heard Mr. Wassdorf say earlier 2 that our vendors are held to the same standards as 3 lottery retailers. And this particular provision that 4 makes anyone ineligible who is or has been a 5 professional gambler to be a retailer, the way it's 6 currently written, we think it could potentially cause 7 problems for that very, very small universe of lottery 8 vendors that provide us goods and services. As you- 9 all know, that's a very small group as it is. 10 And I think, Commissioner Schenck, you 11 brought up an example where an employee could cause 12 issues the way it's currently written. I'm very 13 mindful of what our chairman said about the timing of 14 the AG opinion and the fact that that opinion hasn't 15 come out yet. It may not come out. I've also heard 16 Mr. Wassdorf say that one of your options is to pass 17 the rule, wait for the guidance from the AG. And you 18 certainly have the opportunity to go back and amend 19 any rule that you do pass. 20 So in summary, I think for staff, we are 21 in favor of passing the proposed rule. 22 MS. JOSEPH: Excuse me. Mr. Grief, by 23 "passing," you mean adopting? 24 MR. GRIEF: Adopting it; correct. 25 CHAIRMAN WILLIAMSON: And I'm not so 0106 1 sure it's not necessarily a bad thing to start a 2 dialogue about this, these definitions, because 3 statutorily they're pretty vague. 4 COMMISSIONER SCHENCK: And they're not 5 being enforced. 6 CHAIRMAN WILLIAMSON: Right. And I 7 appreciate all sides of the people's concerns. And, 8 like I said, it's not like that if it comes back and 9 for whatever reason we need to amend these, we 10 certainly can. 11 MS. JOSEPH: I just want to say also 12 that -- clarify one other thing. That is, there is 13 not presently a bingo rule addressing these terms. 14 There is a lottery rule, but there is not a bingo 15 rule. 16 COMMISSIONER KRAUSE: Well, I would like 17 to just mention that -- you know, this is my third 18 whole meeting, and this is the first time this has 19 come up on the agenda, I believe. And so we've kind 20 of waited until the nth hour, you know, to decide 21 either fish or cut bait on it. And given how 22 important it seems to be, then I, frankly, would like 23 to know a little bit more about what it is that I 24 would be voting on, and so I would like to punt for 25 the time being. And if it only takes 60 days to get a 0107 1 rule in place, then I'm happy to work on that if 2 that's what we wanted to do. 3 MR. WASSDORF: That's the very minimum. 4 CHAIRMAN WILLIAMSON: So basically if we 5 decided not to proceed with this and vote on it, we 6 could either let it die with no action, bring it up at 7 the next Commission meeting and basically start the 8 clock again, is what I'm hearing? 9 MS. JOSEPH: That's correct. That's 10 definitely an option. 11 CHAIRMAN WILLIAMSON: Or we can go ahead 12 and pass it and then see if we get any feedback from 13 the AG or wherever else it's possible. So I'm looking 14 for a motion. 15 COMMISSIONER KRAUSE: I'm not going to 16 give one. 17 COMMISSIONER SCHENCK: Well, I'm looking 18 for guidance. I'm happy to do it either way, to pass 19 the rule and entertain amendments to it. But if it's 20 likely we're going to do that -- I mean, it's almost 21 certain someone is going to propose amendments to this 22 rule, and we'll be dealing with this again at the next 23 meeting or the meeting after that. 24 MS. JOSEPH: Well, in terms of anyone 25 proposing amendments -- 0108 1 COMMISSIONER SCHENCK: Petition for a 2 rulemaking? 3 MS. JOSEPH: Yes, there could be a 4 petition for a rulemaking which, of course, would need 5 to be considered. Other than that, at the time -- and 6 if an AG opinion is ever issued, of course, the staff 7 would be looking at that to see if it looked like the 8 Commission should consider amendments. 9 COMMISSIONER SCHENCK: I think we would 10 be better off having all three of us comfortable 11 making a decision here. So I think I'm going to, as 12 much as I'm for doing something -- and I think we've 13 tried very hard to work around all the challenges 14 presented by this issue -- I think my preference would 15 be to pass for now, re-propose the rule, get it to the 16 Attorney General, see if we get something and just 17 move forward from there, and then with the idea that 18 we move towards a rulemaking of some kind, however 19 imperfect, but at least a rule that people can look at 20 and understand what the rule is and we can start 21 enforcing. 22 The one urgency I want to make sure is 23 clear is that we have a problem with illegal gambling 24 in this state, and we need to get after it, and I 25 think we have to have a rule in place to do that. So 0109 1 hopefully we'll move forward at some point in the 2 not-too-distant future. 3 CHAIRMAN WILLIAMSON: So from what I'm 4 hearing, then we will have no vote on this, we will 5 bring it up at the next Commission meeting, start the 6 clock again, or however we wish to do that. I am very 7 sympathetic to where you're coming from on you want 8 more information. I understand that, and being a new 9 commissioner as well. 10 We may end up back in the same place in 11 three or four months, however, just so you both 12 understand that. It's entirely possible we'll be 13 right back here again, and that's okay. I am not 14 unsympathetic to what position this puts the staff in 15 for a few more months. And we will do something on 16 this. Also hopefully it will give us more input from 17 the Legislature, from those that are particularly 18 interested in that. And I think we should certainly 19 reach out to them, just to get some ideas from them as 20 well. 21 MS. JOSEPH: All right. Then we will 22 schedule it for the next meeting for consideration of 23 initiation of a new rulemaking. 24 COMMISSIONER SCHENCK: But to be clear, 25 our notice at this point isn't sufficiently clear to 0110 1 allow us to re-propose this in the Texas Register? 2 MS. JOSEPH: Today? 3 COMMISSIONER SCHENCK: So the next 4 meeting, we'll have to propose and consider 5 re-publication? 6 CHAIRMAN WILLIAMSON: I do have one 7 question, though. How will this impact the current 8 rule that is over at the AG's office? Will they just 9 let that die and then start all over again with 10 whatever we come up with again? So we may be on this 11 AG clock again? 12 MR. WASSDORF: That would be my 13 supposition, that when that rule expires by operation 14 of law, that we'll notify the Attorney General's 15 office that it is -- 16 CHAIRMAN WILLIAMSON: And they will 17 basically throw it in the trash and say, "Thank 18 goodness we don't have to deal with this right now. 19 We're going back over and starting back at Square 20 One"? 21 MR. WASSDORF: Yes. 22 CHAIRMAN WILLIAMSON: Just so everybody 23 understands that. Okay. 24 MR. WASSDORF: Thank you, Commissioners. 25 CHAIRMAN WILLIAMSON: Thank you. There 0111 1 will be no action on that. 2 AGENDA ITEM NO. XI 3 CHAIRMAN WILLIAMSON: All right. Phil, 4 you're up. 5 MR. SANDERSON: Commissioners, in your 6 notebook is the report of bingo activities for the 7 month of July. And I also added to your notebook this 8 morning two documents. One is the spreadsheet 9 tracking the rulemaking and another is a document 10 tracking the implementation of House Bill 1474. 11 I just want to briefly go over and give 12 you an update of where we are. As you know, the 13 Governor had signed House Bill 1474 on June the 19th, 14 and the staff has been working diligently to implement 15 these provisions. The effective date is October 1st 16 of 2009. 17 We currently have 53 rules, 18 administrative rules. The house bill will require us 19 to develop 11 additional rules, and we'll be repealing 20 three rules. One of those was on your agenda today, 21 the repeal of 402.304. And then there's another 25 22 rules that will need to be amended or revised. 23 Most of the revisions are very minor. 24 And, for example, one of them was the one today, was 25 the bingo chairperson where we just took out some 0112 1 language that was consistently stated within the 2 statute. 3 So as we're going through this process, 4 we're, you know, working on the rules and trying to 5 get most of those processed and developed, and we'll 6 bring those to the Commissioners. At each Commission 7 meeting, you'll have several rulemakings. If any of 8 the rules have major revisions, we'll take those to 9 the BAC and get their input on those rules, as well as 10 any of the new rules that are being developed. 11 We also have 111 applications and forms 12 that we're reviewing. A couple of those we have been 13 able to delete. We've got some that have to be 14 revised. And then we're also reviewing procedures as 15 it relates to the new changes. 16 Some of the changes for House Bill 1474 17 allows organizations to increase the number of 18 temporaries from 12 to 24. And then also there is a 19 requirement that now bookkeepers and the bingo 20 chairperson be listed on the worker registry. 21 And with that, I don't have any other 22 updates, and I'll be glad to answer any questions you 23 have 24 COMMISSIONER SCHENCK: No questions. 25 Thank you, Phil. 0113 1 COMMISSIONER KRAUSE: No questions. 2 CHAIRMAN WILLIAMSON: Thank you, Phil. 3 AGENDA ITEM NO. XII 4 CHAIRMAN WILLIAMSON: Ms. Pyka. 5 MS. PYKA: Good morning, Commissioners. 6 My name is Kathy Pyka, Controller for the Commission. 7 And with me to my right is Robert Tirloni, our 8 Products Manager. 9 Our report for you this morning reflects 10 revenue from sales and net revenue to the state 11 through the week ending August 15th of 2009. Total 12 sales for this 50-week period amounted to 13 $3.54 billion, an increase of three-tenths of a 14 percent, as compared to the same period last fiscal 15 year. 16 Our prize expense is $2.24 billion, a 17 decline of two-tenths of a percent, for a sales 18 contribution of $1.3 billion. Estimated net revenue 19 to the state is $928.3 million, reflecting a 20 1.5 percent increase as compared to the $914.7 million 21 figure for the same period in Fiscal Year 2008. 22 And then the $2.24 billion amount 23 recorded as prize expense as a percentage of sales is 24 63.3 percent for the current time period, as compared 25 to 63.6 percent for last fiscal year. 0114 1 Our next slide summarizes the change in 2 sales by game from Fiscal Year 2008 to 2009. Again, 3 the total increase over Fiscal Year 2008 sales is 4 three-tenths of a percent, or $9.6 million. And this 5 overall sales increase reflects a $13.2 million, or 6 one and a half percent increase in on-line games and a 7 $3.6 million or one-tenth of a percent decline in 8 instant ticket sales. 9 The jackpot games are portrayed on the 10 slide with the white font, reflecting a $19.3 million 11 increase as compared to last year, with our Mega 12 Millions, Megaplier and Texas Two Step games all 13 reflecting year-over-year increases. 14 The daily games are presented in the 15 green font and reflect an overall decline of 16 $6.1 million as compared to Fiscal Year 2008 sales. 17 And then again, our instant ticket sales reflect 18 one-tenth of a percent decline through August 15th. 19 Commissioners, I wanted to note that the 20 new $500 million blockbuster game has generated 21 $110.9 million in sales in its first 13 weeks, with an 22 average weekly sales rate of $8.7 million a week for 23 that particular game. 24 And then our next slide for you this 25 morning provides the historical Foundation School Fund 0115 1 revenue trends. Again, we started the fiscal year out 2 with a decline of 11.3 percent, 6 percent following 3 the sales decline or sales loss from Hurricane Ike. 4 And to date, our year-to-date transfers are now 5 reflecting, through July 31st, a 1.01 percent gain. 6 So we've turned that definitely around after the first 7 four months of the fiscal year. 8 So with that, Robert will now discuss 9 sales by product. 10 MR. TIRLONI: Good morning, 11 Commissioners. For the record, my name is Robert 12 Tirloni. I am the Products Manager for the 13 Commission. 14 This pie chart shows total fiscal year 15 sales of three and a half billion dollars through the 16 week ending August 15th. Broken down by our two 17 product categories are our scratch off. Our instant 18 product category represents almost 76 percent of the 19 total sales, with online bringing in the other 20 24 percent. 21 This next pie chart breaks down the 22 online product category by game, and so this 23 represents almost $865 million in total online game 24 sales. Pick 3 continues to be our best selling online 25 game. Mega Millions and Lotto are pretty much neck 0116 1 and neck. Lotto Texas is coming in in second place, 2 at 188, just under $189 million for the year, and Mega 3 Millions is just under 188 for the year. 4 We have been very lucky. Towards the 5 end of this fiscal year, all of our jackpot games are 6 rolling. Mega Millions is $170 million tonight. If 7 it rolls, it will roll to $207 million for Friday. 8 And Lotto Texas is at $38 million, which is the 9 highest jackpot we've seen on that game in quite 10 sometime. So right at the end of the fiscal year, 11 we've been pretty lucky with out jackpot rolls. 12 MR. GRIEF: Of course, now that Robert 13 has mentioned that, it won't be rolling. 14 (Laughter) 15 MR. TIRLONI: It goes both ways. If you 16 don't talk about it, you know -- 17 CHAIRMAN WILLIAMSON: But it did roll? 18 MR. GRIEF: It rolls tonight. Since he 19 mentioned it, I'm sure we'll get hit tonight. 20 MS. PYKA: The jackpot for tonight is 21 $170 million. And if it's not hit tonight -- 22 MR. TIRLONI: It rolls to 207. 23 MS. PYKA: -- it rolls to $207 million. 24 COMMISSIONER SCHENCK: Well, if the 25 winner is in Texas, I don't think we will complain. 0117 1 MR. TIRLONI: No. If there has to be a 2 winner tonight, we would certainly like for it to be 3 in Texas. 4 And then this is our instant sales 5 broken down by price point. Again, this is total 6 instants thus far for the year. So this represents 7 $2.7 billion. Not a lot of change. The five 8 continues to be the best selling price point, followed 9 by the two, the 10 and then the 20. As Kathy 10 mentioned, we're having great success with our $20 11 spotlight game, and so we're very pleased with the 12 sales in revenue that game is bringing in. 13 COMMISSIONER SCHENCK: Robert, is the 50 14 increasing? 15 MR. TIRLONI: I don't believe the 50 is 16 increasing, no. I believe probably the -- probably 17 some of the -- it's holding steady, but I think some 18 of the sales may have gone to the spotlight game. But 19 the 50 is bringing us, on a pretty regular basis, just 20 under $1.8 million a week. 21 COMMISSIONER SCHENCK: Do you remember 22 what the top prize is on the 50? 23 MR. TIRLONI: On the new 50, the top 24 prize is $10 million. 25 COMMISSIONER SCHENCK: Okay. 0118 1 MR. TIRLONI: Commissioners, I did want 2 to give you a brief update on a new program we have. 3 Our retailer incentive program. During the last 4 legislative session, the agency was authorized by a 5 rider in our bill pattern to establish a retailer 6 incentive program using funds not to exceed one half 7 of one percent of our gross sales. So this equates to 8 approximately $18.3 million. 9 The plan that we've developed is a 10 performance-based plan. It provides opportunities for 11 retailers who have shown strong sales levels to 12 generate additional sales and additional revenue and 13 then to be rewarded for their efforts with these 14 incentive funds. 15 So the first phrase of our program -- 16 and it's a two-phrase program -- the first phrase of 17 our program kicks off in just about two weeks, on 18 Sunday, September 6th. Then it will run for 13 weeks, 19 so it will go right through the beginning of December. 20 And retailers are going to be placed in categories 21 according to their sales averages, and they will be 22 given a set goal. And if they meet that goal, they 23 will get a set incentive payment. 24 After that phase, retailers that meet 25 that goal and actually receive an incentive payment 0119 1 are then -- they then have the ability to gain entries 2 into a drawing, and the drawing has $500,000 total 3 available in it, with the top prize or the top drawing 4 prize being $50,000. 5 So I wanted to kind of give you an 6 update as to where we were on the time line. What we 7 started right at the beginning of August was rolling 8 out the plan. We worked with GTECH on the plan. We 9 have been rolling it out to the sales staff and then 10 to the retailers, so we've been at that for just about 11 two weeks now. 12 What will happen next, during this next 13 two-week sales cycle will be, retailers will actually 14 get a personalized selling sheet or information sheet 15 that provides them with the actual sales categories 16 that they're in. It will provide them with the sales 17 goal they need to reach. It will give them 18 information about the incentive payment that can be 19 achieved if they meet that sales goal. 20 Those sheets will be updated weekly by 21 GTECH. They will be distributed to the sales force, 22 and the sales force will get that information out on a 23 regular basis so retailers know their standing during 24 the 13-week program. As I said, the program starts at 25 the beginning of next month. 0120 1 Our second incentive program at this 2 time will mirror the way the first program will work. 3 And what we'll be doing in November is, we'll be 4 re-averaging or re-categorizing retailers, based on 5 their sales, and placing them into categories for the 6 second round of the incentive program. Again, that 7 should start sometime in January and run through about 8 May. 9 In December we'll be finalizing all the 10 results for the first incentive program, providing 11 information back to retailers on if they've met their 12 goal; if they've not met their goal, what their 13 incentive payment is. And then we'll also be 14 conducting the drawing in December. 15 I have to let you know, from all the 16 information that I've seen in the industry, I think 17 this is probably the most detailed sales or retailer 18 sales incentive program that I've seen any state run. 19 So this is new for us, it's new for the sales force, 20 it's new for retailers. So what we'll be doing during 21 these first few months is getting a lot of feedback, 22 talking to retailers, soliciting feedback from the 23 sales staff. And so we will be obviously making any 24 tweaks or adjustments that we need to during this 25 introductory phase to see how we can perhaps change 0121 1 the program, make it better down the road. And so 2 that's where we are right now. 3 CHAIRMAN WILLIAMSON: Thank you. 4 Any questions, Commissioners? 5 COMMISSIONER SCHENCK: No, thank you. 6 MR. TIRLONI: Just in closing, I give 7 you-all samples of the Dallas Cowboys and the Houston 8 Texans tickets. Those games did start yesterday. And 9 so we've already seen sales yesterday, and they're 10 just surely to increase as the week continues, as more 11 retailers receive their packs and activate those packs 12 and start selling them. So I wanted you -- I know I 13 showed you a slide last month. I wanted you to 14 actually see the finished printed products. 15 CHAIRMAN WILLIAMSON: Okay. Thank you. 16 MR. TIRLONI: Thank you. 17 AGENDA ITEM NO. XIII 18 CHAIRMAN WILLIAMSON: Next item. 19 Ms. Pyka again. 20 MS. PYKA: Yes. Again, Commissioner, 21 for the record, my name is Kathy Pyka, Controller for 22 the Commission. 23 Tab XIII includes information on the 24 agency's transfers to the state as well as the 25 agency's budget. This first report in your notebook 0122 1 reflects transfers and allocations to the Foundation 2 School Fund and the allocation of unclaimed prizes for 3 the period ending July 31, 2009. Total cash transfers 4 to the state amounted to $934.7 million for the first 5 11 months of Fiscal Year 2009. 6 The second page of your notebook 7 reflects the detailed information for the monthly 8 transfers. Of the $934.7 million to the state, 9 $891.6 million was the amount transferred to the 10 Foundation School Fund, with a balance of 11 $43.1 million transferred from unclaimed lottery 12 prizes. Commissioners, this represents a 1.01 percent 13 increase, or $8.9 million over the amount transferred 14 to the Foundation School Fund in July of 2008. 15 The last document in your notebook 16 related to the transfers includes a report of lottery 17 sales, expenditures and transfers from Fiscal Year 18 1992 to date. Total cumulative transfers to the 19 Foundation School Fund through July of this fiscal 20 year total $11.6 billion. 21 And then the final item under this tab 22 is the agency's Fiscal Year 2009 method-of-finance 23 summary for the third quarter ending May 31st of 2009. 24 The Commission's lottery account budget is 25 $194.0 million. Of this amount, 95.4 percent was 0123 1 expended and encumbered through the end of the third 2 quarter. And the bingo operations budget funded by 3 general revenue is 15 and a half million dollars, or 4 73.6 percent expended and encumbered through the third 5 quarter. 6 Commissioners, this concludes my 7 presentation. I would be happy to answer any 8 questions. 9 CHAIRMAN WILLIAMSON: Questions? 10 COMMISSIONER KRAUSE: No, ma'am. 11 COMMISSIONER SCHENCK: I would remind 12 you of the presentation we had from Jaymin Patel from 13 GTECH some months ago, during the height of the 14 economic crisis, who indicated to us his experience 15 with past recessions, was that lottery sales picked up 16 in advance of a general recovery of the economy. I 17 asked him whether he saw that happening here. 18 I will point to our results and suggest 19 that hopefully they're indicative of a broader 20 recovery in the economy, because we have just really 21 increased sales tremendously since January, down 22 11 percent for a month, and to turn it around to the 23 point where we're probably going to end up -- correct 24 me if I'm wrong, Kathy -- about one percent, maybe 25 half a percent above last year's sales before it's all 0124 1 said and done. 2 MS. PYKA: That is correct, 3 Commissioner. Both revenue and sales are extended to 4 end Fiscal Year 2009 with year-over-year increases as 5 compared to Fiscal Year 2008. We've had just a 6 tremendous fourth quarter. 7 COMMISSIONER SCHENCK: Great! 8 CHAIRMAN WILLIAMSON: All right. Thank 9 you. 10 AGENDA ITEM NO. XIV 11 CHAIRMAN WILLIAMSON: Item XIV. 12 MS. PYKA: Yes. Thank you, Madam Chair. 13 Again for the record, Kathy Pyka, Controller for the 14 Commission. 15 Article IX, Section 17.44 of the General 16 Appropriations Act provides the Commission contingency 17 appropriation to implement the provisions of House 18 Bill 1474. The contingency appropriation is subject 19 to the Commission assessing or increasing fees 20 sufficient to generate additional bingo fee revenue in 21 excess of the fees outlined in the Comptroller's 22 biennial revenue estimate and then also obtaining a 23 finding of fact supporting this from the Comptroller 24 of Public Accounts. 25 Commissioners, bingo fees currently 0125 1 assessed and projected for collection in the Fiscal 2 Year 2010-2011 biennium are anticipated to generate 3 $62.4 million. Based on the Commission's fee 4 projection, it is expected sufficient revenue will be 5 collected in excess of the BRE amount of 6 $59.9 million, to meet the revenue targets outlined in 7 the Article IX provision. 8 It is recommended that the Commission 9 request a finding of fact from the Comptroller of 10 Public Accounts, based on this projected bingo fee 11 revenue. If the Comptroller finds information is 12 sufficient to support the increased revenue, the 13 Commission will be appropriated an additional $156,004 14 in Fiscal Year 2009 and an additional $129,604 in 2011 15 from the General Revenue fund, an additional 3.0 FTEs 16 in each year of the biennium. 17 Commissioners, this concludes my 18 presentation. I would be happy to answer any 19 questions. 20 CHAIRMAN WILLIAMSON: Any questions? 21 COMMISSIONER SCHENCK: A quick question. 22 Phil, how many FTEs are you vacant right 23 now? 24 MR. SANDERSON: Right now we have five 25 vacant positions, one of which -- let's see. We've 0126 1 got -- well, we've got six, one posting in Houston 2 that we have made a recommendation to HR. So after 3 that we have five positions left. The house bill 4 would give us one additional position in bingo. I 5 think the other two FTEs are for the lottery side. 6 CHAIRMAN WILLIAMSON: Is there a motion 7 to approve this request? 8 COMMISSIONER SCHENCK: I move we approve 9 the staff recommendation with respect to the -- 10 CHAIRMAN WILLIAMSON: Is there a second? 11 COMMISSIONER KRAUSE: Second. 12 CHAIRMAN WILLIAMSON: All in favor? 13 Aye. 14 COMMISSIONER KRAUSE: Aye. 15 COMMISSIONER SCHENCK: Aye. 16 CHAIRMAN WILLIAMSON: Motion passes. 17 MS. PYKA: Thank you, Commissioners. 18 AGENDA ITEM NO. XV 19 CHAIRMAN WILLIAMSON: And Item XV, 20 Ms. Pyka. 21 MS. PYKA: Yes. Item XV, Commissioners, 22 is requesting your approval for the Fiscal Year 2010 23 operating budget in the amount of $220,532,125 and 24 332.25 full-time equivalent positions. The budget was 25 developed in accordance with the appropriation amounts 0127 1 outlined in Senate Bill 1 as adjusted for the Article 2 IX provision related to Section 17.44 of the 3 contingency appropriation as well as a third-party 4 reimbursement provision allotted to the Commission. 5 Commissioners, the initial budget was 6 developed by the Office of the Controller and 7 delivered to division management for their input. The 8 final draft was developed after receiving input from 9 the divisions as well as final review by the executive 10 office. 11 And I would certainly like to commend 12 each of the division directors for their work on this 13 budget, as well as the budget team and the Office of 14 Controller and the leadership provided by Mr. Grief. 15 I would be happy to answer any questions 16 that you might have. 17 CHAIRMAN WILLIAMSON: Commissioners? 18 COMMISSIONER SCHENCK: A quick question. 19 Do we have cost-of-living adjustments kicking in that 20 are factored into this budget, or no? 21 MS. PYKA: What we have done, 22 Commissioner, is for each of the respective contracts 23 in the budget, we have analyzed any of those contracts 24 that have cost-of-living adjustments built into the 25 contract, and those are reflected in the budget 0128 1 document. 2 COMMISSIONER SCHENCK: Very good. 3 MS. PYKA: And so it's basically a zero 4 base approach and looking at every line item 5 expenditure of the budget and developing the budget 6 based on those actual contract provisions. 7 COMMISSIONER SCHENCK: And there's no 8 other variables, no escalators that are left out? 9 MS. PYKA: We have analyzed all of the 10 lease agreements, and those are built in as well. 11 COMMISSIONER SCHENCK: Okay. 12 CHAIRMAN WILLIAMSON: All right. Thank 13 you. 14 MS. PYKA: And this would require 15 approval of the Commission as well. 16 COMMISSIONER SCHENCK: I move we adopt 17 staff's recommendation. 18 CHAIRMAN WILLIAMSON: Second? 19 COMMISSIONER KRAUSE: Second. 20 CHAIRMAN WILLIAMSON: All in favor? 21 COMMISSIONER SCHENCK: Aye. 22 CHAIRMAN WILLIAMSON: Aye. 23 COMMISSIONER KRAUSE: Aye. 24 CHAIRMAN WILLIAMSON: Motion passes. 25 MS. PYKA: Thank you, Commissioners. 0129 1 AGENDA ITEM NO. XVI 2 CHAIRMAN WILLIAMSON: Ms. Trevino. 3 MR. TREVINO: Good morning, 4 Commissioners. For the record, I'm Nelda Trevino. 5 I'm the Director of Governmental Affairs, and I have a 6 brief report related to the agency's legislative 7 implementation project. 8 In your notebook we provided you with an 9 updated copy of the Legislative Implementation 10 Tracking Report. As I reported at the last meeting, 11 21 bills are included in the agency's legislative 12 implementation project. These bills were assigned to 13 division directors on the basis of subject matter to 14 determine what action by the agency, if any, is needed 15 to implement the bill. 16 Of the 21 bills, 16 of them either 17 required minimal action, which has now been completed, 18 or no action was required by the agency. There are 19 two bills that remained in a pending status until 20 information from another agency is received to 21 determine if any action will be required by the 22 agency. 23 And the implementation on the three 24 remaining bills continues to be in progress. These 25 include House Bill 1474, Senate Bill 1655 and certain 0130 1 provisions in the General Appropriations Act. 2 During Phil's earlier report on the 3 Bingo Division's activity, you received an update on 4 the implementation status of House Bill 1474. 5 Additionally, Kathy just reported on the request to 6 the Controller of Public Accounts for a finding of 7 fact related to this bill. 8 Implementation on certain provisions in 9 the General Appropriations Act is also in progress. 10 Robert Tirloni reported earlier on the status of 11 implementing the retailer incentive program. In 12 accordance with the provision in the bill, the 13 agency's plan related to the incentive program has 14 been submitted to the Legislative Budget Board and to 15 the Governor's Office of Budget and Planning. As 16 Robert indicated, the agency anticipates launching the 17 program on September the 6th. 18 The last bill I want to comment on 19 relates to Senate Bill 1655 which requires the Lottery 20 Commission to create and market a scratch-off game to 21 benefit the Veterans Assistance fund. With the input 22 of the Veterans Assistance Advisory Committee, the 23 ticket designed for this game has been approved for 24 production. It is anticipated the game launch will be 25 November the 9th, which ties in with Veterans Day on 0131 1 November the 11th. 2 The agency continues to coordinate with 3 the bill sponsors, Rep. Cris Turner and Sen. Leticia 4 Van De Putte, along with the Texas Veterans Commission 5 regarding the promotion of the game. Public service 6 announcements featuring members of the Legislature are 7 being filmed and produced by the agency's Media 8 Relations Division 9 As of this date, 18 members of the 10 Legislature have requested the production of the PSA. 11 The agency will provide these PSAs to the legislative 12 member who is featured for them to distribute to the 13 media in their specific district. Additionally, it is 14 anticipated that a press tour of the bill sponsors and 15 other members of the Legislature will occur on the day 16 the game is launched. As agency staff continues its 17 work on this project, we will provide you with 18 appropriate updates. 19 And this concludes my report, and I will 20 be glad to answer any questions. 21 CHAIRMAN WILLIAMSON: Thank you. 22 Commissioners? 23 COMMISSIONER KRAUSE: I have no 24 questions. 25 CHAIRMAN WILLIAMSON: Thank you. 0132 1 AGENDA ITEM NO. XVII 2 CHAIRMAN WILLIAMSON: Ms. Melvin, 3 Internal Audit report. 4 MS. MELVIN: Thank you, Commissioners. 5 For the record, Catherine Melvin, Director of the 6 Internal Audit Division. 7 Last week Internal Audit held an exit 8 conference with agency management regarding a recently 9 completed internal audit of retailer accounts. The 10 purpose of that audit was to evaluate the adequacy and 11 effectiveness of internal controls for ensuring 12 accurate and efficient retailer collections and 13 adjustments. 14 In addition, we sought to examine 15 controls in place to protect the state from loss. We 16 anticipate providing that report at the next 17 Commission meeting. And we are currently in process 18 awaiting management responses on that. 19 Other than that, I have no items of 20 update and am happy to answer any questions you might 21 have. 22 COMMISSIONER SCHENCK: Look forward to 23 your report. 24 COMMISSIONER KRAUSE: None. 25 CHAIRMAN WILLIAMSON: Thank you, 0133 1 Catherine. 2 MS. MELVIN: Thank you. 3 AGENDA ITEM NO. XVIII 4 CHAIRMAN WILLIAMSON: Mr. Fernandez. 5 MR. FERNANDEZ: Good morning, Madam 6 Chairman, Commissioners. My name is Mike Fernandez. 7 I'm with the Administration Division. And Item No. 8 XVIII in your notebook is a quarterly report or a 9 snapshot, if you will, of contracts for the agency. 10 I would be happy to answer any 11 questions. 12 COMMISSIONER SCHENCK: Mike, we've 13 signed the lease on the building? 14 MR. FERNANDEZ: Yes, sir. Yes, sir, we 15 have. 16 COMMISSIONER SCHENCK: We squeezed every 17 penny? 18 MR. FERNANDEZ: We tried to squeeze 19 every penny we could squeeze, Commissioner. And we've 20 begun discussions on our warehouse space, so we're in 21 those discussions right now. And we'll be -- you'll 22 see the change and you'll have a briefing on that 23 before -- 24 COMMISSIONER SCHENCK: For the record, 25 we're paying too much over there. 0134 1 MR. FERNANDEZ: Yes, sir. 2 COMMISSIONER SCHENCK: You can tell them 3 we've got a Commissioner who is upset. 4 MR. FERNANDEZ: And I'll use that when I 5 talk with them, that I have a Commissioner that's 6 raised that topic. But we have. 7 AGENDA ITEM NO. XIX 8 MR. FERNANDEZ: The next item, Madam 9 Chair, is also mine, Item No. XIX. With your 10 permission, we would like to pass that agenda item. 11 CHAIRMAN WILLIAMSON: Surely. 12 AGENDA ITEM NO. XX 13 MR. FERNANDEZ: Item No. XX is an 14 informational item. And this is to advise you of 15 staff's intent to buy out a current lease that we have 16 with Safe Sight for our studio surveillance monitoring 17 equipment. As you know, we had been out a number of 18 times trying to acquire or to lease that equipment, to 19 no avail. 20 We also looked at state contracts, TXMAS 21 contracts. And at that time there were no companies 22 on there that provided that service. At the same time 23 we met with our controller and requested that we 24 include in our appropriations request funds to buy 25 that in the event that we could not obtain a 0135 1 contractor to do that, provide that service. 2 During the session there was a company 3 that did come available under TXMAS, and we entered 4 into a four-year lease agreement with that company and 5 did receive appropriations at the same time. And the 6 staff intends to buy out that lease, and that will -- 7 we'll realize a savings of approximately $8,000. 8 CHAIRMAN WILLIAMSON: Any questions? 9 Thank you. 10 MR. FERNANDEZ: Thank you. 11 AGENDA ITEM NO. XXI 12 CHAIRMAN WILLIAMSON: Mr. Grief, I 13 believe the next few item are yours. 14 MR. GRIEF: Thank you, Chairman. Item 15 No. XXI on the Mega Millions game, the only thing I 16 have to report to the Commission is, I will be in 17 Atlanta on August 25th for another meeting of the 18 subcommittees of Power Ball and Mega Millions to 19 continue our discussions about a potential national 20 type game. And I'll keep you apprized of that 21 progress. 22 AGENDA ITEM NO. XXII 23 MR. GRIEF: Item XXII is the item on 24 GTECH Corporation. Other than the articles of note in 25 your notebooks, I have nothing further to report on 0136 1 that item. 2 AGENDA ITEM NO. XXIII 3 MR. GRIEF: And Item No. XXIII is the 4 report by the Executive Director. Other than the 5 documents in your notebook regarding the status of our 6 full-time employees and vacancies in the agency, I 7 have nothing further to report. 8 CHAIRMAN WILLIAMSON: Thank you. 9 Commissioners, do you have any 10 questions? 11 COMMISSIONER KRAUSE: No questions. 12 AGENDA ITEM NO. XXIV 13 CHAIRMAN WILLIAMSON: All right. 14 Obviously, Kim isn't here. So, Sandy, I believe this 15 is your item. 16 MS. JOSEPH: All right. On Item XXIV, 17 consideration of status and possible entry of orders 18 in, first of all, Docket No. 362-09-3797, Staples Food 19 Mart; and Item B, Docket No. 362-09-4429, Zavala Food 20 Mart. Both of these cases involve insufficient funds 21 in a lottery account. They have gone to hearing, and 22 the Administrative Law Judge recommends revocation of 23 the licenses. The staff recommends that you adopt the 24 recommendation of the ALJ. Then -- I'll continue. 25 CHAIRMAN WILLIAMSON: Okay. 0137 1 MS. JOSEPH: All right. Then I would 2 like to skip to F and G, the last two items, for a 3 moment, these two dockets. The first one, 4 362-09-990519.B-D, and Docket No. 362-09-990519.B-R 5 involve the Registry of Bingo Workers. These are 6 cases where bingo workers' background investigations 7 revealed that they are not eligible to be included on 8 the bingo registry and, therefore, recommend denial of 9 their application or that they be removed. And the 10 staff recommends approval of these. 11 Would you like to vote on these items? 12 COMMISSIONER SCHENCK: I think it's 13 probably helpful to move on these. They're different 14 categories of context. So I'm going to recommend, 15 unless there's questions, that we approve staff's 16 recommendation to adopt the ALJ's recommendation with 17 respect to A, B and C with respect to -- 18 MS. JOSEPH: Excuse me. A, B, F and G. 19 COMMISSIONER SCHENCK: A, B, F and G 20 with respect to the insufficient fund vendors -- or 21 I'm sorry -- retailers. 22 MS. JOSEPH: Okay. I'm sorry. I 23 confused you. Okay. A and B. 24 COMMISSIONER SCHENCK: A and B. I move 25 that we adopt staff's recommendation to adopt the 0138 1 ALJ's recommendation with respect to Items A and B. 2 COMMISSIONER KRAUSE: Second. 3 CHAIRMAN WILLIAMSON: All in favor? 4 COMMISSIONER SCHENCK: Aye. 5 CHAIRMAN WILLIAMSON: Aye. 6 COMMISSIONER KRAUSE: Aye. 7 CHAIRMAN WILLIAMSON: Motion passes. 8 COMMISSIONER SCHENCK: I also move with 9 respect to Items F and G that we approve staff's 10 recommendations to approve the ALJ's recommendation 11 with respect to the licensees to be removed or not put 12 on the Bingo Registry. 13 COMMISSIONER KRAUSE: Second. 14 CHAIRMAN WILLIAMSON: All in favor? 15 COMMISSIONER SCHENCK: Aye. 16 CHAIRMAN WILLIAMSON: Aye. 17 COMMISSIONER KRAUSE: Aye. 18 CHAIRMAN WILLIAMSON: Passes. 19 MS. JOSEPH: All right. And then 20 concerning Items C, D and E, Mr. White is going to 21 make a presentation. I will say that for Item D, 22 which is Case No. 2009-1036, Time Out Food Mart #2, 23 staff is requesting that that be passed, because the 24 retailer did cancel his license. So that leaves Items 25 C and E for Mr. White to present. 0139 1 MR. WHITE: Thank you. For the record, 2 my name is Stephen White. I'm am Assistant General 3 Counsel with the Texas Lottery Commission. 4 You have before you three agreed orders, 5 Tabs C, D and E behind Tab XXIV involving Yaman, Inc., 6 d/b/a 7 A.M. Food Store; New Way Enterprises, Inc., 7 d/b/a Time Out Food Mart #2; and Stylish Enterprises, 8 Inc., d/b/a Lucky Food Mart. 9 The sole owner of these three stores, 10 Mr. Badarpura, was convicted of possession of a 11 gambling device. And subsequent to his conviction, he 12 submitted renewal applications for each of these three 13 retailers, as we know, through the eligibility 14 question of whether any of the owners have been 15 convicted of a felony, criminal fraud, gambling or 16 gambling-related offenses. 17 His sentence is paroled. Mandatory 18 supervision and probation ended less than 10 years 19 ago. Our action was initiated to revoke the licenses 20 of all three of these stores owned by Mr. Badarpura, 21 based on his gambling conviction and his failure to 22 disclose the conviction. 23 A proposal for a decision was issued by 24 the Administrative Law Judge, recommending revocation 25 of the licenses based on the gambling conviction and 0140 1 failure to disclose the conviction. However, 2 subsequent to the proposal for a decision being 3 issued, Mr. Badarpura's conviction was set aside by 4 the Court, mooting the primary basis for the 5 recommended revocations. 6 However, Lottery Operations still 7 believes that sanctions of some sort are appropriate, 8 based on his failure to disclose the conviction. At 9 the time it was still a valid conviction. And what 10 was agreed to between the parties was a 30-day 11 suspension, based on the failure to disclose the 12 conviction at the time it was a valid conviction. 13 And as pointed out, one of those 14 retailers have subsequently surrendered its license, 15 so now we've left with two agreed orders which the 16 staff is recommending that you adopt. 17 COMMISSIONER SCHENCK: I've asked this 18 question -- your presentation is reminding me of these 19 cases. Can you remind me the gap in time between this 20 fellow's conviction and his unconviction by the Court? 21 MR. WHITE: Yes, sir. It was quite a 22 long period of time. I'm thinking it was almost two 23 years. 24 COMMISSIONER SCHENCK: Well, I'll ask 25 the question: Has anyone looked into the authority of 0141 1 a court to go backwards two years and unconvict 2 somebody for purposes of -- I'll say it -- 3 manipulating an ongoing administrative proceeding like 4 this? 5 MR. WHITE: Your question is, was the -- 6 COMMISSIONER SCHENCK: Would this 7 court's second order have any jurisdiction or is it 8 entirely void as a matter of law? 9 MR. WHITE: That I don't know in terms 10 of whether the conviction was void ab initio or, you 11 know, whether it was simply set aside. 12 COMMISSIONER SCHENCK: Well, the 13 question I'm asking more specifically is whether the 14 order -- or I'll call it punitive order -- 15 deconvicting this person of a criminal offense was 16 within any jurisdictional power of the Court to 17 entertain two years after the date of the conviction? 18 MR. WHITE: Well, if I could answer 19 that. Based on the motion for -- it was actually a 20 motion for new trial filed approximately two years 21 after the date of the original trial. And what the 22 motion said -- and this is how it was justified being 23 filed so late -- is the Judge's signature -- he did 24 not personally date the judgment. There was a date 25 stamped on it, issued by the clerk of the court. But 0142 1 the Defendant's counsel successfully argued, since the 2 judge did not personally date his signature, nobody 3 really knows for sure when he entered the first 4 judgment. 5 COMMISSIONER SCHENCK: What county was 6 this in? 7 MR. WHITE: It was Harris County. 8 COMMISSIONER SCHENCK: Well -- 9 COMMISSIONER KRAUSE: I think it stinks. 10 And I don't think that this guy needs to be holding a 11 license just because he was able to persuade a judge 12 to sign a second piece of paper getting rid of the 13 first piece of paper that the first judge didn't sign 14 but it made it into the record. 15 COMMISSIONER SCHENCK: Was his original 16 conviction a felony or a misdemeanor? 17 MR. WHITE: It was a misdemeanor. 18 COMMISSIONER SCHENCK: And did he go to 19 jail? Did he pay a fine? 20 MR. WHITE: If I recall, it was simply a 21 fine. 22 COMMISSIONER SCHENCK: Okay. Is there 23 anything in the record about whether he got his fine 24 back as a result of this order or was this just sort 25 of a bigger issue left in the Harris County clerk's 0143 1 office? 2 MR. WHITE: Actually, now that I'm 3 reading the agreed order, it was actually a 4 three-day -- three days' confinement was the sentence. 5 COMMISSIONER SCHENCK: So he's sitting 6 in jail for three days, not convicted, under no 7 signature of a judge under an order that no one really 8 entered. And two years later, somehow this conviction 9 is undone? 10 MR. WHITE: Yes, sir. 11 COMMISSIONER SCHENCK: Well, look, my 12 view is, I appreciate the staff's effort to target the 13 appropriate incorrect assertion that the fellow had 14 never been subject to a conviction. But I'm with 15 Winston, I'm not prepared, barring some confirmation 16 and actual research to suggest that there was 17 jurisdiction for the second order, that we have to 18 treat that as valid. 19 So my position is, I'm not going to 20 agree to adopt the recommendation unless someone can 21 persuade me that this punitive order undoing the 22 disqualifying criminal conviction is, in fact, valid. 23 MR. WHITE: Yes, sir. 24 COMMISSIONER SCHENCK: Because I doubt 25 that it is. I don't think you can go to jail and 0144 1 complete a sentence for a crime that you've not been 2 convicted of. I think it's a little too late -- 3 that's just my guess. Now, maybe I'm wrong -- to be 4 doing anything other than habeas corpus or maybe a 5 writ of corum nobus, not to get too detailed on this, 6 two years after the offense, to be filing motions for 7 a new trial, so that's where I am. 8 CHAIRMAN WILLIAMSON: Michael, would you 9 like to share your thoughts on this, since you're kind 10 of the point person on a lot of this? 11 MR. ANGER: Sure. For the record, my 12 name is Michael Anger. I'm the Lottery Operations 13 Director. 14 And to follow up on the question that 15 you originally asked, Commissioner Schenck, the 16 conviction did take place on February 13th of 2008, 17 and then it was set aside on May 11th of 2009. But 18 going to the matter, we proceeded down the path based 19 on the conviction to pursue revocation in these 20 matters that Steve alluded to. That is, we moved down 21 that path and got the SOAH Judge's opinion back. You 22 know, we were presented with this new information 23 about the conviction being set aside. 24 So the agreed orders do constitute, 25 based on the false information that was provided on 0145 1 the renewal applications and the action that staff 2 would recommend based on that, based on the fact that 3 the individual indicated that they did not have a 4 conviction at the time that they filed for the renewal 5 applications. But, indeed, at the time that they did 6 file, they did have a conviction, even though it was 7 subsequently set aside. 8 But as to the legality of the setting 9 aside of that conviction -- I'm not a lawyer and I 10 don't pretend to be one here at work, and so I really 11 don't have any opinions about that. 12 COMMISSIONER SCHENCK: To be clear, the 13 question that's being asked of the Commission is 14 whether or not we are going to adopt and approve of 15 this consent order. Without our consent, it doesn't 16 get entered? 17 MS. JOSEPH: That's correct. 18 COMMISSIONER SCHENCK: Okay. My 19 recommendation is that we could set this aside for 30 20 days, but then I think we've, res judicata or 21 otherwise, concluded this entire inquiry. And I don't 22 think we could go back and revoke the license by 23 examining the legitimacy of this conviction again. Or 24 at least I'm concerned that we wouldn't have the power 25 to do it. 0146 1 So I think the best thing to do is to 2 table this for this meeting and have, if he wants, 3 someone put together to satisfy you, and in turn us, 4 something to suggest that perhaps this motion for new 5 trial was timely filed. Maybe it was; maybe it 6 wasn't. But it seems to me that the circumstances are 7 such that they warrant further inquiry. And that's 8 what I would propose. 9 COMMISSIONER KRAUSE: You might also 10 mention to him, he can just tender his license. 11 MR. WHITE: Yes, sir. 12 CHAIRMAN WILLIAMSON: What is the impact 13 if we do table this and push it to the next meeting? 14 MR. ANGER: The only immediate impact is 15 the fact that the retailer will continue to sell in 16 his current status until such time that the matter is 17 ruled on. 18 CHAIRMAN WILLIAMSON: Okay. 19 MR. ANGER: But the retailer has been 20 currently selling. 21 CHAIRMAN WILLIAMSON: Okay. And if we 22 enter this order, what does that do, if we approve it 23 today? 24 MR. ANGER: We would proceed with the 25 30-day suspension that was agreed to in the order, and 0147 1 we would initiate that process as soon as the order is 2 entered. 3 CHAIRMAN WILLIAMSON: Okay. 4 COMMISSIONER SCHENCK: But I think at 5 that point we would be too late to go back and 6 re-litigate this question of what should be done to 7 this gentleman in connection with this false 8 certification of his background. 9 CHAIRMAN WILLIAMSON: Well, but that's 10 what the agreed order would do in essentially 11 punishing him for that. Is that not correct? 12 MR. ANGER: That's right. And 13 ultimately in these agreed orders, that's what staff 14 felt we were forced to focus on, based on the fact 15 that the conviction was set aside. 16 COMMISSIONER SCHENCK: Purported to be 17 set aside. So it was a piece of paper saying that it 18 was set aside? 19 MR. ANGER: Yes. Correct. 20 CHAIRMAN WILLIAMSON: And I assume that 21 we did go ahead and verify all of that? 22 MR. WHITE: I mean, there are definitely 23 court records indicating it was set aside. 24 CHAIRMAN WILLIAMSON: Okay. 25 MR. WHITE: The validity of that and 0148 1 whether it's enforceable in this proceeding and for 2 the Commissioners, as Commissioner Schenck has pointed 3 out, I don't know for certain the answer to that. I'm 4 guessing this would be considered a collateral attack 5 on a judgment of the district court. And I'm not -- 6 you know, I don't know what the answer is. 7 COMMISSIONER SCHENCK: Yes. I think 8 it's his burden to convince you of the answer that 9 this thing is valid -- or convince us, frankly. 10 CHAIRMAN WILLIAMSON: But if we go ahead 11 and pass this agreed order and new information comes 12 up, then we can go back and revisit this if we need 13 to. Is that kind of what you were looking at? 14 COMMISSIONER SCHENCK: That's what's I'm 15 looking for, yes. 16 CHAIRMAN WILLIAMSON: So I guess I would 17 be inclined to go ahead and pass this agreed order and 18 we'll still keep up with what's going on with this 19 guy. Is that kind of what I'm hearing? 20 COMMISSIONER SCHENCK: With the eye 21 towards -- this issue when it comes back up, we may -- 22 would we have the power now to just deny him the 23 license or to pull the license entirely? Based on 24 this recommendation, I don't think we would. 25 MS. JOSEPH: I don't believe so. 0149 1 COMMISSIONER SCHENCK: We would have to 2 start over. 3 MR. WHITE: Well, the only thing before 4 you today, I believe, is the agreed orders. There's 5 still the outstanding proposal for a decision which 6 has a recommendation of revocation of the licenses, 7 you know, based upon the conviction and the failure to 8 disclose the conviction. And if those are brought 9 before you, I think you would have the authority to 10 say even if the conviction was set aside, there is 11 still the failure to disclose the conviction. And, 12 you know, you could revoke the licenses based on the 13 failure to disclose the conviction perhaps. 14 COMMISSIONER KRAUSE: So what it sounds 15 like we can do is, we can pass on this. And the next 16 time you can bring it up, that we want to revoke his 17 license based on the Administrative Law Judge 18 decision, and then we can do it that way. 19 MR. WHITE: Yes, sir. And then, you 20 know, it would be up to the Respondent to appeal that, 21 you know, to district court if he thought it was 22 unfair or inappropriate, based on the new evidence 23 that the conviction was set aside. 24 COMMISSIONER SCHENCK: That would be a 25 great place for this issue to go. 0150 1 MS. JOSEPH: The statute provides a 2 license can be revoked for violation of the statute or 3 a rule adopted under the chapter. 4 COMMISSIONER KRAUSE: Well, and we have 5 a judge that has said that that's occurred. Right? 6 MR. ANGER: The only important thing to 7 note here is, is that the information that was 8 submitted to SOAH related to the revocation was the 9 presentation of the conviction and the failure to 10 provide accurate information on the license 11 application. It was subsequent to the SOAH Judge's 12 ruling that we received information that the 13 conviction was set aside. So for whatever it's worth, 14 that was not a part of the record. 15 COMMISSIONER SCHENCK: Well, I'll ask 16 one more question. Was it subsequent to the SOAH 17 Judge's recommendation that, in fact, the conviction 18 was set aside? What was the date of the SOAH Judge's 19 recommendation that we recall? 20 MR. WHITE: I don't recall for certain, 21 but I believe it was set aside subsequent to the ALJ 22 issuing his proposal for a decision. 23 COMMISSIONER SCHENCK: Okay. 24 MR. WHITE: Certainly we learned about 25 it subsequent to the -- 0151 1 COMMISSIONER KRAUSE: Comedy ensues. 2 COMMISSIONER SCHENCK: I'm going to make 3 a motion that we pass this item and that we bring it 4 back up after we've done some further investigation of 5 the jurisdictional authority of the district judge to 6 have undone this order. And even if we determine the 7 answer is yes, we may decide on the basis of the 8 failure to disclose the fact of the conviction, that 9 we might revoke this license on that basis. 10 MR. WHITE: Yes, sir. And there is one 11 other option I guess I ought to bring up then, that 12 you could remand this back to SOAH and have them 13 relook at it and consider it so the SOAH judge has 14 before him the new information that the conviction was 15 allegedly set aside and see what the recommendation is 16 based. 17 COMMISSIONER KRAUSE: He's already had a 18 mulligan. 19 CHAIRMAN WILLIAMSON: So if I understand 20 it, there is a motion right now. 21 COMMISSIONER KRAUSE: I second it. 22 CHAIRMAN WILLIAMSON: All in favor? 23 COMMISSIONER SCHENCK: Aye. 24 COMMISSIONER KRAUSE: Aye. 25 CHAIRMAN WILLIAMSON: Aye. Motion 0152 1 passes. 2 MS. JOSEPH: I have orders for the 3 Commissioners to sign in the other. 4 AGENDA ITEM NO. XXV 5 CHAIRMAN WILLIAMSON: Okay. And there 6 is no public comment at this time that I'm aware of. 7 COMMISSIONER SCHENCK: Just to be clear, 8 these are the four that we -- 9 MS. JOSEPH: Yes. 10 AGENDA ITEM NO. XXVI 11 CHAIRMAN WILLIAMSON: The time is 12:08. 12 And at this time, the Texas Lottery Commission will go 13 into executive session. 14 (Off the record for executive session: 15 12:08 p.m. to 1:48 p.m.) 16 AGENDA ITEM NO. XXVII 17 CHAIRMAN WILLIAMSON: We are back from 18 executive session at 1:48. 19 AGENDA ITEM NO. XXVIII 20 There being no further business to 21 conduct, the meeting is adjourned. 22 COMMISSIONER SCHENCK: Thank you. 23 (Meeting adjourned at 1:48 p.m.) 24 25 0153 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 27th day of August 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