0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 BINGO ADVISORY COMMITTEE 4 (TEXAS LOTTERY COMMISSION) 5 AUSTIN, TEXAS 6 7 MEETING OF THE BINGO § 8 ADVISORY COMMITTEE § WEDNESDAY, JUNE 1, 2011 § 9 10 11 12 COMMITTEE MEETING 13 WEDNESDAY, JUNE 1, 2011 14 15 16 17 BE IT REMEMBERED THAT on Wednesday, the 18 1st day of June 2011, the Bingo Advisory Committee 19 meeting was held from 10:00 a.m. to 11:50 a.m., at the 20 Offices of the Texas Lottery Commission, 611 East 6th 21 Street, Austin, Texas 78701, before KIMBERLY ROGERS, 22 Chair. The following proceedings were reported via 23 machine shorthand by Lou Ray, Certified Shorthand 24 Reporter. 25 0002 1 APPEARANCES 2 BINGO ADVISORY COMMITTEE MEMBERS PRESENT: 3 Ms. Kimberly Rogers, Chair 4 Mr. Francis M. Ciancarelli Mr. Thomas "Tom" Weekley 5 Mr. Emile S. Bourgoyne Mr. Earl Silver 6 7 CHARITABLE BINGO OPERATIONS DIVISION DIRECTOR: 8 Mr. Phil Sanderson 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 TABLE OF CONTENTS 2 PAGE NO. 3 AGENDA ITEM NO. 1 - The Bingo Advisory Committee will call the meeting to order....... 4 4 AGENDA ITEM NO. 2 - Consideration of and 5 possible discussion and/or action on the minutes of the March 9, 2011 Bingo 6 Advisory Committee meeting..................... 4 7 AGENDA ITEM NO. 3 - Report, possible discussion and/or action on the 82nd 8 Legislature.................................... 5 9 AGENDA ITEM NO. 4 - Report, possible discussion and/or action on Bingo Public 10 Service Announcement........................... 8 11 AGENDA ITEM NO. 5 - Report, possible discussion and/or action on calendar year 12 2011 1st quarter bingo conductor information... 9 13 AGENDA ITEM NO. 6 - Report, possible discussion and/or action on new rule to 14 increase temporary license fees for new computer system costs.......................... 13 15 AGENDA ITEM NO. 7 - Report and possible 16 discussion and/or action on the 2010 Bingo Advisory Committee Annual Report and the 17 Work Plan...................................... 68 18 AGENDA ITEM NO. 8 - Report and possible discussion and/or action on nominations for 19 Bingo Advisory Committee positions.............. 81 20 AGENDA ITEM NO. 9 - Public comment............ 86 21 AGENDA ITEM NO. 10 - Consideration of and possible action on future Bingo Advisory 22 Committee meeting dates and/or items to be considered for future meetings................. 86 23 AGENDA ITEM NO. 11 - Adjournment............... 88 24 REPORTER'S CERTIFICATE......................... 89 25 0004 1 P R O C E E D I N G S 2 WEDNESDAY, MARCH 9, 2011 3 (10:00 a.m.) 4 AGENDA ITEM NO. 1 5 MS. ROGERS: Good morning, ladies and 6 gentlemen. It is now 10 a.m. This meeting will be 7 called to order. We do have a quorum. We are missing 8 members Kenneth Messer, Michael Beilue and Melissa 9 Young. 10 AGENDA ITEM NO. 2 11 Our first order of business, Item No. 2, 12 is consideration of and possible discussion and/or 13 actions of the minutes of the March 9th, 2011 Bingo 14 Advisory Committee meeting minutes. These are as they 15 are posted online. 16 I did notice that there needs to be one 17 change. That is on page 5, line 9, where it says "all 18 of the," it needs to read "all other." So "of the" 19 needs to be scratched and "other" needs to be inserted. 20 Members, did you find anything else? 21 MR. SILVER: No, ma'am. 22 MS. ROGERS: Do I have a motion to accept 23 the minutes as they are posted online with this one 24 change? 25 MR. CIANCARELLI: I'll make a motion. 0005 1 MS. ROGERS: Thank you, Francis. 2 Do I have a second? 3 MR. WEEKLEY: I'll second it. 4 MS. ROGERS: Thank you, Tom. 5 All those in favor of accepting the 6 minutes as they are posted online with the one change? 7 (All those voting in favor so responded) 8 MS. ROGERS: Thank you. 9 All those opposed? 10 (No response) 11 It is unanimous. We will accept the 12 minutes as they were posted online with the one change 13 for the March 9th meeting. 14 AGENDA ITEM NO. 3 15 Item No. 3, report, possible discussion 16 and/or action on the 82nd Legislature. Ms. Nelda 17 Trevino. 18 Good morning. 19 MS. TREVINO: Good morning. Good morning 20 again, Madam Chair and Members. For the record, I'm 21 Nelda Trevino. I'm the Director of Governmental 22 Affairs. 23 The last day of this regular session was 24 May 30th, and in your meeting packet we provided you 25 with a tracking report of bills filed during this 0006 1 regular session that impacted charitable bingo. 2 Is this on? 3 MR. SANDERSON: Yes. 4 MS. TREVINO: I would like to highlight 5 four bills approved by the Legislature that are included 6 in your tracking report. The first bill, House Bill 1, 7 is the general appropriations bill for the 2012-2013 8 biennium. Included in the Lottery Commission's 9 appropriation is the funding of $2.5 million and the 10 capital budget authority for the redesign of the 11 automated charitable bingo system. This funding is 12 contingent on a one-time license fee increase for bingo 13 conductors and lessors. I know Phil will be addressing 14 this in more detail in an upcoming item on your agenda. 15 Separate from this increase and as part of 16 the 5 percent across-the-board reduction, bingo's 17 administrative budget was reduced by $1.3 million, and 18 the division staffing was reduced by 12 FTEs. 19 The next bill, House Bill 4, by 20 Representative Jim Pitts, this bill relates to 21 supplemental appropriations for the current fiscal year. 22 The bill includes 2 point -- includes the 2.5 percent 23 budget reduction for the bingo division that's 24 previously identified and incorporated in the agency's 25 operating budget for this fiscal year. 0007 1 The next bill, House Bill 2728 by 2 Representative Senfronia Thompson. This bill relates to 3 the operation and regulation of charitable bingo. The 4 final version of this bill simply includes clarifying 5 language related to the term of "crime of moral 6 turpitude" and also clarifies procedures related to the 7 transfer of a commercial lessor license. 8 Senate bill 1342 is by Senator Kel 9 Seliger. This bill authorizes the use of bingo proceeds 10 as an allowable expense to provide health insurance 11 benefits for bingo employees. Bills approved by the 12 Legislature during this regular session will be reviewed 13 by the governor, and he has until June the 19th to 14 either sign or veto bills, or let them become law 15 without his signature. 16 And I'm sure as you-all are aware, the 17 Legislature convened its first called special session 18 yesterday to consider matters that have been specified 19 by the governor, and we'll certainly keep you posted on 20 anything that may be filed that may impact the agency. 21 This concludes my report, and I'll be glad 22 to answer any questions. 23 MS. ROGERS: Thank you. 24 MR. SILVER: I just have a question. I 25 don't know if you can answer it. I didn't read about 0008 1 the special session. I knew it was happening. Did 2 Governor Perry put a scope or -- some type of scope on 3 it? 4 MS. TREVINO: Yes. Yes, in the special 5 session the governor sets the call, which it's referred 6 to. That's basically the agenda and that's how it's 7 referred to. And what has been said so far, it's state 8 fiscal matters, some healthcare issues and now 9 Congressional redistricting. 10 MR. SILVER: Thank you. 11 MS. TREVINO: Any other questions? 12 MS. ROGERS: Members, any other questions? 13 No? 14 Thank you so much. 15 MS. TREVINO: Thank you. 16 AGENDA ITEM NO. 4 17 MS. ROGERS: Moving on to Item No. 4, 18 report, possible discussion and/or action on bingo 19 public service announcement, Mr. Phil Sanderson. 20 MR. SANDERSON: Good morning, Members. 21 The bingo division, with the assistance of media 22 relations, has developed the 2010 -- the calendar year 23 information public service announcement. It's available 24 on our web site and people can download it and take it 25 to the radio stations or TV stations and see if they 0009 1 will play the public service announcement. And I'll go 2 ahead and play a clip. 3 (Video plays) 4 MR. SANDERSON: Then there is also a 5 Spanish version. 6 (Video plays) 7 MR. SANDERSON: And as I mentioned, both 8 of these are available on our web site under the 9 player's category of public service announcement. It's 10 the bingo PSA for 2011 in English as well as in Spanish. 11 And I'd like to thank media relations for their 12 assistance in developing this public service 13 announcement. And that's all I have. 14 MS. ROGERS: Thank you very much. That's 15 very interesting. I think it would help -- I know Rosa 16 used to do a lot of PSAs for her local television and 17 they would play it when they had dead air time. 18 Members, any questions? 19 (No response) 20 AGENDA ITEM NO. 5 21 MS. ROGERS: Okay. Then we will move on 22 to Item No. 5, report, possible discussion and/or action 23 on calendar year 2011 first quarter bingo conductor 24 information. Mr. Bruce Miner. 25 MR. MINER: Good morning, Committee 0010 1 Members, Chairman Rogers. For the record, my name is 2 Bruce Miner, and I'm the manager of the taxpayer 3 services department. I'm here to present a quick 4 summary of the 2011 first quarter information reported 5 by licensed authorized organizations. 6 This chart shows a comparison of gross 7 receipts for the first quarter of each year from 2008 to 8 2011. As you can see, the total receipts have dropped 9 slightly from the same period last year. Regular bingo 10 and electronic sales continues its downward trend for 11 each year, while instant bingo sales continues its 12 upward trend. As you can see, this is the first time 13 that both regular and electronic sales and instant sales 14 are each approximately 50 percent of total sales. 15 This next slide shows a comparison of net 16 receipts for the first quarter of each year '08 through 17 2011. And this slide captures the trend in net 18 receipts, with gross receipts minus prizes. The total 19 net receipts shown here in green has dropped below the 20 level that it was 2008. 21 These next slides overlay the comparison 22 between the required distribution and net proceeds and 23 the actual reported distributions. First we have the 24 required distributions used in 35 percent calculation 25 prior to October 1st, 2009, and net proceeds for the 0011 1 first quarter of 2010-2011. It shows the required 2 distributions declined from a high of 2.4 million in 3 2009 to a low of 1.3 million for this year, reflecting a 4 drop of almost 46 percent in the past few years. 5 We can now compare these figures to the 6 net proceeds as defined in the revised bingo enabling 7 act, net proceeds as gross receipts minus prizes and 8 expenses, and it has dropped about 19 percent since 9 2009. 10 And this last slide overlays the actual 11 reported charitable distributions to the amount required 12 to be distributed and to the net proceeds amount. This 13 shows that the organizations continue to distribute more 14 than required for their charitable purpose. And there's 15 additional information from an analysis performed by 16 Arlette Taylor (phonetic), our operations planning and 17 performance coordinator. 18 And that concludes my report for this 19 item, and I'll be glad to answer any questions you may 20 have. 21 MS. ROGERS: Thank you, sir. That's very 22 informative. 23 I just want to say I found something 24 very -- I don't know if interesting is the right word to 25 use because I don't know if it's interesting. Our 0012 1 occasions went up 1.3 percent, and I'm guessing that's 2 due to more temporaries were allowed, but yet our net 3 receipts didn't go up and our attendance decreased. 4 We're playing more bingo, but we don't have more people. 5 You would think we were playing more, we'd have more 6 people coming. 7 MR. MINER: Yes. The average attendance 8 is not up. 9 MS. ROGERS: All right. Thank you. 10 MR. SILVER: Bruce, on slide 2 -- you 11 don't have to go to it -- I think it states on your 12 summary -- I didn't read the summary. I was just taking 13 it off your notes -- gross receipts are down, net 14 receipts are down, the net proceeds are down. With 15 those three items, would you say there's a downward 16 trend in bingo? 17 (Laughter) 18 MR. MINOR: I think "down" is the 19 operative word, yes, sir. 20 MR. SILVER: Okay. That's just my 21 question. Thank you. 22 MS. ROGERS: Members, any other questions 23 for Mr. Miner? 24 (No response) 25 Thank you, sir, very much for that. 0013 1 AGENDA ITEM NO. 6 2 We will now move on to Item No. 6, report, 3 possible discussion and/or action on a new rule to 4 increase temporary license fees for new computer system 5 costs. Mr. Phil Sanderson. 6 MR. SANDERSON: Good morning, Members, 7 Chairman Rogers. I would like to start off by letting 8 you know that the Commission has asked your assistance 9 in developing a plan and methodology to increase the 10 license fees for conductors and lessors in a sufficient 11 enough amount to raise 2.5 million for development of a 12 new system. 13 And I was thinking this morning, bingo 14 started in 1980, so they've created a system in 1980 15 over at the Comptroller's Office. In 1990 it moved to 16 the Texas Alcoholic Beverage Commission where -- that 17 was 10 years later -- they created a new system. It 18 came over to the Lottery Commission in '94 and in 2000 19 we developed a new system and here we are in 2011. 20 So it appears that there is a trend where 21 the systems -- they tend to go out of support, lose 22 support, go out of warranty, whatever the different 23 terminologies are. And so there comes a time to 24 redesign and redevelop using the new modern technology. 25 The division and the agency requested the 0014 1 funding last session in 2009, and we were told in the 2 subcommittee -- appropriations subcommittee to come back 3 in 2011 and request it, which we did. And we had it on 4 our LAR, our legislative appropriations request. And 5 they determined that they would not fund it, but we 6 could ask for it as an exceptional item. 7 And we were told that they were not going 8 to accept any exceptional items that really had a cost 9 to the appropriations bill, so we proposed a contingency 10 rider to increase license fees as we did back in 2000 to 11 develop the new system. It would be a two-year increase 12 over the next biennium and sufficient enough to cover 13 the system. 14 The methodology that was used last time 15 was a percentage of increase over certain classes of 16 organizations that are the conductor and the lessor 17 license classes. We similarly had put out a draft rule 18 similar to that with a 25 percent increase for 19 conductors each year and a 100 percent increase for the 20 commercial lessors each year. As you know, the division 21 collects about -- a little over 2.6 -- $2.8 million in 22 license fees annually. And so in order to raise 2.5 23 million we almost have to initially double everyone's 24 license fees for at least a period of time. 25 So I'm asking that you deliberate and come 0015 1 up with a methodology. I know it's not a popular event. 2 I know people aren't excited about paying an increase in 3 the license fees. We cannot ask the manufacturers and 4 the distributors to increase their license fees. That 5 is set by statute. We understand and the Legislature 6 understands that we do collect enough revenue over and 7 above what our appropriation is, including the price of 8 the allocations, and so those are not necessarily items 9 for discussion, per se, but, you know, we understand 10 that and I know you understand that. 11 So the methodology is what we're looking 12 at. As I mentioned, the first draft we came out with as 13 a percentage increase, been in discussion with legal 14 counsel. Another method that we've looked at is 15 assessing a percent of gross receipts and a percent of 16 rental receipts to capture that increase. There would 17 be a -- one of the models that we have has a two-tenths 18 of a percent tax -- or fee on the gross receipts for 19 conductors. The other one has a graduating scale for 20 commercial lessors, anywhere from one-and-a-third 21 percent up to two-and-three-quarters percent. 22 This way -- we've looked at that model, 23 and it seems to distribute more evenly the fee increase 24 to those organizations that have the higher gross 25 receipts and higher gross rental tax -- or gross rental 0016 1 receipts as opposed to those that are in the smaller A 2 and B classes, so the proportionate would be more fair. 3 So with that I'll ask Joan Kotal, our 4 manager of our information technologies department and 5 administration, to provide you some information on the 6 reasoning and the cause for having to develop this new 7 system. 8 Joan? 9 MS. KOTAL: Hi. For the record, I'm Joan 10 Kotal. I'm the information technology manager for the 11 Texas Lottery Commission. 12 I'm not sure that I can add very much to 13 what Phil has said. There has been a preliminary 14 analysis done of the current system. It is an old 15 system. The tools that -- the development tools that 16 has been used more than 10 years ago to develop ACBS is 17 going to be going out of support, and that is the 18 primary reason for needing to do the system. 19 The second primary reason is the fact that 20 we have been asked to do a lot of improvements. There 21 have been several sessions -- legislative sessions, a 22 lot of the business has changed. In order for the 23 system to support the business and be able to provide 24 the additional functionality like users being able to 25 connect, make payments over the web, file reports, apply 0017 1 for a license, that cannot be done using the current 2 tool set that we're using. So with this we've done a 3 preliminary analysis of being able to conduct an 4 analysis of all the business requirements and the needs 5 of the system and then develop the system in order to 6 meet all the current business needs as defined and 7 that's how that -- the amount was configured on the 8 hours it would take to do that. 9 Any questions? 10 MR. SILVER: Yes, ma'am. What system are 11 we currently using now? 12 MS. KOTAL: ACBS? I'm not sure I 13 understand the question. 14 MR. SILVER: I'm not sure if I'm asking 15 the right question. I'm just trying to understand, 16 like, what system are we proposed to go to, like a 17 software manufacturer or something? 18 MS. KOTAL: Oh, for this tool set for what 19 we would be using, we would be using a Java platform. 20 MR. SILVER: A what? 21 MS. KOTAL: A Java -- a Java development 22 platform. 23 MR. SILVER: Are we using a software 24 system now that has a similar name? 25 MS. KOTAL: We are using a tool set called 0018 1 forms for -- it's called forms for any development for 2 Windows and screens and it's called reports for -- 3 MR. SILVER: Okay. What software is going 4 out of support? 5 MS. KOTAL: The -- actually it's the 6 application. The current -- I'll have to get a little 7 technical. 8 MR. SILVER: You probably would go way 9 over my head -- 10 MS. KOTAL: Okay. So I'll try to say it 11 in terms -- the way the current application is, it's a 12 client server application. It is not a web application. 13 So client means you've got code that sits on a PC, a 14 desk top, and then you have code that sits on the back 15 end on a server. It's a client server that communicates 16 in that way. There's got to be a piece-- there's a 17 piece in the middle, so it's really a three-tier 18 architecture. It's client and you have a server and you 19 have what's in the application server in the middle. 20 That application server is -- will be going out of 21 support, and all the focus is to go to, like the rest of 22 the world, to web apps, whether it's on the Internet or 23 an inside called intranet, it's going towards web 24 applications. 25 MR. SILVER: See I understood all that. 0019 1 MS. KOTAL: Good. Thank you. 2 MR. SILVER: I was just curious about the 3 term "out of support." There seems to be a manufacturer 4 tied to that, like if you had a technical issue you 5 would go to like an 800 number or -- I'm being very 6 mundane about it. 7 MS. KOTAL: Okay. 8 MR. SILVER: Like an 800 number you could 9 call and say "I have an issue with this." Is that kind 10 of what you mean? 11 MS. KOTAL: Yes, sir. Yes, that's kind of 12 what we mean. And what happens is that, you know, 13 vendors have different -- different products. And so 14 the development tool set that we were using has now been 15 digressed to Internet application -- or we call it web 16 technology -- which not a three-tier client server 17 architecture. So you will still have that app server, 18 but they're taking that app server and the robustness 19 for that support, the web apps. And so that web 20 support -- they're moving all web support -- all of 21 their apps are moving to web development. It sounds 22 complicated and I don't mean to confuse -- 23 MR. SILVER: No, you're doing fine. As 24 far as the out of support -- I mean, as far as like a 25 manufacturer or whomever out of support, it's either 0020 1 technical support or just like development support or 2 maintenance support. 3 MS. KOTAL: Both. All three. 4 MR. SILVER: All three? 5 MS. KOTAL: When they -- technically what 6 they usually do is say, you know, we're just not going 7 to do any new development on that platform, and that's 8 what they came back with originally. And then the 9 vendor came back and actually -- they've revised it 10 multiple times and has said we're not going to -- not 11 only are we not going to do any development, we won't -- 12 and eventually the product dies and you just can't get 13 any support. When you call a 1-800 number, you're just 14 out of luck. 15 MR. SILVER: Yeah. Well, I'm probably 16 thinking about this way too simplistically. But when I 17 was a PC man, if I had a problem with windows, I never 18 called Microsoft. It's $35 just to even get them on the 19 phone. I called a computer store, and they were able to 20 assist me. 21 On a much larger scale than what you're 22 dealing with, is there a third party that would be able 23 to give you the support that you would need on this 24 system temporarily? 25 MS. KOTAL: Well -- 0021 1 MR. SILVER: -- that would probably -- 2 MS. KOTAL: -- the answer would be 3 probably yes. I'm sure there would be a company who 4 would say, you know, let's form a company, I know this 5 old technology. I know there are places where you can 6 get COBAL support. And their customer sources, you 7 know, is -- their customers are shrinking by the numbers 8 as people convert. 9 MR. SILVER: Yeah. 10 MS. KOTAL: But you probably still have 11 some of those legacy. Your challenge in lacking of 12 support being able to go to another company is still not 13 having the ability to do the kinds of -- support the 14 business. You don't want technology to drive your 15 business, so we're trying to support the business so 16 that they can do the things they want and need. And we 17 do that as a department for the entire Texas Lottery 18 Commission. And so while everything is kind of -- our 19 tool set has been doing web development for all of our 20 applications in this agency. 21 MR. SILVER: This new software, would it 22 be strictly bingo or would it be for the Texas Lottery 23 to use at its pleasure? 24 MS. KOTAL: The money that Phil talked 25 about, this would be an application strictly for bingo. 0022 1 The development tool set is already being used for the 2 entire agency. But the system that we would be 3 developing would be strictly for bingo. 4 MR. SILVER: Okay. So the money that was 5 spent from increased license fees would go strictly for 6 bingo use application. It wouldn't be leached on by the 7 lottery or -- 8 MS. KOTAL: Absolutely. 9 MR. SILVER: Okay. 10 MS. ROGERS: But then we would be using 11 the same system as the lottery uses? 12 MS. KOTAL: The automated charitable bingo 13 system is strictly for bingo. The same tool set would 14 be used as it's already being used for lottery 15 applications. 16 MS. ROGERS: So is this new tool set being 17 purchased or being -- by a company that the lottery uses 18 and we know it's going to last us another ten years -- 19 we hope, of course. 20 MS. KOTAL: I would be beyond my skill set 21 or knowledge to guess in ten years what technology -- as 22 long as I've been in this business, ten years is a long 23 time for any technology. But the rest of the lottery 24 already uses the new skill set and have for quite some 25 time because of the business need for web apps and 0023 1 transactions. 2 MS. ROGERS: So I guess what I'm trying to 3 say is what y'all are going to put into place for bingo 4 we have ran and tested through the lottery and they know 5 it works well, it works for everything they want to do? 6 I'm just -- 7 MS. KOTAL: Yes. We are using that tool 8 set and have been for several years already -- 9 MS. ROGERS: Okay. Great. 10 MS. KOTAL: -- for other applications. 11 MS. ROGERS: Go ahead. 12 MR. BOURGOYNE: As I understand it, this 13 2.5 million is for software and code ware -- no 14 hardware? 15 MS. KOTAL: That's correct. 16 MR. BOURGOYNE: That seems a little high 17 for just software and code routing without hardware. 18 MS. KOTAL: It is -- it includes 19 analysis -- the bingo system is fairly large and has a 20 large -- thousands of business requirements and rules 21 that go into that. Along with that becomes the analysis 22 of working with the business side to actually come up 23 with what those requirements of a new system would need 24 to be. 25 MR. BOURGOYNE: And how did we arrive at 0024 1 the $2.5 million. 2 MS. KOTAL: We looked at the past systems 3 that were developed, the amount of effort that was done 4 in doing those analysis and the coding, and looking at 5 what current -- over the ten years that we've been doing 6 this, all the changes and improvements we've made to 7 it -- and estimated the number of hours for analysis and 8 development using all that historical information, and 9 then estimated what the cost -- based on those hours 10 what the average cost is for an analyst position per 11 hour and development for coding and that's how we 12 arrived at that estimate. 13 MR. SILVER: Was there a specific budget 14 or a specific quote that was given by the vendor for the 15 software and however the web app or -- and you put in 16 your labor in there? Was there a specific number? Was 17 it 2.5 million on the dot or was it, like, 2 and rounded 18 up to 2.5 or -- 19 MS. KOTAL: The 2.5 actually -- it was 20 rounded down to 2.5 million. If I remember it was 2.5 21 and some change. 22 MR. SILVER: So it was -- 23 MS. KOTAL: Yes. But it was not based on 24 any software we're purchasing. We're not actually going 25 out and buying a piece of software off the shelf. It is 0025 1 all going to be custom developed and designed to meet 2 their business rules. The tool set is already in-house. 3 You won't be asked to purchase that. 4 MR. SILVER: So then isn't 2.5 -- I mean, 5 it's 2.5 for not even software, just basically man 6 hours? 7 MS. KOTAL: It is -- it is a significant 8 number of man hours, at least nine months of analysis 9 work and requirements documentation. 10 MR. BOURGOYNE: Any permanent positions 11 included? 12 MS. KOTAL: No, because we don't have the 13 full-time positions to allocate to them. It was all 14 looked at contracted labor, other than the two 15 programmers we have devoted in-house. 16 MS. ROGERS: So if it's going to take them 17 nine months to just -- 18 MS. KOTAL: Just do analysis. 19 MS. ROGERS: -- just to do the analysis, 20 we're got going to have our 2.5 million for over two 21 years, who's going to pay them up front? How does that 22 work? 23 MR. SANDERSON: Once the rule is adopted 24 by the Commission and we submit it to the Comptroller's 25 Office to yet it certified -- I don't know if I'm using 0026 1 the right terms. Ms. Pyka is in the audience, she can 2 help me with it. The Comptroller has to look at the 3 rule and look at our estimations and our trends and say 4 based on the information that you've given us, with 5 these fee increases, you know, we certify that you can 6 raise the 2.5 million. So they would actually put it in 7 our appropriation at day one, September 1. So we would 8 have the money appropriated to us. And as the fees come 9 in, that portion of those fees would be reappropriated, 10 you know, as far as on the books back to us. 11 MS. ROGERS: Okay. That's -- 12 MR. SANDERSON: I believe that's -- 13 UNIDENTIFIED SPEAKER: That's correct, 14 Phil. Very nice. 15 (Laughter) 16 MS. ROGERS: Any other technical 17 questions -- not figure questions, technical questions. 18 MR. CIANCARELLI: I have some questions. 19 This is Francis Ciancarelli for the record. 20 Ms. Kotal? 21 MS. KOTAL: Kotal. 22 MR. CIANCARELLI: Kotal. The status of 23 the design for this web-based Java client server, which 24 is going to require nine months of contracted labor, is 25 that design work already done? 0027 1 MS. KOTAL: No, sir. It's actually any 2 kind of project is broken into actually three phases. 3 The first phase is the analysis and the requirements 4 gathering for any new system or development. The second 5 phase is actually the programming based on those 6 requirements, and then you have testing and 7 implementation. 8 So those are the three phases. You've got 9 design, development, and the design has not been done. 10 There are not sufficient resources in-house. We have 11 two programmers assigned and so we would look at nine 12 months of intensive analysis and requirements gathering 13 with the bingo staff, the division staff, by analysts. 14 MR. CIANCARELLI: Thank you. As far as 15 this system design, are you going to include any input 16 from the BAC or the work committee, so I assume that the 17 server, let's say, is the Texas Lottery Commission and 18 then the tool set and then you've got the client, which 19 I assume is the charitable bingo operations division, 20 but I'm hearing that it's going to change and the people 21 in the field, in the bingo halls, can get on the web be 22 and do more. So are you considering that input? 23 MS. KOTAL: Correct. When we are in that 24 requirements phase and we began -- we haven't begun this 25 process yet because we've waited on -- to be able to 0028 1 supply staffing for that. We will work with 2 Mr. Sanderson and his department on all -- to identify 3 all the users that should be involved in that interview 4 and requirements phase. 5 MR. CIANCARELLI: Thank you. One last 6 question, I guess. I know from what you're saying we're 7 early in the design phase, but is there anything that we 8 could look for savings in paperwork, in that kind of 9 opportunity of savings, that could recover some of the 10 license fees increasing coming from the operators and 11 lessors? 12 MS. KOTAL: That's probably a better 13 question for Mr. Sanderson. As we automate things, I'm 14 not sure what his cost savings would be as opposed to 15 the staffing process now. So I would defer that to 16 Mr. Sanderson. 17 MR. SANDERSON: I think part of it also 18 initially is the fact that this last -- or this current 19 session our appropriation for was cut 23 percent. As 20 Ms. Trevino mentioned earlier, that's the equivalent of 21 12 full-time employees that we won't have starting 22 September 1. So any help that we can get from the new 23 system that makes online activity, you know, beneficial 24 to both the operators, conductors, lessors and the 25 division would definitely make things more efficient for 0029 1 everyone. 2 MR. CIANCARELLI: Thank you. 3 MS. ROGERS: Any more technical questions? 4 (No response) 5 Thank you so much for your information. 6 MS. KOTAL: Thank you. 7 MS. ROGERS: Now going to the discussion 8 of the funding of this, I was the person where all the 9 comments came online, and I received four, everyone 10 pretty much with the same exact comments. Of course no 11 one wants to have to pay more money in any business. If 12 you're not taking any money, it seems kind of silly to 13 go spend 2.5 million. 14 But the main focus was we have 15 administrative hold licenses. We have 65 conductors and 16 109 lessors. By charging our lessors $5,000, and by 17 charging the conductors 3,750 -- I've spoke with two, 18 and they automatically said: We'd just let our license 19 go. Because they -- if they're not performing any -- if 20 they're doing any bingo, they're not going to get any 21 funds. So they have no way to pay for that. And I 22 completely agree. 23 If we get rid of those administrative hold 24 licenses, then there's not a shock that that's going to 25 come back and ever make the state any money. And I 0030 1 understand Phil is working with us -- it's great. You 2 know, we need solutions at this time. We can all stand 3 up here and gripe and talk about how this really stinks 4 for everyone, but we've got to figure out a different 5 way than to put such a hard fee on administrative hold. 6 Because what's going to happen, that figure -- if you 7 multiply the 5,000 times the amount of commercial 8 lessors that we have administrative hold -- and I think 9 I came up with like 545,000, we're not going to get that 10 because they're all going to say -- well, unless they're 11 grandfather licenses, and I don't know the difference -- 12 I did not ask for the figures of the two differences. 13 With the charities, there is, you know -- 14 you're not going to get that money, I don't think. I 15 think they're going to give their license up. And so 16 then we're -- then we're going to be back -- almost 17 walking backwards because now we've got to recoup those 18 fees that we didn't get. 19 So one suggestion that I had or a question 20 I had that, Phil, you could maybe answer this: I 21 understand by statute you are only able to make this 22 rule a two-year term. Correct? 23 MR. SANDERSON: Well, the statute doesn't 24 necessarily make it a two-year rule. It's the policy 25 and the practice that we only need this additional 0031 1 funding for two years -- 2 MS. ROGERS: Okay. 3 MR. SANDERSON: -- is why it's just for 4 the two-year period. 5 MS. ROGERS: We only need the funding for 6 two years. If you go with these fees, we would 7 accumulate enough money within two years? 8 MR. SANDERSON: Yes. 9 MS. ROGERS: Okay. Wouldn't it be maybe 10 something to look at to spread it out longer? No one 11 wants to make payments longer. I understand that. But 12 it makes the payments easier to swallow, and we can 13 adjust down the administrative hold licenses. 14 MR. SANDERSON: Well, first thing, you 15 know, I have a -- also heard some of the same concerns 16 about the administrative hold, especially as it relates 17 to the conductors. So we're revisiting the conductors' 18 administrative hold and, you know, what that fee might 19 be, probably significantly less and go back to what the 20 original license fee is. 21 As far as the lessors and commercial 22 lessors go, there's 107, 105, it fluctuates every, you 23 know, day as to how many are administrative hold. The 24 majority of those are the grandfather lessor licenses. 25 And, of course, you know, I think that that's the -- you 0032 1 know, I think that that is a license that has some sort 2 of value and I think that there needs to be, you know, 3 some fee associated with that license to help defray 4 some of the costs. Most of the lessors are for-profit 5 and so I think that's where, you know, we're looking at, 6 you know, the fee increases on that on the lessor side 7 to keep the non-profits from having to suffer the higher 8 license fees. 9 MS. ROGERS: And I agree with that. And I 10 don't know -- I have not looked into the cost of a 11 grandfather license lately, but last time I was hearing 12 about one for sale, it was about 40 or 50,000 maybe. 13 And so in two years you spend 20,000, you know, that's 14 going to equate out there, too. 15 MR. SANDERSON: Well, actually, over the 16 two years you would just spend -- well, you spend 10,000 17 but ---I guess, yeah, compared to the current fee of 18 $100. Out of the hundred-plus commercial lessors that 19 are on administrative hold, I believe 95 of those have 20 not even collected any rent or been active at all for 21 the last four quarters for the last year. And so I 22 think that that's another area that -- you know, it's a 23 lessor license is a lot easier to obtain. They can file 24 the application. We can process it a whole lot quicker 25 than we can the conductor license. And so, you know, 0033 1 that would be a business decision if someone wants to 2 surrender their lessor license or let it expire. 3 MR. SILVER: Is that -- I'm sorry, Kim. 4 That seems like the goal right now is eliminating the 5 commercial license on administrative hold, because you 6 were talking about doubling license fees earlier, but 7 you're going up 500 percent -- I think it's 500 percent 8 if my math is right -- 500 percent increase in fees 9 because you pay, I think, a hundred dollars a year and 10 now you want to charge $5,000 for something that's not 11 generating any income? Just because a commercial is a 12 for-profit doesn't mean they're making any profit. 13 According to the numbers in the quarterly 14 report, rent payments are down. And I think there's 15 going to be testimony later about the average rent 16 payment or the average -- yeah, rent payment per session 17 has gone down also. So if rent payments are down -- and 18 actually this is -- rent payments shouldn't even come 19 into effect with something on administrative hold, 20 because there is no rent. And we have here on E -- I 21 mean this tier class A, B, C, D through J -- I mean, it 22 should all be zero because administrative holds don't 23 have any gross receipts. And then if they came off 24 administrative hold, then it would -- go over to this 25 other page. But charging something on administrative 0034 1 hold that does not generate any income $5,000 or $10,000 2 over two years -- I mean, I'm a commercial lessor and 3 that's going to be a big hit to us because, like I said, 4 rent payments are down and everybody is struggling. 5 So why keep charging somebody who's 6 struggling, even though -- you don't want to do it to 7 the nonprofits -- it seems like a little bit more like 8 sticking the stiletto right in somebody's back by 9 charging them something that they only pay a hundred and 10 charging them $5,000. It seems you want -- it seems 11 like the Lottery Commission's agenda is to eliminate 12 these licenses just by this section right here. To me 13 that's what it seems like. 14 MS. ROGERS: And I truly believe that's 15 what will happen. I don't think business -- business 16 decision or not, if you're not making anything and it's 17 costing you $5,000 a year, I don't see many that would 18 keep it. But that's why I was asking if we do this -- 19 stretch it out over a longer period of time, maybe we 20 could make administrative hold -- I mean, if you went to 21 250 or 500, that would be a little easier to swallow 22 than 5,000. 23 MR. SANDERSON: Well, I -- the 2.5 million 24 we have to show collected within the two-year period. 25 So we can't extend it past 2013. It has to be collected 0035 1 by August 31st, 2013. 2 MR. BOURGOYNE: I have a question. In the 3 interest of fairness, since the manufacturers and 4 distributors are not included in any fee increases due 5 to statutory restrictions, have you considered the 6 special session remedying that situation since the 7 fiscal matters are on the table, or the costs? 8 MR. SANDERSON: I have not, no. 9 MR. BOURGOYNE: I'm not requesting that 10 you do, but I just -- 11 MS. ROGERS: That's okay. I request -- I 12 asked if we could -- if the lottery staff could put in a 13 computer usage fee to distributors and -- I'm sorry, you 14 know -- 15 MR. BOURGOYNE: Well, it just doesn't seem 16 fair -- 17 MS. ROGERS: Right. 18 MR. SILVER: -- we're the two licensees 19 that's not sharing the burden. 20 MS. ROGERS: Right. 21 MR. SILVER: I know Phil wants solutions; 22 he's asking for solutions. 23 MS. ROGERS: Yes, they're asking for 24 solutions, ideas. 25 MR. SILVER: There's so much wrong with 0036 1 this, it's just hard to even discuss. First of all, 2 gross receipts are down, net receipts are -- net 3 receipts are down, net proceeds are down, rent payments 4 are down. There's a downward trend in bingo. 5 Granted, Ms. Kotal -- is that right? 6 MS. KOTAL: Kotal. 7 MR. SILVER: -- Kotal. Thank you. 8 -- was mentioning that the system is 9 outdated and probably so. It probably is outdated 10 because there's no support. 11 Well, my brother-in-law has a 12-year-old 12 vehicle. And if something goes wrong with it, he 13 doesn't take it to the dealer. He takes it to a third 14 party to get fixed. In a downward economy -- Kim keeps 15 mentioning business, business, business. Well, this is 16 a state agency. It is never run like a business ever. 17 If this state agency was run like a business, it would 18 probably be profitable and you wouldn't have to go to 19 the Legislature to get appropriations because bingo can 20 fund itself. And that was the intent of the bingo 21 enabling act, for bingo to fund itself. 22 So instead of going ahead and spending 23 $2.5 million, charging everybody license fees, getting 24 everybody in an uproar over something that should be 25 replaced, and maybe has to be replaced, but it should be 0037 1 replaced because it's time, find a third-party who can 2 offer support or do something until the trend comes back 3 up. Because on a downward economy in business, when 4 everything is down, I am not going to go buy a new phone 5 system for the bingo hall. I'm not going to go out and 6 give everybody raises. It's time to shrink up and start 7 making do with what you have. 8 And I just think it's kind of silly to go 9 ahead and spend $2.5 million on something in a downward 10 economy on a downward trend. I mean, there could 11 show -- some numbers show it's going up, but it's not 12 when you look at specific things. 13 So my solution is, Phil, I know we need to 14 get it done and I know it should be done and it will 15 make life a whole lot easier. And you mentioned your 16 appropriations were cut 23 percent, which is crazy 17 because that money comes straight from bingo. Because 18 the intent of the bingo enabling act was for the money 19 to go to the state -- enough of the money so that bingo 20 can regulate itself and the rest needs to know to the 21 charities for their charitable purposes. 22 You should have everything you need, all 23 the resources you need, from bingo. And that's 24 something that's going to have to be addressed on why 25 this money -- is there too many license fees? Are we 0038 1 charging too much taxes? Or that money should be 2 rebated back to the charities. But I don't think the 3 system itself should be replaced right now because 4 everybody is hurting and the charities are just 5 screaming about donation and what they have to do. I 6 mean, they want more money. Everybody wants more money 7 because it was good a couple of years ago. And it may 8 have spiked a little bit, but it's still on a downward 9 trend. And I just think it's something that we may need 10 to address or maybe postpone for two years and see what 11 happens. 12 I mean, I agree with the computer system 13 to make it easier, because there's some places that you 14 can do everything online. I mean, if you pay your car 15 payment, credit card, health insurance, you can go, like 16 to Wells Fargo and pay it all with one click of the 17 mouse, and that would be awesome in bingo. However, at 18 this time, we may not be able to afford it. I mean, you 19 may drive out people with licenses on administrative 20 hold that are waiting for the trend to come back up so 21 they can put halls in locations and generate more money 22 for the lottery. I would say for the state, but that 23 was never the intention of the bingo enabling act is to 24 generate money for the state. It was to help the 25 charities regulate -- or pay for them to regulate 0039 1 themselves and help the charities with their charitable 2 purposes. 3 So maybe we just need to sit on this 4 10-year-old vehicle and bandaid it up for another two 5 years and, hopefully, the trend comes back up so you're 6 not killing people and not driving people out of 7 business. That's just my suggestion, because we talked 8 about suggestions earlier and I just wanted to make sure 9 that -- that was my suggestion. So... 10 MR. SANDERSON: Well, Earl, I think 11 another thing you need to consider and keep in mind is 12 that even with the current appropriation, you know, 13 funding for a bandaid fix and third-party support may 14 not even be an option. Because we're cut down pretty 15 much to the bare bones as it is right now. 16 MR. SILVER: I understand. 17 MR. SANDERSON: I wish you had been around 18 to testify at some of the public hearings for 19 appropriations. That might have helped. 20 MR. SILVER: I didn't know about those. 21 MR. SANDERSON: Okay. 22 MS. ROGERS: So with what Earl said, we 23 couldn't survive with what we have. I mean, I hear 24 everyone say -- and excuse me, but I'm not technically 25 just, you know, inclined when it comes to computers 0040 1 sometimes. Everyone says that it's going out. Is all 2 of this on a certain day all the computers in here are 3 going to shut down, or we just can't get help is what 4 the problem is. I understand we can't file online, we 5 can't pay online. I understand that part of it. Those 6 are the niceties that we would all love to have. But 7 would this system -- why won't it keep working as is? 8 MR. SANDERSON: Well, two things. One, I 9 think the system could limp along and probably keep 10 working. House Bill 2510 back in 2005 had some 11 significant changes to bingo and our system 12 requirements. While we have developed some 13 workarounds -- manual workarounds, the House Bill 2510 14 is fully implemented, but we're still spending 15 programming time on matters that, you know, came about 16 because of that legislation. Unit accounting, while it 17 appears to be something great for the charities, has 18 been a nightmare for the bingo division. And I know 19 that there's -- you know, letters as far as 20 organizations not reporting their changes timely, you 21 know, that's one of the reasons why we had the change in 22 the agreement rule a couple of months ago was to notify 23 us prior to, because if they notify us after a change 24 has taken place, then we have to spend programming hours 25 to fix the database because incorrect information was 0041 1 generated on the first day of each quarter. So there's 2 still a lot of things that are done because of that 3 legislation. 4 And the programming staff right now -- I 5 know Ms. Kotal mentioned we have two programmers, and 6 they are gracious enough to allow some other programmers 7 to assist when needed -- but if we just had the two we'd 8 probably be, you know, way over our head. So it's -- 9 the system really does need to be redesigned. It needs 10 to be updated. You know, I think that there is a -- you 11 know, there's positive to the new system. I know it's 12 not the opportune time to increase license fees. You 13 know, distributions were down just a little bit for 14 2010. Gross receipts were up for 2010, while the first 15 quarter does show a slight decrease. You know, there 16 again I think a lot of that is the economy. And quite 17 possibly even, you know, with gas and everything else, I 18 can't go out on a limb and state, but people may not be 19 going to Louisiana and Oklahoma as much and they may 20 stay, you know, closer to home and play. 21 So we don't know what the trend is. The 22 trend in my mind is fairly flat. If you look back at 23 the organizations that are licensed for the last two 24 years, we've stayed right around the same number of 25 active organizations that are licensed. So it's pretty 0042 1 well flat trend at this point. 2 So I understand, you know, the -- not 3 wanting to pay the increased license fees, but I do 4 think in all honesty that we do need this system 5 redesigned because it's struggling right now. And I 6 don't know if Ms. Kotal wants to attest to that as well, 7 but, I mean, it's a challenge to continually make some 8 changes to it and have to go back and fix problems 9 because organizations not notifying us timely of 10 activities that they should be notifying us of. 11 MS. ROGERS: Francis? 12 MR. CIANCARELLI: Yes. Again Francis. A 13 couple of questions. Since Phil Sanderson was just 14 talking about the programming stuff, I've had some 15 experience with what I'll call user tool sets. And once 16 you're beyond the position where it's supported tool set 17 you become customizing software, and it becomes 18 extremely difficult because you fix a problem here and 19 now you've got to go back and fix eight problems 20 someplace else because it's not really all tied together 21 properly because you're tweaking it. But if there was 22 something that could be done to -- while we're talking 23 about it -- like a remote tool set might make it more 24 palatable to the lessors and the charities to, again, 25 have this remote tool set to allow them to get on and 0043 1 reduce their work and save them some money and some 2 time, and then that interfaces with the CPOD and then 3 your tool set at the Commission. That would be 4 something that would make it, I think, more palatable. 5 And if I may, I'd like to go back to the 6 administrative hold licenses. There's been a lot of 7 discussion, but if I may ask: Can we quantify the 8 amount of work for active licenses versus hold licenses? 9 In other words, you've got to do 80 percent of the same 10 stuff or is it like just two documents versus like a 11 hundred? 12 MR. SANDERSON: For those organizations on 13 administrative hold compared to the organizations that 14 are either conducting bingo on leasing premises, the 15 paperwork and documentation is identical. They're all 16 required to file the same reports. They're all required 17 to file renewals. The staff time in, you know, 18 processing those is the same whether it's a class J 19 license or an administrative hold. 20 The additional time with administrative 21 hold is sometimes they don't file on time. So we spend 22 our time calling them, sending them letters, making sure 23 they file the returns. Because they're not conducting 24 they just kind of forget about it, you know, things of 25 that nature. 0044 1 So in some instances we actually spend 2 more time with an administrative hold licensee than we 3 do with one that's conducting bingo. Absent, you know,k 4 amendments and temporaries, but as far as just a 5 straight organization playing at the same place, no 6 changes. 7 MR. CIANCARELLI: Thank you. And, 8 Mr. Sanderson, can you give us an idea of how many 9 people come off of administrative hold back to active 10 licenses? 11 MR. SANDERSON: I don't have that number 12 handy at this point in time, but I will say I think the 13 trend has been pretty much around, you know, 100 14 commercial lessors on administrative hold and about 60 15 to 70 conductors over the last, you know, 12 to 16 16 months. Now, there will be some that will -- some will 17 go in, some will come out, some will go in and some will 18 come out, but the numbers stay pretty consistent. 19 MR. CIANCARELLI: But the percentages that 20 they go active again after being on hold for five years 21 or something is very low? 22 MR. SANDERSON: It's very low. 23 MR. CIANCARELLI: Thank you. 24 MS. ROGERS: Members, any other questions 25 or comments? 0045 1 Okay. Then we do have some individuals 2 that would like to comment on this. Marvin Biano? Is 3 that how you say it? 4 MR. BIANO: Yes, Biano. 5 MS. ROGERS: Biano. Yes, sir. Would you 6 like to comment? 7 MR. BIANO: Sure. 8 MS. ROGERS: Please. 9 MR. BIANO: Thank you-all for the 10 opportunity to express my opinion on the items up for 11 discussion today. My name is Marvin Biano. I'm from 12 Beaumont, Texas. I'm a bingo hall manager for an 13 association commercial lessor and I also own a 14 commercial license myself. These things that have been 15 mentioned today already touch on my concerns, mainly the 16 licenses on administrative hold. 17 In my case, I do intend to use my license 18 within the next six months. At that time, it starts 19 making monkey, I have no problem paying even double the 20 fee. Right now, of course, it's generating no income, 21 so -- now, I agree with what you said earlier that 22 charitable licenses, conductor licenses, on 23 administrative hold, if they-- you tell them it's $3750 24 they're just going to say "I give it up." 25 In my case, whatever happens, I will come 0046 1 up with the money because I will not give up my 2 commercial license. I've got 23 years in the business 3 and hocked just about everything I own to get that 4 license, and I've failed a couple of times, but I still 5 have hope for bingo in the future. It will come back. 6 One of the reasons I think it will come 7 back is there was no gambling really approved in the 8 Legislature, so bingo is still one of the main games in 9 town. There are some changes that could be made that 10 could help bingo, and all of those have been touched on 11 in previous meetings. 12 There are some -- I know these are going 13 to be redundant, you've heard it before. The 8-liner 14 issue, they've never been ruled illegal. It depends on 15 the way you redeem for those. The tickets for bingo 16 merchandise, I know you had an Attorney General's 17 opinion on that, but it has worked. If you could figure 18 out a way to make that work and then impose a fee on the 19 owners -- the operators of those machines, you could 20 generate a lot of income. 21 Increase prize payouts, I know we've 22 testified on that before and it would take legislation, 23 but if we could compete with -- like in our case, we're 24 right next to Louisiana. We compete with large bingo 25 halls that have $4,500 per session payouts, $25,000 0047 1 progressive games, $1,000 regular games, and our 2 customers can drive 30 minutes to go to these paces. 3 And then there's casino -- Delta Downs is the same 4 distance away. We lose a lot of our high rollers to 5 those. 6 So increased -- like if we could have 7 thousand dollars jackpots we'd get all players back from 8 Louisiana. That's just -- pertains to halls that are on 9 the border. I know it doesn't cover the entire state 10 and not all halls could support that increased prize 11 amounts, but that's something to look at. 12 Keeping lottery and bingo separate, I 13 think we should play together. You know, our 14 gamblers -- bingo players are gamblers just like lottery 15 ticket buyers are gamblers. Work something out so we 16 could co-exist. There's already a provision that 17 lottery tickets can be awarded as door prices in the 18 charitable raffling act, so there's already an opening 19 there. Maybe something could be worked on on that. 20 And there are a lot of little things, but 21 basically just try to figure out a way so that the 22 licenses on administrative hold don't take a big hit 23 that's proposed right now. Thank you for your time. 24 MS. ROGERS: Thank you, sir. 25 Members, do you have any questions? 0048 1 Thank you so much for your time. We 2 appreciate it. 3 Next would be Mr. Bunkley. Would you like 4 to say something? 5 MR. BUNKLEY: Good morning everyone. 6 Richard Bunkley with Littlefield Corporation and the 7 Texas Association for the Advancement of Charitable 8 Bingo. 9 I'll be brief. I pretty much agree with 10 everything that's been said so far today. We absolutely 11 oppose this increase. We're sympathetic, Phil, to the 12 economic conditions you mentions in your emails on 13 May 23rd and 25th. We're suffering through the same 14 conditions. 15 As Mr. Miner just mentioned in his report 16 that the Q1 net proceeds are down in the last three 17 years, 12 percent, 7-and-a-half percent and 2 percent, 18 and this just isn't the time for a 2-and-a-half million 19 dollar computer upgrade. Last year -- as of yesterday, 20 actually -- the 2010 conductor quarterly reports net 21 proceeds totaled to be 28-and-a-half million that paid 22 25.8 million in prize fees and 2-and-a-half million in 23 license fees. So an extra 2-and-a-half million dollar 24 fee is just, you know, unacceptable -- 25 And then there's over 700 charities out 0049 1 there. This would be devastating to 700 that net less 2 than $5,000 in a year. And I absolutely agree with the 3 sentiments on administrative hold licenses. Increasing 4 the license fee by 500 percent on an entity that's not 5 generating any income is just unreasonable. 6 And that's all I've got to say. Thank you 7 very much for your time. 8 MS. ROGERS: Thank you sir. Thank you for 9 your comments. 10 Mr. Stephen Fenoglio? 11 MR. FENOGLIO: Yes. For the record, my 12 name is Stephen Fenoglio. I'm here representing both 13 the River City Bingo Charities and the Bingo Interest 14 Group. We're opposed to the fee increase. 15 I've never felt that Phil was not a good 16 steward of public money, and I still don't feel that 17 way. But this equates to about a 35 percent fee 18 increase for River City Bingo charities combined. We 19 are commericial lessors, so when you raise the 20 commercial lessor fee and say -- and it's true that many 21 are for-profit. But there are also many that are 22 nonprofit. 23 A 35 percent fee increase -- if we go to 24 the Legislature and say: We think everyone ought to pay 25 a 35 percent increase in fees, you can imagine what 0050 1 happens. With all due respect to Governor Perry, he 2 vetoes a bill so that the out-of-state sales companies 3 can avoid collecting a sales tax and the point of equity 4 is just unfair. 5 And I know this isn't a decision, Phil, 6 that you made. This is something the Legislature gave 7 us. But at this time, it's tough out there. I can tell 8 you from talking with folks all over the state April and 9 May in charitable bingo were terrible, and then we're 10 now into the worse period for the summer. Some halls 11 who have had generous distributions are now experiencing 12 very limited distributions. And we don't know what 13 September will bring us, which is when the fee increase 14 would kick in. We understand that. 15 But what we see right now is not a good 16 place that the charities want to be. It's not anything 17 they've done. It's the economy is stupid -- I'm not 18 calling anyone stupid, but that was a popular comment by 19 the Clinton administration years ago. And it may be 20 that this is one of those painful decisions where united 21 we say we're going to defer that fee increase. That's 22 what we would like to see happen. 23 It's not the easy decision we know, but I 24 agree with my friend Earl that, you know, when you're 25 drowning, it's not a good time to raise fee increases. 0051 1 The other thing, Phil -- and I spoke to 2 you -- with you briefly -- my experience in competitive 3 bidding has been mixed both from clients that I 4 represent and my own practice. But I don't know that 5 you really looked at a competitive bid situation. What 6 I understand you're going to do is use in-house, and 7 that may end up being cheaper. But I would also ask, 8 while you're going through this process, that you look 9 at some sort of competitive bid, if for no other reason 10 to confirm to some of us that, you know, the private 11 sector isn't the way to go. And if you haven't bid it, 12 you don't know for certain. 13 The other thing I would say, Phil, is when 14 you're -- and it's a difficult task -- that there ought 15 to be a subcommittee formed to look at all the options, 16 kick the tires. What I heard earlier from the technical 17 person with the staff is that there's going to be this 18 process developed, assuming the fee increase occurs. 19 And I think it would be in everyone's best interest if 20 there's a subcommittee formed from our side of the 21 table, the charity side, as to what -- if we're going to 22 do this, well, it's great for the staff but there are 23 also some things that perhaps the industry, the 24 charities, that can come forward with ideas that they 25 would like to see the software -- and again, I'm not 0052 1 advocating for that, but if you're going to do it, if 2 that's the decision ultimately -- I guess it's a 3 decision for the Commissioners. But there ought to be 4 some thought given to it. It sounds like Francis and 5 Earl have some unique skill sets of software knowledge, 6 so maybe those two have already volunteered. 7 Finally I'll take up my friend Emile's 8 suggestion and will draft the language to add the -- to 9 spread the pain to the manufacturers and distributors. 10 The reality is -- and I appreciate that, Emile -- but 11 you've got 30 manufacturers and distribute. Even if you 12 double their fees, you're not talking -- or triple their 13 fees, you're not talking about a lot of money. The 14 reality is the charities are going to be the ones -- if 15 you're going to have a fee increase -- directly on 16 indirectly they're going to pay it. 17 I'll be happy to answer any questions or 18 sit down and shut up. 19 MR. SILVER: Since you mentioned maybe 20 doubling or tripling their fees, you think they would 21 object if you went up 500 percent on their fees? 22 MR. FENOGLIO: I think -- 23 MR. BOURGOYNE: I assure you we would. 24 (Laughter) 25 MR. FENOGLIO: Yeah. 0053 1 MR. SILVER: Okay. Just a question. 2 MR. FENOGLIO: Yeah. And then again, a 3 37 percent increase in a typical five-charity class J 4 hall on the license fees, that's including if 5 everyone -- those charities that one a week -- if 6 they're just doing 14 regular sessions it's 7 37-and-a-half percent increase. That's significant. 8 Thanks. 9 MS. ROGERS: Thank you so much. Members, 10 any questions? Do we have any other comments at this 11 time? 12 Yes, ma'am? 13 MS. TREVINO: Madam Chair, if I could? 14 For the record, it's Nelda Trevino again, the 15 Governmental Affairs Director, and I just feel a little 16 compelled to put some comments on the record, if I 17 could. 18 MS. ROGERS: Yes, ma'am. 19 MS. TREVINO: And I understand the 20 sentiment that's been expressed today by both members of 21 the committee and members of the public. I find it a 22 little puzzling that these sentiments are being 23 expressed today. The agency's legislative 24 appropriations request was submitted in August. I know 25 I made some comments about this at your November 0054 1 meeting. I think as Phil alluded, no one from the 2 industry was at any public hearings when the 3 appropriations -- House Appropriations Committee or 4 Senate Finance Committee considered this. We've been 5 very clear on the record what the agency's request was. 6 Phil was very clear in his testimony. Again, I think 7 it's a little disappointing that nobody from the 8 industry, no one that represents the industry, made any 9 comments at those public hearings. 10 MS. ROGERS: Thank you. Any questions to 11 that? 12 And maybe it's ours for not keeping up 13 where it would be or when they were, because I would 14 have made a comment myself. 15 MR. SILVER: I think we did comment -- I 16 think we did comment one time when Ms. Trevino was up 17 here asking about an increase before it passed the 18 Appropriations Committee. That was two meetings ago, I 19 believe. 20 MR. SANDERSON: Well, we have mentioned in 21 this meeting several times -- you know, I've made 22 comments several times about a fee increase in 23 appropriations, but there was not any comment made at 24 the House Appropriations Subcommittee or the full House 25 Appropriations or the Senate Finance Subcommittees as it 0055 1 relates to anyone from the industry except for, I 2 believe, on meeting Mr. (inaudible) did testify, but 3 there was not any -- anyone else from the industry that 4 testified. 5 MS. ROGERS: So more so than you taking to 6 them, which I think is kind of in our defense, it has 7 been that you take our comments which we make here and 8 which I think is what Earl is talking about, that we 9 could make a comment about it to them, as individuals we 10 would need to go to those hearings and things of that 11 nature? 12 MR. SANDERSON: That is correct. 13 MR. BOURGOYNE: Not as this committee but 14 as an individual -- 15 MR. SANDERSON: As an individual, yes. 16 MS. ROGERS: And I think that falls back 17 onto not being knowledgeable -- you know, ignorance of 18 the law is not anything, but maybe that's what we need 19 to reiterate to each other and to the industry out 20 there. 21 MR. SANDERSON: Now, I know there's two 22 associations, that -- Texas Charity Advocates and then 23 the other one, the Charitable Bingo Association of 24 something or other. I can't remember what it is -- 25 MR. BUNKLEY: Texas Association for the 0056 1 Advancement of Charitable Bingo. 2 MR. SANDERSON: Yes. 3 MS. ROGERS: That was Mr. Richard Bunkley. 4 Thank you. 5 MR. SANDERSON: So, you know -- and 6 even -- you know, even those associations, they were 7 there for Texas Charity Day, but they didn't show up for 8 any testimony at any public hearing with relation to the 9 appropriation. 10 MS. ROGERS: Okay. At this point with the 11 comments that we've had, is it -- I look to you for 12 guidance. Should we -- 13 MR. SANDERSON: Well, let me throw a 14 couple of things out. 15 MS. ROGERS: Okay. 16 MR. SANDERSON: The first thing is that 17 we'll definitely take another look at the administrative 18 hold. You know, I think that there could be some, you 19 know, room to make some adjustments there. 20 As I mentioned earlier, one of the other 21 methodologies that we were looking at was basing it on a 22 percentage of either the gross receipts or the gross 23 rental receipts, depending on conductor or lessor. That 24 methodology, to some extent, I think spreads it out to a 25 commercial lessor that has $500,000 in rental receipts 0057 1 would pay a proportion equal to the guy that has 2 $95,000, you know, as far as like 2 percent. 3 MS. ROGERS: Okay. 4 MR. SANDERSON: So, you know -- so 5 something along those lines there would then spread it 6 out in amongst the classes themselves. And then as it 7 relates to the conductors, it would be the last 8 method -- the last numbers that we came up with would be 9 two-tenths of a percent of their gross receipts. So an 10 organization that has -- you know, there's some that 11 have $1.7 million in gross receipts -- would pay .2 12 percent of that as opposed to the person that has 13 $450,000. They're both class J. So instead of them -- 14 you know, I think it spreads it out a little bit more as 15 far as, you know, who the -- who gets assessed the 16 additional license fee. 17 MS. ROGERS: At this time would you and 18 staff like or need the assistance of a work group from 19 BAC? 20 MR. SANDERSON: Well, it would have to be 21 very quick because we have to have this rule ready to be 22 proposed for publication at the next Commission meeting, 23 which right now is tentatively set for Friday, June the 24 10th in order for it to go through the rulemaking 25 process to be published, have the comment period and be 0058 1 adopted with the -- within 20 days of the September 1st 2 when this license fee increase would take effect. 3 So, you know, if there's a work group of 4 four -- somebody has to go home -- so if there's a work 5 group of four we can just sit around this afternoon and 6 run some numbers together and come up with something. 7 MS. ROGERS: Now, are we also -- I'll ask 8 this: Are we allowed to take a vote and state on the 9 record that we do not wish to back this? 10 MR. SANDERSON: You can certainly do that, 11 if that's your pleasure. 12 MS. ROGERS: Okay. And my next question 13 is 2.5 million, is that a Mercedes and maybe we could go 14 with, like, a Saturn or something? 15 (Laughter) 16 Can we go with a million-dollar computer 17 system? Is there such an animal? No? 18 MR. SANDERSON: That I don't know. Let's 19 let Ms. Kotal come up and answer that question. 20 MS. ROGERS: And is there -- not that a 21 million is any easier than 2.5 million, but it is a 22 little bit easier. 23 MS. KOTAL: I would tell you that it's 24 possible. You have to do the analysis. You're telling 25 me to buy -- to build a car, but you haven't told me 0059 1 what the requirements of the car are yet. So that's why 2 you go through that analysis and requirements gathering 3 phase. Having worked and being knowledgeable of the 4 kinds of requests we get from staff, and the fact that 5 the bingo division in this agency has more outstanding 6 requests of development pending that they've asked those 7 changes to make to the system and because that system is 8 actually as old as it is, that it doesn't -- it's not 9 meeting all the business needs, we came up with that. 10 It truly was an educated guess. 11 If the system isn't rewritten, you know, 12 it just means less work for us. 13 MS. ROGERS: Right. 14 MS. KOTAL: If it's not rewritten and you 15 don't design a new system, what you're going to have to 16 do -- maybe there will be a third party who will want to 17 come when you have a problem and help you troubleshoot. 18 We'll have -- you know, I don't know if there will be. 19 If there is, that's great. You pay to contract with 20 them, so funding has to be done for that. Or it breaks 21 and it's broken and nobody knows how to fix it or get it 22 up. 23 The second thing is currently that 24 system -- the charitable bingo system that's in 25 production now that everybody is using, is running on 0060 1 hardware that is shared by all the other divisions on 2 servers that are shared here. So as the rest of the 3 agency -- very quickly, we're all using the new tool set 4 for everything in that development, then we're going to 5 have to procure hardware for the bingo to run on because 6 it won't be able to run on the same hardware as all the 7 new databases for the new app servers. So you're still 8 going to have some expense if you choose to do nothing. 9 And you run the risk of it breaking and not being able 10 to get it fixed. 11 MS. ROGERS: Does the lottery -- does the 12 Lottery Commission have -- it sounds to me in very 13 layman's terms -- we need more bells and whistles to our 14 system. Does the lottery have that system? 15 MS. KOTAL: I'm sorry. I'm not sure I'm 16 understanding your question. 17 MS. ROGERS: I was just toying with can 18 the bingo division rent from the lottery? 19 MS. KOTAL: The hardware? 20 MS. ROGERS: Yeah, the computer system, 21 the shared computer system? Instead of updating ours, 22 the lottery updates it because the lottery has more 23 money than we do. 24 MS. KOTAL: That would not be a question 25 for me on funding on how you procure something. I would 0061 1 defer to Mr. Sanderson or Ms. Pyka. 2 MR. SANDERSON: I don't think that the 3 lottery can fund -- 4 MS. ROGERS: Not funding it. We would be 5 renting it. 6 MR. SANDERSON: Well, I'd still need the 7 appropriations to rent it. 8 MS. ROGERS: Well, but you sure wouldn't 9 need 2.5 million. It's just an idea to look at when we 10 go into -- I don't know. It's just a thought that came 11 to my head, just trying to not have to go with this 12 huge -- 13 MS. KOTAL: So your question would be if 14 we could do the development -- 15 MS. ROGERS: If the lottery system here is 16 more advanced than what the bingo division is -- 17 MS. KOTAL: But understand when you talk 18 about system, you're not talking about hardware. You're 19 talking about application. So the lottery does not have 20 an automated charitable bingo system that handles those 21 licensing -- lottery does not have that. 22 MS. ROGERS: Okay. Okay. 23 MS. KOTAL: There's servers, there's 24 hardware and then there's software. 25 MR. SILVER: The question are coming about 0062 1 so rapidly because Mr. Fenoglio hit it on the head, and 2 that's where I tried to go earlier. There's a quote for 3 $2.5 million. I know -- my wife is an engineer and they 4 do bidding. And Mr. Fenoglio brought it up, is there a 5 bid -- maybe somebody else could do something a little 6 bit cheaper out of the hose and that's where I started 7 to come into third-party vendors or something to give 8 support until we need something done. It's just an 9 option. 10 MS. KOTAL: And I would say that certainly 11 when we did -- came up with the estimate, we did the 12 research knowing how many hours it would take someone to 13 do this and looking at a low-average price per hour. 14 You may find a company who could do it cheaper, but we 15 have not -- because you don't have any requirements yet, 16 it's difficult to say how much will you charge me for 17 this car when I haven't told you what the car -- how 18 many wheels it needs and does it need a trailer behind 19 it. 20 MR. BOURGOYNE: Could we see a copy of 21 that estimate so we could see those items that are in it 22 that conclude 2.5 million? 23 MS. KOTAL: Yes. I think Mr. Sanderson 24 has those. And again, it was the analysis and how many 25 hours spent for analysis and, consequently, an estimate 0063 1 of the coding. 2 MR. BOURGOYNE: Thank you. 3 MS. ROGERS: Thank you so much. Thank you 4 for your assistance. 5 Members, I look to you now and ask you 6 what you would like to do at this time? Is there a few 7 of you who would like to form -- that can help out? If 8 not, do we want to go on the record stating that we 9 oppose this, that we are okay with this and that we hope 10 they can bring it down? 11 Earl? 12 MR. SILVER: I wouldn't be able to help at 13 this point and I apologize for that. But I wouldn't be 14 able to, especially when it came up to the 10th of June. 15 I will be out of town. 16 MR. BOURGOYNE: I think Joan was kind of 17 suggesting a work group after this meeting. 18 MR. SANDERSON: Yes. 19 MS. ROGERS: Yes, because it's so quickly 20 that it has to be all put together. 21 MR. BOURGOYNE: From what I'm hearing, it 22 needs some massaging, to say the least. And I've got 23 plans to ride out with my wife, but I'll stay if I have 24 to. 25 MR. CIANCARELLI: I guess from the point 0064 1 of what we know here today, I don't think I can put both 2 hands or both hands down, so I'm not opposed at this 3 point because I want to learn more, to let us think 4 about more options and I guess that work group could 5 come from that. And, you know, I just have to say that 6 there's seven charities that -- in my unit, and I told 7 all of them and gave them the information, and nobody 8 got back to me to say one way or the other about the fee 9 increase. Now, once it got implemented, it might be a 10 whole different story. 11 But one thing I'd like to throw in, is 12 there a way -- because I believe you've got to spend 13 money to make money. And when tough times -- sometimes 14 it's not best to pull everything in. Is there a way to 15 say okay pay the fee up front and then somewhere along 16 the line, you're doing well, we can have a rebate back 17 from the bingo operations somehow? I'm not looking for 18 the answer what it is right now, but just like a theory? 19 MR. SANDERSON: You know, that's something 20 that I had thought about. The statute does give us the 21 flexibility to assess license fees by rule and how we're 22 going to collect those license fees. It also provides 23 for, you know, giving credit for those license fees. 24 I'll have to meet with Ms. Pyka and the Office of the 25 Comptroller to get the logistics on it. I don't know 0065 1 how it's played if we told the Comptroller that we could 2 get 2.5 million and they give it us, and at the end of 3 the day it's only 2 million if we're allowed to rebate 4 that additional 500,000 or whatever we collected over 5 and above that. So we'd have to discuss that option. 6 MS. ROGERS: Tom, do you have anything to 7 say? 8 MR. WEEKLEY: I have a question. If you 9 have a lessor's license on administrative hold, can you 10 market that? Could you -- say you had someone in 11 Amarillo and now live in McAllen and I have an 12 administrative hold license, that sort of license, can I 13 market that to that person? 14 MS. ROGERS: Can you sell it to them? 15 MR. WEEKLEY: Yeah. 16 MS. ROGERS: Yes. 17 MR. WEEKLEY: At any price they're willing 18 to pay and that you're willing to sell it for? 19 MR. SANDERSON: There's a provision in the 20 statute that allows for a commercial lessor license to 21 be transferred. It doesn't get into the specifics of 22 the cost. I think Ms. Rogers mentioned earlier she's 23 heard of 40,000, I've heard of upward to 400,000 for 24 one. So, I mean, that's -- 25 MR. BOURGOYNE: Is that because -- excuse 0066 1 me my ignorance -- is that because of the restrictions 2 on number of new ones or -- 3 MR. SANDERSON: It's the grandfathered 4 lessor license that allows the holder of that license to 5 lease directly to seven organizations, whereas the 6 current lessor licenses that are applied for and issued 7 today, you can only lease to one organization. 8 MS. ROGERS: So there are no more 9 grandfathered licenses. They are done. 10 MR. SANDERSON: Now one of the things -- 11 and I'll just bring this up for discussion as it relates 12 to other alternatives -- and like I mentioned, you know, 13 looking at a percentage type of fee increase, you know, 14 there's several -- at least 30 commercial lessors -- 15 that have over $400,000 in rental income. And based on 16 that percentage, their license fee over a two-year 17 period would be between 11 and $14,000 additional to the 18 2500 that they currently pay. And if you take the same 19 Class J organization that's got $90,000, then their 20 additional license fee over the two-year period would be 21 2500. 22 The draft that was sent out would have 23 called for the Class J license to pay 5,000 both years, 24 5,000 in year one and 5,000 in year two; whereas, with 25 this percentage basis -- I would say the lower grossing 0067 1 Class J would only pay 2500 over both years. So it 2 would be 1250 a year. So if it spreads the -- as I 3 mentioned earlier, this would spread the amount of, you 4 know, fee increase to the organizations, then you've got 5 your -- you know, your lower class -- Class As would all 6 just pay an additional $100. Most of the Class Bs would 7 be between 200 and $300 -- or a hundred to 150 a year. 8 As it relates to the conductors -- if I 9 can figure out -- 10 MS. ROGERS: Take your time. You're 11 lowering our fees. Take your time. We enjoy that. 12 (Laughter) 13 MR. SANDERSON: As I mentioned, the 14 conductors would be like -- would be, like, two-tenths 15 of a percent, .2 percent. And, you know, that -- on a 16 million dollars that would only be, like, 2,000 extra 17 for them, I believe. And then if my math is correct -- 18 MS. ROGERS: Okay. Well, there hasn't 19 been much positive feedback for you except that these 20 aren't the times that we'd like to spend 2.5 million. 21 So you will get back with us with -- looking at the 22 different -- 23 MR. SANDERSON: We can get together after 24 lunch, if you want. 25 MS. ROGERS: Okay. I am available to -- 0068 1 would anyone in the public like to -- 2 MR. SANDERSON: -- a couple will be fine, 3 yeah. 4 MS. ROGERS: -- a couple of -- would 5 anyone volunteer? Mr. Fenoglio? 6 MR. FENOGLIO: Yes. 7 MS. ROGERS: Yes, Francis? 8 MR. CIANCARELLI: I'd like to back up to 9 one of the statements about selling these licenses 10 and -- before I go out and buy one -- would I be correct 11 in stating that I have to submit paperwork to obtain 12 that license, transfer of that license, before it really 13 became -- the fact you have to do a background check and 14 all that -- 15 MR. SANDERSON: Oh, yes, sir. Yes, sir. 16 The individual has to be qualified, yes. 17 MR. CIANCARELLI: So if someone -- there 18 should be a caution there that before you buy a license 19 that you should read the rules and -- okay. Thank you. 20 MS. ROGERS: Yes, sir. Any further 21 comments? Any further public comment? 22 (No response) 23 AGENDA ITEM NO. 7 24 Okay. Then we will move on to Item No. 7, 25 report, possible discussion and/or action on the 2010 0069 1 Bingo Advisory Committee annual report and the Work 2 Plan. Mr. Earl Silver. 3 MR. SILVER: On the annual report David 4 Heinlein was kind enough to go ahead and prepare that 5 for us. What I would like to do is call him up and give 6 his information on the Advisory Committee annual report 7 for 2010. 8 MS. ROGERS: Mr. David Heinlein? Thank 9 you, sir. 10 MR. HEINLEIN: I'm getting too old for 11 this. 12 MS. ROGERS: Yes, sir. 13 MR. HEINLEIN: For the record, my name is 14 David Heinlein. I represent charities and I did prepare 15 the annual report last year and again this year. In 16 doing it this year, though, I should have started a lot 17 earlier because it's -- because of the reporting method 18 for 2010 is so different from previous years, it made it 19 a little difficult to compare a lot of the numbers. 20 You've all got a copy of the report. 21 According to Rule 402.102(n)(2) states that the BAC will 22 report annually to the Commission the BAC's perspective 23 on the state of the charitable bingo industry in Texas 24 with specific comments on the following: Gross 25 receipts, net receipts, charitable distributions, 0070 1 expenses, attendance and any other matters requested by 2 the Commission. 3 So the Bingo Advisory Committee used the 4 data contained in the charitable bingo conductor return 5 summaries, from the statewide financial reports 6 available on the Texas Lottery Commission charitable 7 bingo web site. 8 The committee analyzed the data contained 9 in the conductor return summaries and charted on the 10 graphs contained in this report, and has made the 11 following observations and come to the subsequent 12 conclusions: Gross receipts. Gross receipts have 13 continued to improve because of increased instant bingo 14 sales due to event tabs. Card sale/entrance 15 fees/electronics continued to decrease begun in 2003 and 16 continue each year with 2010 decreasing from 2009 by 17 3,017,941. Instant bingo sales increased by 7,973,670, 18 an increase of approximately 2.5 percent from 2009 to 19 2010, thus creating an increase in overall gross 20 receipts of approximately .7 percent or $4,955,729. 21 Although instant bingo sales have continued to increase 22 due to the introduction of event tabs, it should be 23 noted that more income would be derived in card sales 24 and electronic sales were increased since the prize 25 pay-outs are limited to 2500 per session. The decline 0071 1 in card sales has caused a prize pay-out percentage to 2 increase from 72.57 percent in 2003 to 78.39 percent in 3 2010. I believe that has also the licensing here at 4 the -- in the charitable bingo division to change their 5 method of charging a fee. Used to they would use 72 6 percent as a factor to determine the gross receipts. 7 And I think they'll use 76 now, don't you, or 75. 8 MR. SANDERSON: It has increased, but I 9 don't know exactly what the house percentage is. 10 MR. HEINLEIN: I think it's increased to 11 75, I believe. So that number continues to increase as 12 a percentage of prize pay-out, and for regular bingo 13 it's up to 78.39 percent in 2010. I'm also seeing halls 14 with even higher numbers than that. I think that the 78 15 is that low because a lot of the smaller halls the 16 number is lower. But in commercial halls, I'm seeing 17 80, 85 and even 90 percent prize pay-out on regular 18 bingo, which doesn't -- well, I'll just continue. 19 With an increase in event tickets there's 20 an increase -- I'm sorry. I've got to back up. 21 Okay. With an increase in event sales, 22 there is an increase in prizes paid out, cost of goods 23 sold and additional payroll costs incurred selling the 24 event tickets. And we have charts 5, 6 and 7 to look at 25 for that, but let's continue on. 0072 1 Net receipts: Although gross receipts 2 have shown an increase of 141,353,993 from 2002 to 2010, 3 adjusted gross receipts have only increased by 4 13,359,711. And net receipts -- this is the important 5 number, that's what's really important is what your net 6 is, of course -- net receipts have decreased by 945,534 7 during the same time period. Net proceeds have declined 8 as a percent of adjusted gross receipts from 19 percent 9 in 2008 to only 15 percent in 2010. That's very 10 dangerously low. This is anomaly has occurred due to a 11 decrease in card electronic sales that have a fixed 12 price pay-out and an increase in instant event ticket 13 sales with a corresponding increase in prize pay-outs 14 and costs. And we have charts 8, 9, 10, 11, 12, 13 and 15 14 for that. 16 Charitable distribution: Charitable 17 distributions have continued to follow the trend begun 18 in 2004. Charitable distribution in 2004 were 19 30,444,665. They increased to 30,384,530 in 2005, 20 increased to 31,999,875 in 2006, and 32,073,589 in 2007, 21 and to 32,792,760 in 2008, to 35,946,876 in 2009. But 22 then they decreased to 33,949,114 in 2010. An increase 23 in card/electronic sales would allow more income to be 24 available for charitable distribution, and we'll look at 25 chart 15 on that. 0073 1 Expenses: Very important if we really 2 look hard at expenses. Expenses increased by $1,885,044 3 in 2009 to 2010. As a percentage of adjusted gross 4 revenue, 83 percent from 2002 to 2005, 81 percent in 5 2008, 83 percent in 2009, and now 85 percent in 2010. 6 They had remained relatively stable from 2002; however, 7 in 2008 they were lower than previous years. The result 8 is a decrease in net revenue from 2008. Rent payments 9 decreased by 841,468, payroll increased by 3,268,072, 10 cost of goods sold increased by 961,915, and lease 11 payments to distributors increased by 542,590 between 12 2009 and 2010. Advertising increased by 229,144 from 13 2009. And in our report for 2009 we had recommended 14 that the charities look at increasing their advertising 15 to increase their sales, and they did that. An increase 16 in advertising for 2011 should be considered. While 17 reducing other costs, the increased sales of event 18 tickets contributed to the increase in payroll and cost 19 of goods sold, and we have a number of charts on that. 20 The attendance: Attendance decreased by 21 234,445 from 2009 to 2010. There is the beginning of 22 what Mr. Sliver was alluding is that there is a decline 23 in bingo, yes. There's a decline in attendance that has 24 continued. The decrease was 25.4 percent from 2002 to 25 2008, 23,718,342 down to 17,694,441. One reason for a 0074 1 decline in attendance was due to a continuing decrease 2 in the number of organizations conducting bingo games 3 from 2002 to 2009. They went from 1447 organizations to 4 1174. However, the number of organizations increased in 5 2010 by 80 from 2009. That's one that I don't really 6 understand completely when I also then look at the 7 playing locations. I thought then they would also 8 increase, but they did not. They decreased. 9 Any decrease may be due to the increased 10 competition for the gaming dollar, a lack of advertising 11 bingo in Texas, and because current prizes and games are 12 no longer exciting to the general public, therefore 13 making operation of bingo games less productive for the 14 nonprofits conducting the games. 15 Recommendation for improvement include 16 more charity involvement in promoting the bingo 17 occasions and working to make bingo more enticing. Of 18 course, new product would be very helpful to players in 19 the local halls. Improving attendance to increase the 20 gross revenue remains a key issue to the success of 21 charitable bingo in Texas. And you can look at chart 22 19. 23 Concluding remarks would be if this 24 decline continues many conductors will be at risk of 25 falling short of the mandate of House Bill 1474. Some 0075 1 organizations are already struggling to maintain 2 compliance. The bingo act must result in positive net 3 proceeds over the previous four quarters. Expenses 4 should be managed to be in line with any revenue 5 declines. The management of pay-roll costs are 6 critical. Advertising is very important, but results 7 must warrant the cost. The continued increase in the 8 prize pay-out percentage for regular bingo results in an 9 inadequate amount of adjusted growth to pay the costs. 10 Somehow management of the prize pay-out percentage must 11 be considered. Sometimes there's not a dollar amount 12 necessary to even pay for the electronics cost. 13 One other item that I didn't make a chart 14 on but I think we would start doing this by next year is 15 the change in undistributed proceeds. The undistributed 16 proceeds has been going down the last few -- couple of 17 years where they went up in 2008 to 32,440,333, but with 18 the passage of that House bill, they had to come down 19 because we had a mandate on what would be allowed as 20 working capital. So charities that have a million 21 dollars in working capital had to distribute those funds 22 down to their allowable working capital. 23 So in 2009 it went down to 29,589,000, but 24 in 2010 it really took a drop down to 22,028,000. Some 25 of that would be still some of that operating capital 0076 1 reduction, but I think a greater portion of it is that 2 we've begun to pay for these expenses that we're losing 3 money in bingo and we're reducing working capital to pay 4 for those losses that were actually incurred in 2010. 5 In the expense department ranges earlier 6 mentioned I did -- I have in the report there that the 7 rent has actually gone down in 2009. The average per 8 session rent in 2009 was $310 per session. But in 2010 9 it went down to 300. Conversely though, pay-roll went 10 up, which it should not have. The pay-roll cost was 11 $294 dollars per session in 2009, but it went up to $314 12 in 2010, which means that we should encourage the 13 charities to look carefully at their employee -- their 14 pay-roll expense. 15 All right. I'd like to look at -- if we 16 could maybe show these charts up there, Phil? 17 MR. SANDERSON: Mr. Bates? 18 MR. HEINLEIN: Excuse me? 19 MR. SANDERSON: He's getting it up on the 20 chart here. What chart number? 21 MR. HEINLEIN: Okay. I'll start with 22 chart number 5. We'll just quickly go down through 23 them. 24 MR. SANDERSON: And that's what page? 25 MR. HEINLEIN: Page 5. 0077 1 MR. SANDERSON: Page 5? 2 MR. HEINLEIN: Okay. That makes it easy 3 to see the gross receipts going up each year and pretty 4 much leveling off 2009 to 2010, not much change. If you 5 just will scroll that down to the next chart, I think 6 that will be easier for -- just taking one chart at a 7 time. 8 Okay. Now you see a comparison of sales 9 from 2009 to 2010 for card sales, entrance fees you see 10 it going down in 2010. The electronic sales just almost 11 the same. But the instant bingo sales you see an 12 increase that has continued between instant bingo, which 13 is a result of the event games. 14 The next chart -- now the reporting 15 method, of course, in previous years we only got one 16 (inaudible) left and thank you, charitable bingo, for 17 changing that in 2010 so that we can actually look at 18 these numbers separately. You see instant bingo sales 19 for 2010 and your event bingo sales is a major item. 20 Next chart. We'll be able to compare 21 that. The per person sales from 2002 to 2010, if you 22 scroll down just a little bit more, you see that the per 23 person card sales have gone down from 1202 last year to 24 1187 this year. Electronic sales went up just slightly 25 from $9 to 9.25. But the per person instant sales 0078 1 continued to go up from 1788 to 1857. That is the next 2 slide. 3 I'm having a hard time seeing that one. 4 Total gross receipts less total prizes, all those lines 5 are just pretty flat, not much change really. Go to the 6 next chart. 7 Oh, yeah, this one is important. Okay. 8 Now, 2006 look at your net revenue. It's an 18 percent 9 percentage. Now scroll down to the chart on page 14, 10 page 14. Okay. See that? Net revenues down 11 15 percent. That's where we have trouble. We lost 12 money last year and the charities had to take -- because 13 those expenses went up as a higher percentage, I believe 14 that's a reason for the undistributed proceeds number 15 having to go down because they actually lowered their 16 working capital to pay for these additional expenses. 17 The next chart is charitable 18 distributions. They had been going up the last four 19 years. You see they went down in 2010 to 33,949,000. 20 And the next chart is expenses by year, 21 and you see that they are -- having been going up higher 22 than your net proceeds. So I think that we should be 23 able to conclude from all of these that the biggest 24 challenge the charities have today is controlling their 25 expenses. They must produce net revenue. And if they 0079 1 don't get a hold of some kind of handle on their net 2 proceeds, they're going to be in trouble. 3 Let's go to page 20, bingo conductors. 4 You see how they've been declining every year down to 5 2009, but at the end of 2010 they went up. And I really 6 can't explain that. I think somebody smarter than me 7 needs to analyze that. But in this year so far they 8 continued that trend downward. In February it was down 9 to 1105, and the latest number in March was down to 10 1096. So there is not a decrease in the amount of 11 conductors. For some reason they went up at the end of 12 2010. 13 I thought that the playing locations would 14 have also had some change. We've never tracked that 15 before either. But the next chart is playing locations. 16 But you see that the trend has been downward in playing 17 locations as well. They've gone down from 562 in 2006 18 the 467 in 2010. And that number hasn't changed much in 19 this first quarter, down to 458. I thought perhaps 20 because of the anticipation of a gaming bill there might 21 have been an increase in the number of charities and 22 also increasing the number of locations. And not 23 seeing that, we do not understand that. Although I do 24 know from personal knowledge of new halls that have been 25 established because of that anticipation of slot 0080 1 machines in their halls. So there must have been a 2 greater number of halls that actually closed who were on 3 the borderline and the net revenue had gotten so low 4 they had to just close their facilities. 5 And that concludes my report and I'll be 6 glad to answer any questions that you might have. 7 MS. ROGERS: Thank you so much, sir. 8 Members, any questions? 9 That is a wonderful report. Thank you. 10 MR. SILVER: Thank you, David. 11 MS. ROGERS: Members, any questions? 12 All right -- yes, Francis? 13 MR. CIANCARELLI: Really just a statement. 14 On the average rent, it does sound like it's going down. 15 But I just want to say from 21 authorized organizations 16 I know in the Valley it's been rock solid at $600 per 17 event. 18 MS. ROGERS: Thank you. Thank you. 19 Court reporter, do we need a ten-minute 20 break? Are you doing okay? 21 THE REPORTER: I'm fine. 22 MS. ROGERS: All right. Very good. We'll 23 move on to our next item. 24 MR. SANDERSON: Madam Chair? 25 MS. ROGERS: Yes. 0081 1 MR. SANDERSON: I believe you need to take 2 a vote to accept this report and present it at the 3 Commission meeting -- probably not in June but in July 4 or August. 5 MS. ROGERS: Do I hear a motion to accept 6 the Bingo Advisory Committee 2010 annual report as it's 7 written at our next -- at the first available 8 commissioner meeting that we can get it to? Do I hear a 9 motion? 10 MR. SILVER: I make a motion. 11 MS. ROGERS: Thank you, Earl. 12 Do I have a second? 13 MR. CIANCARELLI: I second. 14 MS. ROGERS: Thank you, Francis. 15 All those in favor? 16 (All those voting in favor so responded) 17 All those opposed? 18 (No response) 19 Okay. The Bingo Advisory Committee annual 20 report 2010 is accepted and should be presented to the 21 Commissioners, maybe the June or August meeting. 22 AGENDA ITEM NO. 8 23 Now we will move on to Item No. 8. 24 Report, possible discussion and/or action on nominations 25 for Bingo Advisory Committee positions. Melissa Young 0082 1 is not here today, so Mr. Earl Silver will be presenting 2 that. 3 MR. SILVER: Melissa sent me her report 4 for me to read. What she states we have received a 5 total of ten applications. The following is a breakdown 6 of the applications: Two commercial lessors, eight 7 charities. We are filling four spots on the BAC, one 8 charity/lessor, one commercial lessor and two charities. 9 The nomination committee is prepared and 10 recommended applicants to the Bingo Advisory Committee. 11 We have carefully considered all applications and would 12 like to recommend the following candidates to the 13 Commissioners: Chris Keller, charity. Chris has strong 14 communications skills and a proven worth ethic. Nathan 15 Bowler, commercial lessor. He has worked in regulated 16 industry outside of bingo and is analytical and 17 decisive. Larry Whittington, charity. He has a proved 18 track record of work on the BAC. Larry Kuciembo -- I 19 butchered it. It's K-u-c-i-e-m-b-o, a charity. Larry 20 has extensive knowledge of bingo and his experience will 21 be a great asset to the BAC. Theresa Jonokin 22 (phonetic), charity lessor, has a long history in bingo 23 and works as a conductor lessor. 24 All the applications that we received were 25 strong and the BAC is fortunate to have such qualified 0083 1 candidates interested in service, and thank you all for 2 your interest. 3 She has recommended five for the four 4 spots. I guess it's up for discussion on what we want 5 to do or just submit these names to the Commission and 6 have them either reinterview or choose at their 7 pleasure, because we realize that they can pick our 8 recommendations or choose whoever they would like. And. 9 MR. SANDERSON: You can -- I guess you 10 could go ahead and stick with the five. There's only 11 four spots. The division -- we haven't started our 12 interview process yet, so we'll go through that process. 13 And the nominations would probably be extended and 14 appointed at the August Commission meeting. And if 15 there's an opportunity for another BAC meeting between 16 now and then, we can put this as an agenda item to 17 discuss both our recommendations and yours. Or you can 18 go ahead and make a vote or motion to, you know, 19 recommend these five for four spots or discuss the 20 nominations and just recommend four. So that's up to 21 you. It's your pleasure. 22 MR. SILVER: I would probably like to work 23 with the staff and just -- actually know what you want 24 to recommend, because I can help even more so than I did 25 on the nomination committee just to make sure we have 0084 1 the right people who are willing to work and can put the 2 effort in. Because that's just been a concern of ours 3 to make sure we have a good representation of the 4 industry as well as people who want to be on the BAC and 5 who want to work, because it does take time. 6 MS. ROGERS: Okay. With that said, I have 7 a question for you, Phil, and -- because you know all 8 the rules. When there's an individual -- I know we've 9 gone over this before -- when there's an individual 10 that's on the board that doesn't seem to be putting 11 forth effort and doesn't want to be on the BAC anymore, 12 do we have the -- to ask them to remove themselves, the 13 authority or do I? 14 MR. SANDERSON: You can ask them to 15 resign. You can make a recommendation to the Commission 16 that they be removed. Of course it would be the 17 Commission's, you know, ultimate decision that they can 18 be removed. If they resign, just submit a letter of 19 resignation like Williams did and move forward after 20 that. 21 MS. ROGERS: Okay. Because it is very 22 important that we have individuals in these seats that 23 are willing to work and put the extra effort in. It's a 24 lot of time to go forth. 25 Members do you have any comments in 0085 1 reference to -- we would be looking at moved forward 2 with these five recommendations and letting staff go 3 through them. 4 MR. BOURGOYNE: I move that we submit the 5 committee report to the staff. 6 MS. ROGERS: Repeat again. I'm sorry. 7 MR. BOURGOYNE: I would move that we 8 submit the committee report on the nominees to the 9 staff. 10 MS. ROGERS: Thank you. I have a motion. 11 Do I have a second? 12 MR. SILVER: Second. 13 MS. ROGERS: All those in favor? 14 (All those voting in favor so responded) 15 All those opposed? 16 (No response) 17 And one abstain. 18 Thank you. We will move forward with the 19 committee recommendation -- 20 THE REPORTER: I'm sorry -- 21 MS. ROGERS: -- for this year's -- 22 THE REPORTER: -- I didn't pick up whose 23 name -- whose voice said abstain. 24 MS. ROGERS: Francis Ciancarelli. 25 MR. CIANCARELLI: It was me. 0086 1 MS. ROGERS: Thank you so much. 2 AGENDA ITEM NO. 9 3 No. 9, public comments. Do I have any 4 individuals that would like to comment at this time? 5 (No response) 6 No? 7 AGENDA ITEM NO. 10 8 No. 10, consideration of and possible 9 action on future Bingo Advisory Committee meeting dates 10 and/or items to be considered for future meetings. 11 MR. SILVER: Do we need to put the work 12 plan on the next meeting? Is there some controversy on 13 who is doing it? 14 MR. SANDERSON: Yeah, we need to have the 15 work plan -- that's probably the only outstanding agenda 16 item at this point, depending on anything that may come 17 out of the special session or discussion on the license 18 fee rules that relates to afternoon's work group. And 19 we can look at maybe having a meeting in August, if that 20 would be your pleasure. 21 MS. ROGERS: Okay. In August. 22 MR. SANDERSON: It may be a short meeting 23 with not very many agenda items, but I think there's a 24 few things that -- you know, that probably need to be 25 finalized before we move into the next fiscal year. 0087 1 MS. ROGERS: Okay. Is that when you would 2 go forward with - hopefully go forward with the license 3 fee changes for the computer system? That's September. 4 Correct? 5 MR. SANDERSON: September 1st is the -- 6 when we need to have the rule actually adopted and in 7 effect. There would be -- as I mentioned earlier, the 8 Commission meeting is next week, and they will publish 9 the rule for public comment. There will be a public 10 comment hearing, I'm sure, scheduled sometime in July. 11 And then the August meeting is where the Commission 12 would hopefully adopt any final versions. 13 MS. ROGERS: Members, is that -- sound 14 good to y'all, in August? 15 MR. SILVER: Yeah. Phil, I like the way 16 you find meeting dates. I really appreciate that. Give 17 us a window. That's really -- truly helpful. 18 MR. SANDERSON: Thank you. 19 MS. ROGERS: So Phil will get with us in 20 reference to a few dates that are available in August -- 21 MR. SANDERSON: Yes. 22 MS. ROGERS: -- so we can get as many 23 members as possible. 24 Any other further items that would want to 25 go on the next agenda? 0088 1 MR. SANDERSON: And, of course, if you 2 think of anything between now and the meeting date set, 3 you can email Rhonda. 4 AGENDA ITEM NO. 11 5 MS. ROGERS: Anything else? 6 If not, then this meeting is now 7 adjourned. It is 11:50. Do I have a motion to adjourn 8 this meeting at 11:50? 9 MR. SILVER: I do. 10 MS. ROGERS: Second. Thank you. This 11 meeting is adjourned. 12 (Proceedings concluded at 11:50 a.m.) 13 14 15 16 17 18 19 20 21 22 23 24 25 0089 1 C E R T I F I C A T E 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, LOU RAY, a Certified Shorthand Reporter 7 in and for the State of Texas, do hereby certify that 8 the above-mentioned matter occurred as hereinbefore set 9 out. 10 I FURTHER CERTIFY THAT the proceedings of 11 such were reported by me or under my supervision, later 12 reduced to typewritten form under my supervision and 13 control and that the foregoing pages are a full, true 14 and correct transcription of the original notes. 15 IN WITNESS WHEREOF, I have hereunto set my 16 hand and seal this 10th day of June 2011. 17 18 19 ________________________________ 20 LOU RAY Certified Shorthand Reporter 21 CSR No. 1791-Expires 12/31/11 22 Firm Registration No. 276 Kennedy Reporting Service, Inc. 23 8140 N. Mo-Pac Expressway Suite II-120 24 Austin, Texas 78759 512.474.2233 25