0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 BINGO ADVISORY COMMITTEE 4 (TEXAS LOTTERY COMMISSION) 5 AUSTIN, TEXAS 6 7 QUARTERLY MEETING OF THE § BINGO ADVISORY COMMITTEE § 8 WEDNESDAY, NOVEMBER 8, 2006 § 9 10 COMMITTEE MEETING 11 WEDNESDAY, NOVEMBER 8, 2006 12 13 BE IT REMEMBERED THAT on Wednesday, 14 the 8th day of November 2006, the Bingo Advisory 15 Committee meeting was held from 10:03 a.m. to 16 1:05 p.m., at the Offices of the Texas Lottery 17 Commission, 611 East 6th Street, Austin, Texas 78701, 18 before CHAIR SUZANNE TAYLOR. The following 19 proceedings were reported via machine shorthand by 20 Aloma J. Kennedy, a Certified Shorthand Reporter of 21 the State of Texas, and the following proceedings were 22 had: 23 24 25 0002 1 APPEARANCES 2 BINGO ADVISORY COMMITTEE: 3 Ms. Suzanne Taylor, Chair Ms. Kimberly Rogers 4 Ms. Rosalie Lopez Mr. Thomas "Tom" Weekley 5 Mr. John "Jack" Dougherty Mr. Larry Whittington 6 Ms. Markey Weaver Mr. Knowles Cornwell 7 8 CHARITABLE BINGO OPERATIONS DIVISION DIRECTOR: Mr. Billy Atkins 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 - Meeting Called to Order...... 5 4 AGENDA ITEM NO. 2 - Consideration of and possible discussion and/or action on the 5 minutes of the August 9, 2006, Bingo Advisory Committee meeting........................ 5 6 AGENDA ITEM NO. 3 - Consideration of and 7 possible discussion and/or action on selection of a vice chair for the Bingo 8 Advisory Committee................................ 6 9 AGENDA ITEM NO. 4 - Report on and possible discussion on the September 6, 2006 Texas 10 Lottery Commission meeting discussion regarding the role of the Bingo 11 Advisory Committee................................ 7 12 AGENDA ITEM NO. 5 - Report, possible.............. 10 discussion and/or action pertaining to 13 rulemaking activities: a. 16 Tex. Admin. Code Section 14 402.102, Bingo Advisory Committee........ 11 b. Market Conduct/Price Fixing Workgroup.... 11 15 c. Progressive Bingo/Alternative Style of Play Workgroup.................. 13 16 d. Rule 402.300 Pull-tab Bingo Sales and Redemption Workgroup...................... 15 17 AGENDA ITEM NO. 6 - Report, possible 18 discussion and/or action pertaining to interpretation of Tex. Occ. Code Sections 19 2001.453 and 2001.458 and Bingo Advisory Opinion Number 2006-0808-0022..................... 56 20 AGENDA ITEM NO. 7 - Report and possible 21 discussion on changes to 16 Tex. Admin. Code Section 402.603, bond and other security..... 82 22 AGENDA ITEM NO. 8 - Report, possible 23 discussion and/or action on the status of applications and nominations for filling 24 vacant Bingo Advisory Committee positions......... 109 25 0004 1 TABLE OF CONTENTS (continued) 2 PAGE NO. 3 AGENDA ITEM NO. 9 - Report and possible discussion on 2nd quarter 2006 bingo 4 conductor information........................... 119 5 AGENDA ITEM NO. 10 - Report and possible discussion on pull-tab ticket financial 6 information..................................... 123 7 AGENDA ITEM NO. 11 - Report and possible discussion on the activities of the 8 Charitable Bingo Operations Division ........... 135 9 AGENDA ITEM NO. 12 - Public comment............. 139 10 AGENDA ITEM NO. 13 - Consideration of and possible action on 2007 Bingo Advisory 11 Committee meeting dates and/or items to be considered for future meetings.................. 145 12 AGENDA ITEM NO. 14 - Adjournment................ 150 13 REPORTER'S CERTIFICATE.......................... 151 14 15 16 17 18 19 20 21 22 23 24 25 0005 1 P R O C E E D I N G S 2 WEDNESDAY, NOVEMBER 8, 2006 3 (10:03 a.m.) 4 AGENDA ITEM NO. 1 5 MS. TAYLOR: It's 10:03. We have a 6 quorum, so I would like to call the meeting to order. 7 The first item on the agenda is calling the meeting to 8 order. 9 Before we do anything else, I would like 10 to recognize Tom Clowe and tell him how much we 11 appreciate him taking the time out of his schedule to 12 come to our meeting. 13 AGENDA ITEM NO. 2 14 MS. TAYLOR: Item No. 2, consideration 15 of and possible discussion and/or action on the 16 minutes of the August 9, 2006 Bingo Advisory Committee 17 meeting. They were posted on line. Were there any 18 changes or additions? 19 Is there a motion to approve as posted? 20 MS. ROGERS: I make a motion for 21 approval. 22 MS. TAYLOR: Second? 23 MR. CORNWELL: Second. 24 MS. TAYLOR: All in favor? 25 FROM THE COMMITTEE: Aye. 0006 1 MS. TAYLOR: Opposed? 2 It's unanimous. 3 AGENDA ITEM NO. 3 4 MS. TAYLOR: Item No. 3, consideration 5 of and possible discussion and/or action on selection 6 of a vice chair for the Bingo Advisory Committee. 7 MR. ATKINS: Madam Chair, if I could 8 provide some background on that. Danny Moore did 9 serve in the role as vice chair. The BAC rule itself 10 does not specify that there has to be a vice chair. 11 It allows that the presiding officer can appoint 12 someone to serve in his or her absence. 13 Traditionally in the past, the committee 14 has selected a vice chair, so that's why we have it on 15 the agenda for your consideration today. So 16 essentially the committee can, or the committee can 17 just refer to the rule and allow the chair to appoint 18 someone in his or her absence. 19 MS. TAYLOR: Okay. At this point, I 20 know that Kim is willing to serve as vice chair. Is 21 there anybody else that would be interested in serving 22 as vice chair? 23 No takers? 24 In that case, I would like to introduce 25 you to Kim, your vice chair 0007 1 MR. WEEKLEY: Election winner. 2 AGENDA ITEM NO. 4 3 MS. TAYLOR: Item No. 4, report on and 4 possible discussion on the September 6, 2006 Texas 5 Lottery Commission meeting discussion regarding the 6 role of the Bingo Advisory Committee. 7 I hope that you read this item in your 8 notebooks. We had an extended conversation with the 9 Commissioners. Kim and I both went to the last 10 meeting. And I'm real glad that Commissioner Clowe is 11 here, because then instead of me trying to rephrase 12 what I was told, he will, I'm sure, be happy to let us 13 know their views on what we should be doing. 14 Commissioner Clowe, if I could. . . 15 CHAIRMAN CLOWE: Thank you, Suzanne. 16 Tom Clowe, Chair of the Texas Lottery Commission. 17 I really think, as you have pointed out, 18 the discussion that we had in the September 6th 19 meeting really is all-inclusive. And if you'll just 20 take the time to read that transcript, rather than me 21 trying to paraphrase or restate. I think we said what 22 we wanted to convey to Suzanne, to you in that 23 meeting. So let me simply ask you again to read that 24 transcript. 25 And then, additionally, I would like to 0008 1 say how favorable I think Commissioner Cox and I feel 2 towards the work that you-all are doing. Our 3 discussion was aimed in my opinion towards further 4 guidance and not a corrective action but to encourage 5 you and to try to help you and support you. 6 And to that end, Billy and I were 7 talking this morning about possibly another joint 8 meeting between the BAC and the Commissioners. The 9 last meeting we had was an informal kind of work 10 session where we discussed certain issues that are 11 current and the philosophy of the role of the BAC and 12 the role of the Commissioners. 13 My hope is that there will be a 14 fulfillment of the Commission. We have an empty chair 15 that I hope the Governor will appoint before too long. 16 I made no secret of the fact that I would like to step 17 out of the role of chair and ask Commissioner Cox, 18 with the Governor's certain approval, to accept the 19 recommendation that he be made the chair and there is 20 a change there. You have some terms that are expiring 21 here, and there's going to be some change in your 22 group. 23 So at a point in time when we see those 24 changes having occurred, I think a meeting to work 25 together -- which would be a public meeting and on the 0009 1 record, similar to the one that some of you-all who 2 attended will remember how beneficial that result was, 3 from the last one -- would have a beneficial result 4 for this meeting or this group in the future. 5 The main thing in my mind is to keep 6 your group oriented and keep you supported and moving 7 positively toward helping the Commission fulfill its 8 role in regard to the bingo industry 9 Billy and his group are going to appear 10 later this month before the House Licensing Committee, 11 which is your oversight committee for the Lottery, and 12 bingo is the subject of that oversight meeting. 13 I think it is important for us to listen 14 to the Legislature and hear what their direction is, 15 to have a good communication with the industry and to 16 understand what their needs are. That's a big part of 17 your role. So this group is doing I think very well. 18 And my hope is, we'll keep going in a positive 19 direction. 20 I appreciate the opportunity to state my 21 thoughts. And, again, I'm going to refer you to that 22 September 6th transcript. 23 Anybody have a question for me? 24 Thank you, Suzanne. 25 MS. TAYLOR: Thank you so much, 0010 1 Commissioner. 2 MR. ATKINS: And if I could, members, 3 just follow up on what the Chairman was saying. We 4 were discussing having another joint meeting with the 5 Commission and the BAC. Some of you were on the BAC 6 when we held that meeting. We have some new members, 7 as you mentioned, and this will come up more under a 8 future agenda item. But there are terms that are set 9 to expire in February of next year, so we anticipate 10 that there will be some new members of the Commission, 11 new members of the BAC. At that point, we would look 12 to scheduling that joint meeting and hold a meeting 13 similar to the one the Chairman was referring to. 14 MS. TAYLOR: Any comments, questions 15 from any of the committee? 16 AGENDA ITEM NO. 5 17 MS. TAYLOR: Okay. Then we'll go ahead 18 and move on to Item No. 5, report, possible discussion 19 and/or action pertaining to rulemaking activities. 20 And I think we'll go ahead and break these down into 21 the four separate pieces, if that's not a problem. 22 Sandy, do you see a problem with that? 23 MS. JOSEPH: No. 24 25 0011 1 a. 16 TEXAS ADMINISTRATIVE CODE 2 SECTION 402.102, BINGO ADVISORY COMMITTEE 3 MS. TAYLOR: OKAY. So we'll start with: 4 a. 16 Texas Administrative Code Section 402.102, Bingo 5 Advisory Committee. 6 MS. JOSEPH: Yes. I wanted to point 7 out, in case the committee was not aware, that this 8 rule was adopted and it was effective October 25th. A 9 copy of it is in your notebooks. 10 MR. ATKINS: And there were just 11 specifically amendments to this rule. 12 MS. JOSEPH: Yes. It was to clarify the 13 role of the BAC and also to clarify the grounds for 14 removal from the BAC. 15 MS. TAYLOR: Any discussion from the 16 committee? 17 b. MARKET CONDUCT/PRICE FIXING WORKGROUP 18 MS. TAYLOR: Okay. Item No. 2: B. 19 Market Conduct and Price Fixing Workgroup. 20 MS. JOSEPH: In regards to this 21 workgroup, I just need to report that the staff is 22 continuing to review and work on the draft. We had, 23 as I reported to you I believe at the last meeting, 24 assembled comments and ideas from the workgroup. And 25 working on our draft, we're continuing to evaluate 0012 1 that. 2 MS. TAYLOR: Any additional information 3 from anybody on the committee? 4 MR. CORNWELL: Sandy, is there any 5 projected date that this workgroup, is there any kind 6 of deadline set for this workgroup -- or, Chairman, 7 can I ask you that question, first of all? When we 8 establish these workgroups, is there a date that's set 9 to terminate these workgroups or do they just stand 10 forever or what is it -- being the new member, I'm 11 just wondering what the procedure is or protocol is. 12 MS. TAYLOR: On some items we do try and 13 get it done by the specific date. I don't recall that 14 we set up a timeline for this item, no, when we 15 established the workgroup. 16 MS. JOSEPH: Generally my experience has 17 been the workgroups continue until the rule is either 18 proposed and action is taken on it or until it's 19 decided there should be -- perhaps that effort should 20 be withdraw or discontinued. 21 MR. CORNWELL: Well, and I understand 22 that, and sometimes it's hard to get a lot of comments 23 from a lot of the people. But I'm also a big believer 24 that if we don't put some type of tentative deadline 25 in front of these workgroups and then extend those 0013 1 deadlines, that these projects and workgroups become 2 more manageable and with more sense of urgency. 3 That's just personal. I'm not asking to make a motion 4 or anything; it's just a comment. 5 MS. JOSEPH: I appreciate that. I would 6 say in this case and in all cases where I've had a 7 chance to work with workgroups, the workgroups have 8 been very responsive, and they've done their part. 9 MR. CORNWELL: Good. 10 MS. JOSEPH: We're not waiting on 11 anything from the workgroup. 12 MS. TAYLOR: Thank you, Sandy. 13 c. PROGRESSIVE BINGO/ALTERNATIVE STYLE 14 OF PLAY WORKGROUP 15 MS. TAYLOR: Item No. c., Progressive 16 Bingo/Alternative Style of Play Workgroup. 17 MS. JOSEPH: On this item, likewise, the 18 workgroup contributed heavily to development of a 19 draft rule. That rule is in the staff's hands right 20 now. Over the past month, the Bingo staff circulated 21 the draft rule to additional members of the Bingo 22 Division Staff and received comments. Those comments 23 are being evaluated and continuing to be evaluated. 24 And we're hopeful that within the next two weeks, that 25 rule will be posted on the website for informal 0014 1 comment. 2 MS. TAYLOR: Any comments? 3 Knowles, did you have anything to say? 4 Larry? 5 MR. WHITTINGTON: No. 6 MS. TAYLOR: Okay. 7 MR. CORNWELL: In that meeting, Suzanne, 8 we've basically come to an agreement to in somewhat 9 disagree with some items in that progressive rule, and 10 a lot of the members of the workgroup reserved the 11 right to make public comment. It's my understanding 12 the staff is looking at that rule, and we should have 13 a chance shortly to be looking at the proposed rule. 14 MS. TAYLOR: Okay. Any public comment 15 on this item? 16 MR. ATKINS: And just to clarify what 17 Sandy was mentioning, there is on the Division's 18 website a page for draft administrative rules; that 19 is, rules that have not gone before the Commission or 20 been published in the Texas Register for public 21 comment but are just that, are informal drafts that 22 are made available, and the public has the opportunity 23 to comment on them. 24 25 0015 1 d. RULE 402.300 2 PULL-TAB BINGO SALES AND REDEMPTION WORKGROUP 3 MS. TAYLOR: Okay. Then Item No. d., 4 Rule 402.300, Pull-Tab Bingo Sales and Redemption 5 Workgroup. 6 MS. JOSEPH: On this workgroup, we have 7 not had an opportunity yet to meet as a whole 8 workgroup. Some members of that workgroup have 9 already put in I believe significant effort on coming 10 up with a draft and have provided a copy of a draft 11 rule to the Bingo staff. So Bingo staff is now in a 12 position that it needs to review that draft. And once 13 that has been accomplished, then I believe the time 14 will be right to get the whole workgroup together and 15 continue on with that effort. 16 MS. TAYLOR: Is there a timeline on when 17 you think that that might happen, your getting the 18 whole workgroup together? 19 MS. JOSEPH: I'm not sure at this point. 20 It depends on the Bingo staff's ability to review that 21 rule. I would anticipate definitely -- well, I think 22 there will be some action on this before your next 23 meeting, assuming you meet on January or February. 24 MS. TAYLOR: Okay. Markey? 25 MS. WEAVER: How long has the Bingo 0016 1 staff had that information? 2 MS. JOSEPH: I believe it's a couple of 3 weeks. Is that correct, Billy, that you were provided 4 with that draft progressive bingo rule? 5 I'm not sure. It's been a few weeks. 6 MR. ATKINS: I think progressive -- or I 7 thought we were on Item c. 8 MS. JOSEPH: Excuse me. Not 9 progressive, pull-tab. 10 MR. ATKINS: Yes, it was sometime I 11 believe around October 11th. 12 MR. WHITTINGTON: You know, this is 13 really something that would really help the charity. 14 And what baffles me about the whole thing is, this is 15 something that we can't change -- right? -- as far as 16 when it comes to the pull-tabs? 17 MS. JOSEPH: I believe so. 18 MR. WHITTINGTON: We are about helping 19 the charities. I mean, the charities are really 20 catching a hard time -- okay? -- in Texas. I mean, I 21 know Dallas is. We've got a lot of competition, and a 22 lot of stuff is happening all the time. And any 23 little thing that will help these charities, 24 especially when it comes to pull-tabs, the Lottery 25 Commission coming in and stopping you from selling 0017 1 pull-tabs because of some rule that we can change and 2 we haven't done in the last three or four months is 3 really hurting a lot. Okay? 4 Just the idea of they might be coming 5 in, if we happen to sell a box over the first 6 session -- okay? -- the same box we're going to sell 7 for the second session. It really don't make no sense 8 in a way. But we can change this and help these 9 charities, because it's really hurting the charities 10 from making actually $100 or $200 that we can make if 11 we don't stop, we keep selling, especially when it 12 comes to unit accounting or charity playing back-to- 13 back. 14 I mean, I just don't understand how come 15 it takes so long to change something so simple. It 16 really is simple when you think about it. It's not a 17 complex thing, you know. And it just baffles me that 18 we can't do that and it takes months and months. Now 19 we just barely got a meeting set up where we try to 20 get the workgroup together after three months. 21 And maybe you can answer that or Billy 22 can answer that. I don't know. But it hurts us; it 23 really does. 24 MR. ATKINS: Well, let me try and answer 25 a couple of things, Larry. One, you said we're here 0018 1 to help bingo. Really, what the Division is here to 2 go is regulate bingo. And, you know, that doesn't 3 necessarily mean in an adverse way or in a way that 4 doesn't allow the organizations to make revenue. But 5 our purpose is to regulate bingo. 6 Now, there may be a need, as it relates 7 to this item, for some clarification, because the 8 draft that we received, as I recall, went way past 9 this one item that you're talking about and was 10 essentially I think what you could call an entire 11 rewrite of the whole rule. So, you know, that's a 12 much bigger issue than this one section that you're 13 talking about. 14 MR. WHITTINGTON: Okay. Well, let me go 15 a step further here. 16 MR. CORNWELL: Madam Chair, your charge 17 to the workgroup in our last meeting was to review the 18 entire rule. 19 MS. TAYLOR: That was correct. 20 MR. CORNWELL: Okay. Not just sales and 21 redemption. If that needs to be modified to expedite 22 Larry's problems, we can do so. But we did prepare 23 for discussion -- I want everybody to understand I 24 prepared a discussion memorandum so that we could 25 possibly hurry the group along and say, "Here's the 0019 1 points that we would like to talk about," like Billy 2 says, a whole rewrite of the rule. We had spent a lot 3 of time in the statutes trying to come up where it 4 would be statutory compliance. We've included some 5 things that the Lottery has indicated in the past they 6 wanted in the rules. And it's acceptable to us -- not 7 necessarily us; me -- that we can put some of those 8 items in there, too. 9 But I, too, would like to move. I think 10 there's some real positive changes in this rule, both 11 in a regulatory basis and for the charities. I think 12 it's good. 13 MS. TAYLOR: Let me say one thing. 14 Larry, I am aware of the importance of trying to speed 15 through this. I think what we were looking at, 16 though, instead of going to the Commissioners and 17 asking for this to be and posted and then reposted and 18 then trying to go back and redo the same rule again, 19 we were just trying to at this time rewrite the rule 20 to the best of our ability or put another draft out 21 there and work with the staff so that when we get 22 another rule put out there, it's a one-time thing, 23 instead of keep going back and fighting over the same 24 things over. 25 And I don't mean fighting, working on 0020 1 it; you know, have to post them and have to get it 2 through the Commission and come back through here. 3 That's why we had asked them -- I mean, last time -- 4 to look at the entire rule and see if there are other 5 items in the rule that needed to be changed at the 6 same time. 7 MR. WHITTINGTON: But -- 8 MS. TAYLOR: But I'm with you. I 9 totally understand the need for us to work on through 10 this and not to drop the ball. 11 MS. WEAVER: Susan, what I was asking, 12 if they got it on October the 11th -- I haven't read 13 the draft -- I would like to see a copy of it if 14 that's okay. But now we're saying that we're not 15 going to be able to do anything else with this until 16 February, it's going to take them that long to read it 17 and go through it, to the staff, before it even comes 18 back for maybe a possible rewrite or a redo? 19 MR. TAYLOR: Well, what I heard Sandy 20 say is that they needed to go through it and then 21 they're asking for another meeting of the workgroup. 22 So the workgroup does need to meet, and the workgroup 23 needs to be able to present this to the BAC. So I 24 think it's back in the hands of the workgroup and the 25 staff at this point. So the workgroup would need to 0021 1 work with the staff. 2 MS. WEAVER: So we're waiting on the 3 workgroup or we're waiting on the staff? 4 MS. TAYLOR: The staff -- and she said 5 in a couple of weeks that she thought it would be 6 ready to go to the workgroup, I believe. 7 MS. JOSEPH: I don't believe I said 8 that. 9 MS. TAYLOR: Okay. 10 MS. WEAVER: She said before our next 11 meeting. 12 MS. TAYLOR: Right. 13 MS. JOSEPH: I believe our workgroup 14 will have a chance to meet and do some work on it 15 before the next meeting. 16 MS. WEAVER: If the workgroup needs 17 additional help, I'll be glad to help. I think I 18 should have gotten -- 19 MR. CORNWELL: Sure. You're more than 20 welcome. 21 MR. WHITTINGTON: Well, all I'm saying, 22 while all of this is going on, when you trying to 23 abide by the regulations -- okay -- bingo regulations 24 through the Texas Lottery Commission, most charities 25 are, and they are going to try their best to do what's 0022 1 right. And what's right is closing that box for a 2 session and open it back up the second session, the 3 same box. That's what's right. That's the way the 4 rules are now and that's what they're trying to do to 5 provide that. 6 But in the meanwhile, we're losing 7 charities. Okay? They're barely paying their taxes, 8 which is the most important thing it seems like to me, 9 to pay their taxes first. Okay? They're really not 10 going to be in business. That's the way it works. 11 But in the meanwhile, they ain't got no money to 12 distribute at all for the charities, to help their 13 charity, because they're trying to do things right. 14 And that actually $100 or $200 a day 15 that they can make from these pull-tabs would 16 definitely help pay the taxes and have a little bit 17 left over for some type of donation of theirs. So 18 it's been pretty tough. Because of a lot of 19 competition and a lot of stuff happening, it's going 20 to stay like that. Okay? 21 Bingo needs a boost. And, believe me, 22 that little boost will help a lot, just saving that 23 100 bucks or 200 bucks that we can make a week, not 24 trying to go against the rules. If there was a rule 25 in place like that as soon as possible, it really 0023 1 would help a lot, because I don't want to tell my 2 workers, "Hey, you guys, we're taking a chance. Don't 3 do that." I want to tell them to stop and close their 4 box. That's the rules. Write it up the first 5 session. Open it back up two minutes later, 10 6 minutes later. Now, that's 15 minutes we've lost, as 7 simple as that. Time is the essence when it comes to 8 bingo sessions. 9 MS. JOSEPH: I agree -- 10 MR. WHITTINGTON: You got to have all -- 11 utilize all the time you can during a bingo session to 12 do something and make money, and it's tough. It's 13 tough out there. That's all I'm saying. 14 And I know it's a regulated thing, 15 Billy. I know that. But I'm just saying, yes, if it 16 wasn't for the taxes coming from the bingo money, 17 would these jobs be here at the Texas Lottery 18 Commission under bingo? I don't know. Maybe they 19 wouldn't if the tax money -- but that's part of 20 everything. And that's when I say helping -- I mean, 21 yes, we do, we need to help these charities because 22 that's what the bottom line is when it comes to 23 supporting everything when it comes to bingo, 24 charitable bingo in Texas, is the charities, sending 25 in money and making money. That's what it's all 0024 1 about. Okay? 2 MR. ATKINS: And I appreciates that, 3 Larry. I just want to make sure that you understand 4 that there are additional priorities and other 5 priorities, workloads that we have within the 6 Division. You know, we're looking to re-create our 7 Audit Department and those functions and how they're 8 performed. That's a charge that we have from our 9 Commissioners. So we're having to allocate our 10 resources as best we can. And as Sandy says, we've 11 got this draft. We're looking at it, and we'll follow 12 up with it. 13 MR. WHITTINGTON: Okay. And in the 14 meanwhile, can y'all just hold off the horses from 15 coming in the halls, because we'll selling the 16 pull-tabs. That's what we're trying to do. We are. 17 (Laughter) 18 MS. TAYLOR: Knowles, did you have 19 something to say? 20 MR. CORNWELL: No. You know, it's -- go 21 ahead. Markey, go ahead. 22 What you have seen, what they've seen is 23 a pretty extensive overview. Okay? I just ask again, 24 if you want to shorten this, we can address the one 25 issue instead of the whole issue and should be able to 0025 1 have a modified rule to accommodate Larry's situation. 2 But then I'm concerned that again, the rest of these 3 good rules and good ideas that's been presented here 4 for the pull-tab rule would then be lost or again 5 postponed from getting reviewed. 6 I think it's reasonable to sit down -- 7 and we all have workloads. But I think it's 8 reasonable to sit down and be able to have a working 9 discussion within, you know, a three-month period. 10 What's been proposed and the staff has 11 seen is just a point of discussion. It's not a 12 proposed rule. It's not -- you know, it's a 13 discussion. I'm not sure I agree with all of it 14 that's in there, but it's just for discussion. And I 15 really would wish that we could move it along, Sandy, 16 and get just really great ideas. I think there's some 17 really good things that fit under the statute in that 18 rule. It enhances regulation. I think in a lot of 19 areas it does, so I would like to move it along as 20 fast as we can. 21 And, Suzanne, may I ask you, if we get 22 to a point with them, that you can call a special BAC 23 meeting and we can address the rule -- address the 24 work at that time if you would like. That's my only 25 comment. 0026 1 MS. TAYLOR: Any other comments? 2 Is it the will of the committee to 3 shorten this workgroup and work on that one item only 4 or continue on with the entire rule? 5 MS. ROGERS: If you did that, if you 6 shortened it down to just the one rule that's 7 prohibiting the continuous sales of pull-tabs -- event 8 tabs, pull-tabs -- would you then in turn be able to 9 go back and take care of the rest in a timely fashion 10 or -- is that something that's doable or not doable? 11 I don't know. 12 MS. WEAVER: Does the staff have the 13 time to do one rule or the whole thing? 14 MS. ROGERS: In other words, would it 15 assist getting it passed any sooner? 16 MS. JOSEPH: I don't know. I need to 17 ask Billy that question. 18 MS. ROGERS: I mean, I know the staff 19 can't say, "Yes, it will be passed." Of course, you 20 can't say that. But would it assist in lessening the 21 work on the staff? 22 MR. ATKINS: Yes, well, it will lessen 23 the work, I guess, in the short run. 24 MS. ROGERS: Okay. 25 MR. ATKINS: You know, what you have to 0027 1 think about in the long run, do you actually wind up, 2 you know, doing a lot more work? 3 MS. ROGERS: Okay. 4 MS. JOSEPH: There is no limit on the 5 number of times you can amend a rule, from a legal 6 standpoint. 7 MS. ROGERS: And so, Knowles, how -- 8 because you understand it so much better than I do. I 9 read over that draft, and I was like, "Okay." Are the 10 rest as imperative as this one? I know they're 11 important. Don't get me wrong. I am agreeing they're 12 important. But are they as imperative that we get -- 13 you understand what I'm saying? 14 MR. CORNWELL: Well, it brings into 15 light a lot of different types of games. We just got 16 working -- through working on a progressive bingo 17 rule. Okay? 18 MS. ROGERS: Right. 19 MR. CORNWELL: And whether I agree with 20 it or not, we've worked on that rule and we've come to 21 an agreement to disagree on some of that. But the 22 progressive bingo is something that's allowed today, 23 and so progressive pull-tabs could be allowed today. 24 We are just putting them into the rule to regulate 25 progressive pull-tab. 0028 1 MS. ROGERS: And that that you're 2 talking about is also lumped into this, that -- 3 MR. CORNWELL: Yes, and many, many other 4 items in there. I just use that as an example because 5 we just got through talking about progressive bingo. 6 Well, what about a progressive pull-tab? How about 7 different styles of pull-tabs? 8 MS. ROGERS: Sandy, is there anything 9 the BAC workgroup could do to assist? 10 MS. JOSEPH: I don't have legal 11 knowledge, but not that I'm aware of at this time. 12 MS. ROGERS: There's nothing right now? 13 MS. JOSEPH: It's a matter of staff 14 resources. 15 MS. ROGERS: Okay. 16 MR. WHITTINGTON: Well, the main thing, 17 Sandy -- 18 MS. TAYLOR: Okay. Wait; wait. I'm 19 sorry to interrupt you. But before we continue on the 20 same vein, I really would like to get some new brain 21 power. So I would like to call Steve Fenoglio and 22 Steve Bresnen, who have both asked to speak on this 23 topic, to see if they can shed any light on this for 24 us. 25 MR. FENOGLIO: Good morning, Madam 0029 1 Chair -- 2 MS. TAYLOR: Good morning. 3 MR. FENOGLIO: -- and members. My name 4 is Stephen Fenoglio. I'm an attorney in Austin, and I 5 filed an appearance slip. 6 On the progressive bingo, I have no idea 7 why we don't have it ready to go. My notes reflect 8 that we met for the final time the first week of 9 October. There were a few disagreements, which we 10 noted with Sandy and the staff. This was the 11 subcommittee. And it's not a complex rule and it's 12 ready to go, and I don't know why we can't get 13 movement on that. 14 On this issue, the only thing -- I mean, 15 it's easy to fix, quote unquote, if that's the will of 16 the committee and, obviously, the Commissioners 17 because, as you know, they have to vote to publish for 18 public comment -- have the fix that Larry wants -- and 19 we've discussed that within the subcommittee -- the 20 only holdup in that potentially is if you want to make 21 that one change in this pull-tab rule, the 22 subcommittee can continue to work with the other 23 issues that Mr. Cornwell and others have raised about 24 a total rewrite. 25 But assuming the Commissioners voted to 0030 1 publish for public comment, you can't have another 2 comment on the same rule pending at the same time, 3 pursuant to state law. So you would have to have that 4 decision on that rule made in some fashion, meaning 5 either the Commission would withdraw it, amend the 6 rule, et cetera, before they could publish for public 7 comment, if that's again the will of everyone. And 8 the Commissioners are the key -- two of the key 9 players, because they have to formally vote to publish 10 for public comment these other changes. So that's the 11 only hickey in that issue. 12 I think, again on Larry's issue, from my 13 perspective -- and I've used this with both Billy and 14 Phil -- sitting on our side of the table, I think the 15 industry is in a -- it's a quick fix. We've not 16 really had much feedback from staff on their thoughts, 17 but I think they understand the issue completely. 18 Whether or not there's -- you know, there can be a 19 unanimity of opinion, I don't know. 20 I want to change now to one other issue 21 that's within this. And as I've said to both Billy 22 and Phil, I sit on my side of the table; they sit on 23 theirs; and, yet, there has been some discussion about 24 the workload. But if Lottery Commission side numbers 25 were down 20 percent in retailers, about 12 percent in 0031 1 payments to the state, and about 3 -- 8 percent visits 2 in purchases of lottery product, I think there would 3 be a lot of activity on the lottery side. Those are 4 the numbers in bingo, as y'all all know -- and those 5 numbers come from the recent report. It's a good 6 report. The Charitable Bingo Operations Division 2005 7 Annual Report. 8 And so within all of that, bingo is once 9 again unhealthy, similar to what we faced in 2000 and 10 2001, when we were pushing for changes in the pull-tab 11 rule. And Chairman Clowe at the time got up at a BAC 12 meeting and said, "I'm only one commissioner, but I 13 hope we can get something to the Commissioners so we 14 can look at it." And, in fact, we did. 15 And, in fact, as y'all all know, that 16 was a huge shot in the arm of bingo. It resulted in 17 three and a half million dollars change in payments to 18 state and local governments as a result of that one 19 change. That's at a time when regular bingo continued 20 to plummet, including both -- well, primarily paper 21 bingo. But the pull-tab revenue was so much higher, 22 and raised everything else, that the state made out 23 well, and local governments. Bingo still hasn't got 24 back to the same footing to where it was, but some 25 halls are doing much better than others. 0032 1 So within all of that, I don't want 2 anyone to lose sight of the fact that it's a sick 3 industry. There are some regulatory changes that can 4 be made. And I'm hopeful that we can move quickly and 5 we can get, if necessary in this next meeting with the 6 Commissioners, for them to hear the problems that 7 bingo has. And again, from my perspective, if it was 8 the lottery side we were talking about, I think there 9 would be a whole lot of marshaling of assets to 10 reverse that course. And it's unfortunate that bingo 11 is a stepchild in that regard. 12 I'll be happy to answer any questions. 13 And I'm a member of all of the workgroups, by the way, 14 that we've talked about. 15 MR. ATKINS: Steve, I just wanted to 16 respond real quick. I don't think that the 17 Commissioners have treated bingo as a stepchild. And 18 I know there have been many comments about how active 19 and involved that they have been in either these 20 meetings or other bingo-related functions. 21 MR. FENOGLIO: And I wasn't trying to 22 say that anyone in particular treated bingo as a 23 stepchild. But, nonetheless, the facts are, bingo is 24 sick. And it is true that at the Commission -- and I 25 know Ms. Taylor has been here a number of times when 0033 1 the Commissioners have wanted to delve into bingo, and 2 we appreciates that. But the fact remains that I 3 think if the shoe were on the other foot and lottery 4 were as sick as bingo, there would be a whole lot more 5 activity going on in that regard. We won't know that 6 because that's not the case with lottery, but it is 7 the case with bingo. 8 And as far as, Billy, also, the 9 Commissioners have directed a lot of activity be taken 10 to fix the audit issue. And at some point, Madam 11 Chair, in the next -- and this could be under the 12 public comment section -- I think that the BAC should 13 hear on the audit issues, the internal audit. It's on 14 the website. I know the BAC hasn't discussed it 15 formally, and it's a big issue. As evidenced by 16 Billy, it's taking a lot of staff time. 17 So, again, be happy to answer any 18 questions. 19 MS. ROGERS: I have one question for 20 you. So your personal suggestion or part of the 21 workgroup would be to leave it as a whole and not pull 22 the one portion out? 23 MR. FENOGLIO: I don't -- you know, and 24 I talked with a number of clients. They want quick 25 action. And the quickest way is to fix -- I'm going 0034 1 to call it Larry's problem. It's not Larry. Larry 2 has been the most determined advocate for that issue. 3 The quick way is to do that now, get it -- because 4 it's a clean -- from my perspective, it's a clean and 5 simple fix, quote unquote. 6 And if there is a will for that, it may 7 take another meeting of the BAC -- I don't know what 8 y'all's preference is -- to get it up in front of the 9 Commissioners. And if the Commissioners agreed, that 10 could be published for public comment. For example, 11 the next Commission meeting is the third week of 12 December. And I don't know that the rule could be 13 ready by then. 14 MR. ATKINS: That's been changed to the 15 second Wednesday. 16 MR. FENOGLIO: Okay. The second 17 Wednesday. And, by the way, one of the things I want 18 to talk with both Bill and Philly and Knowles about -- 19 I'm sorry. "Bill and Philly." 20 (Laughter) 21 MR. FENOGLIO: I used to like the 22 Phillies as a baseball team, and so I'm sorry -- is 23 the possibility, if you wanted to streamline that, for 24 a party to file a petition for rulemaking on Larry's 25 issue. And then the Commission has 60 days to take 0035 1 action on that. What I don't know is the issues that 2 Knowles has raised -- and some of them I have been 3 very involved with -- if, from the staff perspective, 4 that's a 90- or 120-day period to massage that, get it 5 in final format. And, again, I don't know because we 6 haven't had a chance to talk with Phil and Billy. 7 But if that were the case, then it could 8 be quick that you do a petition for rulemaking on the 9 Larry fix, get that up and running again. Once that 10 is published for public comment, you cannot publish 11 another amendment on the same rule. But that wouldn't 12 preclude the workgroup from continuing to meet to hone 13 the issues, to get them ready for either formal action 14 by the BAC or another petition for rulemaking once the 15 other rule is cleaned. 16 And let me say that on the petition for 17 rulemaking -- I filed one recently that I worked with 18 staff on. We reached agreement on it, and it went up 19 and got published and adopted within about 70 days. 20 So it can work quickly, assuming everyone is on the 21 same page. So, again, from my client's perspective, 22 they want quick action. I know what to do to fix 23 Larry's problem -- quote unquote, Larry's problem -- 24 and that can be done fairly quickly. 25 MR. WHITTINGTON: Right. 0036 1 MR. FENOGLIO: But what I don't know is, 2 from the staff perspective, what their position is. 3 If we could determine that and reach agreement, then 4 the quickest way to solve that problem, while this 5 other issues percolates as quickly as possible, is to 6 do the petition for a rulemaking. 7 I hope I answered your question, 8 Ms. Rogers. 9 MS. ROGERS: Yes. 10 MR. WHITTINGTON: Let me ask you a 11 question, Steve. As a matter of fact, I'm going to 12 ask the staff as well as you. You did an accounting 13 form to help charities. They can buy your products, 14 they sell them and they make the same money from the 15 products. Okay? 16 MR. FENOGLIO: Correct. 17 MR. WHITTINGTON: They still laid out 18 first. That's what's happening now. All I want, I 19 would love for the whole rule to be worked on, but I 20 want to hear something from the staff saying they'll 21 lay out these charities until it's done, when it comes 22 to unit accounting and playing back-to-back and 23 selling their pull-tabs, trying to make money. That's 24 all we need. We will work on the rule for the next 25 four or five months -- I don't care -- as long as the 0037 1 charities don't be jeopardized by doing what they're 2 supposed to do, sell their pull-tabs during a unit, 3 during a bingo session. That's all the staff has got 4 to do, is say, "Hey, we'll back off the charities if 5 they got the unit." It's simple. I own these 6 products; I can sell them during my bingo sessions if 7 I'm in a unit. 8 MR. FENOGLIO: I think it does -- I 9 agree with that. But you've got a rule that we've 10 talked about that says something else, and so there is 11 a conflict in the unit accounting statutory changes we 12 made -- 13 MR. WHITTINGTON: I know that. 14 MR. FENOGLIO: -- and the rule. And I 15 don't think it's one of those where, since the statute 16 can trump any rule, it automatically trumps, you know, 17 so that's a legal nuance that I will be happy to 18 explore with you if you want. But I think it does 19 require a rule fix. 20 I agree with you on the overall arching 21 premise of the unit and the changes in law in 2519 in 22 2003 to simplify inventory control and management, 23 including sale. But we've still got a rule issue 24 that, you know, quite frankly, I don't even think 25 anyone on the staff realized the impact of that. 0038 1 I think some of them could have 2 envisioned what you do at your hall or were doing at 3 your hall with sale of pull-tabs through a unit. But 4 I don't think anyone thought about that issue in 5 relation to the pull-tab rule until an investigator or 6 an auditor came in and looked and said, "Huh! That 7 seems in conflict with this provision in our rule." 8 So -- 9 MR. WHITTINGTON: Well, I don't want 10 these charities to get written up, but something that 11 should be in -- 12 MR. FENOGLIO: And I don't think anyone 13 does. 14 MR. WHITTINGTON: Okay. And that's 15 what's happening. 16 MR. FENOGLIO: Yes. 17 MR. WHITTINGTON: That's what was 18 happening. And, you know, like I said, I'm on the 19 BAC. I should know certain things. And when they 20 came in the hall, of course, I was just baffled. I 21 said, "Hey, we're a unit." 22 MR. FENOGLIO: Yes. 23 MR. WHITTINGTON: And we try to get unit 24 accounting together, it's still a lot of rulemaking 25 needs to be made toward unit accounting that basically 0039 1 was passed or forgotten or just put on the back burner 2 and saying, "Oh, wait a minute. This is the process. 3 Unit is a process of getting it together." We are 4 still in that process. And while this process is 5 going on, I just don't feel that they should come in 6 the halls, especially when it comes to unit accounting 7 with pull-tab sales and tell them, "Close this and 8 close that," when they're all together in one unit. 9 MS. TAYLOR: Larry, excuse me. I think 10 we're all in agreement with you. What we're trying to 11 do is fix it as fast as we can. So there's no 12 argument with you, I don't think, from any member of 13 the BAC or from the staff that it's something that we 14 need to fix. So we need to figure how to fix it. 15 Markey, what were you going to say? 16 MR. WHITTINGTON: I'm not talking about 17 the fixing part. The fixing part can be done. I'm 18 talking about what's happening right now and what we 19 need to do when it comes to pull-tabs making money for 20 the charities -- right now, not later. I know we're 21 going to fix it. 22 MS. WEAVER: Mr. Atkins, do you have an 23 audit staff out right now? Do you have anyone making 24 any audits or is everything on hold? 25 MR. ATKINS: No, there are some audits 0040 1 being conducted. We haven't initiated -- 2 MS. WEAVER: Are they the ones that are 3 already in progress? 4 MR. ATKINS: There are some that are 5 already in progress. There are some that could be 6 initiated as a result of a complaint, for example. 7 But there are no what I would call routine audits that 8 are resulting from the Audit Risk Program that we had 9 in place beforehand. 10 MS. WEAVER: Okay. 11 MR. ATKINS: So the number of audits 12 occurring is quite minimal. 13 MS. WEAVER: Okay. 14 MR. ATKINS: And I was just going to -- 15 to Larry's point, I don't know that we have taken any 16 action against any licensee on this issue that you're 17 talking about, Larry. 18 MS. WEAVER: Billy, the second thing is, 19 is your staff 100 percent? Are you fully staffed? 20 MR. ATKINS: No, we're not. We have 21 currently I believe five vacancies. 22 MS. WEAVER: Okay. Is that in any 23 particular department? 24 MR. ATKINS: There are four in the Audit 25 Department, and there's one vacancy coming up in the 0041 1 Licensing Department. 2 MS. WEAVER: Okay. And not to kick a 3 dead horse or anything, but I want to say something 4 that Mr. Fenoglio said. On us being a stepchild, the 5 bingo industry -- and, like I said, I don't mean to 6 get on a horse or anything -- but when we were 7 governed by TABC, compare our profits to how we're 8 governed now under the Lottery Commission, there is no 9 comparison whatsoever. 10 So it is something that's very important 11 to us and to our charities of Texas. If it was -- if 12 the profits were down -- if we could get all these 13 charities together, it would be tentative. If we 14 could make all the charities in the State of Texas one 15 voice, we wouldn't be controlled like we are now, and 16 they would be making the money that they should be 17 making. So . . . 18 MR. ATKINS: Well, I guess I have to ask 19 Markey, you know, what it is you believe specifically 20 the Lottery Commission has done, as opposed to TABC, 21 that has affected those -- 22 MS. WEAVER: We wouldn't be working on 23 our first billion and y'all are -- we all know it's 24 not -- 25 MR. ATKINS: I'm sorry. I'm not -- 0042 1 MS. WEAVER: I meant, our profits -- I 2 meant, it's good for Texas to have the Lottery 3 Commission. I meant, we're not in competition with 4 the Lottery Commission. I think the Lottery 5 Commission is in competition with bingo. The 6 lottery -- the pull- -- scratch-offs that look like 7 bingo. I mean, they play bingo as a scratch-off. You 8 know, that's not proper. It's not good etiquette. 9 You know, I'm sure there is a little- 10 bitty thing on the back of it that says, "Check this 11 website out for your local -- nearest bingo hall." 12 But, you know, they've already spent their $5.00. 13 They're not coming in our hall to spend $5.00. I 14 mean, it's competition in a lot of different ways. 15 But if we were not under the Lottery 16 Commission -- and I know it's totally off the 17 subject -- but if we were not under the Lottery 18 Commission, our charities wouldn't be hurting like 19 they are, I truly believe. You know, it's just me. 20 MR. ATKINS: Well, and I guess I'm 21 just -- I'm trying to figure out how, I mean, what you 22 believe would be different. I mean, I think the 23 Lottery Commission would still have their bingo ticket 24 that they sell. I feel pretty confident that they 25 wouldn't even have that language on back to, you know, 0043 1 find a regular bingo hall. 2 MS. WEAVER: I don't think many people 3 have used it. 4 MR. ATKINS: Well -- 5 MS. WEAVER: I'm sorry. 6 MS. TAYLOR: Anyway, this isn't on our 7 agenda right now anyway. 8 Phil Sanderson, would you like to say 9 something? 10 MR. SANDERSON: Phil Sanderson, 11 Assistant Director of Charitable Bingo. 12 And I think in answer to Larry's 13 question about can we stop enforcing the rule or 14 regulation, I don't know if we can actually stop 15 enforcing anything. 16 MR. WHITTINGTON: I know. 17 MR. ATKINS: Well, we have not taken 18 action. 19 MR. SANDERSON: But we have not taken 20 any action on those. You know, we've noted the 21 violations. But at this time, we've not taken any 22 action against the organizations. So -- 23 MR. WHITTINGTON: Well, what I'm saying, 24 Phil, when they come and say, "You got to stop doing 25 it right now" during a bingo session, you can't -- I 0044 1 mean, their comment stops pull-tab sales and 2 everything, you got to close this up, you got to open 3 it back. So that's when we started doing this, when 4 they came in during the bingo session and made us 5 stop. Okay? 6 We didn't know. Of course, we didn't 7 know, because we think we're a unit. They bought -- 8 you know, the same thing. That's the only thing I was 9 saying. It's kind of frustrating being part of this 10 and for the Texas Lottery Commission come in our 11 halls. I should know, but I didn't know; I didn't 12 know this at the time. And it's just frustrating, and 13 the workers saying, "We want to do things right." 14 While they pumping and selling, now they've got to 15 stop. That's all I was saying, and it's just 16 frustrating. 17 MS. LOPEZ: Larry -- I'm sorry -- may I 18 make a suggestion? I mean, I know that we've been 19 affected the same way that your hall has been 20 affected. We also were in violation for continuing to 21 sell pull-tabs after the first session. But we became 22 a little more creative in the way that we sell 23 pull-tabs. And so what we've done now is, in our 24 first session, we open up nothing but just small boxes 25 of pull-tabs and sell a bunch of small boxes so that 0045 1 we do complete an entire box of pull-tabs before the 2 first session ends. So that's what's made us a little 3 bit more creative. Yes, it hurt us because we can't 4 continue to sell that, you know, large box of 5 pull-tabs in the first session into the second, even 6 though we're a unit. But we have become a little bit 7 more creative it that, and it has helped. 8 And then when we start second session, 9 opened up and we start selling, you know, our large 10 boxes of pull-tabs. And our customers have become 11 accustomed to that now. It was kind of a shock at the 12 beginning, but they're become a little more 13 accustomed. 14 So that's just a suggestion to help in 15 the meantime, until a fix does come to this. But 16 again, it's just another way of maybe marketing your 17 pull-tab sales. 18 MR. WHITTINGTON: I understand what 19 you're saying. We sell a lot of pull-tabs, I'm sure, 20 just as much as you. But the process of stoping, 21 that's the whole point. That's what I'm getting at. 22 MS. LOPEZ: A creative approach to just 23 fix it in the meantime, until -- 24 MS. TAYLOR: Larry, you sell a lot of 25 instant tabs in your hall, don't you? 0046 1 You're talking event tabs. He's talking 2 instant tabs. He sells the 500 -- the boxes of 500 3 instant tabs, and that's where they make a lot of 4 their money still. I've gone and watched his hall. 5 MS. LOPEZ: Okay. 6 MS. TAYLOR: So event tabs, we have that 7 option. But if you're an instant tab seller and you 8 make a lot of money off that, then you don't have that 9 option. He's closing boxes. The 500 comes out, and 10 he's closing a box. And now all of a sudden, it's a 11 dead box. 12 MS. LOPEZ: It's a dead box. 13 MS. TAYLOR: He can't bring it back out 14 in a second and say, "There is a 500," because 500 15 really is, in essence, gone. 16 MS. LOPEZ: Gone. Sure. 17 MS. TAYLOR: So that's his problem. And 18 I understand it because I watched his hall. 19 MS. LOPEZ: Okay. 20 MS. TAYLOR: Kim wanted to say 21 something. 22 And then, Steve Bresnen, I've seen your 23 hand. 24 MR. WHITTINGTON: Thank you, Phil. 25 MS. ROGERS: Who chairs this workgroup? 0047 1 Knowles? 2 MR. CORNWELL: We haven't had a meeting 3 to decide. 4 MS. ROGERS: But who was assigned to 5 chair? 6 MR. CORNWELL: I took the task -- 7 MS. ROGERS: Ultimately, I personally 8 looked at you to say what do you want to do at this 9 time? What do you feel we should do at this time? Do 10 you think we should go forward with how it sits right 11 now and hope that staff can do what they can do to 12 progress this along or do you want to slice it and 13 pull that one piece out? 14 MR. CORNWELL: Does the BAC have the 15 ability to petition for a rule change? 16 MR. ATKINS: I'm looking -- 17 MS. JOSEPH: No. 18 MR. ATKINS: I'm being told by Sandy 19 Joseph "No," that it -- 20 MR. CORNWELL: No. Okay. 21 MS. ROGERS: So we can't do that? 22 MR. ATKINS: Well, no -- 23 MS. ROGERS: No? 24 MS. TAYLOR: I believe the workgroup can 25 change what they're working on. But before you make a 0048 1 decision one way or the other, let's let Steve Bresnen 2 say something. And then we're going to come back to 3 you and hear what the workgroup would like to proceed 4 with. 5 MR. BRESNEN: Hi. It's good to see 6 y'all again. I'm Steve Bresnen, here on behalf of the 7 Bingo Interest Group. 8 I haven't been around for a while 9 because I was feeling really frustrated and angry for 10 a long time and thought I might be inhibiting the 11 process. And I find the same emotions arising as I 12 sit here again today. It's like entering a movie that 13 you've already seen a bunch of times. 14 It's too slow; it's too slow, y'all. 15 The statute says that the Commission has broad 16 authority and shall exercise strict control. "And" is 17 a conjunction. A conjunction puts two different 18 things together. Broad authority is broad authority 19 ". . . and shall exercise strict control" is the 20 regulatory part of that. The broad authority must be 21 something different from that. It's basic statutory 22 construction. If you have broad authority, that can 23 include helping the industry. Your role is not just 24 to regulate. It can be to help the industry. If it 25 was merely to regulate, you never would have adopted 0049 1 the rule on the new pull-tabs. 2 This industry is sick. But if you look 3 at the numbers in the annual report, you can see that 4 the bleeding was stanched and the patient began to get 5 stabilized immediately after the adoption of the new 6 pull-tab rule. That took two years. It took a member 7 of the Commission to say sure did hope he could get 8 something done promptly to get it done, after two 9 years. And it immediately helped. 10 The problem that Larry is talking about 11 results from the statutory change in 2003, to go to 12 units. By my calculation, that's over three years ago 13 since that law was effective. So there should have 14 been a change a long time ago. I didn't recognize it. 15 But my guess is, is that this is not a new thing. 16 You have broad authority and you have a 17 problem created by the implementation of a new statute 18 and the failure of the agency and the industry to 19 recognize the need for a change in an existing rule. 20 So the exercise of prosecutorial discretion, which is 21 fully in the Commission's hands, is appropriate at 22 this time. 23 And the Commission should tell the 24 industry what their policy is going to be and it 25 should be in writing by U.S. Mail. And it should say, 0050 1 "If you're in a unit, pending the revision of this 2 rule, we made note that you're in conflict with the 3 existing rule but no action will be taken." That is 4 no different whatsoever from sitting in a public 5 meeting in Austin, Texas, and announcing that you're 6 not going to initiate anymore audits or that you're 7 going to take a significantly different approach to 8 audits for a while, while you get your audit process 9 worked out. 10 That's the exercise of prosecutorial 11 discretion, taking account of the agency's resources, 12 conflicts between the agency's activities and a 13 statute, needs to change the agency's rules. It ain't 14 that hard, folks. The Legislature fully intends for 15 charities in this state to make more money. 16 On the basis of the annual report, I can 17 go down there and tell them that charities are, in 18 fact, making more money. If you do some analysis on 19 that, what you see is, the charities are getting more 20 money per player. That's essentially where the 21 improvement in the industry has come from. The more 22 money per player is coming from what? Pull-tabs; it's 23 from the new pull-tab rule. At the same time, the 24 cost structure in the industry has improved. The 25 reason it's improved is because of the unit accounting 0051 1 rule partly and because growth in rents has been 2 minimal. 3 So, you know, one good thing -- and I 4 told Billy this earlier -- that annual report is an 5 outstanding example, but it shed light on why these 6 things have got to move forward and get to move 7 forward faster. We can petition -- I've got a list of 8 things as long as my arm I can petition this agency 9 for rulemaking on and make y'all respond every 60 10 days, just like that. I could do that. That 11 completely obviates the need for a Bingo Advisory 12 Committee. We can just go toss it every time into the 13 lap of the Commissioners, every time on that. 14 And, frankly, y'all, I'm about sick of 15 it, and I'm going to just start doing that. The 16 Commissioners can turn us down, they can not do 17 anything. The staff can say, "We shouldn't do 18 anything. We need to review it. We need to look at 19 it," and we can be here until hell freezes over, but 20 I'm tired of it. 21 And I'm sorry I let my temper get the 22 best of me. But there's no reason for this to be so 23 slow. Thank you. 24 MS. TAYLOR: Knowles? 25 MR. CORNWELL: You want me to follow 0052 1 that? 2 MS. TAYLOR: Yes. 3 Thank you very much, Steve. 4 MR. CORNWELL: Thank you, Steve. 5 MS. TAYLOR: Knowles, what do you want 6 to do? What does your group want to do? 7 MR. CORNWELL: I think we should 8 petition -- you know -- no, I'm going to take that 9 back. Let's sit down and let's ask staff to have a 10 meeting, set meetings today. Let's set a time frame 11 to get the whole thing done. Let's ask them to do 12 that today. It's too easy to ask for a petition for 13 rule change. I'm afraid if we ask and get this one 14 rule change done, I don't think the workgroup will 15 progress for the entire rule under your charge, Madam. 16 So that's an opinion. 17 MS. TAYLOR: Who else is on this 18 workgroup? Larry? 19 MR. WHITTINGTON: Yes. 20 MS. TAYLOR: Do you concur? 21 MR. WHITTINGTON: What? 22 MS. TAYLOR: Do you concur with that -- 23 MR. WHITTINGTON: Yes, I do. 24 MS. TAYLOR: Who else is on the 25 workgroup. 0053 1 MS. LOPEZ: I'm on that workgroup as 2 well. 3 MS. TAYLOR: Rosie, what do you say? 4 MS. LOPEZ: I agree. 5 MS. TAYLOR: You agree? 6 MS. LOPEZ: Yes. 7 MS. TAYLOR: Kim? 8 MS. ROGERS: Let's ask, see what we can 9 do. 10 MS. TAYLOR: Okay. Knowles, your 11 workgroup is in agreement with you, so where are you 12 going? 13 MR. CORNWELL: Staff, can we set meeting 14 dates up today? Can we set a reasonable time frame to 15 complete, to get to a point where we either agree or 16 disagree and move on? 17 MR. ATKINS: I would ask -- 18 MR. CORNWELL: Can we get those -- I'm 19 sorry. Go ahead. 20 MR. ATKINS: I would ask if you will 21 follow up with Sandy after this meeting, we can look 22 at letting those dates set. 23 MR. CORNWELL: I will e-mail everybody 24 the results and the agenda of that after the meeting 25 today. 0054 1 And, Billy, is it unreasonable to sit 2 down and say a three-month window? I want to have 3 this thing -- two-month window, 30 days? 4 MR. ATKINS: Are you looking at the 5 sales and redemption or the -- 6 MR. CORNWELL: No. The whole rule. 7 MR. ATKINS: -- the entire thing? 8 MR. CORNWELL: The whole rule. 9 MR. ATKINS: The entire thing, I think 10 you would have to give yourself a minimum of three 11 months. 12 MR. CORNWELL: Well, can we not -- I 13 mean, really and truly, conceptually, if we can all 14 agree to the concepts behind all these different 15 things, I think we could really draft it and have 16 something ready for the Commissioner to look at. To 17 be honest with you, I'm willing to make the 18 commitment, and I've got -- I'm allocating a lot of 19 resources these days, but I would like to have it done 20 before Christmas. 21 MR. ATKINS: Well, we can try for that, 22 Knowles. But not having the benefit of that sit-down 23 to, you know, sit down and look at it -- 24 MR. CORNWELL: Well, that sit-down, it's 25 going to be required that we do that maybe once a week 0055 1 or maybe even twice a week, just got to move up to the 2 top of the priority list. I think that's what we've 3 heard from everybody today. 4 MR. ATKINS: Well, I think if you can 5 begin to schedule the meetings with Sandy today, then 6 we can, you know, get an initial estimate of what it 7 will take to complete that. 8 MR. CORNWELL: Okay. Well, I'm going to 9 push for something before Christmas, Billy. 10 MR. ATKINS: I understand that. 11 MR. CORNWELL: We've done an awful lot 12 of work already. There's an awful lot of stuff that 13 you've seen already on these rules. I mean, we even 14 talked about these rules in other workgroups and other 15 meetings with staff. So I think 30 days is -- we 16 ought to be able to get it done before Christmas. 17 MR. ATKINS: And I'll ask you to follow 18 up with Sandy on that. 19 MR. CORNWELL: All right. I'll e-mail 20 everybody the schedule and invite anybody that wishes 21 to attend the workgroup. I will provide any material 22 that has been up for discussion. Just e-mail me. 23 Thank you. 24 MS. TAYLOR: Any other discussion on 25 this topic? 0056 1 Nothing else. 2 AGENDA ITEM NO. 6 3 MS. TAYLOR: Okay. Item No. 6, report, 4 possible discussion and/or action pertaining to 5 interpretation of Texas Occupational Code Sections 6 2001.453 and 2001.458 and Bingo Advisory Opinion No. 7 2006-0808-0022. 8 And at this time -- I'm sorry. Okay. 9 Sandy, did you want to come up and . . . 10 MS. JOSEPH: Yes. My understanding is 11 that this item was requested to be on the agenda 12 because it was felt that it might be helpful to make a 13 special note of the opinion and bring it to the 14 awareness of the BAC members. I felt -- by Suzanne, 15 and I believe Mr. Fenoglio had talked to her about 16 it -- that it's a significant opinion. 17 So we did include a copy of it in your 18 notebooks. And I'll briefly summarize it if you would 19 like for me to. 20 MS. TAYLOR: I do. And then I had a 21 question about a couple of sentences which I read and 22 reread and still didn't really understand what I was 23 reading. 24 MS. JOSEPH: Okay. The Commission 25 received a request from Steve Bresnen. The question 0057 1 was whether a charity may provide a meal as a 2 promotion intended to induce players' attendance as a 3 reasonable or necessary allowable expenditure of funds 4 in the bingo account under Texas Occupations Code 5 Sections 2001.453 and .458. In his request, he 6 referenced an opinion that was issued back in 2004 7 which was somewhat similar. In that request, the 8 question was asked whether or not an organization 9 could provide a meal as part of -- and have it count 10 as an advertising expense. The answer to that was 11 basically "No." 12 In this request, Mr. Bresnen was making 13 a distinction, saying he was not asking if it could be 14 counted as an advertising expense but whether or not 15 it could be a promotion, a meal could be a promotion. 16 In analyzing his request, looking at his 17 question, we noticed that there was an assumption in 18 the question that the standard would be whether or not 19 the meal was reasonable or necessary. This brought 20 into focus for us a question that we had had and a 21 question that we felt it was time to address as to: 22 Is the standard reasonable or necessary or reasonable 23 and necessary? 24 Sections 453 and 458 differ in their 25 language. So part of this opinion -- and I believe a 0058 1 significant part -- was addressing that question. 2 What we determined in analyzing this, from the legal 3 standpoint, is that in order to utilize funds from the 4 bingo account, the standard is that the expense must 5 be reasonable and necessary. That's the language of 6 the statute. 7 458, which refers to other bingo 8 expenses, uses the language reasonable or necessary. 9 So, in effect, you have two different standards, 10 depending on whether it's money that's going to be 11 spent from the bingo account or from other sources. 12 Now, I think some people might have 13 considered that the intent of the Legislature was to 14 have the same standard in both statutes. And, in 15 fact, 453 was amended to change the language from "or" 16 to "and." But the language was not changed in 458. 17 The statutory construction rules call for harmonizing 18 statutes when possible and giving effect to the 19 meaning of both, if possible. 20 In this case, it is possible to do that. 21 It is possible to say that there's one standard for 22 the bingo account and another standard for 23 expenditures from other sources of money. 24 So the opinion concluded that promotions 25 as a general category are reasonable as an item of 0059 1 expense and that a licensed authorized organization 2 may utilize its judgment as to the types of promotions 3 conducted. Whether or not a meal, a particular meal 4 is allowable would depend on several factors. One is, 5 if you're intending to use bingo account funds, then 6 that meal as a promotion would have to be both 7 reasonable and necessary. If you were going to use 8 other sources of funds, it would be reasonable or 9 necessary, which is a lesser standard. 10 So determination of whether or not, 11 again, a specific promotion would be allowable would 12 require analysis of specific facts. An organization 13 should maintain records to support their view or 14 determination that a meal or any other promotion is 15 both reasonable and necessary. 16 That's the summary. Do you have any 17 questions? 18 MR. WHITTINGTON: Let me ask you a 19 question. 20 MS. LOPEZ: That's a "maybe." 21 MR. WHITTINGTON: Let me ask you a 22 question, Sandy. 23 FROM THE COMMITTEE: What's a "maybe"? 24 MR. WHITTINGTON: We have full-pay 25 halls. We pay out the $2,500 prizes per session. 0060 1 Okay? Per day, if I understand this right, door 2 prizes, how much can a charity give during a session 3 on a door prize? 4 MS. JOSEPH: 250. 5 MR. WHITTINGTON: Is that daily? 6 MS. JOSEPH: No. 7 MR. WHITTINGTON: Can they do a door 8 prize daily? 9 MR. CORNWELL: You can do it 50 times a 10 night if you want to. 11 MS. ROGERS: Each one over $450. 12 MR. WHITTINGTON: Now, getting back to a 13 question, since I'm a full-pay hall, and a door prize 14 meaning all customers, everybody got to be included in 15 the door prize, and I'm asking you this because I'm 16 really baffled about this. Can -- for that door prize 17 of $250, can I play a bingo game? 18 MS. TAYLOR: Part of your bingo prizes. 19 MR. WHITTINGTON: No, not part of your 20 bingo prizes -- 21 MS. TAYLOR: Half -- 22 (Multiple people speaking) 23 MR. WHITTINGTON: -- can I play for the 24 door prize? 25 MS. JOSEPH: I'm not sure how that's 0061 1 related to this opinion. I would like to stay focused 2 on this opinion if possible. 3 MR. WHITTINGTON: Well, you're talking 4 about promotions and different things like that -- 5 MS. JOSEPH: Yes. 6 MR. WHITTINGTON: -- are going over my 7 $2,500. 8 MS. JOSEPH: Okay. But I really need to 9 stay focused on this opinion, for purposes of -- 10 MS. TAYLOR: Is a door prize considered 11 a promotion? 12 JUDGE SANFORD: There we go. That's 13 a -- 14 MR. CORNWELL: Excellent. 15 MS. JOSEPH: That's another opinion. 16 MS. WEAVER: I have a question. 17 MS. JOSEPH: I'm not prepared to answer 18 that. I haven't given though to that. Maybe someone 19 else is. Maybe Billy is. I don't know. 20 MS. TAYLOR: And, honesty, that's why I 21 read this, and I said I read that and still didn't 22 quite grasp what you were saying. 23 MR. ATKINS: I think what Sandy was 24 saying in the opinion is that it's fact-specific to 25 each promotion that is put forward, and the 0062 1 responsibility of the organization is to maintain the 2 records to justify it. And let me see if I can try 3 and explain it. 4 But in this particular case where the 5 organization was going to be giving, you know, a meal 6 and, again, there was no consideration given to the 7 cost of the meal, I think even the request for opinion 8 said something like, "Maybe everybody could agree that 9 $1000-a-plate dinner may be excessive. But, you know, 10 sandwiches and a bag -- ham sandwiches and a bag of 11 chips I think was the actual explanation that was 12 given. 13 I think one of the analyses that it's 14 incumbent upon the organization to do -- and, again, 15 the purpose is to either increase or maintain their 16 attendance -- is for the organization over a period of 17 time to do an analysis as to what's occurred with 18 their attendance in conjunction with this promotion. 19 Have they -- 20 MS. TAYLOR: Prior or after the 21 promotion? Are you saying prior to the promotion or 22 do the promotion and see what effect it had on the 23 attendance? 24 MR. ATKINS: Right. Monitor the 25 promotion as it's ongoing and see, you know, what 0063 1 effect it has on attendance. Does it stay the same? 2 Does it go up? Does it go down? If it stays the same 3 or goes up, I think you can make the argument that 4 it's reasonable and could also be necessary. If you 5 start seeing your attendance go down but you continue 6 to offer this promotion, then I think it's difficult 7 to say that it's either one. 8 MS. TAYLOR: So, in essence, if you were 9 going to do a promotion, you would need to keep 10 records to show justification for the promotion. But 11 let's say I was going to give a T-shirt to the first 12 100 people that came in the hall, to try and get 13 people to come in early to buy tabs and stuff, would I 14 need to ask for an opinion on that prior to doing it 15 or would I be able to run that promotion and just show 16 justification as to why we used that particular 17 promotion? 18 MS. ROGERS: It would probably depend on 19 how you're going to pay for the T-shirts. 20 MS. TAYLOR: Okay. 21 MS. ROGERS: Let's say you're going to 22 pay for them from the bingo account -- 23 FROM THE COMMITTEE: Bingo money. 24 MS. JOSEPH: Well, I think either way, I 25 don't know you would necessarily need to ask for an 0064 1 opinion on that because it's going to be so fact- 2 specific that it's difficult, if not impossible, to 3 give a card hard "Yes" or "No" answer. It would 4 depend on different factors, such as you were just 5 discussing with Billy: Was there any increase in 6 attendance? I mean, can you show more people came 7 because they were getting a free T-shirt? 8 MR. WHITTINGTON: Well, one thing about 9 it, if you give a T-shirt away or whatever you give 10 away to a bingo player, you're going to get more 11 players. Whatever you're giving, they're going to 12 come and try to get it or win it. They want anything 13 they can get free. 14 MS. TAYLOR: But, see, I don't know if 15 that is counted -- if you're giving it to the first 16 100 players, is that -- 17 MS. JOSEPH: That's not to everybody. 18 MS. TAYLOR: -- counted as a door prize 19 or is that counted as a promotion? 20 MR. WHITTINGTON: Door prize is -- 21 MS. TAYLOR: Is that a promotion? 22 MS. JOSEPH: That's another question. 23 MS. ROGERS: So technically, they could 24 have done their food under the promotions, the 250? 25 MS. WEAVER: So now the charities can 0065 1 pay for their hotdogs and Cokes that the grill gives 2 away free. Is that what you're saying? 3 MS. TAYLOR: Honestly -- 4 MS. JOSEPH: If it's both reasonable and 5 necessary, the "necessary" -- 6 (Multiple people talking) 7 MS. WEAVER: The first Monday of every 8 month, we give away free hotdogs and free Cokes. 9 MR. WHITTINGTON: A lot of people come 10 through. 11 MS. JOSEPH: You need to think about: 12 What do you have to show that it's necessary to do 13 that? 14 MR. WHITTINGTON: Attendance. 15 MS. JOSEPH: The attendance. 16 MS. WEAVER: I was going to say, yes, 17 the attendance doubles because they get a free hotdog 18 and a free Coke. 19 MR. WHITTINGTON: If you give it away, 20 they're going to come. That's the way it is. 21 MS. WEAVER: But you're saying now that 22 can come out of the bingo fund? 23 MS. TAYLOR: Well, what I was reading on 24 Page 3 of 5 on this, down at the last paragraph, the 25 first sentence where it says, "Promotions are 0066 1 reasonable as an item of expense." So I was trying to 2 put that with the previous two sentences on the 3 previous paragraph and see if I was judging this, if I 4 was reading it correct, that if it was a promotion and 5 it wasn't a door prize, the first 100 people get it -- 6 nobody wins a thing. The first 100 people in the door 7 get something -- if that was something that they could 8 now do? 9 MR. WHITTINGTON: Sure. 10 MS. ROGERS: If I understood what Billy 11 said correctly, if you did that, let's say you did it 12 every other Wednesday, and then you could show that it 13 brought your attendance up on those Wednesdays when 14 they come in to run your spot check on your -- 15 MS. TAYLOR: Right. 16 MS. ROGERS: -- whatever -- audit -- 17 then it could be construed as reasonable. 18 MS. WEAVER: Is every auditor going to 19 do the same thing? 20 MS. ROGERS: Yes? Is that what you were 21 saying? 22 MR. ATKINS: Yes. 23 MS. ROGERS: Okay. 24 MS. JOSEPH: I mean, the situations are 25 difficult because there is an interpretation of the 0067 1 word "reasonable" and an interpretation of the word 2 "necessary." So, you know, it is difficult. 3 MS. WEAVER: Who decides what's 4 reasonable and necessary, the charities? 5 MR. CORNWELL: Not the charities. 6 (Multiple people speaking) 7 MS. WEAVER: The standard would be -- 8 MS. JOSEPH: The standard would be that 9 of a reasonable person in similar circumstances. 10 MS. WEAVER: You just totally threw out 11 90 percent of the people in the hall, then, if you're 12 talking about reasonable. 13 MS. JOSEPH: No, no. I'm basing that on 14 a reasonable person in the position of the charities. 15 MS. LOPEZ: Primary operator or 16 something of that nature. 17 MS. WEAVER: You said "we" as a legal 18 standpoint. Are you talking "we" as the Lottery 19 Commission standpoint or are you talking about 20 legislative or are we talking about you as "we"? Who 21 is "we"? 22 MS. JOSEPH: I'm not sure what you're 23 referring to. 24 MS. WEAVER: Who decided how this reads 25 now as necessary and not necessary? 0068 1 MS. JOSEPH: Who decided the language of 2 the statute? 3 MS. WEAVER: Right. 4 MS. JOSEPH: Or who wrote this opinion? 5 MS. WEAVER: No, no -- yes, this 6 opinion. 7 MS. JOSEPH: I drafted it and I received 8 input and comments from other members of the legal 9 staff, other attorneys. We prepared a draft for 10 Billy's review, and he reviewed it. And we answered 11 any of his questions, and he issued it. 12 MS. WEAVER: Okay. Thank you. 13 MS. JOSEPH: That's what the process 14 was. 15 MS. ROGERS: Markey, I think what Sandy 16 was trying to say is, as long as you keep information 17 to back up what you, the charity, deems as necessary 18 or reasonable, as long as you are backing it up with 19 some information, that they can see where you're going 20 with this, then they will work with you. 21 MS. LOPEZ: It might be best, like maybe 22 with the backup information on your session recap for 23 that night, make a note down at the bottom of the page 24 saying, "Hey, we gave out free hotdogs and Cokes 25 tonight, and we doubled in attendance," so when 0069 1 Auditing comes through, I don't know that they're -- I 2 mean -- I don't know. 3 MR. ATKINS: We know that this is 4 difficult for organization and that there's a desire 5 to be in compliance. One of the potential changes 6 that we've identified that would require legislative 7 change but we think would make it easier not only for 8 the organizations but the agency itself is, instead of 9 attempting to have a list or a partial list of 10 expenditures that could be authorized, what some other 11 jurisdictions do is, they set a percentage of 12 generally net revenue that organizations can spend for 13 the conduct of their game. 14 And what that does is, that frees up the 15 organization to manage their games as they set best 16 and to make whatever expenditures they believe are 17 appropriate for the conduct of their games. And then 18 there is no trying to identify, you know, "Is this an 19 authorized expenditure or not?" You're just looking 20 to that they didn't exceed that set percentage in 21 terms of conducting their games. 22 MR. WHITTINGTON: Is the door prize a 23 promotion? I mean, I'm sure if you got a door prize, 24 you're doing it the same way as a promotion, to get 25 more people in the hall. I mean, where does it fall? 0070 1 I mean, of course it's a promotion if you got a door 2 prize. If you're giving a door prize out, that's 3 something extra that you're doing for the customers, 4 to get them in, as well as -- in fact, me myself, my 5 promotions, if I buy a TV, I donate it. If I give 6 high dollar food, I do it. Okay. The charities don't 7 have to help. They don't have to expense -- I'm doing 8 that. And every time I've done it, I've increased my 9 attendance by 50 or 60 people. 10 MR. ATKINS: And again, I don't think, 11 Larry, it would be appropriate, you know, to offer a 12 response to that at this time. I mean, you know, for 13 example, I see Knowles, you know, when you asked that 14 question, shaking his head. 15 MR. CORNWELL: You need to be careful. 16 Not everything can be a promotion. 17 MR. ATKINS: Yes. 18 MR. CORNWELL: There's some -- you need 19 to think about it because there are other -- Penal 20 Code 47, when you run a promotion -- I don't want to 21 be running it as an illegal lottery. I don't want to 22 be doing -- 23 MR. WHITTINGTON: Right. 24 MR. CORNWELL: -- cash. I want to -- so 25 there's a lot of protection under the door prize from 0071 1 the jurisdictional side. So don't just pooh-pooh door 2 prizes, period. I'm not so sure door prizes can't 3 come out of the bingo funds. 4 MR. WHITTINGTON: That's what I'm 5 saying; that's basically what I'm saying about the 6 promotion thing. 7 MR. CORNWELL: Guys -- Sandy, I have a 8 question for you. 9 MS. JOSEPH: All right. 10 MR. CORNWELL: Did anybody look to see 11 if there is any kind of industry standards to use? 12 You know, Sandy, in a past life, I used to do a little 13 tax work. I don't think I was very good at it. But 14 the IRS has, you know, the same issues, and they use 15 it ordinary and necessary. Okay? And there's 16 thousands of cases that are litigated under those 17 issues. 18 But a lot of times, they look to 19 industry standards. I was wondering if any discussion 20 came up about creating industry standards here that 21 would answer a lot of these questions. Is that -- not 22 a comprehensive list but as an industry standard. Is 23 that something that would help give us guidance on it 24 or help -- if we came up with something like that and 25 said, "Okay" -- 0072 1 MR. ATKINS: Sure, I think it would 2 help, and I think it's something that we'll be looking 3 at as we move forward. 4 MR. CORNWELL: If the -- 5 MR. ATKINS: It wasn't considered, to 6 the best of my knowledge, you know, specifically for 7 this opinion as it was being drafted. 8 MR. CORNWELL: It would seem, Billy, 9 that if you had some industry standards, that your 10 auditors would certainly benefit from that, really 11 would benefit. 12 MS. TAYLOR: What I was thinking is that 13 the percentage of the net, it seems like a nice, easy, 14 straightforward idea, except that the people that are 15 doing really well can spend a real lot of money on 16 promotions. And the folks that aren't really making 17 it aren't going to be able to spend anything. So 18 you're stacking the deck even further against those 19 people that aren't doing so well at this time. So, I 20 mean, I know there is the devil in everything and -- 21 MR. CORNWELL: Billy is referring to -- 22 which model are you referring to? Are you referring 23 to whether the charities -- you said that other 24 jurisdictions are doing it. A lot of the other 25 jurisdictions in the commercial environment, Suzanne, 0073 1 I think New Jersey -- help me, Billy -- do they not 2 just sit down and say, "The charity is to receive" -- 3 I think it's 7 or 10 percent of the net receipts -- 4 "everything else goes to run your hall"? Is that what 5 you were referring to, or were you referring to 6 limiting these things to -- 7 MR. ATKINS: Well, there are two 8 options. And, you know, one is setting some 9 percentage. And I'm looking to Phil Sanderson to give 10 us an idea of some of those jurisdictions that do 11 that. But that's another option that you're talking 12 about, set a flat percentage of distributions. 13 MR. CORNWELL: So you were referring to 14 just the capping out a percentage of your promotional 15 budget being X? In our jurisdiction -- 16 MR. ATKINS: Not just the promotional 17 budget but, you know, setting some percentage cap of 18 all expenses and allowing the organization then to, 19 you know, spend that money however they see fit best 20 for their organization. 21 MR. CORNWELL: Well, it's just the 22 reciprocal of saying you're going to get 10 percent of 23 the gross. 24 MR. ATKINS: That's correct. 25 MR. CORNWELL: Yes. 0074 1 MR. WHITTINGTON: Would that be 2 documented? 3 MR. SANDERSON: That's what I was going 4 to add. You've got several options. Some states say 5 that you can only give away 15 percent in expenses and 6 75 percent in prizes, and they stop at that. Other 7 states say you have to give 10 percent of gross as 8 distribution. 9 MR. CORNWELL: Right. 10 MR. SANDERSON: So it's the same thing. 11 It just depends on which way you want to work the 12 percentages. 13 MR. CORNWELL: Do they have the prize 14 limit board? Do you have a prize board up there in 15 those jurisdictions? Do you know? Or do they go 16 unlimited? 17 MR. SANDERSON: That I don't know. Most 18 of the states have some sort of prize cap, whether it 19 be with an individual game or session. Kentucky -- 20 well, Kentucky has -- 40 percent of net revenue has -- 21 MR. CORNWELL: Right. 22 MR. SANDERSON: -- to go to 23 distribution. 24 MR. CORNWELL: They don't have a prize 25 limit -- 0075 1 MR. SANDERSON: Right. 2 MR. CORNWELL: -- they have a 3 percentage. Okay. Thank you, Phil. 4 MS. TAYLOR: Well, Sandy, I mean, I 5 personally -- when it says, "Promotions are reasonable 6 as an item of expense," it made my mind start going in 7 other directions of things we might be able to 8 accomplish, because there's just only so much you can 9 donate, which I know where you are because that's 10 where I am. 11 Did we have any other discussion or 12 public comments? 13 Stephen Fenoglio? 14 Thank you, Sandy. 15 MR. WHITTINGTON: Thank you, Sandy. 16 MR. FENOGLIO: You do. And for the 17 record, my name is Stephen Fenoglio. And I asked that 18 this be put on the agenda. And I think this is a 19 watershed opinion, and it is so contrary to what 20 happened in 2519 that I think the industry needs to 21 know about what the intent of the bill was, how the 22 staff have implemented this, until this opinion, in 23 the form of audits, and now we've got a new decision. 24 And I'm looking at -- and I brought 25 copies -- but I think you have the opinion in your 0076 1 notebook. 2 MR. CORNWELL: We do. 3 MR. FENOGLIO: It is -- and let me get 4 the notebook, because I couldn't get mine to print off 5 the Commission website vertically with all the words, 6 so I had to print it horizontally. 7 As most of you know, I have represented 8 a number of charities during audits, and this issue 9 under 458 has come up repeatedly. And the auditors 10 have always taken the position that if your expense in 11 a bingo fund is not listed under 458, you can't pay 12 for it with bingo monies. 13 This opinion says something 180 degrees 14 opposite. Maybe this is why the auditor has deemed 15 the Commission -- the Bingo Division on its audit 16 processes. I don't know. I am specifically referring 17 to, in your notebook, Page 3 of 5, the last full 18 paragraph that begins with the word "Therefore" comma, 19 and the last sentence: "Reasonable or necessary is 20 the standard to be applied for bingo related expenses 21 to be paid for from other sources." 22 In at least 50 audits that I've handled 23 since this law became effective, the charitable bingo 24 audit staff have said, No. 1, they refused to 25 implement the reasonable or necessary language. And 0077 1 sometimes auditors will say, "Well, you're using bingo 2 monies to pay for hot check expenses." 3 Does that sounds familiar to you, 4 Ms. Lopez? 5 MS. LOPEZ: Yes, it does. 6 MR. FENOGLIO: "And you can't use bingo 7 monies to pay for those because it's not a reasonable 8 or necessary expense with the conduct of bingo." Now 9 we have a different interpretation. You can pay that; 10 you just can't pay it from bingo monies. 11 That's not what the intent of 2519 was. 12 I sat with the Commission staff, including lawyers, 13 for hours before House Bill 2519 was introduced. And 14 I know Larry came down and testified about it, and 15 Knowles came down. And Suzanne was there, and I don't 16 remember who else. And no one on the staff raised 17 this issue when we were amending 2519 under 458 to 18 say, "Oh, and by the way, since you're not amending 19 453, you're going to have a dichotomy, Fenoglio." 20 It's only after the fact that this issue 21 comes up that, "Well, you've now got two standards." 22 And again, we spent hours, dozens of hours before any 23 legislative committee hearing occurred, going over the 24 different nuances of the different provisions in House 25 Bill 2519. And then there were hours after the bill 0078 1 was introduced, including a number of meetings with 2 Kino Flores' staff, to try to come to agreement on key 3 terms, and we discussed 458 on at least three 4 occasions at the Capitol with the Commission staff 5 present. At no time did anyone raise this issue. 6 Now we have -- the real issue in this 7 opinion is, is a 458 reasonable or you have to use 8 funds other than bingo? Forget the door prize issue 9 for just a moment, Larry. That's another issue I 10 believe for another day. If it's not, then you go to 11 453, and those are the only expenses that you can use 12 with bingo monies. 13 Well, what happens if a charity doesn't 14 have any revenues but bingo? And there are a number 15 of charities who do -- or a substantially large 16 portion. Again, no discussion about this during the 17 legislative run-up to this. Now we have what appears 18 to be this new opinion. And it's unfortunate that 19 Mr. Bresnen couldn't stay for this to discuss this 20 because he raised the issue. 21 And when I read it about three weeks 22 ago, I said, "Oh, my gosh! This is a huge divergence 23 of the Commission's position in previous audits." And 24 I would have thought that if they again were going to 25 raise this issue, some discussion would have occurred 0079 1 with some of the players who actually made that change 2 or they would have -- the staff would have wanted to 3 bring to the industry's attention because this is a 4 huge impact to the industry if, in fact, this is the 5 result. 6 I don't believe it is. I disagree with 7 Sandy, and I hope we have an opportunity to litigate 8 it. But I can assure you we're going to try to change 9 it again in the next legislative session, from my 10 client's perspective. And I know y'all aren't to 11 comment on legislative issues, and I'm not trying to 12 invite you into that -- or legislative changes. You 13 can, obviously, discuss the statute. 14 But this is a huge surprise. I think 15 it's wrong, and I think the experience the auditors 16 have before this opinion was handed down is directly 17 contrary to what the plain language in this opinion 18 is. 19 And I'll be happy to answer any 20 questions. 21 MS. TAYLOR: Are there any questions? 22 Larry, did you want to ask any 23 questions? 24 MR. WHITTINGTON: Well, I think he 25 covered it pretty well. It just definitely needs to 0080 1 be clarified more so we can understand what's going 2 on, because I was kind of like going in circles. I 3 didn't know what to do or what not to do or how to do 4 it or what can we do. It's just out there. So we 5 need to definitely clarify it. 6 And, like I said, it still boils down to 7 the charities need everything simplified in order to 8 move forward and make it a lot easier on everybody to 9 make money. That's what it's all about. 10 MS. TAYLOR: I agree. I read it, and I 11 read it again. And I highlighted and underlined 12 items, and still I wasn't exactly sure what it was 13 saying we could or couldn't do. 14 MR. FENOGLIO: And, again, in the audits 15 that have occurred since this change, there has been 16 no mention in any of those audits that for a 458 17 expense, when they disallow it, that they -- I mean, 18 they're only talking about bingo monies and their use 19 of bingo funds. And there has never been indication 20 from any of the auditors where you can pay this from 21 some other source of revenues, but it really -- it 22 just begs the -- or avoids the real issue. 23 MS. TAYLOR: I have one question I 24 wanted to ask. Sandy, if a charity does a promotion 25 and does a T-shirt giveaway as a promotion and uses 0081 1 bingo funds, would it go on the same line as 2 advertising on the quarterly report? 3 MS. JOSEPH: I'm not familiar enough 4 with the forms to be able to give you advise as to 5 what line you would put that on. 6 MR. SANDERSON: Phil Sanderson. We're 7 in the process of revising the quarterly report. 8 There is a line item called "License Fees," I believe 9 Line 31, and we're going to add the terms "And Other 10 Expenses" to that line item. 11 MS. TAYLOR: Okay. Thank you. 12 Any other questions? Any other 13 comments? Any other public comment? 14 Are you good to go or would you like to 15 take a break? 16 THE REPORTER: Five seconds. I want to 17 change my tape back here. 18 MS. TAYLOR: Okay. Tell you what, let's 19 go ahead and take about a 10-minute break right now. 20 Everybody can get up and do what they need to do. And 21 we'll come back -- it's not going to be a total 10 22 minutes -- about 20 minutes of 12:00. 23 (Off the record: 11:32 a.m. to 11:45 24 a.m.) 25 MS. TAYLOR: We're calling the meeting 0082 1 back to order. If the committee members could have a 2 seat, please. 3 Okay. The meeting now has now been 4 called back to order. 5 MS. WEAVER: Knowles Cornwell, Tom. 6 Where's Larry? 7 MR. CORNWELL: Oh, I'm sorry. 8 MS. TAYLOR: Okay. Our quorum is back 9 in here. 10 I don't believe there was any other 11 discussion on Item No. 6. Is that correct, committee? 12 MS. WEAVER: Yes. 13 AGENDA ITEM NO. 7 14 MS. TAYLOR: Okay. Then we will proceed 15 to Item No. 7, report and possible discussion on 16 changes to 16 Texas Administrative Code Section 17 402.603, bond and other security. 18 I have received -- I wish that David 19 Heinlein was here because he's talked to me 20 extensively about the bond issue and the effect that 21 it's having on new organizations that are trying to 22 get a bingo license. And I personally experienced 23 this recently, six months ago, with one of the 24 organizations at my hall. 25 They're a very small organization. They 0083 1 were trying to get licensed to play one day a week. 2 Unfortunately, with the bond that was required of 3 them, which was over $7,000, they couldn't even get an 4 insurance company to bond them because they are a very 5 tiny organization. So they had to put up a cash bond. 6 And just luckily enough -- I mean, they put up over a 7 $7,000 cash bond. And considering they were also 8 joining the unit which, you know, the organizations 9 all within that unit have never had a late payment. 10 It also affected me. So this particular item is near 11 and dear to my heart also. 12 Anyway, and Steve Fenoglio and I have 13 had this discussion, the problems that the three 14 quarters of bond are creating. So he said he would 15 also be interested in working on this particular item. 16 So I'm going to turn the floor over to him at this 17 time, with one brief pause. 18 I'm sorry, Steve. Come on up. But I 19 wanted to recognize Commissioner Cox. I forgot to do 20 that before the break. 21 And you were supposed to remind me. 22 MR. ATKINS: Sorry. 23 MS. TAYLOR: And we do appreciate you 24 taking the time out of your busy schedule to come to 25 the meeting. And if you have anything that you would 0084 1 like to say, please feel free to interrupt at any 2 time. 3 COMM. COX: Thank you. 4 MR. FENOGLIO: Madam Chair, for the 5 record, my name is Stephen Fenoglio. I've already 6 filed an appearance slip. 7 I am handing out a two-page document 8 entitled "Charitable Bingo Operations Division, 9 2000-2005 Prize Fees Collected and Unpaid Prize Fees/ 10 Rental Tax Paid." And the source of that information 11 came primarily from Ms. Shankle, who I am giving it 12 to. The second page is her basic work product. I 13 think my staff may have modified it a little bit. 14 The issue has arisen repeatedly, and 15 it's primarily driven by -- well, the rule that's in 16 your notebook says a new charity basically has to have 17 a bond in place -- and it could be a cash bond or a 18 surety bond -- to cover three times what's the 19 estimated prize fees. 20 Because of the run-up in prize fees from 21 the pull-tabs, it has dramatically ratcheted up from 22 about eight years ago, the average bond was, give or 23 take on a large hall, maybe $8,000. It's now up to 24 18, 19, $20,000. And the rule says up to three -- or 25 three times. It's my belief that it's time now to 0085 1 revisit the issue. 2 The statute that the rule was 3 promulgated upon merely gives the Division or the 4 Commission the authority to ensure that prize fees and 5 rental taxes are paid. So back when this rule was 6 adopted, there was a real problem with charities 7 running up large liabilities to the state in the form 8 of prize fees primarily and then quitting. 9 And I was one of the ones who advocated 10 for a stricter enforcement of the bond requirement, 11 because it created an unlevel playing field, because 12 if you had a charity, a hall that paid their prize 13 fees -- and as y'all know, you're talking about 14 serious sums of money in prize fees on a quarterly 15 basis -- and some charities were paying it and others 16 aren't, those charities that aren't eventually are 17 going to be run out of business. But in the meantime, 18 it hurts the people who are complying with the law. 19 And we worked with the staff to draft a 20 rule that would do that. And it has accomplished its 21 intended objective, which is to level the playing 22 field and ensure the state and the political 23 subdivisions that earn some of that money -- actually, 24 they don't really do anything to earn it. They just 25 happen to be there and allow bingo to be conducted -- 0086 1 but they get the money. 2 And the first page of the chart is my 3 work product of the prize fees that are collected for 4 a six-year period. The actual number, the 5 $127 million, comes from Ms. Shankle. The rental tax 6 is an estimated tax of roughly $50,000 a year for six 7 years. And then the total liability which includes, 8 as you can see from the second page, not only the 9 actual prize fee or rental tax and penalty and 10 interest. 11 And this is actually an estimated 12 number, and it's an inside baseball calculation that 13 Ms. Shankle goes through. If a charity goes out of 14 business during a particular quarter, that the staff 15 may not know the particular date they go out of 16 business so they don't know exactly how much 17 liability -- and they may not file a quarterly report 18 at all. So they're going to make an estimate. And 19 the staff's position is, they're always going to 20 estimate high on that number. 21 So the actual liability, I believe, is 22 higher than what the true number would be. But you 23 may never know that. In any event, it's a relatively 24 small number overall, and the default rate is .255 25 percent overall for that six-year period. And so, I 0087 1 mean, that's .00255 times the 127. 2 And so it is my belief that in light of 3 the fact that charities -- there are some charities 4 that are priced out of the market now. I have had 5 experience where a clarity, a relatively new charity 6 and new to the bingo business altogether, and a small 7 budget, where they have asked for financial statements 8 from one or more officers, and I've gotten involved 9 with that. And you ask the bond company, "Well, this 10 officer is not going to give any guarantee. Why do 11 you want a financial statement for the president of 12 the organization?" "Well, we just do. It's our 13 policy." 14 Well, that raises a whole host of 15 potential identity theft issues, and I've advised the 16 clients not to provide that detailed financial 17 information. Sometimes you can jawbone the insurance 18 agency into accepting it; other times, they just raise 19 the premium. And the premium is all over. The number 20 for an $18,500 bond, it might be 10 percent to 40 to 21 50 percent of that $18,500 bond that the charity has 22 to pay on an annual basis. And the $18,500 is based 23 on the staff's calculation under the rule. And so 24 it's my belief that the time has come to revise 25 downward the bonding requirement. 0088 1 And thank you, Madam Chairman. I will 2 be happy to answer any questions. This is an issue 3 that I ask be placed on the record. I know David 4 Heinlein was very interested in it. Sharon Ives is 5 another one who, as a bookkeeper in Fort Worth, has 6 run up against this issue, and it's a significant cost 7 to some charities. It has caused a few charities not 8 to get involved in bingo because they didn't feel 9 comfortable with obligating themselves for that. 10 And it's also had the effect -- when you 11 explain to a charity that they're going to have to 12 obtain a bond, some charities decide, "We're not 13 interested in that if you're talking about" -- because 14 they'll ask of Sharon Ives or David Heinlein or me, 15 "Well, what's" -- if they're in a commercial hall, a 16 large hall with large revenues, "What's the range of 17 bond?" "Well, it's going to be between 15 and 18 $20,000." 19 And, you know, if you've got 15 or 20 in 20 cash that you're laying around, you can do a cash bond 21 and you don't have to incur that cost -- most 22 charities don't, as you might imagine -- or you can go 23 to an insurance agency and they're going to charge you 24 between 10 and 40 percent annual premium. And if you 25 pay everything, as y'all know, on time, after you have 0089 1 a full two-year history of prompt payment and total 2 payment, then the requirement is waived under the 3 existing rule. 4 So within that, the other part of the 5 picture is the fact that they're on an annual basis, 6 and there has been a lot of discussion at the 7 Commissioners' level. The number of annual license- 8 holders has produced substantially -- roughly 9 20 percent in the same six-year period. 10 Curiously enough, during the time that 11 there are fewer charities being licensed, the total 12 payments to the state have increased. And, again, 13 that's because of the larger prize percentage payout 14 with pull-tabs, three and a half million a year we 15 talked about earlier. And at the same time, there are 16 4.1 million visits fewer to bingo halls. 17 So on a long-term basis, you've got 18 fewer charities paying more to the local 19 jurisdictions. And in order to do that, they're 20 squeezing more and more money from a smaller pool of 21 customers. Y'all all know that. And at some point, 22 you reach a tipping point -- it's not a good tipping 23 point -- where the last 10 or 15 customers from a 24 bingo hall perspective are where your real profit is. 25 And bingo is no different than any 0090 1 retail store. Wal-Mart stores lose money if they 2 didn't have 30 days of sales. If they could only have 3 20 days of sales, every Wal-Mart in the country, or 4 practically every Wal-Mart, would close because they 5 don't make enough money. It's the last few customers 6 of the month. Relatively speaking the last few years, 7 we're talking hundreds of thousands of customers per 8 Wal-Mart store. This is a retail business. It's no 9 different than anyone else. 10 And so with that, I'll be happy to 11 answer questions, Madam Chair. 12 MS. TAYLOR: Well, in addition to this, 13 I mean, one of the things I would like to see is if an 14 organization is joining a unit that has a good payment 15 record and never been late, I would like to see 16 somehow that put into the annual. Why are they having 17 to get a new bond? I mean, the unit is going to pay 18 the bond -- or the unit in essence is paying the prize 19 fee. And if they have never been late or they have a 20 very good record, somehow I think that that ought to 21 be considered in the whole application process. 22 MR. CORNWELL: That's a good point. 23 MS. LOPEZ: In the application. 24 MS. TAYLOR: In the application. 25 MR. CORNWELL: Can I ask one question? 0091 1 I think that's a great point. 2 Steve, why did they put the bonds in to 3 start with? Why did they write the rule? 4 MR. FENOGLIO: To ensure that the prize 5 fees and rental taxes that are due to the state are 6 paid to the state. 7 MR. CORNWELL: You talked about 8 inequities to start with, something to do with the 9 inequities of some charities. 10 MR. FENOGLIO: Well, there has always 11 been a bond rule, but they substantially rewrote it 12 back in -- I don't know if it's in my record -- but 13 it's about five years ago or thereabouts. And the 14 reason they did that, Knowles, was because there were 15 a number of charities -- and it may have been even 16 more than five years ago. I bet Ms. Shankle knows to 17 the date -- but '97-98 time frame, I recall a number 18 of charities conducting bingo and what appeared to be 19 no intent to pay the state their prize fees. 20 And, you know, they had a bad business 21 plan, bad business model, whatever. They were just 22 there. And, arguably, some people were churning 23 charities or the charities were being churned. And so 24 it created an unlevel playing field if you were across 25 the street or across the way, a charity that was doing 0092 1 its business properly, paying its prize fees, and a 2 charity down the street or in the same zip code was 3 clearly not, and the business model apparently was not 4 for the charities to pay theirs, then it created that 5 unlevel playing field. 6 That's one of the reason. I mean, I 7 don't think Billy would necessarily agree that the 8 unlevel playing field was his primary purpose. I 9 think his purpose was, "We're seeing a lot of revenue 10 not being paid to the state, and we need to increase 11 the bond requirement to correct that situation." 12 But from our perspective, I was 13 advocating to Billy and others and Phil -- I got it 14 right again -- it's an unlevel playing field, because 15 some charities are not paying it and it's penalizing 16 the River City bingo charities because we always pay, 17 never have been late. So that was one of the reasons 18 that the bond requirement was increased substantially. 19 MR. CORNWELL: Today what recourse -- if 20 I don't pay my prize fee tax, what happens today? 21 MR. FENOGLIO: Well, eventually Billy's 22 staff will -- and that was the other thing that came 23 up, is that, as you know, the quarterly report and the 24 prize fee is due the 25th of the month following the 25 quarter ending. By the time it got into the system 0093 1 and Ms. Shankle started running calculations -- and 2 maybe they didn't file, a charity didn't file a 3 quarterly report. It might take a few weeks for that 4 to bubble up -- the first thing in my experience the 5 staff would do is either call or send a letter: "We 6 didn't get your quarterly report. Send it in. You're 7 going to be subject to penalties and interest." Maybe 8 they messed up. 9 MR. CORNWELL: Right. 10 MR. FENOGLIO: Alternatively, maybe they 11 didn't really intend to. Maybe they closed shop. So 12 then they started chasing the charity and eventually 13 started an enforcement action, and that took time and 14 effort. 15 And so you could easily get to, you 16 know, 90 days or more after the fact when the prizes 17 were due before there was ever a hearing. And then if 18 it was in front of a SOAH judge, then there was 19 another two to four weeks before a decision resulted. 20 So by the time that Billy could shut down -- let's 21 change the dynamic a little bit. The charity is still 22 conducting, but they're fighting it, they're still 23 conducting because the license is in play -- and so it 24 may take Billy's staff, through the legal process, 180 25 days to shut them down. And in the meantime, the 0094 1 charity hasn't paid a penny. So that was one of the 2 reasons why it was the three times. 3 MR. CORNWELL: Yes, that's what I'm 4 getting at exactly. Okay. 5 MR. FENOGLIO: So the legislative -- or 6 the statutory process and just the hearing process 7 itself took as long that that was one of the reasons 8 they went to the three times. And the effect has 9 been -- and I've not looked back to '97 -- but the 10 effect has been that the number has dropped 11 dramatically, what is owed to the state. So in one 12 sense, the rule had the intended effect that the 13 Commissioners and the staff wanted, is to make sure 14 the state is made whole. But in the process, it seems 15 to me now -- 16 MR. CORNWELL: Well, it seems like we've 17 raised -- 18 MR. FENOGLIO: -- it's too high. 19 MR. CORNWELL: -- the barrier for 20 charities to -- 21 MR. FENOGLIO: I think -- 22 MR. CORNWELL: -- unintendedly raise the 23 barrier to charities to enter into charitable 24 fundraisers. 25 MR. FENOGLIO: Mr. Atkins and I have 0095 1 talked and Phil and I have talked repeatedly about the 2 law of unintended consequences. And I think that is 3 one of the unintended consequences, is that there is a 4 barrier to entry. It may not be a complete barrier to 5 entry because, you know, if you pursue it enough and 6 contacting a number of insurance companies, you may 7 get one -- I mean, it is an unregulated market, 8 although it's amazing to me, if you get a quote from 9 one insurance company, that you get a quote from the 10 nest one, and it's remarkably similar. But be that as 11 it may, it can be a substantial cost. And we do have 12 experience where charities have just decided not to 13 finalize their licensing process because of that. 14 And, again, in light of the very, very 15 small rate of default, especially when you look at the 16 fact again, three and a half million more today in 17 prize fees to the state and local jurisdictions than 18 in 2000, it's time to revisit the rule. 19 MR. WEEKLEY: Steve, what are the 20 changes that you're requesting? 21 MR. FENOGLIO: And Billy and I talked 22 about this briefly. One thing is to give his staff 23 additional authority just, you know, up to three 24 times. Having talked especially with Ms. Kiplin on 25 these issues where you have discretionary authority, 0096 1 you know, sometimes staff gets creamed by that because 2 one charity says, "You gave it to me," and the other 3 charity says "You're didn't, and you're being 4 arbitrary." 5 An additional thought is one and a half 6 times -- you know, keep the same formula -- two times. 7 You're still -- if it's an $18,000 bond at three times 8 and, you know, two; times, it's still a substantial 9 number. 10 I don't know, and I don't really have a 11 strong opinion either way. One of the things that I 12 told Billy I wanted to do is, let's get it on the 13 agenda so we can talk about it. My thought was have a 14 task force appointed. Ms. Shankle knows more about it 15 than anyone in the room. And she may have -- once we 16 corner her in a small office and start talking to her, 17 she may have a lot of creative thoughts. 18 But in any event, I don't want to lose 19 sight of the fact that we don't want to create, once 20 again, that unlevel playing field where some charities 21 or some individuals are going to manipulate the 22 process again to create that unlevel playing field. I 23 don't think that's in the best interest of anyone in 24 charitable bingo, in the overall scheme of things of 25 charitable bingo. 0097 1 MS. ROGERS: Right. And that playing 2 field that you're talking about, used to be a charity 3 could come in as long as they're not playing -- as 4 long as they're not playing a lot of sessions and then 5 creating a lot of funds, they didn't have to get a 6 bond, and they changed that rule five years ago. You 7 don't want to go back to that, not having anyone to 8 have to get a bond? You want to just lower -- I'm 9 asking you -- do you want to lower it? Put it more in 10 layman's terms for me. 11 MR. FENOGLIO: I think there needs to 12 be, absent some exigent circumstances -- and, by the 13 way, there is no requirement, if you're just 14 conducting once a year under a tent license, to have a 15 bond. 16 MS. ROGERS: Okay. 17 MR. FENOGLIO: But if you're going to be 18 conducting on a regular basis, I think there needs to 19 be something to assure the state that it has a 20 reasonable expectation that it's going to get paid 21 its -- you know, its due. 22 MS. ROGERS: Right. And so that would 23 require us forming a workgroup to work to -- 24 MR. CORNWELL: Yes. 25 MS. ROGERS: -- work to amend this rule. 0098 1 Correct? 2 MR. FENOGLIO: One of the other issues 3 that Billy and I have explored in the last session -- 4 and then I guess the last two legislative sessions -- 5 was giving Kim, or the director of a Charitable Bingo 6 operations Division, authority to administratively 7 suspend on a temporary basis a charity that is -- or a 8 lessor. I don't want to just pick on the charities -- 9 but the real problem has also been charity conductors, 10 much more so than a lessor not paying their rental 11 tax -- to give the -- and again, that's a different 12 solution -- but if you gave that person -- and I think 13 most people in the industry are comfortable with 14 that -- giving the director that temporary suspension 15 authority. 16 So when he sees or when Terry Shankle 17 brings to Billy Atkins' attention after the first 18 quarter of '08 in May 1, "Here is the list of 19 charities that haven't paid," for whatever reason, 20 then he could, within 14 days, lock them down. That 21 would obviate the need in large part for a bond 22 requirement of this substantial nature. He could shut 23 them down within one quarter -- 24 MS. ROGERS: Right. 25 MR. FENOGLIO: -- or less than one 0099 1 quarter of, you know, that. 2 MS. ROGERS: So y'all are talking about 3 doing the two things in conjunction or how have you 4 spoken about that? 5 MR. FENOGLIO: We've talked about that 6 in the past. And we came pretty close in the last 7 legislative session to getting that accomplished. And 8 I think that effort will be made again in this 9 upcoming '07 session. But that's an independent issue 10 to where the rule is today. And, as you may know, 11 assuming that legislative change were made, it 12 wouldn't be made effective until most likely 13 September 1 or thereabouts of '07. 14 MS. ROGERS: '07. 15 MS. WEAVER: I have a question -- Billy, 16 Phil -- whoever wants to answer it. 17 MR. FENOGLIO: Yes. 18 MS. WEAVER: On your licensing of a 19 charity to operate bingo, on that, you know, wonderful 20 packet the charities have to fill out -- 21 MR. FENOGLIO: Yes. 22 MS. WEAVER: -- what about, once they 23 fill it out and they show that they're a good charity, 24 that they've been in business three years, that they 25 don't have any problems or whatever, can it be waived 0100 1 at that point in time? 2 MR. FENOGLIO: Not under the current 3 regulatory regime, no. 4 MS. WEAVER: Okay. But I'm saying, 5 could that be -- 6 MR. FENOGLIO: That could be a 7 rulemaking fix, yes. 8 MS. WEAVER: If they're coming into a 9 hall, could the workgroups stand up for them with 10 their bond and their regulated -- 11 MR. FENOGLIO: You would have to have a 12 different statutory change because there is a separate 13 statutory provision that prohibits a lessor from 14 loaning money