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 6	              TEXAS LOTTERY COMMISSION
 7		     MEETING
 8   
		SEPTEMBER 10, 2002  
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17   
18	          BE IT REMEMBERED that the TEXAS LOTTERY 
19	COMMISSION meeting was held on the 10th of 
20	September, 2002, from 8:30 a.m. to 4:23 p.m. before 
21	Connie Jo Ramirez, CSR in and for the State of 

22	Texas, reported by machine shorthand, at the 
23	Offices of the Texas Lottery Commission, 611 East 
24	Sixth Street, Austin, Texas, whereupon the 
25	following proceedings were had:  

00002
 1		         APPEARANCES
 2   
 3	Chairman:  Mr. C. Tom Clowe, Jr. 
 4   
	Commissioners:
 5		Ms. Elizabeth D. Whitaker          
		Mr. James A. Cox Jr. 

 6	 
 7	General Counsel:
		Ms. Kimberly L. Kiplin
 8	 
 9	Executive Director:
		Ms. Linda Cloud
10	 
11	Marketing Director:
		Ms. Toni Smith
12	 
13	Charitable Bingo Operations Director:
		Mr. Phil Sanderson
14   
15   
16   
17   
18   
19   
20   
21   
22   
23   
24   
25   

00003
 1			         INDEX
 2	 
	Appearances.....................................  2                     
 3   
 4	AGENDA ITEMS
 5	Item Number	1...................................  4 

	Item Number	2...................................246 
 6	Item Number	3...................................250 
	Item Number	4...................................  8 
 7	Item Number	5...................................220 
	Item Number	6...................................215
 8	Item Number	7...................................250
	Item Number	8...................................  4
 9	Item Number	9...................................276 
	Item Number 10..................................276 10	Item Number 11..................................276 
	Item Number 12..................................276 11	Item Number 13..................................225 
	Item Number 14..................................227 12	Item Number 15..................................277 
	Item Number 16..................................284 13	Item Number 17..................................285 
	Item Number 18..................................286 14	Item Number 19..................................288 

15	Reporter's Certificate..........................289                    
16   
17   
18   
19   
20   
21   
22   
23   
24   
25   

00004
 1		CHAIRMAN CLOWE:  Good morning, it is 
 2	8:30 a.m., on September the 10th, 2002.  My name is 
 3	Tom Clowe.  Commissioner Whitaker and Commissioner 
 4	Cox are present.  And we are ready to call this 

 5	meeting of the Texas Lottery Commission to order.
 6		We have a number of public persons 
 7	here today who wish to address the Commission on 

 8	various matters.  And in order to accommodate them, 
 9	I would like, Commissioners, with your agreement, 
10	to deviate from the agenda.
11		I want to interrupt my comments, at 
12	this point, to ask everyone who has a cell phone to 
13	please turn it off.  We're going to be seriously 

14	conducting business today and we do not want to 
15	have interruptions from buzzers, pagers or cell 
16	phones, in this meeting room.

17		If you would turn it off now and keep 
18	it off while you're in this room, we'll be most 
19	appreciative.  
20		Now, back to the agenda.  We'll begin 
21	with item number eight.  Gary Grief is the Sunset 
22	Project manager.
23		Gary, I'll ask you to come up and 

24	give us your report and a general overview before 
25	we began to deal with the details of the Sunset 

00005
 1	Committee Report, or staff report, and we will 
 2	begin with covering the Bingo items.
 3		Good morning.  
 4		MR. GRIEF:  Good morning, 
 5	Commissioners.  And for the record, my name is Gary 
 6	Grief, and I'm the director of the Lottery 
 7	Operations Division but also the project manager 
 8	for the agency's Sunset review process.
 9		The Sunset Advisory Commission issued 
10	its final record on our agency on Friday, August 
11	the 23rd.  A draft written response from our agency 
12	was developed and it was provided to each of the 
13	commissioners for your review and comment.
14		Based on the comments received, I 

15	have provided a new draft for your review this 
16	morning.  And copies of this draft have also been 
17	made available to the public on the table at the 
18	entrance to the auditorium.
19		This morning, I am seeking approval 
20	from the Commission for the agency response.  Once 
21	approved, the document will be forwarded to the 

22	Sunset Advisory Commission staff and it will be 
23	incorporated into our agency's public hearing 
24	information.
25		As a reminder, our agency written 

00006
 1	response was due to the Sunset Advisory Commission 
 2	this Thursday, September 12th.
 3		The Sunset public testimony hearing 
 4	for our agency has been scheduled and set for 
 5	September 24th.  And the final decision hearing on 
 6	our agency will take place either November 12th or 
 7	the 13th.
 8		That concludes my report this 
 9	morning.  I will be happy to answer any questions 
10	that you might have about the draft agency 
11	response, or make changes to the response, as you 
12	so desire.
13		I have the written response available 
14	on this laptop computer, if you wish to go through 
15	the document and make changes as we go.  That's at 
16	your pleasure.  
17		CHAIRMAN CLOWE:  Commissioners, you 
18	may have questions and want information on various 
19	facets of this report.  Gary's prepared to do that.
20		I think we might want to call on him 
21	later in this project.
22		There are a number of people here 

23	relative to the Bingo issues, following a rather 
24	extensive meeting of the Bingo Advisory Committee 
25	meeting, which was held yesterday.  And with your 

00007
 1	permission, I think we might go next now to the 
 2	report by the Chair of the Bingo Advisory Committee 
 3	and hear that report, and then hear public 
 4	comments, and try to work through the Bingo issues 
 5	first and then deal with the Lottery issues of this 
 6	report.  Is that agreeable?
 7		COMMISSIONER COX:  Good.  
 8		CHAIRMAN CLOWE:  Gary, could we get 
 9	for you to stand aside then and we'll ask the Chair 
10	of the Bingo Advisory Committee to come forward, 

11	please.  And this is covered under agenda number  
12	four.  Virginia Brackett.  Good morning.  
13		MS. BRACKETT:  Good morning.  Would 
14	you like copies of our report? 
15		CHAIRMAN CLOWE:  Yes.  If you have 
16	it, we would.  And, Virginia, I'll start off by 
17	asking you, and everyone else who is going to 
18	address the Commission this morning, has everyone 
19	filled out an appearance form?  That's important 
20	for the record.  Thank you.  Good morning.  

21		MS. BRACKETT:  Good morning.  My name 
22	is Virginia Brackett.  I'm Chairman of the Bingo 
23	Advisory Committee.
24		We met yesterday and considered -- 
25	well, first, let me take care of one order of 

00008
 1	business.  We have had a resignation from the Bingo 
 2	Advisory Committee.  Ricky Thurman resigned and he 
 3	represented the public and he had work conflicts, 

 4	and, therefore, is not able to fulfill his 
 5	obligation at the end of committee.
 6		And I understand it will be the 
 7	Lottery Commission who will be replacing him, so I 
 8	need to give you that information.  
 9		CHAIRMAN CLOWE:  Thank you.  

10		MS. BRACKETT:  At our meeting 
11	yesterday, as you know, we heard a lot of really 
12	good public testimony.
13		We're very, very grateful that people 
14	will come and give this testimony.  I know they do 
15	it at a lot of inconvenience and expense, so we 

16	know it's very, very important to them, to Bingo, 
17	and what Bingo is doing for their charities.
18		On issue number four in the Sunset 
19	Commission report, most charities are not making 
20	maximum charitable distributions of Bingo profits.
21		4.1.  Simplify the statutory 
22	charitable distribution formula to ensure Bingo 
23	proceeds are used for charitable expenses.

24		The Bingo Advisory Committee received 
25	public comment from eleven individuals concerning 

00009
 1	this topic.  All comments received were negative 
 2	toward recommendation of 4.1.
 3		Two of the individuals giving 
 4	testimony were bookkeepers for over nineteen  

 5	charities conducting Bingo operations.  After 
 6	evaluating recommendation 4.1 of the Sunset Review, 
 7	the bookkeepers found that 70 to 80 percent of the 
 8	charities for which they currently keep books will 
 9	be unable to remain in business for this 
10	distribution formula.
11		Additional public comment indicated 
12	that all those in attendance were in agreement with 
13	this assessment and felt that taking profits before 
14	paying expenses was not a good business practice, 
15	and a successful Bingo operation must be run as a 
16	business.
17		One person testifying commented that 
18	the charities did not meet their distributions to 
19	be mandated.  They're already distributing as much 
20	as they can.  The actual fiscal implications of 

21	this recommendation were not considered by the 
22	Sunset Review.  
23		The motion was moved that the -- it 
24	was moved that the BAC reject recommendation 4.1 
25	regarding the modification of charitable  

00010
 1	distributions.  The vote was seven for and zero 
 2	against.
 3		4.2.  The Commission should clarify 
 4	the definition of charitable purpose and authorized 
 5	expense.
 6		The Bingo Advisory Committee received 
 7	public comment from two individuals concerning this 
 8	topic.  The BAC concluded with public comment that 
 9	the current statute is vague and agrees with the 
10	Sunset Review that clarification of charitable 
11	purpose and authorization expense would be a 
12	benefit from the charities conducting -- the motion 
13	moved that the BAC accept recommendation 4.2 
14	regarding clarification of the definition of 
15	charitable purpose and authorized expense.  There 
16	were seven for and zero against.
17		Issue number five.  Components of the 
18	Lessor License law prevent the Commission from 
19	maximizing charitable distributions from Bingo.
20		This is item 5.1.  Repeal the section 
21	of the Bingo Enabling Act that allows lessor 
22	licenses to be grandfathered.
23		The Bingo Advisory Committee received 
24	public comment from eleven individuals concerning 
25	this topic.  Public comment indicated very few 

00011
 1	charitable organizations have the ability or the 
 2	desire to be financially responsible for setting up  
 3	a hall and signing a long-term lease.
 4		Many charities giving testimony have 

 5	been recipients of reduced rent by their lessor to 
 6	help them through these difficult Bingo times.
 7		Between nine hundred and one thousand 
 8	charities in Texas will be affected if this 
 9	recommendation is passed.  Most of them will not 
10	have a location in which to hold their Bingo games.
11		The Committee found the Sunset Review 
12	report does not state what is included in the rent, 
13	such as utilities, phone, trash pick-up, 
14	janitorial services, cleaning, and bathroom 
15	supplies, hall and parking lot maintenance, and so 
16	on.
17		Public comment was received that 71 
18	percent of the charitable distributions were made 
19	by charities and license Class J, which is those 
20	organizations playing in commercial halls.  
21		Public comment also indicated that if 
22	more charities were found in the financial position 
23	to set up a hall, there would be more conductor 

24	lessors and grandfathered lessors would not have 
25	any charities interested in operating Bingo  

00012
 1	sessions in their facility.
 2		It was noted during public testimony 
 3	that rent allowed to be charged per session has not 
 4	increased in the last thirteen years.
 5		One member of the BAC commented that 
 6	rent charged for Bingo premises has decreased 2.8 

 7	million since '99 and 2001.
 8		The actual fiscal implications of 
 9	this recommendation were not considered by the 
10	Sunset Review.  The motion:  Move that the BAC 

11	reject recommendation 5.1 repealing the section of 
12	the Bingo Enabling Act that allows lessor licenses 
13	to be grandfathered.  The vote was six for and one 
14	against.
15		5.2.  Repeal the transferability of 
16	lessor licenses.
17		The Bingo Advisory Committee received 
18	public comment from one individual concerning this 
19	topic.  The individual testified that the lessor 
20	license is an asset and should be treated like any 
21	other asset in Texas, and, therefore, should be 
22	transferable.
23		The motion:  Move that the BAC reject 
24	recommendation 5.2 repealing the transferability of 
25	a lessor license.  The vote was six for and one 

00013
 1	against.
 2		Issue six.  The Bingo Division has 
 3	not adequately structured and applied its 
 4	enforcement process.
 5		Item 6.1.  Require the Lottery 
 6	Commission to adopt rules governing all compliance 
 7	monitoring and enforcement procedures.
 8		The Bingo Advisory Committee received 
 9	public comment from one individual concerning this 
10	topic.  This is currently not a rule.  So this 
11	would be a Sunset Commission bringing about rules.  
12	Public comment expressed the view that rules should 
13	be brought about independent of Sunset Review.
14		Motion:  Move that the BAC reject 
15	recommendation 6.1 requiring the Lottery Commission 
16	to adopt rules governing all compliance monitoring 
17	and enforcement procedures.  The vote was eight for 
18	and zero against.
19		6.2.  Expand the Lottery Commission's 
20	authority to temporarily suspend Bingo licenses to 
21	prevent financial losses to the State.
22		The Bingo Advisory Committee received 
23	public comment from three individuals concerning 
24	this topic.
25		The BAC comment indicated that this 

00014
 1	recommendation was very vague.  Commission staff 
 2	was not able to answer questions about how the 
 3	suspension of one charity's license would affect 
 4	the continuity of the Bingo sessions in a hall.
 5		There are too many unanswered 
 6	questions about this recommendation for the BAC to 
 7	support the recommendation.
 8		And the motion was that the BAC 
 9	reject recommendation 6.2 expanding the Lottery 
10	Commission's authority to temporarily suspend Bingo 
11	licenses to prevent financial losses to the State.  
12	The vote was eight for and zero against.
13		6.3.  The Lottery Commission should 
14	better coordinate the tracking of enforcement 
15	information.
16		BAC members agree that the Commission 
17	needed to track enforcement information from one 
18	area of the agency to another to allow for timely 
19	resolution of complaints.
20		The motion is that the BAC accept 
21	recommendation 6.3 recommending the Lottery 
22	Commission should better coordinate the tracking of 
23	enforcement information.  The vote was eight for 
24	and zero against.  
25		6.4.  The Bingo Division should 

00015
 1	consider using its existing temporary suspension 
 2	power to evaluate its authority to adopt Bingo 
 3	rules.
 4		Past public comment has expressed the 
 5	opinion that charities feel Bingo operations are 
 6	already over-regulated creating a negative climate 
 7	in which to make Bingo profitable.
 8		The BAC agreed with public comment 
 9	and stated the adoption of new rules should be 
10	hammered out during round-table discussion with 
11	members of the industry, the Bingo Advisory 
12	Committee, and staff present.
13		Members of the BAC were offended by 
14	the language presented in the report referring to 
15	Bingo halls conducting the games in such a way as 
16	to cheat players.
17		It was moved that the BAC reject 
18	recommendation 6.4 encouraging the Bingo Division 
19	to consider using its existing temporary suspension 
20	power and evaluate its authority to adopt Bingo 

21	rules.  The vote was eight for and zero against.  
22		Issue seven.  The Bingo Advisory 
23	Committee does not effectively advise the 
24	Commission on the needs of the Bingo industry in 
25	Texas.

00016
 1		7.1.  Require the Bingo Advisory 
 2	Committee to develop an annual work plan and make 
 3	recommendations to the Commission that identify 

 4	specific issues that need addressing.  The Bingo 
 5	Advisory Committee received public comment from one 
 6	individual concerning this topic.
 7		The past BAC members have expressed 
 8	an interest in developing a -- and feel that it 
 9	would be of benefit to the BAC.
10		Public comment had stated that the 

11	BAC is doing a very effective job at this time.  
12	They encourage the BAC to continue their work, 

13	which is finally starting to make a difference in 
14	the Bingo industry.
15		It was moved that the BAC accept 
16	recommendation 7.1 regarding the requirement of the 
17	Bingo Advisory Committee to develop an annual work 
18	plan and make recommendations to the Commission 
19	that identify specific issues that need addressing.  
20	The vote was eight for and zero against.
21		7.2.  Eliminate the statutory 
22	designation of a slot for a system service provider 
23	on the Bingo Advisory Committee.
24		BAC members felt that all areas of 
25	the industry should be represented on the BAC.

00017
 1		The motion was that the BAC reject 
 2	recommendation 7.2, calling for the elimination of 
 3	statutory designation of a slot for a system 
 4	service provider.
 5		And I would like to read some 
 6	supporting information for this.  
 7		CHAIRMAN CLOWE:  Before you do that, 
 8	Virginia.  Let me ask the General Counsel if you've 
 9	read this statement and if it is in order that it 
10	be read into the record.  
11		MS. KIPLIN:  In terms of Ms. Brackett 
12	reading her document into the record?  
13		CHAIRMAN CLOWE:  The statement that 
14	she is intending to read into the record.  
15		MS. KIPLIN:  I don't know what the 
16	statement is.  
17		CHAIRMAN CLOWE:  Would you look at 

18	that and make certain it's proper to be read into 
19	this record before she does that, if you would, 

20	please.  I'm wanting to make certain it has nothing 
21	to do with any litigation or any matter actively 
22	being considered by this commission before it comes 
23	into the record.  
24		MS. KIPLIN:  Ms. Brackett, is this 
25	the same letter that was read into the record 

00018
 1	yesterday at the -- do you know, at the Bingo 
 2	Advisory Commission meeting?  I know Mr. Tawil read 
 3	a document into you-all's record, I was just 
 4	wondering if it's the same?  
 5		MS. BRACKETT:  I could not answer 
 6	that.
 7		MS. KIPLIN:  Okay.  That's fine.
 8		There are only a few sentences in 
 9	here that give me concern and it really has to do 
10	with a matter that may come to the Commission's 
11	attention.
12		I would say that it's in an open 
13	proceeding and you-all are not -- your reading it 
14	into the record and the Commission is not accepting 
15	it as something that's a statement on you-all's 
16	part.  So what I would say is that it is what it is 
17	and should be accepted for no more or no less than 
18	that.  
19		CHAIRMAN CLOWE:  Very good.  
20		MS. KIPLIN:  There's nothing -- 
21	there's a few factual statements that are in here 
22	that I think the -- I think it's fair to say that 
23	the staff of the -- the Bingo Division staff may 

24	disagree with, but I don't think that it would 
25	jeopardize you-all's ability to proceed.  

00019
 1		CHAIRMAN CLOWE:  Very good.  Thank 
 2	you for your opinion.
 3		Ms. Brackett, will you go forward 
 4	with reading that now.  Thank you.  
 5		MS. BRACKETT:  "Dear Commissioners 
 6	and Fellow Committee Members:
 7		"I wish to provide my comments and 
 8	recommendations regarding the recommendation to the 
 9	Sunset Advisory Commission set out in the Staff 

10	Report entitled Sunset Advisory Commission, Texas 
11	Lottery Commission, Staff Report, August 2002.  I 
12	respectfully disagree with the Staff Report's 
13	recommendation as set out in Issue 8.  Licensing 
14	and regulation of system service providers and 

15	automated Bingo services should be continued.
16		"The Sunset Advisory Commission Staff 
17	Recommendation is based on a faulty statement of 

18	the statute concerning automated Bingo services.  
19	The relevant statute, Texas Occupations Code 
20	2001.002(3) provides that automated Bingo system 
21	means "a computer program or system for:  (A) 
22	registering or accounting for Bingo sales, prizes, 
23	inventory and prize fees; (C) or other business 
24	purposes."  (emphasis added).
25		"The Staff Report incorrectly states 

00020
 1	an automated Bingo system is a computer program 
 2	that registers and accounts for Bingo sales, prizes 
 3	etc.
 4		"Further, the Staff Report 
 5	erroneously leaves out that an automated Bingo 
 6	system may be used for "other business purposes."  
 7	Essentially, the Sunset Commission Staff Report 
 8	erroneously assumes that automated Bingo systems 
 9	are exclusively (or nearly exclusively) for 
10	accounting-related purposes.
11		"My company, TXTV Corporation, has an 
12	automated Bingo system that the Texas Lottery 
13	Commission has approved for all uses provided for 
14	in the statute.  TXTV was notified by letter from 
15	the Texas Lottery Commission in January 1998, that 
16	its automated Bingo system was approved on a 
17	restricted use basis.  TXTV subsequently worked and 
18	invested to modify its automated Bingo system to 
19	address the concerns of the Texas Lottery 
20	Commission and make it more useful to its users.
21		"In July 1998, TXTV asked the Texas 
22	Lottery Commission for unrestricted approval of its 
23	modified automated Bingo system.  TXTV was notified 
24	of unrestricted approval of its modified Bingo 
25	system by letter from the Texas Lottery Commission 

00021
 1	in November 1998.
 2		"TXTV's automated Bingo system 
 3	represents a significant investment that is now 
 4	ready to provide benefits for charities and the 

 5	Texas economy.  Because the Staff Report is based 
 6	on faulty premises and the automated Bingo system 
 7	is now approved for and ready for unrestricted use,
 8	the Texas Lottery Commission should continue to 
 9	license automated Bingo services."  
10		MS. KIPLIN:  And I would, just for 

11	the record, state that the -- it's fair to say that 
12	the staff of the agency, particularly the Bingo 
13	Division, would disagree with some of the 
14	statements that are contained in that letter.  
15		CHAIRMAN CLOWE:  And would you 
16	please say who wrote the letter and who signed it.  
17		MS. BRACKETT:  Oh, I'm sorry.  I did 
18	not do that.  It's from Saleem Tawil.  S-a-l-e-e-m 
19	T-a-w-i-l.  
20		CHAIRMAN CLOWE:  Thank you, ma'am.  
21		MS. BRACKETT:  Okay.  Item 7.3.  The  
22	Commission should evaluate the necessity of the 

23	advisory committee.  The Bingo Advisory Committee 
24	received public comment from two individuals 
25	concerning this topic.

00022
 1		Public comment was very positive 
 2	regarding the need for the continuance of the BAC.  
 3	It was moved that the BAC accept recommendation 
 4	7.3, which calls for the Commission to evaluate the 
 5	necessity of the advisory committee.  The vote was 
 6	eight for, zero against.
 7		7.4.  The Commission should ensure a 
 8	greater balance between public and industry members 
 9	on the Bingo Advisory Committee.
10		The Bingo Advisory Committee received 
11	public comment from three individuals concerning 
12	this topic.  It was the consensus of those present 
13	that the BAC members do represent both the industry 
14	and the public and a good working group has to be 
15	comprised of members who are truly concerned with 
16	the industry and attend BAC meetings regularly.

17		Members without knowledge of the 
18	Bingo issues or ties to the issue cannot 
19	effectively advise the Commission on the needs and 
20	concerns of the industry.
21		It was moved that the BAC reject 
22	recommendation 7.4 calling for a greater balance 
23	between public and industry members.  The vote was 
24	eight for and zero against.  
25		7.5.  The Commission should lengthen 

00023
 1	committee members' terms to three years and stagger 
 2	the appointments.
 3		This was a recommendation previously 
 4	made by the Bingo Advisory Committee to the Bingo 

 5	staff and commissioners.  Currently BAC members 
 6	continue to support the recommendation.

 7		Move that the BAC support 
 8	recommendation 7.5 calling for the Commission to 
 9	lengthen committee members' terms to three years 
10	and stagger the appointments.  The vote was eight 
11	for and zero against.  
12		Item 7.6.  The Commission should 
13	develop membership requirements for BAC.

14		This recommendation has already been 
15	approved by the BAC and has currently been 
16	addressed by the commissioners proposed it as a 
17	rule.
18		Move that the BAC accept 
19	recommendation 7.6 stating the Commission 
20	should develop membership requirements for BAC.  It 
21	was eight for and zero against.  
22		7.7.  The agency should assign an 
23	attorney to monitor BAC meetings.
24		This recommendation has already been 
25	implemented.  It was moved that this be accepted 

00024
 1	and the vote was eight for and zero against.  
 2		Issue number 8.  State oversight of 
 3	system service providers is no longer needed.
 4		8.1.  Abolish regulation of system 
 5	service providers and automated Bingo services.

 6		BAC testimony stated that system 
 7	service providers are more than an accounting 

 8	system.  By statute, an automated Bingo system may 
 9	be used for other Bingo purposes, such as tracking 
10	game cards through the game play and tracking prize 
11	pay-out.
12		Testimony was given by the system 
13	service provider currently serving on the  
14	committee.  The BAC agreed with this testimony and 
15	felt that service system providers should be 
16	continued.
17		The motion was that the BAC reject 
18	recommendation 8.1, abolishing regulation of system 
19	service providers and automated Bingo services.  
20	The vote was eight for and zero against.  
21		Issue number 10.  Key elements of the 
22	Bingo Enabling Act do not conform to commonly 
23	applied licensing practices.
24		10.1.  Require the agency to adopt 
25	clear qualifications for Bingo licensure.

00025
 1		10.2.  Eliminate statutory 
 2	requirements governing the length of time 

 3	conductors must be in existence to be eligible for 
 4	a license.
 5		10.3.  Subject temporary licenses to 
 6	standard oversight.
 7		10.4.  Require the agency to create a 
 8	standard license renewal process.
 9		10.5.  Provide statutory language 
10	requiring the agency to review compliance history 
11	before renewing license.
12		10.6.  Require the agency to adopt 
13	clear standards of conduct for licensees.
14		10.7.  Provide statutory language 
15	requiring the agency to maintain complaint 
16	information.
17		10.8.  Provide statutory language to 
18	ensure complaints are investigated in a reasonable 
19	amount of time.
20	              The motion was the BAC accept all ten 
21	recommendations, at this time, regarding the key 
22	elements of Bingo Enabling Act for licensing 
23	processes.  The vote was eight for, zero against.  
24	              There was a motion made that the 

25	Bingo Advisory Committee Chair will communicate 

00026
 1	with Bingo Advisory position on the Sunset 
 2	recommendations to the Commission and ask for the 
 3	commissioners to take the similar position.  The 
 4	vote was eight for and zero against.  
 5		Another motion was that the Bingo 

 6	Advisory Committee recommends the following revenue 
 7	enhancement items to the Commission for 
 8	recommendation for inclusion in the Sunset report.
 9		Allow progressive Bingos providing 
10	House Bill 2119, the 77th regular session was a 
11	limit of 20,000.
12		Number two, repeal sales tax on Bingo 
13	paper pull tabs and electronic devices for tax 
14	exempt charitable organizations conducting Bingo 
15	sessions.
16		Three, allow charities to have twelve 
17	temporary licenses per year.
18		Four, allow the use of debit cards 

19	and any associated expense to be authorized Bingo 
20	expenditure.
21		Five, revise licensing fees to be 
22	commensurate for the cost to administer charitable 
23	Bingo and require the use of excess funds to be 
24	used for advertising Bingo.
25		Six, eliminate the winner prize fee 

00027
 1	tax on all prizes of five dollars or less.  
 2		Seven, allow video pull tab 
 3	terminals.
 4		Eight, eliminate the 40 percent rule 
 5	on electronic Bingo.
 6		Nine, allow revenue sharing in halls.
 7		Ten, allow for licensing period to be 
 8	extended to two years with fees to be paid 

 9	annually.  The vote was eight for and zero against.  
10		That concludes the report regarding 
11	the items on the Sunset Commission.
12		May I ask if Larry Whittington is 

13	here.  He had some comments to make regarding the 
14	-- I lost my page.    
15		CHAIRMAN CLOWE:  As part of your 
16	report, you would like to call on him?  
17		MS. BRACKETT:  Yes.  Uh-huh.  

18		CHAIRMAN CLOWE:  He is here.  
19		MS. BRACKETT:  Okay.  
20		CHAIRMAN CLOWE:  Come forward, 
21	please, sir.
22		MR. WHITTINGTON:  I'd like to say 
23	good morning.  How you-all doing?
24		CHAIRMAN CLOWE:  Good morning.
25		COMMISSIONER COX:  Fine.

00028
 1		MR. WHITTINGTON:  I'm basically here 
 2	to discuss from first-hand experience what A-liners 
 3	mean to Bingo and to Bingo customers.
 4		Over the past three years, we've been 
 5	losing a lot of customers to A-liners, here again, 
 6	that's around the Bingo halls, and I'm talking in 

 7	Dallas because I'm located in Dallas, Texas.
 8		Three few years ago, we did have the 
 9	-- and everything was great.  Since that time, 50 
10	percent of the business went down because we don't 
11	have them anymore because we try to abide by the 
12	State rules and regulations by -- 
13		MS. KIPLIN:  Mr. Whittington, I hate 
14	to interrupt you but I'm trying to figure out, in 
15	my own mind, and also for the record, how what 

16	you're talking about fits into an item on the 
17	agenda.  It's under Sunset.
18		So is your interest in what -- how 
19	the agency ought to proceed on this matter in 
20	connection with the Sunset?
21		MR. WHITTINGTON:  No, it's not.  
22		CHAIRMAN CLOWE:  Your comment might 
23	be better taken at the time we ask for public 
24	comment.
25		MR. WHITTINGTON:  Okay.

00029
 1		CHAIRMAN CLOWE:  What General Counsel 
 2	is pointing out is that we're under the Sunset 
 3	agenda item and this -- 
 4		MR. WHITTINGTON:  Oh, okay.  
 5		CHAIRMAN CLOWE:  -- she's thinking, 

 6	and I'm in agreement with her, is not relevant to 
 7	the subject that we're on right now.
 8		MR. WHITTINGTON:  Oh, that's fine.
 9		CHAIRMAN CLOWE:  Could I ask you to 
10	hold your comments and -- 
11		MR. WHITTINGTON:  Sure. 
12		CHAIRMAN CLOWE:  -- then I think it 
13	would be appropriate under public comment if you 
14	wish to address the commissioners. 
15		MS. KIPLIN:  Yeah.  And I'll be glad 

16	to try to think about whether it fits under another 
17	item.  Because of the public comment, as you know, 
18	your deliberations are limited to receiving the 
19	comment and then deciding whether you want to put 
20	it on a agenda at a future meeting or responding to 
21	an inquiry that has to do with the position or 
22	policy of the agency.  
23		CHAIRMAN CLOWE:  Why don't you 
24	discuss this with General Counsel and defer your 
25	comment at this time.

00030
 1		We have the obligation to stay with 
 2	the agenda items.
 3		MR. WHITTINGTON:  Oh, sure.  That's 
 4	fine.
 5		CHAIRMAN CLOWE:  All right.  Thank 
 6	you, sir.
 7		MR. WHITTINGTON:  If I would have 

 8	known that, I wouldn't have gone and sat down.  
 9	I'll be back.  
10		MS. BRACKETT:  Larry, I'm sorry I got 
11	you in that position there but I wanted to be sure 
12	that he got to say what he needed to.
13		I wanted to point out that, as you 

14	know, Chairman, the committee was -- the meeting  
15	was very well attended yesterday by a lot of the 
16	general public and I -- we limited people to five 
17	minutes each to make their presentation because 
18	there were so many who did want to speak.

19		So we really did have reams and reams 
20	and reams of things that we could have given to you 
21	today.  And I'm very grateful that Suzanne Taylor 
22	brought her laptop computer where we could sit 
23	there and put the report together last night from 
24	our notes.
25		Also, I would like to point out to 

00031
 1	you that many, many members of the Bingo Advisory 
 2	Committee are here this morning.  In fact, I think 
 3	probably all of them.  And would it be proper for 
 4	me to ask if they would like to make any comments 
 5	regarding the report, or would you like to invite 
 6	them to? 
 7		CHAIRMAN CLOWE:  I think you've made 
 8	the report for the committee and we would be glad 
 9	to hear from them as members of the public, as we 
10	call on those members, if they would like to 
11	comment, but I think we're going to look to you as 
12	the chair of that committee to make that report at 
13	this time.  
14		MS. BRACKETT:  Okay.  

15		CHAIRMAN CLOWE:  Do you have anything 
16	further?  
17		MS. BRACKETT:  No.  
18		CHAIRMAN CLOWE:  Commissioners, do 
19	you have any question for Ms. Brackett?
20		COMMISSIONER COX:  I think I prefer 
21	to wait and hear the rest of the testimony, 
22	Mr. Chairman, and then I may have some questions.
23		COMMISSIONER WHITAKER:  That's what I 
24	would prefer, as well.  
25		CHAIRMAN CLOWE:  We'll ask you to 

00032
 1	stand by then, as we are Gary Grief, and others.
 2		Now we've come to the point where I'm 
 3	going to begin to call on those individuals who 
 4	have signed an appearance form and wish to address 
 5	the commissioners on one or all of these subjects 
 6	relative to the Bingo items covered by the Sunset 
 7	Staff Report.
 8		I want to say that yesterday, I think 
 9	those of you who made comments, did an excellent 
10	job of being brief and concise and I'm going to ask 
11	you to do the same thing today.  We have a much 
12	fuller agenda at this commission meeting today than 
13	you had yesterday, and, therefore, I'm going to ask 
14	you to do it in less than five minutes today.
15		Your statements, frankly, are more 
16	impactful if when a statement is made, it's not 
17	repeated and it's not redundant.  If you could just 
18	signify by your presence that you are supportive of 
19	certain items, and that will help us move along.  
20	And you will be heard from but we do need to 

21	conclude a rather lengthy number of public 
22	appearances.  
23		I'm going to call on the individuals 
24	to come forward in the order that the appearance 
25	forms were handed to me.

00033
 1		I want to comment, initially, that I 
 2	have an appearance form from Mr. Steve Brisner, who 
 3	supports the BAC position and signifies that he 
 4	will not testify.
 5		Also an appearance form from Mr. Mark 
 6	McCapry, who says that he supports the BAC's 
 7	response and recommendations and he does not wish 
 8	to testify.
 9		Having said that, then, I'll call on 
10	the first public witness.  
11		COMMISSIONER WHITAKER:  Before you do 
12	that, Commissioner.  May I ask if any of those -- 
13	either of those two individuals were one of the 
14	eleven individuals whose comments supported issue 
15	4.1 and 5.1?
16		MR. BRISNER:  Supported the BAC? 
17		COMMISSIONER WHITAKER:  Are you one 
18	of the eleven individuals who commented in 
19	support of issue 4.1 and 5.1 of the BAC motion 
20	report?
21		MR. BRISNER:  We -- yes, ma'am.  No.  
22	I don't think I testified on that one.  
23		COMMISSIONER WHITAKER:  Okay.  So 
24	it's some other eleven individuals?
25		MR. BRISNER:  Yes, ma'am.

00034
 1		COMMISSIONER WHITAKER:  Okay.
 2		CHAIRMAN CLOWE:  For the record, 
 3	Mr. Brisner responded off of the microphone that he 
 4	did not testify on those issues.
 5		And Mr. McCapry?
 6		I hear no response from him on that 
 7	question.  Then I will call on Pat Webb.  Good 
 8	morning.  
 9		MR. WEBB:  Good morning.  My name is 
10	Pat Webb and I'm from Dallas, Texas, and I would 

11	just like to say that I am in support of the Bingo 
12	Advisory Committee. 
13		CHAIRMAN CLOWE:  Thank you, sir.
14		MR. WEBB:  Thank you.  
15		CHAIRMAN CLOWE:  I'll call Trudy 
16	Reeder?
17		I'll come back to that individual.  
18	Horace Reeder?
19		MR. REEDER:  I didn't wish to 
20	testify.
21		MS. REEDER:  Neither did I.  Trudy 
22	Reeder.   
23		CHAIRMAN CLOWE:  Thank you, ma'am.  
24	Donna Young?
25		MS. YOUNG:  That's me.  I don't want 

00035
 1	to testify.  Thank you.  
 2		CHAIRMAN CLOWE:  And your appearance 
 3	in support of the --
 4		MS. YOUNG:  Yes, uh-huh. 
 5		CHAIRMAN CLOWE:  Thank you, 
 6	Ms. Young.  Robert Young also indicates support but 
 7	will not testify.  Donald Webb?
 8		MR. WEBB:  I do not wish to testify 
 9	but I support.  
10		CHAIRMAN CLOWE:  Indication that he 
11	supports the BAC but does not wish to testify.  

12	Thank you.
13		Velma Marcum also indicates support 
14	for the Bingo Advisory Committee report and does 
15	not wish to testify.
16		Eric -- I'm sorry.  Earl Marcum 
17	supports the BAC recommendations and does not wish 
18	to testify.  I'm unable to read his first name;  
19	Hutchins, is the last name.
20		MR. HUTCHINS:  Charles Hutchins?  
21		CHAIRMAN CLOWE:  Yes, sir.
22		MR. HUTCHINS:  I'd just like to say 
23	that I support the BAC position and thank Virginia 
24	Brackett for a great job.  

25		CHAIRMAN CLOWE:  Thank you, sir.  The 

00036
 1	indication from Mr. Hutchins is he supports the 
 2	BAC and the job Virginia Brackett is doing.  
 3	Answered from off the mike.
 4		Ronnie Baker, I believe it is?  
 5		MR. BAKER:  Yes, sir.  I will 
 6	testify.  
 7		CHAIRMAN CLOWE:  Come forward, 
 8	please.  
 9		MR. BAKER:  Thank you.  Thank you for 
10	letting me speak.  I'm sales manager for Texas 

11	Bingo Supply and I have a rather lengthy letter 
12	prepared, but due to time constraints, I'll make 
13	some comments and then I'll go sit down.

14		I wanted to see the staff 
15	recommendations from the Lottery Commission and 
16	what they were as far as being in sync with what 
17	the BAC recommended.
18		I've been employed by Texas Bingo 
19	Supply for almost seventeen years.  My background 
20	is law enforcement.  I'm executive vice president 
21	of one of the largest soccer groups here in the 
22	state of Texas so I am involved with nonprofits.  
23		In dealing with three- to 
24	four-hundred nonprofits on a yearly basis, I'm in 

25	a unique position to hear all sides as far as what 

00037
 1	their perspective is of the Lottery staff, the BAC, 
 2	and the way that it's conducted in Texas.
 3		And I was very disappointed this 
 4	morning to see the Lottery staff's recommendations 
 5	as far as they are concerned with the Sunset 
 6	Commission's recommendations.  
 7		The BAC, when it was formed, and I 
 8	know it's been termed as a ineffective public 
 9	forum, disorganized but I can tell you, ladies and 
10	gentlemen, that in dealing with the nonprofits that 
11	I deal with, they see this group as somebody that 
12	is attentive to their needs and does speak to those 
13	needs on a regular basis.
14		To term them ineffective and 
15	disorganized is doing a grave injustice to that 

16	group because many of my charities feel like that 
17	they have no other inlet to the Lottery Commission.
18		The perspective is, is that the 
19	Lottery staff routinely sets on recommendations 
20	that would help Bingo.  Given the fact that we've 
21	implemented a state Lottery, an event surrounding 
22	9/11, it's no wonder that the entire Bingo 
23	industry, our state economy, our national groups, 
24	are off.  
25		I would say that if a recommendation 

00038
 1	-- and about eighteen months ago, I appeared with a 
 2	lady from Douglas Press and we presented a concept 
 3	of a pull tab, that is common throughout the United 
 4	States.  It was a way to increase profits for 
 5	charities.
 6		When I made that presentation, Billy 
 7	Atkins looked at me and said, Ronnie, it will take 
 8	a simple rule change.  No problem.  We'll be able 
 9	to get this in and get more monies coming to the 
10	nonprofits.  That's been over seventeen months ago.
11		I'm not pulling out one issue but 
12	what I'm saying is, the perspective from the 
13	charities is, if it benefits the charities, in some 
14	ways it conflicts with the State Lottery, for some 
15	reason things are shoved under the table and only 
16	lip service is given.  
17		To term the BAC as ineffective and 
18	disorganized and yet they make good recommendations 
19	to increase monies but they're not acted upon, is 
20	just not fair.  
21		Last, but not least, as executive 
22	vice president of the All Ameri-Soccer Association, 
23	I've seen numerous soccer groups play Bingo.  My 

24	sons were there.  The monies that are raised for 
25	uniforms, shoes, scholarships.  If the 25 percent 

00039
 1	rule is adopted will adversely impact many of these 
 2	groups because they cannot afford to go into their 
 3	own location.  They have no location.
 4		And I think it's somewhat arrogant 
 5	for us to think that we're going to tell 
 6	nonprofits, if you don't make X amount of dollars, 
 7	then you don't have a right to even play charitable 
 8	Bingo.  That's just not fair.  Thank you so much.  
 9		CHAIRMAN CLOWE:  That last comment 
10	goes to item	4.1? 
11		MR. BAKER:  Yes, sir, it does.

12		CHAIRMAN CLOWE:  Thank you, sir.
13		(Applause) 
14		CHAIRMAN CLOWE:  Let's see, next is 
15	Teresa Chavez, and I believe you indicated you 
16	would like to speak.
17		MS. CHAVEZ:  Yes.
18		COMMISSIONER COX:  Mr. Chairman?  
19		CHAIRMAN CLOWE:  Yes, sir.
20		COMMISSIONER COX:  The comment in 
21	which he referenced about the Bingo Advisory 
22	Committee not being effective, I'm trying to find 
23	that in Ms. Brackett's comments to see what the 

24	section was and then look back at the Sunset report 
25	to see who said that.  And can somebody help me 

00040
 1	with that? 
 2		MS. KIPLIN:  Yes.  It's issue seven, 
 3	Commissioner.
 4		COMMISSIONER COX:  Issue seven.  

 5		MS. KIPLIN:  And issue seven is 
 6	broken down to several subpoints.
 7		COMMISSIONER COX:  Which one is the 
 8	one where the offending language occurred?  
 9		MS. KIPLIN:  On -- what Mr. Hunter 
10	was referring to, I don't believe is a 
11	recommendation.  I think it was in the narrative in 
12	a finding.  
13		CHAIRMAN CLOWE:  I think that's 
14	correct.
15		COMMISSIONER COX:  Okay.  So I guess 
16	the thing I wanted to determine was whether that 

17	was something that Sunset said, which we have no 
18	control over, or whether it was part of our 
19	response.  
20		MS. KIPLIN:  It's on page 55, and 
21	it's part of the Sunset staff response.

22		COMMISSIONER COX:  Okay.
23		MS. KIPLIN:  Sunset Commission staff 
24	response. 
25		COMMISSIONER COX:  I think it's 

00041
 1	important to distinguish here what they said, which 
 2	we have no control over.  And what we said.  
 3		CHAIRMAN CLOWE:  Thank you, 
 4	Commissioner Cox.  And you are correct in your 
 5	reference, it begins on page 55 in the Sunset 
 6	Advisory Commission Report.  
 7		MS. KIPLIN:  And I think, with that 
 8	in mind, Commissioner, the -- it's my understanding 
 9	that the agency draft response is responding to the 
10	recommendations and not necessarily the narrative.  
11		COMMISSIONER COX:  That was my 
12	impression, as well.  
13		CHAIRMAN CLOWE:  Good morning, 
14	Ms. Chavez.
15		MS. CHAVEZ:  Good morning.  I'm 

16	Teresa Chavez and I am with the Ethyl Daniels 
17	Foundation.  I am here to discuss issues four and 
18	five.
19		I'm here on behalf of Jimmy Daniels, 
20	who is the founder of the Ethyl Daniels Foundation,  
21	who was unable to be here.
22		From the beginning of 1987, when we 

23	started the foundation, he did that in honor of his 
24	wife, Ethyl Daniels, who was murdered by a drug 

25	addict/alcoholic.  And after he became clean and 

00042
 1	sober in '82, five years later, he started the 
 2	foundation on her.  
 3		Since that beginning, we have helped 
 4	thousands of alcoholics and drug addicts.  But 
 5	since the changes through the commissions, advisory 
 6	boards and other legislations, it has changed, we 

 7	are no longer a 21-bed facility, we are a ten-bed 
 8	facility for women in recovery.
 9		We offer them a housing which is 
10	physically, mentally, spiritually, emotionally and 
11	sexually safe.  They come in 72 hours out of detox.  
12	And that's all we are today.
13		But thank God to the Bingo facilities 
14	that are able to help us.  As a small charity, we 

15	could not operate without that.  We no longer have 
16	grant funding.
17		We are strictly supported by private 
18	contribution, and basically from Bingo.  The 
19	lessors that operate those for us and give us the 
20	facility to be able to do that is actually an 
21	amazing grace for us today.  
22		They called us on Thursday.  I am a 
23	flight attendant for a major airlines.  I do this 
24	strictly as volunteer work.  We only have one paid 
25	employee, who is the director of our house.  And so 

00043
 1	we came down here when they told us what was going 
 2	on because we know if we lose this funding, we are 
 3	shut down immediately.
 4		So I am here on behalf of our 
 5	foundation and also to support the Bingo Advisory 
 6	Commission, as well as to speak before you on 
 7	behalf of the small charities that would suffer 
 8	from these changes.
 9		I apologize, I've never been in our 
10	Bingo hall.  I don't play Bingo but I don't -- I do 
11	not buy your Lottery tickets, also.  (Applause)  
12	But I don't go to the horse races, either.  But if 
13	you were supporting us, I would be there.  I 
14	promise I would come out.  
15		But thank you-all for your work.  
16	Thank you so very much.  I appreciate the 
17	understanding of it all today, which I did not 
18	know.  I was very ignorant before coming down here 
19	as to what you-all do but I will no longer be that 
20	way and I want to thank you and support you on that 
21	behalf.  Thank you.
22		CHAIRMAN CLOWE:  Thank you.
23		(Applause) 
24		COMMISSIONER WHITAKER:  Ms. Chavez?  
25		CHAIRMAN CLOWE:  Commissioner 

00044
 1	Whitaker has a question for you.
 2		MS. CHAVEZ:  Oh, excuse me.
 3		COMMISSIONER WHITAKER:  Ms. Chavez, 
 4	have you, yourself, done any analysis of the 
 5	expense structure or the distribution formulas for 
 6	your charity?
 7		MS. CHAVEZ:  Actually, all I know is 
 8	that the Bingo facility gives us about $3,000 a 
 9	month, and our facility operates about 5800.  And 
10	according to this, we have about three months left 
11	once this stops, is all I know for sure, from our 
12	bookkeeping facilities.
13		But I think, as a business owner, I 
14	have been in the past, if I operated with that kind 
15	of structure, I would have not been in business for 
16	very long giving the 25 percent from the top 
17	instead of trying to pay my employees and take care 
18	of rent and utilities.  I apologize.  I do not 
19	know.  But according to the people that are helping 
20	us, they're running numbers as of date and we'll be 
21	more informed in the future.  All I know is that, 
22	how we operate on day-to-day.  
23		COMMISSIONER WHITAKER:  You're not 
24	really addressing the issue of grandfathered 
25	lessors, are you?

00045
 1		MS. CHAVEZ:  Also, on that, we, as a 
 2	small charity, could not operate a Bingo facility, 
 3	not with the kind of money that it takes, I do not 
 4	have that ability.  I would definitely be opposed 
 5	to that change, also.  
 6		COMMISSIONER WHITAKER:  Ms. Chavez, 
 7	are you distinguishing between grandfathered 
 8	lessor and a lessor?
 9		MS. CHAVEZ:  Well, the -- we rely on 
10	the commercial lessors to provide the facility -- 
11		COMMISSIONER WHITAKER:  Whether --
12		MS. CHAVEZ:  -- for us to do our 
13	Bingo.  
14		COMMISSIONER WHITAKER:  Whether or 
15	not they're grandfathered, correct?  In other 
16	words, the issue of being grandfathered or not is 
17	not really the concern here.  It's whether or not 
18	you have a lessor whose facilities you can use, as 
19	opposed to go ahead and get you-all's pay; is that 
20	right? 
21		MS. CHAVEZ:  But from what I 
22	understand, though, if they change that, that will 
23	no longer be in business.  
24		COMMISSIONER WHITAKER:  Is that your 
25	understanding? 

00046
 1		MS. CHAVEZ:  Yes.  
 2		COMMISSIONER WHITAKER:  Do you have 
 3	a basis for that?
 4		MS. CHAVEZ:  The way I understood 
 5	when it was written up -- am I doing that 
 6	correctly?  I believe that they will no longer be 
 7	in business.  We rely strictly on those lessors who 
 8	are grandfathered. 
 9		COMMISSIONER WHITAKER:  Do you have 
10	anything to support that viewpoint? 
11		MS. CHAVEZ:  Basically what I have 
12	read and through the Commission reports, through 
13	all the reports that we've read in the past couple 
14	of days, and that is what I'm going by.
15		COMMISSIONER WHITAKER:  The issue, 
16	from your perspective, is having someone other than 
17	the charity itself have facilities available?
18		MS. CHAVEZ:  Absolutely.  Because 
19	according to what I heard yesterday, I could not 
20	afford to do that.  I could not afford even to rent 
21	a building to do all of that.  No, we could not.  
22		COMMISSIONER WHITAKER:  Okay. Thank 
23	you.
24		MS. CHAVEZ:  Thank you.
25		CHAIRMAN CLOWE:  And another part of 

00047
 1	your comment goes to the item 4.1?
 2		MS. CHAVEZ:  Yes.  

 3		CHAIRMAN CLOWE:  Because you've been 
 4	told that that would be hurtful to your --
 5		MS. CHAVEZ:  Well, and what I've 

 6	read, yes, and how it operates, yes, the way I 
 7	understand it today.  
 8		CHAIRMAN CLOWE:  Okay.  We're just 
 9	trying to get focused in on --
10		MS. CHAVEZ:  Thank you very much.  
11		CHAIRMAN CLOWE:  Thank you, ma'am.  
12	Here's a problem, mispronouncing a newspaperman's 
13	name.  Bob Rutlinger.
14		MR. RUTLINGER:  Rutlinger.

15		CHAIRMAN CLOWE:  You're going to have 
16	to help me with that.
17		MR. RUTLINGER:  It's Rutlinger.  

18		CHAIRMAN CLOWE:  Thank you, sir.
19		MR. RUTLINGER:  Good morning.  
20		CHAIRMAN CLOWE:  Good morning.
21		MR. RUTLINGER:  My name is Bob 
22	Rutlinger.  I am the publisher of the Bingo 

23	Bugle Newspapers that cover Houston, San Antonio 
24	and the Austin areas.
25		I was told not to stir anything up 

00048
 1	today, so if I do, let me apologize in advance.  I 
 2	know you will hear plenty of testimony about the 
 3	ill-conceived Sunset report, and I won't belabor 
 4	those reports other than to say that the proposed 
 5	distribution system would be a disaster for Bingo 
 6	as it would be getting rid of the commercial 
 7	lessors.  Either one of these would have 
 8	devastating effects on Bingo.
 9		There is something here that I think 
10	needs to be said, however.  To blame these poorly 
11	processes on recommendations totally on the Sunset 
12	Commission, I think is a mistake.
13		I believe these recommendations have 
14	come with footprints from your staff and the 

15	Lottery Commission.  So Sunset Commission got these 
16	recommendations from somewhere.  It wasn't us.  As 
17	evidenced by your agency's response to supporting 
18	each of these recommendations, I think it is 
19	self-evident, and I disagree with the Lottery and I 
20	think that these recommendations have come from 
21	your personnel.
22		I wonder why the original 19-point 

23	plan we worked on so hard to develop to help Bingo 
24	was totally disregarded by the Sunset Committee -- 
25	by the Sunset Commission when we had -- we know 

00049
 1	that Bingo is struggling like it is.  I think 
 2	everyone in this room knows the devastation that 
 3	Bingo is under.
 4		We've had a 20 percent decrease in 
 5	revenues over the last three years.  Any business 
 6	that tries to go through that type of a 
 7	reconstruction has problems.

 8		We desperately need these ideas to be 
 9	rejuvenated from Bingo.  We need the Sunset 
10	Commission changed but we also need our 19-point 
11	plan that we presented to them totally -- that has 
12	totally been disregarded.
13		What we need now is, Chairman Clowe, 
14	an opportunity to sit down with the Sunset 
15	Commission, with your staff, and the members of the 
16	Bingo community, in a round-table discussion that 
17	would allow the -- a forum that would allow all of 
18	the parties to lay their issues on the table, 
19	discuss them, and come up with solutions that will 
20	be good for all of the parties.
21		In the past, I believe that what has 
22	happened here is that the Sunset people get one 

23	story from people of your staff, they get another 
24	story from us, and because they don't actually 
25	understand Bingo, they have continued to come down 

00050
 1	on the side of your staff because they simply do 
 2	not understand Bingo.
 3		And their simple explanation for this 
 4	is to be safe and to go with the Lottery 
 5	Commission's recommendations, because, obviously, 

 6	it is a big step to recommend our recommendations 
 7	and they can be safe when they go with the 
 8	recommendations of your commission.  
 9		What we would like to do, we would 
10	like to have a face-to-face discussion with the 
11	issues with a nonpartial mediator that we believe 
12	could resolve these issues to benefit everyone.
13		My question to you, Chairman Clowe, 
14	is, if we were able to get the Sunset staff to 

15	agree, would you ask the operation staff of your 
16	group to join us in a type of exchange so that we 
17	could make -- we might work out these differences.  
18		We've not had cross-board table 
19	discussions with any of these people.  The Sunset 
20	Commission reviews people, they take those reviews 
21	to, let's say the Operations Division of your 
22	group.  They take those recommendations and they 

23	have a totally different opinion of what should be 
24	done.
25		Now, how do Sunset Commission's 

00051
 1	people who do really not understand Bingo and do 
 2	not really understand the process decide on whether 
 3	we're right, whether they're wrong.  And, 
 4	unfortunately, I think they've got into the 
 5	position that they have taken the safe way out.  
 6	They've taken the recommendations of the state 
 7	agency, and that's who they are going with.  
 8		My point is, that if we could have a 
 9	round-table discussion with all the parties, that I 
10	believe that we could come to an agreement before 
11	the Sunset Commission is reviewed.  Because I think 
12	that already they are feeling the pressure that 
13	they made some serious mistakes in the 
14	recommendations and that if we could bring all 

15	these parties together into one format, and one 
16	room, and have an open discussion as to what these 
17	problems are, then maybe we would have a chance to 
18	resolve these in a cross-board discussion in an 
19	open forum so that these problems could be 
20	resolved.  
21		I don't know if that's the proper 
22	protocol.  I don't know if it's something that 
23	could be handled by this agency.
24		And, of course, Chairman Clowe, I 
25	thought that you would be the perfect mediator for 

00052
 1	our meetings.  So you've come to our rescue before 
 2	with Bingo, and God knows, we appreciate it.  You 
 3	have been a God-send to this agency.
 4		We have never had anyone that has 
 5	come before our group, in the many years that I've 
 6	been involved here, that has taken an interest in 
 7	what happens to Bingo like you have.  You've 
 8	attended our meetings.  You've attended the BOC 

 9	meetings.  You've become involved, you've become 
10	immersed in what's happening here.  And we need a 
11	resolution to this.
12		And the only reason and the only 
13	concept that I can see that might resolve this is 
14	to bringing together all of these parties.
15		Sunset Commission goes in and they 
16	get a recommendation from us.  They go over to 
17	Billy Atkins or the Bingo Operations Division and 
18	the Operations Division goes, no, I don't agree 

19	with that.  So the Sunset Commission accepts their 
20	recommendation because it's safe.
21		And we do need a forum where we can 
22	bring all of the parties together that are in 

23	conflict over this thing because it is a vital, 
24	vital interest to what happens in Bingo.
25		We are going to lose based on just 

00053
 1	the two recommendations that have come out of this.  
 2	Bingo is going to be devastated.  Commercial 
 3	lessors provide a -- and I'm not going to go into 
 4	this diatribe because I know other people are going 
 5	to go into advantages of commercial lessors, but 
 6	there are literally thousands of charities in this 
 7	state who don't have a penny to their name.  I 
 8	mean, they are there scraping to raise every bit of 
 9	funds that they can to get their charities going.

10	              There's no way that these people can 
11	build Bingo halls.  They don't have the funds and 
12	this is what charitable -- this is what lessors 
13	bring to the table.  They bring an opportunity for 
14	those charities who are unable to finance this.  

15	They allow them an entry into the process that they 
16	would never have before.  And I would venture to 
17	say that half -- probably half of the Bingo 
18	charities that are conducting Bingo fall under the 
19	perimeters of commercial lessors.  
20	              If you don't have commercial lessors, 
21	what you're going to have is American Legion halls 
22	who own their buildings, playing Bingo.  You're 
23	going to have Catholic Church, who have no 
24	overhead, no rent, conducting Bingo.  You're going 
25	to have American Legion, VFW's, and so on.

00054
 1		The people that need opportunities to 
 2	bring into the system to play Bingo are going to be 
 3	cut out.
 4		There's simply no way that they can 
 5	afford to put the Bingo altogether.  I mean, these 
 6	commercial lessors put hundreds, literally hundreds 
 7	of thousands of dollars into creating a facility 
 8	for these to play in.
 9		And, you know, what strikes me is 
10	that, and I know that I'm assuming by your 
11	appointment that you're in a particular party, that 
12	the -- that there are other parties that look at 
13	people who have been successful, and people who are 
14	in a position of earning money, that regardless of 
15	how good they -- how much they bring to the table 
16	for society, there are always people that look on 
17	them because they're earning too much.  There's 
18	class envy.
19		They don't want this, you know, 
20	they'll do anything to bring these people back into 
21	the poll where they're not making what they -- what 
22	these people feel are too much money.
23		Well, I submit to you that those 

24	people are the kind of people that make Bingo go 
25	around.

00055
 1		They are the same members of our 
 2	community that are the shakers and makers, as you 
 3	would say.  The people that build the businesses, 
 4	that create jobs for people.  Give them access to 
 5	jobs.  And that those people are the ones that 
 6	really run our economy and make it work.

 7		Yet, what we have is pot shots by the 
 8	liberals who say that they want to take the money 

 9	away from these people and redistribute it to the 
10	poor.  And what's left, if all of this comes 

11	around, is that there will be no rich people.  
12	Everybody will be poor.  There will be no jobs for 
13	anybody.
14		This is the actual thing that 

15	commercial lessors bring to the table for 
16	charities.
17		They bring us opportunity to 
18	participate in a system that -- most of these 
19	charities come to Bingo with -- I mean, with 
20	literally pockets empty.

21		I mean, they have no way that they 
22	could start Bingo.  And if they go to a commercial 
23	Bingo hall, then they have the opportunity to be 
24	brought into the fold, be brought into an 
25	organization that can help them get -- and I know 

00056
 1	you're going to hear examples and I know Fred with 
 2	the American Legion has got an example where he had 
 3	a VFW hall that was actually struggling.  They had 
 4	zippo.  Nothing.  He got them into a commercial 
 5	hall and now they have $120,000 in their account 
 6	that they do good things with.
 7		So I think it's very shortsighted for 
 8	people who consider that these people be eliminated 
 9	from the system.
10		And back to my original question.  I 
11	guess, do you think it would be possible, if we 
12	were to get the Sunset Commission to go along with 
13	this, and that we could bring them into a forum 
14	with people from your organization, with people 
15	from the Bingo operations, with people from around 
16	the state, into a cross-board open forum where we 
17	could sit and put these items on the table for 
18	discussion?
19		And if -- and I think that this is 
20	also very tale-telling in that every recommendation 
21	that has come from this report that your agency has 
22	responded to the Sunset Commission confirms 
23	everything that these people have recommended from 
24	the Sunset Commission, and I find that a little 
25	suspect.

00057
 1		And I think that also points out why 
 2	that the Sunset Commission has taken these 
 3	recommendations from your Operations Division and 
 4	put them into effect and we need a chance to rebut 
 5	these things.

 6		And I am afraid that if we wait until 
 7	the Sunset Commission convenes and we have an 
 8	opportunity to go up and present our case, they're 
 9	still back in the position of not knowing whether 
10	to believe what we say when they take that 
11	information and they go to Billy Atkins, or whoever 
12	it is in your division, and they say something 

13	contrary, how do we have a chance to rebut those 
14	things?
15		We need a forum where we can all sit 
16	down around a table and we can throw these things 
17	out, and with a mediator, discuss these things and 
18	come to an agreement as to what's good for Bingo.
19		Bingo, as everyone knows here, is 

20	suffering dramatically.  We've had a 20 percent 
21	down-turn in revenues from Bingo in the last three 
22	years.  It takes any, any business that has had 
23	that problem, they would have replaced the chairman 
24	of the board.  
25		CHAIRMAN CLOWE:  I don't want to cut 

00058
 1	you off but I think you've made your point.  
 2		MR. RUTLINGER:  Well -- oh, I could 
 3	be here forever. 
 4		CHAIRMAN CLOWE:  I know.  I want to 
 5	respond to you.  I think you -- I want to give you 
 6	adequate time, but I think you've made your point, 
 7	haven't you, really?  
 8		MR. RUTLINGER:  Well, it depends on 
 9	whether you agree with me or not.  
10		CHAIRMAN CLOWE:  Bob, let me --  
11		MR. RUTLINGER:  If you do, yeah, I'm 
12	finished; if not, I'd like to go on.  

13		CHAIRMAN CLOWE:  Let me tell you what 
14	my response is, and you've addressed a number of 
15	issues.
16		Let me first respond to the attention 
17	that the Commission gives to the Bingo operation in 
18	the state.  I know for a fact that Commissioner 
19	Whitaker and Commissioner Cox are vitally 
20	interested in Bingo operations.
21		And, you know, commissioners serve 

22	after being appointed and then confirmed with the 
23	Senate, for no compensation.  They are truly 
24	citizens who do public service.
25		And I'm amazed in the almost four 

00059
 1	years now that I've sat on this commission, to see 
 2	the type of person who works hard and devotes 
 3	themselves to being the best commissioner they can 
 4	be for no compensation.
 5		And I want to -- because you singled 
 6	me out, I want to assure you that the other two 
 7	commissioners care as much about the problems that 
 8	you are talking about, and others here are talking 
 9	about, and are vitally concerned.
10		It's impossible for the commissioners 
11	to attend meetings, forums, because we are a 

12	three-person commission, unless it's a public 
13	meeting.  Commissioner Cox attended, I think, the 
14	BAC meeting before this last one yesterday.  And I 
15	couldn't be there, and Commissioner Whitaker could 
16	not come, so we're under those constraints.  You 
17	must understand that those are the rules.  
18		MR. RUTLINGER:  I do.  
19		CHAIRMAN CLOWE:  Now, having said 

20	that, I want to go back and repeat something -- you 
21	were not at the meeting yesterday, if I recall 
22	correctly.  
23		MR. RUTLINGER:  No.   
24		CHAIRMAN CLOWE:  I didn't see you 
25	there.  I want to go back, and to a certain extent 

00060
 1	be redundant about some of the things I said at the 
 2	conclusion of the public testimony in the BAC 
 3	meeting yesterday.  
 4		Sunset Review is a process.  It has 

 5	at least four steps.  This speaks to your request 
 6	for the idea of a mediation or a round-table or 
 7	public forum.  There has been input to the Sunset 
 8	staff from the agency that's being reviewed and 
 9	from public persons, that has taken place.
10		And I urged, at a number of 
11	commission meetings and a number of BAC meetings 
12	for the members of the industry because I see the 
13	problems that are being described, that they be 
14	addressed to the Sunset staff.
15		And the Sunset staff attended a 
16	number of meetings of the BAC and has been, I 
17	think, in every commission meeting that we've had 
18	since we came up for Sunset.  
19		The next step following this review 
20	by the Commission of the Sunset staff 
21	recommendations and what action we take today on 
22	these recommendations is a public hearing that is 
23	going to be held on September the 24th, here in 
24	Austin, beginning at nine a.m.  There's your 
25	opportunity to appear before the Sunset Committee 

00061
 1	and to say the things that you want to say relative 
 2	to the staff recommendations from Sunset, the 
 3	action the Commission takes today, and how you feel 
 4	about the various things that you've commented on.

 5		To my knowledge, there is no venue, 
 6	at this point in time, like you're asking for, a 

 7	round-table, a public forum, an opportunity to have 
 8	a mediation.  That's not part of the process, okay?  
 9	It's not going to be, I think, something that's 
10	going to be realized.
11		But beyond the meeting on the 24th, 

12	in November of this year, the Sunset Commission 
13	itself makes its report to the Legislature and then 
14	the Legislature takes that report and bills will be 
15	introduced, which will embody a number of things 

16	that can be in that report, or things that are 
17	outside of that report.
18		So, as I said yesterday at the BAC 
19	meeting, it's a process and you've got to 
20	participate in that process in order to achieve 
21	some or all of the goals that you're wanting to 
22	achieve in the comments that you're making here 
23	this morning.

24		There is nothing more powerful, in my 
25	opinion, from my years in public service, than a 

00062
 1	constituency speaking to the elected officials.  
 2	And I would urge you and the others here, as I did 
 3	yesterday, not to overlook your opportunity to talk 
 4	to your legislators about relief that you want, 

 5	either that is statutory or maybe as a result of 
 6	rule-making.
 7	              This commission is considering these 
 8	recommendations and will act today but it goes 

 9	beyond us to another forum.  So you get, to a 
10	certain extent, what you're asking for, but not 
11	exactly in the form that you asked for.  
12	              MR. RUTLINGER:  I understand what 

13	you're saying, and my problem was that, you know, I 
14	have not been that involved in this process.  I was 
15	involved in it several years ago when there was a 
16	humongous fight over some taxation and some rules.  
17	And, you know, we did the, you know, on the capital 
18	steps and all this thing, you know.  I mean, it was 
19	really quite a -- but, you know, what I -- what I 
20	felt was that, as most of us have become, you know, 
21	and I'm almost to the point to, you know, I'm ready 
22	to become anarchist.  You know, I feel like our 

23	system is so out of control that, you know, the 
24	little man has nothing to say.  He has no power.  
25	We have no money.  We can't get our -- 

00063
 1		CHAIRMAN CLOWE:  I'm not sure we're 
 2	on the subject now.  
 3		MR. RUTLINGER:  Well, but my point is 
 4	that -- my point is that, you know, we go to the 
 5	Sunset Commission, and without the support of your 
 6	people, who I think instigated what their ultimate 
 7	recommendations are, they're going to be back to 
 8	the same place.
 9		They're -- we're going to hear our 
10	testimony and then they're going to go away and 

11	then they're going to go back to the Operations 
12	Division and say, well, this is what we heard, what 
13	do you think about it?  Well, then you get another 
14	story.  
15		CHAIRMAN CLOWE:  And I would have to 
16	tell you that, simply, you and I disagree on that.  
17	I think the Sunset staff -- 
18		MR. RUTLINGER:  I can't believe that.  
19		CHAIRMAN CLOWE:  -- commission, and 
20	we went before them and appeared, and they 
21	interviewed us, and we talked to them about the 

22	things that we had concerns about, and I don't 
23	believe they took what was given to them verbatim 
24	and adopted it, as you think.  We just simply have 
25	a disagreement on that.  But that's not the issue 

00064
 1	here.  
 2		MR. RUTLINGER:  But, you know -- but 
 3	these recommendations are, obviously, totally 
 4	off-base.  I mean, any one of these two obligations 
 5	-- these two recommendations will kill Bingo.  
 6	Where did they come from?
 7		CHAIRMAN CLOWE:  Bob, I'm going to 
 8	let that go to the weight of your opinion and 
 9	your position, and I can't speak for the 
10	Commission.  The Commission will intake this 
11	morning and will deliberate, and then, you know, 

12	when the Commission is ready to act, it will act.  
13		MR. RUTLINGER:  Well, we'll go 
14	through our process and I do thank you for your 
15	time.  
16		CHAIRMAN CLOWE:  Thank you.  
17		MS. KIPLIN:  Commissioners, if I 
18	could just address the audience.  We do have a 
19	court reporter here who is trying to make a record 
20	of the meeting, and so if you will allow the 
21	commissioners to finish their comments and then 

22	you-all can speak, I think we'll get a better 
23	record because she can't record two voices 
24	at the same time.  
25		CHAIRMAN CLOWE:  Sure.  

00065
 1		MR. RUTLINGER:  Sorry for 
 2	interrupting.  
 3		CHAIRMAN CLOWE:  No problem.  Thank 
 4	you.
 5		(Applause) 
 6		CHAIRMAN CLOWE:  William Smith 
 7	appears supporting recommendations of BAC and does 
 8	not wish to testify at this time.
 9		And let's see, this is on a different 
10	subject from Mr. Smith, as well.
11		Gene Garrison supports the BAC 

12	report.  I suppose he does not wish to testify.
13		MR. SMITH:  No.  I don't wish to 
14	testify.  
15		CHAIRMAN CLOWE:  Okay.  Suzanne 

16	Taylor, supporting items four, five and six.  Did 
17	you want to testify, Suzanne?
18		MS. TAYLOR:  Yes, sir.
19		CHAIRMAN CLOWE:  Thank you.
20		MS. TAYLOR:  My name is Suzanne 

21	Taylor.  I am a member of the Bingo Advisory 
22	Committee but I am here today to let you know how I 
23	personally feel about these items and what I think 
24	is to our Bingo industry.
25		The report by the Sunset Commission 

00066
 1	reviewing the Texas Lottery Commission and 
 2	charitable Bingo was a discouraging surprise.  I've 
 3	been looking forward to this recommendation because 
 4	I thought it would help Bingo in Texas become more 
 5	profitable to all the charities involved.
 6		I feel many of the proposed 
 7	recommendations are in order implementing Bingo of 
 8	Texas undergo a further decline with many charities 
 9	unable to continue their Bingo operations.  
10		MS. KIPLIN:  Ms. Taylor, can you slow 
11	down on reading. 
12		MS. TAYLOR:  Sure.  
13		MS. KIPLIN:  It's really hard when 
14	you're --  
15		MS. TAYLOR:  Are you ready?  Okay.  
16	Although Bingo distributions are down, mainly due 
17	to the decrease in attendance because of the 
18	increase in competition for the entertainment 
19	dollars, the charities currently conducting Bingo 
20	rely heavily on the income that they produce from 
21	their Bingo sessions, however large or small.  
22		Each of the Sunset staff 
23	recommendations that I'm going to discuss today, I 
24	feel would resolve in a fiscal hurt for the state.  
25		I was totally surprised to read that 

00067
 1	there was no fiscal implications on most of these 
 2	items that they talked about.  I think the 
 3	statements are inaccurate.  I believe half the 
 4	charities that are currently conducting Bingo in 
 5	Texas will not be in the Bingo business in six 
 6	months if these proposals are implemented. 
 7		Speaking to recommendation 4.1.  

 8	Simplify the statutory charitable distribution 
 9	formula.  Sounds like a great plan.  Let's simplify 
10	it.  I'm all for it.  This isn't simplifying it; 

11	this is killing the charities with it.  You can't 
12	hammer them over the head with this.
13		The Sunset Commission determined 
14	charities in Texas were not netting enough income 
15	from their Bingo operations and recommended the 
16	minimal charitable distribution amount be set to 
17	25 percent of the gross income, less prizes.  No 

18	expenses other than prizes would be deducted prior 
19	to calculating the required distribution.
20		Charities in 2001 distributed 20.5 
21	percent of the adjusted gross.  In 2003, they would 
22	be required to distribute 25 percent of the 
23	adjusted net.  The adjusted net being the gross 
24	minus the prizes only.
25		Of the charities that have been 

00068
 1	spoke to, and I'm sure you're going to hear 
 2	testimony from some of the bookkeepers that have 
 3	been running numbers on this, 80 percent of the 

 4	charities currently operating Bingo in Texas will 
 5	not be in business with this formula.
 6		I think that that's a definite fiscal 
 7	impact on the state of Texas.  It's not just the 
 8	income the state is producing, it's the income that 
 9	these charities are producing for their causes.  
10	These are good causes.  You're going to put the 
11	charities out of business if you accept this 
12	recommendation.  
13		Issue Number 5.  Repealing the 
14	section of the grandfathered Bingo Enabling Act 

15	that allows lessors license to be grandfathered.
16		During the calendar year 2002 -- and 
17	these items that I'm reading are coming straight 
18	out of the Sunset Report.
19		During the calendar year 2002, 

20	thirty-seven thousand six hundred and three 
21	twenty-nine dollars was paid in rent by 

22	organizations conducting Bingo sessions.
23		With a total of 479 lessors in Texas, 
24	this translates to roughly 6,541 gross monthly per 
25	lessor.  When you break it down, it doesn't sound 

00069
 1	like a whole lot.  Of that 479 lessors in Texas -- 
 2	of the 479, 238 are grandfathered lessors.  That 
 3	means 50 percent of the lessors that are currently 
 4	operating Bingo are grandfathered lessors.  That 
 5	definitely affects Bingo in Texas.  
 6		The Sunset Commission determined that 
 7	because a grandfather lessor could gross 36,400 
 8	monthly by charging the maximum 600 a session, that 
 9	the grandfathered lessor should be phased out to 

10	increase charitable distribution.  Unfortunately, 
11	the Sunset Commission is incurring net 
12	distributions the charity received to the gross 
13	rent received by all 479 lessors, not just the 

14	grandfathered lessors.
15		The report does not state what is 
16	included in the rent.  It doesn't talk about the 

17	utilities, the electricity, the janitorial service.  
18	The whole maintenance.  Changing out the light 
19	bulbs, putting the toilet papers in the bathrooms.  
20	Many, many of the lessors include that in the rent 
21	that they're charging.
22		We heard testimony yesterday that 

23	some of the charity lessor halls, in fact, one of 
24	them, River City paid, I believe it was 325 a 
25	session in rent.  Actually, I think it was 245.  By 

00070
 1	the time we figured these other items that are 
 2	included in most of the rent that's being collected 
 3	by the lessors, the rent came up to four hundred 
 4	and twenty or 326 or 27 dollars a session, which is 
 5	just about what's being charged by most of those 
 6	nasty grandfathered lessors.  
 7		The rent charged on Bingo premises 

 8	has decreased 2.8 million between 1999 and 2001, 
 9	and if you run the numbers, I'll bet you'll see 
10	that it's decreased even more this last year.
11		Most of those decreases are coming 
12	from the grandfathered commercial lessors who are 

13	trying to help the charities in this state stay in 
14	business.  Bingo is tough.  The only place that 
15	they can reduce their expenses is rent.  If they 
16	don't have a grandfathered lessor who can reach in 
17	their own pocket and help these charities out 
18	through the tough times, they'll be out of 
19	business.  
20		And the shopping center is not going 
21	to give you free rent if you're leasing directly 
22	from the shopping center.  Everybody wants their 
23	rent.  The mortgage company, it doesn't wait for 

24	your house payment.  You don't pay it, you're going 
25	to find yourself out on the street, and that's 

00071
 1	what's going to happen to the charities if they 
 2	don't have the grandfathered lessors there to help 
 3	them out in the tough times.
 4		Many organizations across the state 
 5	with lower tenants and reduced rent have been the 
 6	recipients of reduced rent -- I'm sorry, with 
 7	reduced profits have been the recipients of the 

 8	reduced rent by the lessor to help them during 
 9	these difficult times.  
10		The Sunset Report states, quote, 
11	Revenues to charities would increase because more 
12	charities would pay rent to conductor lessors 
13	instead of commercial lessors, unquote.
14		Very few charitable organizations 
15	have the desire or ability to be able to set up a 
16	Bingo hall with tables, chairs, monitors.  Sign a 
17	long-term lease.
18		Most locations at this time won't 

19	even accept a lease signed by somebody going to be 
20	playing Bingo.  They want a personal note signed.  
21	How many Board members want to sign a personal note 
22	for a five- or ten-year license with the current 
23	client we have in Bingo.
24		If you go out right now today, try 

25	it.  You're not going to find anybody that's going 

00072
 1	to sign a lease for your charity.  You're going to 
 2	have a really, really hard time.
 3		What will happen to the nine hundred 
 4	to a thousand charities that currently conduct 
 5	Bingo in the 238 grandfathered halls if you phase 
 6	these licenses out or they're no longer 
 7	transferable.
 8		Commissioner Whitaker, you asked 
 9	earlier why they can't become -- go to a charity 
10	hall or become a charity hall.  It's not that easy.  
11	You're adding another entity in there.
12		Let's say that as a grandfathered 

13	lessor that you want to go ahead and you're going 
14	to rent to a charity who in turn is going to 
15	sublease to the other charities.  You are relying 
16	that that charity is going to keep all of their 
17	bookkeeping, all their housekeeping in good order.
18		If that charity messes up, doesn't 
19	pay their taxes or does something wrong, boom.  
20	What happens to the rest of the charities in the 
21	hall?  You're relying on that charity to keep 
22	everything.  So you're adding another possibility 
23	to have a problem with your Bingo hall renting 

24	because you're, in essence, leasing to somebody 
25	that you're hoping that they're going to keep their 

00073
 1	records straight so that they can continue to lease 
 2	to the other charities in the hall.
 3		It is a problem.  It's problematic.  
 4	It's very, very expensive to set up a Bingo hall.
 5		Most of the charities in Bingo -- we 
 6	know that the state -- I mean, Bingo is a gambling 
 7	business.  Many, many charities in the state don't 
 8	want to be involved with Bingo because of the nasty 
 9	implications of the gambling business.
10		The charities -- most charities 
11	involved with Bingo are the charities in the state 
12	that don't have two dimes to rub together.  They're 
13	the ones that need the help to put a business 
14	together.
15		The United Way charities, most of the 
16	bigger charities, aren't in it, that's why we have 
17	so many -- the Lyons Clubs and VFW's and the other 
18	organizations that you find if you look down the 
19	list, because these are the organizations that are 
20	the poorer charities in Texas.  They need help.  If 
21	they had the money to set up a Bingo hall, most of 
22	them wouldn't be in the Bingo business because they 
23	wouldn't need those funds.
24		Most people looking at the Bingo 
25	business look at it with jaded eyes and they don't 

00074
 1	want to be involved.  We've had charities that have 
 2	been involved before and they don't want their name 
 3	mentioned at these meetings because they don't want 
 4	it included in the record that they're 
 5	participating in the Bingo business.
 6		So these people that are here willing 
 7	to give you the name of their charity and their 

 8	organization, they are concerned.  They need the 
 9	money.  This will really, really impact them and 
10	hurt them and guaranteed you will put many, many 
11	charities out of business if you phase out 
12	grandfathered lessor.  
13		Recommendation 6.1.  Requiring the 
14	commission to adopt rules governing or complying 
15	monitoring.
16		And 6.2.  Expanding the Lottery 

17	Commission authority to suspend Bingo licenses.
18		The Sunset Staff reviewed the Lottery 
19	Commission's Bingo enforcement activities in recent 
20	years and recommended expanding the Lottery 
21	Commission's authority to temporarily suspend Bingo 
22	licenses to prevent financial losses to the state.
23		The report also recommended, quote, 
24	the Lottery Commission to adopt rules governing all 
25	compliance monitoring and enforcement procedures.

00075
 1		My question was a question that I've 
 2	asked several times about this rule.  What happens 
 3	to the Bingo sessions in a hall when a Bingo's 
 4	charity license is suspended.  We asked the 

 5	question yesterday.  Once again, there is no 
 6	answer, which is what we were alluding to.
 7		When a license is suspended, that 
 8	charity is still licensed for those times in the 

 9	hall.  Does that leave a gap, if it does, not only 
10	are you hurting the offending charity, you're 
11	hurting the other charities participating.
12		A Bingo hall is a business with many 
13	partners.  If you take one partner out, you take 
14	out the first session, Monday, Tuesday and 
15	Wednesday, you are hurting the second session, 

16	Monday, Tuesday and Wednesday, more than you can 
17	imagine.
18		So what we are asking and what has us 
19	worried about this rule, and has me worried, is 
20	what happens to the other charities?
21		There needs to be some additional 

22	discussion on this topic before the licenses are 
23	merely suspended.  And the staff, at this point, 
24	can't answer that.  What happens?  Can another 
25	charity take those times?

00076
 1		So the concern for everybody, the 
 2	people that owe the taxes, guaranteed they ought to 
 3	pay it.  They ought to have not used the taxes but 
 4	you can't hurt all the other entities involved.  
 5	You hurt the other partners if you don't give some 
 6	consideration to how that's going to be enforced 
 7	and what's going to be done with that.  Do you 
 8	understand?
 9		I mean, I know that you were at the 
10	meeting yesterday, Commissioner Clowe, but do you 
11	understand my concern with that? 
12		CHAIRMAN CLOWE:  I think the 
13	commissioners are understanding.  They may have 

14	questions at some point in time.  Just press on.  
15		MS. TAYLOR:  Okay.  Issue number 

16	seven, Bingo Advisory Committee.  This goes to 
17	recommendation 7.4.  The Sunset Report states, 
18	quote, the Lottery Commission should consider 
19	increasing the number of general public members 
20	with no ties to the Bingo industry, unquote.

21		However, lack of knowledge about the 
22	Bingo industry by the agencies that have been  

23	regulating Bingo have helped contribute to the 
24	declining Bingo profits.  House replacing, 
25	knowledgeable, concerned members of the Bingo 

00077
 1	industry with general public members with no ties 
 2	to the Bingo industry are going to better advise 
 3	you, the Commission, as to the needs of the Bingo 
 4	industry in Texas.
 5		There have been many, many good 

 6	recommendations that have come out from Bingo 
 7	Advisory meetings, and from other meetings with 
 8	industry throughout the state of Texas.
 9		I think we were all very sadly 
10	disappointed and discouraged that none of these 
11	items -- and those are the ten items that were 

12	included in the Bingo Advisory Committee report.  
13	There were a nineteen-item list that I think most 
14	organizations in the state of Texas agree they 
15	would love to see that would be helpful to Bingo.  
16	That will increase attendance at the Bingo halls.
17		If we increase donations, Bingo 

18	expenses are fixed just as the Lottery expenses are 
19	fixed.  You can't get rid of your payroll.  You 
20	need to rent your building.  You've got to pay your 
21	electric bill.  The expenses are fixed.  The 
22	difference with how much money the Lottery makes is 
23	how much -- how many Lottery tickets you sell.  How 
24	much do people spend on the scratch-offs.  Bingo is 
25	the same type of business.

00078
 1		We can't -- we've got expenses.  If 
 2	we can get the attendance up, we can get more 
 3	interest in Bingo.  The expenses remain the same.  
 4	Your distribution will go up.  The 2500 remains the 
 5	same whether we gross 4,000 in a session or whether 
 6	we gross 5,000 in a session.  We're still going to 
 7	pay out $2500.  We're still going to have to pay 
 8	the same employees.  We're still going to have pay 
 9	for the facility to somebody somewhere.  And we're 
10	still going to have to pay the employees.  We're 

11	still going to have to put toilet paper in the 
12	bathrooms.  The expenses are fixed.
13		What we need is to increase 
14	attendance.  What we desperately need is help with 
15	increasing the attendance.  Everything from 
16	advertising, to all of those items, would make 

17	Bingo a more viable industry in Texas.  Without 
18	that, we are dying on the vine.  Telling us to 
19	increase in distribution without increasing our 
20	gross is never, never going to work.  

21		One other point I would like to make.  
22	I was also very discouraged, and maybe because I do 
23	put so much time into this, that this Staff Report, 
24	which was available yesterday and was completed 
25	yesterday, was not given to any of the BAC members 

00079
 1	to review, that we didn't receive it until this 
 2	morning.
 3		It seems -- I mean, I find that 
 4	particularly offensive that we spend the time, we 
 5	really truly care about the industry, but the staff 
 6	didn't talk to any of us, you know, to try and get 
 7	any input from us before preparing the report.
 8		And I do feel that as many members do 
 9	that we're at cross-purposes with the staff.  And 
10	this is the things that make us feel useless and 
11	ineffective.  And those are some of the quotes that 
12	BAC members have said.  And this is the things that 
13	make us feel that we are useless and ineffective.
14		And, obviously, our report is 

15	completely contradictory to every single item 
16	that's included in this report.  You know, for 
17	every item we rejected, there's an item in this 
18	report saying it's accepted.

19		So once again, why are we meeting if 
20	the report is put together without any input from 
21	us?  I thought we were working with the staff as a 

22	partner, but with this, obviously, that's not true.  
23		MS. KIPLIN:  I need to interrupt 
24	right now and say that it's my understanding that 
25	you're here in your individual capacity -- 

00080
 1		MS. TAYLOR:  I am.
 2		MS. KIPLIN:  -- and not as a member 
 3	of the Bingo Advisory Committee?  
 4		MS. TAYLOR:  That is correct.  
 5		MS. KIPLIN:  And the reason that I'm 
 6	asking you that is because I'm counting heads and I 
 7	see a quorum of the Bingo Advisory Committee here, 
 8	and that is problematic, regrettably, with the Open 
 9	Meetings Act.  So I just want to make sure, for the 
10	record, since we've already got that part of the 
11	Sunset Staff Report in terms of Open Meetings 
12	issues that you are here in your individual 
13	capacity.  
14		MS. TAYLOR:  Right.  And I did state 
15	that at the beginning of my testimony.  These are 
16	my opinions.  
17		CHAIRMAN CLOWE:  Good.  Thank you.  
18		MS. TAYLOR:  Could I answer any 
19	questions for you? 
20		COMMISSIONER COX:  No.  
21		MS. TAYLOR:  Thank you for your time, 
22	and truly, we do appreciate your concern and hope 
23	that we can get you to see the light.  Thank you.

24		(Applause) 
25		CHAIRMAN CLOWE:  Fred Michio, is it, 

00081
 1	in support of the BAC recommendation on item 4.1.  
 2	Good morning.
 3		MR. MICHIO:  Good morning.  Actually, 
 4	I want to speak on four, five and seven.  

 5		CHAIRMAN CLOWE:  All right.  
 6		MR. MICHIO:  And we'll start with 
 7	four.  My name is Fred Michio.  I've been in and 

 8	around Bingo for about fifty years.  For the past 
 9	three years, I've been Bingo Chairman of the 
10	American Legion, Department of Texas.  I've been 
11	president of American Legion.  
12		CHAIRMAN CLOWE:  Just back up just a 
13	little.
14		MR. MICHIO:  Okay.  I've been past 
15	commander of American Legion, past commander of 

16	Veterans of Foreign Wars.
17		I'm looking at this four over here 
18	and it's really got me disturbed there where they 
19	talk about charity can't do this, they can't do 
20	that, they'll go out of business.  I'm positive 

21	that most of you people know that American Legion, 
22	the Veterans of Foreign Wars, we are where we are 
23	today with thousands of post homes across the 
24	country because of Bingo.  We made Bingo what it is 
25	in this country.

00082
 1		Without Bingo, we wouldn't never have 
 2	American Legion posts, we wouldn't have VFW's 
 3	because there's no way we could have raised the 
 4	kind of money we raise now.
 5		Here you're telling us that we can 

 6	make certain amount of money, to pay out certain 
 7	amount of money, go out of business, we've had 
 8	weeks, we've had months, sometimes, that we don't 
 9	make a dime, but we've always managed to come back 
10	up and get going and make money.  Why?  Because we 
11	know how to run our Bingo business.  We don't need 

12	people that don't know anything about Bingo telling 
13	us how to run our Bingo business.  
14		Let us run our Bingo business the way 
15	we want.  Get all these rules off our back.  Let us 
16	do what we know how to do best.  Let us make money.  
17	Take care of our veterans, take care of our 
18	veterans' families, our children that are sitting 

19	in these homes with no place to go.  We need this 
20	money.  I guess I get carried away on this but 
21	you'll forgive me if I get carried away.  
22		CHAIRMAN CLOWE:  Do you have any 
23	specific points you want to make with us?
24		MR. MICHIO:  Specific point is, 
25	instead of coming up with all these rules, let's 

00083
 1	find a way to bring more money into the Bingo 
 2	halls.  
 3		CHAIRMAN CLOWE:  Okay.  I think --  
 4		MR. MICHIO:  We come up here a couple 
 5	of years ago and we were going to advertise Bingo.  
 6	A certain amount of money was going to be put into 
 7	a fund to advertise Bingo around the state.  We 
 8	have one deal come up where they put billboards 
 9	around the state that lasted for about a week and 
10	that was the end of it.  We just want to know --
11		CHAIRMAN CLOWE:  I think we 
12	understand.  I think we understand.  I'm going to 
13	interrupt you and say, I think we understand your 
14	point and we have quite a bit of witness testimony 
15	yet to hear.  Would you have anything else specific 
16	for us to hear?
17		MR. MICHIO:  This pretty well covers 
18	up this point.  I just wanted to get that point in 
19	but I would also like to comment on five, the 
20	commercial lessors.  I have worn both hats.  I have 
21	been a commercial lessor.  As a matter of fact, I 
22	still am.  I have a little hall in Baytown, Texas.
23		Everybody keeps saying about 
24	commercial lessors.  You know, commercial lessors, 
25	we're supposed to pay 3 percent of the rent that we 

00084
 1	collect.  Do you know what I paid this last 
 2	quarter?  Zero.  That's what I collected in rents.  
 3	For the last five months, that's what I collected 
 4	in rents.  Do you know why?  Because I've got 

 5	charities that I've been with for ten, fifteen 
 6	years that I love and I love working with them.
 7			City wide clubs, I don't know if 

 8	you've heard of them.  Every year we feed thousands 
 9	and thousands of people  Thanksgiving and Christmas 
10	dinners.  Money that comes from my Bingo hall.

11			I skip the rents so they can pay 
12	their bills.  I skip the rent so they can take 

13	money at the end of the quarter even though they're 
14	not entitled to a distribution.
15			Why do people want to keep on betting 
16	on commercial lessors?  I know at least four other 
17	commercial lessors in the Houston area that do the 
18	same thing.
19			Where would all these charities go 
20	and play Bingo if they close the commercial lessors 
21	down.  Has anybody ever asked that question?  Where 
22	would all these charities go?  You've go four 
23	hundred and some odd thousand commercial -- four 
24	hundred and how many commercial lessors do we have?  
25	There are over four hundred commercial lessors, and 

00085
 1	for an average say four charities in all -- 
 2		CHAIRMAN CLOWE:  I'm going to have to 
 3	ask you to conclude now, if I may.  I think you've 
 4	made your points and we have others we must hear 
 5	from.
 6		MR. MICHIO:  I have just one more 
 7	comment and I'll get up.  There's been bad-mouthing 
 8	of the Bingo Advisory Committee.  I was one of the 
 9	original people that pushed to get the Bingo 

10	Advisory people going.  And I came up here for 
11	years and years and years, never missed a Bingo 

12	Advisory meeting.  And it got to the point to where 
13	it seemed like all we was getting is lip service 
14	and I got tired and I stopped coming.
15		I think the people that we've got 

16	there are doing a good job if they can get the 
17	stuff done that they say they bring up.  Thank you 
18	very much.  Anybody have any questions, I'll be 
19	glad to answer them? 
20		CHAIRMAN CLOWE:  Thank you very much.
21		MR. MICHIO:  Thank you.  
22	Commissioner, I di send you a letter not too long 
23	ago of a rule change that was being proposed.  I 
24	wanted to get some comments from you.  I thought 
25	you would submit a plan on it. 

00086
 1		CHAIRMAN CLOWE:  Let's talk at 
 2	another time.  We're on a agenda here and we want 
 3	to stay on it, please.
 4		Debra Ross does not wish to testify 
 5	but supports the BAC position.  Jim Long supports 
 6	the BAC position and does not wish to testify.  
 7	Stephen Fenoglio.  I believe you do wish to 
 8	testify.  Good morning.
 9		MR. FENOGLIO:  Good morning, 

10	Mr. Chairman and Members of the Commission.  Yes, I 
11	do wish to testify.
12		I represent over 950 organizations, 
13	some of whom conduct Bingo currently.  Many of whom 
14	did but have gone out of the Bingo business because 
15	of the systemic decline in Bingo.  
16		We -- and you've heard me speak, 

17	Mr. Chairman, and some of the organizations I 
18	represent are not always trying to bash people.  
19	And one of the recommendations in the commission 
20	recommendation 4.1 -- I'm sorry, 4.2 clarifying 
21	charitable purpose is something that we've asked 

22	for, as you know, and we're glad to see that in the 
23	report.  We're glad to see the staff supports that.  
24		There are a number of other issues 

25	and I'm not going to cover all of those issues in 

00087
 1	the BAC report that my clients support and my 
 2	clients support the entirety of the BAC report.  
 3	But there are some revenue enhancements at the very 
 4	end that we think would give a needed boost to 
 5	Bingo, and we endorse all of those recommendations.
 6		Bingo has been on a slow and downward 
 7	spiral, and unless there's new revenue brought in 

 8	to Bingo, ultimately it will pass out of existence.  
 9	And we think those positive recommendations will 
10	help.
11		And some of those positive 
12	recommendations, as you may know, Mr. Chair, and 

13	others, are some of the recommendations that staff 
14	brought forward in the last session.
15		For example, the progressive Bingo 
16	bill and there's a limit on a cap in the 
17	recommendation.
18		But to the big issue, this 4.1, the 
19	charitable distribution formula, I believe 70 to 

20	80 percent of the licensed charities will be out of 
21	business if that recommendation is adopted.
22		I think the testimony at the BAC 
23	yesterday was between 50 and 80 percent.  We have 
24	started crunching numbers and we have ask people 

25	like David Hineman, who will follow me at some 

00088
 1	point today, who does bookkeeping for sixty some 
 2	charities; some of the same charities that I 
 3	represent, we've asked K&B Sales, one of the larger 
 4	distributors of Bingo products to crunch numbers; 
 5	numbers that come from the commission's reported 
 6	quarterly reports.
 7		And what we've seen in the -- for 
 8	example, we've done McLennan County.  If my 
 9	memory's correct, there are 26 charities conducting 
10	Bingo.  Using the formula that they've recommended, 
11	eighteen of those charities are out of business, 
12	period.  End of sentence.
13		It's a devastating recommendation and 
14	it's a recommendation that we think, while it may 
15	be done in good spirit, it's always nice to say, 
16	well, if we pass a new rule or a new statute, only 
17	good will come from it.
18		But what the inherent recommendation 
19	is, is that they only allow one expense category, 
20	that being prizes, which is the largest category of 
21	expense a charity incurs, it's about 70 percent, 

22	and that's in the Commission report, is paid in 
23	prizes.
24		And then after that number, you 
25	calculate the, quote, profit in the form of a 

00089
 1	charitable distribution, it would be your gross 
 2	receipts, total Bingo gross receipts, less prizes.  
 3	And then whatever that number is, you pay 25 
 4	percent on.
 5		You ignore any expenses a charity 
 6	conducts.  That would be tantamount to the IRS 
 7	deciding that, well, you can, as a business person, 
 8	and I am a business person and I know you-all are 
 9	too, you can deduct only 70 percent of your 

10	expenses, then we're going to calculate your 
11	minimum income tax at 25 percent.  That's crazy.  
12	However laudable the goal is, it's crazy.  It 
13	ignores reality.
14		We've tried to compare the Bingo 

15	industry to other industries and, for example, 
16	Harris Casino operates on a margin, for the last 
17	three years, of 4 percent.  Using the BAC's own 
18	report, and I believe it's found on page 31.  

19	Bingo operates on 6.1 percent profit margin, if you 
20	consider profit the charitable distributions that 
21	charities operate.
22		Now, Harris has revenue for those 

23	three years of ten billion dollars and they're 
24	operating on a 4 percent return.  They're in the 
25	gambling business.  So is Bingo.

00090
 1		If you wanted to compare Dell 
 2	Computer at 6 percent return.  Wal-Mart at about 
 3	3 percent return.  The reality is, yes, there's not 
 4	enough charitable distribution, but the reality is 
 5	it's not a bad, quote, investment.
 6		If you then turn and look at well, 
 7	if 70 percent of the charities are out of business, 
 8	34.3 million were distributed in charitable 
 9	distributions in the calendar year 2001, and that 
10	comes from page 31, then you've eliminated 21 
11	million dollars in charitable distributions.
12		If you have a multiplier effect to 
13	that, and depending on which economist you use, the 
14	multiplier effect to that would be the three up to 
15	15 times, or the Laffer, the Laffer curve that 
16	resulted in the Reagan tax cut in 1983, multiplier  
17	effect was 15 times, take a middle range of seven.  
18	That's 144 million dollars that's going to be a 
19	positive effect on the economy, just on the 
20	charitable distributions.  
21		There are employees that will be laid 
22	off.  What those multiplier effects are, real jobs 
23	will be lost, three to 6,000.  We're not sure.  But 
24	the thing's bad.  Bad things will happen if that 
25	recommendation is adopted.  

00091
 1		There's been some discussion about, 
 2	and I believe Ms. Whitaker had asked the question.  
 3	Well, what is the effect of a real hall?  And I 
 4	brought with me, if I may, and I'll get other 

 5	copies made.  From River City Bingo in Austin, 
 6	Texas, if this recommendation -- single 
 7	recommendation were adopted, River City Bingo is a 
 8	pure charity-run hall.  There is no grandfathered 
 9	commercial lessor.
10		I happen to have been one of the 

11	board chairs of one of the charities here in Austin 
12	at I-35 and Braker Lane when we eliminated our 
13	grandfathered commercial lessor in the late 
14	eighties and started our own hall.  And we did it 
15	because the previous regulatory agency and us, 

16	eliminated the grandfathered commercial lessor 
17	because, quite frankly, they were stealing from us.  
18	So we created this charity-run hall.  It is the 

19	model that the staff uses to say, this is what 
20	Bingo ought to be about.
21		I helped create the organizational 
22	structure at a time when we were getting about 

23	2,000 per charity, per month; five charities, ten 
24	thousand a month.  Basically, all we did was show 
25	up with a check.  We became convinced the lessor 

00092
 1	was stealing from us and was keeping at least three 
 2	sets of books.  So we went off and formed our own 
 3	charitable-run organization.
 4		This charity -- only one of the 
 5	charities, by the way, would be left in business 

 6	with the 25 percent.  They conduct three times a 
 7	week.  Ask yourself if the rest of the four 
 8	charities are out of business, if one charity can 
 9	stay in business conducting Bingo three days a 
10	week.  They won't.  You can't justify the rental 
11	expense.
12		And, again, we don't have, 
13	Ms. Whitaker, a grandfathered commercial lessor.  
14	Never have, since we started our own hall.
15		It was a unique time when we were 
16	able to start our own hall.  It was in the late 
17	'80s, and some of you here, and I know Mr. Clowe 
18	was, that was in the real estate bust.  You had 

19	see-through buildings in Dallas, in Austin, in San 
20	Antonio and Houston.
21		The strip center that we located to 
22	had been vacant for a year and a half.  No tenant.  
23	They were desperate for a tenant.  We came in.   

24	Three of the five charities have a very strong 
25	financial background.  They are charities that are 

00093
 1	million dollar plus gross revenues a year, even not 
 2	including Bingo revenue.  And so they were able to 
 3	muster the intellectual talent and the time it took 
 4	to start a new hall.
 5		The commercial lessor of the strip 

 6	center, not a licensee, was desperate for anyone, 
 7	which is a third of the rent of the space, he did 
 8	not require any sort of personal guarantee.  We 

 9	signed a two-year contract.  And we were off and 
10	running.
11		And then after about four months, we 
12	were, quote, making money, turning a profit.  And 
13	we've never looked back.  
14		That type of unique circumstance is 
15	probably never to be repeated again in light of the 
16	debacle of the real estate industry where you had 
17	passive laws which controlled whether you invested 
18	in real estate or not and those were taken away, as 
19	you know, in the '86 tax reform.
20		So that my point on that is, if you 
21	adopt this recommendation and staff supports it, if 
22	you adopt this recommendation, the model hall that 
23	everyone takes, and, Mr. Chairman, when the staff 
24	took you to a hall to look at a hall, what a hall 
25	should look like, you came to River City Bingo.  

00094
 1	That hall is gone.  Who's left?  We're still 
 2	running the numbers.  But one of the halls we do 
 3	know is a nasty grandfathered commercial lessor 
 4	hall in South Texas.

 5		It can survive this 25 percent rule, 
 6	and we know that because we've looked at the 
 7	numbers on that hall.  So it's a perverse logic, 

 8	that if you adopt the 25 percent rule, everything 
 9	is rosy.  It's not.
10		And recommendation five is to 
11	eliminate the grandfathered commercial lessor, and 
12	we know that at least one grandfathered commercial 
13	lessor hall that stays in place under the 25 
14	percent rule.
15		And that goes to the next issue on 
16	recommendation five.  Elimination of the 
17	grandfathered commercial lessor.  And I represent a 
18	number of grandfathered commercial lessor halls.  
19	They bring to the table money and talent.
20		There was testimony yesterday that a 
21	new hall was opened, not by a grandfathered 
22	commercial lessor, a new hall in the Dallas area.  
23	It incurred $250,000 in start-up costs.  That 

24	includes lease contracts, finish out, all the 
25	tables and chairs in a Bingo hall.

00095
 1		What charities are going to be able 
 2	to do that?  Not many.
 3		The five charities at River City, we 
 4	did that and the lessor will work with us because 
 5	of those dire rental conditions.
 6		Another hall, the testimony 
 7	yesterday, it's $450,000, a large hall in South 
 8	Texas, start-up cost.  What charities are going to 
 9	want to invest that type of risk to make that  

10	investment?  I would submit to you, not many.  None 
11	of the American Legions, a very few of the American 
12	Legions would do.  None of the VFW's that I 
13	represent could do that.  They could run a hall in 
14	their own post, yes; thirty people, perhaps; fifty 
15	people, perhaps, but not a large commercial hall.  
16		CHAIRMAN CLOWE:  I'm going to ask you 
17	to be mindful of those who want to testify and have 
18	yet to come --  
19		MR. FENOGLIO:  And I'm about to 
20	conclude.  
21		The other issue or the other 
22	regulatory issues that are found in this report.  I 
23	don't think Bingo is benefited by more regulation.
24		When an industry is on its knees is 
25	not the time to add new expense regulation and so 

00096
 1	we would support the BAC recommendations as those 
 2	relate primarily in items six and ten.  
 3		It's interesting that the staff 

 4	couldn't answer the question on impact of the 
 5	temporary suspension with authority under item 6.2, 
 6	I believe it is, but what effect would that have 
 7	could another charity substitute in.  We don't 
 8	oppose making charities pay their taxes, their 
 9	tribute to the state, if you will.  My clients do.  
10	We want everyone to pay, but don't hurt a 
11	particular hall.
12		You know, I thought it was in the 

13	mid-'90s when I read the report recommendation on 
14	6.3, and I was reminded of Bill Clinton's infamous 
15	response, it depends on what your definition of 
16	"is" is.
17		When you read 6.3 and you recognize 
18	that the Bingo Division, Security Division can't 

19	agree on what a complaint is for tracking purposes, 
20	and that was one of the reasons the BAC 
21	recommended.  There's a lot of housekeeping that 

22	needs to be done here at this commission and we 
23	would encourage you to get on with it.
24		I think, in summary, issue ten is an 
25	indictment, in effect, of the charitable Bingo 

00097
 1	Division, and when you look at their 
 2	recommendations, which staff has agreed to, they 
 3	are telling the Commission, and by that extension, 
 4	if the report is released to Legislature, to the 
 5	public, that the Lottery Commission Charitable 
 6	Bingo Division needs to get its act together and 
 7	the staff agreed.  I'll be happy to answer any 
 8	questions.  
 9		COMMISSIONER WHITAKER:  May I ask 
10	some questions about this exhibit that you gave me?  
11		MR. FENOGLIO:  Sure.  
12		COMMISSIONER WHITAKER:  If we start 
13	with the million dollar figure -- 
14		MR. FENOGLIO:  Yes, ma'am.  
15		COMMISSIONER WHITAKER:  -- and 
16	subtract out the total lease payments of 180 -- 
17		MR. FENOGLIO:  Yes.  
18		COMMISSIONER WHITAKER:  -- and then 

19	the other typical expenses, you're still left with 
20	about $750,000.  
21		MR. FENOGLIO:  Yes.  
22		COMMISSIONER WHITAKER:  Of which 

23	250,000 would be the mandatory distribution, 
24	leaving a half a million obtained with no 

25	attribution to any expense category.  Why?

00098
 1		MR. FENOGLIO:  I was trying to show 
 2	you the immediate impact on those five charities if 
 3	the report were -- or if the recommendation were 
 4	adopted.
 5		All of these numbers from the 

 6	quarterly report that's available for public 
 7	inspection, other than the other typical lessor 
 8	expenses that Ms. Taylor had indicated, which I 

 9	indicated in writing, you don't have, for example, 
10	rental, electronic rental of card-minders.
11		And we audit our financial reports at 
12	River City.  They're audited by a CPA.  We consider 
13	that confidential information.  But as an example 
14	of the type of costs that are occurring, electronic 
15	rental, we paid $115,000 in calendar year 01.  It's 
16	a huge expense.  We don't think it ought to be that 
17	high but we negotiated what we thought was a very 
18	good rate.  We were told in the industry that it's 
19	a very good rate so it doesn't include those type 
20	of expenses.  It doesn't include even labor 
21	expense, any insurance expense that we purchased.  
22	It doesn't include advertising, accounting, legal 
23	fees.  And I'm happy to say for 2001, they incurred 
24	no legal fees.  I volunteer all of my time for 
25	those five charities.

00099
 1		Bank charges.  What else?  Quarterly 
 2	taxes of the lessor, storage cost, supplies on 

 3	cards, supplies on Instant Bingo.  That's about 
 4	$75,000.
 5		Our payroll gross was $280,000 in 
 6	that year.  We run a 3.5 million dollar business.  
 7	We're not going to be able to run that with 
 8	volunteers.  So just the gross payroll, that does 
 9	include FICA and all the rest.  Medicare, etc., was 
10	$280,000.  So --  
11		COMMISSIONER WHITAKER:  Well, let 
12	me ask -- 
13		MR. FENOGLIO:  And I didn't try and 
14	identify all of those expenses.  I was just trying 
15	to make the point, that the 25 percent 
16	recommendation sounds great but we're out of 
17	business.  And I don't think anyone with the 
18	Commission has ever suggested that River City Bingo 
19	is not the model.  As a matter of fact, everything 
20	I've ever heard is River City Bingo charities are 
21	the model.  
22		COMMISSIONER WHITAKER:  What is your 
23	response to the statements in the Sunset Report 
24	about charities that had not been required to make 
25	distribution over a year, or even two years, 

00100
 1	despite having multimillion dollars of receipts?  
 2		MR. FENOGLIO:  Two days after I got 
 3	the report, I filed an Open Records request with 

 4	the Sunset Advisory Commission because I wanted to 
 5	see those numbers.  It offends me.  I mean, 
 6	superficially, how many charities are we talking 

 7	about.  Realistically, a handful of the 1500 that 
 8	are licensed.  
 9		COMMISSIONER WHITAKER:  What offends 
10	you, that they would make the analysis or that 
11	charities were not making distribution. 
12		MR. FENOGLIO:  It actually offends me 
13	on two levels.  One, that they're taking some 
14	anecdotal information, and I've not gotten the 
15	information.  I want to know who the charities are, 
16	because we can then go to the quarterly reports and 
17	look at their expenses.  Are they being, quote, 

18	cheated, and if so, by whom?  On that level, it 
19	offends me, that some charities cannot make it.
20		But it also offends me that this 

21	suggestion that paying all of the charities as bad 
22	when it's really a handful, effectively, a handful 
23	of charities, over the 1500 that are licensed.
24		And the other thing that's offensive 
25	is, you know, you can -- if you pick the number or 

00101
 1	pick the year, the data you use, it can be very 
 2	challenging.  If you choose just one calendar year 
 3	to draw conclusions from, that can be extremely 
 4	misleading.
 5		In the case of Harris, their 
 6	published reports at the SCC, they lost money in 
 7	fiscal year double 0; 2000.
 8		Well, if you just looked at that as a 
 9	board chair, that was all you looked at -- and 
10	every business is going to lose money at some 
11	point.  If you look at that, and that alone, you 
12	would say, we think Harris needs to go out of 
13	business.
14		Wal-Mart has occasionally lost money.  
15	It is still, however, the largest retailer in the 
16	universe and will remain so.  And it's a very 
17	viable business entity, but there are times when it 
18	loses money.  No question about it.  
19		COMMISSIONER WHITAKER:  So you would 
20	want to look at which ones are consistently not 
21	reporting --
22		MR. FENOGLIO:  Yes.
23		COMMISSIONER WHITAKER:  -- 
24	distributions over more than one year to --  
25		MR. FENOGLIO:  And I take -- yes, 

00102
 1	ma'am.  Yes, Ms. --
 2		COMMISSIONER WHITAKER:  Whitaker.
 3		MR. FENOGLIO:  -- Whitaker.  But also 
 4	when Bingo is on a downward decline, it can be very 
 5	misleading to just pull out one year and say, well, 
 6	this is -- suggests that that is  representative of 
 7	the industry.  You may want to go with a three-year 
 8	rolling average.
 9		And we're going to present more of 

10	this testimony at the Sunset Advisory process that 
11	Chairman Clowe alluded to.  But, yeah, it's a 
12	problem.  No question about it.
13		COMMISSIONER WHITAKER:  Likewise, 

14	would you comment on the comparison between the 
15	distribution rates in Texas versus other states and 
16	the fact that we are below the average.  
17		MR. FENOGLIO:  We've asked for that 
18	same data and we have yet to receive it, Ms. 
19	Whitaker.  I think it's comparing a horsefly with 
20	an elephant.  
21		COMMISSIONER WHITAKER:  How long did 
22	you think of that analogy?
23		MR. FENOGLIO:  I just did.  I mean, 
24	you know, come on.  Do you think for a moment, and 
25	anecdotally, and I think Mr. Whittington will 

00103
 1	address that issue.  He called some of the states 
 2	that are listed on page 32, and those, according to 
 3	him, and it's anecdotal, at this point, because we 
 4	don't have the data, that's actually not 
 5	representative any longer.  They've changed it.

 6		I cannot believe that New Jersey 
 7	distributes 90 percent the same type of formula.  
 8	If they do, they want -- and, for example -- and 
 9	it's curious that Minnesota isn't listed here.  
10	Minnesota sells pull tabs at bars.  

11		COMMISSIONER WHITAKER:  Yes, it is.  
12	29.47.  
13		MR. FENOGLIO:  Okay.  Minnesota sells 
14	pull tabs at bars.  There's no salary expense 
15	associated with that.  So -- and we can't, by law, 
16	sell pull tabs at bars.  We wish we could, the 
17	convenient stores, that would compete against 
18	another revenue source for the state.
19		But my point on that is, you know, if 
20	you just look at some generic numbers and try and 
21	draw a conclusion without looking at, well, what's 
22	going on in those states; it may be totally 
23	misleading.
24		I don't, for example, know how big 
25	Bingo is in Arizona.  My sense is it's not going to 

00104
 1	be very big.  Why?  It's a small state.  Population 
 2	is less than six million, I would guess.  We're at 
 3	33 million.  Number two, there are a lot of Indian 
 4	reservations out there that have full-size casino 

 5	gambling.  So, you know, do you want to compare 
 6	Arizona to Texas, I mean --   
 7		COMMISSIONER WHITAKER:  In other 
 8	words, you're saying you think it's apples and 

 9	oranges but you don't have facts, at this point in 
10	time, to support that view for us?
11		MR. FENOGLIO:  First time I saw this 
12	was, I guess a week ago Tuesday.  And, again, 

13	within two business days we were filing an Open 
14	Records request.  
15		COMMISSIONER WHITAKER:  Do you 
16	represent lessors as well as charities?  
17		MR. FENOGLIO:  Yes.  
18		COMMISSIONER WHITAKER:  Do you 
19	represent grandfathered lessors?  

20		MR. FENOGLIO:  Yes.  
21		COMMISSIONER WHITAKER:  And on issue 
22	five, which is the issue regarding grandfathered 
23	lessors.  I'm not sure I see a connection between 
24	the comments of the BAC and the issue of, do you?  

25		MR. FENOGLIO:  If you'll give me just 

00105
 1	a moment.  I did not read this morning the comments 
 2	of the BAC.  I sat through the discussion.  
 3		COMMISSIONER WHITAKER:  Okay.  That's 
 4	all right.  You don't have to do it.  I'll --   
 5		MR. FENOGLIO:  Well, and I'm 
 6	ask-ended.  I can't tell you.
 7		COMMISSIONER WHITAKER:  Oh, are you?  
 8		MR. FENOGLIO:  It goes to the comment 
 9	that I made earlier.  You have to have a lot of 

10	time and financial capital to start a commercial 
11	hall.
12		And, again, one of the testimony 
13	yesterday, not a grandfathered commercial hall, 

14	it's a tier hall, if you will, and that's reflected 
15	-- the difference between a grandfathered lessor 

16	and a tier, what we in the industry call a tier 
17	hall, is reflected on top of page 39 of the BAC 
18	report.

19		So this entity, this individual, and 
20	he happens to be in the room, is not a 
21	grandfathered lessor, but he's going to start a 

22	hall in the Dallas area.  It cost him 250,000 to 
23	get it up and running before he collects any rent.  
24	How many charities are willing to risk that type of 
25	investment?  And I would submit to you, not many.

00106
 1		In the case of one of my clients 
 2	-- and that gentleman is not my client.  In the 

 3	case of one of my grandfathered commercial lessor, 
 4	they started a new hall in South Texas, they're a 
 5	publicly traded commercial lessor company 
 6	headquarted here in Austin, Texas.  They incurred 
 7	about $450,000 to start a hall.
 8		You know, and, again, looking at the 

 9	analogy with the River City Bingo, where, you know, 
10	it was a wonderful opportunity for us to go out on 
11	our own because we had a landlord who was begging 
12	for anyone to come in and sign --  
13		CHAIRMAN CLOWE:  I think you've made 
14	that point.  
15		MR. FENOGLIO:  So, I mean, that's the 
16	rationale.  
17		CHAIRMAN CLOWE:  I don't want to cut 
18	you off but --  
19		MR. FENOGLIO:  Sure.  But that's the 
20	rationale.
21		CHAIRMAN CLOWE:  Thank you, 
22	Mr. Fenoglio. 
23		COMMISSIONER WHITAKER:  Thank you.
24		MR. FENOGLIO:  Thank you.
25		CHAIRMAN CLOWE:  I'm going to have to 

00107
 1	ask you again -- 
 2		COMMISSIONER COX:  May I ask --
 3		CHAIRMAN CLOWE:  Certainly.
 4		COMMISSIONER COX:   Mr. Fenoglio, the 
 5	proposal of the Sunset staff, as I understand it, 
 6	would in effect put the distribution charity on the 
 7	same kind of basis as the gross wind taxes that 

 8	Harris pays in various jurisdictions in which it 
 9	operates.
10		Those taxes are assessed on Harris 
11	without regard to their profitability, they're 
12	assessed as a percentage of gross wind, perhaps 
13	less uncollectible receivables, and they're 

14	generally assessed at the rate of 7 to 10 percent.
15		Is your objection to the proposal by 
16	the Sunset staff to the concept of a gross winds 
17	tax, if you will, which is what they're proposing, 
18	or is it an objection to the rate that they're 
19	proposing, the 25 percent?  
20		MR. FENOGLIO:  I met with the Sunset 

21	Advisory Commission staff Friday to go over some of 
22	my requests and they asked me that question, and I 
23	don't know yet, Mr. Cox, because we're still trying 
24	to get our arms around the recommendation and 
25	people are still on the ceiling trying to come down 

00108
 1	and looking at the reality.  And that's a fair 
 2	question.  I'm not prepared to answer it today.
 3		I will say, however, with that 

 4	analogy, if you don't know, and I know you haven't 
 5	been on the commission long, although your 
 6	reputation is you're a quick study.  Charities are 
 7	paying about 8 percent tax to the state.
 8		There's a 5 percent prize fee on 
 9	Bingo and there's a 3 percent rental fee.  From a 
10	macroeconomic approach, every charity is paying 

11	that 3 percent rental fee and they don't pay it 
12	directly, but indirectly.  So they're already 

13	paying 8 percent and those are some of the costs 
14	that River City Bingo has.
15		So it's a fair question.  There may 
16	be a better way to, quote, skin the cat.  And I 
17	will agree when they ask me with the Sunset 

18	Advisory, and there were five of them there, 
19	including Joey Longly, the head of the agency.

20		You know, we don't understand the 35 
21	percent distribution formula and I certainly didn't 
22	the first eighteen times I went through it.  I now 
23	understand it.  And there are certainly people, 
24	Mr. Sanderson, who can explain it, ad nauseum.  No 
25	offense, but he's pretty sharp with numbers.  David 

00109
 1	Hineman can.  It's a very complicated formula.
 2		I'm not saying you wouldn't 
 3	necessarily want to move away from that formula but 
 4	certainly the 25 percent level, I think is 

 5	beyond Draconian.  Let my people go free. 
 6		CHAIRMAN CLOWE:  Thank you, 
 7	Mr. Fenoglio.  
 8		(Applause)

 9		CHAIRMAN CLOWE:  We're going to have 
10	to ask again that as we call to please come up, 
11	that you try to be brief and precise.  We're 

12	covering a lot of good ground here, a lot of 
13	information.  We want to take everything that is 
14	needing to be put before the Commission, but we 

15	want to avoid redundancy.  So let's do the best we 
16	can in respect for everyone that wants to have 
17	something to say.
18		Having said that, I think we need to 
19	have a short recess, about ten minutes, and we'll 
20	come right back and call David Hineman as our first 
21	witness.	  
22		(Recess 10:40 to 10:55.)
23		CHAIRMAN CLOWE:  We are coming back 
24	to order and ask David Hineman to come up, please.  
25	Good morning.  

00110
 1		MR. HINEMAN:  Good morning, sir.  I'm 
 2	David Hineman from General Management, accounts for 
 3	about forty different charities.
 4		I thank you, Chairman Clowe, for 
 5	seeing us and being here to hear our testimony, and 
 6	Commissioner Whitaker and Commissioner Cox.  All 
 7	three of you here.
 8		I wanted to start off, but I don't 
 9	think everybody's here.  I had been asked, so that 
10	we can maybe reduce the amount of testimony, a 
11	number of the public have ask that I represent them 
12	and I was going to ask them to stand so that they 
13	could be recognized as -- 
14		CHAIRMAN CLOWE:  All right.  Let me 
15	go through the witness forms while we're waiting 

16	for them to come back in and maybe we can get to 
17	that point and save some time.  And I will, in the
18	interim period, read those appearances where 

19	individuals have indicated they do not wish to 
20	appear and we'll get those in the record.

21		Jimmy Vann supports the BAC 
22	recommendation and does not wish to testify.  Lee 
23	Davis wishes to support the BAC recommendation and 
24	does not wish to testify.
25		Philip Looney supports Bingo Advisory 

00111
 1	Committee decisions and does not wish to testify.  
 2	Darlene Mayford supports the BAC position and does 
 3	not wish to testify.  Lisa Alford, A-l-f-o-r-d, 

 4	supports the BAC position and does not wish to 
 5	testify.
 6		Clint Sparks supports theBAC 
 7	recommendations regarding the Sunset Staff Report 
 8	and does not wish to testify.  Rene Tucker supports 
 9	the BAC Sunset position and does not wish to 
10	testify.
11		Danny Hayes supports the Sunset staff 
12	position by the BAC and does not wish to testify.  
13	Daisy Gillams, I believe it is, supports the BAC 
14	recommendation on the Sunset Staff Report, I 
15	believe I'm correct in this, and does not wish to 
16	testify.
17		Sharon Ives supports the BAC 
18	recommendations on the Sunset Staff Report and does 
19	not wish to testify.  Bill Pruitt rejects the 
20	Sunset staff report as to Bingo 25 percent rule  of 
21	elimination of grandfathered commercial lessors and 
22	does not wish to testify.  Delores Oelfke, 
23	O-e-l-f-k-e, supports the BAC report as it relates 
24	to the Sunset Report and does not wish to testify.  
25	B-r, I believe it's r-a-h-m, wants to accept the 

00112
 1	BAC's views on Sunset Staff Report, wishes to 
 2	support the BAC and does not wish to testify.

 3		All right.  I think those are all of 
 4	the indications I can see from these forms who do 
 5	not wish to testify.
 6		And, Mr. Hineman, I'll ask if your 
 7	group has come back in?  
 8		MR. HINEMAN:  Well, hopefully they 
 9	have.  So let me say then that on behalf of a 
10	number of individuals, they would like me to 

11	testify for them that we support the Bingo Advisory 
12	Committee recommendations that have been made here 
13	by Chairman Virginia Brackett.  And so would those 
14	individuals stand that have asked me to testify for 
15	them?  All right.  Thank you.  So those also 
16	recommend that we accept the Bingo Advisory 
17	Committee recommendation.  
18		CHAIRMAN CLOWE:  And I would like for 
19	the record to reflect that between, by my count,  
20	twelve and fifteen people stood up and were 
21	identified in your group.  
22		MR. HINEMAN:  Good.  And that was in 
23	an effort to try to reduce the amount of testimony 
24	that you would have to listen to.  
25		CHAIRMAN CLOWE:  Thank you.  

00113
 1		MR. HINEMAN:  We'll certainly try not 
 2	to be redundant in repeating some things, but I 
 3	will be available to answer questions, particularly 
 4	in the area that Commissioner Whitaker has delved 
 5	into, I think, might be important for us to 
 6	discuss.  
 7		But, briefly, let me just do an 
 8	overview real quick.  I do believe that the current 
 9	proposal for a flat, I call it flat, you know, 25 
10	percent is formulated in a way that is not going to 
11	work for the Charitable Bingo that is now being 
12	operated in Texas.  At least 70 percent of the 
13	charities will be unable to continue their 
14	operations.
15		We've done enough number crunching so 
16	far throughout all the state charities that we get 
17	our quarterly reports from and I've looked at 
18	county after county and when I get through, I see 
19	that the bottom is a very negative number based -- 
20	and I'll get to this in a moment, Commissioner 

21	Whitaker, I think probably is on your mind is 
22	there's a question of whether or not these other 
23	expenses column could be changed.  I believe you 
24	have a sense of that.
25		Based on the current 19- -- I 

00114
 1	mean, 2001 numbers, when you take the adjusted 
 2	gross receipts, which is what's been recommended, 
 3	the total income, minus the prizes paid, gives us 
 4	an adjusted gross receipts number.
 5		When you take that from your reports 
 6	that are sent to you, and you have a list of them, 
 7	and I've printed all those out, and you take those 

 8	adjusted, that's the only money that's available to 
 9	do anything with.  That's it.
10		And when you deduct the charitable 
11	contributions that have been made, you will find 
12	that in statewide number, there is a negative 
13	balance.  We're not currently producing enough cash 
14	flow to even distribute the 35 percent we're 
15	currently distributing under the current formula.

16		What we are doing is, we're going 
17	back into past history of profits to be able to 
18	even distribute that amount.  But we would also 
19	find that we are distributing many, many cases, I 
20	would have to believe a majority of the charities 

21	are distributing in excess of the required minimum.
22		In the halls that I've begun to do 
23	the numbers on, I would find the current formula 
24	and I looked at the number, and I think, well, 

25	here's what they distributed for.

00115
 1		So I have found that the charities 
 2	are -- they have a need.  I'll give you an example.
 3		Two little fire departments that we 

 4	do that in the past got a lot of money out of Bingo 
 5	and they must have, though, operating capital.  
 6	It's a small amount.  They've just got to have 
 7	$1500.00 a month; whether or not there's a required 
 8	distribution, they're going to at least take out of 
 9	their reserves that $1500.00 out of their Bingo 

10	account because they need it for operating capital.
11		So I think that mandating profits is 
12	not going to make them available to be distributed.  
13	We must alter the climate and make new products 

14	available and new revenue opportunities or there 
15	simply will not be any money available, even if 
16	there's no change and will continue the current 

17	decline because of the charities already beginning 
18	to take money out of their reserves, we're not 
19	going to make it anyway.
20		So I do believe you'll find if you 
21	look at the numbers carefully that the charities 
22	are now distributing more than what is currently 
23	being required.
24		There is a fiscal impact at the 

25	bottom that says if there is none but I have to 

00116
 1	tell you there would be definitely a fiscal impact 
 2	if we lose all these charities in the state, to the 
 3	state of Texas.
 4		To give you one example, and I -- 

 5	Chairman Clowe, I shared the letter with you on 
 6	this man's testimony.  I had said at the time he 
 7	takes about forty kids off the streets and keeps 

 8	them out of the penal institution.  And he told me 
 9	yesterday that that number is now a hundred.
10		And out of those, he believes that if 
11	he were not taking them off the street, there would 
12	be at least 25 of them incarcerated, at a cost of  
13	$100,000 a year in the state.  So you're saving the 
14	state two and half million dollars right there.  

15	And where he's able to conduct Bingo, he won't be 
16	able to conduct Bingo again if this happens, this 
17	25 percent rule and the commercial lessor, which 
18	brings me to the grandfathered lessor.
19		We believe that there are about nine 
20	hundred charities that are conducting Bingo in 
21	these grandfathered halls.
22		I've had an opportunity to work with 

23	charities on two occasions to try and do what River 
24	City Bingo did.  We were unsuccessful at it.  He 
25	did it at a time when the climate in the real 

00117
 1	estate market made it possible.
 2		In recent years, we have not found 
 3	that to be possible.  We went to strip centers and 
 4	tried to -- well, one of them was a Wal-Mart, 
 5	an abandoned Wal-Mart store, and tried to rent the 
 6	space and get the charities to be able to put an 

 7	association together and take the opportunity to 
 8	protect Bingo, couldn't do it because they didn't 
 9	have the financial strength.  Could not make the 
10	lease work for them.
11		In another case where there was a 
12	grandfathered license there and it -- the profits 

13	declined, and this has been four or five years ago.  
14	His profit margins have been so reduced that he's 

15	willing to get out.  And he said, your charities 
16	want to run this place.  Take it and do it.
17		So we started working on the numbers 
18	of what it was going to cost us to lease the 
19	building from the landlord, not the grandfathered 
20	lessor.
21		And then we ran the numbers on all of 
22	the expenses of maintaining that building and we 

23	came up with over $400 a session.  He was renting 
24	it for 400 a session, and thought, why should we 
25	take all this responsibility if he's going to 

00118
 1	provide it for us.  When, in fact, we already knew 
 2	that in times when we couldn't make payments on our 
 3	rent, he just didn't charge us rent.
 4		In the last six months, we've seen 
 5	more and more lessors that are grandfathered 
 6	lessors, had the financial strength to be able to 
 7	allow the charities to pay no rent.
 8		And we've even had one case where the 
 9	charity had gotten in trouble with their bills, 

10	they weren't running a profit and the lessor was 
11	actually able to rebate them in order to pay the 
12	bills.
13		So we've seen them in a positive 
14	impact from these grandfathered lessors that has 

15	been helpful to the charities and we're unable to 
16	find ways that they could replace what they now 
17	have.  And we do believe that if that was the 

18	possibility, these grandfathered license -- I mean, 
19	these regular licenses have been available for 

20	however many years and we don't see the people 
21	running out to try to get those.
22		And the last thing -- let's see, what 
23	was the last thing I wanted to say.  Well, I guess 
24	just ask if you have any questions -- oh, the cost.  
25	The cost.

00119
 1		I'm meeting in the morning with a 
 2	group of charities who are having difficulty 
 3	-- we've been doing this on a regular basis for 
 4	many months now.  Keep pulling your cost down, 

 5	you've got to cut your cost down, lease payments 
 6	distributed, you've got to cut your cost, you've 
 7	got to get those down.  Two months ago, this hall 
 8	had taken my recommendation, cut out all their 

 9	advertising.  Said, you can't afford to advertise.  
10	You just can't afford it.   There's no money to pay 
11	your advertising.
12		Your lessor is not charging you any 
13	rent and you still can't pay all your bills.  We cut
14	salaries.  We cut all the expenses that we could 

15	possibly cut and so tomorrow we've got to meet and 
16	decide on what are the most important bills that 
17	they're going to be able to pay out of the current 
18	availability of funds.

19		This is a desperate situation that we 
20	find many of the halls in Charitable Bingo today.  
21	So we need revenue increases, we need ways to make 
22	money and then we need to distribute.  We need that 
23	25 percent.
24		We've got some charities that do an 
25	incredible work in our state that save the state a 

00120
 1	far greater number than that 34 million dollar 
 2	that was distributed.  Far greater.  And we need to 
 3	do a number crunching on that and try to discover 
 4	what that number is.  Thank you.  
 5		CHAIRMAN CLOWE:  Any questions?  
 6		COMMISSIONER WHITAKER:  Go ahead.  
 7		COMMISSIONER COX:  I asked 
 8	Mr. Fenoglio about the proposal that Sunset has 
 9	made, whether his objection is to the concept of a 
10	distribution based on whether his objection is to 
11	the rate.  Do you have any thoughts on that 
12	question?  
13		MR. HINEMAN:  Yes, I do.  The current 
14	formula, from a mathematical viewpoint in economics 
15	and accounting viewpoint, makes no sense, I have to 
16	admit.
17		If we were able, for instance, right 
18	now to increase our revenue, like we hope, with the 
19	Instant Bingo sales, that formula very likely would 
20	recede to maybe zero requirement because of the 6 
21	percent now that is being allowed from gross 
22	receipts.
23		No number from the gross receipts is 
24	going to be meaningful at all.  It's going to have 
25	to start what your final outcome is.

00121
 1		It has worked now, you know, so I've 
 2	not objected to it because, well, it's a minimum 
 3	number that charities are, in some cases, that are 
 4	not -- in most cases, are able to manage that 
 5	particular number, and then increase above it.
 6		But 6 percent doesn't make any sense 
 7	as far as the gross.  But what does make sense is 

 8	you must take your gross receipts and deduct all of 
 9	your direct cost.
10		If I pay no rent, if I have all 
11	volunteer labor, I must pay for the Bingo supplies 
12	that are necessary to conduct Bingo.  If I'm going 
13	to have a electronics machine in the business, I am 
14	going to have to have an electronic supplier.  I'm 
15	going to have to pay them.
16		So I've got to take my gross and 
17	deduct my cost of goods.  I have got to deduct my 
18	lease payment to the distributor and my prizes paid 
19	out to get a real true adjusted gross receipt.
20		Now, if I can start with that number, 
21	then I believe that I can develop a percentage that 
22	I would not disagree with.  I mean, probably could 
23	make this thing work.
24		I did run that scenario and did the 
25	25, the 20, 15, and there's probably a number, you 

00122
 1	know, that would work, but I don't think it's the 
 2	25.
 3		And, of course, you need -- even if 
 4	it was the 25, it has to -- I believe must 
 5	recognize economic importance of taking gross minus 
 6	all the direct costs, but if you do it, even if you 
 7	plan for Bingo to become a total volunteer 
 8	operation in a absolute free space, you'll have to 
 9	deduct the cost of goods sold to make payments to 
10	distributor.  Those are real costs and they can be 
11	very high.
12		As Mr. Fenoglio expressed awhile ago, 
13	I would bet $500,000 there was seventy something 

14	thousand dollars for paper, 115-, $130,000.  Those 
15	are big numbers.  And I think they need to be a 

16	part of the formula and come up with a percentage 
17	that will work.  
18		COMMISSIONER COX:  Well, the 
19	headline, if you will, of the recommendation by the 
20	Sunset staff, and I'll be asking our staff later, 
21	but I think that the concept with which our staff 
22	agrees is that the taxes -- the computation is too 
23	complicated.  It should be simplified. 
24		MR. HINEMAN:  Right.  
25		COMMISSIONER COX:  And I think I 

00123
 1	heard you say you agree with that?  
 2		MR. HINEMAN:  Yes.  It's taken me -- 
 3	I mean, I can do it, you know, but I have a lady 

 4	that's been doing Bingo for fifteen years.  Every 
 5	quarter, you know, I don't understand this, what is 
 6	this number here that you've got?  Well, Ms. Donna, 
 7	you've got to take your gross receipts, da, da, da, 
 8	da, da.  And then you take 6 percent of your gross 
 9	receipts and deduct that from the 35 percent, you 
10	know.  And she scratches her head and says, just 
11	trust me, that's the number, you know, 
12		COMMISSIONER COX:  I understand.  

13		MR. HINEMAN:  So, yes.  You're right.  
14	And like I said, that's the -- I don't know whoever 
15	came up with that formula.  It's a weird formula.  
16	But it's, you know, I mean, it has worked.  It's 
17	provided some sense, because at least it takes into 
18	consideration that there are some costs that are 
19	very large.  At least it takes them into 
20	consideration.  
21		CHAIRMAN CLOWE:  Thank you, sir.
22		Sheri Riley, do you wish to testify?  
23		MS. RILEY:  Yes.  
24		CHAIRMAN CLOWE:  Please come forward.  
25		COMMISSIONER COX:  Mr. Chairman, I 

00124
 1	have some questions.
 2		CHAIRMAN CLOWE:  Certainly.
 3		COMMISSIONER COX:  Phil, there have 
 4	been several references to only a small number of 
 5	charities are not making a distribution, a large 
 6	number of charities are making a distribution, 
 7	charities are making distributions over and above 

 8	the minimum.  Does your staff have numbers that we 
 9	could have on which -- how many fall under that 
10	category and how much over the minimum if it's 
11	being paid is that? 
12		MR. SANDERSON:  We can probably get 
13	those numbers together, Commissioner.  I do know 
14	that when Sunset was requesting the information 
15	that there was some information that we provided 
16	them.  And just off the top of my head, I'm 
17	thinking that, for 2001, there was some somewhere 
18	around 300 organizations that were not required to 
19	make  distribution based on the formula.  
20		COMMISSIONER COX:  By not required 
21	to, does that mean they did not?  
22		MR. SANDERSON:  No, just that they 
23	were not required to.  And I'm thinking that some 
24	were, out of a close to, I think 1900 that filed 

25	reports, and somewhere between 100 and 150 were not 

00125
 1	required to make a distribution and did not make a 
 2	distribution.
 3		So some of those did make a 
 4	distribution even though the requirement was zero.  
 5		COMMISSIONER COX:  So you had about 
 6	seventeen -- of 1900, 1750 made a distribution, is 
 7	your recollection? 
 8		MR. SANDERSON:  Yes, sir, somewhere 
 9	in there.
10		COMMISSIONER COX:  And did you 
11	observe a significant number of charities that made 
12	distribution in excess of the minimum?  
13		MR. SANDERSON:  There are a number of 
14	those that do make in excess of minimum, yes, sir.  
15		CHAIRMAN CLOWE:  Yes, ma'am.  Good 
16	morning.
17		MS. RILEY:  Good morning.  My name is 
18	Sheri Riley and I'm Corpus Christi Jaycee's primary 
19	operator.  I am present at probably 98 percent of 
20	our Bingo occasions.  I pay the Jaycee's bills.  I 
21	know what goes on with their Bingo sessions.
22		I'm here to say that my charity  
23	currently for the quarter, second quarter 2002, we 
24	played at a grandfathered commercial lessor hall.  
25	Our average rent was about $335 per session, which 

00126
 1	in comparison to a charity commercial, or a charity 
 2	lessor hall in our area, their average rent was 335 
 3	per session.
 4		The charities at the hall I played at 
 5	could not make the 25 percent distribution.  I have 
 6	five charities ranging from coming out a negative 
 7	$44, to coming out to a negative $7,474.  And I 

 8	have run numbers on the halls in my location.  
 9		I guess what I want to say is, that 
10	we realize that you cannot change what's been 
11	written in the Sunset Report.  What we are asking 
12	is that you change your response to the Sunset 
13	Report to reflect the advice of the BAC.
14		We are in support of the BAC.  And I 
15	ask, Commissioners, if you would, please listen to 
16	the members of the public.  I'm the 33rd person in 
17	support of the BAC recommendations for the Sunset 
18	Review.  Thank you.
19		CHAIRMAN CLOWE:  Thank you.  Any 
20	questions?
21		(Applause) 
22		CHAIRMAN CLOWE:  Ed Branham, do you 
23	wish to testify?
24		MR. BRANHAM:  Yes, sir.  
25		CHAIRMAN CLOWE:  Please come up.  

00127
 1	Thank you.
 2		MR. SANDERSON:  Chairman, may I add 
 3	one more thing to Commissioner Cox's question?
 4		In the Sunset Report, on page 30 is a  
 5	table that lists the number of organizations 
 6	reporting each calendar year, or actually each 
 7	quarter for the last eight quarters.  And of those 
 8	how many of them were not required to make a 
 9	distribution.  And some of those did make  
10	distributions in those quarters, but this is a 
11	number that was not required based on the 
12	calculation.  
13		CHAIRMAN CLOWE:  Thank you.  

14		COMMISSIONER COX:  But your 
15	recollection is, then, that still about half of 
16	those not required to make a distribution did, 
17	about 150? 
18		MR. SANDERSON:  Yes, sir, for the 
19	last quarter.  
20		CHAIRMAN CLOWE:  Good morning,
21	Mr. Branham.

22		MR. BRANHAM:  Good morning, sir.  Are 
23	you doing okay?
24		CHAIRMAN CLOWE:  Yes, sir.  
25		MR. BRANHAM:  Thank you for letting 

00128
 1	me speak to you.  I promise you I'll be very brief.
 2		My name is Ed Branham.  I'm a 
 3	grandfathered commercial lessor from Plano, Texas.  
 4	I would like to reemphasize the comment the young 

 5	lady made before me, that that recommendation from 
 6	the Bingo Advisory Group is in response to our 

 7	comments and our wishes to them.  If you would 
 8	certainly look at it, we'd appreciate it.  
 9		Let me say that my experience in 
10	Bingo has been for fifteen years.  We have very 

11	successful Bingo halls and I understand the Bingo 
12	business very well.
13		I have a background of thirty years 
14	in retail and I did not understand the Bingo 

15	business when I came in, but I've enjoyed it 
16	because the people here who -- and all over the 
17	state who are involved in the charities.
18		Most of them are very emotional about 
19	it, as you've witnessed today, because it's close 
20	to their heart.  And when we start messing with the 
21	monies that they get to run their charities, then 
22	it becomes a real issue with them.
23		We have volunteer fire departments 

24	that depend on us for their operations, day-to-day 
25	operations.  They have Veterans of Foreign Wars.  

00129
 1	We have Knights of Columbus, etc., that play Bingo 
 2	with us.  Most all of them have been with us from 
 3	the very beginning and have a great relationship.
 4		The issue that I would like to 
 5	address is the issue of doing away with a 
 6	grandfathered commercial lessor's license.  
 7	Strictly from an investment standpoint.
 8		I've been self-employed ever since I 
 9	was ten years old when I started pushing a lawn 
10	mower in the neighborhood.  I love to work for 

11	myself.  And I have several businesses now and I 
12	have based my investments on the real estate that's 
13	involved, but these Bingo halls on the fact that I 
14	have a grandfathered lessor's license.  It does not 
15	mean that I get $600 per session, which I do not 
16	and never have.  But it gives me an opportunity to, 
17	somewhere down the road if we're successful in the 
18	operations of the Bingo, it gives me an opportunity 
19	to look for something down the road.
20		Anybody that invests their money in 
21	anything, if they're a good investor, they look for 
22	opportunity.  Something on the upside that would 
23	make them a little bit of money.  They're not 
24	investing their money in what they're investing in 
25	just because they love it, as a general rule of 

00130
 1	thumb.
 2		This would damage greatly my -- the 
 3	value of my investments.  And, again, I would 
 4	really regret that very much.
 5		It seems to me, I think, kind of 
 6	curious.  That we want to do with the grandfathered 
 7	commercial lessors in favor of another commercial 
 8	lessor license that's available to everybody right 
 9	now.
10		It would appear to me that if a 
11	charitable organization wanted to open up their own 
12	charity Bingo, the license is available to them.  
13	All they have to do is get one and go do it.
14		If all the charities that play Bingo 
15	with us in our commercial lessor halls, they've got 
16	the opportunity to do that.  It's not something 
17	that is unique to them with a grandfathered lessor 
18	license are gone.  So the only deduction I have is, 
19	and I know it to be a reality is that, first of 

20	all, can't do that because they don't have the 
21	funds to do that.
22		Secondly, they don't have the desire 
23	to do that, there's more to it than just opening 
24	the doors and playing Bingo.  It's a business.  A 
25	lot of them don't have the expertise to run a 

00131
 1	business.
 2		It is very comfortable for them to 
 3	come and play in a commercial lessors license like 
 4	ours because everything is there for them.  I can't 
 5	speak for the other lessors, but I can speak for 
 6	myself in that we supply everything for them, right 
 7	down to the toilet tissue.  And it's a very 
 8	convenient and a very easy way for them to come and 
 9	monies for their particular charity.
10		That's really all I've got to say but 
11	I just wanted you to know that you would do me a 

12	great disservice if you take my investments away 
13	from me.  And you would do a great disservice to 
14	the charities that participate where we play and 
15	they have generated income for us, not for 
16	themselves, for a long time.
17		If you could see some of our fire 
18	department guys.  I really wish I would have 
19	brought them today because they would bring you 
20	pictures of trucks and buildings and equipment and 
21	all the stuff they need to function with that they 
22	did not have when they came to play Bingo with us 
23	but they have today.  It's pretty neat to see what 
24	happens when a successful business like a Bingo 
25	works, and it is a business.

00132
 1		And by the way, I know people who 
 2	have taken money out of their business before they 
 3	decided they had a profit, and guess what?  They're 
 4	not in business today.  Thank you.  
 5		COMMISSIONER WHITAKER:  Quick 
 6	question.  Quick question.  What is the average --
 7		MR. BRANHAM:  I'm sorry.  
 8		COMMISSIONER WHITAKER:  What is the 
 9	average rent that you charge per --
10		MR. BRANHAM:  We have two Bingos.  Do 
11	you want an average of the two?  
12		COMMISSIONER WHITAKER:  Yeah.  
13		CHAIRMAN CLOWE:  Yeah.  Two all.  
14		MR. BRANHAM:  Yes, sir.  About $175.  
15		COMMISSIONER WHITAKER:  And why do 
16	you not charge the 600?
17		MR. BRANHAM:  Well, first of all, 
18	they can't pay that.  We have -- let me be a little 
19	more specific than that.
20		I have one Bingo that we charge $350, 
21	which is in Plano.  It's been there fifteen years 
22	and well-established.  The other Bingo we have is 
23	in Denison, Texas.  It's a new Bingo.  We've owned 
24	it for about two years.  We purchased it from 
25	Knights of Columbus because it was a total failure.

00133
 1		They'd been there for a long time but 
 2	they just ran it to the ground but -- I know this 
 3	sounds kind of trite, but I really had no interest 
 4	in buying it till I went and visited with the 
 5	people and fell in love with the good country folks 
 6	and I felt sorry for them.  I felt like I could 

 7	help them.  I have spent a lot of money up there 
 8	but their attendance in the last twelve months or 
 9	eighteen months has almost tripled.
10		I think, give us another year, 
11	they'll do real well.  And I'm real pleased to be 
12	involved and I get a sense of satisfaction out of 

13	seeing these people make money, and me too.  I'm in 
14	commercial real estate, have some value.  It's a 
15	ten- or fifteen-year project for me but -- 
16		COMMISSIONER WHITAKER:  And you don't 
17	charge them any rent at this time?  
18		MR. BRANHAM:  They haven't paid me 
19	rent in a year.  And the reason I don't charge rent 
20	is because I think a business that doesn't have an 
21	operating capital is a pretty bad business so my 

22	encouragement to them was that save your money, 
23	build up your accounts so that you-all can be a 
24	fiscally responsible business.  It is a business.

25		The Bingo itself is a business.  Each 

00134
 1	charity operates a business, and that's the way 
 2	Bingo is set up for them to operate as a business.
 3		There's a couple of other things I 
 4	have suggestions but, you know, that's the way I 
 5	look at it.  I may be looking at it wrong but 
 6	that's my opinion. 
 7		COMMISSIONER WHITAKER:  Thank you.  
 8	Appreciate it.  
 9		MR. BRANHAM:  Thank you.  
10		CHAIRMAN CLOWE:  Just a second.
11		MR. BRANHAM:  I'm sorry.

12		COMMISSIONER COX:  I have a question 
13	of staff and then a question for Mr. Branham.  
14		CHAIRMAN CLOWE:  Go ahead.  
15		COMMISSIONER COX:  Kim, what are the 
16	implications of the fact that this kind of license 
17	is grandfathered.  Is -- well, let me just leave it 
18	at that --
19		MS. KIPLIN:  Sure. 
20		COMMISSIONER COX:  -- see if you can 
21	answer that for me.  
22		MS. KIPLIN:  Yeah.  And I think 
23	you're going to what happens when you phase out a 
24	license in terms of -- 
25		COMMISSIONER COX:  Well, I guess my 

00135
 1	question is, that we have a category here of 
 2	commercial lessors, and they are grandfathered.  
 3	Grandfathered against what?  
 4		MS. KIPLIN:  Okay.  I think I get it.  
 5	It's my understanding that under the Bingo Enabling 
 6	Act, there was a point in time -- that prior to 
 7	that point in time, a lessor could lease directly 
 8	to seven conductors holding a lessor license, a 
 9	commercial lessor's license.  And then this point 
10	in time occurred whereby subsequent license -- 

11	lessor licenses could only lease to one lessor.
12		So the implication, I think, is the 
13	difference between being able to lease to seven 
14	conductors versus being able to lease to one, and 
15	that's the implication.

16		And the grandfathered was the ability 
17	for people who held that lessor's license, prior to 
18	that point in time, to be able to continue leasing 
19	directly to seven conductors versus one conductor.
20		Under the current scenario, a 
21	commercial lessor, someone who applied -- for 
22	example, if I applied for a lessor's license and I 
23	meet all the requirements, when I get that lessor's 
24	license, I can lease only directly to one 
25	conductor, one authorized organization.  And that's 

00136
 1	where you've heard characterization of the tier, 
 2	the tiered system.
 3		The tiered system would allow a 
 4	person to lease to a conductor and a conductor who 
 5	then applies for a commercial -- for a lessor's 
 6	license could then lease to multiple conductors.  
 7	So that's the reference to the tier system.  
 8		COMMISSIONER COX:  Typically, and 
 9	this is a question.  When something is 
10	grandfathered, is that because the Legislature 
11	doesn't consider it desirable but doesn't want to 
12	pull the rug out from under people who have --  

13		MS. KIPLIN:  And that would be 
14	speculation on my part, I guess, to speculate as to 
15	why the Legislature would take some action or 
16	anybody would take some action.
17		It seems, on its face, the motion was 
18	to cap, at that point, to eliminate the ability for 
19	a lessor to lease to more than one conductor but to 
20	recognize that there were these licenses that did 
21	exist.
22		And as I recall, in just looking at 
23	the Bingo Enabling Act and earlier iterations.  

24	There was no ability to transfer.  You heard some 
25	-- I think some issue with regard to 

00137
 1	transferability today.  And then there were fact 
 2	situations that were presented, I think, that were 
 3	the basis for changes so that in under certain fact 
 4	scenarios, somebody could transfer out and not lose 
 5	that lessor's license.  
 6		COMMISSIONER COX:  Well, I'm trying 

 7	to separate, in my mind, the type of license from 
 8	transferability, and first get clear as to what 

 9	kind of license do we have.  And I think what I 
10	have heard is that the -- a lot of the capital 
11	that's in this game had been put in by a category 
12	that is in danger, if you will.
13		Is that your testimony, Mr. Branham?
14		MR. BRANHAM:  Yes, sir.  It sure is.  
15	Here is the scenario that I think applies to us, 
16	and maybe we can address something that's not 
17	there.  But I think when they put the cap in 1998 
18	and they grandfathered the existing commercial 
19	lessors at that particular point in time, I think 
20	they recognized that there was significant 
21	investment in capital expenditures from these 
22	people that would vanish if they took those license 
23	away.  And that's my interpretation and I've done 
24	my investments on those bases.
25		But on the other side of that, and 

00138
 1	one thing she did not mention was that, that 
 2	particular license allows us to charge $600 per 
 3	session as opposed to $600 per day, which is the 

 4	new license, so there is a proverbial carrot out in 
 5	front of you if it does maybe we can get a little 
 6	more money out of your real estate.  And that's 
 7	where investors like me see the advantage of having 
 8	that.
 9		Yes, we don't take advantage of it.  
10	And the most I've ever charged was $500, and that 
11	was back in the mid-'80s when business was 
12	extremely good.  I did not feel -- I'd feel guilty 
13	about charging more than what was fair because my 
14	charities were making a whole lot of money at that 
15	particular time.
16		Since then, the decline in Bingo has 
17	been so bad that there are many people out there 
18	charging no rent at all, just kind of hanging on.
19		It's -- from a business standpoint, 
20	and I know you guys have heard this today, from a 
21	business standpoint, you can only cut your costs so 
22	much.  At some point in time, you've got to 
23	increase your revenue.  And I'm not -- to anybody 
24	but we don't have any tools in the Bingo industry 
25	to generate any more income today.  Somewhere 

00139
 1	somehow somebody's got to help us or we're going to 
 2	go away anyway.  It doesn't matter.  But that's my 
 3	viewpoint.  
 4		COMMISSIONER COX:  Thank you, sir.  
 5		MR. BRANHAM:  Thank you.  I 
 6	appreciate your --   

 7		COMMISSIONER WHITAKER:  May I ask you  
 8	another question? 
 9		MR. BRANHAM:  Sure. 
10		COMMISSIONER WHITAKER:  You're a 
11	fountain of knowledge so --
12		MR. BRANHAM:  I'm sorry?
13		COMMISSIONER WHITAKER:  You're a 
14	fountain of knowledge so -- on a nongrandfathered 
15	commercial lessor --  
16		MR. BRANHAM:  Yes.  
17		COMMISSIONER WHITAKER:  Okay.  -- up 
18	to $600 for a whole day.  Typically, how will that 
19	work, in your opinion, from your observations.  
20	Will it be $600 charged for a certain session and 
21	then that's just the most that that lessor can get?  
22		MR. BRANHAM:  Well, that would depend 
23	on the charity that's leasing to them but I would 

24	suspect they'd split that in half.
25		I mean, the fairness would be if you 

00140
 1	ran -- ideally to make up the maximize of Bingo you 
 2	run seven days a week and play two sessions per 
 3	day.  Under certain circumstances, you can actually 
 4	play three per day, I know, with a temporary 
 5	license.  Each charity is currently allowed to have 
 6	six additional temporary license per year.  So if 

 7	you can have seven charities, for instance, which 
 8	is pretty unusual, you could have as many as --  

 9		COMMISSIONER WHITAKER:  But have you 
10	observed the operation of a commercial lessor 
11	that's not grandfathered?  Have you observed that 
12	practice?
13		MR. BRANHAM:  No, not on an every day 
14	basis.  No.  I do know of them, yes.  I would -- 

15	let me tell you, I think the reality of that is, 
16	you've got so many people involved, you've got 
17	total chaos.
18		Do you go to a business that 

19	everytime you go in you see somebody different and 
20	you trade with that company all the time.  You 

21	know, you like somebody -- you like to go into a 
22	place that you see the same face and if they know 
23	your name, that's great.  I personally trade with 
24	the guy who I buy my gas from, when I walk in the 
25	door, he says, hi, Ed, how are you this morning?

00141
 1		I will pay him more for his gasoline 
 2	than I will the guy down the street simply because 
 3	I don't know him.  That's just a personal thing 
 4	with me.
 5		It's just business.  You like to see 
 6	the same faces and you like to be familiar with the 
 7	people that you do business with.  Bingos are no 

 8	different so -- I'm not saying it won't work, I'm 
 9	just saying it's difficult.   
10		COMMISSIONER WHITAKER:  Thank you.
11		MR. BRANHAM:  Thank you.
12		CHAIRMAN CLOWE:  I think the 
13	Commission now -- Ed, if you'll stay seated for 
14	just a minute.  I have a couple of questions.  

15		MR. BRANHAM:  Sorry.  
16		CHAIRMAN CLOWE:  I think the 
17	Commission is exploring now the role of a 
18	grandfathered commercial lessor.  
19		MR. BRANHAM:  Yes, sir.  

20		CHAIRMAN CLOWE:  And I heard you 
21	testify yesterday and I heard you now today.  I 
22	want to ask you some questions that go to the 

23	capital employment in the role of a grandfathered 
24	commercial lessor.
25		MR. BRANHAM:  Yes, sir.  

00142
 1		CHAIRMAN CLOWE:  And if they're  
 2	questions that are confidential, you just tell me, 
 3	you just treat it as confidential --

 4		MR. BRANHAM:  Yes, sir.
 5		CHAIRMAN CLOWE:  -- and there's no 
 6	offense taken.
 7		You bought your license, what, 
 8	fifteen years ago?
 9		MR. BRANHAM:  I have one that I 

10	bought -- I didn't buy, I applied for, and was 
11	issued a license prior to 1990 to -- 1987, I'm 

12	sorry.  Yes, sir.  So one I paid just regular rate 
13	for, yes, sir.  
14		CHAIRMAN CLOWE:  And you bargained 
15	for that?  
16		MR. BRANHAM:  No, sir.  No, sir.  I 
17	just applied for it, like everybody else, it was in 
18	1987.  The license was issued to me.  Yes, sir.  

19		CHAIRMAN CLOWE:  And do you carry 
20	those values on your books and acquisition cost or 
21	at market value?  What value do you assign in an 
22	accounting sense?
23		MR. BRANHAM:  Market value, sir.  
24		CHAIRMAN CLOWE:  Market value?
25		MR. BRANHAM:  Yes, sir.  

00143
 1		CHAIRMAN CLOWE:  How do you reach a 
 2	market value?  
 3		MR. BRANHAM:  Well, the marketplace 
 4	tells you what the market value is.  The license, 
 5	up until this point in time, have been sort of the 

 6	treasure, if that's a good term, of value.  They're 
 7	bringing in anywhere from 50- to a $100,000, 
 8	depending on how good business is.
 9		As the business declines, the 
10	continued business declines of the Bingo industry, 
11	certainly the values drop, but I know a lot of them 
12	have sold for $100,000, and some more than that.  
13	It is the value of the license that's important but 
14	it's also what you deem is the potential profit --  
15		CHAIRMAN CLOWE:  Sure.
16		MR. BRANHAM:  -- from owning that 

17	license that is the other value that's really an 
18	unknown but it's still there.  
19		CHAIRMAN CLOWE:  I come from an 
20	industry where a statewide permit to all chemicals 
21	and petroleum products had the same kind of value 
22	that -- 
23		MR. BRANHAM:  Yes, sir.  
24		CHAIRMAN CLOWE:  -- that you -- 
25		MR. BRANHAM:  Yes, sir.  Yes, sir.  

00144
 1		CHAIRMAN CLOWE:  They don't have any 
 2	value anymore because they don't exist so --    
 3		MR. BRANHAM:  That's correct.  
 4		CHAIRMAN CLOWE:  -- I've been on the 
 5	brink where you are describing you are right now.  
 6		MR. BRANHAM:  Yes, sir.  
 7		CHAIRMAN CLOWE:  But it's a piece of 
 8	tangible property.  It has real value.  And 
 9	depending on how well your operation is going, you 
10	can take that to the market and you can see what 
11	the market says about it -- 
12		MR. BRANHAM:  Yes, sir.  
13		CHAIRMAN CLOWE:  -- and there's an 
14	opportunity to appreciate that value, depending on 
15	how astutely you run your business.
16		MR. BRANHAM:  Yes, sir.  It's a 

17	building stone, if you will.  You take that and now 
18	you can look forward to go build a really nice 
19	facility.  
20		CHAIRMAN CLOWE:  All right.  Now, I 
21	want to get to that. 
22		MR. BRANHAM:  Yes, sir.  I'm sorry.  
23		CHAIRMAN CLOWE:  So here you are.  

24	You have capital?  
25		MR. BRANHAM:  Yes, sir.  

00145
 1		CHAIRMAN CLOWE:  And you have the 
 2	volunteer fire departments out there and you have 
 3	other charities that --  
 4		MR. BRANHAM:  Yes, sir.  
 5		CHAIRMAN CLOWE:  They have the legal 
 6	justification to, as a charity, to conduct and -- 
 7		MR. BRANHAM:  Yes, sir.  

 8		CHAIRMAN CLOWE:  -- Bingo operators?  
 9	So you take your capital and you buy all -- 
10		MR. BRANHAM:  Yes, sir.  
11		CHAIRMAN CLOWE:  And over a period of 
12	time, I think you're impressing as an astute 
13	businessman, you improve that hall, you add value 
14	to that tangible property, that real estate, and 
15	you have depreciation that flows to you as a 
16	noncash expense, and you began to not only see cash 
17	flow but you see an enhanced capital value over a 
18	period of time?
19		MR. BRANHAM:  Absolutely.  
20		CHAIRMAN CLOWE:  So at some juncture 
21	if you keep building value and your charities keep 
22	doing well, and you obviously wanted to let us know 
23	that you know your charities and you spend time 

24	with them and you see the results of the benefits 
25	of conducting that they are deriving --  

00146
 1		MR. BRANHAM:  Yes, sir.  
 2		CHAIRMAN CLOWE:  -- you have 
 3	something that's of greater value as time passes 
 4	than when you started?  
 5		MR. BRANHAM:  Yes, sir.  
 6		CHAIRMAN CLOWE:  And you could either 
 7	-- or you could either sell the business as an 
 8	ongoing business and the property goes with it, or 
 9	you can sell the license and keep the property and 
10	lease it or rent it to the new grandfathered 

11	commercial lessor.  You have those options?
12		MR. BRANHAM:  Absolutely.  

13		CHAIRMAN CLOWE:  Okay.  I think it's 
14	important for this to get into the record because, 
15	you know -- 
16		MR. BRANHAM:  It certainly is.  
17		CHAIRMAN CLOWE:  -- what's the role 
18	of a grandfathered commercial lessor?  What's in it 
19	for him?
20		MR. BRANHAM:  Yes, sir.  
21		CHAIRMAN CLOWE:  And why don't 

22	charities provide that.  And I think this is 
23	probably ground we needed to cover in this meeting 
24	so that everyone understands, although you may not 
25	be the most typical grandfathered commercial 

00147
 1	lessor, you are typical, to some extent.
 2		MR. BRANHAM:  Yes, sir.  I think, and 
 3	you have to understand charities, as well, because 
 4	I don't know of any charity that ever has enough 

 5	money, ever.  Nor do they ever have any money at 
 6	all.  That sounds not quite correct, but it is, in 
 7	that they have needs for the monies that they 
 8	generate, therefore, they don't have the monies to 
 9	invest -- 
10		CHAIRMAN CLOWE:  They don't have the 
11	capital?  
12		MR. BRANHAM:  They're in the charity 
13	business, not in the Bingo business.  And really 
14	they just want somebody to send them a check, is 
15	the reality of the thing, and this is as close to 
16	that sort of thing as they're going to get at. 
17		CHAIRMAN CLOWE:  So you're in it to 
18	make money?  
19		MR. BRANHAM:  Absolutely.  
20		CHAIRMAN CLOWE:  Now, let me ask you 
21	a philosophical question.  
22		MR. BRANHAM:  Yes, sir.  
23		CHAIRMAN CLOWE:  And I'm not going 
24	anywhere with this, but I just want to get it on 
25	the table what your reaction is.

00148
 1		Do you think in the Bingo Enabling 
 2	Act, the state intended for entrepreneurs to be in 
 3	the Bingo industry and to make money as 
 4	nonconductors and noncharities?  Do you think 
 5	that's a philosophic-okay thing, or what's your 
 6	just intuitive reaction to that?
 7		MR. BRANHAM:  I think they -- I'm not 
 8	sure that they were all that keen on the lessor 
 9	himself but I think they recognized a problem with 
10	the charities being able to do what the Bingo 
11	Enabling Act, as we've discussed, what the Bingo 
12	Enabling Act allowed them to do.  So they allowed a 
13	vehicle, i.e., the commercial lessor, to provide 
14	the charities with an opportunity to make money 
15	they couldn't.
16		I've seen many cases in which a 
17	volunteer fire department has a little room in the 
18	back and they're playing Bingo, and there's fifteen 
19	people, and if they make $20, they think they've 
20	just hit a home run.
21		That was -- actually, I don't want to 
22	get into all this.  I mean, I don't want to take up 
23	your time, but how I got started was a volunteer 

24	fire department in Anna, Texas, who was having a 
25	catfish fry, and I had a little farm down the road 

00149
 1	and I found out that the county, the city, nor the 
 2	state paid them a penny or gave them a penny to 
 3	operate with and I looked at the brick building 
 4	they had built with their own hands and the trucks 
 5	they had bought junked and rebuilt and so on.  And 
 6	I said, guys, there's got to be another way.
 7		And I had a building in Dallas.  I 
 8	had thirty years of experience in the home 
 9	furnishing business with my family in Dallas.  I 
10	had a building that I rented to a guy who ran a 

11	Bingo.  I went down and found out everything I 
12	could find out about Bingo and went to Plano -- 
13	the volunteer fire department and they were very 
14	successful.
15		They got some of their friends from 
16	the volunteer fire department and before you knew 

17	it, we had a full house, but -- and I know the law 
18	doesn't allow me to be too involved in Bingo and 
19	I'm not on a day-by-day basis but I can certainly 

20	give them my experience in operating businesses and 
21	it's been very successful.  
22		CHAIRMAN CLOWE:  Well, you know them 
23	well enough to know whether they can pay rent or 

24	not? 
25		MR. BRANHAM:  Absolutely.  And I can 

00150
 1	show them how they can if they don't.  
 2		CHAIRMAN CLOWE:  You understand, as a 
 3	businessman, obviously, the aspect of bottom line 
 4	reduction -- 
 5		MR. BRANHAM:  Yes, sir.  
 6		CHAIRMAN CLOWE:  -- as it's impacted 
 7	by cost?
 8		MR. BRANHAM:  Yes, sir.  
 9		CHAIRMAN CLOWE:  You made a remark to 
10	that extent and I believe you touched on revenue.
11		Do you understand that this 
12	commission is bound by the Bingo Enabling Act as it 
13	relates to opportunities to increase revenue?
14		MR. BRANHAM:  Yes, sir.  
15		CHAIRMAN CLOWE:  And the release that 
16	have been discussed are, for the most part, 
17	statutory in nature?
18		MR. BRANHAM:  Yes, sir.  
19		CHAIRMAN CLOWE:  And it's my personal 
20	view, I'm not speaking for the Commission, that the 
21	Legislature is the source of relief for the Bingo 
22	industry regarding needs it has to make the playing 
23	of Bingo more attractive?
24		MR. BRANHAM:  Yes, sir.  
25		CHAIRMAN CLOWE:  Okay.  I just want 

00151
 1	to keep hammering that because -- 
 2		MR. BRANHAM:  Yes, sir.  No, sir, 
 3	nobody's blaming you.  At least, I'm not.  
 4		CHAIRMAN CLOWE:  You know, I've got 
 5	35 years experience of my industry saying, well, if 
 6	the Commission would just give us what we want, 
 7	we'd all be healthy. 
 8		MR. BRANHAM:  Yes, sir.  
 9		CHAIRMAN CLOWE:  And the Commission 
10	never gave us what we wanted and we never were 
11	healthy unless we took it upon ourselves to lobby 
12	and get laws passed and deal with our customers.
13		And in my view, as a businessman, the 
14	Bingo industry has got two problems.  One, the 
15	market's reducing in size, the market is dying off 
16	and going to other sources of gaming and got to be 
17	aggressive. 
18		MR. BRANHAM:  Competition.  
19		CHAIRMAN CLOWE:  Competition?  
20		MR. BRANHAM:  Yes, sir.  
21		CHAIRMAN CLOWE:  The second problem 
22	is Bingo Enabling Act does not allow Bingo to do 
23	things that they want to do at this point in time?  
24		MR. BRANHAM:  Yes, sir.  May I 
25	address that very briefly?  

00152
 1		CHAIRMAN CLOWE:  Sir?  
 2		MR. BRANHAM:  Can I address that very 
 3	briefly? 
 4		CHAIRMAN CLOWE:  Certainly.
 5		MR. BRANHAM:  You're exactly correct.  
 6	However, with some very minor changes in the Bingo 

 7	Enabling Act that would require Legislative change 
 8	with the support of the Texas Lottery Commission, 

 9	who is the pride of the Texas Legislature, I think, 
10	and rightly so.  
11		CHAIRMAN CLOWE:  Well, let me answer 
12	that by saying, the agencies are forbidden to give 
13	support -- 
14		MR. BRANHAM:  Okay.  
15		CHAIRMAN CLOWE:  -- in, I think the 
16	manner that you indicated.  That would be lobbying.  
17		MR. BRANHAM:  That would be lobbying 
18	so --  
19		CHAIRMAN CLOWE:  And the agencies can 
20	be a resource, and we, I think, can be a good 
21	resource -- 
22		MR. BRANHAM:  Yes, sir.  
23		CHAIRMAN CLOWE:  -- but we cannot -- 
24	in lobbying. 
25		MR. BRANHAM:  We don't mind lobbying 

00153
 1	for ourselves.  That's not a big problem.  
 2		CHAIRMAN CLOWE:  And my view of your 
 3	industry is it's very diverse.  
 4		MR. BRANHAM:  Yes, it is.  
 5		CHAIRMAN CLOWE:  I mean, you've got 
 6	folks that are in this industry in all different 

 7	places. 
 8		MR. BRANHAM:  Yes, sir.  
 9		CHAIRMAN CLOWE:  And everybody's got 
10	a goal.
11		MR. BRANHAM:  Yes, sir.  
12		CHAIRMAN CLOWE:  And it may be this 
13	lady who gave such compelling testimony about her 
14	ten-bed operation in Dallas, take women who are 72 
15	hours after detox, and that's her niche in this 
16	industry.
17		MR. BRANHAM:  Yes, sir.  
18		CHAIRMAN CLOWE:  Your niche is so far 
19	removed from that, but you're all in this together 
20	and --
21		MR. BRANHAM:  Yes, sir.
22		CHAIRMAN CLOWE:  -- there's lots of 
23	folks in between.  
24		MR. BRANHAM:  Yes, sir, there are.  
25		CHAIRMAN CLOWE:  And it's tough to 

00154
 1	bring an industry like this together before the 
 2	Legislature and say, now we've got to speak with 
 3	one voice to get what we need to help cure our 
 4	problem. 
 5		MR. BRANHAM:  You're correct.  

 6		CHAIRMAN CLOWE:  I'm trying to give 
 7	you the benefit of 35 years of trying to do this 
 8	sort of thing.  
 9		MR. BRANHAM:  Yes, sir.  I 
10	understand.  It's difficult.  
11		CHAIRMAN CLOWE:  Thank you for your 
12	testimony.
13		MR. BRANHAM:  Yes.  Thank you very 
14	much.
15		CHAIRMAN CLOWE:  Commissioner Cox  
16	has a question.

17		MR. BRANHAM:  I'm past my time, sir.  
18		COMMISSIONER COX:  It's -- as I 
19	understand the two categories that we have here.  
20	We're talking about the grandfathered lessors and 
21	they have the power, but not necessarily the -- or 
22	the right, but not necessarily the power, or the 
23	ability to charge $600 per session? 
24		MR. BRANHAM:  That's correct, sir.  
25		COMMISSIONER COX:  And there might -- 

00155
 1	how many sessions might there be in a day?
 2		MR. BRANHAM:  There could be as many 
 3	as three, on a temporary basis; two, on a permanent 
 4	basis.  
 5		COMMISSIONER COX:  Okay.  So that 
 6	says that there could be five sessions, that you 
 7	could have revenue of 3,000 a day under the 
 8	grandfathered, is that -- 
 9		MR. BRANHAM:  No.  No, sir.  You can 
10	have 1200.  You could have 1800 in certain 
11	circumstances.  
12		CHAIRMAN CLOWE:  Three temporary, two 
13	permits.  
14		COMMISSIONER COX:  Okay.  So you 
15	could have up to 1800 under the status that you 
16	have right now?
17		MR. BRANHAM:  That is correct, sir.  
18		COMMISSIONER COX:  And you're telling 
19	us -- you have told us that you're really not 
20	getting 600, you're getting more like 175 to 350?  
21		MR. BRANHAM:  At the current time, 
22	yes, sir.  
23		COMMISSIONER COX:  And since you are 
24	a businessman, you are making a buck at 175 to 350, 
25	I assume? 

00156
 1		MR. BRANHAM:  No.  I actually lost 
 2	$170,000 last year.  I don't mind telling you.  

 3		COMMISSIONER COX:  Let me see if I -- 
 4	the other category that no one has asked to go away 
 5	is the category that we can charge $600 per day?  
 6		MR. BRANHAM:  Yes, sir, no one's 
 7	asking that to go away.
 8		COMMISSIONER COX:  Okay.  So where we 
 9	are is that, if I understand correctly what has 
10	been proposed by the Sunset staff, they would 
11	eliminate the commercial -- grandfathered 
12	commercial lessors charge up to $1200.00 a day, 

13	thus causing those people, if they chose to apply 
14	for the other status, the nongrandfathered 

15	commercial lessor, to charge only $600 a day?
16		MR. BRANHAM:  Yes, sir.  
17		COMMISSIONER COX:  So would it be 
18	true that maybe the problem here is not whether 

19	it's grandfathered or not grandfathered but whether 
20	$600 is the right number?
21		MR. BRANHAM:  Well, it would appear 
22	to me that there's room for both because this is a 
23	free country, so the charity that's playing with 

24	the lessor's hall, that theoretically is paying 
25	$600, could have physically moved to the 

00157
 1	grandfathered, probablyl only charge and 300.  
 2	There's no law permitting that.  I don't really 

 3	understand in my mind how it makes any difference 
 4	whether the grandfathered license go away or not.  
 5	They just seem to be the scapegoat, just quite 
 6	frankly.  
 7		COMMISSIONER COX:  Well, the 

 8	discussion I had with the Sunset staff -- if you'll 
 9	permit a little hearsay here, Mr. Chairman?  
10		CHAIRMAN CLOWE:  You did it.  It's 
11	not hearsay.  
12		COMMISSIONER COX:  Is that their 
13	concern, as I read it, it was not with the fact 
14	that these people could charge 1200 or 1800, or any 
15	other number.  It was with the fact that there is a 
16	grandfathered status that has no phase-out.  And 
17	they believe that good government, if you will, 
18	says that anything that's grandfathered should have 
19	a phase-out? 
20		MR. BRANHAM:  Yes, sir.  I 
21	understand.  
22		COMMISSIONER COX:  So if you grant 

23	them that, is there some way we could change the 
24	commercial lessor status that is left that would 
25	make it such that folks like yourself could make a 

00158
 1	buck in that category --
 2		MR. BRANHAM:  When that dies, it goes 
 3	away. 
 4		COMMISSIONER COX:  Pardon me? 
 5		MR. BRANHAM:  I said, when that died, 
 6	it goes away.  Is that correct?  
 7		COMMISSIONER COX:  I know that you're 
 8	beyond me now. 
 9		MR. BRANHAM:  I'm teasing you.  

10		COMMISSIONER COX:  I asked what's 
11	grandfathered, and I understood that what's 

12	grandfathered is the ability to charge $600 a 
13	session?  
14		MR. BRANHAM:  I see what you're 
15	saying.  
16		COMMISSIONER COX:  And I try to 
17	separate, in my mind, the issue of transferability 
18	from the issue of what's in a grandfathered 
19	license.
20		MR. BRANHAM:  Let me tell you how 
21	that came about.
22		There was a gentleman who died prior 
23	to his being able to transfer the licensing to his 
24	wife's name, or it was not at a point where they 
25	both had joint ownership, as I understand it, so, 

00159
 1	therefore, when he died, his license died.
 2		They felt like, at the time -- and 
 3	this is -- I'm just going by hearsay and I was not 
 4	present at the time.  That it had value, just like 
 5	your house has value, so that you can transfer 
 6	ownership of that to whomever you wish.  And they 
 7	felt like that they had the right to do that 
 8	because of the value of the particular license.
 9		Now, I don't know how it works for  
10	tracking licenses.  I don't really understand the 
11	licensing issues.  I just -- I just can remember 
12	the conversation because I was a grandfathered 

13	licensee at that time and there was a lot of debate 
14	about doing away with the commercial lessor's 
15	license at that particular time, in 1989.
16		And ultimate conversation and the 

17	decision was made that they were grandfathered 
18	existing ones that were not allowed anymore and 

19	they would allow them to transfer.  So I can't give 
20	you the wisdom of being there, I don't know.  But 
21	as I have talked to people through the years, 
22	that's what's been conveyed to me.  I guess you'd 
23	say hearsay.  
24		COMMISSIONER COX:  And if there were 
25	-- let's go to the situation.  Let's just say that 

00160
 1	the grandfathered commercial lessor's status goes 
 2	away -- 
 3		MR. BRANHAM:  Yes, sir.  
 4		COMMISSIONER COX:  -- but that the 
 5	other commercial lessor status is made economically 
 6	viable by taking off what may be an unreasonably 
 7	low charge per session.  Without transferability, 
 8	in the case that you gave, would not the widow have 
 9	been able to apply for and receive a license to 
10	operate the same business that her husband had been 
11	licensed in before his death?
12		MR. BRANHAM:  That is correct, with 
13	the new type of license.  There's more to it than 
14	-- it's just -- there's more to it than just the 

15	license.  It's the way the business is structured 
16	that changes with the new license in that you have 
17	almost a chain of command, as it were.  You have a 
18	commercial lessor, who leases to a commercial 
19	lessor, who leases to a charity.  
20		COMMISSIONER COX:  What if the 
21	statute took out that middle entity, you really 

22	left the commercial lessor in the same business 
23	position as the grandfathered commercial lessor, 
24	but maybe it's not 600, maybe it's 900 or 1200, 
25	which I think you said was the maximum, you know, 

00161
 1	with something like the same provisions that you 
 2	have now but without the grandfathering, if you 
 3	will, which is what I understand Sunset to be 
 4	having a problem with.

 5		And with the issue of transferability 
 6	being made perhaps moot by the fact that someone 
 7	who buys that location, could apply for a license 
 8	to operate that location and if there were no 
 9	reason that they didn't qualify, that that would be 
10	granted.
11		MR. BRANHAM:  And you ask me a very 
12	difficult question.  I really don't know how to 

13	respond to that.
14		Certainly, if in their wisdom they 
15	decided we can have a new category of license 

16	recommended here or suggested, in that it would 
17	basically function as the current grandfathered 

18	commercial lessor's license but with less rent, is 
19	that correct?
20		COMMISSIONER COX:  I didn't say less 
21	rent.  
22		MR. BRANHAM:  Well, I'm just asking.  
23		COMMISSIONER COX:  I'm thinking that 
24	what -- that rent needs to be set at something that 
25	allows a man to justify his investment.  

00162
 1		MR. BRANHAM:  Yes, sir.  
 2		COMMISSIONER COX:  If $600 isn't it, 
 3	then $600 needs to be reconsidered.
 4		MR. BRANHAM:  What's the magic 
 5	number?  
 6		COMMISSIONER COX:  Sure.  About how 
 7	old is that law?  If nothing else, we've had 
 8	inflation that should be taken into consideration.  
 9		MR. BRANHAM:  Yeah.  I really don't 
10	know.  I'll be honest with you.  I really never 

11	thought about creating -- I'm too busy trying to 
12	defend what we have. 
13		CHAIRMAN CLOWE:  Just for your 

14	information.  What we used to do with those 
15	certificates of public convenience and necessity is 
16	put them in a corporation.  
17		MR. BRANHAM:  Yes, sir, we do.  

18		CHAIRMAN CLOWE:  And then when 
19	they're in a corporation, they never die.  

20		MR. BRANHAM:  Well, that's true, and 
21	we do that.  But that's the only way we could 

22	transfer them at one time and that came along 
23	actually a little later than when they 
24	grandfathered them so --  
25		CHAIRMAN CLOWE:  Thank you very much.  

00163
 1		MR. BRANHAM:  Thank you.  I 
 2	appreciate your time.
 3		COMMISSIONER COX:  Thank you very 
 4	much.
 5		COMMISSIONER WHITAKER:  I wouldn't 
 6	dare ask another question.

 7		(Applause)  
 8		CHAIRMAN CLOWE:  Help me with this.  
 9	Ramon Z-u-n-i-g-s?
10		MR. ZUNIGA:  -- -g-a.  Ramon Zuniga, 
11	sir. 
12		CHAIRMAN CLOWE:  Thank you.  Would 
13	you like to testify?
14		MR. ZUNIGA:  Yes, sir.  
15		CHAIRMAN CLOWE:  Please come forward.
16		MR. ZUNIGA:  Mr. Chairman and 

17	Commissioners, my name is Ramon Zuniga.  I'm 
18	currently a commercial lessor for the last six 

19	years.  I presently have two of those licenses that 
20	you've been talking about.  
21		COMMISSIONER COX:  The grandfathered 
22	license? 
23		MR. ZUNIGA:  No.  The actual new 
24	licenses that exist.
25		I'm here to tell you that it is very 

00164
 1	hard to operate under those rules.  I do operate 
 2	and I do make a profit because I'm in business but 
 3	it is very hard to do that with the limited rent 

 4	and everything, with the cost of inflation, and 
 5	everything else.  And having to depend on a charity 
 6	to be in between the other charity causing -- if 
 7	they don't keep up their stuff in a correct manner, 
 8	then I lose that individual and then I have to go 
 9	find someone else.
10		And so, in a way, I'd like to say 

11	that grandfathered clause licenses are actually a 
12	benefit to the Bingo industry right now because 
13	they can operate in a successful manner.

14		If you go ahead and get rid of them, 
15	then I would suggest that you would consider some 
16	of the things that you just brought up about maybe 
17	eliminating the middleman.  Maybe increasing the 
18	amount of rent.  Because right now, as it stands, 

19	these licenses aren't really working and I might be 
20	out of the business pretty soon because of it.
21		Thank you.  Do you have any 
22	questions? 
23		COMMISSIONER WHITAKER:  Yes.  Give me 
24	your name again.  
25		MR. ZUNIGA:  Ramon Zuniga.  

00165
 1		COMMISSIONER WHITAKER:  Zuniga.  If 
 2	you had not been a grandfathered status, how would 
 3	you run your business?  What would you do?  
 4		MR. ZUNIGA:  I've never had 
 5	grandfathered status, ma'am.  
 6		COMMISSIONER WHITAKER:  Okay.  So 
 7	how do you operate?  
 8		MR. ZUNIGA:  Well, I have to operate 
 9	under the current rules where I have a charity in 
10	between me and the other charity.  
11		COMMISSIONER WHITAKER:  And you 
12	charge that charity $600?  
13		MR. ZUNIGA:  No, ma'am.  
14		COMMISSIONER WHITAKER:  No.  What do 
15	you charge?  
16		MR. ZUNIGA:  I charge 335, in one 
17	hall; zero, in another.  

18		COMMISSIONER WHITAKER:  Okay.  And do 
19	you use your hall for any other purpose other than 
20	Bingo? 
21		MR. ZUNIGA:  Yes, I have to, because 
22	of that.  
23		COMMISSIONER WHITAKER:  What do you 
24	use it for?
25		MR. ZUNIGA:  At one location I use it 

00166
 1	for parties.  
 2		COMMISSIONER WHITAKER:  Okay.
 3		MR. ZUNIGA:  And we also have these 
 4	game machines that help produce revenue for the 

 5	charities by letting them play on those machines 
 6	and using the tickets that they receive from that 
 7	to benefit buying Bingo cards, Bingo equipment and 
 8	everything. 
 9		COMMISSIONER WHITAKER:  How many 
10	charities, on average, are they playing in your 
11	hall? 
12		MR. ZUNIGA:  Right now, four in each 
13	one.  
14		COMMISSIONER WHITAKER:  Four in each 
15	one.  Okay.  And you don't charge 600 because?  

16		MR. ZUNIGA:  Because they can't 
17	afford it. 
18		COMMISSIONER WHITAKER:  The market 
19	won't bear it?  
20		MR. ZUNIGA:  That's right.  
21		COMMISSIONER WHITAKER:  And you 
22	charge zero on the other because?  
23		MR. ZUNIGA:  Because they can't pay.  
24		COMMISSIONER WHITAKER:  You charge 
25	zero because? 

00167
 1		MR. ZUNIGA:  Zero because they can't 
 2	pay.  
 3		COMMISSIONER WHITAKER:  Cannot.  And 
 4	you don't charge 600 in either event because you 
 5	don't think the market can bear it, so increasing  
 6	the rent per charity would not be the answer, in 
 7	your opinion?  
 8		MR. ZUNIGA:  No.  No.  Not right now.  
 9		COMMISSIONER WHITAKER:  Thank you.  

10		CHAIRMAN CLOWE:  Thank you, sir.  Rex 
11	Ellis, who's in support of BAC recommendations on 
12	the Sunset Staff Report.  Rex Ellis, do you wish to 
13	testify?
14		MR. ELLIS:  No.  
15		CHAIRMAN CLOWE:  Thank you, sir.    
16	Don Bishop?
17		MR. BISHOP:  Mr. Chairman, by popular 
18	request, I'm going to decline to testify today.

19		CHAIRMAN CLOWE:  Mr. Bishop is 
20	answering off microphone that he, by popular 

21	request, is not going to testify but he does want 
22	to support the BAC position.
23		MR. BISHOP:  I would like to go on 
24	the record as supporting what Mr. Hineman had to 
25	offer and what Mr. Branham has testified to.

00168
 1		CHAIRMAN CLOWE:  Very good.
 2		MR. BISHOP:  I'm actually in the same 
 3	position as Mr. Branham.  
 4		CHAIRMAN CLOWE:  Very good.  He is in 
 5	support of Mr. Hineman.  And who else was it?
 6		MR. BISHOP:  Mr. Branham.  
 7		CHAIRMAN CLOWE:  Right.  Thank you 
 8	very much.  Charles Williams Jr.?
 9		MR. WILLIAMS:  I do not wish to 
10	testify.  
11		CHAIRMAN CLOWE:  Thank you, sir.  
12	Steve Matamoros?  Thank you, sir.
13		Mr. Brisner has indicated, although 
14	he told us initially he does not wish to testify, 
15	that he has now changed his mind and does wish to 
16	testify, which is no surprise to anybody.  
17		MR. BRISNER:  I swear to God it's 
18	congenital.  I'm Steve Brisner and I represent the 
19	Bingo Interest Group and I'm really proud to say 

20	that Ed Branham is one of my clients.
21		You can tell by the way he was 
22	forthcoming and the command he had of his business 
23	and what was in his heart that he's exactly the 

24	kind of person that ought to be involved in Bingo.
25		It's unfortunate that the name 

00169
 1	"commercial" ever got attached to the name lessor, 
 2	and it might help you to have a little perspective 
 3	to understand how that happened a little bit,  

 4	although I'm sure Mr. Bishop would appreciate a 
 5	fuller explanation.
 6		I worked for Bob Bulloch over at the 
 7	comptroller's office starting in about '87, so I 
 8	had a intimate knowledge of sort of the history of 
 9	Bingo, starting at that point, and a lot more in 
10	depth starting in '96.
11		But commercial is as distinct from a 
12	charity that owned its own hall and those were 
13	typically -- it wasn't really a Bingo hall.  It was 
14	a place that the Moose or the Elks or the VFW, or 
15	whatever, had a social hour and they could play 

16	Bingo there.  And these are typically fairly small.  
17	There are some large ones but they're typically 

18	fifty, 75 seats.  And they may play a minimum  
19	number of nights and there's a high social content 
20	and maybe a little money.  Very low expense.
21		And it was determined that the small 
22	charities, like Mr. Weatherford here, could not -- 
23	they had nowhere to go, and so they put a, quote, 
24	commercial location, and they allowed up to seven 
25	charities playing a couple of times a day to be 

00170
 1	able to give that hall a commercial viability.
 2		There would be people there and 
 3	people would know it as a Bingo place and 
 4	maybe drop in and it would have a face to the 

 5	public, in the same way as a retailer would, for 
 6	example.  And so that's how that got attached to 
 7	it.

 8		If you'll look, and, unfortunately, I 
 9	left my file folder in the car, but the Bingo 
10	bulletin that summarizes the 2001 numbers for Bingo 
11	shows that 71 percent of the distributions, this is 
12	the pink portion right here, 71 percent of the 
13	distributions came from Class J charities.  You get 
14	to be a Class J because you have lots of gross.  

15		And your application fee each year 
16	hinges to that, so if you think about it, the 
17	highest gross in charities are the ones that are 
18	going to be in the halls that have the most 

19	traffic, the most seats, that sort of thing.
20		Typically, those expenses are going 
21	to be higher because there are larger pieces of 
22	real estate and better locations.  Probably most 
23	often in metropolitan areas, but not always.
24		I checked on the price to rent the  

25	Crockett Center, which is right across 290 from the 

00171
 1	Red Lion up here, a little while ago.  It's a 
 2	former Best product store that's empty.  Go out 
 3	there and try to rent that for a Saturday for eight 
 4	hours and you will pay $2700.  Try to rent it on a 
 5	weekday and you'll pay about $1800, and they'll be 
 6	so kind as to provide tables and chairs for you.  

 7	They won't supply the other kinds of things that 
 8	were provided.
 9		Commissioner Cox, you have centered 
10	in right down on to the crux of the biscuit.  
11	That's where -- that's really where a solution, if 
12	there is a problem to this two-tiered system or 
13	grandfathering, that's the question.
14		What are the numbers necessary to 
15	allow for a range of options across a state as big 
16	as Texas that will allow someone to charge rent 
17	that will sustain the area and also give them a 
18	little compensation for organizing the thing and 
19	helping make it work, like Ed Branham does.  Very 
20	difficult to arrive at a statewide number for that 
21	in the first place.  
22		Those $600 figures that are in 
23	statute, those were established way back in the 
24	mid-'80s.  It's ridiculous and bears no 
25	relationship to reality today, as you heard.  

00172
 1		So there needs to be -- I think that 
 2	the Sunset Staff Report and your staff's response 
 3	to it is thin ruled and you have gotten into the 

 4	meaty deep part of this that needs to be explored.  
 5	And I would ask y'all not to embrace, or not to 
 6	concur with the Sunset Staff Commission for 
 7	precisely that reason.  It does not get to the 
 8	heart of this question.
 9		That's really all I have to say.  
10		COMMISSIONER COX:  Go ahead, please.  
11		COMMISSIONER WHITAKER:  Mr. Brisner?  
12		MR. BRISNER:  Yes, ma'am.  
13		COMMISSIONER WHITAKER:  If you 
14	eliminated the middle tier, you, in essence, would 
15	eliminate the statutory change in 1989 because that 
16	was the change, right?  
17		MR. BRISNER:  Well, there were 
18	actually two changes.  
19		COMMISSIONER WHITAKER:  But that was 
20	one of the key changes?  
21		MR. BRISNER:  Yes, ma'am.  
22		COMMISSIONER WHITAKER:  Are you 

23	suggesting that the entire statute be itself 
24	repealed so that you go entirely back to the, 
25	quote, grandfathered status?  

00173
 1		MR. BRISNER:  I don't know because I 
 2	don't know if 600 a session is any magic number.  
 3	Although from what I'm hearing is, it seems to be 
 4	accommodating today.  Nobody's ever come down here 
 5	and ask you -- ask the Legislature for a bigger 
 6	cap.
 7		What the 600 a session does is allow 
 8	someone like Ed Branham to charge 350 a session 

 9	somewhere, two sessions a day, $700, not 600 a day, 
10	and to maybe charge another charity that plays 
11	another day, $50, or no money, as you've also 
12	heard.  And there seems to be enough flexibility in 
13	that to accommodate that.  
14		I think that if under the -- I don't 
15	think, under the current law, the $600 a day for 

16	the -- for the charity is the only -- for the 
17	tiered system, I don't think that's the only thing 
18	that's keeping proliferation of Bingo halls from 
19	happening.  So whether there would be more of them 
20	if it was two sessions a day at 1200, you know, I 
21	don't know.  
22		Just like Tom Clowe was a proponent 

23	of deregulation -- my clients can compete.  They're 
24	doing it all day every day in very adverse 
25	circumstance, so I don't think we can be afraid of 

00174
 1	that by any circumstances.  But I don't think that 
 2	alone is going to get a bunch of charity-run, 
 3	charity-managed halls up and running for the other 
 4	kinds of capital formation reasons and other 
 5	reasons that you've heard today.  Have I answered 
 6	your question?
 7		COMMISSIONER WHITAKER:  Yes.  Almost.  
 8		MR. BRISNER:  I'm trying to.  
 9		COMMISSIONER WHITAKER:  If the only 
10	question is whether you agree with the policy of 

11	eliminating grandfathered classes or statutes that 
12	were intended to eventually be phased out, okay?  
13	You with me? 
14		MR. BRISNER:  I'm with you.  I 
15	understand you.  
16		COMMISSIONER WHITAKER:  Would you 

17	-- you don't disagree that that is a good policy, 
18	do you?  
19		MR. BRISNER:  Yes, ma'am, I do, but 
20	there's a reason that I -- the reason I do is 
21	because there's no replacement policy that makes 
22	any economic sense.
23		COMMISSIONER WHITAKER:  So you just 
24	disagree with the change in the statute that was 
25	passed in 1989, really?  

00175
 1		MR. BRISNER:  No, we're -- no.  No.  
 2		COMMISSIONER WHITAKER:  No?  
 3		MR. BRISNER:  No.  We're -- we're not 
 4	opposed to that.  What I'm saying is there's a 

 5	system out there that's producing revenue for 
 6	charities right now.
 7		If you're going to change that 
 8	system, do the hard work and analysis that's 

 9	necessary to say, this is what will work and be 
10	economically viable in a state like Texas.  And 
11	don't just say, well, we're going to -- these are 

12	grandfathered.  Let me tell you something.  I know 
13	those people.  I was staff for a hundred years and 
14	I will not sit here and jump on staff, typically.  
15	So, typically, I won't.
16		Y'all -- y'all -- y'all have heard me 
17	make that part of my pitch before.  But I think 
18	that there's a bias towards anything that's called 
19	grandfathered.  If it was grandfathered, then 
20	eventually it should go away.
21		I was the one that was responsible 
22	for getting the Legislature to put the 
23	transferability provisions in the law in '97, 
24	because a man died before he got his license over 
25	into a corporation and his family was out and got 

00176
 1	-- at that time, it was about a $55,000 asset and 
 2	that just didn't seem right.
 3		Now, the Legislature if they intended 
 4	them to go out of business, why would they have 
 5	done that?  Legislature is presumed to have 
 6	knowledge of the facts in the areas in which it's 
 7	legislating and we had interim hearings on that 
 8	subject matter so they even have more than your 
 9	basic knowledge of the facts.
10		So I don't subscribe to the fact that 
11	these are supposed to go out of order.  All I'm 
12	saying is, for your purposes, don't allow your good 
13	name and the importance of your position to be 

14	attached to wiping something out simply on the 
15	basis that something that's grandfathered is 

16	supposed to go away.  Do -- put the onus on people 
17	to do the hard work of putting something in 
18	position that makes rational economic sense and 

19	doesn't penalize people who are doing the right 
20	thing.  That's all I'm saying.
21		And if the $600 a day would work for 
22	charities, they would be out there doing it by 
23	gangbusters today and all these people would be out 
24	of business because charities can move.  They can 
25	move.  They do move.  Thanks.  I appreciate it.  

00177
 1	And I'm not making any promises about future 
 2	testimony.  
 3		CHAIRMAN CLOWE:  I think that's very 
 4	wise.  
 5		(Applause)
 6		CHAIRMAN CLOWE:  That concludes what 
 7	I have in the form of appearance forms.  Is there 
 8	anyone else in the public wishing to make a 
 9	comment?  Yes, sir?

10		MR. WEATHERFORD:  I turned in a form.  
11	Bruce Weatherford.  
12		CHAIRMAN CLOWE:  We'll search and see 
13	if we have it.  Tell me how to spell your last 
14	name. 
15		MR. WEATHERFORD:  Weatherford, as in 
16	the town west of Fort Worth.  
17		CHAIRMAN CLOWE:  All right, sir.  Let 
18	me make sure that I've overlooked, it if we have it.
19		MR. WEATHERFORD:  My name wasn't 
20	called.  It was overlooked because I put it on the 
21	desk.  
22		CHAIRMAN CLOWE:  All right.  I 
23	probably overlooked it and I'll check it to make 

24	sure it has not -- if it has been misplaced, I'll 
25	ask you to fill out another one.

00178
 1		Phil, I want to call on you now for 
 2	comments from the staff.  What do you have for us?
 3		MS. KIPLIN:  Did he want to testify?
 4		CHAIRMAN CLOWE:  I don't think he 
 5	did.  Did you want to testify?
 6		MR. WEATHERFORD:  I wanted to 
 7	testify, if possible.  
 8		CHAIRMAN CLOWE:  I apologize.  I'm 
 9	sorry.  Come forward.  I thought you wanted to be 
10	on the record and you did not want to testify.
11		MR. WEATHERFORD:  Well, I wanted to 
12	be on the record that I was in favor but I also 
13	wanted to say something, too.  
14		CHAIRMAN CLOWE:  Come forward, 
15	please.  Phil Weatherford.
16		MR. WEATHERFORD:   Bruce.

17		CHAIRMAN CLOWE:  Bruce Weatherford.  
18	Phil Fort Worth.
19		Mr. Weatherford, go right ahead.
20		MR. WEATHERFORD:  My name is Bruce 
21	Weatherford and I represent one of those small 

22	charitable organizations that is playing in a Bingo 
23	hall.  And I want to go on the record, with the 

24	majority of everybody else that is here, that we 
25	back -- that I back the findings of the Bingo 

00179
 1	Advisory Committee.  And I appreciate the 
 2	opportunity to come before you, Mr. Chairman, and 
 3	the rest of the Commission today.  
 4		Our organization, without the income 
 5	from Bingo, would have to turn away participants in 
 6	the program.  And we provide a horseback therapy 

 7	program for challenged individuals and it doesn't 
 8	make any difference of age, race, creed or ethnic 
 9	background, origin, or whatever.  We do not turn 
10	them away because of financial problems.
11		We can ensure that they get an 
12	opportunity to participate in the program because 
13	we know what the benefits of that program can do 
14	for them and we see it on a daily basis.
15		And if we make changes that will 

16	impact the income that we get from Bingo, folks, 
17	we're going to turn away some people and we're 

18	going to hurt some people.  We don't want that to 
19	happen.  We would appreciate it if you would go 
20	along and back up as much as you can, your Bingo 
21	Advisory Committee.  And I'll keep it short.

22		CHAIRMAN CLOWE:  Thank you, sir.
23		MR. WEATHERFORD:  I'm getting hungry.  
24		CHAIRMAN CLOWE:  And I have found 
25	your appearance form.  I overlooked it and you are 

00180
 1	on the record.  Thank you, sir.
 2		MR. WEATHERFORD:  Thank you, sir.
 3		CHAIRMAN CLOWE:  Now, Phil, I think 
 4	we're ready for your comments from the staff.  

 5		MR. SANDERSON:  I guess my first 
 6	comment is -- you want me just to start with our 
 7	responses for the issues that are in the Sunset 
 8	Report or --  

 9		CHAIRMAN CLOWE:  Are your responses 
10	different from those which we have copies of? 

11		MR. SANDERSON:  No, sir.  They're 
12	not. 
13		CHAIRMAN CLOWE:  We've read the 
14	responses.  I don't think you need to read those to 
15	us.  
16		MR. SANDERSON:  Okay.  As far as --

17		COMMISSIONER WHITAKER:  I have a 
18	question.
19		CHAIRMAN CLOWE:  Commissioner 
20	Whitaker is indicating she would like to ask a 
21	question or two.
22		MR. SANDERSON:  Okay.
23		COMMISSIONER WHITAKER:  On issue 
24	four, could you articulate again what, as I 
25	understand it, the purpose of the Sunset Report is 

00181
 1	to simplify the formula, and that that is what 
 2	you're supporting as opposed to supporting a 
 3	particular percentage or a particular formula; is 
 4	that true?  
 5		MR. SANDERSON:  Yes, Commissioner 
 6	Whitaker, that is correct.  The recommendation is 
 7	-- from Sunset is basically requesting a change in 
 8	statute that would simplify the formula to ensure 
 9	that proceeds are used for a charitable purpose.  

10		COMMISSIONER WHITAKER:  Are you going 
11	to be recommending a particular formula?  
12		MR. SANDERSON:  Staff is not planning 
13	on recommending a particular formula.  We'll just 
14	act as a resource for the Legislature or the Sunset 
15	Commission if they want to make a recommendation to 
16	the Legislature what the formula is and we'll 
17	provide any information at their request.  
18		COMMISSIONER WHITAKER:  So you're not 
19	concurring that 25 percent of gross revenues is, in 
20	fact, your response? 
21		MR. SANDERSON:  Correct.  That's not 
22	a magic number that we've picked out.  
23		COMMISSIONER WHITAKER:  Nor the use 
24	of gross revenues? 
25		MR. SANDERSON:  Nor the use of gross 

00182
 1	revenues or the adjusted gross, as they define 
 2	here.  
 3		COMMISSIONER WHITAKER:  Under Section 
 4	5.1 --  
 5		CHAIRMAN CLOWE:  Could I just ask a 
 6	question now, for clarification.  That's not what 
 7	this says.
 8		UNIDENTIFIED SPEAKER:  Thank you.
 9		(Applause)  
10		MR. SANDERSON:  The response says the 
11	agency concurred with this recommendation, which is 
12	the recommendation to simplify, yes.  
13		CHAIRMAN CLOWE:  Okay, I can read it.
14		MR. SANDERSON:  Okay.  And then it 

15	goes into the figures of what -- based on the 25 
16	percent that they have in their narrative under 

17	recommendation 4.1, I just -- it indicates that it 
18	was the 25 percent of the adjusted gross.  Then 

19	they -- minimum distribution would have been 40.7 
20	compared to the 34.4.
21		Some of the testimony today indicated 
22	that anywhere from 70 to 80 percent of the 
23	organizations could not meet that requirement.
24		And last night I spent some time and 
25	looked at the numbers for 2001, and, in fact, 

00183
 1	almost 46 percent would have met the 25 percent 
 2	requirement, if that was the case.  Just under 
 3	half.  
 4		COMMISSIONER COX:  Under half.  
 5		MR. SANDERSON:  Just under half.  
 6		CHAIRMAN CLOWE:  But to go to 
 7	Commissioner Whitaker's question, if I may get 
 8	clarification on that.

 9		The way I read what's written here in 
10	the agency's response, is that this agency concurs 
11	with this recommendation.  And I think that's what 
12	Commissioner Whitaker was asking.  
13		MR. SANDERSON:  The recommendation -- 
14		MS. KIPLIN:  I think -- just to jump 
15	in.  I think what Mr. Sanderson is saying is that 
16	they're looking at the headline.  So if you go to 
17	page -- for example, just by way of example.  If 

18	you go to page 34.  If you look at 4.1.  The 
19	headline is:  "Simplify the statutory charitable 
20	distribution formula to ensure Bingo proceeds are 

21	used for charitable purposes."  And what I hear him 
22	saying is, we concur there needs to be a 
23	simplification of that formula.
24		The rest is by way of example for 

25	sure regarding the narrative on the 25 percent.  

00184
 1	But the general concurrence is with the headline.  
 2		MR. SANDERSON:  And then again, the 
 3	last sentence is that the agency would welcome any 
 4	approach that would help eliminate some confusion 
 5	and simplify the process.  

 6		COMMISSIONER WHITAKER:  Are you going 
 7	to take a position on whether it is not wise to use 
 8	25 percent as the figure?
 9		MR. SANDERSON:  Take the position it 
10	is not wise to --
11		COMMISSIONER WHITAKER:  In other 
12	words --
13		MR. SANDERSON:  -- that it should be 
14	20 percent or 15 percent?  
15		COMMISSIONER WHITAKER:  I mean, are 
16	you going to take the position that that's not a 

17	good figure or that it is a good figure or --  
18		MR. SANDERSON:  As far as I know, we 
19	haven't decided to take a position on that figure 
20	yet, that's not -- it's something that we would 

21	discuss in the legislative process when they make 
22	the recommendations.  
23		CHAIRMAN CLOWE:  Well, I think that's 
24	misleading.  Excuse me.  
25		COMMISSIONER WHITAKER:  Go ahead.  

00185
 1		CHAIRMAN CLOWE:  I think that's 
 2	misleading.  I think all the testimony I heard 

 3	yesterday and all the testimony we've heard today 
 4	from the public has led me to believe that the 
 5	public thinks that 25 percent is the number, and I 
 6	think that's where Commissioner Whitaker's question 
 7	is with.  What is the staff's position, and I don't 
 8	think you've clarified it yet.  
 9		MR. SANDERSON:  The staff's position 
10	is that we view Bingo as an activity to allow 
11	organizations to raise funds for their charitable 
12	purpose.  In fact, that's what's stated in our 
13	admission statement.
14		And the basis that we work off of is 
15	what we have in the Bingo Enabling Act and the 

16	Constitutional Amendment that would require all 
17	proceeds to be used for charitable purposes in 
18	Texas.

19		And there's -- the indication that we 
20	got from Sunset was they were more concerned with 
21	organizations conducting Bingo and not distributing 
22	any money for charitable purpose.  And we did spend 
23	several hours explaining to them what the formula 
24	was, trying to get their understanding of the 
25	formula and the way that it's progressed throughout 

00186
 1	the years, that in the beginning, there was no 
 2	minimum distribution requirement when Bingo 
 3	started.
 4		And then in '85, the comptroller 
 5	passed a rule that was equal to 35 percent of 

 6	adjusted gross.  The way this recommendation makes 
 7	at 25 percent.
 8		And then in '87, they increased the 
 9	rule to allow for some exemptions that would allow 

10	for the taxes that were starting to be imposed, and 
11	so forth.
12		And then in, I believe it was 1988 or 
13	'99, is when it became part of the Bingo Enabling 
14	Act and it allowed for exemption of taxes that were 
15	paid and some expenses.  And then it progressed to 
16	allow for when taxes went away, then they increased 
17	the expense exemption.
18		And then a couple of years later, 
19	they decreased -- they increased it again, or 
20	increased the deductions to allow for cost of goods 
21	sold and cost of electronics.
22		So throughout the years -- and it's a 
23	minimum requirement.  It's not something that -- 

24	some organizations believe that 35 percent means 
25	that once they meet that 35 percent, that they're 

00187
 1	through.  Anything else they can do what they want 
 2	with.  And that's not the case.  That all proceeds 
 3	are to be used for charitable purpose after they 
 4	pay their authorized expenses.
 5		So the Sunset was more focused on 
 6	organizations that did not make a distribution and 
 7	organizations that the formula required not to make 
 8	a distribution, and if they're conducting Bingo to 
 9	raise funds for their organization and they're not 
10	making any money to do that, then how is Bingo 
11	benefiting that organization?  
12		COMMISSIONER WHITAKER:  Phil, did you 
13	read the or did you research the basis of the 
14	statement in the Sunset Report about other states 
15	and the percentages had in other states, and can 
16	you address whether that's apples to apples or 
17	apples to oranges to compare to?  
18		MR. SANDERSON:  It's -- for the most 
19	part, it's apples to oranges.  There's 47 states in 
20	the District of Columbia where Bingo is regulated 
21	for charitable purpose and there's probably 47 
22	different ways that distributions or the profits, 
23	as some states call it, are calculated.  
24		There's some states where they don't 
25	have a minimum requirement to be distributed but 

00188
 1	they cap expenses at 15 percent.  
 2		COMMISSIONER WHITAKER:  Chairman 
 3	Clowe, I take it this is not the time to do 

 4	deliberation or discussion among us; is that 
 5	correct? 
 6		CHAIRMAN CLOWE:  We could get into 
 7	that whenever you're ready, and I think, you know, 
 8	having Phil answer questions to clarify is a 
 9	transition into that.  
10		COMMISSIONER WHITAKER:  Okay.  

11		CHAIRMAN CLOWE:  So just any 
12	questions that you have. 
13		COMMISSIONER COX:  Chairman?
14		CHAIRMAN CLOWE:  Yes.
15		COMMISSIONER COX:  I have a couple of 
16	questions on that same page if we --

17		CHAIRMAN CLOWE:  Sure.  
18		COMMISSIONER COX:  Phil, one thing 
19	that has not been mentioned here today is that 
20	there is a level of money going to the charity 

21	below the surface of the distribution.  Now, when a 
22	Bingo session is operated, as I understand it, the 
23	proceeds from that session go into the charities 

24	operating account? 
25		MR. SANDERSON:  Yes, sir.  

00189
 1		COMMISSIONER COX:  Okay.  So the 
 2	charity just increased its net worth?  
 3		MR. SANDERSON:  Yes, sir.  
 4		COMMISSIONER COX:  Okay.  So we have 
 5	an issue that I don't think -- I haven't heard 

 6	anything about, is that we're talking about two 
 7	things.  We're talking about increasing the net 
 8	worth and distributing funds for charitable 
 9	purposes; is that correct? 
10		MR. SANDERSON:  Yes, sir.  

11		COMMISSIONER COX:  So the charity had 
12	increased its net worth in its operating account 
13	without there being a charitable distribution 
14	there? 
15		MR. SANDERSON:  Yes, sir.  They can.  
16		COMMISSIONER COX:  And, in fact, and 
17	I'm going to speculate now because I have no idea 
18	why the Legislature did it the way it did, but it 
19	has the effect of providing the public with some 

20	protection against an undercapitalized charity 
21	operating by, in effect, forcing some money to 

22	remain in that operating if there's not enough to 
23	trigger distribution; is that correct?  

24		MR. SANDERSON:  Yes, sir.  
25		COMMISSIONER COX:  And I just wanted 

00190
 1	to be sure that that point was understood, that if 
 2	we simplify -- if this were to be simplified to be 
 3	a simple gross wind tax, if you will, it could be 
 4	reducing that operating account below zero and 

 5	jeopardizing the charities ability to pay prize 
 6	winners; is that correct?

 7		(Applause) 
 8		MR. SANDERSON:  I mean, the way I'm 
 9	reading their recommendation is they're basing it 
10	on the adjusted gross, which is gross minus prizes 
11	so the prizes already would have been paid out.  
12		COMMISSIONER COX:  So future prizes 
13	because they don't have a bank roll?  
14		MR. SANDERSON:  There could be that 
15	possibility.  

16		COMMISSIONER COX:  So as I read this, 
17	it's possible that Sunset, in its effort to 
18	simplify, has created the possibility of weakening 
19	the operating account of the charity by requiring 
20	the money that they need to operate the Bingo game 
21	to be distributed for the charitable purpose?  
22		MR. SANDERSON:  There could be that 
23	possibility, yes, sir.  
24		COMMISSIONER COX:  Okay.  
25		CHAIRMAN CLOWE:  Well, do you have 

00191
 1	anything to add, Phil, in a generic sense?  
 2		MR. SANDERSON:  To just this first 
 3	issue or --
 4		CHAIRMAN CLOWE:  Anything at all?
 5		MR. SANDERSON:  -- the grandfathered, 
 6	also?  
 7		CHAIRMAN CLOWE:  Anything at all?  

 8		MR. SANDERSON:  Just as far as the 
 9	grandfathered lessor license recommendation to do 
10	away with that class.  Basically on that one there 
11	is that it goes along the line in the Sunset 
12	recommendation of 10.2, where they -- one of the 
13	recommendations is to put all types of conductors 
14	on the same playing field, as far as requirements, 
15	that we feel like that putting all the lessors on 
16	the same playing field is in the best interest of 
17	Bingo.
18		And it's one that -- it eliminates 
19	the confusion in different types of classes of 

20	lessor licenses that are available today and to 
21	just -- and put it into one class of license.  
22		CHAIRMAN CLOWE:  Anything else?  
23		MR. SANDERSON:  No, sir.  

24		COMMISSIONER WHITAKER:  Do you have a 
25	thought about whether that would somehow alter the 

00192
 1	financial basis for the industry in a way that is 
 2	adverse?  In other words, what's your response to 
 3	what you've heard here today?  
 4		MR. SANDERSON:  The -- as far as, I 
 5	think that the majority of the people that have 

 6	testified indicated that they were not charging the 
 7	$600 per session that is allowed currently by law.  
 8	And, in fact, in one of the reports I looked at not 
 9	too long ago, I'm thinking that there were only 

10	about 130 of the 1100 organizations that play at a 
11	leased location that actually paid $600 per 
12	session.  That's probably about 13, 14 percent, 
13	roughly, that pay the $600 per session.
14		So I don't see where if they kept, 
15	you know, one status of license, whether it'd be 
16	the grandfathered or the tier-type system, I don't 
17	think either one of them would have a negative 
18	economic effect on the charities.  
19		COMMISSIONER WHITAKER:  Would a 
20	grandfathered lessor that charges $300 be 
21	equivalent to a nongrandfathered commercial lessor 
22	who charges 600? 
23		MR. SANDERSON:  No.  The difference 
24	between the -- there is a 600 issue --  

25		COMMISSIONER WHITAKER:  In 

00193
 1	monetarily.  
 2		MR. SANDERSON:  Monetarily, yes. 
 3		COMMISSIONER WHITAKER:  And then 
 4	there's the other issue of the tiered?  
 5		MR. SANDERSON:  The number of 
 6	organizations they can lease to.  

 7		COMMISSIONER WHITAKER:  But as far as 
 8	the financial incentive, a grandfathered commercial 
 9	lessor charges $300, he's going to make as much 

10	money as a nongrandfathered commercial lessor who 
11	charges 600?  
12		MR. SANDERSON:  Yes, ma'am.  
13		CHAIRMAN CLOWE:  And for 
14	clarification, General Counselor, we're dealing 
15	with statutory changing issues here now.  
16		MS. KIPLIN:  Correct.  
17		CHAIRMAN CLOWE:  These are not rules.  
18		MS. KIPLIN:  That is correct.  The 

19	formula is about the Bingo Enabling Act.  It would 
20	require statutory changes.  
21		CHAIRMAN CLOWE:  Which is in the 
22	proper venue as a result of --
23		MS. KIPLIN:  Right.  
24		CHAIRMAN CLOWE:  Well, we're right 
25	where we ought to be on -- 

00194
 1		MS. KIPLIN:  Yes, sir. 
 2		CHAIRMAN CLOWE:  I think that where 
 3	we are, Commissioners, is to deliberate this now, 
 4	which we must do in a public meeting.  And if 
 5	you-all have questions or you want to make 
 6	statements, short of making a motion, I certainly 
 7	think it's appropriate.  And if you like, I'll go 
 8	ahead and stick my neck out first.  
 9		COMMISSIONER WHITAKER:  Well, go 
10	ahead.  I mean -- 

11		CHAIRMAN CLOWE:  Well, somebody's got 
12	to tell you where they think they are.  This is not 
13	a motion but I'll tell you where I think I am.
14		On 4.1, I think our response, 
15	somewhat similar to these words, would be except 
16	I'm open to any changes that the Commissioners wish 
17	to make.  The agency does not concur with this 
18	recommendation.
19		A fixed amount of the minimum 
20	charitable contribution or distribution using the 
21	25 percent referenced in the narrative would not be 
22	reasonable.  Many people believe that the current 
23	35 percent calculation means that 35 percent of the 
24	gross receipts is the amount -- the amount expended 
25	for charitable purposes, which is incorrect.  The 

00195
 1	agency welcomes any approach that would eliminate 
 2	confusion regarding this issue.  
 3		COMMISSIONER WHITAKER:  Are you going 
 4	to make a statement about the wisdom of a gross 
 5	revenue percentage? 
 6		CHAIRMAN CLOWE:  I'm open to that but 
 7	I would not.  
 8		COMMISSIONER WHITAKER:  So you would 
 9	accept or imply the acceptance of that as a way of 
10	approaching this? 
11		CHAIRMAN CLOWE:  No.  
12		COMMISSIONER WHITAKER:  No?  
13		CHAIRMAN CLOWE:  No.  And I attempted 
14	to cover that when I say in the opening sentence -- 
15		COMMISSIONER WHITAKER:  Does not 
16	concur?
17		CHAIRMAN CLOWE:  -- does not concur.
18		MS. CLOUD:  Commissioners, would you 
19	like Gary to come back up and make changes to your 
20	statements? 
21		CHAIRMAN CLOWE:  Well, let's have 
22	some discussions first and then we may get to that 
23	point.
24		I think the testimony here today and 
25	yesterday is compelling, that this is not the 

00196
 1	proper fix to apply.  And I think it's my role, as 
 2	a commissioner, to take that testimony and to 

 3	reflect it to the Sunset staff and the Sunset 
 4	Commission, and I think this is the venue to do 
 5	that.
 6		I will go ahead and say that on 5.1, 
 7	I feel, as well, compelled that that wording should 
 8	be changed, and we should adopt something like "the 
 9	agency does not concur with this recommendation.  
10	The adoption of this recommendation would not 
11	correct existing problems in the confusion 
12	regarding statutory provisions that are applicable 
13	to the various lessor license types.  The agency 

14	welcomes any approach that would eliminate 
15	confusion regarding this issue."
16		My justification for that is that we 
17	need to get deeper into this in changing the law 
18	and we need to hear from these people in the 
19	industry, in the legislative process, and if we 

20	take a position like that as commissioners, then 
21	we're saying to Sunset:  We think you've recognized 
22	the problem but you haven't come up with the right 
23	solution.  That's what it says, in my mind.
24		And we call their attention to the 

25	fact that more work must be done to get a better 

00197
 1	solution.  Not that a problem doesn't exist.  I 
 2	think there is general concurrence that there is a 
 3	problem, but this recommendation, if we don't find 

 4	satisfaction as a solution to endorse at this time.  
 5		COMMISSIONER WHITAKER:  May I 
 6	respond? 
 7		CHAIRMAN CLOWE:  Yes.  
 8		COMMISSIONER WHITAKER:  The issue 

 9	that they seem to be addressing is the issue of 
10	whether it's wise to have both the grandfathered 
11	class and the nongrandfathered class.

12		In other words, there was a statutory 
13	policy embodied in 1989 that you should not have 
14	the type of structure that used to exist 
15	beforehand, and they explicitly allowed for a 
16	transition time.  And what they seem to be saying 
17	is, it's just not good government to have those two 
18	separate categories and just remain.
19		I agree with that as a principle for 
20	the government.  What I have been impressed by 
21	today is that there is a different issue, and that 
22	is, how the existing structure, the 1989 structure 
23	is in fact getting in the way of legitimate goals 
24	of the Bingo and charitable industry.
25		I would like to say we agree with not 

00198
 1	having to do different categories because for the 
 2	reason that is stated but that we would 
 3	specifically not agree that that's the complete 
 4	solution to this other issue and that it is 
 5	perceived to be a complete solution.  It isn't.  
 6	Can we say something along those lines? 
 7		CHAIRMAN CLOWE:  I think -- if I 

 8	could respond to that.  I would be amenable to 
 9	that, and what I want to see is the person who is 
10	in the status today of a grandfathered commercial 
11	lessor protected, and not wiped out or eliminated 
12	in a way that they either lose their value of their 
13	license.
14		I think that would not be prudent on 
15	the part of the state because I think if you do 

16	that, you remove that capital presence from the 
17	market, which is a valuable role in conducting 

18	Bingo today, and I think those people play a role 
19	in supporting charities and the charities don't 
20	have the capital, so that capital formation is a 
21	vital part of the formula for success in the 
22	future.  

23		COMMISSIONER WHITAKER:  Can I ask you 
24	this question.  That is, doesn't the value of the 
25	grandfathered lease -- or, excuse me, grandfathered 

00199
 1	license come from the fact that it's different from 
 2	the other licenses, and, therefore, if you had just 
 3	one class of license, wouldn't you harm what you're 
 4	talking about? 
 5		CHAIRMAN CLOWE:  Possibly, and maybe 
 6	probably.  
 7		COMMISSIONER WHITAKER:  Okay.  
 8		CHAIRMAN CLOWE:  I still think that 
 9	person's value is part of the reason that they're 
10	in the capital market and I think if you -- how 
11	many are there, Phil?  
12		MR. SANDERSON:  Grandfathered lessor 
13	licenses, 238.  
14		CHAIRMAN CLOWE:  You take the value 
15	that those licenses have and remove it, I'm 
16	apprehensive you would take that capital out of the 
17	market.  
18		COMMISSIONER WHITAKER:  Let me ask 
19	you this, Phil.  If all of those leases became like 
20	a grandfathered lease, okay?  So that they could 

21	charge $600 times seven -- no.  They could charge, 
22	what, twice what a nongrandfathered licensee can 
23	charge.  You with me?  
24		MR. SANDERSON:  Yes, ma'am.  
25		COMMISSIONER WHITAKER:  What impact 

00200
 1	would that have on what Chairman Clowe is saying?  
 2		MR. SANDERSON:  The -- I guess the 
 3	question that I understand from you is the 

 4	difference that you're saying between the 
 5	grandfathered and --  
 6		COMMISSIONER WHITAKER:  Yeah.  If you 
 7	eliminated the difference in license class so that 
 8	every license had the benefit of a grandfathered 
 9	license --  
10		MR. SANDERSON:  Correct.  
11		COMMISSIONER WHITAKER:  What would 
12	that do to the value of that license, because isn't 
13	the value of it primarily because it's different 
14	than the other license?
15		MR. SANDERSON:  Yes.  Currently the 
16	value of that license is because you can't get it 
17	anymore.  
18		COMMISSIONER WHITAKER:  Okay.  But 
19	if you could get it and anybody could get it, then 
20	would you agree or disagree with what Chairman 
21	Clowe said? 
22		MR. SANDERSON:  There would not be -- 
23	well, there would not be -- it would not be 
24	considered an asset in the sense that you could go 
25	get a commercial lessor license to lease to seven  

00201
 1	charities, and Commissioner Clowe could go get one.  
 2	And if you decided to get out of the business, 

 3	there's no reason for him to buy your license 
 4	because he can get one on his own merits.  
 5		COMMISSIONER WHITAKER:  So if I had 
 6	such a license and Chairman Clowe had such a 
 7	license, I could basically make twice what I could 
 8	under existing license requirements, right?
 9		MR. SANDERSON:  Yes, ma'am.
10		COMMISSIONER WHITAKER:  I could 
11	double my total revenue --  
12		MR. SANDERSON:  Yes, ma'am.  
13		COMMISSIONER WHITAKER:  -- if the 
14	market allowed it.  And the testimony we're hearing 
15	is pretty much across the board, the market is not 
16	allowing that.
17		MR. SANDERSON:  Yes, ma'am.
18		COMMISSIONER WHITAKER:  Is that a 
19	fair statement?  
20		MR. SANDERSON:  Yes, ma'am, it is.  
21		CHAIRMAN CLOWE:  I'm not arguing with 
22	you.  I'm just --  
23		COMMISSIONER WHITAKER:  Yeah, yeah, 
24	yeah, I'm just making sure -- I just want to make 
25	sure I understood that.  

00202
 1		CHAIRMAN CLOWE:  I think the people 
 2	who have testified to the BAC yesterday and 
 3	testified before us today represent an element in 
 4	the Bingo industry that is entrepreneurial is 
 5	risk-taking and has capital in place, and these are 
 6	the people who help the little charities, as I see 
 7	the picture being painted, to get their $3,000 a 
 8	month, which is vital to them.  And if you change 
 9	that license structure and don't provide a 
10	provision for those people to stay in this formula, 
11	I'm concerned about that.  
12		COMMISSIONER WHITAKER:  I have no 
13	problem with really addressing the financial 
14	viability of that license.  Okay?  In fact, I think 
15	it ought to be revisited.  I guess what I'm just 
16	asking you is whether you're fundamentally opposed 
17	to the idea of having one type of license instead 
18	of two? 
19		CHAIRMAN CLOWE:  No, I'm not, as long 
20	as a provision is made to keep that individual, who 
21	is entrepreneurial, a risk-taker, has the capital, 
22	wanting to be a commercial lessor.  
23		COMMISSIONER WHITAKER:  I would agree 
24	with that.  I would like to hear from Commissioner 
25	Cox.  

00203
 1		COMMISSIONER COX:  Well, the question 
 2	that I see framed there is, should these licenses 
 3	continue to have intrinsic value or should these 
 4	operators be required to create extrinsic value by 
 5	being good operators.
 6		Right now what these people have, as 
 7	I understand it, is they can be the worst operators 
 8	in the world and yet they have a valuable property 
 9	right in this grandfathered license, and if the 
10	grandfathered status is removed, then I think it's 
11	absolutely imperative that there be a class of 
12	license created that would at least allow them to 
13	create extrinsic value in their property rights.  
14		COMMISSIONER WHITAKER:  I think, 
15	actually, we're in consensus.  
16		CHAIRMAN CLOWE:  Yeah.  I think I 
17	would add this to that.  You know, I'm burdened by 
18	my experience.  I think that's already in place and 
19	I think the good operators are building value and 
20	are creating an environment that brings on 
21	profitability and added value.  Those who are not 
22	good operators can't get $10,000 for their permits 
23	-- for their licenses.  And I think you have those 
24	economic forces in play in the market.  And maybe, 
25	you know, if you give those people time, that 

00204
 1	situation works itself out.  But I'm respectful of 
 2	that element in this industry and I don't want to 

 3	see a recommendation on my part that takes them out 
 4	of the picture, and I think we've got consensus on 
 5	that.  
 6		COMMISSIONER COX:  I certainly concur 
 7	with that.  
 8		CHAIRMAN CLOWE:  And my suggestion to 
 9	you is that we will not come up with the exact 

10	verbage here today or the right answer.  I think 
11	that's a legislative answer.  I think our duty 

12	today is to vote on these recommendations, or the 
13	agency's position on these recommendations, and 

14	then work with Sunset and work with the Legislature 
15	as a resource to help a right solution come about.  
16		COMMISSIONER COX:  Absolutely.  
17		CHAIRMAN CLOWE:  This report is due 
18	from the Lottery Commission in the Sunset 
19	Commission's hands on the 12th, which is day after 
20	tomorrow.  I think we've taken a big step forward 
21	in understanding on these issues but I don't think 
22	we can write law and say, this is what we think it 
23	ought to be.  
24		COMMISSIONER WHITAKER:  What is 

25	language that would both capture the idea of 

00205
 1	eliminating having two separate types of licenses 
 2	but at the same time recommending a review of the 
 3	license structure to make sure that it's 
 4	economically viable?  
 5		COMMISSIONER COX:  I found some 
 6	language like that and it's in our response page 5 
 7	of 17, the last sentence in the first paragraph.  
 8	And a modification -- but I think this -- both 
 9	these matters, both the distribution and the 
10	classes of licensees, I think it's paramount that 
11	whatever is done not jeopardize the viability of 
12	Bingo operations.  And that whatever our reply is, 
13	we emphasize in both of these that whatever the 

14	solution is, the primary goal should be not to 
15	jeopardize -- what were those words, the viability 
16	of the Bingo operations.  
17		COMMISSIONER WHITAKER:  Could Phil or 
18	Kim --  
19		CHAIRMAN CLOWE:  Let's give that test 
20	to Gary.  
21		MS. KIPLIN:  Is it time for Gary to 
22	come up and --  
23		CHAIRMAN CLOWE:  Yeah.  Gary, I don't 
24	think we want you to do this in front of us.  Do 

25	you have a sense of where we're going on these 

00206
 1	issues?  
 2		MR. GRIEF:  I think I'll have some 
 3	assistance from our General Counsel and from Diane 
 4	Morris, who I know has been taking careful notes, 
 5	and we can go back and rely on the court reporter, 

 6	as well.  If I understand you right, you prefer not 
 7	to try to put something on paper at this meeting? 

 8		CHAIRMAN CLOWE:  At this time, yes, 
 9	sir, but we do want to do it for approval at this 
10	meeting.  What I'm hopeful is that you and Diane 
11	and Kim and Phil, whomever, can take the sense of 

12	the discussion of the commissioners and put verbage 
13	together and come back to us with that.  

14		MR. GRIEF:  In the meeting?  
15		CHAIRMAN CLOWE:  In the meeting.  
16		MR. GRIEF:  I think we can do it.  

17		CHAIRMAN CLOWE:  I would like to vote 
18	on this today in open meeting, if we can.  

19		MR. GRIEF:  I can do that.  
20		COMMISSIONER WHITAKER:  May we talk 
21	about 4.1? 
22		CHAIRMAN CLOWE:  Yes, ma'am.  
23		COMMISSIONER WHITAKER:  The direct 
24	comment that was being addressed by staff, which 
25	is, is the current formula not simple enough.  I'm 

00207
 1	persuaded that it's not simple enough.  I agree 
 2	with you, Chairman Clowe, that the net message left 
 3	is that we're, in fact, agreeing with 25 percent as 
 4	a guaranteed off-the-top after deducting only prize 
 5	money, and that I am convinced, from what I've 
 6	heard here today, and that is, a -- not something I 
 7	can concur in.  
 8		CHAIRMAN CLOWE:  You cannot concur?  
 9		COMMISSIONER WHITAKER:  I -- I think 
10	that I cannot concur in what the Sunset staff had 
11	said.  I am very persuaded by what Phil said, which 
12	is 54 percent, even by our own numbers, 54 percent 
13	of the charities could not live with this standard 
14	at 25 percent, and that's a huge number.
15		So I would like language that does 

16	concur with the fact that we need to simplify, it 
17	does not concur with that number of 25 percent.  
18	And on the issue of an automatic required minimum 
19	distribution, I would like some more guidance from 
20	our deliberations.  

21		COMMISSIONER COX:  Well, I think it's 
22	very important that whatever the distribution 

23	formula turns out to be, maybe it needs to be 
24	separate, maybe it can't be separate, because this 
25	formula that, and I'm going to assume 

00208
 1	intentionally, does two things:  It protects the 
 2	capital, the operating working capital of the 
 3	charity, as well as serves its charitable purpose, 
 4	and I think both of those must be considered.  
 5		CHAIRMAN CLOWE:  I agree.  
 6		COMMISSIONER WHITAKER:  Are you in a 
 7	position to then say, we think this other approach 
 8	would work, or is it your view to just say we just 
 9	don't concur? 
10		COMMISSIONER COX:  Well, it might 
11	work if there were some kind of minimal capital 
12	requirements substituted for the impact that this 
13	has in most cases.  And I think a minimum capital 
14	requirement would be more effective because while 
15	this is a sort of forced savings account, it 
16	doesn't ensure that all of the charities are going 
17	to have adequate working capital to operate that 
18	business.

19		So I would like to see something that 
20	would simplify the distribution, perhaps this gross 
21	wind tax kind-of-thing, but also set up a 
22	requirement for a minimum working capital that the 
23	charity needed to have to be in business.  
24		COMMISSIONER WHITAKER:  Would you set 
25	a percentage? 

00209
 1		COMMISSIONER COX:  I don't know how I 
 2	would do it.  I know that the jurisdictions that 
 3	have -- that license casino gaming have formulas 
 4	for this.  It depends on how many tables you 
 5	operate, how many machines you operate, and what 
 6	your limits are, and a number of factors.  But they 
 7	come up with a minimum working capital that's 
 8	required to have a license.  And I'd like to see 
 9	that addressed positively, as opposed to as a 
10	by-product formula that does not necessarily 
11	address that.  
12		CHAIRMAN CLOWE:  And I want to again 
13	say, you know, our response is due day after 
14	tomorrow --  
15		COMMISSIONER WHITAKER:  Right.  
16		CHAIRMAN CLOWE:  -- and I think what 
17	we're really talking about now is the legislative 
18	process, and so my suggestion would be that we not 
19	concur in 401 or 4.1, and that we serve as a 
20	resource to the Sunset Committee in assisting them 
21	with more finite detail regarding cash flow and 
22	capital preservation and help them write a proposed 
23	law, if they call on us to do that.  
24		COMMISSIONER WHITAKER:  Can we use 

25	language not concurring but then not just leave a 

00210
 1	period there but go on to say, here's the general 
 2	area that we think --  
 3		CHAIRMAN CLOWE:  Yes.  Absolutely.  
 4		COMMISSIONER WHITAKER:  -- further 
 5	inquiry --
 6		CHAIRMAN CLOWE:  And state our 
 7	concerns and state our hope.  
 8		COMMISSIONER COX:  But to keep it 

 9	very general.  I think my -- in that spirit, my 
10	concern would be to address by saying, to 
11	jeopardize -- let's don't do anything that would 
12	jeopardize the viability of Bingo operations or the 
13	patrons of the Bingo games, who are the ones who 
14	are protected by adequate capital requirements.  
15		CHAIRMAN CLOWE:  And my hope is that 
16	you take that position when we testify before the 
17	Sunset Committee and they say, well, if you don't 
18	like this, what is it you want?  And that's when we 
19	need to step forward.  
20		COMMISSIONER WHITAKER:  Well, I  
21	think that we need to -- some more information, 
22	Phil.  I mean, I heard a lot of information today 
23	here that I think is very important for us to 
24	analyze and I'd like to have your specific feedback 
25	to some of the numbers I have I heard here today.  

00211
 1		MR. SANDERSON:  This is as far as the 
 2	distributions, the current formula?  
 3		COMMISSIONER WHITAKER:  Well, for 
 4	example, some of the concerns about the table that 
 5	shows X number of charities not making 
 6	distributions, and Mr. Fenoglio's comments about, 
 7	well, you need to put that in a certain kind of 

 8	context.  I'd like to get some more information 
 9	from you about what context it should be put in.

10		When you said that the comparison or 
11	the state was in apples to oranges, I'd like to 
12	really pin that down so I understand that better.   
13		MR. SANDERSON:  Okay.  
14		COMMISSIONER WHITAKER:  That's just 
15	an example.  Because one of the things the Sunset 
16	Commission staff was very concerned about is 

17	charities whose purpose is to give money to 
18	charities, who are giving money to charities.  
19		MR. SANDERSON:  Yes, ma'am.  That is 
20	correct.  
21		COMMISSIONER WHITAKER:  So --  
22		MS. KIPLIN:  Could I read this and 
23	just see if I'm even on the right track.  The 
24	agency concurs with the recommendation to simplify 
25	the statutory charitable distribution formula to 

00212
 1	ensure Bingo proceeds are used for charitable 
 2	purposes, period.  The agency is open to any 

 3	approach that would achieve this goal so long as 
 4	the approach does not jeopardize the viability of 
 5	Bingo operations or patrons of Bingo games.  
 6		COMMISSIONER WHITAKER:  But should 
 7	not be read as concurring in.  The particular 

 8	example of a 25 percent, what, what's the phrase?  
 9	Gross revenue --
10		CHAIRMAN CLOWE:  Mandatory.  
11		COMMISSIONER WHITAKER:  -- mandatory 
12	contribution.  
13		CHAIRMAN CLOWE:  If you could just 
14	get that blended, I think that's the sense of it.  
15		MS. KIPLIN:  Okay.  So the 

16	recommendation made does jeopardize --  
17		CHAIRMAN CLOWE:  Yes, it does.  
18		MS. KIPLIN:  -- the viability.  And 
19	just leave it at that?  We recommend Sunset staff 
20	recommend --  
21		COMMISSIONER WHITAKER:  Can we see 

22	that in written form and maybe I can respond to it?  
23		MS. KIPLIN:  Oh, yes.  What I 

24	anticipate just, you know, and I know this is 
25	somewhat tedious but just from a logistics point of 

00213
 1	view, what I anticipate is potentially, of course 
 2	it's the Commission's call, during Executive 
 3	Session we'll have staff working this out and so 
 4	hopefully we can come out of Executive Session, and 
 5	at that point, I know it's tedious but when it's 

 6	all said and done, it's you-all's response -- we 
 7	put it up --  
 8		CHAIRMAN CLOWE:  We understand.  

 9		MS. KIPLIN:  -- on the screen and 
10	work out. 
11		CHAIRMAN CLOWE:  Don't give us a 
12	preamble.
13		MR. GRIEF:  Mr. Chairman, if I could 
14	ask one question, and I would like for you to 
15	consider this.  Ms. Brackett, the Chairperson of 
16	the BAC committee gave me a disk this morning that 
17	I presume is the statement, the report that she 
18	read this morning.  I don't know whether the 

19	Commission would like for me to include that 
20	written document as an attachment to our response 
21	or how you would like me to address that.  
22		COMMISSIONER WHITAKER:  Why can't we 
23	just attach it and say this is the statement of the 
24	BAC.  It is neither adopted nor not adopted by the 
25	Commission but is added as a, what, as a resource, 

00214
 1	as a statement of their thoughts? 
 2		CHAIRMAN CLOWE:  That's fine.  As a 
 3	resource.  I think, frankly, the testimony, and, 

 4	you know Ms. Brackett did exactly what I ask her to 
 5	do, and she worked hard to produce that document 
 6	working with attorneys, and we appreciate that, but 
 7	I think the testimony itself is so much more 
 8	helpful and I think the testimony that we're going 
 9	to give to the Sunset Committee is going to be 
10	helpful.  But I think maybe the most helpful thing 
11	will be the testimony that certain members of the 
12	public give to the Sunset Committee.  That's what 
13	really is meaningful.  
14		COMMISSIONER WHITAKER:  Does that 

15	help you, Gary?  I would just attach it and that 
16	way we're not saying that's the only resource -- 
17	that we're not saying that the testimony that was 
18	given today is also not part of the record.  It's 
19	simply a practical way of solving that particular 
20	issue.  
21		CHAIRMAN CLOWE:  That takes care of 
22	4.1 and 5.1.  All right.  Now, Commissioners --  
23		COMMISSIONER WHITAKER:  I'm hungry.

24		CHAIRMAN CLOWE:  Okay.  I know you're 
25	hungry and I just want to go ahead and get my neck 

00215
 1	way out.  
 2		COMMISSIONER COX:  Stick it out 
 3	there.  
 4		CHAIRMAN CLOWE:  Okay.  I am prepared 
 5	to make a motion to adopt the agency's response in 
 6	regards to Bingo issues adopting fully those 
 7	remaining, 4.2, 5.1, with the exception of the 
 8	agency's response, the adoption in this 
 9	recommendation will not correct the existing 
10	problems which exist in the various lessor license 
11	types.  The agency welcomes any approach that would 
12	eliminate confusion regarding this issue.  I think 
13	that follows what we're saying in 5.1.
14		And then in 5.2, change the agency's 
15	response there to, the agency does not concur with 
16	this recommendation.  And we've talked about the 

17	language that Gary is going to try to come up with 
18	there.
19		In regard to item six, I'm prepared 
20	to move that we adopt all those agency response 

21	positions.
22		In regard to item seven, I'm prepared 
23	to move we adopt all of those in their entirety.
24		In regard to item eight, I'm prepared 
25	to move that we adopt those -- that one in its 

00216
 1	entirety.  It's only one.
 2		And item ten, I'm prepared to move 
 3	that we adopt all of those, 10.1 through 10.8.  

 4		COMMISSIONER WHITAKER:  I would agree 
 5	except that I would like to hold off on 4.1, 5.1 
 6	and 5.2.  Correct? 
 7		CHAIRMAN CLOWE:  Yes.  
 8		COMMISSIONER COX:  Okay.  So 
 9	excluding those, I -- 
10		CHAIRMAN CLOWE:  Those three.  Yes, 
11	sir. 
12		COMMISSIONER COX:  And I concur with 
13	that, and I'll tell you why I concur with that.  I 
14	think that the objections will have their day in 
15	court.  All of those, or most all of those call for 
16	rule-making, and those objections can be raised at 
17	that time.  
18		CHAIRMAN CLOWE:  That's right.  Is 
19	there a motion? 
20		COMMISSIONER WHITAKER:  So move.  
21		COMMISSIONER COX:  Second.  
22		CHAIRMAN CLOWE:  The motion has been 
23	made.  All in favor, please say aye.   Aye.
24		COMMISSIONER COX:  Aye.
25		COMMISSIONER WHITAKER:  Aye.   

00217
 1		CHAIRMAN CLOWE:  The vote is three 
 2	zero -- 
 3		MS. CLOUD:  Commissioners --

 4		CHAIRMAN CLOWE:  -- in favor.
 5		MS. CLOUD:  I'm sorry.  I didn't mean 
 6	to interrupt.  The Lottery's issues in this 
 7	response, did you want to --  
 8		CHAIRMAN CLOWE:  We'll get to you.  
 9		MS. CLOUD:  Okay.  You're leaving me 
10	out.
11		CHAIRMAN CLOWE:  We're trying to turn 
12	these Bingo folks loose.  They've been here for a 
13	day and a half.
14		COMMISSIONER WHITAKER:  How quickly 
15	could we get language that -- before they leave 

16	because it sounds like we're fairly close? 
17		MS. KIPLIN:  What I'm thinking, 
18	Commissioners, is that they'll hash out language 
19	while we're in Executive Session.  Come out, that, 
20	you know, we never can predict Executive Session.  
21	The only -- the other thing I can suggest is that 

22	we take a bit of a break, you know, fifteen minutes 
23	or so, I'm thinking.
24		MR. GRIEF:  If I could just bring one 
25	other thing to the Commissioners' attention.  Were 

00218
 1	you trying to address all the Bingo issues?  
 2		CHAIRMAN CLOWE:  Did I miss one?  
 3		MR. GRIEF:  Well, I want to just 

 4	point out issue two that has to do with the size of 
 5	the Lottery Commission, and there is some 
 6	discussion in the narrative in the recommendation 
 7	about the one commissioner having experience in the 
 8	Bingo industry, and I just wanted to point that 
 9	out.  
10		CHAIRMAN CLOWE:  Thank you, Gary.  

11	And I think we'll get to that when we get to the 
12	Lottery issues.  I saw that more as a Lottery 
13	issue, frankly, we already have a requirement for a 
14	Bingo commissioner and we'll get to that then.  
15		MR. GRIEF:  Okay.  
16		CHAIRMAN CLOWE:  I think we're 95 
17	percent finished with Bingo, at this point in time.  
18	And we have to deal with Lottery issues on Sunset 
19	and we've got one commissioner who's hungry.  
20		COMMISSIONER WHITAKER:  Well, that's, 
21	obviously, not a reason to break.  I'm just trying 
22	to think for the audience here.  
23		CHAIRMAN CLOWE:  We've got quite a 

24	bit of other business and what I'm trying to do is 
25	finish up, if the Commissioners will allow me, the 

00219
 1	Bingo business.
 2		I think we need to go into Executive 
 3	Session now and take care of some other business.  
 4	Those that want to see the final language on 4.1, 
 5	5.1 and 5.2, will just have to stay over.  I don't 

 6	want to rush Gary and Diane.  I want them to do the 
 7	best job they can.  And if it's all right with you, 
 8	Commissioners --  
 9		COMMISSIONER WHITAKER:  How about 
10	this, and that is, not rushing them, but if they're 
11	prepared to talk to us before we're out of 
12	Executive Session, that we break.  
13		CHAIRMAN CLOWE:  That'd be fine.  
14		COMMISSIONER WHITAKER:  Come back 
15	out.  
16		MS. KIPLIN:  Commissioners, before 
17	you make a motion to go in Executive Session.  With 
18	regard to those people that may be here for Bingo 
19	rules.  I didn't know if you were going to consider 
20	taking those up prior -- I don't think it would 
21	take --  
22		CHAIRMAN CLOWE:  Well, let's take 
23	them up.
24		MS. KIPLIN:  Okay.
25		CHAIRMAN CLOWE:  That's a good 

00220
 1	thought.  Thank you, Kim.
 2		I believe that's item five.  
 3	Consideration of possible discussion and/or action, 
 4	including proposal on amendments to 16 TAC 402.567 
 5	-- that's not it.  
 6		MS. KIPLIN:  Yes, sir.  

 7		CHAIRMAN CLOWE:  It is?  
 8		MS. KIPLIN:  Yes, sir.
 9		CHAIRMAN CLOWE:  -- relating to the 
10	Bingo Advisory Committee.
11		MS. KIPLIN:  Yes, sir.  
12	Commissioners, what you have before you is a 

13	proposal to amend the Bingo Advisory Committee 
14	rule, it's to clarify the nomination and 
15	appointment of persons to the committee.  It's also 
16	to clarify the purposes and the duties of the 
17	committee.
18		It's also to set out the 
19	responsibilities of the committee.  In part, some 
20	of these changes are to implement the Government 

21	Code Chapter 2110 relating to the advisory 
22	committee's and if you'll recall that there was a 
23	narrative regarding that particular issue in the 
24	Sunset Staff Report.
25		These proposed amendments, frankly, 

00221
 1	were in the works long before the Sunset Staff 
 2	Report but because of the need to take these to the 
 3	Bingo Advisory Committee, that's why they're coming 
 4	to you now.  
 5		It is my understanding that the Bingo 
 6	Advisory Committee has had an opportunity to weigh 
 7	in on these proposed amendments.
 8		I will bring your attention, because 
 9	of the location of a meeting outside of the Austin 
10	Headquarters, there is a negative fiscal net that 
11	is attached to this, and that's $1500 per year.  I 
12	imagine that's travel expenses, in large part to 
13	have a meeting outside of the Austin Headquarters 
14	taking into consideration the staff, staff 
15	traveling.
16		The staff does at this time recommend 
17	that you-all vote to propose these amendments to 
18	the Bingo Advisory Committee rule and to publish in 
19	the Texas Register for public comment.
20		COMMISSIONER WHITAKER:  So move.  
21		COMMISSIONER COX:  Second.  
22		CHAIRMAN CLOWE:  Move to second.  All 
23	in favor, please say aye. 
24		COMMISSIONER COX:  Aye.
25		COMMISSIONER WHITAKER:  Aye. 

00222
 1		CHAIRMAN CLOWE:  Opposed, no.  The 
 2	vote is three/zero, in favor.  
 3		MS. KIPLIN:  It's been brought to my 
 4	attention that the fiscal year really should begin 
 5	in 03 and then go to 07.  It doesn't change in 
 6	substantive numbers.
 7		On 558, Commissioners, I'll take 
 8	these up in two part.  We have a proposal to repeal 
 9	existing rule 402.558 relating to seal require 
10	disposable -- 
11		CHAIRMAN CLOWE:  Now, you're into 
12	item six.  
13		MS. KIPLIN:  Oh, I'm sorry.
14		CHAIRMAN CLOWE:  That's all right.  I 
15	just wanted to clarify where you were.  
16		MS. KIPLIN:  Correct.  In conjunction 
17	the -- what you have before you is a proposal for a 
18	new rule, 16 Texas Administrative Code 402.558 
19	relating to Bingo card paper.
20		The reason the staff is coming 
21	forward with a new rule rather than trying to 
22	amend the old rules is just because the changes are 
23	so wholesale.  It makes better sense to the public 
24	to be able to see what they're commenting on in 
25	regular text.

00223
 1		It's my understanding that both of 
 2	these went to the Bingo Advisory Committee and they 
 3	had an opportunity to weigh in and their weigh in 
 4	has been incorporated.
 5		I will tell you that on page 7 of 14.  
 6	There is an error that should have been picked up 
 7	and it was not, and I apologize for that.  It's 
 8	B-2, capital B, where it says, series numbers shall 
 9	be displayed.  That should be discretionary series 
10	numbers may be displayed in the center square of 
11	the Bingo card paper.
12		Additionally, this rule-making --  
13		COMMISSIONER COX:  Excuse me, Kim.
14		MS. KIPLIN:  Yes, sir.
15		COMMISSIONER COX:  I'm not finding -- 
16	are you on page 7 of 14? 
17		MS. KIPLIN:  Yes, sir.  
18		COMMISSIONER COX:  Oh, B.  I'm sorry.  
19	I thought you said D.  Thank you.
20		MS. KIPLIN:  Additionally, 
21	Commissioners, this preamble is recommending a 

22	public comment hearing be conducted to receive 
23	public comment from those that wish to provide that 
24	comment.  We have not picked the date yet.
25		I'd like to make sure that we are 

00224
 1	talking to people within the industry that want to 
 2	attend so that we're reconciling calendars for both 
 3	the staff and for the industry to the extent 
 4	possible.
 5		With that, I would say that the staff 
 6	does recommend that you vote to propose the repeal 
 7	of the existing 402.558 and you vote to propose new 
 8	section 402.558 for public comment on the Texas 
 9	Register. 
10		COMMISSIONER WHITAKER:  So move.  

11		CHAIRMAN CLOWE:  Second.  All in 
12	favor please say aye.  Aye. 
13		COMMISSIONER COX:  Aye.
14		COMMISSIONER WHITAKER:  Aye.
15		CHAIRMAN CLOWE:  Opposed, no.  The 
16	vote is three/zero, in favor.
17		Did you have a comment?
18		COMMISSIONER COX:  I did.  At the 
19	Bingo Advisory Committee when these rules were 
20	considered, a general point was raised that, I 

21	think can help us all, and to help me, and that was 
22	when these come in, they be headed up by where 

23	they've been.  When were they first presented to 
24	this board for circulation.  When did they go to 
25	the advisory -- Bingo Advisory Committee, etc.

00225
 1		MS. KIPLIN:  And so you're looking 
 2	for chronology of the significant events?  
 3		COMMISSIONER COX:  Yes.  
 4		MS. KIPLIN:  I think we can 
 5	accomplish that.  
 6		CHAIRMAN CLOWE:  Ladies and 
 7	gentlemen, we have reached a point where we are now 
 8	going to go into Executive Session, which means 
 9	this will adjourn the public meeting.
10		We are in agreement that as soon as 
11	the verbage on the comments that we have been 

12	making in the public conference are ready to be 
13	returned to us, we will come out of Executive 
14	Session and reconvene the public session.

15		So those of you who would like to see 
16	what action the Commission takes on 5.1, 5.2 and 

17	4.1, in the Sunset recommendation are invited to 
18	stay and participate by being observers in that 
19	meeting.
20		At this time, I move the Texas 
21	Lottery Commission go into Executive Session to 
22	deliberate the duties and evaluations of the 

23	Executive Director, Internal Auditor and Charitable 
24	Bingo Operations Director, pursuant to Section 
25	551.074 of the Texas Government Code.  To 

00226
 1	deliberate the duties of the General Counsel and 
 2	Security Director pursuant to Section 551.074 
 3	of the Texas Government Code.
 4		To receive legal advice regarding 
 5	pending or contemplated litigation and/or to 
 6	receive legal advice pursuant to Section 551.071 
 7	(1) (A) or (B) of the Texas Government Code, and/or 
 8	to receive legal advice pursuant to Section 
 9	551.071, (2) of the Texas Government Code, 
10	including but not limited to, TPFV Group, Inc. 
11	versus Texas Lottery Commission; Retired Sergeant 
12	Majors' Association, et al.; Loretta Hawkins versus 
13	Texas Lottery Commission; State of Minnesota, et 

14	al., versus NIGC, et al., Scientific Games and 
15	Pollard Banknote versus Texas Lottery Commission 
16	and Linda Cloud, Executive Director.
17		Ideas, Inc., and Associates in  
18	Implants versus Texas Lottery Commission and Linda 

19	Cloud.  TXTV versus Texas Lottery Commission, Ieric 
20	and Chris Rogers versus Texas Lottery Commission 

21	and Executive Director; Keane versus Texas Lottery 
22	Commission.
23		Contract regarding the Charitable 
24	Bingo system, Employment law, personnel law, 
25	procurement and contract law, and general 

00227
 1	government law.  Is there a second? 
 2		COMMISSIONER WHITAKER:  Second.
 3		CHAIRMAN CLOWE:  All in favor say aye.
 4		COMMISSIONER COX:  Aye.
 5		COMMISSIONER WHITAKER:  Aye.
 6		CHAIRMAN CLOWE:  Aye.  The vote is 
 7	three/zero, in favor.  The Texas Lottery Commission 
 8	will go into Executive Session.  The time is 1:00 
 9	p.m.  Today is September 10, 2002.
10		(Executive Session 1:00 p.m. 
11		 to 3:03 p.m.)   
12		CHAIRMAN CLOWE:  The Texas Lottery 

13	Commission is out of Executive Session.  The time 
14	is 3:03 p.m.  There is action to be taken as a 

15	result of the Executive Session.  I move the 
16	adoption of the performance evaluation for the 
17	executive director.  Is there a second?  
18		COMMISSIONER WHITAKER:  Second.  

19		CHAIRMAN CLOWE:  All in favor, please 
20	say aye.  
21		COMMISSIONER WHITAKER:  Aye.
22		CHAIRMAN CLOWE:  Aye.  Opposed, no.  
23	The vote is three/zero, in favor.
24		We now have the language from our 
25	staff, and I believe the Commissioners are 

00228
 1	reviewing that at this time, relative to items 
 2	regarding Bingo from the Sunset Review.
 3		I want to correct on the record a 
 4	misstatement that I just made.  There was one 
 5	extension and two votes for approving on that last 
 6	vote.  Thank you.
 7		Now, moving back to item number 
 8	eight.  Report, possible discussion and/or action, 
 9	including the agency's response to the Sunset 
10	Commission staff report.
11		Gary, why don't you come on up and 
12	we'll deal with these three items on the Bingo side 
13	and then we'll get to the Lottery shortly.  
14		MR. GRIEF:  Would you like to put 
15	them on the screen?  
16		CHAIRMAN CLOWE:  No, I think the 
17	Commissioners are doing their work, probably going 
18	to talk to you about their suggestions here in just 
19	a minute.
20		Commissioner Whitaker, do you have 
21	any comments on the proposed new language?  
22		COMMISSIONER WHITAKER:  Of that?  
23		CHAIRMAN CLOWE:  Yes.  
24		COMMISSIONER WHITAKER:  I've given my 
25	proposals to Diane.  

00229
 1		CHAIRMAN CLOWE:  All right.  
 2		COMMISSIONER WHITAKER:  I'm very 
 3	satisfied with the changes to issue four.  

 4		CHAIRMAN CLOWE:  Very good.  
 5		COMMISSIONER WHITAKER:  And issue 
 6	five is close but not quite.  
 7		CHAIRMAN CLOWE:  Very good.  And 
 8	Commissioner Cox? 
 9		COMMISSIONER COX:  Mr. Chairman, I 

10	thought that what you laid out there that we agreed 
11	with was that we did not concur with this 
12	recommendation.  
13		CHAIRMAN CLOWE:  Well -- under 4.1?  
14		COMMISSIONER COX:  Yes, sir.  
15		CHAIRMAN CLOWE:  I think what the 
16	staff has done is use verbage that they hope 
17	delivers a message that we are in agreement with 
18	simplification and clarification, and they're 
19	trying to make that point without coming out with 
20	the flat statement that we do not concur.  I find 
21	that acceptable.  I'll leave it to you, as well.  
22	You can handle that.  
23		COMMISSIONER COX:  That's fine with 
24	me.  Now, in the last sentence, the last line:  
25	Does not jeopardize the viability of Bingo games or 

00230
 1	attendance by Bingo patrons.  My suggestion was not 
 2	that attendance was the concern but that the 
 3	interests of Bingo patrons was the concern, that 
 4	they not find an operator who doesn't have a 
 5	bankroll to pay the prizes.  
 6		CHAIRMAN CLOWE:  So we could just 
 7	probably put a "period" after Bingo games.  
 8		COMMISSIONER COX:  No.  I think it's 
 9	important that we make reference, as well, to the 
10	patrons, and thereby, that's the generalization of 
11	my specific recommendation that something be done 
12	to ensure that the operators have an adequate 
13	bankroll.  
14		CHAIRMAN CLOWE:  How would you state 
15	that? 
16		COMMISSIONER COX:  I would scratch 
17	"attendance by," and insert "the interests of."  
18		CHAIRMAN CLOWE:  "Interest of."  All 
19	right.  
20		MS. KIPLIN:  "The interests of."  
21		CHAIRMAN CLOWE:  "The interests of."  
22		MS. KIPLIN:  "Interests," plural.  
23		COMMISSIONER COX:  Yes.  
24		CHAIRMAN CLOWE:  And Commissioner 

25	Whitaker, do you find that acceptable in 4.1? 

00231
 1		COMMISSIONER WHITAKER:  Yes, although 
 2	it's a little bit broad.  
 3		COMMISSIONER COX:  And if it's -- and 
 4	I would be pleased if somebody could come up with 

 5	the right words to narrow it because I recognize 
 6	that those interests could be contrary to those of 
 7	the operators.  And what I'm really talking about 
 8	are things that are good for everybody, and that 
 9	is, that the operators be adequately capitalized.  
10		COMMISSIONER WHITAKER:  How about, 
11	does not jeopardize the adequate capitalization 
12	of Bingo operators, comma, in the viability of the 
13	Bingo games? 
14		MS. KIPLIN:  Operators would mean 
15	Bingo conductors, I think, if you're amenable to 
16	that suggestion?
17		MR. GRIEF:  Could you repeat that, 
18	Commissioner?
19		COMMISSIONER WHITAKER:  Nope, can't 
20	do it.
21		MS. KIPLIN:  After capitalization of 
22	Bingo conductors.
23		COMMISSIONER COX:  That's what I 
24	think I heard. 
25		COMMISSIONER WHITAKER:  Yeah.  And 

00232
 1	the viability.
 2		CHAIRMAN CLOWE:  Or the viability.  
 3		COMMISSIONER WHITAKER:  Or the 
 4	viability of the Bingo games, period.  
 5		CHAIRMAN CLOWE:  Okay.  Now, Diane, 
 6	can you read us back Commissioner Whitaker's 
 7	proposed changes on 5.1 and 5.2?
 8		MS. MORRIS:  Yes, sir.  I think I 
 9	can.  It would start with, the agency concurs with 
10	the recommendation of an elimination of the 
11	different types of licenses.  However, the agency 
12	does not concur with the recommendation in that it 
13	will not correct the identified problems regarding 
14	the existing license types.
15		I mischaracterized her thoughts so 
16	she's -- she's going to have to help me more.  

17		COMMISSIONER WHITAKER:  What I wanted 
18	to say is, I think we concur in the idea of having 
19	two separate types of licenses is not a good idea, 
20	per se.  But we don't want to think that by making 
21	the statutory change, we've corrected some real 
22	problems that we've observed.
23		So the language I had in mind was, 

24	the agency concurs in the idea of not having two 
25	different types of licenses, period.  However, the 

00233
 1	agency does not believe the recommendation corrects 
 2	identified problems concerning existing license 
 3	types in that it does not take into consideration 
 4	the significant investment that certain licensees 
 5	have made over time.
 6		The agency welcomes any approach that 
 7	would eliminate confusion regarding this issue.  
 8		CHAIRMAN CLOWE:  I find that 
 9	acceptable.  Do you, Commissioner Cox?  
10		COMMISSIONER COX:  I'm sorry, 
11	Mr. Chairman, I was working ahead.  
12		CHAIRMAN CLOWE:  That's all right.
13		MS. MORRIS:  Could we ask the court 
14	reporter to read that back.
15		CHAIRMAN CLOWE:  Yes.
16		(Read back) 
17		COMMISSIONER WHITAKER:  Diane, do you 
18	have it now?
19		MS. MORRIS:  Yes, ma'am.  And I 
20	can read it back what I heard, in my own words.
21		The agency concurs in the idea of not 
22	having the two different types of licenses.  
23	However, the agency does not believe this 
24	recommendation will correct the identified problems 
25	regarding the existing license types in that it 

00234
 1	does not take into consideration the significant 
 2	investment that certain licensees have made over 
 3	time.
 4		Last sentence is the same.  

 5	Furthermore, the agency welcomes any approach that 
 6	will eliminate confusion regarding this issue.

 7		From a style point of view, I'll 
 8	continue to say, we don't -- we have not had the 
 9	verbage being what the agency believes.  We've had 
10	the verbage, so the sentence that says -- I'll read 
11	it again.
12		The first one was, the agency concurs 
13	in the idea of not having the two different types 
14	of licenses, period.
15		And this is the sentence that was:
16		However, the agency does not believe 
17	the recommendation will correct the identified 
18	problems --

19		COMMISSIONER WHITAKER:  That's right.  
20	That's right.
21		MS. MORRIS:  I would impose on that 
22	and would say:  However, the agency -- and 
23	something other than "not believe," unless -- it's 
24	just not going --  
25		COMMISSIONER WHITAKER:  Does not 

00235
 1	concur -- to some extent, you're implying a part of 
 2	the concurrence.  It is not stated correctly, 
 3	because the stated recommendation is, let's 
 4	eliminate the two different types of licenses.  We 
 5	like that basic idea but we don't think it is going 
 6	to correct problems, so those problems have to be 
 7	addressed.  So --  
 8		MS. KIPLIN:  Does not agree --
 9		COMMISSIONER WHITAKER:  Does not 
10	agree?
11		MS. MORRIS:  Does not agree --
12		MS. KIPLIN:  -- the recommendation.

13		MS. MORRIS:  -- the recommendation.  
14	Okay, so the word --
15		COMMISSIONER WHITAKER:  "Believe."

16		MS. MORRIS:  -- "believe" will be 
17	changed to "agree." 
18		MS. KIPLIN:  Does not agree that.
19		MS. MORRIS:  I'm sorry.
20		COMMISSIONER WHITAKER:  Mr. Fenoglio, 
21	are you seeing problems with that wording?  
22		COMMISSIONER COX:  I have a question.  
23	I think it says that we don't see it solving the 
24	problem and I think my feeling is that it creates a 
25	problem because it eliminates a category in which 

00236
 1	these operators can viably operate and doesn't -- 
 2	unless the remaining category is changed, it 
 3	doesn't give them a place to go.  And if that's -- 
 4	if that's implicit in there, and our plan is that 

 5	when we give testimony at the Sunset hearing, we'll 
 6	talk about that then, further, then I'm fine with 
 7	that.  
 8		COMMISSIONER WHITAKER:  What if we 
 9	said, do not agree that it solves the problem, 
10	comma, in fact, it exacerbates --
11		COMMISSIONER COX:  Thank you.

12		COMMISSIONER WHITAKER:  -- or 
13	aggravate or --
14		COMMISSIONER COX:  Or create a new 
15	problem.  
16		MS. KIPLIN:  Enhance.
17		COMMISSIONER WHITAKER:  Enhance.
18		MS. MORRIS:  Okay.  So it would be:  
19	However, the agency does not agree --
20		MS. KIPLIN:  That. 
21		MS. MORRIS:  -- that the 
22	recommendation will solve -- will solve the 
23	identified problems regarding the existing license 
24	types, and, in fact --  
25		MS. KIPLIN:  May.

00237
 1		MS. MORRIS:  -- may enhance --
 2		MS. KIPLIN:  Worsen.

 3		MS. MORRIS:  Worsen.
 4		COMMISSIONER COX:  Exacerbate.
 5		COMMISSIONER WHITAKER:  Exacerbate 
 6	those problems.  Boy, that's a lawyer word.  
 7		COMMISSIONER COX:  Is that cool?  
 8		COMMISSIONER WHITAKER:  Exacerbate 

 9	those problems, period.  And then just go on with 
10	the recommendation, does not take into 
11	consideration.
12		CHAIRMAN CLOWE:  Okay.
13		COMMISSIONER WHITAKER:  Separate 
14	sentence.  
15		CHAIRMAN CLOWE:  That takes care of 
16	5.1.
17		Commissioner Cox, did you have some 
18	language you want -- 
19		MS. KIPLIN:  I just want to make sure 
20	that -- I'm sorry to interrupt you but I'm seeing 
21	Mr. Grief is typing as fast as he can.  

22		CHAIRMAN CLOWE:  I think they got it.  
23		MR. GRIEF:  Could I read this, the 
24	entire response back, one more time?

25		CHAIRMAN CLOWE:  Sure.  

00238
 1		MR. GRIEF:  The agency concurs in the 
 2	idea of not having two different types of 
 3	licenses.  However, the agency does not agree that 
 4	the recommendation will correct the identified 
 5	problems regarding the existing license type, and 
 6	in fact, may exacerbate those problems.  Further, 
 7	the recommendation does not take into consideration 
 8	the significant investment that certain licensees 
 9	have made over time.
10		Furthermore, the agency welcomes any 
11	approach that will eliminate confusion regarding 
12	this issue.  
13		COMMISSIONER WHITAKER:  I would just 
14	take out the "further" because the rest of that 
15	sentence that you start with "further" is, in fact, 
16	the main example of the problem, is an articulation 
17	of the problem.
18		CHAIRMAN CLOWE:  Fair enough.
19		MS. MORRIS:  Grammatical error is 

20	going to be existing license types, not type.  
21		CHAIRMAN CLOWE:  Okay.  And did you 
22	have a recommendation for change in the proposed 
23	language in 5.2? 
24		COMMISSIONER COX:  Well, first, I 
25	have a question.  What is the issue regarding 

00239
 1	transferability?  The -- as I understand the 
 2	process, a license could be transferred and yet the 
 3	transferee must still qualify to operate.  So what 
 4	are we accomplishing if we eliminate or leave 
 5	transferability? 
 6		COMMISSIONER WHITAKER:  May I 
 7	respond? 
 8		CHAIRMAN CLOWE:  Certainly.  
 9		COMMISSIONER WHITAKER:  I think by 

10	eliminating the different types of licenses, you 
11	make the issue of transferability a moot point.  
12		COMMISSIONER COX:  That's what I 
13	thought.  
14		CHAIRMAN CLOWE:  You do.  

15		COMMISSIONER WHITAKER:  Therefore, I 
16	would change the language, but I knew you had 
17	language so I was going to -- 
18		COMMISSIONER COX:  Well, actually, I 
19	don't.  And I would welcome -- I do have a little 
20	something on another idea, but if you have thoughts 
21	about what that language might be, I would 
22	appreciate it.
23		COMMISSIONER WHITAKER:  The agency 
24	concurs with this recommendation, if the two 
25	license types are eliminated -- that's not what I 

00240
 1	want to say but that's the concept.  However, to 
 2	the extent that license types are not -- well, let 
 3	me work at it.  It's like I get halfway through 
 4	drafting.
 5		The agency would not concur with this 
 6	recommendation to the extent that it may jeopardize 
 7	the viability of Bingo games and Bingo patrons.  

 8	The recommendation to the extent it does not take 
 9	into consideration the significant investment that 
10	certain licensees have made over time, comma, is, 
11	what?  Is not a good idea?  Is not accepted?  Is 
12	not what?  Give me some ideas there.  
13		However, the agency is open to any 
14	alternative approach that would address 
15	transferability, comma, including the elimination 
16	of the two separate types of licenses, comma, as 
17	long as the approach does not jeopardize the 
18	capital -- whatever language was used before --  
19	viability.  
20		COMMISSIONER COX:  But here the 
21	issue, I think, is not capital, here the issue is 
22	the suitability of the operators, that it couldn't 
23	be transferred.  I think the whole issue here, is, 
24	is somebody going to be able to transfer to 
25	somebody who wasn't licensed, and as long as they 

00241
 1	can't do that, then I think it's moot.  
 2		COMMISSIONER WHITAKER:  It really 
 3	needs to be blended with 5.1, is the problem 
 4	because --  
 5		COMMISSIONER COX:  Yes.  
 6		COMMISSIONER WHITAKER:  -- if 5.1 is 
 7	handled one way, then there's a problem; and if 
 8	it's handled a different way, then it's moot.
 9		COMMISSIONER COX:  Exactly.  
10		COMMISSIONER WHITAKER:  Do you have 
11	any thoughts?  Kim, any thoughts?
12		MS. KIPLIN:  Yeah.  Well, yeah, I'm 
13	thinking that -- I was following up on yours.  The 
14	bottom line is, you do not concur with this 
15	recommendation because it is driven by the concept 
16	of eliminating grandfathered lessor licenses, which 
17	has become moot by virtue of the agency response to 
18	5.1.  Is that where you're coming from?  
19		COMMISSIONER WHITAKER:  If the issue 
20	is solved, so the two different types of licenses 
21	are eliminated, then it becomes moot.  If two 

22	license types remain, then we have a concern.  
23		MS. KIPLIN:  Okay.  
24		CHAIRMAN CLOWE:  Can you write that 
25	up?  That's what makes it difficult to -- 

00242
 1		COMMISSIONER WHITAKER:  To bifurcate 
 2	it.  
 3		CHAIRMAN CLOWE:  Either/or.
 4		MS. MORRIS:  Yes, sir.
 5		CHAIRMAN CLOWE:  All right.  Are 

 6	you-all confident?  You have the sense of it?  
 7		COMMISSIONER WHITAKER:  I'm going to 
 8	keep on working on it.  I can draft better if I 
 9	write it.
10		MS. MORRIS:  Can we continue to work 
11	on this and come back to this point?  
12		CHAIRMAN CLOWE:  Yes.  You may.  
13		Commissioners, we are going to move 
14	away from that while the staff continues to work on 
15	it, however, we still are in item eight.  And we 
16	have a number of other Sunset staff recommendations 
17	regarding the Lottery operation.
18		And by way of starting that 
19	discussion, I would like to suggest that the 
20	Commission consider approving all of those agency 
21	responses that have been put forward by the staff.
22		Could we have some discussion on that 
23	recommendation?  
24		COMMISSIONER COX:  Is there no public 
25	comment on any of those recommendations?  

00243
 1		CHAIRMAN CLOWE:  There has been none, 
 2	to my knowledge, but Commissioner Cox, I am not 

 3	sure, at this point, whether there has been an 
 4	effort to make those staff responses widely 
 5	publicized, in all fairness, in answer to your 
 6	question.  
 7		COMMISSIONER COX:  So there is no 
 8	rule to apply for the Bingo group that has an 
 9	interest in this that we see coming forward and -- 
10		CHAIRMAN CLOWE:  No.  
11		COMMISSIONER COX:  -- wishing they'd 
12	been here today?  
13		CHAIRMAN CLOWE:  No.  I can't say 

14	that that's not the case.  There are a number of 
15	organizations, which are active in the Lottery 

16	industry, but they have not shown enough interest, 
17	I think it's fair to say, to be here today.  

18		COMMISSIONER COX:  So our agenda 
19	posted this item --
20		CHAIRMAN CLOWE:  Most certainly.
21		COMMISSIONER COX:  -- public 
22	information --
23		CHAIRMAN CLOWE:  Certainly.
24		COMMISSIONER COX:  -- and they're not 
25	here? 

00244
 1		CHAIRMAN CLOWE:  That's right.  So 
 2	this meeting on this subject on the agenda was 

 3	posted properly but no one has appeared at this 
 4	meeting and filed an appearance form and indicated 
 5	the desire to speak to these issues.  Is there a 
 6	motion? 
 7		COMMISSIONER COX:  The motion that 
 8	you ask for is to approve the remaining portion of 
 9	this report, other than 4.1, 5.1 and	5.2, which are 
10	still in work?  
11		CHAIRMAN CLOWE:  That's correct.  So 
12	that would include -- let me just state -- it might 
13	be a good idea to state what I'm asking for in the 
14	form of a motion.
15		Approving the agency response to 
16	issue one, issue two, issue three --   
17		COMMISSIONER COX:  The rest are 
18	Bingo.  
19		CHAIRMAN CLOWE:  The rest are Bingo.
20		COMMISSIONER COX:  Nine.
21		CHAIRMAN CLOWE:  Nine.  I'm sorry.  
22	Issue nine.  Get back to the Lottery in issue nine 
23	and issue ten.  The last issue is the Bingo one.  
24	So those would be the agency responses that I 
25	entertain a motion, if there is one, to approve on 

00245
 1	behalf of the Commission.  
 2		COMMISSIONER COX:  Mr. Chairman, I 
 3	move that we accept and endorse the recommendations 
 4	of the staff with respect to items 1, 2, 3 and 9.  
 5		COMMISSIONER WHITAKER:  May I ask a 

 6	couple of questions --  
 7		CHAIRMAN CLOWE:  Certainly.  
 8		COMMISSIONER WHITAKER:  -- before we 
 9	vote?
10		On three, Linda, specifically 3.2.  
11	As I understand it, what we're saying is that we, 
12	in fact, rely on comprehensive business plan 
13	documents but that we appreciate that combining 
14	those into a single plan can add focus and 

15	efficiency to how we proceed.  Is that your 
16	understanding?  
17		MS. CLOUD:  Yes.  We have concurred 
18	with the recommendation, although we spelled out 
19	that we did have a strategic plan, the operating 

20	budget, the LAR, the marketing plan and now GTECH's 
21	five-year plan that is documents we use to do 
22	business with, that we use as a business plan, but 
23	that we would be willing to create a business plan 
24	on all --
25		COMMISSIONER WHITAKER:  Major --

00246
 1			MS. CLOUD:  -- a comprehensive plan 
 2	going forward.  
 3			COMMISSIONER WHITAKER:  And then on 
 4	3.3, where it says, although the agency believes a 
 5	cost-benefit analysis were performed and passed.
 6			As I understand it, you believe that 
 7	you do do cost-benefit analysis?  
 8			MS. CLOUD:  Yes. 

 9			COMMISSIONER WHITAKER:  And you agree 
10	that that's a good thing to do? 
11			MS. CLOUD:  Yes.  
12			COMMISSIONER WHITAKER:  Okay.  
13	Second.  
14			CHAIRMAN CLOWE:  There is a motion to 
15	second.  All in favor, please say aye.  
16			COMMISSIONER COX:  Aye.  
17			COMMISSIONER WHITAKER:  Aye.  
18			CHAIRMAN CLOWE:  Aye.  Opposed, no.  
19	The vote is three/zero, in favor.
20			Okay.  Mr. Grief, if you can get 4.1, 
21	5.1 and	5.2 finished, we're ready to go to work.  
22			I think we can go forward with the 

23	agenda.  There's another position open over here.  
24	I'll call on Linda Cloud and Toni Smith.  Report, 
25	possible discussion and/or action on Lottery sales 

00247
 1	and trends. 
 2		MS. SMITH:  Good afternoon, 
 3	Commissioners.  For the record, my name is Toni 
 4	Smith.  I'm the marketing director of the Texas 

 5	Lottery and I'll be very brief.  But I would like 
 6	to go over year-end sales for fiscal year '02, 
 7	since we have ended the fiscal year since our last 
 8	commission meeting.
 9		So our total sales for fiscal year 
10	2002 were 2.967 billion dollars so we did, 
11	unfortunately, fall short of the three billion 
12	challenge that Linda had given us but we were up  
13	4.98 percent over fiscal year 2001.  And these are 
14	gross sales -- not in sales, for the fiscal year 
15	end of 2002.
16		And I won't go into the detail by 
17	product unless you'd like for me to have that into 
18	the record; if not, we'll just quickly go through.

19		As we have started a new fiscal year, 
20	total fiscal -- for fiscal year 2003 sales today 
21	are 50 million point five, and this is down 13.81  
22	percent from fiscal year 02 sales of 58.6.
23		And then just to look at last week.  
24	We were -- oh.  Well, comparison fiscal year FY 03 
25	and FY 02, year-to-date sales by product, we do see 

00248
 1	just in the past week a decrease in Instants from 
 2	33 -- we were at 33.7 for 03, and that was a 

 3	decrease of 9.94 percent from FY 02 of 37.4 
 4	million.
 5			Lotto Texas was down from 11.8 
 6	million to	7.7 million.
 7			Cash 5 was up 21 percent from 22.4 
 8	million to	2.9 million.
 9			Pick 3 and Texas Two Step were 
10	relatively flat but we -- just in looking at this 
11	past week were down overall 7.85 percent, and most 
12	of that was due to our getting hit on the lotto 
13	Texas jackpot again.
14			And I've also included in your 
15	packets information on the Texas Two Step and the 
16	Lotto Texas jackpot draw patterns to keep you 

17	informed on those patterns of where we are with 
18	those two.  And I'll be happy to answer any 
19	questions.  
20			CHAIRMAN CLOWE:  I think that we're 
21	all concerned about Lotto Texas --
22			MS. SMITH:  Yes, sir.  
23			CHAIRMAN CLOWE:  -- under the item 
24	sales and marketing of the games, Kim.  And I 
25	believe Commissioner Cox was at the meetings, along 

00249
 1	with Linda Cloud, with GTECH about a comprehensive 
 2	plan for the future.  The matrix that we are 
 3	currently operating under for Texas Lotto has been 
 4	of discussion in prior commission meetings, it was 
 5	an agenda item, and I don't intend to bring it up 
 6	any more than in passing under marketing and sales.
 7		But I see for the year that Lotto 
 8	Texas is down fourteen and a half percent; Cash 5 
 9	is down over 15 percent.  The thing that finished 

10	us so beautifully over the prior fiscal year is the 
11	very substantial increase in Instant ticket sales.
12		MS. SMITH:  Yes, sir.  
13		CHAIRMAN CLOWE:  And I want to 
14	continually bring this to the Commission's 
15	attention, in the years, Toni, and Linda, in that, 
16	you know, we still got some problems.
17		And I'm very appreciative of the work 
18	that Commissioner Cox is doing on looking into this 
19	with GTECH and I look forward to keeping it in the 
20	front of everyone's mind so that we can deal with 
21	this at the appropriate time in the future.  
22		MS. CLOUD:  Commissioners, 
23	Commissioner Cox has not only been working with 

24	GTECH, he has been doing a tremendous amount of 
25	research in other areas and has been very 

00250
 1	beneficial to us and I think we should have a 
 2	presentation for you maybe at the next commission 
 3	meeting as to where we are on that.  
 4		CHAIRMAN CLOWE:  Okay.  Well, I'm 
 5	still not satisfied.  I'm glad we've got a gaming 
 6	czar as a commissioner.  I love having a czar so 
 7	we can draw on that experience and knowledge.  
 8		MS. SMITH:  But I would like to add 

 9	to Linda's comment that in the marketing department 
10	that we will also take the information that GTECH 
11	has shared and do our own analysis of that with 
12	comparison to our other existing games and conduct 
13	what research we can in the time frame that we have 
14	with our players to get as much feedback as we can 
15	from them to make sure that the whole matrix and 
16	all of the components of the matrix are going to be 
17	a good plus for us with the change of Lotto Texas.  
18		CHAIRMAN CLOWE:  Very good.  Any 
19	questions for Toni or Linda?  Do you have anything 
20	further on item number three on the agenda, 
21	advertising? 
22		MS. SMITH:  No, sir, nothing to 
23	report today.  
24		CHAIRMAN CLOWE:  Thank you.  And 
25	we're ready to move to item number seven:  

00251
 1	Consideration of and possible discussion and/or 
 2	action on State Auditor's Office and/or internal 
 3	audit report(s) relating to the Texas Lottery 
 4	Commission and/or on the Internal Audit 
 5	Department's activities.
 6		MS. McLEOD:  Good afternoon, 

 7	Commissioners.  For the record, I'm Debra McLeod, 
 8	Director of Internal Audit.
 9		I have three items for your approval 
10	today.  One is distribution of the management 

11	control audit done on the Lottery Commission's 
12	Charitable Bingo Division.
13		The second one is the audit plan.  
14	Looking at FY 2003, a list of audits that we'd like 
15	to pursue in the upcoming year, with the 
16	understanding, of course, that should there be any 
17	other issues or items that the Commissioners would 
18	like for us to take up, we will certainly take care 
19	of that at the time.
20		The third item is, I'm prepared to 
21	give you today my report.  We had an investigation 
22	or a complaint about Lottery jackpot winners, and I 
23	am ready to give it to you verbally today if you 
24	would like to receive it.  
25		CHAIRMAN CLOWE:  Very good.

00252
 1		MS. McLEOD:  Okay.  We received a 
 2	complaint back in September of 2001, it was sent to 
 3	the Commissioners, and then another copy that was 

 4	sent to the Executive Director on March 25, 2002.  
 5	This complaint came from John Nettles.
 6		And, in summary, the complaint is 

 7	that the Texas Lottery Commission has paid Lotto 
 8	Texas jackpot prize winners inconsistently.
 9		It is alleged that the Lotto jackpot 
10	prize payments have varied and there are 
11	differences in payment calculations.
12		What Internal Audit looked at was, we 
13	went back and reverified the calculations of 
14	amounts paid to the Lotto jackpot prize winners 
15	during the period September 11, 1996, through March 
16	9th, 2002.
17		We've also gone so far as to verify 
18	the total sales from each drawing, recalculate the 
19	percent of the jackpot portion to the total sales, 
20	the cost of the investment and the prize amounts 

21	paid to the winners.
22		We've also gone so far as to 
23	interview the financial administration directors 
24	that were in place during this time, including the 
25	former financial administration director.  

00253
 1		We've also obtained all of  
 2	management's internal policies, procedures and 
 3	internal memos relating to the subject and 
 4	subsequent revisions regarding the jackpot rule and 
 5	procedures relating to estimation payment 
 6	investment, prize payment, processing of the use of 
 7	the prize reserve fund.  
 8		Our conclusions are that the 
 9	policies, procedures, instructions, directives and 
10	financial administration division accounting forms 
11	have reflected varying interpretations of the Lotto 
12	Texas Online Game rule, and at anytime, however, 
13	the financial administration directors thought and 
14	believed their staff were following the current 
15	administrative rule, policy, procedure, instruction 
16	and directive, and that the executive director was 
17	active in his or her capacity or discretion.
18		In addition, the varying 
19	interpretations were called to the attention of 
20	executive management and General Counsel and it was 
21	determined that the executive director had the 
22	discretion to choose either interpretation.
23		Based on the legal opinion rendered 
24	there was no evidence that the payments to the 
25	Lotto Texas jackpot winners violated the rule, the 

00254
 1	administrative rule, or any other applicable laws.  
 2		We will be happy to prepare a written 
 3	report that will summarize this.
 4		In addition, we've addressed a few 
 5	specific recommendations to management to help make 
 6	clearer the administrative rule, the current 
 7	policies, procedures, directives and instructions 
 8	of the executive director and will be making it 
 9	within the week.  
10		CHAIRMAN CLOWE:  Thank you, Debra.  
11	Are there any questions? 
12		COMMISSIONER WHITAKER:  Diane, are 
13	you going to make some comments?
14		MS. MORRIS:  Well, I wasn't planning 
15	on it.  I have -- know that Debra has done a very 
16	lengthy investigation.  She has done a 
17	fact-finding.  It's my understanding that Debra's 
18	analysis, as the internal auditor, is that insofar 
19	as it could be alleged, or was alleged that this 

20	agency has violated its administrative rules, or 
21	any other kind of statutes, that it did not, and 
22	that's what, I guess, the bottom line is.  

23		COMMISSIONER WHITAKER:  Debra, do you 
24	agree or disagree with what Diane just said?
25		MS. McLEOD:  It's my understanding -- 

00255
 1	yes, that's exactly what I've said in the report.  
 2		COMMISSIONER WHITAKER:  And you're 
 3	satisfied that you finished your report?
 4		MS. McLEOD:  Yes.  
 5		COMMISSIONER WHITAKER:  Okay.  Thank 
 6	you.  
 7		CHAIRMAN CLOWE:  Thank you.  What 
 8	else, Debra?
 9		MS. McLEOD:  Just we have several 

10	reports that are under review.  We've also got two 
11	additional investigations that are still in process 
12	that we're working on.  And starting on a new audit 
13	this month was four advertising components measures 
14	and that's about 47 percent complete.
15		From an external standpoint, the 
16	State Auditor's Office has scheduled a conference 
17	tomorrow on their audit of financial profiles.  

18	They have not given me any information regarding 
19	what they found or what they're going to disclose 
20	tomorrow.  So I'm not prepared at this point to 
21	give any information along those lines.  McCollum 

22	Jones are still doing their annual financial audit.
23		I've spoken with Ramon Rivera from 

24	GTECH and Ernestine Young has finished their report 
25	on the GTECH computer system and have asked that 

00256
 1	Linda and I receive copies of that.  
 2		And that's it as far as external 
 3	audits, that I'm aware of.  
 4		CHAIRMAN CLOWE:  Very good.  Anything 
 5	further?
 6		MS. McLEOD:  I don't believe so.  
 7		CHAIRMAN CLOWE:  Thank you both very 
 8	much.
 9		MS. McLEOD:  Just do I get approval 
10	for the audit plan and the Bingo management control 
11	audit that I'm scheduled to release?  
12		CHAIRMAN CLOWE:  I think what we 
13	indicated, we did not vote on this, but we would 
14	simply concur that it was a good plan.
15		MS. McLEOD:  Okay.
16		COMMISSIONER WHITAKER:  Hold on just 
17	a second.  Kim, would you make a statement on the 
18	record to -- 
19		MS. KIPLIN:  Yeah.  I think -- I 
20	think with regard to the audits, they are what they 
21	are, and I mean, you're not in a position to 
22	approve it.  The audit plan, I think you are to 
23	your -- your audit client for approval.
24		What I think I recall is that that 
25	audit plan is subject to revision during the course 

00257
 1	of the year, not just updates or additions or the 
 2	like, but subject to redirection and so forth.
 3		So that I think you are looking for 
 4	an action nine with regard to audit plan with the 

 5	understanding that that's subject to --  subject to 
 6	change, subject to modification during the course 
 7	of the year.  
 8		COMMISSIONER WHITAKER:  And also with 
 9	the understanding, Debra, that the compliance 
10	pieces of it, the vendor compliance and the 
11	contract that you are not going to be doing the 
12	legal analysis of the contracts? 
13		MS. McLEOD:  That is exactly correct.  
14		COMMISSIONER WHITAKER:  But rather as 
15	a process?   
16		MS. McLEOD:  Right.  
17		COMMISSIONER WHITAKER:  Process of 
18	what?  
19		MS. McLEOD:  Process of -- the 
20	interim process of monitoring and also what the 
21	vendor does as far as compliance with the contract.  
22		COMMISSIONER WHITAKER:  But not going 
23	into the whole issue of legal issues?  
24		MS. McLEOD:  Correct.
25		COMMISSIONER WHITAKER:  Well, I would 

00258
 1	so move.  
 2		COMMISSIONER COX:  Second.  
 3		CHAIRMAN CLOWE:  All in favor, please 
 4	say aye.  Aye.
 5		COMMISSIONER COX:  Aye.
 6		CHAIRMAN CLOWE:  Opposed, no.  The 

 7	vote is three/zero, in favor.  Thank you, Debra.
 8		MS. McLEOD:  Thank you, sir.
 9		CHAIRMAN CLOWE:  Robert, we have a 
10	report from you on Cash 5 sales and we went right 
11	over that.  We talked about it briefly with Toni.  
12	Did you have something you wanted to say to the 
13	Commission?

14		MR. TURLONI:  For the record, my name 
15	is Robert Turloni.  I am the Online product manager 
16	for the Texas Lottery.
17		Basically, Commissioners, this is 
18	just an update on where we are with the new Cash 5 
19	game that started in late July.  It's a five-week, 
20	analysis.  It shows what the last five weeks of 
21	sales were for the old Cash 5 product, and there's 
22	a comparison there for you showing the weekly sales 
23	for the new Cash 5 product.
24		We can see that -- if you want me to 
25	put this on the record, Mr. Chairman, the weekly 

00259
 1	sales average prelaunch is slightly over two 
 2	million dollars.  And the weekly sales average 
 3	post-launch is slightly over three million.
 4		So the post-launch sales increase is 
 5	over 45 percent.
 6		So I traveled to the Houston 
 7	district last month to attend some in-store Cash 5 
 8	promotions that were taking place surrounding the 
 9	launch of the new game, and the number of winners 
10	and the new prize levels seem to be being received 
11	very positively by players.  
12		CHAIRMAN CLOWE:  So you would be 
13	hopeful that the reduction that we experienced in 
14	fiscal 03 might be offset as a result of the game 
15	changes.
16		MR. TURLONI:  I expect that we 
17	should, yes.  The reduction in 02 would hopefully 

18	be turned around in 03 by this new Cash 5 game that 
19	we just launched.  
20		CHAIRMAN CLOWE:  Thank you, Robert.  
21		MR. TURLONI:  You're welcome.  
22		MS. CLOUD:  I think a good point to 
23	make, too, is the number of winners on the 
24	prelaunch on those sales numbers that Robert just 
25	gave you.

00260
 1		On the prelaunch, it was 5,144 
 2	winners, total.  And with the -- after the launch 
 3	-- I mean, that's basically by the week, that's an 
 4	average per week.  And now it's running anywhere 
 5	from 63- to 70,000 winners per draw.
 6		MR. TURLONI:  And that's due to the 
 7	addition of the new 205 prize TR, that creates 
 8	thousands of more winners per drawing.  
 9		CHAIRMAN CLOWE:  Thank you, Robert.
10		MR. TURLONI:  Thank you.  
11		CHAIRMAN CLOWE:  Before we go any 
12	further.  I have two witness affirmation forms and 
13	I'm not sure these individuals are still with us 
14	but I want to call to see if they are, before we 
15	move further through the agenda.

16		Mr. Saleem Tawil, on item number six, 
17	which we dealt with, and I did not call on him at 
18	that time.  
19		MS. KIPLIN:  Commissioner, he did not 
20	wish to speak.  He indicated that to me.  
21		CHAIRMAN CLOWE:  Okay.  
22		MS. KIPLIN:  He just wanted that 

23	witness information form and I apologize for not 
24	bringing it to your attention. 
25		CHAIRMAN CLOWE:  All right.  That's 

00261
 1	fine.  And there is some writing here that will be 
 2	part of the record.  
 3		MS. KIPLIN:  And that change was the 
 4	change that I articulated on the record and it was 
 5	incorporated in what you voted and approved for 
 6	publication.
 7		CHAIRMAN CLOWE:  Very good.  So we 
 8	satisfied him.  And Mr. Fenoglio, on item six, and 
 9	I think by virtue of his participation, he's 
10	satisfied.  Is he here?  
11		MS. KIPLIN:  Yes.  His briefcase is 
12	here.
13		MR. FENOGLIO:  I'm sorry, 
14	Commissioners.
15		CHAIRMAN CLOWE:   Mr. Fenoglio, I'm 
16	just doing a little housekeeping here.  Did you 

17	have anything further that you wanted to say on 
18	agenda item number six? 
19		MR. FENOGLIO:  I can't remember what 
20	six is. 
21		CHAIRMAN CLOWE:  See, I have the 
22	agenda and you don't.  
23		MR. FENOGLIO:  We're comfortable with 
24	that --
25		CHAIRMAN CLOWE:  I thought you were.

00262
 1		MR. FENOGLIO:  -- and we'll take it 
 2	up at the public hearing.  Thank you.
 3		CHAIRMAN CLOWE:  Okay.  Thank you.  
 4		Now, Mr. Grief, I think we're back to 
 5	you to see if you have completed your text.  
 6		MR. GRIEF:  We are almost there, 
 7	Mr. Chairman.  I think we have missed one thought 
 8	of Commissioner Cox's, and I want to read this 5.2 
 9	response.  And then, Commissioner Cox, if you can 
10	help us out.
11		If recommendation	5.1 is adopted, the 
12	agency concurs that the transferability of licenses 
13	be repealed.  If recommendation	5.1 is not adopted, 
14	and two different types of licenses continue to 
15	exist, then the agency does not concur because it 
16	may jeopardize the viability of the Bingo games or 
17	Bingo patrons.  And that's where I think we've 
18	missed your point you wanted to make.  
19		COMMISSIONER COX:  The point I wanted 
20	to make was that if transferability were to limit 
21	our ability to look at the suitability of the 
22	transferee, then I would be opposed.  Stated 
23	positively, that any transferability should not 
24	limit our ability to look at the suitability of the 
25	licensee in conformity with the relevant provisions 

00263
 1	in the statutes and our rules.  Did I say that 
 2	right, Kim?  
 3		MS. KIPLIN:  Consistent with the law 
 4	and the rules.
 5		And while he's typing, I do want to 
 6	raise, you know, we've heard today significant 
 7	investment, and you-all have used the phrase 
 8	significant investment, and I would like to, I 
 9	guess have you consider the fact that we don't know 
10	what the future holds and we don't know what will 
11	end up happening with regard to legislation.
12		And I have no reason to disbelieve 
13	people are coming forward or saying this to you 
14	regarding significant investment, but I'm wondering 
15	if we should make it clear -- you're really, at 

16	this point, I don't think in a position to know 
17	whether the significant investment is a correct 

18	statement or not.  And so I'm wondering if maybe we 
19	should say it's not taking into consideration the 
20	significant investment that certain licensees have 
21	claimed they have made over time.  
22		COMMISSIONER WHITAKER:  Okay.  
23		CHAIRMAN CLOWE:  I don't think -- we 
24	have to look at the record to make cerntain.  I 
25	don't think I spoke to investments so much as I did 

00264
 1	capital and the availability of capital.  I wasn't 
 2	focused on protecting anyone's investment, which I 
 3	think is the thrust of your comment.  What I was 
 4	focused on was the availability of capital and 
 5	providing the facilities for the charities.  
 6		COMMISSIONER COX:  And that was my 
 7	focus, as well.  
 8		MS. KIPLIN:  And not something that 
 9	someone may have spent that --  
10		CHAIRMAN CLOWE:  We ask questions -- 
11	we ask questions of one of the witnesses about how 
12	he valued his license and I made a remark about 

13	license or certificate values in another industry 
14	in another time.  There were some parallel 
15	commentaries being made back and forth, but for the 
16	purpose of this rule, my recollection was we were 
17	dealing with capital availability and the 
18	importance of that to charities who testified they 
19	lack capital.  
20		MS. KIPLIN:  Not to somebody who may 
21	claim that they have a significant investment and 
22	for some reason in the law we're going to do away 
23	with that license in --
24		CHAIRMAN CLOWE:  I don't think that 
25	-- in my mind, that never was said.  You're saying 

00265
 1	it for the first time.
 2		MS. KIPLIN:  Okay.
 3		MS. MORRIS:  Well, and we're going to 
 4	-- one moment, Mr. Fenoglio.
 5		MR. FENOGLIO:  We actually had the 
 6	court reporter read it back twice and we were 

 7	trying to capture your intent.  I'm sorry, you 
 8	know, we -- 
 9		MR. GRIEF:  Let me try another -- 
10	take another stab at this.  I'm just focusing on 
11	that sentence.  

12		COMMISSIONER COX:  This is 5.2 again?  
13		MR. GRIEF:  Yes, sir.  The 
14	recommendation does not take into consideration the 
15	significant capital availability that certain 

16	licensees have made to charities over time.  
17		MS. KIPLIN:  Claim to have made.

18		MS. MORRIS:  And I am going to jump 
19	in and say that he and I have had candid 
20	discussions that if anybody wants to claim they 
21	made a significant investment and if the future 

22	holds that laws change, if somebody wants to claim 
23	that somehow that's wrong for laws to change and 

24	take a significant investment, I did not understand 
25	the Commissioners today to be assuming that there 

00266
 1	really was such thing as a significant investment 
 2	that was made or that it needs to be protected.  

 3	That could be another fight on another day and that 
 4	was not their intent to make that suggestion.  
 5		MS. KIPLIN:  So, in other words, just 
 6	to be perfectly candid. 
 7		If, for example, there was a law that 
 8	was passed that were to eliminate a grandfathered 
 9	lessor's license and someone took issue with that 
10	and sued, the available entity that is going to be 
11	sued is the Lottery Commission because we are the 
12	ones that are supposed to implement that statute.  
13	We have had this occur in the past with regard to 
14	-- constitutional action.
15		And if -- and I'm thinking out loud.  
16	I haven't looked at all the different kinds of 
17	causes of action that can be brought, but I would 
18	not want there to be later somebody who construed a 
19	statement that a commissioner made is an admission 
20	that somebody had in fact made a significant 
21	investment and that was to go to damages.
22		So you're hearing claims, like I 
23	said, and I'm not going to disagree or agree today 
24	but I think it's more accurate to characterize it 
25	as claims that were made.  

00267
 1		COMMISSIONER COX:  From my 
 2	standpoint, I'm not concerned about investment as 
 3	much as I'm concerned about capital.  
 4		If a lessor comes out and puts his 
 5	credit on the line to lease a facility and to 
 6	commit to paying certain obligations, one might 
 7	argue that he's not made an investment but he has 
 8	provided capital.  And what I'm interested in is 

 9	whatever we end up with be such that it can attract 
10	capital to fill the need for capital that the 
11	charities don't have. 
12		CHAIRMAN CLOWE:  Have you got the 
13	language?
14		MR. GRIEF:  Diane tells me she thinks 
15	we're close.  I'll start back -- I'd like to go 
16	back to your point, Commissioner Cox, earlier.  So 
17	I'll start with the second sentence and then the 

18	response.  
19		If recommendation 5.1 is not adopted 
20	and two different types of licenses continue to 
21	exist, then the agency does not concur because it 
22	may jeopardize the viability of the Bingo games or 
23	the ability of the agency to look at the 
24	suitability of the licensee consistent with the 
25	agency statute and rules.  

00268
 1		COMMISSIONER COX:  That captures what 
 2	I want.  
 3		CHAIRMAN CLOWE:  Are you okay with 
 4	that? 
 5		COMMISSIONER WHITAKER:  Yes.  It's 
 6	getting pretty abstract but --  
 7		MR. GRIEF:  I'll go forward then.  
 8	The recommendation does not take into consideration 
 9	the significant capital availability that certain 
10	licensees that claim to have made to charities over 
11	time.  However, the agency is open to any 

12	alternative approach that would address 
13	transferability so long as the approach does not 
14	jeopardize the viability of the Bingo games or 

15	ability of the agency to look at the suitability of 
16	a licensee consistent with the agency statute and 
17	rules.  
18		COMMISSIONER WHITAKER:  I'm really 
19	looking to you as the capital experts here.  
20		COMMISSIONER COX:  The issue I have 
21	there is, you know, I don't understand Kim's point 
22	about that claim but I accept it and --  
23		CHAIRMAN CLOWE:  I think she's off on 
24	an entirely different subject as applies to this.  
25	I appreciate her concern but I don't think it's 

00269
 1	relative to the writing of this response.
 2		I don't think we stepped on the trap 
 3	that she has described in the writing of this 

 4	response.  That's my answer to you about your 
 5	concern.  
 6		COMMISSIONER COX:  So then do you 
 7	have an amendment to suggest to that?  
 8		CHAIRMAN CLOWE:  No.  I'm comfortable 
 9	with it.  I'm comfortable with it.
10		MR. FENOGLIO:  And I hate to 
11	complicate what is already a difficult process but 
12	I don't want you-all to say later that Fenoglio 

13	withheld.  You-all have been talking about two 
14	classes of commercial lessor licenses.  There are 
15	actually at least three, and perhaps four.  

16		CHAIRMAN CLOWE:  That's right.
17		MR. FENOGLIO:  And you know, I didn't 
18	want you-all -- that issue may come up again.

19		CHAIRMAN CLOWE:  We understand.  
20		COMMISSIONER COX:  But we're talking 
21	about, I think, the two kinds of lessor licenses.  
22	Are there only two commercial lessor --
23		MR. FENOGLIO:  No.
24		COMMISSIONER COX:  -- there's more 
25	than two.

00270
 1		MR. FENOGLIO:  You have the 
 2	association license.  
 3		CHAIRMAN CLOWE:  And the tier.
 4		MR. FENOGLIO:  And then you -- well, 
 5	the tier is the one you-all have been wrestling 
 6	with and the grandfather, those are the first two.  
 7	And then you have an association  license, which is 
 8	what River City Bingo is now at I-35 and Braker 
 9	Lane.  And there are other organizations that act 
10	as an association.
11		And then there's the final one which 
12	would be the VFW post where they just conduct at 

13	their post and no one else conducts there.  And I 
14	didn't, you know, want later on to say, well, he 
15	didn't say that.  
16		CHAIRMAN CLOWE:  No, I think we're 
17	okay with that.  
18		MR. GRIEF:  Now, if we could back to 
19	5.1 because, Commissioner Cox, we've taken your 

20	thought and dropped it in this response, as well, 
21	and I would like to read that.  
22		The agency concurs in the idea of not 
23	having the two different types of licenses.  

24	However, the agency does not agree that the 
25	recommendation will correctly identify problems 

00271
 1	regarding the existing license types, and, in fact, 
 2	may exacerbate those problems.
 3		The recommendation does not take into 
 4	consideration the significant capital availability 
 5	certain licensees have claimed to have made to 
 6	charities over time.
 7		Furthermore, the agency welcomes any 
 8	approach that will eliminate confusion regarding 
 9	this issue.  
10		COMMISSIONER COX:  That's what we 
11	said.  
12		CHAIRMAN CLOWE:  I think that's the 
13	best job we can do right now.  Is there a motion to 
14	approve the amended language on agency responses 
15	4.1, 5.1 and	5.2?  
16		COMMISSIONER WHITAKER:  So move.
17		COMMISSIONER COX:  Second.
18		CHAIRMAN CLOWE:  All in favor, please 
19	say aye.  Aye. 
20		COMMISSIONER COX:  Aye.
21		COMMISSIONER WHITAKER:  Aye.
22		CHAIRMAN CLOWE:  Opposed, no.  The 
23	vote is three/zero, in favor.
24		Gary, I want to thank you and 
25	everyone who has worked on this project.  I know 

00272
 1	there are hundreds of hours that have gone into the 
 2	interviews, the communications and the generation 
 3	of this information, and we're only beginning.
 4		I think it's very important in a 
 5	timely and a proper way for you to communicate to 
 6	the Sunset staff what action the Commission has 
 7	taken today.  I think we owe them an explanation of 
 8	our actions on 5.1, 4.1 and 5.2.  And I would like 
 9	to urge you to communicate that to them and make 
10	certain they understand what the reasoning for the 
11	Commission's actions were in those regard.  I want 
12	them to fully understand.  
13		MR. GRIEF:  Yes, sir.  
14		CHAIRMAN CLOWE:  And it's going to be 
15	very important, Phil, for you and/or Billy, and 
16	others on the staff to be prepared to give 
17	testimony on September the 24th in regard to these 
18	issues.
19		Now, Kim, where do we stand on the 
20	Commissioners' legality of appearing at that 
21	hearing? 
22		MS. KIPLIN:  You are in good stead.  
23	You may appear without noticing the Texas Lottery 
24	Commission meeting in their commission room, and 

25	two of you may be there while the other is 

00273
 1	testifying.  What you may not do is you may not go 
 2	out to the foyer and mill about, outside of that 
 3	room and you really can't be talking amongst 
 4	yourselves.  This is just to be able to allow one 
 5	to testify while the others are there to hear.  
 6		CHAIRMAN CLOWE:  Well, as far as we 
 7	know right now, I think all three commissioners 
 8	plan to attend.  And will you provide us with 
 9	individual escorts so we will have a record of our 
10	correct behavior? 
11		MS. KIPLIN:  Yes, sir.  
12		COMMISSIONER WHITAKER:  What's the 
13	anticipated time?  Timing? 
14		CHAIRMAN CLOWE:  We're the second 
15	agency that is scheduled to appear and the hearings 
16	begin at nine a.m. on the 24th.  Who's first up?  
17		MR. GRIEF:  Sorry, I don't have my -- 
18	I don't have my --  
19		MS. KIPLIN:  We're second on the list 
20	and I don't recall who's ahead of us.  
21		MR. SANDERSON:  It's a small agency.  
22		CHAIRMAN CLOWE:  If it's a small 
23	agency, then we can go up pretty.
24		MR. HALSELL:  Mr. Chairman, I'm 
25	sorry.  I thought I was going to feed this 

00274
 1	information to Gary.  I'm Collin Halsell from 
 2	Governmental Affairs.  I believe it's -- it is a 
 3	very small agency.  I believe it's something like 
 4	the Commission on Purchasing from People with 

 5	Disabilities, or something like that, and it's not 
 6	large at all.  
 7		CHAIRMAN CLOWE:  Okay.  Well, then we 
 8	could go on, you know, at midmorning.  And I think 
 9	the -- 
10		COMMISSIONER COX:  Mr. Chairman,  
11	that's not short.  
12		CHAIRMAN CLOWE:  That's not a short 
13	one.  Okay.  So we could go at anytime.  I think 
14	our plan, as I understand it, at this point in 
15	time, Gary.  You correct me if I'm wrong, is for me 
16	to make an opening statement as the Chair, and then 
17	introduce Linda, and certainly introduce 
18	Commissioner Whitaker and Commissioner Cox, but 
19	them not to be called on for statements initially.  
20	And then Linda would give her testimony and Billy 
21	would give testimony.  He'll be back at work at 

22	that time.
23		And I would hope that you would have 
24	some discussions with both commissioners, in 
25	addition to myself, and all three of us would be 

00275
 1	fully briefed, so at any point in time we can 
 2	address these issues.  
 3		MR. GRIEF:  Yes, sir.  
 4		CHAIRMAN CLOWE:  I think we want to 
 5	give Linda and Billy the opportunity to give their 
 6	testimony but if members of the committee call on 
 7	us as commissioners, I would like for us to have 
 8	all the information we need to have.
 9		MR. GRIEF:  And we'll make sure that 
10	you have all the written materials that we have 
11	available and as time allows, we'll offer 
12	individual briefings to the commissioners, if 
13	that's what it takes.  
14		CHAIRMAN CLOWE:  Okay.  Anything 
15	further from Gary? 
16		MR. GRIEF:  One other question, 
17	Mr. Chairman.  Going back to the BAC report that 
18	the chairperson BAC provided to me.  Diane has 

19	given me some suggested language that I might 
20	attach in our agency response and it reads:  
21	Attached is a response by the Bingo Advisory 

22	Committee to the Sunset staff report, the TLC does 
23	not take any position on the BAC report.  And just 
24	attach it to our response.  
25		CHAIRMAN CLOWE:  That's fine.  

00276
 1		MR. GRIEF:  That'll work.  
 2		MS. KIPLIN:  But provide it for their 
 3	information.  
 4		CHAIRMAN CLOWE:  No objections?  
 5		COMMISSIONER WHITAKER:  No.  
 6		CHAIRMAN CLOWE:  Okay.  Linda, I 
 7	think items nine through twelve are yours.  Would 
 8	you go through those for us, please?  
 9		MS. CLOUD:  Action on the security 

10	audit procurement.  We have announced a successful 
11	proposer and negotiations are under way.
12		And number ten, the action on the 
13	advertising procurements.  Our committee,  
14	Evaluation Committee, is doing their last site 
15	visit tomorrow, and that's in El Paso.  And then 
16	they will return and complete the evaluation 
17	process and make a recommendation to the executive 
18	director.  And that's on both the minority 

19	advertising contract and the general market 
20	advertising contract.  
21		On the web site hosting and related 
22	services.  The Evaluation Committee is in the 

23	process of completing its evaluation of the 
24	proposals at this time.  
25		On the financial audit services.  Our 

00277
 1	financial auditors are in-house preliminary work to 
 2	the year-end information at this time.  They will 

 3	be here through -- till they complete the audit.  
 4	That's my report on those items. 
 5		CHAIRMAN CLOWE:  Very good.  Any 
 6	questions?  Thank you, Linda.  We're ready now to 
 7	go to item fifteen.  Kim, we have dockets listed 

 8	under letters A through F.  Would you help us with 
 9	that? 
10		MS. KIPLIN:  Yes.  I'll be happy to.   
11	Commissioners, what you have in your notebook, and 
12	actually I'm looking for action on letters A 

13	through E.  A through E.  F was a mistake and 
14	should not have been put on your docket, on your 
15	agenda for today.
16		Those are all Lottery cases.  A, B, 
17	C and E, are all for failures to have monies 
18	available at the time that we swept their account.  
19	thE ALJ is recommending that those orders -- the 

20	permit and those license be revoked and the staff 
21	does support that and urges that.  
22		D, the matter of Ham Mobil is a 
23	different matter than what you're generally seen.
24		This matter, Commissioners, is a 

25	situation where the money was not available at the 

00278
 1	time so that we count and we have the ability under 
 2	our law to go to persons underneath the corporate 
 3	level, officers, directors, the like.  We did that 
 4	and seized monies that we believed were owed to the 
 5	state.
 6		One of those persons against whom we 
 7	went and seized was not a current -- a current 
 8	officer with the corporation.  We were not timely 

 9	notified of that but we decided we were going to 
10	take that over the hearing and see what a judge 
11	would say about the fact that our law says against 
12	on officers and so forth but this person at the 

13	time the action -- took action was not a current 
14	officer.  
15		The judge in that case did not agree 
16	with the staff's position and has indicated that we 
17	need to be paying the money back to that person 
18	because they're not with that particular 
19	corporation.
20		Mitchells is the attorney who handled 
21	that matter on behalf of the agency and she's here 
22	to answer any questions that you might have.  But 
23	the order that is before you today is an order that 
24	would order that the Commission refund the money 
25	back to the individual.

00279
 1		With that, I would like to visit with 
 2	the executive director to determine whether a 
 3	legislative change ought to be considered because 

 4	of the, I guess the potential views with regard to 
 5	that particular provision.  This was a situation 

 6	where we were not notified.  We were not timely 
 7	notified.  As a matter of fact, at the time that we 
 8	were taking the action is when we were notified 

 9	this person is no longer with the corporation.  
10		But so be it.  That's at least one 
11	state office administrative hearings -- 
12	administrative law judge's position on the matter 
13	and it is a bit different, but people underneath 
14	the Lottery Act do have the recourse, the proper 
15	recourse, to request a hearing seeking any  
16	redetermination on whether we should have seized 
17	the money.
18		CHAIRMAN CLOWE:  Any questions? 

19		COMMISSIONER WHITAKER:  Are you 
20	stating that you think we should appeal this or is 
21	it not -- is that not the issue before us today?  
22		MS. KIPLIN:  Well, it's -- you're 
23	very restricted on changing an order, changing a 
24	finding and changing a conclusion, and I can't say 
25	that I'm necessarily disagreeing with the 

00280
 1	administrative law judges's position on a reading 
 2	of the law.
 3		It does say officer, director.  It 
 4	doesn't indicate former but it doesn't say current.  
 5	I think that if we were going to recommend here 
 6	today, Ms. Schultz, I would ask you to come forward 
 7	represent the staff, but if you -- you were wanting 
 8	the agency to consider that, then what I would want 
 9	to do is pass this case for today and take a closer 
10	look at the law because, I, for one, as your 

11	general counsel, don't want you entering in an 
12	order that I don't think is supportable and then 
13	you're subject to litigation on that.
14		And the litigation would be that you 
15	didn't comply with those provisions in the 

16	Administrative Procedure Act for reasons of why you 
17	changed it but -- 
18		COMMISSIONER WHITAKER:  Well, I would 
19	like to pass it.  
20		CHAIRMAN CLOWE:  Very well.  We'll 
21	pass the docket listed under letter E.  
22		COMMISSIONER COX:  May I ask a 
23	question? 
24		CHAIRMAN CLOWE:  Yes, sir.
25		COMMISSIONER COX:  I haven't been 

00281
 1	here very long, this is the first time I've seen 
 2	it's recommended to pull the license.  
 3		MS. KIPLIN:  We pull the license or 
 4	where was the license -- I better defer to --
 5		MS. SCHULTZ:  I'm Kay Schultz, for 
 6	the record.  The license was no longer an issue.  
 7	The license had been revoked for separate reasons 
 8	but the Lottery's allowed to go under the 
 9	provisions of the Tax Code regarding collection, 

10	and this was really a collection action for a debt 
11	owed the Lottery.
12		What they do is they go out and 
13	freeze accounts.  And this was an officer of the 
14	corporation, a former officer who had never really 
15	properly notified us that he was no longer an 
16	officer.  

17		COMMISSIONER COX:  Do we in all cases 
18	go after corporate officers?
19		MS. SCHULTZ:  We do when we can 
20	locate assets.  
21		MS. KIPLIN:  We have a, and what I 
22	would characterize as a pretty aggressive 
23	collections and endorsement section within the 
24	Lottery Division.  And Mr. Grief is here and he's 
25	the Lottery Operations Director, so he can speak to 

00282
 1	that.
 2		We have the same powers under the Tax 
 3	Code that the comptroller has to collect taxes, and 
 4	that means seizing bank accounts, putting liens on 
 5	property, etc.  
 6		In addition, we have the authority, 

 7	if you will, to pierce the corporate veil, go to 
 8	those principals within a corporation, and in this 
 9	case, that's what we did and we do that in other 
10	cases where we can do so.  
11		COMMISSIONER COX:  Well, it seems 

12	that if the person whose name is in that slot 
13	doesn't get his name out of that slot, then 
14	somebody else into it, shame on him.

15		MS. KIPLIN:  That's the position that 
16	the staff took.  That's exactly the position that 
17	the staff took.  
18		COMMISSIONER COX:  They didn't win?  
19		MS. KIPLIN:  No.  We didn't win.  

20		MS. CLOUD:  We had one recently 
21	-- we had -- we've had one a few months ago that 
22	the same thing happened to it and he did end up 
23	paying.  We collected the money, from what I 
24	understood, on him.
25		MS. SCHULTZ:  I believe on that one 

00283
 1	it was an individual and --  
 2		MS. CLOUD:  That was an officer.
 3		MS. SCHULTZ:  Huh-uh.  No.  I believe 
 4	it was an individual licensee, not a corporation or 
 5	partnership, if I'm recalling correctly that one.  
 6		CHAIRMAN CLOWE:  Any further 
 7	questions?  
 8		MS. KIPLIN:  So, Commissioners, just 
 9	for the record, we will pass Docket No. 
10	362-02-3274, in the matter of JJ, Inc., d/b/a JJ 
11	Ham Mobil. 
12		CHAIRMAN CLOWE:  And so I move that 
13	we accept the staff recommendation on dockets 
14	designated A, B, C and E.  
15		COMMISSIONER WHITAKER:  Second.  

16		CHAIRMAN CLOWE:  All in favor say 
17	aye.  Aye.
18		COMMISSIONER COX:  Aye.
19		COMMISSIONER WHITAKER:  Aye.
20		CHARIMAN CLOWE:  Opposed, no.  The 
21	vote is three in favor.  We'll sign those orders 

22	now.  And as soon as we have completed that, Linda, 
23	we'll ask for your report under agenda item 
24	sixteen. 
25		MS. CLOUD:  Okay.  

00284
 1		MS. KIPLIN:  Commissioners, while 
 2	you're signing.
 3		At the last commission meeting, 

 4	Commissioner Cox, and Commissioner Clowe, you 
 5	approved many orders, or several orders, there was 
 6	one that was missed in terms of signing, and I have 
 7	that one today for you just to sign consistent with 
 8	your vote at the last commission meeting.
 9		CHAIRMAN CLOWE:  Linda, I believe 
10	we're ready for your report then, please.  
11		MS. CLOUD:  On August 15th, we 
12	transferred 23,453,466.  This is -- that amount was 
13	unclaimed prize money.  This is additional money 

14	that we had already made two transfers, as you 
15	remember, the 15th of August, one for 71 million 
16	and one for 76 million.
17		We have returned to the state this 
18	fiscal year ending August 31st, 869,700,799.
19		We've returned to the 

20	multi-categorical teaching hospital 40 million, and 
21	to the church here at Care facility, 46 million 
22	886,590.  That puts us right about 953 million 
23	dollars for the year.  
24		The HUB report, Commissioners, has no 
25	change from our last commission meeting.

00285
 1		On our FTE report, we have 309 active 
 2	FTE's.  We have three newly filled positions.
 3		We presently have 23 vacant 
 4	positions; nine in a selection acceptance pending.  
 5	Seven in the recruiting screening, and seven are 
 6	vacant with no HR activity at this time.  
 7		Our next retailer townhall meeting is 
 8	September 24th, the day of our Sunset Commission 
 9	hearing.  And I will not be attending this one, but 
10	it is in McAllen, so the staff will take care of 
11	that for us.  And that is my report.  
12		CHAIRMAN CLOWE:  Any questions?  
13	Thank you, Linda.  
14		We'd like to hear from you now, Phil, 
15	the Charitable Bingo Operations report.  
16		MR. SANDERSON:  In your notebook, 
17	Commissioners, is the memo from Billy dated 
18	September 3rd.  The only changes from that is the 
19	audit vacancy in Odessa.  We have interviewed the 
20	applicants and we've submitted our recommendations 
21	to HR and securities to begin the background 
22	investigations.  
23		The Bingo Advisory Committee met 

24	yesterday and they have tentatively set the next 
25	meeting for November the 21st, which is a Thursday.  

00286
 1	And the pull tab update on the new play styles, 
 2	since the last meeting, we've approved three new 
 3	artworks and we began receiving the deals for 
 4	testing.  As of the 3rd of September, we've 
 5	received five deals.
 6		The manufacturers have until 

 7	September the 12th to submit a deal for testing to 
 8	fall under all inclusive and approvals at the same 
 9	time requirement be put in the rule.  
10		The upcoming Bingo operator training 
11	programs.  There is one in Corpus Christi on 
12	Thursday, the 12th, and in Houston on the 21st, and 
13	then in New Caney on October the 22nd.
14		Also, in your notebook is the charts 
15	for the licenses pending for the month of August.

16		I'll be glad to answer any questions 
17	that you may have.  
18		CHAIRMAN CLOWE:  Are there any 
19	questions?  Thank you, Phil.
20		Is there any public comment?  I see 
21	no one wishing to make public comment.  There's no 
22	other business to come before the Commission.  We 
23	are adjourned at 4:17 p.m.  Thank you-all very 
24	much. 
25		MS. KIPLIN:  We need to go back on 

00287
 1	the record.  
 2		CHAIRMAN CLOWE:  May we go back on 
 3	the record for just a moment.  Commissioners, I'm 
 4	sorry, an oversight.  I neglected to ask you what 
 5	your pleasure would be for an October meeting.  
 6		COMMISSIONER COX:  Is there any 
 7	particular reason the staff needs it to be early 
 8	or late?  
 9		MS. CLOUD:  The National Conference 
10	is the 10th through the --  

11		COMMISSIONER COX:  Through the 13th.  
12		MS. CLOUD:  Yeah, 10th through the 
13	13th, so that would be the only conflict.  
14		MR. SANDERSON:  For Bingo, the NAGR, 
15	North American Gaming Regulators conference is 
16	October the 19th through the 23rd.  
17		CHAIRMAN CLOWE:  Commissioner 
18	Whitaker, how about you?
19		COMMISSIONER WHITAKER:  How about the 
20	-- hold up.  The 8th? 
21		CHAIRMAN CLOWE:  8th of October?  
22		COMMISSIONER WHITAKER:  Yeah.  
23		CHAIRMAN CLOWE:  Commissioner Cox?  
24		COMMISSIONER COX:  That works for me.
25		CHAIRMAN CLOWE:  The Commission then 

00288
 1	tentatively sets its next meeting for Tuesday, 
 2	October the 8th, at 8:30 a.m.  Thank you.  We are 
 3	now adjourned.  
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00289
 1	***************************************************
 2			 REPORTER'S CERTIFICATE
		TEXAS LOTTERY COMMISSION MEETING
 3			   September 10, 2002
 4	***************************************************
 5	THE STATE OF TEXAS  )
				)
 6	COUNTY OF TRAVIS	)
 7	     I hereby certify that the foregoing contains a 
 8	true and correct transcript of all portions of 
 9	proceedings in the Texas Lottery Commission meeting 
10	held September 10, 2002; that the foregoing Pages 
11	1 through 288 represent a true and correct 
12	transcript of the evidence given upon said hearing, 
13	and I further certify that I am not of kin or 
14	counsel to the parties in the case; am not in the 
15	regular employ of counsel for any of said parties; 
16	nor am I in anywise interested in the result of 
17	said case.
18	     This, the 13th day of September 2002.
19   
20   
21			______________________________________
			CONNIE JO RAMIREZ, Texas CSR #2484
22			Expiration Date:  12/31/03
			1609 Shoal Creek Boulevard, Suite 202 23			Austin, Texas  78701
			(512) 474-4363
24   
25	Job # 020910CJR