78(4) HB 1 - House Committee Report version

78S40999 E

By: Grusendorf H.B. No. 1

Substitute the following for H.B. No. 1:

By: Grusendorf C.S.H.B. No. 1

A BILL TO BE ENTITLED

AN ACT

relating to public education, public school finance, and related
matters, including certain new or modified taxes and fees, the
authorization of a state video lottery system, and other state and
local tax and revenue measures to provide sufficient funding for
public education and to provide tax relief and protection for
taxpayers; providing penalties.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

ARTICLE 1. PUBLIC SCHOOL FINANCE

PART A. EDUCATION FUNDING
SECTION 1A.01. Subtitle I, Title 2, Education Code, is
amended by adding Chapter 42 to read as follows:

CHAPTER 42. FOUNDATION SCHOOL PROGRAM

SUBCHAPTER A. GENERAL PROVISIONS
Sec. 42.001. STATE POLICY. (a) It is the policy of this
state that the provision of public education is a state
responsibility and that a thorough and efficient system be provided
and substantially financed through state revenue sources so that
each student enrolled in the public school system shall have access
to programs and services that are appropriate to the student's
educational needs and that are substantially equal to those
available to any similar student, notwithstanding varying local
economic factors.
(b) The public school finance system of this state shall
adhere to a standard of neutrality that provides for substantially
equal access to similar revenue per student at similar tax effort,
considering all state and local revenues of districts after
acknowledging all legitimate student and district cost
differences.
Sec. 42.002. PURPOSES OF FOUNDATION SCHOOL PROGRAM. (a)
The purposes of the Foundation School Program set forth in this
chapter are to guarantee that each school district in the state has:
(1) adequate resources to provide each eligible
student an accredited instructional program and facilities
suitable to the student's educational needs; and
(2) access to substantially equalized financing for an
enriched program.
(b) The Foundation School Program consists of:
(1) two tiers that in combination provide for:
(A) sufficient financing for all school
districts to provide an accredited program of education that is
rated academically acceptable or higher under Section 39.072 and
meets other applicable legal standards; and
(B) substantially equal access to funds to
provide an enriched program; and
(2) a facilities component as provided by Chapter 46.
Sec. 42.003. STUDENT ELIGIBILITY. (a) A student is
entitled to the benefits of the Foundation School Program if the
student is five years of age or older and under 21 years of age on
September 1 of the school year and has not graduated from high
school.
(b) A student to whom Subsection (a) does not apply is
entitled to the benefits of the Foundation School Program if the
student is enrolled in a prekindergarten class under Section
29.153.
(c) A child may be enrolled in the first grade if the child
is at least six years of age at the beginning of the school year of
the district or has been enrolled in the first grade or has
completed kindergarten in the public schools in another state
before transferring to a public school in this state.
(d) Notwithstanding Subsection (a), a student younger than
five years of age is entitled to the benefits of the Foundation
School Program if:
(1) the student performs satisfactorily on the
assessment instrument administered under Section 39.023(a) to
students in the third grade; and
(2) the district has adopted a policy for admitting
students younger than five years of age.
Sec. 42.004. ADMINISTRATION OF PROGRAM. (a) The
commissioner shall take such action and require such reports
consistent with this chapter as may be necessary to implement and
administer the Foundation School Program.
(b) The commissioner may adopt rules necessary to implement
and administer the Foundation School Program.
Sec. 42.005. AVERAGE DAILY ATTENDANCE. (a) In this
chapter, average daily attendance is:
(1) the quotient of the sum of attendance for each day
of the minimum number of days of instruction as described under
Section 25.081(a) divided by the minimum number of days of
instruction; or
(2) for a district that operates under a flexible year
program under Section 29.0821, the quotient of the sum of
attendance for each actual day of instruction as permitted by
Section 29.0821(b)(1) divided by the number of actual days of
instruction as permitted by Section 29.0821(b)(1).
(b) A school district that experiences a decline of two
percent or more in average daily attendance shall be funded on the
basis of an average daily attendance equal to the actual average
daily attendance of the preceding school year.
(c) The commissioner shall adjust the average daily
attendance of a school district that has a significant percentage
of students who are migratory children as defined by 20 U.S.C.
Section 6399.
(d) The commissioner may adjust the average daily
attendance of a school district in which a disaster, flood, extreme
weather condition, fuel curtailment, or other calamity has a
significant effect on the district's attendance.
(e) An open-enrollment charter school is not entitled to
funding based on an adjustment under Subsection (b).
Sec. 42.006. EQUALIZED FUNDING ELEMENTS. (a) The
Legislative Budget Board shall adopt rules, subject to appropriate
notice and opportunity for public comment, for the calculation for
each year of a biennium of the equalized funding elements, in
accordance with Subsection (c), necessary to achieve the state
policy under Section 42.001.
(b) Before each regular session of the legislature, the
board shall report the equalized funding elements to the
commissioner and the legislature.
(c) The funding elements must include:
(1) accreditation allotment amounts for the purposes
of Section 42.101 that represent the cost per student of a regular
education program that meets all mandates of law and regulation;
(2) adjustments designed to reflect the variation in
known resource costs and costs of education beyond the control of
school districts;
(3) appropriate program cost differentials and other
funding elements for the programs authorized under Subchapter C,
with the program funding level expressed as total dollar amounts
for each program and the specific dollar amount to be provided for
each student for the appropriate year;
(4) the maximum district enrichment tax rate for
purposes of Section 42.252; and
(5) the amount to be appropriated for the school
facilities assistance program under Chapter 46.
(d) The board shall conduct a study of the funding elements
each biennium, as appropriate. The study must include a
determination of the projected cost to the state in the next state
fiscal biennium of ensuring the ability of each school district to
maintain existing programs without increasing district tax rates.
(e) Notwithstanding Subsection (d), the board shall
contract for a comprehensive study of the funding elements. The
board shall report the results of the study to the commissioner and
the legislature not later than December 1, 2008. This subsection
expires January 1, 2009.
Sec. 42.007. EFFECT OF SALE BY SCHOOL DISTRICT OF TAX
RECEIVABLE. (a) The sale by a school district of an ad valorem tax
receivable under Chapter 274, Local Government Code, does not
affect:
(1) the allocation of state or federal funds to the
school district or the entitlement of the school district to state
or federal funds under this code; or
(2) the taxable value of property in the district for
the purposes of the allocation of or entitlement to those funds.
(b) The commissioner shall adopt rules governing, for
purposes of the Foundation School Program, collection of delinquent
ad valorem taxes. The rules may provide for documentation and other
recordkeeping requirements.

[Sections 42.008-42.100 reserved for expansion]

SUBCHAPTER B. BASIC PROGRAM
Sec. 42.101. ACCREDITATION ALLOTMENT AND SPECIAL STUDENT
ALLOTMENTS. (a) For each student in average daily attendance, a
school district is entitled to an accreditation allotment of:
(1) $4,459 if the student is enrolled below the ninth
grade level; or
(2) $5,459 if the student is enrolled at or above the
ninth grade level.
(b) An accreditation allotment in a greater amount for any
school year may be provided by appropriation.
(c) In addition to the accreditation allotment, a school
district is entitled to special student allotments in the manner
specified under Subchapter C.

[Sections 42.102-42.150 reserved for expansion]

SUBCHAPTER C. SPECIAL STUDENT ALLOTMENTS
Sec. 42.151. SPECIAL EDUCATION ALLOTMENT. (a) For each
student in average daily attendance, a school district is entitled
to an annual allotment of $300 or a greater amount for any school
year provided by appropriation.
(b) In addition to the allotment provided by Subsection (a),
and subject to amounts appropriated and available for the purpose,
a school district may apply to the commissioner for a grant to
reimburse the district for:
(1) the costs associated with a high level of students
receiving special education services; or
(2) the costs of providing high-severity special
education services.
(c) The commissioner shall adopt rules necessary to
implement this section, including:
(1) rules identifying high-severity special education
services; and
(2) rules necessary to administer the grant program
provided by Subsection (b).
Sec. 42.152. ACCELERATED PROGRAMS ALLOTMENT. (a) A school
district is entitled to an allotment for the costs of providing
accelerated programs in an amount determined by the formula:

AAA = 665 X ADA X PR

where:
"AAA" is the amount of the district's allotment;
"ADA" is the district's total number of students in average
daily attendance; and
"PR" is the percentage of the district's total number of
students enrolled in prekindergarten through grade level 8 who
participate in the national free or reduced-price lunch program as
reported through the Public Education Information Management
System (PEIMS) for the current school year or the percentage
determined in accordance with commissioner rule if no campus in the
district with students enrolled in prekindergarten through grade
level 8 participates in the national free or reduced-price lunch
program.
(b) The legislature may provide by appropriation for a
greater allotment than the amount prescribed by Subsection (a).
Sec. 42.153. TRANSITIONAL PROGRAM ALLOTMENT. For each
student in average daily attendance in a bilingual education or
special language program under Subchapter B, Chapter 29, a district
is entitled to an annual allotment of $450 or a greater amount for
any school year provided by appropriation.
Sec. 42.154. CAREER AND TECHNOLOGY EDUCATION ALLOTMENT. (a)
For each student in average daily attendance in an approved career
and technology education program in grades nine through 12 or in
career and technology education programs for students with
disabilities in grades seven through 12, a district is entitled to
an annual allotment of $178 for each annual credit hour the student
is enrolled in the program, or a greater amount for any school year
provided by appropriation.
(b) Funds allotted under this section, other than an
indirect cost allotment established under State Board of Education
rule, must be used in providing career and technology education
programs in grades nine through 12 or career and technology
education programs for students with disabilities in grades seven
through 12 under Sections 29.182, 29.183, and 29.184.
Sec. 42.155. PUBLIC EDUCATION GRANT ALLOTMENT. (a) Except
as provided by Subsection (b), for each student in average daily
attendance who is using a public education grant under Subchapter
G, Chapter 29, to attend school in a district other than the
district in which the student resides, the district in which the
student attends school is entitled to an annual allotment of $250 or
a greater amount for any school year provided by appropriation.
(b) The total number of allotments under this section to
which a school district is entitled may not exceed the number by
which the number of students using public education grants to
attend school in the district exceeds the number of students who
reside in the district and use public education grants to attend
school in another district.

[Sections 42.156-42.170 reserved for expansion]
Sec. 42.171. RESTRICTIONS ON USE OF ADJUSTED ALLOTMENTS.
Any restriction imposed under this subchapter on a school
district's use of an amount allotted under this subchapter applies
equally to the amount by which the allotment is adjusted under
Sections 42.301, 42.302, and 42.303.
Sec. 42.172. MAINTENANCE OF EFFORT. (a) Notwithstanding
any other provision of this code, but subject to Subsection (b), a
school district may not spend in any school year for a program or
service listed below an amount per student in average daily
attendance that is less than the amount the district spent for that
program or service per student in average daily attendance during
the 2004-2005 school year:
(1) a special education program under Subchapter A,
Chapter 29;
(2) supplemental programs and services designed to
eliminate any disparity in performance on assessment instruments
administered under Subchapter C, Chapter 39, or disparity in the
rates of high school completion between students at risk of
dropping out of school, as defined by Section 29.081, and all other
students;
(3) a bilingual education or special language program
under Subchapter B, Chapter 29;
(4) a career and technology education program in
grades nine through 12 or a career and technology education program
for students with disabilities in grades seven through 12 under
Sections 29.182, 29.183, and 29.184; or
(5) a gifted and talented program under Subchapter D,
Chapter 29.
(b) The commissioner may authorize a school district to
spend less than the amount required by this section if the
commissioner, considering the district's unique circumstances,
determines that the requirement imposes an undue hardship on the
district.

[Sections 42.173-42.200 reserved for expansion]

SUBCHAPTER D. NEW INSTRUCTIONAL FACILITY ALLOTMENTS
Sec. 42.201. NEW INSTRUCTIONAL FACILITY ALLOTMENT. A
school district is entitled to an additional allotment as provided
by this subchapter for operational expenses associated with opening
a new instructional facility.
Sec. 42.202. DEFINITION. In this subchapter,
"instructional facility" has the meaning assigned by Section
46.001.
Sec. 42.203. ALLOTMENT FOR FIRST YEAR OF OPERATION. For the
first school year in which students attend a new instructional
facility, a school district is entitled to an allotment of $250 for
each student in average daily attendance at the facility or a
greater amount provided by appropriation.
Sec. 42.204. ALLOTMENT FOR SECOND YEAR OF OPERATION. (a)
For the second school year in which students attend a new
instructional facility, a school district is entitled to an
allotment of $250 for each additional student in average daily
attendance at the facility or a greater amount provided by
appropriation.
(b) For purposes of this section, the number of additional
students in average daily attendance at a facility is the
difference between the number of students in average daily
attendance in the current year at that facility and the number of
students in average daily attendance at that facility in the
preceding year.
Sec. 42.205. PRORATION OF ALLOTMENTS. If the total amount
of allotments to which school districts are entitled under this
subchapter for a school year exceeds the amount appropriated for
allotments under this subchapter, the commissioner shall reduce
each district's allotment under this subchapter in the manner
provided by Section 42.312(f).
Sec. 42.206. APPLICABILITY TO CERTAIN DISTRICTS. A school
district subject to Section 42.401 that elects to purchase average
daily attendance credit under Subchapter D, Chapter 41, is entitled
to a credit, in the amount of the allotments to which the district
is entitled under this subchapter, against the total amount
required under Section 41.093 for the district to purchase
attendance credits.

[Sections 42.207-42.250 reserved for expansion]

SUBCHAPTER E. ENRICHMENT PROGRAM
Sec. 42.251. PURPOSE. The purpose of the enrichment
program component of the Foundation School Program is to provide
each school district with the opportunity to supplement the basic
program at a level of its own choice. An allotment under this
subchapter may be used for any legal purpose other than capital
outlay or debt service.
Sec. 42.252. ALLOTMENT. (a) Each school district is
guaranteed a specified amount per student in state and local funds
for each cent of enrichment tax effort up to the maximum level
specified in this subchapter. The amount of state support, subject
only to the maximum amount under Section 42.253(b), is determined
by the formula:

GYA = (GL X ADA X DETR X 100) - LR

where:
"GYA" is the guaranteed yield amount of state enrichment
funds to be allocated to the district;
"GL" is the dollar amount guaranteed level of state and local
enrichment funds per student in average daily attendance per cent
of tax effort, which is an amount equal to the sum of the district's
accreditation allotments under Subchapter B and special student
allotments under Subchapter C, as adjusted in the manner provided
by Sections 42.301, 42.302, and 42.303, divided by the total number
of district students in average daily attendance, divided by 100,
or a greater amount for any school year provided by appropriation;
"ADA" is the district's total number of students in average
daily attendance;
"DETR" is the district enrichment tax rate of the school
district, which is determined by dividing the total amount of
maintenance and operations taxes collected by the school district
for the applicable school year, as provided by Subsection (b), by
the quotient of the district's taxable value of property for the
preceding tax year as determined under Subchapter M, Chapter 403,
Government Code, or, if applicable, Section 42.307, divided by 100;
and
"LR" is the local revenue, which is determined by multiplying
"DETR" by the quotient of the district's taxable value of property
as determined under Subchapter M, Chapter 403, Government Code, or,
if applicable, Section 42.307, divided by 100.
(b) For purposes of this section:
(1) the total amount of maintenance and operations
taxes collected by the school district does not include the amount
of:
(A) the district's local share under Section
42.306; or
(B) taxes paid into a tax increment fund under
Chapter 311, Tax Code;
(2) school district taxes for which credit is granted
under Section 31.035, 31.036, or 31.037, Tax Code, or under
Subchapter D, Chapter 313, Tax Code, are considered taxes collected
by the school district as if the taxes were paid when the credit for
the taxes was granted; and
(3) the total amount of maintenance and operations
taxes collected for an applicable school year by a school district
with alternate tax dates, as authorized by Section 26.135, Tax
Code, is the amount of taxes collected on or after January 1 of the
year in which the school year begins and not later than December 31
of the same year.
Sec. 42.253. DISTRICT ENRICHMENT TAX. (a) The district
enrichment tax rate may not exceed $0.10 per $100 of valuation.
(a-1) Notwithstanding Subsection (a), a school district may
not impose a district enrichment tax earlier than the 2006 tax year.
The maximum rate that may be imposed during the 2006 tax year is
$0.02 per $100 of valuation. For subsequent tax years, the maximum
rate is increased by $0.02 per year, until the maximum amount
specified by Subsection (a) is reached. This subsection expires
January 1, 2011.
(b) Notwithstanding Subsection (a), the legislature by
appropriation shall establish for each biennium the maximum
district enrichment tax rate for purposes of determining the
district's guaranteed yield amount of state enrichment funds under
Section 42.252.
Sec. 42.254. COMPUTATION OF ENRICHMENT AID FOR DISTRICT ON
MILITARY INSTALLATION OR AT STATE SCHOOL. State enrichment
assistance under this subchapter for a school district located on a
federal military installation or at Moody State School is computed
using the average district enrichment tax rate and property value
per student of school districts in the county, as determined by the
commissioner.
Sec. 42.255. DISTRIBUTION OF ENRICHMENT PROGRAM FUNDS. As
provided by Section 42.312, for each school year, the commissioner
shall:
(1) determine the guaranteed yield amount of state
enrichment program funds to which a school district is entitled
under Section 42.252; and
(2) approve and transmit warrants to school districts.

[Sections 42.256-42.300 reserved for expansion]

SUBCHAPTER F. ADDITIONAL ADJUSTMENTS; FINANCING THE PROGRAM
Sec. 42.301. COST OF EDUCATION ADJUSTMENT. (a) The amounts
of the accreditation allotments under Subchapter B and each special
student allotment under Subchapter C are adjusted to reflect the
geographic variation in known resource costs and costs of education
due to factors beyond the control of the school district. The
amount of the adjustment is 50 percent of the total amount that
would result from application of the cost of education index
adopted under Subsection (b), or a greater amount for any school
year provided by appropriation.
(b) The commissioner shall adopt a cost of education index
based on a statistical analysis conducted on a revenue neutral
basis that is designed to isolate the independent effects of
uncontrollable factors on the compensation that school districts
must pay, including teacher salaries and other benefits. The
analysis must include, at a minimum, variations in teacher
characteristics, teacher work environments, and the economic and
social conditions of the communities in which teachers reside.
(b-1) For the 2005-2006 and 2006-2007 school years, the cost
of education index is based on the teacher fixed effects index in
the 2004 report commissioned by the Joint Select Committee on
Public School Finance of the 78th Legislature. This subsection
expires September 1, 2007.
(c) The commissioner shall biennially update the cost of
education index required by this section. The commissioner shall
submit the updated index to the legislature not later than December
1 of each even-numbered year.
Sec. 42.302. DISTRICT SIZE AND SPARSITY ADJUSTMENT. (a)
The amounts of the accreditation allotments under Subchapter B and
each special student allotment under Subchapter C of a school
district that has fewer than 5,000 students in average daily
attendance are adjusted to reflect district costs related to the
district's size or sparsity.
(b) The commissioner shall adopt the adjustment required by
this section based on a statistical analysis conducted on a revenue
neutral basis that is designed to isolate the independent effects
of a school district's size and sparsity on the costs of achieving
the state's educational goals.
(c) The commissioner shall update the adjustment required
by this section at least once in each five-year period.
(d) Notwithstanding any other provision of this section, if
the adjustment to which a school district is entitled under this
section is smaller than the adjustment the district would receive
if the adjustments provided by Sections 42.103 and 42.105, as those
sections existed on January 1, 2004, were applied to the district,
the district is entitled to receive the larger adjustment.
Sec. 42.303. INFLATION ADJUSTMENT. (a) In this section,
"employment cost index" means the employment cost index published
by the Federal Bureau of Labor Statistics.
(b) The amounts of the accreditation allotments under
Subchapter B and each special student allotment under Subchapter C
that a school district is otherwise entitled to receive under this
subchapter, as adjusted under Sections 42.301 and 42.302, are
adjusted in accordance with this section as necessary to reflect
inflation.
(c) The commissioner shall determine the amount of the
adjustment for each biennium based on the difference, if any,
between the employment cost index most recently published as of
January 1 of the calendar year in which the first year of the
biennium begins and the employment cost index most recently
published as of January 1, 2005.
(d) The commissioner's determination under this section is
final and may not be appealed.
(e) This section applies beginning with the 2006-2007
school year. For that school year, the adjustment is based on the
difference, if any, between the employment cost index most recently
published on January 1, 2006, and the employment cost index most
recently published as of January 1, 2005. This subsection expires
September 1, 2007.
Sec. 42.304. FINANCING: GENERAL RULE. (a) The sum of the
accreditation allotments under Subchapter B, the special student
allotments under Subchapter C, and the new instructional facility
allotments under Subchapter D constitutes the tier one allotments.
The sum of the tier one allotments and the enrichment program
allotments under Subchapter E constitutes the total cost of the
Foundation School Program.
(b) The program shall be financed by:
(1) state funds appropriated for the purposes of
public school education;
(2) ad valorem tax revenue generated by an equalized
uniform school district effort;
(3) ad valorem tax revenue generated by local school
district effort for an enrichment program in accordance with
Subchapter E; and
(4) state available school funds distributed in
accordance with law.
Sec. 42.305. ADDITIONAL STATE AID FOR AD VALOREM TAX
CREDITS UNDER TEXAS ECONOMIC DEVELOPMENT ACT. For each school year,
a school district, including a school district that is otherwise
ineligible for state aid under this chapter, is entitled to state
aid in an amount equal to the amount of all tax credits credited
against ad valorem taxes of the district in that year under
Subchapter D, Chapter 313, Tax Code.
Sec. 42.306. LOCAL SHARE OF PROGRAM COST (TIER ONE). (a)
Each school district's share of the Foundation School Program is
determined by the following formula:

LS = TR X DPV

where:
"LS" is the school district's local share;
"TR" is a tax rate which for each hundred dollars of valuation
is an effective tax rate of $1.05; and
"DPV" is the taxable value of property in the school district
for the preceding tax year determined under Subchapter M, Chapter
403, Government Code.
(b) The commissioner shall adjust the values reported in the
official report of the comptroller as required by Section 5.09(a),
Tax Code, to reflect reductions in taxable value of property
resulting from natural or economic disaster after January 1 in the
year in which the valuations are determined. The decision of the
commissioner is final. An adjustment does not affect the local
share of any other school district.
(c) Appeals of district values shall be held pursuant to
Section 403.303, Government Code.
(d) A school district must adopt a maintenance and
operations tax rate sufficient to raise its total local share of the
Foundation School Program to be eligible to receive foundation
school fund payments. The district's adopted maintenance and
operations tax rate, including any enrichment tax rate under
Subchapter E, may not exceed the maximum rate specified by Section
45.003(d).
Sec. 42.307. ADJUSTMENT FOR RAPID DECLINE IN TAXABLE VALUE
OF PROPERTY. (a) For purposes of Chapter 46 and this chapter, and
to the extent money specifically authorized to be used under this
section is available, the commissioner shall adjust the taxable
value of property in a school district that, due to factors beyond
the control of the board of trustees, experiences a rapid decline in
the tax base used in calculating taxable values in excess of four
percent of the tax base used in the preceding year.
(b) To the extent that a sufficient amount of money is not
available to fund all adjustments under this section, the
commissioner shall reduce adjustments in the manner provided by
Section 42.312(f) so that the total amount of adjustments equals
the amount of money available to fund the adjustments.
(c) A decision of the commissioner under this section is
final and may not be appealed.
Sec. 42.308. EFFECT OF APPRAISAL APPEAL. (a) If the final
determination of an appeal under Chapter 42, Tax Code, results in a
reduction in the taxable value of property that exceeds five
percent of the total taxable value of property in the school
district for the same tax year determined under Subchapter M,
Chapter 403, Government Code, the commissioner shall request the
comptroller to adjust its taxable property value findings for that
year consistent with the final determination of the appraisal
appeal.
(b) If the district would have received a greater amount
from the foundation school fund for the applicable school year
using the adjusted value, the commissioner shall add the difference
to subsequent distributions to the district from the foundation
school fund. An adjustment does not affect the local share of any
other district.
Sec. 42.309. ADDITIONAL TRANSITIONAL AID. (a)
Notwithstanding any other provision of this subtitle, a school
district is entitled to the amount of state revenue necessary to
maintain state and local revenue in an amount equal to the sum of:
(1) the amount of state and local revenue per student
in average daily attendance for maintenance and operation of the
district that would have been available to the district if the
funding elements under Chapters 41 and 42, Education Code,
including any amounts the district would have received under Rider
82 to the appropriation to the Texas Education Agency in Article
III, Chapter 1330, Acts of the 78th Legislature, Regular Session,
2003, in effect during the 2004-2005 school year were in effect for
the current year; and
(2) an amount equal to two percent of the amount
described by Subdivision (1).
(b) The amount of state funds to which a school district is
entitled under this section is not subject to any adjustment for
inflation under Section 42.303.
(c) The commissioner shall determine the amount of state
funds to which a school district is entitled under this section. The
commissioner's determination is final and may not be appealed.
Sec. 42.310. TEMPORARY LIMITATIONS ON AID. (a) In this
section, "public school adequacy standards" has the meaning
assigned by Section 42.311.
(b) This subsection applies to a school district otherwise
entitled under this subtitle to receive, for the 2005-2006 school
year, an amount of state and local revenue per student in average
daily attendance for maintenance and operation of the district that
exceeds 105 percent of the amount necessary to provide an
accredited basic program that meets public school adequacy
standards. Notwithstanding any other provision of this subtitle:
(1) the commissioner shall withhold from a district
described by this subsection the amount of state funds necessary to
ensure that the district does not receive a greater amount of state
and local revenue per student in average daily attendance for
maintenance and operation of the district than the amount to which
the district is entitled under Section 42.309; and
(2) a school district is entitled to the amount
provided by Section 42.309, regardless of the degree to which that
amount exceeds 105 percent of the amount necessary to provide an
accredited basic program that meets public school adequacy
standards.
(c) Notwithstanding any other provision of this subtitle:
(1) for the 2006-2007 and 2007-2008 school years, the
commissioner shall determine the appropriate amount, based on
available appropriations, of state funds to withhold in the manner
provided by Subsection (b) from a school district that would
otherwise be entitled under this subtitle to receive an amount of
state and local revenue per student in average daily attendance
that exceeds, by the percentage established by the commissioner,
the amount necessary to provide an accredited basic program that
meets public school adequacy standards; and
(2) a school district is entitled to the amount
provided by Section 42.309, regardless of the degree to which that
amount exceeds the percentage determined under Subdivision (1) of
the amount necessary to provide an accredited basic program that
meets public school adequacy standards.
(d) Notwithstanding any other provision of this subtitle,
the commissioner shall withhold from a school district that is not
subject to Subsection (b) or (c) the amount of state funds necessary
to ensure that the district does not receive an amount of state and
local revenue per student in average daily attendance that is
greater than the following percentage of the amount to which the
district is entitled under Section 42.304:
(1) 108 percent for the 2005-2006 school year;
(2) 116 percent for the 2006-2007 school year; and
(3) 124 percent for the 2007-2008 school year.
(e) The commissioner shall determine the amount of state
funds required to be withheld under this section. Notwithstanding
any other provision of this section, the commissioner, in
determining the amount of state funds required to be withheld,
shall ensure that the amount of state and local revenue the district
receives for the 2006-2007 or 2007-2008 school year is adjusted so
that a district receives any annual benefit derived from the
inflation adjustment under Section 42.303. The commissioner's
determination is final and may not be appealed.
(f) This section expires September 1, 2008.
Sec. 42.311. ADDITIONAL BASIC PROGRAM AID. (a) In this
section, "public school adequacy standards" means standards for the
adequacy of funding for a public school education, as determined by
the legislature based on a statistical analysis of the costs of
achieving the educational goals of this state.
(b) Notwithstanding any other provision of this subtitle, a
school district is entitled to the amount of state revenue
necessary to ensure that the district has sufficient state and
local revenue to provide an accredited basic program that meets
public school adequacy standards.
(c) The commissioner shall determine the amount of state
funds to which a school district is entitled under this section.
The commissioner's determination is final and may not be appealed.
Sec. 42.312. DISTRIBUTION OF TEXAS EDUCATION FUND. (a) For
each school year the commissioner shall determine:
(1) the amount of money to which a school district is
entitled under Subchapters B, C, and D, as adjusted in accordance
with this subchapter;
(2) the amount of money to which a school district is
entitled under Subchapter E;
(3) the amount of money allocated to the district from
the available school fund;
(4) the amount of the district's tier one local share
under Section 42.306; and
(5) the amount of each district's enrichment program
local revenue under Section 42.252.
(b) Except as provided by this subsection, the commissioner
shall base the determinations under Subsection (a) on the estimates
provided to the legislature under Section 42.313, or, if the
General Appropriations Act provides estimates for that purpose, on
the estimates provided under that Act, for each school district for
each school year. The commissioner shall reduce the entitlement of
each district that has a final taxable value of property for the
second year of a state fiscal biennium that is higher than the
estimate under Section 42.313 or the General Appropriations Act, as
applicable. A reduction under this subsection may not reduce the
district's entitlement below the amount to which it is entitled at
its actual taxable value of property.
(c) Each school district is entitled to an amount equal to
the difference for that district between the sum of Subsections
(a)(1) and (a)(2) and the sum of Subsections (a)(3), (a)(4), and
(a)(5).
(d) The commissioner shall approve warrants to each school
district equaling the amount of its entitlement, except as provided
by this section. Warrants for all money expended according to this
chapter shall be approved and transmitted to treasurers or
depositories of school districts in the same manner that warrants
for state available fund payments are transmitted. The total
amount of the warrants issued under this section may not exceed the
total amount appropriated for Foundation School Program purposes
for that fiscal year.
(e) If a school district demonstrates to the satisfaction of
the commissioner that the estimate of the district's tax rate,
student enrollment, or taxable value of property used in
determining the amount of state funds to which the district is
entitled are so inaccurate as to result in undue financial hardship
to the district, the commissioner may adjust funding to that
district in that school year to the extent that funds are available
for that year.
(f) If the total amount appropriated for a year is less than
the amount of money to which school districts are entitled for that
year, the commissioner shall reduce the total amount of funds
allocated to each district proportionately. The following fiscal
year, a district's entitlement under this section is increased by
an amount equal to the reduction made under this subsection.
(g) Not later than March 1 each year, the commissioner shall
determine the actual amount of state funds to which each school
district is entitled under this chapter for the current school year
and shall compare that amount with the amount of the warrants issued
to each district for that year. If the amount of the warrants
differs from the amount to which a district is entitled because of
variations in the district's tax rate, student enrollment, or
taxable value of property, the commissioner shall adjust the
district's entitlement for the next fiscal year accordingly.
(h) The legislature may appropriate funds necessary for
increases under Subsection (g) from funds that the comptroller, at
any time during the fiscal year, finds are available.
(i) The commissioner shall compute for each school district
the total amount by which the district's allocation of state funds
is increased or reduced under Subsection (g) and shall certify that
amount to the district.
Sec. 42.313. ESTIMATES REQUIRED. (a) Not later than
October 1 of each even-numbered year:
(1) the agency shall submit to the legislature an
estimate of the tax rate and student enrollment of each school
district for the following biennium; and
(2) the comptroller shall submit to the legislature an
estimate of the total taxable value of all property in the state as
determined under Subchapter M, Chapter 403, Government Code, for
the following biennium.
(b) The agency and the comptroller shall update the
information provided to the legislature under Subsection (a) not
later than March 1 of each odd-numbered year.
Sec. 42.314. FALSIFICATION OF RECORDS; REPORT. When, in
the opinion of the agency's director of school audits, audits or
reviews of accounting, enrollment, or other records of a school
district reveal deliberate falsification of the records, or
violation of the provisions of this chapter, through which the
district's share of state funds allocated under the authority of
this chapter would be, or has been, illegally increased, the
director shall promptly and fully report the fact to the State Board
of Education, the state auditor, and the appropriate county
attorney, district attorney, or criminal district attorney.
Sec. 42.315. PAYMENTS FROM TEXAS EDUCATION FUND. (a) In
this section:
(1) "Category 1 school district" means a school
district having a wealth per student of less than one-half of the
statewide average wealth per student.
(2) "Category 2 school district" means a school
district having a wealth per student of at least one-half of the
statewide average wealth per student but not more than the
statewide average wealth per student.
(3) "Category 3 school district" means a school
district having a wealth per student of more than the statewide
average wealth per student.
(4) "Wealth per student" means the taxable property
values reported by the comptroller to the commissioner under
Section 42.306 divided by the number of students in average daily
attendance.
(b) Payments from the Texas education fund to each category
1 school district shall be made as follows:
(1) 15 percent of the yearly entitlement of the
district shall be paid in an installment to be made on or before the
25th day of September of a fiscal year;
(2) 80 percent of the yearly entitlement of the
district shall be paid in eight equal installments to be made on or
before the 25th day of October, November, December, January, March,
May, June, and July; and
(3) five percent of the yearly entitlement of the
district shall be paid in an installment to be made on or before the
25th day of February.
(c) Payments from the Texas education fund to each category
2 school district shall be made as follows:
(1) 22 percent of the yearly entitlement of the
district shall be paid in an installment to be made on or before the
25th day of September of a fiscal year;
(2) 18 percent of the yearly entitlement of the
district shall be paid in an installment to be made on or before the
25th day of October;
(3) 9.5 percent of the yearly entitlement of the
district shall be paid in an installment to be made on or before the
25th day of November;
(4) 7.5 percent of the yearly entitlement of the
district shall be paid in an installment to be made on or before the
25th day of April;
(5) five percent of the yearly entitlement of the
district shall be paid in an installment to be made on or before the
25th day of May;
(6) 10 percent of the yearly entitlement of the
district shall be paid in an installment to be made on or before the
25th day of June;
(7) 13 percent of the yearly entitlement of the
district shall be paid in an installment to be made on or before the
25th day of July; and
(8) 15 percent of the yearly entitlement of the
district shall be paid in an installment to be made after the fifth
day of September and not later than the 10th day of September of the
calendar year following the calendar year of the payment made under
Subdivision (1).
(d) Payments from the foundation school fund to each
category 3 school district shall be made as follows:
(1) 45 percent of the yearly entitlement of the
district shall be paid in an installment to be made on or before the
25th day of September of a fiscal year;
(2) 35 percent of the yearly entitlement of the
district shall be paid in an installment to be made on or before the
25th day of October; and
(3) 20 percent of the yearly entitlement of the
district shall be paid in an installment to be made after the fifth
day of September and not later than the 10th day of September of the
calendar year following the calendar year of the payment made under
Subdivision (1).
(e) The amount of any installment required by this section
may be modified to provide a school district with the proper amount
to which the district may be entitled by law and to correct errors
in the allocation or distribution of funds. If an installment under
this section is required to be equal to other installments, the
amount of other installments may be adjusted to provide for that
equality.
(f) Except as provided by Subsection (c)(8) or (d)(3), any
previously unpaid additional funds from prior years owed to a
district shall be paid to the district together with the September
payment of the current year entitlement.
Sec. 42.316. RECOVERY OF OVERALLOCATED FUNDS. (a) If a
school district has received an overallocation of state funds, the
agency shall, by withholding from subsequent allocations of state
funds or by requesting and obtaining a refund, recover from the
district an amount equal to the overallocation.
(b) If a district fails to comply with a request for a refund
under Subsection (a), the agency shall certify to the comptroller
that the amount constitutes a debt for purposes of Section 403.055,
Government Code. The agency shall provide to the comptroller the
amount of the overallocation and any other information required by
the comptroller. The comptroller may certify the amount of the debt
to the attorney general for collection.
(c) Any amounts recovered under this section shall be
deposited in the Texas education fund.

[Sections 42.317-42.400 reserved for expansion]

SUBCHAPTER G. ADDITIONAL EQUALIZATION
Sec. 42.401. DISTRICTS SUBJECT TO ADDITIONAL EQUALIZATION.
(a) Except as provided by Subsection (b), a school district in
which the district's local share under Section 42.306 exceeds the
district's tier one allotment under Section 42.304 shall be
consolidated by the commissioner under Subchapter H, Chapter 41.
(b) As an alternative to consolidation under Subchapter H,
Chapter 41, a school district described by Subsection (a) may elect
to purchase average daily attendance credit in the manner provided
by Subchapter D, Chapter 41.
SECTION 1A.02. The heading to Chapter 41, Education Code,
is amended to read as follows:
CHAPTER 41. EQUALIZATION ACTIONS [EQUALIZED WEALTH LEVEL]
SECTION 1A.03. Section 41.006(a), Education Code, is
amended to read as follows:
(a) The commissioner may adopt rules necessary for the
implementation of this chapter. The rules may provide for the
commissioner to make necessary adjustments to the provisions of
Chapter 42, including providing for the commissioner to make an
adjustment in the funding element established by Section 42.252
[42.302], at the earliest date practicable, to the amount the
commissioner believes, taking into consideration options exercised
by school districts under Section 42.401 [this chapter] and
estimates of student enrollments, will match appropriation levels.
SECTION 1A.04. Section 41.008(a), Education Code, is
amended to read as follows:
(a) The governing board of a school district that results
from consolidation under this chapter[, including a consolidated
taxing district under Subchapter F,] for the tax year in which the
consolidation occurs may determine whether to adopt a homestead
exemption provided by Section 11.13, Tax Code, and may set the
amount of the exemption, if adopted, at any time before the school
district adopts a tax rate for that tax year. This section applies
only to an exemption that the governing board of a school district
is authorized to adopt or change in amount under Section 11.13, Tax
Code.
SECTION 1A.05. Section 41.009(a), Education Code, is
amended to read as follows:
(a) A tax abatement agreement executed by a school district
that is involved in consolidation [or in detachment and annexation
of territory] under this chapter is not affected and applies to the
taxation of the property covered by the agreement as if executed by
the district within which the property is included.
SECTION 1A.06. Section 41.010, Education Code, is amended
to read as follows:
Sec. 41.010. TAX INCREMENT OBLIGATIONS. The payment of tax
increments under Chapter 311, Tax Code, is not affected by the
consolidation of territory [or tax bases or by annexation] under
this chapter. In each tax year a school district paying a tax
increment from taxes on property over which the district has
assumed taxing power is entitled to retain the same percentage of
the tax increment from that property that the district in which the
property was located before the consolidation [or annexation] could
have retained for the respective tax year.
SECTION 1A.07. Section 41.013(a), Edcucation Code, is
amended to read as follows:
(a) A [Except as provided by Subchapter G, a] decision of
the commissioner under this chapter is appealable under Section
7.057.
SECTION 1A.08. Section 41.091, Education Code, is amended
to read as follows:
Sec. 41.091. AGREEMENT. A school district subject to
Section 42.401 [with a wealth per student that exceeds the
equalized wealth level] may execute an agreement with the
commissioner to purchase attendance credits in an amount equal to
the difference between the district's local share under Section
42.306 and the district's tier one allotment under Section 42.304
[sufficient, in combination with any other actions taken under this
chapter, to reduce the district's wealth per student to a level that
is equal to or less than the equalized wealth level].
SECTION 1A.09. Section 41.093, Education Code, is amended
by amending Subsection (a) and adding Subsection (d) to read as
follows:
(a) The cost of each credit is an amount equal to the greater
of:
(1) the amount of the district's maintenance and
operations tax revenue per student in [weighted] average daily
attendance for the school year for which the contract is executed;
or
(2) the amount of the statewide district average of
maintenance and operations tax revenue per student in [weighted]
average daily attendance for the school year preceding the school
year for which the contract is executed.
(d) The commissioner shall adopt rules governing, for
purposes of this section, the collection of delinquent ad valorem
taxes. The rules may provide for documentation and other
recordkeeping requirements.
SECTION 1A.10. Section 41.251, Education Code, is amended
to read as follows:
Sec. 41.251. COMMISSIONER ORDER. If the commissioner is
required under Section 42.401 [41.004] to order the consolidation
of districts, the consolidation is governed by this subchapter.
The commissioner's order shall be effective on a date determined by
the commissioner, but not later than the earliest practicable date
after November 8.
SECTION 1A.11. Section 41.252, Education Code, is amended
by amending Subsections (a) and (c) and adding Subsection (d) to
read as follows:
(a) In selecting the districts to be consolidated with a
district subject to Section 42.401 [that has a property wealth
greater than the equalized wealth level], the commissioner shall
select one or more districts with a local share under Section 42.306
[wealth per student] that, when consolidated, will result in a
consolidated district that is not subject to Section 42.401 [with a
wealth per student equal to or less than the equalized wealth
level]. In achieving that result, the commissioner shall give
priority to school districts in the following order:
(1) first, to the contiguous district that has the
lowest local share percentage [wealth per student] and is located
in the same county;
(2) second, to the district that has the lowest local
share percentage [wealth per student] and is located in the same
county;
(3) third, to a contiguous district not subject to
Section 42.401 [with a property wealth below the equalized wealth
level] that has requested the commissioner to consider [that] it
for inclusion [be considered] in a consolidation plan;
(4) fourth, to include as few districts as possible
that are not subject to Section 42.401 and [fall below the equalized
wealth level within the consolidation order that] have not
requested the commissioner to be included in a consolidation plan;
(5) fifth, to the district that has the lowest local
share percentage [wealth per student] and is located in the same
regional education service center area; and
(6) sixth, to a district that has a tax rate similar to
that of the district subject to Section 42.401 [that has a property
wealth greater than the equalized wealth level].
(c) In applying the selection criteria specified by
Subsection (a), if more than two districts are to be consolidated,
the commissioner shall select the third and each subsequent
district to be consolidated by treating the district subject to
Section 42.401 [that has a property wealth greater than the
equalized wealth level] and the district or districts previously
selected for consolidation as one district.
(d) In this section, "local share percentage" means a
percentage determined by dividing a school district's local share
under Section 42.306 by the district's tier one allotment under
Section 42.304.
SECTION 1A.12. Section 41.257, Education Code, is amended
to read as follows:
Sec. 41.257. APPLICATION OF SIZE AND SPARSITY [SMALL AND
SPARSE] ADJUSTMENTS [AND TRANSPORTATION ALLOTMENT]. The budget of
the consolidated district must apply the benefit of the adjustment
or allotment to the schools of the consolidating district to which
Section 42.302 [42.103, 42.105, or 42.155] would have applied in
the event that the consolidated district still qualifies for that
adjustment [as a small or sparse district].
SECTION 1A.13. Section 45.003, Education Code, is amended
by amending Subsections (a) and (d) and adding Subsections (e) and
(f) to read as follows:
(a) Bonds described by Section 45.001 may not be issued and
taxes described by Section 45.001 or 45.002 may not be levied unless
authorized by a majority of the qualified voters of the district,
voting at an election held for that purpose[, at the expense of the
district, in accordance with the Election Code, except as provided
by this section. Each election must be called by resolution or
order of the governing board or commissioners court. The
resolution or order must state the date of the election, the
proposition or propositions to be submitted and voted on, the
polling place or places, and any other matters considered necessary
or advisable by the governing board or commissioners court].
(d) A proposition submitted to authorize the levy of
maintenance taxes must include the question of whether the
governing board or commissioners court may levy, assess, and
collect annual ad valorem taxes for the further maintenance of
public schools, at a rate not to exceed the rate, which may be not
more than $1.15 [$1.50] on the $100 valuation of taxable property in
the district, stated in the proposition.
(e) An election held before January 1, 2004, authorizing a
maintenance tax at a rate of at least $1.25 on the $100 valuation of
taxable property in the district is sufficient to authorize a rate
of $1.15 or less.
(f) A district permitted by special law on January 1, 2004,
to impose an ad valorem tax at a rate greater than $1.50 may
continue to impose a rate that is $0.35 less than the rate
previously authorized.
SECTION 1A.14. Section 26.08, Tax Code, is amended by
amending Subsections (i) and (j) and adding Subsections (i-1) and
(i-2) to read as follows:
(i) For purposes of this section, the rollback tax rate of a
school district is the sum of:
(1) the tax rate that, applied to the current total
value for the district, would impose taxes in an amount that, when
added to state funds that would be distributed to the district under
Chapter 42, Education Code, for the school year beginning in the
current tax year using that tax rate, would provide the same amount
of state funds distributed under Chapter 42 and maintenance and
operations taxes of the district per student in [weighted] average
daily attendance for that school year that would have been
available to the district in the preceding year if the funding
elements for Chapters 41 and 42, Education Code, for the current
year, including the adjustment for inflation under Section 42.303,
Education Code, had been in effect for the preceding year;
(2) the rate of $0.02 [$0.06] per $100 of taxable
value; and
(3) the district's current debt rate.
(i-1) For purposes of this section, for the 2005 tax year
the rollback tax rate of a school district, including a district to
which Section 45.003(f), Education Code, applies, is the sum of:
(1) the rate of $1.05 per $100 of taxable value for
maintenance and operation of the district; and
(2) the district's current debt rate.
(i-2) Subsection (i-1) and this subsection expire January
1, 2006.
(j) For purposes of Subsection (i), the amount of state
funds that would have been available to a school district in the
preceding year is computed using the maximum tax rate for the
current year for which a district may receive state assistance
under Section 42.252 [42.253(e)], Education Code.

PART B. SCHOOL DISTRICT FACILITIES
SECTION 1B.01. Section 46.002(b), Education Code, is
amended to read as follows:
(b) The commissioner's rules shall [may] limit the amount of
an allotment under this subchapter that is to be used to construct,
acquire, renovate, or improve an instructional facility that may
also be used for noninstructional or extracurricular activities.
An allotment under this subchapter may not be used to construct,
acquire, renovate, or improve a facility, such as a stadium, if the
facility's predominant use is for extracurricular purposes or for
purposes other than teaching the curriculum required under Section
28.002.
SECTION 1B.02. Section 46.008, Education Code, is amended
to read as follows:
Sec. 46.008. STANDARDS AND BEST PRACTICES. (a) The
commissioner shall establish standards for adequacy of school
facilities. The standards must include requirements related to
[space,] educational adequacy[,] and construction quality. The
standards may not include requirements related to space or square
footage for a facility or any part of a facility. All new
facilities constructed after September 1, 1998, must meet or exceed
the standards to be eligible to be financed with state or local tax
funds.
(b) The commissioner shall establish a program of best
practices for the construction, replacement, renovation, or
improvement of school facilities. The program must:
(1) include solicitation of information from school
districts on best practices;
(2) recognize school districts that have achieved
cost-effectiveness in construction and long-term maintenance;
(3) emphasize cost-effectiveness, energy efficiency,
functionality, and replicability;
(4) be designed to encourage, without imposing
requirements relating to specific criteria, school district
consideration of:
(A) best practices, including evaluation of the
school district's financial status, total amount of outstanding
debt, maturity of outstanding debt, and preventive maintenance of
facilities;
(B) cost-effectiveness;
(C) projected enrollment in the portion of the
school district to be served by a facility for which state financial
assistance is sought; and
(D) if applicable, the condition of a facility
that is to be replaced, renovated, or improved with state financial
assistance; and
(5) include a process for local evaluation of the need
for construction, acquisition, renovation, or improvement of a
facility.
(c) This section may not be construed in a manner that
impairs or eliminates a guarantee of an eligible bond under
Subchapter C, Chapter 45.
SECTION 1B.03. Section 46.033, Education Code, is amended
to read as follows:
Sec. 46.033. ELIGIBLE BONDS. Bonds, including bonds issued
under Section 45.006, are eligible to be paid with state and local
funds under this subchapter if the district does not receive state
assistance under Subchapter A for payment of the principal and
interest on the bonds and:
(1) the proceeds of the bonds were used to construct,
acquire, renovate, or improve an instructional facility, as defined
by Section 46.001, and the district made payments on the bonds
during the final school year of the state fiscal biennium preceding
the biennium in which the district first receives assistance under
this subchapter for the payment of principal of and interest on the
bonds or taxes levied to pay the principal of and interest on the
bonds were included in the district's audited debt service
collections for that school year; or
(2) the district made payments on the bonds during the
2002-2003 school year or taxes levied to pay the principal of and
interest on the bonds were included in the district's audited debt
service collections for that school year[; and
[(2) the district does not receive state assistance
under Subchapter A for payment of the principal and interest on the
bonds].
SECTION 1B.04. Section 46.034(c), Education Code, is
amended to read as follows:
(c) If the amount required to pay the principal of and
interest on eligible bonds in a school year is less than the amount
of payments made by the district on the bonds during the final
[2002-2003] school year of the state fiscal biennium preceding the
biennium in which the district first receives assistance under this
subchapter for the payment of principal of and interest on the bonds
or the district's audited debt service collections for that school
year, the district may not receive aid in excess of the amount that,
when added to the district's local revenue for the school year,
equals the amount required to pay the principal of and interest on
the bonds.
SECTION 1B.05. Section 46.008(a), Education Code, as
amended by this part, applies to a school facility for which
construction begins on or after the effective date of this part, and
such a facility is not required to meet any requirements related to
space established by the commissioner of education under that
section as it existed before amendment by this part.
SECTION 1B.06. Subchapter A, Chapter 46, Education Code, as
amended by this part, applies only to the payment of state
assistance under Subchapter A, Chapter 46, Education Code, for
which a school district applies on or after September 1, 2005.
Payment of state assistance under Subchapter A, Chapter 46,
Education Code, for which a school district applies before
September 1, 2005, is governed by the law in effect on the date the
district applies for the state assistance, and the former law is
continued in effect for that purpose.
SECTION 1B.07. Subchapter B, Chapter 46, Education Code, as
amended by this part, applies only to bonds that first become
eligible for payment with state assistance under that subchapter
after January 1, 2004. Bonds that were eligible for payment with
state assistance under that subchapter as of January 1, 2004, are
governed by that subchapter as it existed before amendment by this
part, and the former law is continued in effect for that purpose.

PART C. STUDY ON PUBLIC LAW NO. 108-173
SECTION 1C.01. The Teacher Retirement System of Texas shall
conduct a study regarding Pub. L. No. 108-173.
SECTION 1C.02. Not later than January 1, 2005, the Teacher
Retirement System of Texas shall report the results of the study
conducted under this part in writing to the lieutenant governor,
the speaker of the house of representatives, and the members and
members-elect of the 79th Legislature.

PART D. COMPENSATION SUPPLEMENTATION FOR CERTAIN ACTIVE

SCHOOL EMPLOYEES
SECTION 1D.01. Notwithstanding any other law, with respect
to classroom teachers, full-time librarians, full-time counselors,
or full-time school nurses employed by the district, school, or
service center, the trustee under Chapter 1580, Insurance Code,
shall deliver an amount, as determined by the trustee, equal to the
number of classroom teachers, full-time librarians, full-time
counselors, and full-time school nurses employed by the district,
school, or service center multiplied by $1,000 or a greater amount
as provided by the General Appropriations Act for purposes of
Chapter 1580.
SECTION 1D.02. Chapter 313, Acts of the 78th Legislature,
Regular Session, 2003, is repealed.

PART E. SOCIAL SECURITY CONTRIBUTIONS
SECTION 1E.01. Subchapter B, Chapter 606, Government Code,
is amended by adding Section 606.0261 to read as follows:
Sec. 606.0261. PAYMENT OF SCHOOL DISTRICT CONTRIBUTIONS.
(a) Subject to Subsection (b), the state shall pay 50 percent of
the total costs incurred by a school district in making
contributions for social security coverage for the district's
employees.
(b) Payment of state assistance under this section is
limited to:
(1) school districts that covered district employees
under the social security program before January 1, 2004; and
(2) contributions made on behalf of employees in a
class of employees the district covered under the social security
program before January 1, 2004.
(c) Using funds appropriated for the purpose, the
commissioner of education shall distribute money to which school
districts are entitled under this section in accordance with rules
adopted by the commissioner.
SECTION 1E.02. This part takes effect September 1, 2005.

PART F. CONFORMING AMENDMENTS
SECTION 1F.01. Section 7.024(a), Education Code, is amended
to read as follows:
(a) The investment capital fund consists of money
appropriated by the legislature for that purpose [transferred to
the fund as provided by Section 42.152(l)]. The agency shall
administer the fund. The purposes of this fund are to assist
eligible public schools to implement practices and procedures
consistent with deregulation and school restructuring in order to
improve student achievement and to help schools identify and train
parents and community leaders who will hold the school and the
school district accountable for achieving high academic standards.
SECTION 1F.02. Section 7.055(b)(34), Education Code, is
amended to read as follows:
(34) The commissioner shall perform duties in
connection with equalization actions [the equalized wealth level]
under Chapter 41.
SECTION 1F.03. Section 8.051(d), Education Code, is amended
to read as follows:
(d) Each regional education service center shall maintain
core services for purchase by school districts and campuses. The
core services are:
(1) training and assistance in teaching each subject
area assessed under Section 39.023;
(2) training and assistance in providing:
(A) each program that qualifies for a funding
allotment under Section 42.151, 42.152, or 42.153[, or 42.156]; or
(B) a gifted and talented program under
Subchapter D, Chapter 29;
(3) assistance specifically designed for a school
district rated academically unacceptable under Section 39.072(a)
or a campus whose performance is considered unacceptable based on
the indicators adopted under Section 39.051;
(4) training and assistance to teachers,
administrators, members of district boards of trustees, and members
of site-based decision-making committees;
(5) assistance specifically designed for a school
district that is considered out of compliance with state or federal
special education requirements, based on the agency's most recent
compliance review of the district's special education programs; and
(6) assistance in complying with state laws and rules.
SECTION 1F.04. Section 11.158(a), Education Code, is
amended to read as follows:
(a) The board of trustees of an independent school district
may require payment of:
(1) a fee for materials used in any program in which
the resultant product in excess of minimum requirements becomes, at
the student's option, the personal property of the student, if the
fee does not exceed the cost of materials;
(2) membership dues in student organizations or clubs
and admission fees or charges for attending extracurricular
activities, if membership or attendance is voluntary;
(3) a security deposit for the return of materials,
supplies, or equipment;
(4) a fee for personal physical education and athletic
equipment and apparel, although any student may provide the
student's own equipment or apparel if it meets reasonable
requirements and standards relating to health and safety
established by the board;
(5) a fee for items of personal use or products that a
student may purchase at the student's option, such as student
publications, class rings, annuals, and graduation announcements;
(6) a fee specifically permitted by any other statute;
(7) a fee for an authorized voluntary student health
and accident benefit plan;
(8) a reasonable fee, not to exceed the actual annual
maintenance cost, for the use of musical instruments and uniforms
owned or rented by the district;
(9) a fee for items of personal apparel that become the
property of the student and that are used in extracurricular
activities;
(10) a parking fee or a fee for an identification card;
(11) a fee for a driver training course, not to exceed
the actual district cost per student in the program for the current
school year;
(12) a fee for a course offered for credit that
requires the use of facilities not available on the school premises
or the employment of an educator who is not part of the school's
regular staff, if participation in the course is at the student's
option;
(13) a fee for a course offered during summer school,
except that the board may charge a fee for a course required for
graduation only if the course is also offered without a fee during
the regular school year;
(14) a reasonable fee for transportation of a student
who lives within two miles of the school the student attends to and
from that school, except that the board may not charge a fee for
transportation for which the school district receives grant funds
under Section 34.0071 [42.155(d)]; or
(15) a reasonable fee, not to exceed $50, for costs
associated with an educational program offered outside of regular
school hours through which a student who was absent from class
receives instruction voluntarily for the purpose of making up the
missed instruction and meeting the level of attendance required
under Section 25.092.
SECTION 1F.05. Section 12.013(b), Education Code, is
amended to read as follows:
(b) A home-rule school district is subject to:
(1) a provision of this title establishing a criminal
offense;
(2) a provision of this title relating to limitations
on liability; and
(3) a prohibition, restriction, or requirement, as
applicable, imposed by this title or a rule adopted under this
title, relating to:
(A) the Public Education Information Management
System (PEIMS) to the extent necessary to monitor compliance with
this subchapter as determined by the commissioner;
(B) educator certification under Chapter 21 and
educator rights under Sections 21.407, 21.408, and 22.001;
(C) criminal history records under Subchapter C,
Chapter 22;
(D) student admissions under Section 25.001;
(E) school attendance under Sections 25.085,
25.086, and 25.087;
(F) inter-district or inter-county transfers of
students under Subchapter B, Chapter 25;
(G) elementary class size limits under Section
25.112, in the case of any campus in the district that is considered
low-performing under Section 39.132;
(H) high school graduation under Section 28.025;
(I) special education programs under Subchapter
A, Chapter 29;
(J) bilingual education under Subchapter B,
Chapter 29;
(K) prekindergarten programs under Subchapter E,
Chapter 29;
(L) safety provisions relating to the
transportation of students under Sections 34.002, 34.003, 34.004,
and 34.008;
(M) computation and distribution of state aid
under Chapters 31, 42, and 43;
(N) extracurricular activities under Section
33.081;
(O) health and safety under Chapter 38;
(P) public school accountability under
Subchapters B, C, D, and G, Chapter 39;
(Q) equalization [equalized wealth] under
Section 42.401 [Chapter 41];
(R) a bond or other obligation or tax rate under
Chapters 42, 43, and 45; and
(S) purchasing under Chapter 44.
SECTION 1F.06. Section 12.106(a), Education Code, is
amended to read as follows:
(a) A charter holder is entitled to receive for the
open-enrollment charter school funding under Chapter 42 as if the
school were a school district without a tier one local share for
purposes of Section 42.306 [42.253] and without any local revenue
("LR") for purposes of Section 42.252 [42.302]. In determining
funding for an open-enrollment charter school:
(1) the adjustment [, adjustments] under Section
42.301 is [Sections 42.102, 42.103, 42.104, and 42.105 and the
district enrichment tax rate ("DTR") under Section 42.302 are based
on] the [average] adjustment for the school district in which the
school is located; and
(2) the district enrichment tax rate under Section
42.252 is the average district enrichment tax rate for the state.
SECTION 1F.07. Section 13.054(f), Education Code, is
amended to read as follows:
(f) For five years beginning with the school year in which
the annexation occurs, the commissioner shall annually adjust the
local share [fund assignment] of a district to which territory is
annexed under this section by multiplying the enlarged district's
local share [fund assignment] computed under Section 42.306
[42.252] by a fraction, the numerator of which is the number of
students residing in the district preceding the date of the
annexation and the denominator of which is the number of students
residing in the district as enlarged on the date of the annexation.
SECTION 1F.08. Sections 13.282(a) and (b), Education Code,
are amended to read as follows:
(a) The amount of incentive aid payments may not exceed the
difference between:
(1) the sum of the entitlements computed under Section
42.312 [42.253] that would have been paid to the districts included
in the reorganized district if the districts had not been
consolidated; and
(2) the amount to which the reorganized district is
entitled under Section 42.312 [42.253].
(b) If the reorganized district is not eligible for an
entitlement under Section 42.312 [42.253], the amount of the
incentive aid payments may not exceed the sum of the entitlements
computed under Section 42.312 [42.253] for which the districts
included in the reorganized district were eligible in the school
year when they were consolidated.
SECTION 1F.09. Sections 21.402(a) and (c), Education Code,
are amended to read as follows:
(a) Except as provided by Subsection (d)[, (e),] or (f), a
school district must pay each classroom teacher, full-time
librarian, full-time counselor certified under Subchapter B, or
full-time school nurse not less than the minimum monthly salary,
based on the employee's level of experience, prescribed by
Subsection (c) [determined by the following formula:

[MS = SF x FS

[where:
["MS" is the minimum monthly salary;
["SF" is the applicable salary factor specified by Subsection
(c); and
["FS" is the amount, as determined by the commissioner under
Subsection (b), of state and local funds per weighted student
available to a district eligible to receive state assistance under
Section 42.302 with an enrichment tax rate, as defined by Section
42.302, equal to the maximum rate authorized under Section 42.303,
except that the amount of state and local funds per weighted student
does not include the amount attributable to the increase in the
guaranteed level made by H.B. No. 3343, Acts of the 77th
Legislature, Regular Session, 2001].
(c) The minimum monthly salary under this section is
[factors per step are] as follows:Years Experience 0 1 2
MonthlySalary $2,424[.5656] $2,481[.5790] $2,539[.5924]
[Factor]
Years Experience 3 4 5
MonthlySalary $2,596[.6058] $2,717[.6340] $2,838[.6623]
[Factor]
Years Experience 6 7 8
MonthlySalary $2,959[.6906] $3,072[.7168] $3,178[.7416]
[Factor]
Years Experience 9 10 11
MonthlySalary $3,279[.7651] $3,373[.7872] $3,464[.8082]
[Factor]
Years Experience 12 13 14
MonthlySalary $3,549[.8281] $3,628[.8467] $3,705[.8645]
[Factor]
Years Experience 15 16 17
MonthlySalary $3,776[.8811] $3,844[.8970] $3,908[.9119]
[Factor]
Years Experience 18 19 20 and over
MonthlySalary $3,968[.9260] $4,026[.9394] $4,080[.9520]
[Factor]

SECTION 1F.10. Section 21.410(h), Education Code, is
amended to read as follows:
(h) A grant a school district receives under this section is
in addition to any funding the district receives under Chapter 42.
The commissioner shall distribute funds under this section with the
Foundation School Program payment to which the district is entitled
as soon as practicable after the end of the school year as
determined by the commissioner. A district to which Section 42.401
[Chapter 41] applies is entitled to the grants paid under this
section. The commissioner shall determine the timing of the
distribution of grants to a district that does not receive
Foundation School Program payments.
SECTION 1F.11. Section 21.411(h), Education Code, is
amended to read as follows:
(h) A grant a school district receives under this section is
in addition to any funding the district receives under Chapter 42.
The commissioner shall distribute funds under this section with the
Foundation School Program payment to which the district is entitled
as soon as practicable after the end of the school year as
determined by the commissioner. A district to which Section 42.401
[Chapter 41] applies is entitled to the grants paid under this
section. The commissioner shall determine the timing of the
distribution of grants to a district that does not receive
Foundation School Program payments.
SECTION 1F.12. Section 21.412(h), Education Code, is
amended to read as follows:
(h) A grant a school district receives under this section is
in addition to any funding the district receives under Chapter 42.
The commissioner shall distribute funds under this section with the
Foundation School Program payment to which the district is entitled
as soon as practicable after the end of the school year as
determined by the commissioner. A district to which Section 42.401
[Chapter 41] applies is entitled to the grants paid under this
section. The commissioner shall determine the timing of the
distribution of grants to a district that does not receive
Foundation School Program payments.
SECTION 1F.13. Section 21.413(h), Education Code, as added
by Section 2, Chapter 430, Acts of the 78th Legislature, Regular
Session, 2003, is amended to read as follows:
(h) A grant a school district receives under this section is
in addition to any funding the district receives under Chapter 42.
The commissioner shall distribute funds under this section with the
Foundation School Program payment to which the district is entitled
as soon as practicable after the end of the school year as
determined by the commissioner. A district to which Section 42.401
[Chapter 41] applies is entitled to the grants paid under this
section. The commissioner shall determine the timing of the
distribution of grants to a district that does not receive
Foundation School Program payments.
SECTION 1F.14. Section 29.002, Education Code, is amended
to read as follows:
Sec. 29.002. DEFINITION. In this subchapter, "special
services" means:
(1) special education instruction, which may be
provided by professional and supported by paraprofessional
personnel in the regular classroom or in an alternate instructional
arrangement [described by Section 42.151]; and
(2) related services, which are developmental,
corrective, supportive, or evaluative services, not instructional
in nature, that may be required for the student to benefit from
special education instruction and for implementation of a student's
individualized education program.
SECTION 1F.15. Section 29.008(b), Education Code, is
amended to read as follows:
(b) Except as provided by Subsection (c), costs of an
approved contract for residential placement may be paid from a
combination of federal, state, and local funds. The legislature by
appropriation shall provide for the state's share of the costs of
these placements. The local share of the total contract cost for
each student is that portion of the local tax effort that exceeds
the district's local share [fund assignment] under Section 42.306
[42.252], divided by the average daily attendance in the district.
If the contract involves a private facility, the state share of the
total contract cost is that amount remaining after subtracting the
local share. If the contract involves a public facility, the state
share is that amount remaining after subtracting the local share
from the portion of the contract that involves the costs of
instructional and related services. For purposes of this
subsection, "local tax effort" means the total amount of money
generated by taxes imposed for debt service and maintenance and
operation less any amounts paid into a tax increment fund under
Chapter 311, Tax Code.
SECTION 1F.16. Section 29.014(d), Education Code, is
amended to read as follows:
(d) The accreditation [basic] allotment for a student
enrolled in a district to which this section applies is adjusted by:
(1) the cost of education adjustment under Section
42.301 [42.102] for the school district in which the district is
geographically located; and
(2) any other appropriate factor adopted by the
commissioner [the weight for a homebound student under Section
42.151(a)].
SECTION 1F.17. Section 29.087(j), Education Code, is
amended to read as follows:
(j) For purposes of funding under Chapters [41,] 42[,] and
46, a student attending a program authorized by this section may be
counted in attendance only for the actual number of hours each
school day the student attends the program, in accordance with
Sections 25.081 and 25.082.
SECTION 1F.18. Section 29.203(b), Education Code, is
amended to read as follows:
(b) A school district is entitled to the allotment provided
by Section 42.155 [42.157] for each eligible student using a public
education grant. [If the district has a wealth per student greater
than the guaranteed wealth level but less than the equalized wealth
level, a school district is entitled under rules adopted by the
commissioner to additional state aid in an amount equal to the
difference between the cost to the district of providing services
to a student using a public education grant and the sum of the state
aid received because of the allotment under Section 42.157 and
money from the available school fund attributable to the student.]
SECTION 1F.19. Section 34.002(c), Education Code, is
amended to read as follows:
(c) A school district that fails or refuses to meet the
safety standards for school buses established under this section is
ineligible for a state transportation grant [to share in the
transportation allotment] under Section 34.0071 [42.155] until the
first anniversary of the date the district begins complying with
the safety standards.
SECTION 1F.20. Chapter 34, Education Code, is amended by
adding Section 34.0071 to read as follows:
Sec. 34.0071. STATE TRANSPORTATION GRANTS. (a) Using
funds appropriated for the purpose, the commissioner may award a
grant to a school district or county that operates a public school
transportation system under Section 34.007.
(b) The commissioner shall adopt rules governing the grant
program authorized by this section. The rules must provide for a
funding system that:
(1) gives priority to school districts and counties
with the highest number of route miles per student; and
(2) concentrates funding in school districts and
counties with higher-than-average transportation costs per
student.
(c) Money awarded under this section must be used in
providing public school transportation services.
SECTION 1F.21. Section 37.0061, Education Code, is amended
to read as follows:
Sec. 37.0061. FUNDING FOR ALTERNATIVE EDUCATION SERVICES IN
JUVENILE RESIDENTIAL FACILITIES. A school district that provides
education services to pre-adjudicated and post-adjudicated
students who are confined by court order in a juvenile residential
facility operated by a juvenile board is entitled to count such
students in the district's average daily attendance for purposes of
receipt of state funds under the Foundation School Program. [If the
district has a wealth per student greater than the guaranteed
wealth level but less than the equalized wealth level, the district
in which the student is enrolled on the date a court orders the
student to be confined to a juvenile residential facility shall
transfer to the district providing education services an amount
equal to the difference between the average Foundation School
Program costs per student of the district providing education
services and the sum of the state aid and the money from the
available school fund received by the district that is attributable
to the student for the portion of the school year for which the
district provides education services to the student.]
SECTION 1F.22. Section 39.031, Education Code, is amended
to read as follows:
Sec. 39.031. COST. (a) The commissioner shall set aside an
appropriate amount from the Foundation School Program to pay the
cost of preparing, administering, or grading the assessment
instruments and the [shall be paid from the funds allotted under
Section 42.152, and each district shall bear the cost in the same
manner described for a reduction in allotments under Section
42.253. If a district does not receive an allotment under Section
42.152, the commissioner shall subtract the cost from the
district's other foundation school fund allotments.
[(b) The] cost of releasing the question and answer keys
under Section 39.023(e) [shall be paid from amounts appropriated
to the agency].
(b) After setting aside an appropriate amount in accordance
with this section, the commissioner shall reduce each district's
tier one allotments proportionately. A reduction in tier one
allotments under this subsection does not affect the computation of
guaranteed level of state and local enrichment funds per student in
average daily attendance per cent of tax effort under Section
42.252.
(c) Any amount set aside under this section must be approved
by the Legislative Budget Board and the governor's office of budget
and planning.
SECTION 1F.23. Section 39.134, Education Code, is amended
to read as follows:
Sec. 39.134. COSTS PAID BY DISTRICT. The costs of providing
a monitor, conservator, management team, or special campus
intervention team shall be paid by the district. If the district
fails or refuses to pay the costs in a timely manner, the
commissioner may:
(1) pay the costs using amounts withheld from any
funds to which the district is otherwise entitled; or
(2) recover the amount of the costs in the manner
provided for recovery of an overallocation of state funds under
Section 42.316 [42.258].
SECTION 1F.24. Section 43.002(b), Education Code, is
amended to read as follows:
(b) Of the amounts available for transfer from the general
revenue fund to the available school fund for the months of January
and February of each fiscal year, no more than the amount necessary
to enable the comptroller to distribute from the available school
fund an amount equal to 9-1/2 percent of the estimated annual
available school fund apportionment to category 1 school districts,
as defined by Section 42.315 [42.259], and 3-1/2 percent of the
estimated annual available school fund apportionment to category 2
school districts, as defined by Section 42.315 [42.259], may be
transferred from the general revenue fund to the available school
fund. Any remaining amount that would otherwise be available for
transfer for the months of January and February shall be
transferred from the general revenue fund to the available school
fund in equal amounts in June and in August of the same fiscal year.
SECTION 1F.25. Section 46.003(a), Education Code, is
amended to read as follows:
(a) For each year, except as provided by Sections 46.005 and
46.006, a school district is guaranteed a specified amount per
student in state and local funds for each cent of tax effort, up to
the maximum rate under Subsection (b), to pay the principal of and
interest on eligible bonds issued to construct, acquire, renovate,
or improve an instructional facility. The amount of state support
is determined by the formula:

FYA = (FYL X ADA X BTR X 100) - (BTR X (DPV/100))

where:
"FYA" is the guaranteed facilities yield amount of state
funds allocated to the district for the year;
"FYL" is the dollar amount guaranteed level of state and
local funds per student per cent of tax effort, which is $35 or a
greater amount for any year provided by appropriation;
"ADA" is the greater of the number of students in average
daily attendance, as determined under Section 42.005, in the
district or 400;
"BTR" is the district's bond tax rate for the current year,
which is determined by dividing the amount budgeted by the district
for payment of eligible bonds by the quotient of the district's
taxable value of property as determined under Subchapter M, Chapter
403, Government Code, or, if applicable, Section 42.307 [42.2521],
divided by 100; and
"DPV" is the district's taxable value of property as
determined under Subchapter M, Chapter 403, Government Code, or, if
applicable, Section 42.307 [42.2521].
SECTION 1F.26. Section 46.006(g), Education Code, is
amended to read as follows:
(g) In this section, "wealth per student" means a school
district's taxable value of property as determined under Subchapter
M, Chapter 403, Government Code, or, if applicable, Section 42.307
[42.2521], divided by the district's average daily attendance as
determined under Section 42.005.
SECTION 1F.27. Sections 46.009(b), (e), and (f), Education
Code, are amended to read as follows:
(b) If the amount appropriated for purposes of this
subchapter for a year is less than the total amount determined under
Subsection (a) for that year, the commissioner shall:
(1) transfer from the Foundation School Program to the
instructional facilities program the amount by which the total
amount determined under Subsection (a) exceeds the amount
appropriated; and
(2) reduce each district's foundation school fund
allocations in the manner provided by Section 42.312(f)
[42.253(h)].
(e) Section 42.316 [42.258] applies to payments under this
subchapter.
(f) If a school district would have received a greater
amount under this subchapter for the applicable school year using
the adjusted value determined under Section 42.308 [42.257], the
commissioner shall add the difference between the adjusted value
and the amount the district received under this subchapter to
subsequent distributions to the district under this subchapter.
SECTION 1F.28. Section 46.013, Education Code, is amended
to read as follows:
Sec. 46.013. MULTIPLE ALLOTMENTS PROHIBITED. A school
district is not entitled to state assistance under this subchapter
based on taxes with respect to which the district receives state
assistance under Subchapter E [F], Chapter 42.
SECTION 1F.29. Section 46.032(a), Education Code, is
amended to read as follows:
(a) Each school district is guaranteed a specified amount
per student in state and local funds for each cent of tax effort to
pay the principal of and interest on eligible bonds. The amount of
state support, subject only to the maximum amount under Section
46.034, is determined by the formula:

EDA = (EDGL X ADA X EDTR X 100) - (EDTR X (DPV/100))

where:
"EDA" is the amount of state funds to be allocated to the
district for assistance with existing debt;
"EDGL" is the dollar amount guaranteed level of state and
local funds per student per cent of tax effort, which is $35 or a
greater amount for any year provided by appropriation;
"ADA" is the number of students in average daily attendance,
as determined under Section 42.005, in the district;
"EDTR" is the existing debt tax rate of the district, which is
determined by dividing the amount budgeted by the district for
payment of eligible bonds by the quotient of the district's taxable
value of property as determined under Subchapter M, Chapter 403,
Government Code, or, if applicable, under Section 46.307 [42.2521],
divided by 100; and
"DPV" is the district's taxable value of property as
determined under Subchapter M, Chapter 403, Government Code, or, if
applicable, under Section 46.307 [42.2521].
SECTION 1F.30. Section 46.037, Education Code, is amended
to read as follows:
Sec. 46.037. MULTIPLE ALLOTMENTS PROHIBITED. A school
district is not entitled to state assistance under this subchapter
based on taxes with respect to which the district receives state
assistance under Subchapter E [F], Chapter 42.
SECTION 1F.31. Section 56.208, Education Code, is amended
to read as follows:
Sec. 56.208. FUNDING. (a) The Early High School Graduation
Scholarship program is financed under the Foundation School
Program. [Funding for the state tuition credits is not subject to
the provisions of Sections 42.253(e) through (k).]
(b) The commissioner of education shall reduce the total
annual amount of Texas education [foundation school] fund payments
made to a school district by an amount equal to F x A, where:
(1) "F" is the lesser of one or the quotient of the
district's local share for the preceding school year under Section
42.306 [42.252] divided by the tier one allotment under Section
42.304 [amount of money to which the district was entitled under
Subchapters B and C, Chapter 42,] for the preceding school year; and
(2) "A" is the amount of state tuition credits under
this subchapter applied by institutions of higher education on
behalf of eligible persons who graduated from the district that has
not been used to compute a previous reduction under this
subsection.
(c) A school district that does not receive foundation
school fund payments during a year in which the commissioner would
otherwise withhold money from the district under Subsection (b)
shall remit an amount equal to the amount that would be withheld
under Subsection (b) to the comptroller for deposit to the credit of
the Texas education [foundation school] fund.
SECTION 1F.32. Section 105.301(e), Education Code, is
amended to read as follows:
(e) The academy is not subject to the provisions of this
code, or to the rules of the Texas Education Agency, regulating
public schools, except that:
(1) professional employees of the academy are entitled
to the limited liability of an employee under Section 22.0511,
22.0512, or 22.052;
(2) a student's attendance at the academy satisfies
compulsory school attendance requirements; and
(3) for each student enrolled, the academy is entitled
to allotments from the foundation school program under Chapter 42
as if the academy were a school district without a tier one local
share for purposes of Section 42.306 [42.253].
SECTION 1F.33. Section 403.093(d), Government Code, is
amended to read as follows:
(d) The comptroller shall transfer from the general revenue
fund to the Texas education [foundation school] fund an amount of
money necessary to fund the foundation school program as provided
by Chapter 42, Education Code. The comptroller shall make the
transfers in installments as necessary to comply with Section
42.315 [42.259], Education Code. An installment must be made not
earlier than two days before the date an installment to school
districts is required by Section 42.315 [42.259], Education Code,
and must not exceed the amount necessary for that payment.
SECTION 1F.34. Section 404.121(1), Government Code, is
amended to read as follows:
(1) "Cash flow deficit" for any period means the
excess, if any, of expenditures paid and transfers made from the
general revenue fund in the period, including payments provided by
Section 42.315 [42.259], Education Code, over taxes and other
revenues deposited to the fund in the period, other than revenues
deposited pursuant to Section 403.092, that are legally available
for the expenditures and transfers.
SECTION 1F.35. Section 2175.304(c), Government Code, is
amended to read as follows:
(c) The procedures established under Subsection (b) must
give preference to transferring the property directly to a public
school or school district or to an assistance organization
designated by the school district before disposing of the property
in another manner. If more than one public school or school
district or assistance organization seeks to acquire the same
property on substantially the same terms, the system, institution,
or agency shall give preference to a public school that is
considered low-performing by the commissioner of education or to a
school district that has a relatively low [taxable] wealth per
student, as determined by the commissioner of education [that
entitles the district to an allotment of state funds under
Subchapter F, Chapter 42, Education Code], or to the assistance
organization designated by such a school district.
SECTION 1F.36. Section 1579.251, Insurance Code, is amended
by amending Subsection (a) and adding Subsections (c) and (d) to
read as follows:
(a) The state shall assist employees of participating
school districts and charter schools in the purchase of group
health coverage under this chapter by providing for each covered
employee the amount of $900 each state fiscal year or a greater
amount as provided by the General Appropriations Act. The state
contribution shall be distributed through the school finance
formulas under Chapters 41 and 42, Education Code[, and used by
school districts and charter schools as provided by Sections
42.2514 and 42.260, Education Code].
(c) The trustee shall deposit state assistance for a
participating entity in the fund established under Subchapter G.
(d) A school district that does not participate in the
program is entitled to state assistance computed as provided by
Subsection (a). The trustee shall distribute state assistance
under this subsection in equal monthly installments. State funds
received under this subsection shall be deposited in a fund
described by Section 1581.052(b)(2).
SECTION 1F.37. Section 6.02(b), Tax Code, is amended to
read as follows:
(b) A taxing unit that has boundaries extending into two or
more counties may choose to participate in only one of the appraisal
districts. In that event, the boundaries of the district chosen
extend outside the county to the extent of the unit's boundaries.
To be effective, the choice must be approved by resolution of the
board of directors of the district chosen. [The choice of a school
district to participate in a single appraisal district does not
apply to property annexed to the school district under Subchapter C
or G, Chapter 41, Education Code, unless:
[(1) the school district taxes property other than
property annexed to the district under Subchapter C or G, Chapter
41, Education Code, in the same county as the annexed property; or
[(2) the annexed property is contiguous to property in
the school district other than property annexed to the district
under Subchapter C or G, Chapter 41, Education Code.]
SECTION 1F.38. Section 21.02(a), Tax Code, is amended to
read as follows:
(a) Except as provided by [Subsection (b) and] Sections
21.021, 21.04, and 21.05, tangible personal property is taxable by
a taxing unit if:
(1) it is located in the unit on January 1 for more
than a temporary period;
(2) it normally is located in the unit, even though it
is outside the unit on January 1, if it is outside the unit only
temporarily;
(3) it normally is returned to the unit between uses
elsewhere and is not located in any one place for more than a
temporary period; or
(4) the owner resides (for property not used for
business purposes) or maintains the owner's [his] principal place
of business in this state (for property used for business purposes)
in the unit and the property is taxable in this state but does not
have a taxable situs pursuant to Subdivisions (1) through (3) [of
this section].
SECTION 1F.39. Section 39.901(d), Utilities Code, is
amended to read as follows:
(d) Not later than May 1 of each year, subject to Section
39.903(b), the commission shall transfer from the system benefit
fund to the Texas education [foundation school] fund the amount
determined by the Texas Education Agency under Subsection (b) to
the extent that funds are available. Amounts transferred from the
system benefit fund under this section may be appropriated only for
the support of the Foundation School Program and are available, in
addition to any amounts allocated by the General Appropriations
Act, to finance actions under Section 42.307 [41.002(b) or
42.2521], Education Code.

PART G. REPEALER; EFFECTIVE DATE
SECTION 1G.01. (a) Sections 1-3, Chapter 201, Acts of the
78th Legislature, Regular Session, 2003, are repealed.
(b) The following provisions of the Education Code are
repealed:
(1) Subchapters B, C, E, F, and G, Chapter 41;
(2) Chapter 42, as it existed on April 1, 2004; and
(3) Sections 21.402(b) and (e), 29.203(c) and (g),
33.002, 39.024(e), 41.001, 41.002, 41.003, 41.0031, 41.004,
41.007, 41.009(b), 41.011, 41.092, 41.099, 41.252(b), and
105.301(f).
(c) Sections 403.302(j) and (k) and 466.355(c), Government
Code, are repealed.
(d) The following provisions of the Insurance Code are
repealed:
(1) Section 1581.053(b); and
(2) Subchapter C, Chapter 1581.
(e) Sections 21.02(b) and 26.08(k)-(m), Tax Code, are
repealed.
SECTION 1G.02. (a) Except as otherwise provided by this
Act, this article takes effect September 1, 2005, and applies
beginning with the 2005-2006 school year.
(b) Section 1G.01(a) of this Act takes effect August 31,
2004.

ARTICLE 2. EDUCATION REFORM

PART A. INCENTIVES
SECTION 2A.01. The heading to Subchapter H, Chapter 21,
Education Code, is amended to read as follows:

SUBCHAPTER H. APPRAISALS [AND INCENTIVES]
SECTION 2A.02. Subchapter J, Chapter 21, Education Code, is
amended by adding Section 21.458 to read as follows:
Sec. 21.458. MENTORS. (a) Each school district shall
assign as a mentor to each classroom teacher who has less than two
years of teaching experience a teacher who:
(1) teaches in the same school;
(2) to the extent practicable, teaches the same
subject or grade level, as applicable; and
(3) has at least five complete school years of
teaching experience.
(b) For each school year, a teacher assigned as a mentor
under this section is entitled to a stipend of $1,500 for each
teacher mentored. A teacher may not be assigned as a mentor to more
than two teachers in a school year.
(c) A stipend under this section shall be paid from funds
appropriated to the agency for that purpose. A school district is
not required to comply with this section except to the extent that
the commissioner certifies that sufficient funds have been
appropriated for purposes of this section.
(d) The commissioner shall adopt rules necessary to
administer this section, including rules concerning the duties of a
teacher who serves as a mentor.
(e) The commissioner may waive the requirements of this
section if a school district demonstrates to the commissioner's
satisfaction that the district is not able to assign appropriate
personnel to serve as mentors. A district that receives a waiver
under this subsection is not entitled to state funds under this
section.
SECTION 2A.03. Chapter 21, Education Code, is amended by
adding Subchapter N to read as follows:

SUBCHAPTER N. EDUCATOR EXCELLENCE INCENTIVE PROGRAM
Sec. 21.651. EDUCATOR EXCELLENCE INCENTIVE PROGRAM; FUND.
(a) The commissioner shall establish an educator excellence
incentive program as provided by this subchapter. The purpose of
the program is to reward employees in participating school
districts whose performance demonstrates success in adding value to
student academic achievement.
(b) The educational excellence fund is an account in the
general revenue fund. The fund consists of $175 million per fiscal
year transferred to the fund at the direction of the legislature for
purposes of the program and donations and grants made to the fund
for purposes of the program.
(c) The commissioner must approve each payment from the fund
and may adopt rules for the administration of the program and the
payment of incentive grants from the fund.
(d) The commissioner shall encourage local flexibility in
designing incentive programs that promote student achievement.
Sec. 21.652. GRANTS TO SCHOOL DISTRICTS. (a) From funds
appropriated for that purpose, the commissioner shall make grants
to school districts that develop a local incentive program to
enable the districts to pay incentives under this subchapter.
(b) Each fiscal year, a participating school district is
entitled to an amount determined by dividing the amount
appropriated for incentives under this subchapter for that year by
the number of classroom teachers in participating school districts
in the state and multiplying the resulting quotient by the number of
classroom teachers in the district.
(c) The commissioner shall determine the amount of the grant
to which each participating school district is entitled under this
section and shall notify each district of the determination not
later than March 1 of the fiscal year for which the determination is
made. The commissioner's determination under this section is final
and may not be appealed.
(d) Except as provided by Section 21.656, a school district
may use money received under this section only to pay employee
incentives as provided by this subchapter. A district must use all
money received under this subchapter for a school year in making
awards for that year.
Sec. 21.653. MINIMUM CRITERIA FOR LOCAL INCENTIVE PROGRAM.
(a) A school district may develop a system for rewarding academic
improvement and achievement in the district.
(b) The commissioner by rule shall establish minimum
criteria for local incentive programs. The primary criteria for
making awards in a local incentive program under this subchapter
must be measures for incremental growth in student achievement. A
local incentive program may also consider high levels of student
performance on assessment instruments and progress towards
proficiency in English.
(c) A local incentive program must be adopted through a
process that considers comments of classroom teachers in the
district.
(d) A district that applies for a grant under Section 21.652
must certify that the district has complied with this section and
rules adopted under this subchapter.
Sec. 21.654. AWARDS. (a) A local incentive program must
provide awards to classroom teachers and may provide for awards to
other employees.
(b) Except as provided by Subsection (c), a school district
may not award state money received under this subchapter:
(1) in an amount less than $2,500 to an eligible
employee for a school year; or
(2) to more than 15 percent of district employees,
under a local incentive program component that provides
campus-level awards.
(c) A district may apply to the commissioner for approval of
a local incentive program that does not meet the requirements of
Subsection (b). The commissioner may not approve a program that
makes awards of state funds to more than 40 percent of the employees
at a single campus.
(d) A district may provide in its employment policy or
employment contracts that qualifying employees are entitled to a
payment under the local incentive program. This subchapter does
not require a district to pay employees an amount exceeding the
amount of the grant, if any, that the district receives under
Section 21.652.
(e) A decision by the board of trustees or the board's
designee in making an award under the local incentive program is
final and may not be appealed.
Sec. 21.655. PREMIUM TEACHER PROGRAM. (a) The
commissioner shall develop a system for evaluating classroom
teachers for the purpose of awarding individual incentives to
premium teachers under this subchapter. The system developed by
the commissioner must consider:
(1) factors such as a classroom teacher's assignment
to:
(A) a campus considered low-performing under
Section 39.132; or
(B) a campus at which 85 percent or more of the
students are educationally disadvantaged and that ranks in the
lowest quarter of achievement on the campus's most recent
accountability ratings;
(2) a classroom teacher's supervisor evaluations; and
(3) value-added indicators, including student
performance.
(b) The commissioner's evaluation system must define
"premium teacher."
(c) Under the program, a premium teacher:
(1) is entitled to an annual award of $4,000;
(2) may work one extra hour per day; and
(3) may be assigned additional duties, such as
tutoring, supervising, or planning, for which the district may
compensate the teacher.
(d) To be eligible for an award under the program, a
classroom teacher must:
(1) have at least three years of classroom experience;
and
(2) meet criteria developed by the commissioner
related to value-added student achievement.
(e) Not more than $10 million may be appropriated for
purposes of the program.
SECTION 2A.04. Chapter 39, Education Code, is amended by
adding Subchapter J to read as follows:

SUBCHAPTER J. STUDENT EXCELLENCE

AND IMPROVEMENT INCENTIVES
Sec. 39.221. DEFINITION. In this subchapter, "at-risk
student" means a student considered to be at risk of dropping out of
school under Section 29.081(d)(1), (3), (4), (5), (6), (7), (8),
(9), (10), (11), (12), or (13).
Sec. 39.222. DISTINGUISHED ACHIEVEMENT PROGRAM INCENTIVE.
In addition to any other funds to which a school campus is entitled
under this code, each school year each campus is entitled to:
(1) $1,000 for each student who graduates completing
the curriculum requirements, including the additional components
and advanced measures, for an advanced high school program as
determined under Section 28.025; and
(2) an additional $1,000 for each at-risk student who
graduates completing the curriculum requirements, including the
additional components and advanced measures, for an advanced high
school program as determined under Section 28.025.
Sec. 39.223. COMMENDED PERFORMANCE INCENTIVE. (a) In this
section, "commended performance" means commended performance, as
determined by the State Board of Education, on each assessment
instrument under Section 39.023(a), (c), or (l) that a student is
required to take during a school year.
(b) In addition to any other funds to which a school campus
is entitled under this code, each school year each campus is
entitled to:
(1) $100 for each student who achieves commended
performance; and
(2) an additional $100 for each at-risk student who
achieves commended performance.
Sec. 39.224. ALGEBRA I INCENTIVE. In addition to any other
funds to which a school campus is entitled under this code, each
school year each campus is entitled to:
(1) $100 for each student who performs successfully on
the end-of-course assessment instrument for Algebra I developed
under Section 39.023; and
(2) an additional $100 for each at-risk student who
performs successfully on the end-of-course assessment instrument
for Algebra I.
Sec. 39.225. DISTRIBUTION AND USE OF FUNDS. (a) Funds
distributed under Sections 39.222-39.224 shall be distributed to
the school district that contains the school campus entitled to the
funds under the applicable section. The funds must be used at the
campus entitled to the funds.
(b) A school district or campus may use funds distributed
under Sections 39.222-39.224 only for academic enhancement
purposes. The funds may not be used for any purpose related to
athletics and may not be used to substitute for or replace funds
already in the regular budget for a district or campus.
SECTION 2A.05. Section 822.201(c), Government Code, is
reenacted and amended to read as follows:
(c) Excluded from salary and wages are:
(1) expense payments;
(2) allowances;
(3) payments for unused vacation or sick leave;
(4) maintenance or other nonmonetary compensation;
(5) fringe benefits;
(6) deferred compensation other than as provided by
Subsection (b)(3);
(7) compensation that is not made pursuant to a valid
employment agreement;
(8) payments received by an employee in a school year
that exceed $5,000 for teaching a driver education and traffic
safety course that is conducted outside regular classroom hours;
(9) the benefit replacement pay a person earns as a
result of a payment made under Subchapter B or C, Chapter 661;
(10) amounts received by or on behalf of [supplemental
compensation received by] an employee under Chapter 1580 [Article
3.50-8], Insurance Code; [and]
(11) stipends paid to teachers in accordance with
Section 21.458, Education Code;
(12) amounts received under the educator excellence
incentive program under Subchapter N, Chapter 21, Education Code;
and
(13) any compensation not described in Subsection (b).
SECTION 2A.06. Section 21.357, Education Code, is repealed.

PART B. STATE GOVERNANCE
SECTION 2B.01. Subchapter A, Chapter 7, Education Code, is
amended by adding Section 7.0041 to read as follows:
Sec. 7.0041. COMMISSIONER OR AGENCY RULES. (a) In
performing a duty under this code, the commissioner shall adopt
rules only if the duty requires an action to be taken by rule. The
commissioner or the agency shall otherwise act as required by this
code, federal law, or court order without adopting rules under the
procedures required by Chapter 2001, Government Code.
(b) This section may not be construed as:
(1) expanding the authority or duties of the
commissioner or the agency; or
(2) authorizing the commissioner or agency to perform
an educational function reserved to school districts and
open-enrollment charter schools under Section 7.003.
(c) The commissioner shall develop a procedure allowing, to
the extent practicable, school districts, open-enrollment charter
schools, parents of public school students, and educational
organizations to comment on actions the commissioner or agency
proposes to take in performing a duty that does not require the
adoption of rules.
SECTION 2B.02. Subchapter A, Chapter 7, Education Code, is
amended by adding Sections 7.007-7.009 to read as follows:
Sec. 7.007. PUBLIC EDUCATION INFORMATION MANAGEMENT SYSTEM
(PEIMS). (a) Each school district shall participate in the Public
Education Information Management System (PEIMS) and shall provide
through that system information required for the administration of
this code.
(b) Each school district shall use a uniform accounting
system adopted by the commissioner for the data required to be
reported for the Public Education Information Management System.
(c) Annually, the commissioner shall review the Public
Education Information Management System and shall repeal or amend
rules that require school districts to provide information through
the Public Education Information Management System that is not
necessary. In reviewing and revising the Public Education
Information Management System, the commissioner shall develop
rules to ensure that the system:
(1) provides useful, accurate, and timely information
on student demographics and academic performance, personnel, and
school district finances;
(2) contains only the data necessary for the
legislature and the agency to perform their legally authorized
functions in overseeing the public education system; and
(3) does not contain any information related to
instructional methods, except as required by federal law.
(d) The commissioner's rules must ensure that the Public
Education Information Management System links student performance
data to other related information for purposes of efficient and
effective allocation of school resources.
Sec. 7.008. STATEWIDE STUDENT ENROLLMENT, ATTENDANCE, AND
ACHIEVEMENT TRACKING SYSTEM. (a) Each school district shall
participate in a system meeting standards approved by the
commissioner to track each student enrolled in a public school in
this state. A student tracking system must:
(1) produce detailed reports for agency officials and
policymakers and update information on each student's:
(A) enrollment;
(B) attendance;
(C) achievement, including course or grade
completion and assessment instrument results; and
(D) if applicable, specific reason for leaving a
school or school district, such as transferring, graduating, or
dropping out of school; and
(2) to facilitate the electronic transfer of student
records and the evaluation and improvement of educational programs
in the state, permit an authorized state or district official to
electronically retrieve information about a particular student as
necessary.
(b) Each school district shall use the student tracking
system.
(c) The commissioner may solicit and accept grant funds to
maintain the student tracking system and to make the system
available to school districts.
Sec. 7.009. CENTERS FOR EDUCATION RESEARCH. (a) In this
section, "center" means a center for education research.
(b) The commissioner of education and the commissioner of
higher education, in consultation with the State Board for Educator
Certification, may establish not more than three centers for
education research, including research regarding the impact of
federal education programs.
(c) A center may be established as part of:
(1) the agency;
(2) the Texas Higher Education Coordinating Board; or
(3) a public junior college, public senior college or
university, or public state college, as defined by Section 61.003.
(d) A center may be operated in accordance with a memorandum
of understanding among the commissioner of education, the
commissioner of higher education, and the governing board of a
public junior college, public senior college or university, or
public state college, as defined by Section 61.003. Any memorandum
of understanding under this subsection must provide for the center
to be under the direct, joint supervision of the commissioner of
education and the commissioner of higher education or their
designees.
(e) In conducting research for the benefit of education in
this state, a center may use data on student performance that the
center has collected from the agency, the Texas Higher Education
Coordinating Board, the State Board for Educator Certification, any
public or private institution of higher education, and any school
district, including data that is confidential under the Family
Educational Rights and Privacy Act of 1974 (20 U.S.C. Section
1232g). A center shall comply with rules adopted by the
commissioner of education and the commissioner of higher education
to protect the confidentiality of student information, including
rules establishing procedures to ensure that confidential student
information is not duplicated or removed from a center in an
unauthorized manner.
(f) The commissioner of education and the commissioner of
higher education may:
(1) accept gifts and grants to be used in operating one
or more centers; and
(2) by rule, impose reasonable fees, as appropriate,
on a person who uses a center's research, resources, or facilities.
(g) This section does not authorize the disclosure of
student information that may not be disclosed under the Family
Educational Rights and Privacy Act of 1974 (20 U.S.C. Section
1232g).
(h) The commissioner of education and the commissioner of
higher education shall adopt rules necessary to implement this
section.
SECTION 2B.03. Subchapter C, Education Code, is amended by
adding Section 7.060 to read as follows:
Sec. 7.060. GIFTS AND GRANTS. The commissioner may accept a
gift, donation, or other contribution for the benefit of public
education and may use the contribution in accordance with its
terms.
SECTION 2B.04. Section 7.107(b), Education Code, is amended
to read as follows:
(b) At the board's first regular meeting after the election
and qualification of new members:
(1) [,] the board shall organize and [,] adopt rules of
procedure;[,] and
(2) the chair shall, with the advice and consent of the
governor, appoint [elect by separate votes] a vice chair and a
secretary.
SECTION 2B.05. The Texas Education Agency shall study the
practicality of modifying the Public Education Information
Management System (PEIMS) to permit greater linking of student
performance data to all other information submitted under the
system on matters that affect student success. Based on the study,
the commissioner of education shall develop a plan to improve, over
the next five years, the data linkage described by this section.
Not later than December 1, 2004, the commissioner shall file with
the legislature a report with the commissioner's recommendation for
implementing the data linkage described by this section.
SECTION 2B.06. Section 7.0041, Education Code, as added by
this Act, does not affect the validity of an action taken by the
commissioner of education under a rule adopted before the effective
date of this Act.

PART C. SCHOOL DISTRICT GOVERNANCE
SECTION 2C.01. Section 11.059, Education Code, is amended
to read as follows:
Sec. 11.059. TERMS. (a) A trustee of an independent school
district serves a term of [three or] four years.
(b) [Elections for trustees with three-year terms shall be
held annually. The terms of one-third of the trustees, or as near
to one-third as possible, expire each year.
[(c)] Elections for trustees [with four-year terms] shall
be held on the uniform election date in November [biennially]. The
terms of one-half of the trustees, or as near to one-half as
possible, expire every two years.
(c) [(d)] A board policy must state the schedule on which
specific terms expire.
SECTION 2C.02. Section 11.163, Education Code, is amended
by adding Subsection (d) to read as follows:
(d) If, under the employment policy, the board of trustees
delegates to the superintendent the final authority to select
district personnel:
(1) the superintendent is a public official for
purposes of Chapter 573, Government Code, only with respect to a
decision made pursuant to that delegation of authority; and
(2) each member of the board of trustees remains
subject to Chapter 573, Government Code, with respect to all
district employees.
SECTION 2C.03. Section 41.001(d), Election Code, is amended
to read as follows:
(d) A general election of officers of a city, school
district, junior college district, or hospital district may not be
held on the February or September uniform election date. A general
election of officers of an independent school district may not be
held on the February, May, or September uniform election date.
SECTION 2C.04. (a) Section 11.059, Education Code, as
amended by this Act, applies beginning with a school district
trustee election scheduled for 2005.
(b) Except as provided by Subsection (c) of this section, a
school district trustee election that on the effective date of this
Act is scheduled to be held in 2005 or 2006 must be held on November
8, 2005, or November 7, 2006.
(c) If, under Subsection (b) of this section, the positions
of more than one-half of the trustees or as near to one-half as
possible would be scheduled for election on November 8, 2005, or
November 7, 2006, the trustees holding those positions shall draw
lots to determine, as appropriate, which positions are subject to
election in 2005 or 2006 and which are subject to election in 2007
or 2008.
(d) To implement the changes made to Section 11.059,
Education Code, by this Act, a person may serve a term as school
district trustee that is longer than the term for which the person
was elected.

PART D. ACCOUNTABILITY
SECTION 2D.01. Section 25.005(b), Education Code, is
amended to read as follows:
(b) A reciprocity agreement must:
(1) address procedures for:
(A) transferring student records;
(B) awarding credit for completed course work;
and
(C) permitting a student to satisfy the
requirements of Section 39.025 through successful performance on
comparable end-of-course or other exit-level assessment
instruments administered in another state; and
(2) include appropriate criteria developed by the
agency.
SECTION 2D.02. Section 28.025, Education Code, is amended
by amending Subsection (c) and adding Subsections (c-1)-(c-3) to
read as follows:
(c) A person may receive a diploma if the person is eligible
for a diploma under Subsection (c-1) or Section 28.0251. In other
cases, a student may graduate and receive a diploma only if:
(1) the student successfully completes the curriculum
requirements identified by the State Board of Education under
Subsection (a) and:
(A) complies with Section 39.025(a); or
(B) scores a three or better on a college
advanced placement test, or a four or better on an international
baccalaureate examination, in a course in English language arts,
mathematics, social studies, or science that is a continuation of a
course for which an end-of-course assessment instrument is adopted
under Section 39.023(c), and complies with Section 39.025(a) as to
each other course for which that section requires satisfactory
performance; or
(2) the student successfully completes an
individualized education program developed under Section 29.005.
(c-1) The State Board of Education shall adopt rules under
which a student who first enrolls in a public school in this state
in the 10th, 11th, or 12th grade may graduate and receive a diploma
if the student:
(1) successfully completes the course requirements
identified by the board; and
(2) scores at or above a level determined by the board
on the Scholastic Assessment Test II (SAT II) or the American
College Test (ACT).
(c-2) Notwithstanding Subsection (c-1), a student who is
entitled to graduate and receive a diploma under rules adopted
under that subsection who takes a course in a public school in this
state for which an end-of-course assessment instrument is
administered under Section 39.023(c) must take that assessment
instrument.
(c-3) The State Board of Education shall adopt rules under
Subsection (c-1) that apply to students graduating in the 2005-2006
or a later school year. Section 7.102(f) does not apply to rules
adopted under Subsection (c-1). This subsection expires July 1,
2006.
SECTION 2D.03. Section 29.081(b), Education Code, is
amended to read as follows:
(b) Each district shall provide accelerated instruction to
a student enrolled in the district who has taken an end-of-course
[the secondary exit-level] assessment instrument administered
under Section 39.023(c) and has not performed satisfactorily on the
assessment instrument [each section] or who is at risk of dropping
out of school.
SECTION 2D.04. Section 30.021(e), Education Code, is
amended to read as follows:
(e) The school shall cooperate with public and private
agencies and organizations serving students and other persons with
visual impairments in the planning, development, and
implementation of effective educational and rehabilitative service
delivery systems associated with educating students with visual
impairments. To maximize and make efficient use of state
facilities, funding, and resources, the services provided in this
area may include conducting a cooperative program with other
agencies to serve students who have graduated from high school by
completing all academic requirements applicable to students in
regular education, excluding satisfactory performance on the
end-of-course [exit-level] assessment instruments required under
Section 39.025(a) [instrument], who are younger than 22 years of
age on September 1 of the school year and who have identified needs
related to vocational training, independent living skills,
orientation and mobility, social and leisure skills, compensatory
skills, or remedial academic skills.
SECTION 2D.05. Sections 39.023(a) and (c), Education Code,
are amended to read as follows:
(a) The agency shall adopt or develop appropriate
criterion-referenced assessment instruments designed to assess
essential knowledge and skills in reading, writing, mathematics,
social studies, and science. All students, except students
assessed under Subsection (b) or (l) or exempted under Section
39.027, shall be assessed in:
(1) mathematics, annually in grades three through
seven without the aid of technology and in grade [grades] eight
[through 11] with the aid of technology on any assessment
instruments that include algebra;
(2) reading, annually in grades three through eight
[nine];
(3) writing, including spelling and grammar, in grades
four and seven;
(4) [English language arts, in grade 10;
[(5)] social studies, in grade [grades] eight [and
10];
(5) [(6)] science, in grades five and[,] eight[, and
10]; and
(6) [(7)] any other subject and grade required by
federal law.
(c) The agency shall also adopt end-of-course [secondary
exit-level] assessment instruments for secondary-level courses in
Algebra I, Algebra II, Geometry, Biology, Chemistry, Physics,
Integrated Physics and Chemistry, English I, English II, English
III, World Geography, World History, and United States History
[designed to be administered to students in grade 11 to assess
essential knowledge and skills in mathematics, English language
arts, social studies, and science. The mathematics section must
include at least Algebra I and geometry with the aid of technology.
The English language arts section must include at least English III
and must include the assessment of essential knowledge and skills
in writing. The social studies section must include early American
and United States history. The science section must include at
least biology and integrated chemistry and physics. The assessment
instruments must be designed to assess a student's mastery of
minimum skills necessary for high school graduation and readiness
to enroll in an institution of higher education]. If a student is
in a special education program under Subchapter A, Chapter 29, the
student's admission, review, and dismissal committee shall
determine whether any allowable modification is necessary in
administering to the student an assessment instrument required
under this subsection or whether the student should be exempted
under Section 39.027(a)(2). The State Board of Education shall
administer the assessment instruments. The State Board of
Education shall adopt a schedule for the administration of
end-of-course [secondary exit-level] assessment instruments. Each
student who did not perform satisfactorily on any end-of-course
[secondary exit-level] assessment instrument when initially tested
shall be given multiple opportunities to retake that assessment
instrument. [A student who performs at or above a level established
by the Texas Higher Education Coordinating Board on the secondary
exit-level assessment instruments is exempt from the requirements
of Section 51.306.]
SECTION 2D.06. Subchapter B, Chapter 39, Education Code, is
amended by adding Sections 39.0232 and 39.0233 to read as follows:
Sec. 39.0232. COMPUTER-BASED ASSESSMENT. (a) The agency
shall provide for assessment instruments required under Section
39.023 to be designed so that those assessment instruments can be
administered on computers and, to the extent practicable and
appropriate, shall require school districts to administer to
students the computer-based assessment instruments.
(b) The agency shall implement Subsection (a) not later than
March 1, 2006. This subsection expires September 1, 2006.
Sec. 39.0233. COMPUTER-ADAPTIVE ASSESSMENT. (a) The
agency shall develop computer-adaptive diagnostic assessment
instruments for subjects for which assessment instruments are
adopted under Sections 39.023(a), (c), and (l). An assessment
instrument administered under this section may include statistical
sampling techniques to measure the full range of skill levels and
curriculum.
(b) During the 2005-2006 school year, the agency shall
administer as a pilot project one or more of the assessment
instruments required under Subsection (a). The agency shall report
the results of the pilot project to the legislature not later than
December 1, 2006. This subsection expires January 15, 2007.
SECTION 2D.07. Section 39.025, Education Code, is amended
to read as follows:
Sec. 39.025. EXIT-LEVEL PERFORMANCE REQUIRED. (a) Except
as otherwise provided by Section 28.025(c), a [A] student may not
receive a high school diploma until the student has performed
satisfactorily on the following end-of-course [secondary
exit-level] assessment instruments for students in secondary
grades [English language arts, mathematics, social studies, and
science] administered under Section 39.023(c):
(1) English III;
(2) United States History;
(3) two of the following assessment instruments:
(A) Algebra I;
(B) Algebra II; or
(C) Geometry;
(4) two of the following assessment instruments:
(A) Biology;
(B) Chemistry;
(C) Physics; or
(D) Integrated Physics and Chemistry;
(5) one of the following assessment instruments:
(A) English I; or
(B) English II; and
(6) one of the following assessment instruments:
(A) World Geography; or
(B) World History. [This subsection does not
require a student to demonstrate readiness to enroll in an
institution of higher education.]
(b) Each time an end-of-course [a secondary exit-level]
assessment instrument is administered, a student who has not been
given a high school diploma because of a failure to perform
satisfactorily on the assessment instrument for that subject area
may retake the assessment instrument.
(c) A student who has been denied a high school diploma
under Subsections (a) and (b) and who subsequently performs
satisfactorily on each necessary end-of-course [secondary
exit-level] assessment instrument shall be issued a high school
diploma.
(d) Subsection (a) does not require a student to demonstrate
readiness to enroll in an institution of higher education.
(e) The commissioner shall by rule adopt a transition plan
to implement the amendments made by H.B. No. 1, Acts of the 78th
Legislature, 4th Called Session, 2004, to Sections 28.025(c),
39.023(a) and (c), and 39.051(b)(5) and this section. The rules
must provide for the administration of end-of-course assessment
instruments adopted under Section 39.023(c) to begin as soon as
practicable but not later than the 2008-2009 school year. During
the period under which the transition to end-of-course assessment
instruments is made:
(1) the commissioner may retain, administer, and use
for campus and district ratings under Subchapter D any assessment
instrument required by Section 39.023(a) or (c), as that section
existed before amendment by H.B. No. 1, Acts of the 78th
Legislature, 4th Called Session, 2004; and
(2) the agency may defer releasing assessment
instrument questions and answer keys as required by Section
39.023(e) to the extent necessary to develop additional assessment
instruments.
(f) Rules adopted under Subsection (e) must require that
each student who will be subject to the requirements of Subsection
(a) is entitled to notice of the specific requirements applicable
to the student. Notice under this subsection must be provided not
later than the date the student enters the ninth grade. Subsection
(e) and this subsection expire September 1, 2009.
SECTION 2D.08. Subchapter B, Chapter 39, Education Code, is
amended by adding Section 39.0261 to read as follows:
Sec. 39.0261. COLLEGE PREPARATION ASSESSMENT. (a) To
ensure that students are prepared for college-level courses, each
school district shall administer a college preparation assessment
instrument to students in grades 8, 10, and 12 who are enrolled in
courses necessary to complete the curriculum requirements for the
recommended or advanced high school program established under
Section 28.025(a). An assessment instrument administered under
this section must be part of an established, valid, and reliable
system of nationally normed and curriculum-based educational
planning and achievement assessment instruments with the following
characteristics:
(1) an integrated series of standards and
curriculum-based achievement assessment instruments, with the
grade 12 assessment instrument currently accepted by this state's
colleges and universities for use in determining admissions; and
(2) a common content continuum and score scale in the
assessed areas of reading, English, mathematics, and science across
the assessment instruments administered at each grade level.
(b) The agency shall select and approve vendors of the
specific assessment instruments administered under this section.
(c) From amounts appropriated for purposes of this section,
the commissioner shall make grants to school districts to prepare
students for assessment instruments administered under this
section.
(d) The agency shall compile the results of any assessment
instrument administered under this section and make the results
available through the Public Education Information Management
System (PEIMS).
(e) The commissioner shall provide for the implementation
of this section not later than the 2006-2007 school year. This
subsection expires July 1, 2007.
SECTION 2D.09. Subchapter B, Chapter 39, Education Code, is
amended by adding Section 39.034 to read as follows:
Sec. 39.034. MEASURE OF ANNUAL CHANGE IN PERFORMANCE ON
ASSESSMENT INSTRUMENTS. (a) The commissioner by rule shall adopt a
method by which the agency may measure any change in a student's
performance from one school year to the next on an assessment
instrument required under this subchapter.
(b) Each year, for each student who takes an assessment
instrument required under Section 39.023(a), (b), or (l), the
agency shall use the method adopted under Subsection (a) to compare
the student's results on the assessment instrument to the student's
results on any assessment instrument for that subject the student
has taken during the preceding school year.
(c) The agency shall maintain a record of the comparisons
made under this section and each year shall provide the record to
the school the student attends.
(d) The commissioner shall implement this section not later
than September 1, 2006. This subsection expires January 1, 2008.
SECTION 2D.10. Section 39.052(b), Education Code, is
amended to read as follows:
(b) The report card shall include the following
information:
(1) where applicable, the academic excellence
indicators adopted under Sections 39.051(b)(1) through (10) [(9)];
(2) average class size by grade level and subject;
(3) the administrative and instructional costs per
student, computed in a manner consistent with Section 44.0071;
(4) a summary of the district's significant
noninstructional expenditures, as determined under Section
44.0072; and
(5) [(4)] the district's instructional expenditures
ratio and instructional employees ratio computed under Section
44.0071, and the statewide average of those ratios, as determined
by the commissioner.
SECTION 2D.11. Section 39.202(b), Education Code, is
amended to read as follows:
(b) The system must include uniform indicators adopted by
the commissioner by which to measure a district's financial
management performance. In adopting uniform indicators, the
commissioner shall:
(1) identify indicators considered to be critical by
the commissioner; and
(2) include in the indicators identified under
Subdivision (1) an indicator relating to a district's instructional
costs.
SECTION 2D.12. Subchapter A, Chapter 44, Education Code, is
amended by adding Section 44.0072 to read as follows:
Sec. 44.0072. NONINSTRUCTIONAL EXPENDITURES. (a) Each
fiscal year, a school district shall compute and report through the
Public Education Information Management System (PEIMS) to the
commissioner:
(1) the district's significant noninstructional
expenditures for the preceding fiscal year, as determined by the
commissioner; and
(2) any money spent by the district during the
preceding fiscal year on dues or contributions to a
noninstructional group, club, committee, organization, or
association, including dues or contributions used for the purpose
of lobbying.
(b) The commissioner may determine, in a manner consistent
with Section 44.0071, whether an expenditure is noninstructional.
SECTION 2D.13. Section 51.3062(q), Education Code, is
amended to read as follows:
(q) A student who has achieved scores [a score] set by the
board on end-of-course assessment instruments [an exit-level
assessment instrument] required under Section 39.023 is exempt from
the requirements of this section. The exemption is effective for
the three-year period following the date a student takes the last
assessment instrument required for purposes of this section and
achieves the standard set by the board. This subsection does not
apply during any period for which the board designates the
end-of-course assessment instruments [exit-level assessment
instrument] required under Section 39.023 as the primary assessment
instrument under this section, except that the three-year period
described by this subsection remains in effect for students who
qualify for an exemption under this subsection [section] before
that period.
SECTION 2D.14. Section 39.023(j), Education Code, is
repealed.
SECTION 2D.15. A reference in the Education Code to an
end-of-course assessment instrument administered under Section
39.023(c), Education Code, includes a secondary exit-level
assessment instrument administered under that section as provided
by Section 39.025(e), Education Code, as added by this Act.

PART E. BILINGUAL EDUCATION AND SPECIAL LANGUAGE PROGRAMS
SECTION 2E.01. Section 28.006(j), Education Code, is
amended to read as follows:
(j) No more than 15 percent of the funds certified by the
commissioner under Subsection (i) may be spent on indirect costs.
The commissioner shall evaluate the programs that fail to meet the
standard of performance under Section 39.051(b)(9) [39.051(b)(7)]
and may implement sanctions under Subchapter G, Chapter 39. The
commissioner may audit the expenditures of funds appropriated for
purposes of this section. The use of the funds appropriated for
purposes of this section shall be verified as part of the district
audit under Section 44.008.
SECTION 2E.02. Section 29.056(g), Education Code, is
amended to read as follows:
(g) A district may transfer a student of limited English
proficiency out of a bilingual education or special language
program for the first time or a subsequent time if the student is
able to participate equally in a regular all-English instructional
program as determined by:
(1) tests administered at the end of each school year
to determine the extent to which the student has developed oral and
written language proficiency and specific language skills in both
the student's primary language and English;
(2) satisfactory performance on the reading or English
language arts assessment instrument, as applicable, under Section
39.023(a), with the assessment instrument administered in English,
or, if the student is enrolled in the first or second grade, an
achievement score at or above the 40th percentile in the reading and
language arts sections of an English standardized test approved by
the agency; and
(3) other indications of a student's overall progress,
including criterion-referenced test scores, subjective teacher
evaluation, and parental evaluation.
SECTION 2E.03. Subchapter B, Chapter 29, Education Code, is
amended by adding Section 29.0561 to read as follows:
Sec. 29.0561. CONSIDERATION; REENROLLMENT. (a) For the
first two school years after a student is transferred out of a
bilingual education or special language program under Section
29.056(g), the language proficiency assessment committee shall
consider:
(1) the total amount of time the student has been
enrolled in a bilingual education or special language program;
(2) the student's grades each grading period in each
subject in the foundation curriculum under Section 28.002(a)(1);
(3) the student's performance on each assessment
instrument required under Section 39.023(a) or (c);
(4) the number of credits toward high school
graduation the student has earned, as applicable; and
(5) any disciplinary actions taken against the student
under Subchapter A, Chapter 37.
(b) If, during any grading period during the first two
school years after a student is transferred out of a bilingual
education or special language program under Section 29.056(g), the
student earns a failing grade in a subject in the foundation
curriculum under Section 28.002(a)(1), the language proficiency
assessment committee shall reevaluate the student to determine if
the student should reenroll in the bilingual education or special
language program. Based on the reevaluation, the committee may
arrange for intensive instruction for the student or may reenroll
the student in the program.
SECTION 2E.04. Subchapter B, Chapter 29, Education Code, is
amended by adding Sections 29.065 and 29.066 to read as follows:
Sec. 29.065. MEASURE OF PROGRESS TOWARD ENGLISH LANGUAGE
PROFICIENCY. The commissioner by rule shall develop a longitudinal
measure of progress toward English language proficiency under which
a student of limited English proficiency is evaluated from the time
the student enters public school until, for two consecutive school
years, the child scores at a specific level determined by the
commissioner on the reading or English language arts assessment
instrument, as applicable, under Section 39.023(a). The
commissioner shall:
(1) as part of the measure of progress, include
student advancement from one proficiency level to a higher level
under the reading proficiency in English assessment system
developed under Section 39.027(e) and from the highest level under
that assessment system to the level determined by the commissioner
under this section on the reading or English language arts
assessment instrument, as applicable, under Section 39.023(a); and
(2) to the extent practicable in developing the
measure of progress, use applicable research and analysis done in
developing an annual measurable achievement objective as required
by Section 3122, No Child Left Behind Act of 2001 (20 U.S.C. Section
6842).
Sec. 29.066. BEST PRACTICES. Based on the measure of
progress toward English language proficiency under Section 29.065,
the commissioner shall determine which school districts offer the
most effective bilingual education and special language programs.
Using funds appropriated for that purpose, the commissioner shall
determine the practices those districts use that result in student
progress toward English language proficiency and distribute
information concerning those practices to each school district that
provides a bilingual education or special language program.
SECTION 2E.05. Section 39.051(b), Education Code, as
amended by Chapters 433 and 805, Acts of the 78th Legislature,
Regular Session, 2003, is reenacted and amended to read as follows:
(b) Performance on the indicators adopted under this
section shall be compared to state-established standards. The
degree of change from one school year to the next in performance on
each indicator adopted under this section shall also be considered.
The indicators must be based on information that is disaggregated
by race, ethnicity, gender, and socioeconomic status and must
include:
(1) the results of assessment instruments required
under Sections 39.023(a), (c), and (l), aggregated by grade level
and subject area;
(2) dropout rates, including dropout rates and
district completion rates for grade levels 9 through 12, computed
in accordance with standards and definitions adopted by the
National Center for Education Statistics of the United States
Department of Education;
(3) high school graduation rates, computed in
accordance with standards and definitions adopted in compliance
with the federal No Child Left Behind Act of 2001 (Pub. L. No.
107-110);
(4) student attendance rates;
(5) the percentage of graduating students who attain
scores on the end-of-course [secondary exit-level] assessment
instruments required under Subchapter B that are equivalent to a
passing score on the assessment [test] instrument required under
Section 51.3062 [51.306];
(6) the percentage of graduating students who meet the
course requirements established for the recommended high school
program by State Board of Education rule;
(7) the measure of progress toward English language
proficiency under Section 29.065, for students of limited English
proficiency, as defined by Section 29.052;
(8) the results of the Scholastic Assessment Test
(SAT), the American College Test (ACT), articulated postsecondary
degree programs described by Section 61.852, and certified
workforce training programs described by Chapter 311, Labor Code;
(9) [(8)] the percentage of students, aggregated by
grade level, provided accelerated instruction under Section
28.0211(c), the results of assessments administered under that
section, the percentage of students promoted through the grade
placement committee process under Section 28.0211, the subject of
the assessment instrument on which each student failed to perform
satisfactorily, and the performance of those students in the school
year following that promotion on the assessment instruments
required under Section 39.023;
(10) [(9)] for students who have failed to perform
satisfactorily on an assessment instrument required under Section
39.023(a) or (c), the numerical progress of those students on
subsequent assessment instruments required under those sections,
aggregated by grade level and subject area;
(11) [(10)] the percentage of students exempted, by
exemption category, from the assessment program generally
applicable under this chapter; [and]
(12) [(11)] the percentage of students of limited
English proficiency exempted from the administration of an
assessment instrument under Sections 39.027(a)(3) and (4);
(13) the percentage of students in a special education
program under Subchapter A, Chapter 29, assessed through assessment
instruments developed or adopted under Section 39.023(b); and
(14) dropout rates for students who have dropped out
of school after being enrolled at any time in a bilingual education
or special language program under Subchapter B, Chapter 29.
SECTION 2E.06. Sections 39.072(b) and (c), Education Code,
are amended to read as follows:
(b) The academic excellence indicators adopted under
Sections 39.051(b)(1) through (8) [(7)] and the district's current
special education compliance status with the agency shall be the
main considerations of the agency in the rating of the district
under this section. Additional criteria in the rules may include
consideration of:
(1) compliance with statutory requirements and
requirements imposed by rule of the State Board of Education under
specific statutory authority that relate to:
(A) reporting data through the Public Education
Information Management System (PEIMS);
(B) the high school graduation requirements
under Section 28.025; or
(C) an item listed in Sections
7.056(e)(3)(C)-(I) that applies to the district;
(2) the effectiveness of the district's programs for
special populations; and
(3) the effectiveness of the district's career and
technology programs.
(c) The agency shall evaluate against state standards and
shall, not later than August 1 of each year, report the performance
of each campus in a district and each open-enrollment charter
school on the basis of the campus's performance on the indicators
adopted under Sections 39.051(b)(1) through (8) [(7)].
Consideration of the effectiveness of district programs under
Subsection (b)(2) or (3) must be based on data collected through the
Public Education Information Management System for purposes of
accountability under this chapter and include the results of
assessments required under Section 39.023.
SECTION 2E.07. Sections 39.073(a) and (b), Education Code,
are amended to read as follows:
(a) The agency shall annually review the performance of each
district and campus on the indicators adopted under Sections
39.051(b)(1) through (8) [(7)] and determine if a change in the
accreditation status of the district is warranted. The
commissioner may determine how all indicators adopted under Section
39.051(b) may be used to determine accountability ratings and to
select districts and campuses for acknowledgment.
(b) Each annual review shall include an analysis of the
indicators under Sections 39.051(b)(1) through (7) [(6)] to
determine district and campus performance in relation to:
(1) standards established for each indicator;
(2) required improvement as defined under Section
39.051(c); and
(3) comparable improvement as defined by Section
39.051(c).
SECTION 2E.08. Section 39.074(e), Education Code, is
amended to read as follows:
(e) If an annual review indicates low performance on one or
more of the indicators under Sections 39.051(b)(1) through (8)
[(7)] of one or more campuses in a district, the agency may conduct
an on-site evaluation of those campuses only.
SECTION 2E.09. Section 29.056(h), Education Code, is
repealed.
SECTION 2E.10. (a) Not later than the 2006-2007 school
year, the Texas Education Agency shall collect information
concerning the measure of progress toward English language
proficiency for purposes of Section 39.051(b)(7), as amended by
this Act, and the dropout rates for purposes of Section
39.051(b)(14), Education Code, as added by this Act.
(b) Not later than the 2007-2008 school year, the Texas
Education Agency shall include the measure of progress toward
English language proficiency under Section 39.051(b)(7), as
amended by this Act, in evaluating the performance of school
districts, campuses, and open-enrollment charter schools under
Subchapter D, Chapter 39, Education Code.

PART F. SPECIAL EDUCATION PROGRAM
SECTION 2F.01. Subchapter A, Chapter 29, Education Code, is
amended by adding Section 29.018 to read as follows:
Sec. 29.018. INSTRUCTION REGARDING STUDENTS WITH
DISABILITIES. The commissioner shall adopt a plan to encourage
schools to provide instruction regarding students with physical
disabilities, developmental delays, and multiple and severe
disabilities. The plan must include instruction at appropriate
grade levels, as determined by the commissioner, and may include
components relating to character education, community service, and
peer assistance programs.

PART G. EFFECTIVE DATE
SECTION 2G.01. (a) Except as otherwise provided by this
Act, this article takes effect September 1, 2005.
(b) Part C of this article takes effect January 1, 2005.

ARTICLE 3. PROPERTY TAXATION AND LOCAL REVENUE

PART A. LIMITATION ON CERTAIN RESIDENTIAL REAL

PROPERTY APPRAISALS
SECTION 3A.01. Section 1.12(d), Tax Code, is amended to
read as follows:
(d) For purposes of this section, the appraisal ratio of
real property [a homestead] to which Section 23.23 applies is the
ratio of the property's market value as determined by the appraisal
district or appraisal review board, as applicable, to the market
value of the property according to law. The appraisal ratio is not
calculated according to the appraised value of the property as
limited by Section 23.23.
SECTION 3A.02. Section 23.23, Tax Code, is amended to read
as follows:
Sec. 23.23. LIMITATION ON APPRAISED VALUE OF CERTAIN
RESIDENTIAL REAL PROPERTY [RESIDENCE HOMESTEAD]. (a) The
appraised value of qualified residential real property [a residence
homestead] for a tax year may not exceed the lesser of:
(1) the market value of the property; or
(2) the sum of:
(A) five [10] percent of the appraised value of
the property for the last year in which the property was appraised
for taxation times the number of years since the property was last
appraised;
(B) the appraised value of the property for the
last year in which the property was appraised; and
(C) the market value of all new improvements to
the property.
(b) When appraising qualified residential real property [a
residence homestead], the chief appraiser shall:
(1) appraise the property at its market value; and
(2) include in the appraisal records both the market
value of the property and the amount computed under Subsection
(a)(2).
(c) The limitation provided by Subsection (a) takes effect
as to a parcel of qualified residential real property [residence
homestead] on January 1 of the tax year following the first tax year
in which the owner owns [qualifies] the property on January 1 and in
which the owner qualifies the property as a residence homestead or
uses the property primarily for the owner's residential purposes
or, if the property qualifies as the residence homestead of the
owner [for an exemption] under Section 11.13 in the tax year in
which the owner acquires the property, the limitation takes effect
on January 1 of the tax year following that tax year. Except as
provided by Subsections (d) and (e), the [. The] limitation expires
on January 1 of the [first] tax year following the year in which
[that neither] the owner of the property ceases to own the property
or ceases to qualify the property as a residence homestead or to use
the property primarily for the owner's residential purposes [when
the limitation took effect nor the owner's spouse or surviving
spouse qualifies for an exemption under Section 11.13].
(d) If qualified residential real property subject to a
limitation under Subsection (a) qualifies for an exemption under
Section 11.13 when the ownership of the property is transferred to
the owner's spouse or surviving spouse, the limitation expires on
January 1 of the tax year following the year in which the owner's
spouse or surviving spouse ceases to own the property, unless the
limitation is further continued under this subsection on the
subsequent transfer to a spouse or surviving spouse.
(e) If qualified residential real property subject to a
limitation under Subsection (a), other than a residence homestead,
is owned by two or more persons, the limitation expires on January 1
of the tax year following the year in which the ownership of at
least a 50 percent interest in the property is sold or otherwise
transferred to a person other than those owners.
(f) This section does not apply to property appraised under
Subchapter C, D, E, F, [or] G, or H.
(g) [(e)] In this section:[,]
(1) "New [new] improvement" means an improvement to
real property [a residence homestead] that is made after the most
recent appraisal of the property [for the preceding year] and that
increases the market value of the property. The term does not
include ordinary upkeep, repair, or maintenance of an existing
structure or the grounds or another feature of the property.
(2) "Qualified residential real property" means real
property that:
(A) qualifies for an exemption under Section
11.13; or
(B) is designed or adapted for residential
purposes and used primarily for residential purposes by the owner
of the property, including the owner-occupied portion of a duplex,
triplex, or other multifamily structure and the residential
portion, not to exceed 20 acres, of farm or ranch property.
(h) [(f)] Notwithstanding Subsections (a) and (g)(1) [(e)]
and except as provided by Subdivision (2), an improvement to
property that would otherwise constitute a new improvement is not
treated as a new improvement if the improvement is a replacement
structure for a structure that was rendered uninhabitable or
unusable by a casualty or by mold or water damage. For purposes of
appraising the property in the tax year in which the structure would
have constituted a new improvement:
(1) the last year in which the property was appraised
for taxation before the casualty or damage occurred is considered
to be the last year in which the property was appraised for taxation
for purposes of Subsection (a)(2)(A); and
(2) the replacement structure is considered to be a
new improvement only to the extent it is a significant improvement
over the replaced structure as that structure existed before the
casualty or damage occurred.
(i) For purposes of applying the limitation provided by
Subsection (a) in the first tax year after the 2004 tax year in
which the qualified residential real property is appraised for
taxation:
(1) the property is considered to have been appraised
for taxation in the 2004 tax year at a market value equal to the
appraised value of the property for that tax year;
(2) a person who acquired in a tax year before the 2004
tax year residential real property that the person owns in the 2004
tax year is considered to have acquired the property on January 1,
2004; and
(3) a person who qualified the property for an
exemption under Section 11.13 as the person's residence homestead
for any portion of the 2004 tax year is considered to have acquired
the property in the 2004 tax year.
(j) This subsection and Subsections (k)-(n) do not apply to
property that qualifies for a residence homestead exemption under
Section 11.13. To receive a limitation under Subsection (a), a
person claiming the limitation must apply for the limitation by
filing an application with the chief appraiser of the appraisal
district. The chief appraiser shall accept and approve or deny an
application. For property appraised by more than one appraisal
district, a separate application must be filed in each appraisal
district to receive the limitation in that district. A limitation
provided by Subsection (a), once allowed, need not be claimed in
subsequent years and applies to the property until the limitation
expires as provided by this section or until the person's
qualification for the limitation ends. However, the chief
appraiser may require a person allowed a limitation in a prior year
to file a new application to confirm the person's current
qualification for the limitation by delivering not later than April
1 a written notice that a new application is required, accompanied
by an appropriate application form, to the person previously
allowed the limitation.
(k) The comptroller, in prescribing the contents of the
application form for a limitation under Subsection (a), shall
ensure that the form requires an applicant to provide the
information necessary to determine the validity of the limitation
claim. The form must require an applicant to provide the
applicant's name and driver's license number, personal
identification certificate number, or social security number. The
comptroller shall include on the form a notice of the penalties
prescribed by Section 37.10, Penal Code, for making or filing an
application containing a false statement and shall include on the
form a statement explaining that the application need not be made
annually and that if the limitation is allowed, the applicant has a
duty to notify the chief appraiser when the applicant's
qualification for the limitation ends. In this subsection,
"driver's license" and "personal identification certificate" have
the meanings assigned by Section 11.43(f).
(l) A person who is required to apply for a limitation under
Subsection (a) to receive the limitation for a tax year must apply
for the limitation not later than May 1 of that year. Except as
provided by Subsection (m), if the person fails to timely file a
completed application, the person may not receive the limitation
for that year.
(m) The chief appraiser shall accept and approve or deny an
application for a limitation under Subsection (a) for a tax year
after the deadline for filing the application has passed if the
application is filed not later than one year after the delinquency
date for the taxes on the property for that tax year. If a late
application is approved after approval of the appraisal records by
the appraisal review board, the chief appraiser shall notify the
collector for each taxing unit in which the property is located. If
the tax has not been paid, the collector shall deduct from the
person's tax bill the difference between the taxes that would have
been due had the property not qualified for the limitation and the
taxes due after taking the limitation into account. If the tax has
been paid, the collector shall refund the difference.
(n) A person who receives a limitation under Subsection (a)
shall notify the appraisal office in writing before May 1 after the
person's qualification for the limitation ends.
SECTION 3A.03. Section 42.26(d), Tax Code, is amended to
read as follows:
(d) For purposes of this section, the value of the property
subject to the suit and the value of a comparable property or sample
property that is used for comparison must be the market value
determined by the appraisal district when the property is [a
residence homestead] subject to the limitation on appraised value
imposed by Section 23.23.
SECTION 3A.04. Sections 403.302(d) and (i), Government
Code, are amended to read as follows:
(d) For the purposes of this section, "taxable value" means
the market value of all taxable property less:
(1) the total dollar amount of any residence homestead
exemptions lawfully granted under Section 11.13(b) or (c), Tax
Code, in the year that is the subject of the study for each school
district;
(2) one-half of the total dollar amount of any
residence homestead exemptions granted under Section 11.13(n), Tax
Code, in the year that is the subject of the study for each school
district;
(3) the total dollar amount of any exemptions granted
before May 31, 1993, within a reinvestment zone under agreements
authorized by Chapter 312, Tax Code;
(4) subject to Subsection (e), the total dollar amount
of any captured appraised value of property that:
(A) is within a reinvestment zone created on or
before May 31, 1999, or is proposed to be included within the
boundaries of a reinvestment zone as the boundaries of the zone and
the proposed portion of tax increment paid into the tax increment
fund by a school district are described in a written notification
provided by the municipality or the board of directors of the zone
to the governing bodies of the other taxing units in the manner
provided by Section 311.003(e), Tax Code, before May 31, 1999, and
within the boundaries of the zone as those boundaries existed on
September 1, 1999, including subsequent improvements to the
property regardless of when made;
(B) generates taxes paid into a tax increment
fund created under Chapter 311, Tax Code, under a reinvestment zone
financing plan approved under Section 311.011(d), Tax Code, on or
before September 1, 1999; and
(C) is eligible for tax increment financing under
Chapter 311, Tax Code;
(5) the total dollar amount of any exemptions granted
under Section 11.251, Tax Code;
(6) the difference between the comptroller's estimate
of the market value and the productivity value of land that
qualifies for appraisal on the basis of its productive capacity,
except that the productivity value estimated by the comptroller may
not exceed the fair market value of the land;
(7) the portion of the appraised value of residence
homesteads of individuals who receive a tax limitation under
Section 11.26, Tax Code, on which school district taxes are not
imposed in the year that is the subject of the study, calculated as
if the residence homesteads were appraised at the full value
required by law;
(8) a portion of the market value of property not
otherwise fully taxable by the district at market value because of:
(A) action required by statute or the
constitution of this state that, if the tax rate adopted by the
district is applied to it, produces an amount equal to the
difference between the tax that the district would have imposed on
the property if the property were fully taxable at market value and
the tax that the district is actually authorized to impose on the
property, if this subsection does not otherwise require that
portion to be deducted; or
(B) action taken by the district under Subchapter
B or C, Chapter 313, Tax Code;
(9) the market value of all tangible personal
property, other than manufactured homes, owned by a family or
individual and not held or used for the production of income;
(10) the appraised value of property the collection of
delinquent taxes on which is deferred under Section 33.06, Tax
Code;
(11) the portion of the appraised value of property
the collection of delinquent taxes on which is deferred under
Section 33.065, Tax Code; and
(12) the amount by which the market value of real
property [a residence homestead] to which Section 23.23, Tax Code,
applies exceeds the appraised value of that property as calculated
under that section.
(i) If the comptroller determines in the annual study that
the market value of property in a school district as determined by
the appraisal district that appraises property for the school
district, less the total of the amounts and values listed in
Subsection (d) as determined by that appraisal district, is valid,
the comptroller, in determining the taxable value of property in
the school district under Subsection (d), shall for purposes of
Subsection (d)(12) subtract from the market value as determined by
the appraisal district of real properties [residence homesteads] to
which Section 23.23, Tax Code, applies the amount by which that
amount exceeds the appraised value of those properties as
calculated by the appraisal district under Section 23.23, Tax Code.
If the comptroller determines in the annual study that the market
value of property in a school district as determined by the
appraisal district that appraises property for the school district,
less the total of the amounts and values listed in Subsection (d) as
determined by that appraisal district, is not valid, the
comptroller, in determining the taxable value of property in the
school district under Subsection (d), shall for purposes of
Subsection (d)(12) subtract from the market value as estimated by
the comptroller of real properties [residence homesteads] to which
Section 23.23, Tax Code, applies the amount by which that amount
exceeds the appraised value of those properties as calculated by
the appraisal district under Section 23.23, Tax Code.
SECTION 3A.05. This part takes effect January 1, 2005, and
applies only to the appraisal for ad valorem tax purposes of
residential real property for a tax year that begins on or after
that date.

PART B. QUALIFICATION FOR RESIDENCE HOMESTEAD EXEMPTION
SECTION 3B.01. Section 11.42(c), Tax Code, is amended to
read as follows:
(c) An exemption authorized by Section 11.13 [11.13(c) or
(d)] is effective as of January 1 of the tax year in which the person
qualifies for the exemption and applies to the entire tax year.
SECTION 3B.02. Section 11.43(k), Tax Code, is amended to
read as follows:
(k) A person who qualifies for an exemption authorized by
Section 11.13 [11.13(c) or (d)] must apply for the exemption no
later than the first anniversary of the date the person qualified
for the exemption.
SECTION 3B.03. Section 26.10(b), Tax Code, is amended to
read as follows:
(b) If the appraisal roll shows that a residence homestead
exemption for an individual [65 years of age or older or a residence
homestead exemption for a disabled individual] applicable to a
property on January 1 of a year terminated during the year and if
the owner qualifies a different property for a [one of those]
residence homestead exemption [exemptions] during the same year,
the tax due against the former residence homestead is calculated
by:
(1) subtracting:
(A) the amount of the taxes that otherwise would
be imposed on the former residence homestead for the entire year had
the individual qualified for the residence homestead exemption for
the entire year; from
(B) the amount of the taxes that otherwise would
be imposed on the former residence homestead for the entire year had
the individual not qualified for the residence homestead exemption
during the year;
(2) multiplying the remainder determined under
Subdivision (1) by a fraction, the denominator of which is 365 and
the numerator of which is the number of days that elapsed after the
date the exemption terminated; and
(3) adding the product determined under Subdivision
(2) and the amount described by Subdivision (1)(A).
SECTION 3B.04. Section 26.112, Tax Code, is amended to read
as follows:
Sec. 26.112. CALCULATION OF TAXES ON RESIDENCE HOMESTEAD
[OF ELDERLY OR DISABLED PERSON]. (a) Except as provided by Section
26.10(b), if at any time during a tax year property is owned by an
individual who qualifies for an exemption under Section 11.13
[11.13(c) or (d)], the amount of the tax due on the property for the
tax year is calculated as if the person qualified for the exemption
on January 1 and continued to qualify for the exemption for the
remainder of the tax year.
(b) If a person qualifies for an exemption under Section
11.13 [11.13(c) or (d)] with respect to the property after the
amount of the tax due on the property is calculated and the effect
of the qualification is to reduce the amount of the tax due on the
property, the assessor for each taxing unit shall recalculate the
amount of the tax due on the property and correct the tax roll. If
the tax bill has been mailed and the tax on the property has not been
paid, the assessor shall mail a corrected tax bill to the person in
whose name the property is listed on the tax roll or to the person's
authorized agent. If the tax on the property has been paid, the tax
collector for the taxing unit shall refund to the person who paid
the tax the amount by which the payment exceeded the tax due.
SECTION 3B.05. This part takes effect January 1, 2005, and
applies only to ad valorem taxes imposed for a tax year that begins
on or after that date.

PART C. SALE OF TAX RECEIVABLES
SECTION 3C.01. Subtitle C, Title 8, Local Government Code, is
amended by adding Chapter 274 to read as follows:

CHAPTER 274. SALE OF TAX RECEIVABLES
Sec. 274.001. DEFINITIONS. In this chapter:
(1) "Date of sale" means:
(A) for a sale made through competitive bidding,
the date designated by the applicable local government for the
submission of bids; and
(B) for a sale negotiated by a local government,
the date the tax receivable sale and purchase agreement is signed.
(2) "Local government" means a county, municipality,
school district, special purpose district or authority, or other
political subdivision of this state.
(3) "Tax receivable" means the right to receive the
revenue from:
(A) a delinquent ad valorem tax imposed by a
local government on real property; and
(B) a delinquent assessment or other charge
imposed by a local government that is secured by a lien on real
property.
Sec. 274.002. AUTHORITY TO SELL TAX RECEIVABLES OR
UNDIVIDED INTEREST IN TAX RECEIVABLES. (a) At any time, a local
government may sell all or any part of its tax receivables,
including an undivided interest in all or any part of the
receivables.
(b) A sale by a local government of a tax receivable under
this chapter is a sale and not a borrowing by the local government.
(c) The local government shall determine the terms and
conditions of a sale of a tax receivable.
(d) The sale by a local government of a tax receivable is
governed exclusively by this chapter.
Sec. 274.003. AMOUNT OF TAX RECEIVABLE; INCLUDED COSTS.
The amount of a tax receivable sold under this chapter may include:
(1) the original amount of a delinquent ad valorem tax
plus the amounts of any penalty and interest that accrued on that
delinquent tax under Section 33.01, Tax Code, through the date of
sale that remain unpaid on the date of sale; and
(2) the original amount of a delinquent assessment or
other charge other than a delinquent ad valorem tax plus the amount
of any interest that accrued on that assessment or charge and
remains unpaid on the date of sale.
Sec. 274.004. INTEREST AND PENALTIES ON CERTAIN TAX
RECEIVABLES. (a) Except as provided by Subsection (b), interest on
a tax receivable sold under this chapter accrues on the total unpaid
amount computed under Section 274.003 at the rate of one percent for
each month or portion of a month that the tax receivable remains
unpaid after the date of sale.
(b) After the date of sale of a delinquent ad valorem tax
receivable:
(1) interest and all penalties, as provided by Chapter
33, Tax Code, continue to accrue on the unpaid original amount of
the tax as if the tax receivable had not been sold; and
(2) in a suit to collect the delinquent tax, the local
government is entitled to recover the court costs and other
expenses specified by Section 33.48(a), Tax Code.
Sec. 274.005. ENFORCEMENT OF TAX RECEIVABLE. (a) The sale
of an ad valorem tax receivable under this chapter does not affect
an existing contract for the collection of delinquent taxes under
Section 6.30(c), Tax Code, between the local government or an
entity acting on behalf of the local government and an attorney.
Performance by the attorney under that contract includes the
collection of the delinquent ad valorem tax by suit filed on behalf
of the local government, by tax sale, or by other means, as if the
tax receivable had not been sold.
(b) The local government may not:
(1) sell an ad valorem tax receivable to a person who
controls, is controlled by, or is under common control with a
private attorney under contract to collect the related delinquent
ad valorem tax entered into under Section 6.30(c), Tax Code; or
(2) after the date of sale of an ad valorem tax
receivable to a person, enter into a contract under Section
6.30(c), Tax Code, with an attorney who controls, is controlled by,
or is under common control with that person.
(c) In this section, control of a person includes the direct
or indirect ownership of a majority of the voting power of that
person.
Sec. 274.006. METHOD OF SALE. (a) A sale authorized by
this chapter may be made through:
(1) competitive bidding; or
(2) a negotiated sale.
(b) Notwithstanding any other law to the contrary, in
determining whether and to whom to award a sale of a tax receivable,
a local government may take into account any factor the local
government considers to be in the best interest of the local
government, including the price at which the tax receivable is
offered for sale and the terms and conditions of a tax receivable
purchase and sale agreement.
(c) The local government may enter into negotiations with
one or more prospective purchasers to determine the terms and
conditions under which a tax receivable is proposed to be sold.
Sec. 274.007. SALE THROUGH COMPETITIVE BIDDING. (a) A
local government that elects to sell all or part of its tax
receivables through competitive bidding shall publish a notice of
its intention to sell the tax receivables through competitive
bidding.
(b) The notice must include:
(1) the terms and conditions of the sale;
(2) the criteria by which bids will be evaluated; and
(3) a description of any other information or
documents that the local government may require a bidder to
provide.
(c) The notice must:
(1) identify separately the tax receivables intended
to be sold; or
(2) state the approximate number and aggregate amount
of those tax receivables and that a copy of a list of those tax
receivables may be obtained from the local government on request.
(d) The notice shall be published in a newspaper of general
circulation in the local government not later than the 30th day
before the date designated by the local government for the
submission of bids.
(e) The local government may reject any or all bids or may
accept any combination of bids received in a sale conducted through
competitive bidding.
Sec. 274.008. SALE THROUGH NEGOTIATED SALE. (a) A local
government that elects to sell all or a part of its tax receivables
through a negotiated sale shall publish a notice of its intention to
sell tax receivables through a negotiated sale.
(b) The notice must:
(1) state that a request for statements of interest to
purchase tax receivables is available at the location specified in
the notice; and
(2) include any requirement by the local government
for a person seeking to purchase tax receivables to provide the
local government any information or documents.
(c) The notice must:
(1) identify separately the tax receivables intended
to be sold; or
(2) state the approximate number and aggregate amount
of those tax receivables and that a copy of a list of those tax
receivables may be obtained from the local government on request.
(d) The notice shall be published in a newspaper of general
circulation in the local government not later than the 30th day
before the date designated by the local government for the receipt
of statements of interest.
Sec. 274.009. NOTICE TO AFFECTED PROPERTY OWNERS. (a) A
local government may not sell a tax receivable unless the local
government notifies the owner of the property associated with the
tax receivable, by first class mail sent to the address of record of
the owner, of the proposed sale by the local government of the tax
receivable.
(b) The notice shall be mailed to the property owner not
later than the 30th day before the date of sale.
(c) The notice must:
(1) include a description of the real property
associated with the tax receivable, by block and lot or by other
means sufficient to identify and locate the property, and may
include other identifying information that the local government
considers appropriate;
(2) state the amount of the tax receivable; and
(3) state that the tax receivable associated with the
property may be sold as provided by this chapter if the amounts due
on the property remain unpaid.
(d) The local government may not proceed with the sale of
the tax receivable if the property owner pays the full amount of the
tax receivable associated with the property before the date of sale
of the tax receivable.
Sec. 274.010. POSTPONEMENT OR CANCELLATION OF SALE
AUTHORIZED. (a) A local government may postpone or cancel any
proposed sale of a tax receivable for which notice has been
published.
(b) A local government is not liable for damages as a result
of the postponement or cancellation of a proposed sale of tax
receivables and a cause of action does not arise from a postponement
or cancellation of a proposed sale.
Sec. 274.011. PURCHASE AND SALE AGREEMENTS. (a) A local
government may enter into a purchase and sale agreement with the
purchaser of a tax receivable sold under this chapter.
(b) A purchase and sale agreement may contain any term,
provision, condition, representation, or warranty consistent with
this chapter that, in the judgment of the local government, is
necessary or in the best interest of the local government.
(c) A purchase and sale agreement must specify:
(1) the purchase price of each tax receivable covered
by the agreement, which amount may:
(A) be more or less than the face amount of the
tax receivable; and
(B) include nonmonetary consideration;
(2) any other amounts that may be made available to the
local government on a contingent basis under the terms of the
agreement; and
(3) that the local government and the officers,
employees, agents, and attorneys of the local government are not
liable for damages for any failure to collect the tax receivable,
and that a failure to collect the tax receivable does not give rise
to a cause of action.
(d) A purchase and sale agreement may require the local
government to:
(1) repurchase a tax receivable, or to substitute
another tax receivable of equivalent value, under conditions that
may be specified in the agreement;
(2) sell to the purchaser subsequent tax receivables
associated with the property on substantially the same terms as
those on which the initial tax receivable was sold; and
(3) use its customary and reasonable efforts to
enforce the collection of the tax receivable, as if the tax
receivable had not been sold.
(e) A purchase and sale agreement may not require the local
government to prohibit a person from paying the person's taxes in
installments under Section 31.031, 31.032, or 33.02, Tax Code.
(f) A purchase and sale agreement may not require a local
government that under Section 31.035 or 31.036, Tax Code, permits
individuals to perform services in lieu of paying taxes, or that
under Section 31.037, Tax Code, permits business entities to
provide employees to perform services in lieu of paying taxes, to
refrain from entering into a contract under those sections. A local
government that enters into such a contract may agree to repurchase
any related ad valorem tax receivable.
(g) A purchase and sale agreement may not contain any
provision that would interfere with the right of an individual to
defer or abate a suit to collect a delinquent tax under Section
33.06 or 33.065, Tax Code. The local government may agree to
repurchase the related tax receivable if the individual defers or
abates the suit.
(h) A purchase and sale agreement may not require the local
government to demand of its officers, employees, agents, or
attorneys a standard of performance of their statutory or
contractual duties in the collection of a tax receivable that is
different from the customary and reasonable standard of performance
required of those persons.
Sec. 274.012. TAX RECEIVABLE CERTIFICATES; ISSUANCE AND
OPERATION; TRANSFERABILITY. (a) On the sale by a local government
of a tax receivable, the local government shall issue to the
purchaser a tax receivable certificate evidencing the sale and
transfer of the tax receivable to the purchaser.
(b) A tax receivable certificate operates to transfer and
assign the tax receivable only for:
(1) the amount provided by Section 274.003;
(2) interest on any unpaid amounts of the tax
receivable that accrues under Section 274.004(a) on and after the
date of sale to the date of payment; and
(3) the amounts of any penalty and interest on the
unpaid original amount of an ad valorem tax receivable that accrues
under Section 33.01, Tax Code, on and after the date of the sale to
the date of payment.
(c) Any amount, other than an amount specified by Subsection
(b), that may be collected by the local government under Chapter 33,
Tax Code, or another law is not transferred or assigned by a tax
receivable certificate. Any amount described by this subsection
that is collected shall be retained by the local government for
distribution in accordance with the applicable law or, if
applicable, the terms of a contract entered into under Section
6.30(c), Tax Code.
(d) The holder of a tax receivable certificate may transfer
the certificate to any other person.
(e) Except as otherwise agreed to in a purchase and sale
agreement under Section 274.011(d)(1) or (2), the holder of a tax
receivable certificate holds the certificate without recourse, in
contract, in tort, or otherwise, against the local government or
the officers, employees, agents, or attorneys of the local
government because of a failure to collect the related tax
receivable.
Sec. 274.013. CONTENTS OF TAX RECEIVABLE CERTIFICATE. (a)
Each tax receivable certificate must contain a transfer and
assignment by the local government of the tax receivables
transferred to the purchaser and must state:
(1) the date of the sale;
(2) the aggregate amount of the tax receivables
transferred to the purchaser;
(3) as separate items, the amounts included in each
tax receivable specified in Section 274.003;
(4) the rate of interest that accrues on the unpaid
amount of the tax receivables; and
(5) a description of the real property associated with
each tax receivable, by block and lot or by other means sufficient
to identify and locate the property.
(b) A tax receivable certificate shall be executed by the
tax collector for the local government or a person designated by the
tax collector and acknowledged in the manner required for a deed to
be recorded in this state.
(c) A tax receivable certificate may evidence the transfer
of more than one tax receivable relating to more than one property.
Sec. 274.014. REPLACEMENT TAX RECEIVABLE CERTIFICATES. (a)
On application to the collector for a local government accompanied
by proof sufficient to show that a tax receivable certificate
issued on behalf of the local government under this chapter is lost,
the tax collector or a person designated by the tax collector may
execute and issue a replacement tax receivable certificate to the
applicant or the person entitled to the original replacement
certificate.
(b) The tax collector for the local government, at the
collector's discretion, may require the applicant or other person
to post a bond of indemnity in favor of the local government.
Sec. 274.015. ENTITLEMENT TO PROCEEDS OF TAX SALE. (a)
This section applies to real property associated with a tax
receivable sold under this chapter if the property is sold in
compliance with an order of sale following a suit for foreclosure of
a local government's lien on the property, regardless of whether
the suit to foreclose the lien is brought by the local government
that sold the tax receivable or by another local government.
(b) From the proceeds of a sale of the property under
Section 34.01, Tax Code, or of the resale of the property under
Section 34.05, Tax Code, the holder of the applicable tax
receivable certificate is entitled to receive an amount equal to
the amount the local government that sold the tax receivable
certificate would otherwise be entitled to receive and retain for
its benefit.
Sec. 274.016. DUTY OF LOCAL GOVERNMENT TO PAY OVER CERTAIN
MONEY. (a) A local government shall promptly pay over to the
holder of a tax receivable certificate, or to the person designated
in writing by the holder, any money received by the local government
in connection with the tax receivable evidenced by the tax
receivable certificate.
(b) A local government shall pay over to its attorney,
including a private attorney retained under a contract entered into
under Section 6.30(c), Tax Code, any money received to which the
attorney is entitled by virtue of a contract or otherwise,
including:
(1) attorney's fees and any other amount collected for
the benefit of the attorney; and
(2) any costs of court and expenses advanced by the
attorney.
Sec. 274.017. AFFIDAVITS OF PUBLICATION AND MAILING. (a)
Each local government that sells a tax receivable under this
chapter shall obtain and preserve affidavits of the publication and
mailing of all advertisements and notices required by this chapter
to be published and mailed.
(b) An affidavit of publication and mailing is presumptive
proof of the related publication and mailing in any court of this
state.
Sec. 274.018. PUBLIC INFORMATION. Information collected,
assembled, or maintained in connection with the sale of a tax
receivable of a local government and in connection with the
issuance of a tax receivable certificate under this chapter is
public information that is available to the public under Chapter
552, Government Code.
Sec. 274.019. CALCULATION OF EFFECTIVE TAX RATE AND
ROLLBACK RATE. The officer or employee designated to calculate the
effective tax rate and the rollback rate of a local government under
Section 26.04(c), Tax Code, may not include the amount of any
proceeds received by the local government from the sale of a tax
receivable under this chapter in making those calculations.
SECTION 3C.02. Section 1.04(6), Tax Code, is amended to
read as follows:
(6) "Intangible personal property" means a claim,
interest (other than an interest in tangible property), right, or
other thing that has value but cannot be seen, felt, weighed,
measured, or otherwise perceived by the senses, although its
existence may be evidenced by a document. The term [It] includes:
(A) a stock, bond, note or account receivable,
franchise, license or permit, demand or time deposit, certificate
of deposit, share account, share certificate account, share deposit
account, insurance policy, annuity, pension, cause of action,
contract, and goodwill; and
(B) a tax receivable under Chapter 274, Local
Government Code, or a tax receivable certificate issued under that
chapter.

PART D. REAL PROPERTY SALES PRICE DISCLOSURE
SECTION 3D.01. Section 12.001, Property Code, is amended by
adding Subsections (e)-(g) to read as follows:
(e) An instrument conveying real property may not be
recorded under Subsection (a) unless a certificate issued by the
chief appraiser of the appraisal district established for the
county in which the property is located stating that the sales price
disclosure report required by Subchapter D, Chapter 22, Tax Code,
has been filed with the chief appraiser is filed with the instrument
of conveyance.
(f) Subsection (e) does not apply to an instrument conveying
real property if the conveyance is made:
(1) pursuant to a court order or foreclosure sale;
(2) by a trustee in bankruptcy;
(3) by a mortgagor or a mortgagor's successor in
interest to a mortgagee or by a trustor or a trustor's successor in
interest to a beneficiary of a deed of trust;
(4) by a mortgagee or a beneficiary under a deed of
trust who has acquired the real property:
(A) at a sale conducted pursuant to a power of
sale under a deed of trust;
(B) at a sale pursuant to a court-ordered
foreclosure; or
(C) by a deed in lieu of foreclosure;
(5) by a fiduciary in the course of the administration
of a decedent's estate, guardianship, conservatorship, or trust;
(6) by one co-owner to one or more other co-owners;
(7) to a spouse or to a person or persons in the lineal
line of consanguinity of one or more of the transferors;
(8) between spouses and results from:
(A) a decree of dissolution of marriage;
(B) a decree of legal separation; or
(C) a property settlement agreement incidental
to a decree described by Paragraph (A) or (B); or
(9) to or from any governmental entity.
(g) The chief appraiser of the appraisal district
established for the county in which the property is located and the
county clerk by written agreement may establish a procedure for the
electronic transfer to the county clerk of the certificate required
by Subsection (e). An instrument of conveyance may be recorded
under this section without an accompanying paper copy of the
certificate required by Subsection (e) if the certificate is
electronically transferred to the county clerk by the chief
appraiser under a procedure established under this subsection.
SECTION 3D.02. The heading to Subchapter C, Chapter 22, Tax
Code, is amended to read as follows:

SUBCHAPTER C. [OTHER] REPORTS OF POLITICAL SUBDIVISION ACTIONS
SECTION 3D.03. Chapter 22, Tax Code, is amended by adding
Subchapter D to read as follows:

SUBCHAPTER D. REPORT OF SALES PRICE
Sec. 22.61. SALES PRICE DISCLOSURE REPORT. (a) Except as
provided by Subsection (d), on the sale of real property the
purchaser of the property or a person acting on behalf of the
purchaser shall file a sales price disclosure report with the chief
appraiser of the appraisal district established for the county in
which the property is located.
(b) A sales price disclosure report may be filed by
facsimile.
(c) The sales price disclosure report may be filed with the
chief appraiser before the sale of the property closes. If any
information required by the sales price disclosure report changes
after the report is filed with the chief appraiser, the person who
prepared the original report shall prepare, sign, and file with the
chief appraiser a supplemental sales price disclosure report
updating the information that changed. The supplemental report
shall be filed not later than the third day after the date the sale
of the property closed.
(d) This section does not apply to a sale of real property if
the sale is made:
(1) pursuant to a court order or foreclosure sale;
(2) by a trustee in bankruptcy;
(3) by a mortgagor or a mortgagor's successor in
interest to a mortgagee or by a trustor or a trustor's successor in
interest to a beneficiary of a deed of trust;
(4) by a mortgagee or a beneficiary under a deed of
trust who has acquired the real property:
(A) at a sale conducted pursuant to a power of
sale under a deed of trust;
(B) at a sale pursuant to a court-ordered
foreclosure; or
(C) by a deed in lieu of foreclosure;
(5) by a fiduciary in the course of the administration
of a decedent's estate, guardianship, conservatorship, or trust;
(6) by one co-owner to one or more other co-owners;
(7) to a spouse or to a person or persons in the lineal
line of consanguinity of one or more of the transferors;
(8) between spouses and results from:
(A) a decree of dissolution of marriage;
(B) a decree of legal separation; or
(C) a property settlement agreement incidental
to a decree described by Paragraph (A) or (B); or
(9) to or from any governmental entity.
Sec. 22.62. SIGNATURE REQUIRED. A sales price disclosure
report must be signed by the purchaser or by the person who prepares
the report.
Sec. 22.63. REPORT FORMS. (a) The comptroller shall
prescribe the form and content of a sales price disclosure report
filed under this subchapter. The comptroller shall ensure that
each form requires the person preparing the report to provide, at a
minimum:
(1) the seller's name and address;
(2) the purchaser's name and address;
(3) information necessary to identify the property and
to determine the property's location;
(4) the mailing address for tax notices concerning the
property;
(5) a description of the use of the property at the
time of sale;
(6) a statement of whether any personal property was
included in the sale and, if so, the estimated value of the personal
property;
(7) the method used to finance the sale;
(8) a statement of whether the property was offered
for sale to other potential purchasers;
(9) a statement of whether the purchaser holds title
to any adjoining property;
(10) the sales price of the property;
(11) the closing date of the sale; and
(12) the name and address of the person preparing the
report.
(b) A form may not require information not relevant to the
appraisal of property for tax purposes or to the assessment or
collection of property taxes.
(c) A person who prepares a sales price disclosure report
under this subchapter must:
(1) use the appropriate form prescribed by the
comptroller; and
(2) include all information required by the form.
Sec. 22.64. DELIVERY OF CERTIFICATE TO PURCHASER. (a)
Except as provided by Subsection (b), not later than the second day
after the date the sales price disclosure report is filed with the
chief appraiser, the chief appraiser shall provide to the purchaser
a certificate stating that the completed sales price disclosure
report has been filed.
(b) If the chief appraiser and the county clerk of the
county in which the property is located have entered into an
agreement under Section 12.001(g), Property Code, the chief
appraiser may electronically transfer the certificate to the county
clerk. A chief appraiser that elects to electronically transfer
the certificate shall:
(1) transfer the certificate not later than the second
day after the date the sales price disclosure report is filed; and
(2) notify the purchaser in writing that the
certificate has been filed with the county clerk.
Sec. 22.65. PUBLICIZING REQUIREMENTS. (a) The comptroller
shall publicize, in a manner reasonably designed to come to the
attention of title companies, attorneys, and property owners, the
requirements of this subchapter and of the availability of sales
price disclosure report forms.
(b) The Texas Real Estate Commission shall assist the
comptroller in publicizing the information required by Subsection
(a) to title companies and attorneys.
(c) A chief appraiser shall assist the comptroller in
publicizing the information required by Subsection (a) to property
owners in the county for which the appraisal district is
established.
Sec. 22.66. CONFIDENTIAL INFORMATION. (a) A sales price
disclosure report filed with a chief appraiser under this
subchapter is confidential and not open to public inspection. The
report and the information it contains about specific property or a
specific person may not be disclosed to another person other than an
employee of the appraisal office who appraises property except as
provided by Subsection (b).
(b) Information that is confidential under Subsection (a)
may be disclosed:
(1) in a judicial or administrative proceeding
pursuant to a lawful subpoena;
(2) to the person who filed the sales price disclosure
report, to the owner of the property described in the report, or to
a representative of the person who filed the report or the owner who
is authorized in writing to receive the information;
(3) to the comptroller and the comptroller's employees
authorized by the comptroller in writing to receive the information
or to an assessor or a chief appraiser if requested in writing;
(4) in a judicial or administrative proceeding
relating to property taxation:
(A) in which the person who filed the sales price
disclosure report is a party;
(B) in which the owner of the property described
in the report is a party;
(C) by the appraisal district for the purpose of
establishing the value of the property; or
(D) for the purpose of providing evidence of
comparable sales used to appraise another property;
(5) for statistical purposes if the information is
provided in a form that does not identify a specific property or a
specific property owner;
(6) if and to the extent the information is required to
be included in a public document or record that the appraisal office
is required to prepare or maintain; or
(7) to a taxing unit or its legal representative that
is engaged in the collection of delinquent taxes on the property
that is described in the report.
(c) A person, other than a person described by Subsection
(b)(2), who legally has access to a sales price disclosure report or
who legally obtains the information from a report made confidential
by this section commits an offense if the person knowingly:
(1) permits inspection of the confidential
information by a person not authorized by Subsection (b) to inspect
the information; or
(2) discloses the confidential information to a person
not authorized by Subsection (b) to receive the information.
(d) It is a defense to prosecution under Subsection (c) that
the person obtained the information from:
(1) a person described by Subsection (b)(2); or
(2) a record or document lawfully available to the
public.
(e) An offense under Subsection (c) is a Class B
misdemeanor.
Sec. 22.67. IMMUNITY FROM LIABILITY. A person who prepares
a sales price disclosure report in compliance with this subchapter
is not liable to any other person as a result of providing the
information required by this subchapter.
SECTION 3D.04. (a) Except as provided by Subsection (b) of
this section, this part takes effect immediately if this Act
receives a vote of two-thirds of all the members elected to each
house, as provided by Section 39, Article III, Texas Constitution.
If this Act does not receive the vote necessary for immediate
effect, this part takes effect on the 91st day after the last day of
the legislative session.
(b) Sections 3D.01, 3D.02, and 3D.03 of this part take
effect January 1, 2005.
(c) As soon as practicable after the effective date of this
part provided by Subsection (a) of this section, but not later than
January 1, 2005, the comptroller of public accounts shall:
(1) prescribe or approve sales price disclosure report
forms as provided by Section 22.63, Tax Code, as added by this part;
and
(2) begin to publicize the requirements of Subchapter
D, Chapter 22, Tax Code, as required by Section 22.65, Tax Code, as
added by this part.
(d) This part applies only to a sale of real property that
occurs on or after January 1, 2005.

ARTICLE 4. SALES AND USE TAXES

PART A. STATE AND LOCAL SALES AND USE TAXES
SECTION 4A.01. Section 151.051(b), Tax Code, is amended to
read as follows:
(b) The sales tax rate is 6.75 [6 1/4] percent of the sales
price of the taxable item sold.
SECTION 4A.02. Subchapter A, Chapter 151, Tax Code, is
amended by adding Section 151.0029 to read as follows:
Sec. 151.0029. BILLBOARD ADVERTISING SERVICE. (a)
"Billboard advertising service" means a service allowing a
purchaser to obtain outdoor advertising on a billboard, including
the rental of the billboard space.
(b) In this section, "billboard" means a sign that:
(1) is a separate and fixed structure directly
attached to land or a building;
(2) is designed to have its content changed at
frequent intervals in an economically feasible manner; and
(3) is designed to prominently display outdoor
advertising that is visible to the occupants of motor vehicles
driving by the sign.
SECTION 4A.03. Section 151.0038(b), Tax Code, is amended to
read as follows:
(b) In this section, "newspaper" means a publication that is
printed on newsprint, the average sales price of which for each copy
over a 30-day period does not exceed $1.50, and that is printed and
distributed at a daily, weekly, or other short interval for the
dissemination of news of a general character and of a general
interest. "Newspaper" does not include a magazine, handbill,
circular, flyer, sales catalog, or similar printed item unless the
printed item is printed for distribution as a part of a newspaper
and is actually distributed as a part of a newspaper. For the
purposes of this section, an advertisement is news of a general
character and of a general interest. Notwithstanding any other
provision of this subsection, "newspaper" includes:
(1) a publication containing articles and essays of
general interest by various writers and advertisements that is
produced for the operator of a licensed and certified carrier of
persons and distributed by the operator to its customers during
their travel on the carrier; and
(2) a publication for the dissemination of news of a
general character and of a general interest that is printed on
newsprint and distributed to the general public free of charge at a
daily, weekly, or other short interval [has the meaning assigned by
Section 151.319(f)].
SECTION 4A.04. Section 151.00394(b), Tax Code, is amended
to read as follows:
(b) "Internet access service" does not include [and the
exemption under Section 151.325 does not apply to] any other
taxable service listed in Section 151.0101(a), unless the taxable
service is provided in conjunction with and is merely incidental to
the provision of Internet access service.
SECTION 4A.05. Section 151.0101(a), Tax Code, is amended to
read as follows:
(a) "Taxable services" means:
(1) amusement services;
(2) cable television services;
(3) personal services;
(4) motor vehicle parking and storage services;
(5) the repair, remodeling, maintenance, and
restoration of tangible personal property, except:
(A) aircraft;
(B) a ship, boat, or other vessel, other than:
(i) a taxable boat or motor as defined by
Section 160.001;
(ii) a sports fishing boat; or
(iii) any other vessel used for pleasure;
(C) the repair, maintenance, and restoration of a
motor vehicle; and
(D) the repair, maintenance, creation, and
restoration of a computer program, including its development and
modification, not sold by the person performing the repair,
maintenance, creation, or restoration service;
(6) telecommunications services;
(7) credit reporting services;
(8) debt collection services;
(9) insurance services;
(10) information services;
(11) real property services;
(12) data processing services;
(13) real property repair and remodeling;
(14) security services;
(15) telephone answering services;
(16) Internet access service; [and]
(17) a sale by a transmission and distribution
utility, as defined in Section 31.002, Utilities Code, of
transmission or delivery of service directly to an electricity
end-use customer whose consumption of electricity is subject to
taxation under this chapter; and
(18) billboard advertising services.
SECTION 4A.06. Section 151.308(a), Tax Code, is amended to
read as follows:
(a) The following are exempted from the taxes imposed by
this chapter:
(1) oil as taxed by Chapter 202;
(2) sulphur as taxed by Chapter 203;
(3) motor fuels and special fuels as defined, taxed,
or exempted by Chapter 153;
(4) cement as taxed by Chapter 181;
(5) motor vehicles, trailers, and semitrailers as
defined, taxed, or exempted by Chapter 152, other than a mobile
office as defined by Section 152.001(16);
(6) [mixed beverages, ice, or nonalcoholic beverages
and the preparation or service of these items if the receipts are
taxable by Chapter 183;
[(7)] alcoholic beverages when sold to the holder of a
private club registration permit or to the agent or employee of the
holder of a private club registration permit if the holder or agent
or employee is acting as the agent of the members of the club and if
the beverages are to be served on the premises of the club;
(7) [(8)] oil well service as taxed by Subchapter E,
Chapter 191; and
(8) [(9)] insurance premiums subject to gross
premiums taxes.
SECTION 4A.07. Section 151.315, Tax Code, is amended to
read as follows:
Sec. 151.315. WATER. Water, other than water sold in a
sealed container with a volume of three gallons or less, is exempted
from the taxes imposed by this chapter.
SECTION 4A.08. Section 321.501(a), Tax Code, is amended to
read as follows:
(a) After deducting the taxes that are required to be
deposited to the credit of the Texas education fund under Section
25, Article VIII, Texas Constitution, the [The] comptroller shall
deposit the taxes collected by the comptroller under this chapter
in trust in the separate suspense account of the municipality from
which the taxes were collected.
SECTION 4A.09. Section 321.503, Tax Code, is amended to
read as follows:
Sec. 321.503. STATE'S SHARE. Before sending any money to a
municipality under this subchapter the comptroller shall deduct two
percent of the amount of the municipality's share of the taxes
collected within the municipality during the period for which a
distribution is made as the state's charge for its services under
this chapter and shall[, subject to premiums payments under Section
321.501(c),] credit the money deducted to the general revenue fund.
SECTION 4A.10. Section 322.303, Tax Code, is amended to
read as follows:
Sec. 322.303. STATE'S SHARE. Before sending any money to a
taxing entity under this subchapter, the comptroller shall deduct
two percent of the amount of the taxing entity's share of the taxes
collected within the entity area during the period for which a
distribution is made as the state's charge for its services under
this chapter and shall credit the money deducted to the general
revenue fund.
SECTION 4A.11. Section 323.501(a), Tax Code, is amended to
read as follows:
(a) After deducting the taxes that are required to be
deposited to the credit of the Texas education fund under Section
25, Article VIII, Texas Constitution, the [The] comptroller shall
deposit the taxes collected by the comptroller under this chapter
in trust in the separate suspense account of the county from which
the taxes were collected.
SECTION 4A.12. Section 323.503, Tax Code, is amended to
read as follows:
Sec. 323.503. STATE'S SHARE. Before sending any money to a
county under this subchapter the comptroller shall deduct two
percent of the amount of the county's share of the taxes collected
within the county during the period for which a distribution is made
as the state's charge for its services under this chapter and
shall[, subject to premiums payments under Section 323.501(c),]
credit the money deducted to the general revenue fund.
SECTION 4A.13. The following provisions of the Tax Code are
repealed:
(1) Section 151.319;
(2) Section 151.320; and
(3) Section 151.325.
SECTION 4A.14. (a) There are exempted from the taxes
imposed by Chapter 151, Tax Code, the receipts from the sale, use,
storage, rental, or other consumption in this state of services
that became subject to the taxes because of the terms of this part
and that are the subject of a written contract or bid entered into
on or before the day after the last day of the 78th Legislature, 4th
Called Session, 2004.
(b) The exemption provided by this section expires January
1, 2007.
SECTION 4A.15. This part takes effect January 1, 2005.

PART B. MOTOR VEHICLE SALES AND USE TAX
SECTION 4B.01. Section 152.021(b), Tax Code, is amended to
read as follows:
(b) The tax rate is 7.75 [6 1/4] percent of the total
consideration.
SECTION 4B.02. Section 152.022(b), Tax Code, is amended to
read as follows:
(b) The tax rate is 7.75 [6 1/4] percent of the total
consideration.
SECTION 4B.03. Section 152.026(b), Tax Code, is amended to
read as follows:
(b) The tax rate is 10 percent of the gross rental receipts
from the rental of a rented motor vehicle for 30 days or less and
7.75 [6 1/4] percent of the gross rental receipts from the rental of
a rented motor vehicle for longer than 30 days.
SECTION 4B.04. Section 152.028(b), Tax Code, is amended to
read as follows:
(b) The tax rate is 7.75 [6 1/4] percent of the total
consideration.
SECTION 4B.05. This part takes effect January 1, 2005.

PART C. BOAT AND MOTOR BOAT SALES AND USE TAX
SECTION 4C.01. Section 160.021(b), Tax Code, is amended to
read as follows:
(b) The tax rate is 7.75 [6 1/4] percent of the total
consideration.
SECTION 4C.02. Section 160.022(b), Tax Code, is amended to
read as follows:
(b) The tax rate is 7.75 [6 1/4] percent of the total
consideration.
SECTION 4C.03. This part takes effect January 1, 2005.

PART D. ADMISSIONS TAX
SECTION 4D.01. Subtitle E, Title 2, Tax Code, is amended by
adding Chapter 163 to read as follows:

CHAPTER 163. ADMISSION TO EVENTS
Sec. 163.001. SALES TAX. (a) A tax is imposed on each sale
of an admission ticket to an event described by Section 163.002.
(b) The tax rate is $1 on the sale of each ticket.
Sec. 163.002. TAXABLE EVENTS. (a) The tax imposed under
Section 163.001 applies to an admission ticket purchased to an
event as described by this section other than an event exempted
under Section 163.003.
(b) The tax imposed under Section 163.001 applies to an
admission ticket purchased to:
(1) a professional athletic or amusement event in this
state;
(2) a permanently sited theme or amusement park in
this state; and
(3) a live performance, including a concert, show,
reading, or play.
Sec. 163.003. EXEMPTION. The tax imposed under Section
163.001 does not apply to an admission ticket purchased to an event:
(1) sponsored, produced, or affiliated with:
(A) a public or private primary or secondary
school; or
(B) a public or private institution of higher
education in this state, including a public junior college, as
defined by Section 61.003, Education Code; or
(2) if the net proceeds of the event are used only for
a charitable purpose.
Sec. 163.004. APPLICATION OF OTHER PROVISIONS OF CODE.
Except as provided by this chapter:
(1) the tax imposed by this chapter is administered,
imposed, collected, and enforced in the same manner as the tax under
Chapter 151 is administered, imposed, collected, and enforced; and
(2) the provisions of Chapter 151 applicable to the
sales tax imposed under Subchapter C, Chapter 151, apply to the tax
imposed by this chapter.
Sec. 163.005. ALLOCATION OF TAX. The comptroller shall
allocate the net revenue from taxes imposed by this chapter to the
Texas education fund.

ARTICLE 5. CIGARETTE AND TOBACCO PRODUCTS TAXES
SECTION 5.01. Section 154.021(b), Tax Code, is amended to
read as follows:
(b) The tax rates are:
(1) $70.50 [$20.50] per thousand on cigarettes
weighing three pounds or less per thousand; and
(2) the rate provided by Subdivision (1) plus $2.10
per thousand on cigarettes weighing more than three pounds per
thousand.
SECTION 5.02. Section 155.021(b), Tax Code, is amended to
read as follows:
(b) The tax rates are:
(1) 3.44 cents [one cent] per 10 or fraction of 10 on
cigars weighing three pounds or less per thousand;
(2) $25.80 [$7.50] per thousand on cigars that:
(A) weigh more than three pounds per thousand;
and
(B) sell at factory list price, exclusive of any
trade discount, special discount, or deal, for 3.3 cents or less
each;
(3) $37.84 [$11] per thousand on cigars that:
(A) weigh more than three pounds per thousand;
(B) sell at factory list price, exclusive of any
trade discount, special discount, or deal, for more than 3.3 cents
each; and
(C) contain no substantial amount of nontobacco
ingredients; and
(4) $51.60 [$15] per thousand on cigars that:
(A) weigh more than three pounds per thousand;
(B) sell at factory list price, exclusive of any
trade discount, special discount, or deal, for more than 3.3 cents
each; and
(C) contain a substantial amount of nontobacco
ingredients.
SECTION 5.03. Section 155.0211(b), Tax Code, is amended to
read as follows:
(b) The tax rate for tobacco products other than cigars is
40 [35.213] percent of the manufacturer's list price, exclusive of
any trade discount, special discount, or deal.
SECTION 5.04. This article takes effect January 1, 2005.

ARTICLE 6. BUSINESS TAXES

PART A. FRANCHISE TAX
SECTION 6A.01. (a) Chapter 171, Tax Code, is repealed.
(b) Chapter 171, Tax Code, and Subtitle B, Title 2, Tax
Code, continue to apply to audits, deficiencies, redeterminations,
and refunds of any tax due or collected under that chapter until
barred by limitations.
(c) The repeal of Chapter 171, Tax Code, by this part does
not affect:
(1) the status of a corporation that has had its
corporate privileges, certificate of authority, or corporate
charter revoked, a suit filed against it, or a receiver appointed
under Subchapter F, G, or H of that chapter;
(2) the ability of the comptroller, secretary of
state, or attorney general to take action against a corporation
under those subchapters for actions that took place before the
repeal; or
(3) the right of a corporation to contest a
forfeiture, revocation, lawsuit, or appointment of a receiver under
those subchapters.
SECTION 6A.02. This part takes effect January 1, 2005.
PART B. PAYROLL TAX
SECTION 6B.01. Title 2, Tax Code, is amended by adding
Subtitle K to read as follows:

SUBTITLE K. PAYROLL TAX

CHAPTER 251. PAYROLL TAX
Sec. 251.001. DEFINITIONS. In this chapter:
(1) "Calendar quarter," "commission," "compensation
fund," and "contribution" have the meanings assigned those terms by
Section 201.011, Labor Code.
(2) "Employer" has the meaning assigned by Subchapter
C, Chapter 201, Labor Code.
(3) "Wages" means the wages for employment paid by an
employer for which a contribution is required under Chapter 204,
Labor Code, to the compensation fund.
Sec. 251.002. RULES. The comptroller may adopt rules to
implement and administer this chapter.
Sec. 251.003. TAX IMPOSED. (a) A tax is imposed on each
employer for each employee to whom the employer paid wages during a
calendar quarter.
(b) The tax applies to each employee to whom the employer
paid wages during a calendar quarter without regard to whether:
(1) the employee is a full-time or part-time employee;
or
(2) the wages paid were for the entire calendar
quarter or a portion of the calendar quarter.
Sec. 251.004. RATE. The rate of the tax is, for each
employee to whom the employer paid wages during a calendar quarter,
the lesser of:
(1) 1.25 percent of the wages paid the employee during
the calendar quarter; or
(2) $125.
Sec. 251.005. EXEMPTION FOR GOVERNMENTAL ENTITIES. (a)
The tax imposed under this chapter does not apply to a governmental
entity.
(b) A governmental entity shall file reports under Section
251.011 in the same manner as any other employer.
Sec. 251.006. EXEMPTION FOR CHARITABLE ORGANIZATIONS. The
tax imposed under this chapter does not apply to an organization
exempt from federal income tax under Section 501(c) of the Internal
Revenue Code of 1986 by being listed as an exempt organization in
Section 501(c)(3) of the code.
Sec. 251.007. TAX NOT DEDUCTED FROM WAGES. An employer may
not deduct the tax imposed under this chapter from any wages of the
employer's employees.
Sec. 251.008. CRIMINAL PENALTY. (a) A person who violates
Section 251.007 commits an offense.
(b) An offense under this section is a Class A misdemeanor.
Sec. 251.009. CIVIL PENALTY. (a) A person who violates
Section 251.007 is liable to the state for a civil penalty not to
exceed $500 for each violation. Each day a violation continues may
be considered a separate violation for purposes of a civil penalty
assessment.
(b) On request of the comptroller, the attorney general
shall file suit to collect the penalty.
Sec. 251.010. APPLICATION TO CERTAIN PROVIDERS. (a) The
tax imposed under this chapter applies to a person who:
(1) is not an employer; and
(2) provides employees who perform services in this
state, on a part-time or full-time basis, for more than 30 days in a
calendar quarter.
(b) For purposes of this section, the person is an employer
and all wages paid to the employees are wages for which a
contribution is required under Chapter 204, Labor Code.
Sec. 251.011. REPORTS AND PAYMENT. (a) Each employer
shall, on or before the last day of the month immediately following
each calendar quarter for which the employer is required to pay a
contribution under Chapter 204, Labor Code:
(1) file with the comptroller:
(A) a copy of any report required by the
commission for determining the amount of the contribution required
for any wages paid by the employer to each of the employer's
employees during that calendar quarter; and
(B) any other information required by the
comptroller on a form prescribed by the comptroller; and
(2) pay to the comptroller the tax due under this
chapter.
(b) A provider to which the tax applies under Section
251.010 shall, on or before the last day of the month immediately
following each calendar quarter for which the tax applies to the
provider:
(1) file with the comptroller any information required
by the comptroller on a form prescribed by the comptroller; and
(2) pay to the comptroller the tax due under this
chapter.
Sec. 251.012. DISPOSITION OF PROCEEDS. All proceeds from
the collection of the taxes imposed under this chapter shall be
deposited to the credit of the general revenue fund.
SECTION 6B.02. This part takes effect January 1, 2005.
PART C. TAX ENFORCEMENT
SECTION 6C.01. Chapter 111, Tax Code, is amended by adding
Subchapter H to read as follows:
SUBCHAPTER H. FORFEITURE OF RIGHT TO
TRANSACT BUSINESS IN THIS STATE
Sec. 111.401. APPLICABILITY OF SUBCHAPTER. This subchapter
applies to a taxpayer that is a corporation, banking corporation,
limited liability company, state or federal savings and loan
association, and any other kind of business association, company,
joint venture, partnership, or other combination of entities or
persons engaged in business that qualifies under the law of this
state for liability limitations for its owners or shareholders that
are substantially equivalent to those for a corporation.
Sec. 111.402. APPLICATION TO NONCORPORATE ENTITIES. (a)
The comptroller may, for the same reasons and using the same
procedures the comptroller uses in relation to the forfeiture of
the corporate privileges of a corporation, forfeit the right to
transact business in this state of another entity to which this
subchapter applies that is subject to a tax imposed by this title.
(b) The comptroller may, for the same reasons and using the
same procedures the comptroller uses in relation to the forfeiture
of a corporation's charter or certificate of authority, forfeit the
certificate or registration of another entity to which this
subchapter applies that is subject to a tax imposed by this title.
(c) The provisions of this subchapter, including Section
111.407, that apply to the forfeiture of a corporation's corporate
privileges and charter or certificate of authority apply to the
forfeiture of another entity's right to transact business in this
state and certificate or registration.
Sec. 111.403. FORFEITURE OF CORPORATE PRIVILEGES. The
comptroller shall forfeit the corporate privileges of a corporation
on which a tax is imposed under this title if the corporation:
(1) does not file, in accordance with this title and on
or before the 45th day after the date notice of forfeiture is
mailed, a report required by this title; or
(2) does not pay, on or before the 45th day after the
date notice of forfeiture is mailed, a tax imposed under this title
or does not pay, on or before the 45th day, a penalty imposed
relating to that tax.
Sec. 111.404. EFFECTS OF FORFEITURE. If the corporate
privileges of a corporation are forfeited under this subchapter:
(1) the corporation shall be denied the right to sue or
defend in a court of this state; and
(2) each director or officer of the corporation is
liable for a debt of the corporation as provided by Section 111.407.
Sec. 111.405. SUIT ON CAUSE OF ACTION ARISING BEFORE
FORFEITURE. In a suit against a corporation on a cause of action
arising before the forfeiture of the corporate privileges of the
corporation, affirmative relief may not be granted to the
corporation unless its corporate privileges are revived under this
subchapter.
Sec. 111.406. EXCEPTION TO FORFEITURE. The forfeiture of
the corporate privileges of a corporation does not apply to the
privilege to defend in a suit to forfeit the corporation's charter
or certificate of authority.
Sec. 111.407. LIABILITY OF DIRECTOR AND OFFICERS. (a) If
the corporate privileges of a corporation are forfeited for the
failure to file a report or pay a tax or penalty imposed under this
title, each director or officer of the corporation is liable for
each debt of the corporation that is created or incurred in this
state after the date on which the report, tax, or penalty is due and
before the corporate privileges are revived. The liability
includes liability for any tax or penalty imposed under this title
on the corporation that becomes due and payable after the date of
the forfeiture.
(b) The liability of a director or officer is in the same
manner and to the same extent as if the director or officer were a
partner and the corporation were a partnership.
(c) A director or officer is not liable for a debt of the
corporation if the director or officer shows that the debt was
created or incurred:
(1) over the director's objection; or
(2) without the director's knowledge and that the
exercise of reasonable diligence to become acquainted with the
affairs of the corporation would not have revealed the intention to
create the debt.
(d) If a corporation's charter or certificate of authority
and its corporate privileges are forfeited and revived under this
subchapter, the liability under this section of a director or
officer of the corporation is not affected by the revival of the
charter or certificate and the corporate privileges.
Sec. 111.408. NOTICE OF FORFEITURE. (a) If the comptroller
proposes to forfeit the corporate privileges of a corporation, the
comptroller shall notify the corporation that the forfeiture will
occur without a judicial proceeding unless the corporation:
(1) files, within the time established by Section
111.403, the report to which that section refers; or
(2) pays, within the time established by Section
111.403, the delinquent tax and penalty to which that section
refers.
(b) The notice shall be written or printed and shall be
verified by the seal of the comptroller's office.
(c) The comptroller shall mail the notice to the corporation
not later than the 45th day before the forfeiture of corporate
privileges. The notice shall be addressed to the corporation and
mailed to the address named in the corporation's charter as its
principal place of business or to another known place of business of
the corporation.
(d) The comptroller shall keep at the comptroller's office a
record of the date on which the notice is mailed. For the purposes
of this subchapter, the notice and the record of the mailing date
constitute legal and sufficient notice of the forfeiture.
Sec. 111.409. JUDICIAL PROCEEDING NOT REQUIRED FOR
FORFEITURE. The forfeiture of the corporate privileges of a
corporation is effected by the comptroller without a judicial
proceeding.
Sec. 111.410. REVIVAL OF CORPORATE PRIVILEGES. The
comptroller shall revive the corporate privileges of a corporation
if the corporation, before the forfeiture of its charter or
certificate of authority, pays any tax, penalty, or interest due
under this title.
Sec. 111.411. BANKING CORPORATIONS AND SAVINGS AND LOAN
ASSOCIATIONS. (a) Except as provided by Subsection (b), this
subchapter does not apply to a banking corporation that is
organized under the laws of this state or under federal law and has
its main office in this state.
(b) The banking commissioner shall appoint a conservator
under Subtitle A, Title 3, Finance Code, to pay the tax of a banking
corporation that is organized under the laws of this state and that
the commissioner certifies as being delinquent in the payment of
the corporation's tax.
Sec. 111.412. SAVINGS AND LOAN ASSOCIATION. (a) Except as
provided by Subsection (b), this subchapter does not apply to a
savings and loan association that is organized under the laws of
this state or under federal law and has its main office in this
state.
(b) The savings and loan commissioner shall appoint a
conservator under Subtitle B or C, Title 3, Finance Code, to pay the
tax of a savings and loan association that is organized under the
laws of this state and that the commissioner certifies as being
delinquent in the payment of the association's tax.
Sec. 111.413. GROUNDS FOR FORFEITURE OF CHARTER OR
CERTIFICATE OF AUTHORITY. It is a ground for the forfeiture of a
corporation's charter or certificate of authority if the corporate
privileges of the corporation are forfeited under this subchapter
and the corporation does not pay, on or before the 120th day after
the date the corporate privileges are forfeited, the amount
necessary for the corporation to revive under this subchapter its
corporate privileges.
Sec. 111.414. CERTIFICATION BY COMPTROLLER. After the
120th day after the date the corporate privileges of a corporation
are forfeited under this subchapter, the comptroller shall certify
the name of the corporation to the attorney general and the
secretary of state.
Sec. 111.415. SUIT FOR JUDICIAL FORFEITURE. On receipt of
the comptroller's certification, the attorney general shall bring
suit to forfeit the charter or certificate of authority of a
corporation if a ground exists for the forfeiture of the charter or
certificate.
Sec. 111.416. RECORD OF JUDICIAL FORFEITURE. (a) If a
district court forfeits a corporation's charter or certificate of
authority under this subchapter, the clerk of the court shall
promptly mail to the secretary of state a certified copy of the
court's judgment. On receipt of the copy of the judgment, the
secretary of state shall inscribe on the corporation's record at
the secretary's office the words "Judgment of Forfeiture" and the
date of the judgment.
(b) If a court forfeits a corporation's charter or
certificate of authority under this subchapter, the court may
appoint a receiver for the corporation and may administer the
receivership under the laws relating to receiverships.
(c) If an appeal of the judgment is perfected, the clerk of
the court shall promptly certify to the secretary of state that the
appeal has been perfected. On receipt of the certification, the
secretary of state shall inscribe on the corporation's record at
the secretary's office the word "Appealed" and the date on which the
appeal was perfected.
(d) If final disposition of an appeal is made, the clerk of
the court making the disposition shall promptly certify to the
secretary of state the type of disposition made and the date of the
disposition. On receipt of the certification, the secretary of
state shall inscribe on the corporation's record at the secretary's
office a brief note of the type of final disposition made and the
date of the disposition.
Sec. 111.417. REVIVAL OF CHARTER OR CERTIFICATE OF
AUTHORITY AFTER JUDICIAL FORFEITURE. A corporation whose charter
or certificate of authority is judicially forfeited under this
subchapter is entitled to have its charter or certificate revived
and to have its corporate privileges revived if:
(1) the corporation files each report that is required
by this title and that is delinquent;
(2) the corporation pays the tax, penalty, and
interest that is imposed under this title and that is due at the
time the suit under Section 111.418 to set aside forfeiture is
filed; and
(3) the forfeiture of the corporation's charter or
certificate is set aside in a suit under Section 111.418.
Sec. 111.418. SUIT TO SET ASIDE JUDICIAL FORFEITURE. If a
corporation's charter or certificate of authority is judicially
forfeited under this subchapter, a stockholder, director, or
officer of the corporation at the time of the forfeiture of the
charter or certificate or of the corporate privileges of the
corporation may bring suit in a district court of Travis County in
the name of the corporation to set aside the forfeiture of the
charter or certificate. The suit must be in the nature of a bill of
review. The secretary of state and attorney general must be made
defendants in the suit.
Sec. 111.419. RECORD OF SUIT TO SET ASIDE JUDICIAL
FORFEITURE. If a court under this subchapter sets aside the
forfeiture of a corporation's charter or certificate of authority,
the secretary of state shall inscribe on the corporation's record
in the secretary's office the words "Charter Revived by Court
Order" or "Certificate Revived by Court Order," a citation to the
suit, and the date of the court's judgment.
Sec. 111.420. CORPORATE PRIVILEGES AFTER JUDICIAL
FORFEITURE IS SET ASIDE. If a court under this subchapter sets
aside the forfeiture of a corporation's charter or certificate of
authority, the comptroller shall revive the corporate privileges of
the corporation and shall inscribe on the corporation's record in
the comptroller's office a note of the revival.
Sec. 111.421. FORFEITURE BY SECRETARY OF STATE. The
secretary of state may forfeit the charter or certificate of
authority of a corporation if:
(1) the secretary receives the comptroller's
certification under Section 111.414;
(2) the corporation does not revive its forfeited
corporate privileges on or before the 120th day after the date that
the corporate privileges were forfeited; and
(3) the corporation does not have assets from which a
judgment for any tax, penalty, or court costs imposed by this title
may be satisfied.
Sec. 111.422. JUDICIAL PROCEEDING NOT REQUIRED FOR
FORFEITURE BY SECRETARY OF STATE. The forfeiture by the secretary
of state of a corporation's charter or certificate of authority
under this subchapter is effected without a judicial proceeding.
Sec. 111.423. RECORD OF FORFEITURE BY SECRETARY OF STATE.
The secretary of state shall effect a forfeiture of a corporation's
charter or certificate of authority under this subchapter by
inscribing on the corporation's record in the secretary's office
the words "Charter Forfeited" or "Certificate Forfeited," the date
on which this inscription is made, and a citation to this subchapter
as authority for the forfeiture.
Sec. 111.424. REVIVAL OF CHARTER OR CERTIFICATE OF
AUTHORITY AFTER FORFEITURE BY SECRETARY OF STATE. A corporation
whose charter or certificate of authority is forfeited under this
subchapter by the secretary of state is entitled to have its charter
or certificate revived and to have its corporate privileges revived
if:
(1) the corporation files each report that is required
by this title and that is delinquent;
(2) the corporation pays the tax, penalty, and
interest that is imposed by this title and that is due at the time
the request under Section 111.425 to set aside forfeiture is made;
and
(3) the forfeiture of the corporation's charter or
certificate is set aside in a proceeding under Section 111.425.
Sec. 111.425. PROCEEDING TO SET ASIDE FORFEITURE BY
SECRETARY OF STATE. (a) If a corporation's charter or certificate
of authority is forfeited under this subchapter by the secretary of
state, a stockholder, director, or officer of the corporation at
the time of the forfeiture of the charter or certificate or of the
corporate privileges of the corporation may request in the name of
the corporation that the secretary of state set aside the
forfeiture of the charter or certificate.
(b) If a request is made, the secretary of state shall
determine if each delinquent report has been filed and any
delinquent tax, penalty, or interest has been paid. If each report
has been filed and the tax, penalty, or interest has been paid, the
secretary shall set aside the forfeiture of the corporation's
charter or certificate of authority.
Sec. 111.426. CORPORATE PRIVILEGES AFTER FORFEITURE BY
SECRETARY OF STATE IS SET ASIDE. If the secretary of state sets
aside under this subchapter the forfeiture of a corporation's
charter or certificate of authority, the comptroller shall revive
the corporate privileges of the corporation.
Sec. 111.427. USE OF CORPORATE NAME AFTER REVIVAL OF
CHARTER OR CERTIFICATE OF AUTHORITY. If a corporation's charter or
certificate of authority is forfeited under this subchapter by the
secretary of state and if the corporation requests the secretary to
set aside the forfeiture under Section 111.425, the corporation
shall determine from the secretary whether the corporation's name
is available for use. If the name is not available, the corporation
shall amend its charter or certificate to change its name.
SECTION 6C.02. This part takes effect January 1, 2005.

ARTICLE 7. TELECOMMUNICATIONS INFRASTRUCTURE FUND
SECTION 7.01. Section 57.048, Utilities Code, is amended by
amending Subsections (c) and (d) and adding Subsections (f)-(i) to
read as follows:
(c) The total amount deposited to the credit of the fund,
excluding interest and loan repayments, may not exceed $2 [$1.75]
billion. Not later than August 31 of each year, the comptroller
shall determine the total amount, excluding interest and loan
repayments, that has been deposited to the credit of the fund during
that fiscal year and the preceding fiscal years. If the comptroller
determines that a total of $1.75 [$1.5] billion or more, excluding
interest and loan repayments, has been deposited to the credit of
the fund, the comptroller shall impose the assessment during the
next fiscal year at a rate that the comptroller estimates is
sufficient to produce the amount necessary to result in the deposit
in the fund of a total of not more than $2 [$1.75] billion,
excluding interest and loan repayments.
(d) The comptroller may not collect the assessment during a
fiscal year if the comptroller determines after the yearly review
that the total amount deposited to the credit of the fund during
that fiscal year and the preceding fiscal years is $1.99 [$1.74]
billion or more, excluding interest and loan repayments, and it is
not possible to impose the assessment during the next fiscal year at
a practical rate without collecting more than a total of $2 [$1.75]
billion, excluding interest and loan repayments.
(f) Notwithstanding any other provision of this title, a
certificated telecommunications utility may recover from the
utility's customers an assessment imposed on the utility under this
subchapter after the total amount deposited to the credit of the
fund, excluding interest and loan repayments, is equal to $1.5
billion, as determined by the comptroller. A certificated
telecommunications utility may recover only the amount of the
assessment imposed after the total amount deposited to the credit
of the fund, excluding interest and loan repayments, is equal to
$1.5 billion, as determined by the comptroller. The utility may
recover the assessment through a monthly billing process.
(g) The comptroller shall publish in the Texas Register the
date on which the total amount deposited to the credit of the fund,
excluding interest and loan repayments, is equal to $1.5 billion.
(h) Not later than February 15 of each year, a certificated
telecommunications utility that wants to recover the assessment
under Subsection (f) shall file with the commission an affidavit or
affirmation stating the amount that the utility paid to the
comptroller under this section during the previous calendar year
and the amount the utility recovered from its customers in
cumulative payments during that year.
(i) The commission shall maintain the confidentiality of
information the commission receives under this section that is
claimed to be confidential for competitive purposes. The
confidential information is exempt from disclosure under Chapter
552, Government Code.
SECTION 7.02. Section 57.051, Utilities Code, is amended to
read as follows:
Sec. 57.051. SUNSET PROVISION. The Telecommunications
Infrastructure Fund [Board] is subject to Chapter 325, Government
Code (Texas Sunset Act). Unless continued in existence as provided
by that chapter, [the board is abolished and] this subchapter
expires September 1, 2007 [2005].
SECTION 7.03. (a) This article takes effect on the date the
constitutional amendment proposed by H.J.R. No. 1, 78th
Legislature, 4th Called Session, 2004, takes effect.
(b) If, on the effective date of this article, the
assessment prescribed by Section 57.048, Utilities Code, is imposed
at a rate of less than 1.25 percent, the comptroller shall,
effective January 1, 2005, reset the rate of the assessment to 1.25
percent.

ARTICLE 8. [Reserved]

ARTICLE 9. VIDEO LOTTERY
SECTION 9.01. Section 466.002, Government Code, is amended
by amending Subdivisions (2)-(10) and adding Subdivisions
(11)-(36) to read as follows:
(2) "Communication technology" means the methods used
and the components employed to facilitate the transmission of
information, including transmission and reception systems that
transmit information through wire, cable, radio, microwave, light,
optics, or computer data networks.
(3) "Director" means a [the] director employed by the
executive director under Section 467.033 [of the division].
(4) "Disable" with respect to video lottery terminals
means the process that causes a video lottery terminal to cease
functioning on issuance of a shutdown command from the video
lottery central system.
(5) "Distribute" means the sale, lease, marketing,
offer, or other disposition of a video lottery terminal, the
electronic computer components of a video lottery terminal, the
cabinet in which a video lottery terminal is housed, video lottery
equipment, or video lottery game software intended for use or play
in this state or on Indian lands in this state.
(6) [(3)] "Division" means the lottery division
established by the commission under Chapter 467.
(7) "Electronic storage medium," with respect to video
lottery, means the electronic medium on which the operation
software for a game playable on a video lottery terminal is stored
that is in the form of erasable programmable read only memory,
compact disc-read only memory, flash random access memory, or other
technology medium the commission approves for use in a video
lottery terminal.
(8) [(4)] "Executive director" means the executive
director of the commission.
(9) "Gaming agreement" means an agreement authorized
under Subchapter K between this state and a federally recognized
Indian tribe under which this state permits the tribe to conduct
limited gaming activities authorized under this chapter or
applicable federal law.
(10) "House-banked game" means a game of chance:
(A) in which the house plays as a participant;
(B) in which the house takes on all players,
collects from all losers, and pays all winners; and
(C) that the house has an opportunity to win.
(11) "Indian lands" has the meaning assigned to that
term by Section 47(f), Article III, Texas Constitution.
(12) "Institutional investor" means:
(A) a state or federal government pension plan;
or
(B) any of the following that meets the
requirements of a "qualified institutional buyer" as defined in
Rule 144A, Securities Act of 1933 (15 U.S.C. Sections 77a-77aa),
and the rules and regulations adopted under that rule by the United
States Securities and Exchange Commission:
(i) a bank as defined by Section 3(a)(6),
Securities Exchange Act of 1934 (15 U.S.C. Sections 78a-78kk), and
the rules and regulations adopted under that act by the United
States Securities and Exchange Commission;
(ii) an insurance company as defined by
Section 2(a)(17), Investment Company Act of 1940 (15 U.S.C. Section
80a-1 et seq.);
(iii) an investment company registered
under Section 8, Investment Company Act of 1940 (15 U.S.C. Section
80a-1 et seq.);
(iv) an employee benefit plan or pension
fund subject to the Employee Retirement Income Security Act of 1974
(29 U.S.C. Section 1001 et seq.), excluding an employee benefit
plan or pension fund sponsored by a publicly traded corporation
registered with the Securities and Exchange Commission;
(v) a group composed entirely of persons
specified by this subdivision; or
(vi) any other person the commission
recognizes as an institutional investor for reasons consistent with
the policies expressed in this chapter.
(13) [(5)] "Lottery" means the state lottery
established and operated in accordance with the Texas Constitution
under this chapter and includes the operation of a state-controlled
video lottery system [procedures operated by the state under this
chapter through which prizes are awarded or distributed by chance
among persons who have paid, or unconditionally agreed to pay, for a
chance or other opportunity to receive a prize].
(14) [(6)] "Lottery game" means an activity conducted
lawfully and in accordance with the Texas Constitution and this
chapter that is controlled by this state as part of the lottery and
through which prizes are awarded or distributed by chance to
persons who have paid or unconditionally agreed to pay, or who
otherwise participate in a game, for a chance or other opportunity
to receive a prize [includes a lottery activity].
(15) [(7)] "Lottery operator" means a person selected
under Section 466.014(b) to operate a lottery game.
(16) "Manufacture," with respect to video lottery,
means to design, assemble, fabricate, produce, program, or make
modifications to a video lottery terminal, the electronic computer
components of a video lottery terminal, the cabinet in which a video
lottery terminal is housed, video lottery equipment, or video
lottery game software intended for use or play in this state or on
Indian lands in this state.
(17) "Net terminal income" means the total amount of
money paid to play video lottery games less the value of all credits
redeemed for money, including any progressive prizes, by the
players of the video lottery games. The costs associated with
progressive prizes may not be deducted from the total amount of
money paid to play the video lottery games for purposes of
determining net terminal income. Promotional prizes offered by a
video lottery retailer or video lottery manager may not be deducted
or otherwise considered credits redeemed for money by players for
the purpose of determining net terminal income.
(18) "Pari-mutuel license holder" means a person
licensed to conduct wagering on a greyhound race or a horse race
under the Texas Racing Act (Article 179e, Vernon's Texas Civil
Statutes).
(19) "Person" means, for purposes of video lottery
operations, any natural person, corporation, association, trust,
partnership, limited partnership, joint venture, subsidiary, or
other entity, regardless of its form, structure, or nature.
(20) [(8)] "Player" means a person who contributes any
part of the consideration for a ticket or to play a video lottery
game under this chapter.
(21) "Racetrack" means a racetrack as defined by
Section 1.03(25), Texas Racing Act (Article 179e, Vernon's Texas
Civil Statutes). As related to horse racetracks, the term includes
only a Class I or Class II racetrack that held a pari-mutuel license
on May 1, 2004, at a location licensed on that date and conducted at
least 20 live racing days in 2003 and that annually conducts at
least the same number of live racing days as the racetrack conducted
in 2003 in accordance with rules and procedures of the Texas Racing
Commission. As related to greyhound racetracks, the term includes
only a racetrack that held a pari-mutuel license on May 1, 2004, at
a location licensed on that date and conducted at least 20 live
racing days in 2003 and that annually conducts at least the same
number of live racing days as the racetrack conducted in 2003 in
accordance with rules and procedures of the Texas Racing
Commission.
(22) [(9)] "Sales agent" or "sales agency" means a
person licensed under this chapter to sell tickets.
(23) "Slot machine" means a mechanical, electrical, or
other type of device, contrivance, or machine that, on insertion of
a coin, currency, token, or similar object or on payment of any
other consideration, is available to play or operate, and that is
not connected to the video lottery central system, and the play or
operation of which, through the skill of the operator, by chance, or
both, may deliver or entitle the person playing or operating the
machine to receive cash, premiums, merchandise, tokens, or any
other thing of value, whether the payoff is made automatically from
the machine or in any other manner. The term does not include any
equipment, machine, technological aid, or other device in
connection with the play of bingo under Chapter 2001, Occupations
Code.
(24) "Substantial interest holder" means:
(A) a person who directly, indirectly, or
beneficially owns any interest in a privately owned corporation,
association, trust, partnership, limited partnership, joint
venture, subsidiary, or other entity, regardless of its form,
structure, or nature;
(B) a person who directly, indirectly, or
beneficially owns 10 percent or more of any publicly owned
corporation, association, trust, partnership, limited partnership,
joint venture, subsidiary, or other entity, regardless of its form,
structure, or nature;
(C) a person associated with an applicant or
license holder who the commission determines has the power or
authority to:
(i) control the activities of the applicant
or license holder; or
(ii) elect or select the executive
director, the managers, the partners, or a majority of the board of
directors of the applicant or license holder; and
(D) any key personnel of a video lottery retailer
or video lottery manager, including an executive director, officer,
director, manager, member, partner, limited partner, executive,
employee, or agent, who the commission determines has the power to
exercise significant influence over decisions concerning any part
of the applicant's or license holder's business operation.
A substantial interest holder does not include a bona
fide lender, bank, or other authorized or licensed lending
institution that holds a mortgage or other lien acquired in the
ordinary course of business or a vendor of the applicant or license
holder that is not otherwise a substantial interest holder.
(25) [(10)] "Ticket" means any tangible evidence
issued to provide participation in a lottery game authorized by
this chapter. The term does not include a ticket for play of a video
lottery game.
(26) "Video lottery central system" means the system
of procedures and facilities operated and controlled by the
commission that links together all video lottery terminals operated
in this state and allows the commission to continuously monitor the
activity of each video lottery terminal and to disable any video
lottery terminal in this state.
(27) "Video lottery central system provider" means a
person that, by contract with the commission, provides the video
lottery central system.
(28) "Video lottery equipment" means:
(A) a video lottery terminal; or
(B) equipment, components, or contrivances used
remotely or directly in connection with a video lottery terminal
to:
(i) affect the reporting of gross revenue
and other accounting information, including a device for weighing
and counting money;
(ii) connect video lottery terminals
together for accounting or wide-area prize or promotional purposes;
(iii) monitor video lottery terminal
operations;
(iv) provide for the connection of video
lottery terminals to the video lottery central system; and
(v) any other communications technology or
equipment necessary for the operation of a video lottery terminal.
(29) "Video lottery game" means an electronically
simulated game owned, approved, and controlled by the commission
the outcome of which is determined solely by chance based on a
computer-generated random selection of winning combinations of
symbols or numbers other than roulette, dice, or baccarat game
themes associated with casino gambling, except that game themes
that display symbols that appear to roll on drums to simulate a
classic casino slot machine or themes of other card games and keno
may be used, and that is displayed on a video lottery terminal that:
(A) is connected to the video lottery central
system;
(B) operates by a player's insertion of a coin,
currency, voucher, or token into the video lottery terminal that
causes the video lottery terminal to display credits that entitle
the player to select one or more symbols or numbers or cause the
video lottery terminal to randomly select symbols or numbers;
(C) allows the player to win additional game play
credits, coins, or tokens based on game rules that establish the
random selection of winning combinations of symbols or numbers and
the number of free play credits, coins, or tokens to be awarded for
each winning combination; and
(D) allows the player at any time to clear all
game play credits and receive a video lottery ticket entitling the
player to receive the cash value of those credits.
(30) "Video lottery terminal" means an interactive
electronic terminal device that is connected to the video lottery
central system and displays video lottery games authorized under
this chapter and the Texas Constitution. The term does not include
a house-banked game, a slot machine, or any other stand-alone video
gambling device, that is not connected to the video lottery system
or that is otherwise prohibited under state law.
(31) "Video lottery system" has the meaning assigned
to that term by Section 47(f), Article III, Texas Constitution.
(32) "Video lottery ticket" means the tangible
evidence issued by a video lottery terminal to reflect winnings
from the play of a video lottery game.
(33) "Video lottery terminal establishment" means
premises at which the operation of video lottery terminals is
authorized by the commission under this chapter in accordance with
a license or gaming agreement.
(34) "Video lottery manager" means a person licensed
by the commission under this chapter as required by the Texas
Constitution to manage a video lottery terminal establishment at a
racetrack or who provides management services for a video lottery
terminal establishment on Indian lands.
(35) "Video lottery terminal provider" means a person
in the business of manufacturing or distributing video lottery
terminals in this state.
(36) "Video lottery retailer" means a racetrack at
which a video lottery terminal establishment is located and that
holds a video lottery retailer license under Subchapter K.
SECTION 9.02. Section 466.003, Government Code, is amended
by amending Subsection (b) and adding Subsection (c) to read as
follows:
(b) Any [A] contract or authorized agreement between the
division and a lottery operator, the video lottery central system
provider, a video lottery provider, or a manufacturer or
distributor of video lottery games under Section 466.014(b) must
contain a provision allowing the contract or authorized agreement
to be terminated without penalty should the division be abolished
unless another state agency is assigned to control and supervise
all video lottery game activity as required by this chapter.
(c) Notwithstanding Subsection (a), if any gaming agreement
that allows video lottery is in effect, the commission or another
state agency designated by the legislature must operate, control,
and supervise video lottery games as necessary to comply with a
gaming agreement under this chapter.
SECTION 9.03. Section 466.004(a), Government Code, is
amended to read as follows:
(a) A political subdivision of this state may not impose:
(1) a tax on the sale of a ticket;
(2) a tax on the payment of a prize under this chapter;
[or]
(3) an ad valorem tax on tickets; or
(4) a tax, fee, or other assessment on consideration
paid to play a video lottery game.
SECTION 9.04. Section 466.014, Government Code, is amended
to read as follows:
Sec. 466.014. POWERS AND DUTIES OF COMMISSION AND EXECUTIVE
DIRECTOR; CONTRACT AUTHORITY. (a) The commission and executive
director have broad authority and shall exercise strict control and
close supervision over [all] lottery games [conducted in this
state] to promote and ensure integrity, security, honesty, and
fairness in the operation and administration of the lottery.
(b) The executive director may contract with or employ a
person to perform a function, activity, or service in connection
with the operation of the lottery as prescribed by the executive
director. A contract relating to the operation of video lottery
must be consistent with Subchapter K. Except as provided by this
subsection, a [A] person with whom the executive director contracts
to operate a lottery game must be eligible for a sales agent license
under Section 466.155. A person with whom the executive director
contracts to provide the video lottery central system or who
registers as a video lottery terminal provider must be licensed,
registered, or approved by the commission in accordance with
Subchapter K.
(c) The executive director may award a contract for lottery
supplies, equipment, or services, including a contract under
Subsection (b), pending the completion of any investigation and
licensing, registration, or other approval authorized and required
by this chapter. A contract awarded under this subsection must
include a provision permitting the executive director to terminate
the contract without penalty if the investigation reveals that the
person to whom the contract is awarded would not be eligible for a
sales agent license under Section 466.155 or with regard to video
lottery does not satisfy the applicable requirements for licensing,
registration, or other approval under Subchapter K.
(d) In the acquisition or provision of facilities,
supplies, equipment, materials, or services related to the
implementation of video lottery, the commission is exempt from:
(1) procurement procedures prescribed under:
(A) Subtitle D, Title 10; and
(B) Section 466.101; and
(2) any bidding or contract requirements provided by
any other law or by commission rules.
SECTION 9.05. Section 466.015(b), Government Code, is
amended to read as follows:
(b) The commission shall adopt rules to the extent they are
not inconsistent with Chapters 551 and 552 governing the:
(1) security for the lottery and the commission,
including the development of an internal security plan;
(2) apportionment of the total revenues from the sale
of tickets and from all other sources in the amounts provided by
this chapter;
(3) enforcement of prohibitions on the sale of tickets
to or by an individual younger than 18 years of age; [and]
(4) enforcement of prohibitions on a person playing a
lottery game by telephone; and
(5) enforcement of prohibitions provided by law on the
sale of any purchase or play of a video lottery game.
SECTION 9.06. Section 466.017, Government Code, is amended
to read as follows:
Sec. 466.017. AUDITS. (a) The commission [executive
director] shall provide for a certified public accountant to
conduct an independent audit of the commission's annual financial
statements in accordance with generally accepted auditing
standards that requires the accountant to express an opinion on the
conformity of the financial statements with generally accepted
accounting principles [for each fiscal year of all accounts and
transactions of the lottery]. The certified public accountant may
not have[, as determined by the executive director,] a significant
financial interest in a sales agent, lottery vendor, video lottery
manager, video lottery retailer, video lottery terminal provider,
video lottery central system provider, or lottery operator. The
certified public accountant shall present an audit report to the
executive director, the commission, the governor, the comptroller,
and the legislature not later than the 30th day after the submission
date for the annual financial report required by the General
Appropriations Act. [The report must contain recommendations to
enhance the earnings capability of the lottery and improve the
efficiency of lottery operations.] The state auditor may review
the results of and working papers related to the audit.
(b) The records of a [Each] lottery operator, video lottery
manager, video lottery retailer, video lottery terminal provider,
video lottery central system provider, or sales agent [operator's
and sales agent's records] are subject to audit by the commission
and the state auditor. For the purpose of carrying out this
chapter, the executive director or state auditor may examine all
books, records, papers, or other objects that the executive
director or state auditor determines are necessary for conducting a
complete examination under this chapter and may also examine under
oath any officer, director, or employee of a lottery operator,
video lottery manager, video lottery retailer, video lottery
terminal provider, video lottery central system provider, or sales
agent. The executive director or state auditor may conduct an
examination at the principal office or any other office of the
lottery operator, video lottery manager, video lottery retailer,
video lottery terminal provider, video lottery central system
provider, or sales agent or may require the lottery operator, video
lottery manager, video lottery retailer, video lottery terminal
provider, video lottery central system provider, or sales agent to
produce the records at the office of the commission or state
auditor. If a sales agent, video lottery manager, video lottery
retailer, video lottery terminal provider, or video lottery central
system provider refuses to permit an examination or to answer any
question authorized by this subsection, the executive director may
summarily suspend the license or registration of the sales agent,
video lottery manager, video lottery retailer, or video lottery
terminal provider under Section 466.160 or Subchapter K until the
examination is completed as required. Section 321.013(h) does not
apply to an audit of a lottery operator, video lottery manager,
video lottery retailer, video lottery terminal provider, video
lottery central system provider, or sales agent.
SECTION 9.07. Section 466.018, Government Code, is amended
to read as follows:
Sec. 466.018. INVESTIGATIONS. The attorney general, the
district attorney for Travis County, or the district attorney,
criminal district attorney, or county attorney performing the
duties of district attorney for the county in which the violation or
alleged violation occurred may investigate a violation or alleged
violation of this chapter and of the penal laws of this state by the
commission or its employees, a sales agent, a lottery vendor, [or] a
lottery operator, video lottery manager, video lottery retailer,
video lottery terminal provider, or video lottery central system
provider.
SECTION 9.08. Sections 466.020(c), (d), and (e), Government
Code, are amended to read as follows:
(c) A security officer or investigator employed by the
department of security or a peace officer who is working in
conjunction with the commission or the Department of Public Safety
in the enforcement of this chapter may:
(1) [,] without a search warrant, [may] search and
seize a lottery vending machine, lottery computer terminal, video
lottery terminal, or other lottery or gaming equipment that is
located on premises for which a person holds a sales agent, video
lottery retailer, or video lottery manager license issued under
this chapter; and
(2) seize a lottery vending machine, lottery computer
terminal, video lottery terminal, or other lottery or gaming
equipment that is being used or is in the possession of any person
in violation of this chapter.
(d) The Department of Public Safety or any other state or
local law enforcement agency in this state, at the commission's
request and in accordance with an interagency agreement, shall
perform a full criminal background investigation of a prospective
deputy or investigator of the department of security. The
commission shall reimburse the agency [Department of Public Safety]
for the actual costs of an investigation.
(e) At least once every two years, the executive director
shall employ an independent firm that is experienced in security,
including computer security and systems security, to conduct a
comprehensive study of all aspects of lottery security, including:
(1) lottery personnel security;
(2) sales agent security;
(3) lottery operator and vendor security;
(4) security against ticket counterfeiting and
alteration and other means of fraudulent winning;
(5) security of lottery drawings;
(6) lottery computer, data communications, database,
and systems security;
(7) lottery premises and warehouse security;
(8) security of distribution of tickets;
(9) security of validation and payment procedures;
(10) security involving unclaimed prizes;
(11) security aspects of each lottery game;
(12) security against the deliberate placement of
winning tickets in lottery games that involve preprinted winning
tickets by persons involved in the production, storage,
transportation, or distribution of tickets; [and]
(13) security of video lottery retailers, video
lottery managers, video lottery terminal providers, and the video
lottery central system provider; and
(14) other security aspects of lottery operations,
including video lottery game operations.
SECTION 9.09. Section 466.021(a), Government Code, is
amended to read as follows:
(a) The executive director shall, every two years, employ an
independent firm experienced in demographic analysis to conduct a
demographic study of lottery players. The study must include the
income, age, sex, race, education, and frequency of participation
of players. The study must distinguish between players of
traditional lottery games and video lottery games.
SECTION 9.10. Section 466.022, Government Code, is amended
by amending Subsection (b) and adding Subsections (c) and (d) to
read as follows:
(b) In addition to commission records excepted from
disclosure under Chapter 552, the following information is
confidential and is exempt from disclosure:
(1) security plans and procedures of the commission
designed to ensure the integrity and security of the operation of
the lottery;
(2) information of a nature that is designed to ensure
the integrity and security of the selection of winning tickets or
numbers in the lottery, other than information describing the
general procedures for selecting winning tickets or numbers; [and]
(3) the street address and telephone number of a prize
winner, if the prize winner has not consented to the release of the
information; and
(4) information relating to all system operations of
video lottery games, including the operation of the video lottery
system, security related to video lottery games, and commission
plans and procedures intended to ensure the integrity and security
of the operation of video lottery games.
(c) Information that is confidential under Subsection
(b)(4) includes information and data that:
(1) is required by the commission to be furnished to
the commission under Subchapter K or that may be otherwise obtained
by the commission from any source;
(2) pertains to an applicant's criminal record,
antecedents, and background that is furnished to or obtained by the
commission from any source, including information obtained by the
commission under Section 411.108(d);
(3) is provided to the commission, a commission
employee, or an investigator acting on behalf of the commission by a
governmental agency or an informer or on the assurance that the
information will be held in confidence and treated as confidential;
(4) is obtained by the commission from a video lottery
manager, video lottery retailer, video lottery terminal provider,
or video lottery central system provider; or
(5) is prepared or obtained by an agent or employee of
the commission relating to a license application, a finding of
suitability, or any approval required under Subchapter K.
(d) Information that qualifies as confidential under
Subsection (b)(4) may be disclosed in whole or in part only as
necessary to administer this chapter or on the order of a court of
competent jurisdiction. The commission, subject to appropriate
procedures, may disclose the information and data to an authorized
agent of a political subdivision of this state, the United States,
another state or a political subdivision of another state, a tribal
law enforcement agency, or the government of a foreign country. For
the annual report required under Section 466.016, the commission in
its discretion may disclose a compilation of statistical
information that is otherwise confidential under Subsection (b)(4)
if the compilation does not disclose the identity of an applicant,
license holder, or video lottery establishment. Notwithstanding
any other provision of state law, the information provided under
this subsection may not otherwise be disclosed without specific
commission authorization.
SECTION 9.11. Section 466.024, Government Code, is amended
to read as follows:
Sec. 466.024. PROHIBITED GAMES. (a) The executive
director, [or] a lottery operator, a video lottery manager, a video
lottery retailer, a video lottery terminal provider, or a video
lottery central system provider may not establish or operate a
lottery game in which the winner is chosen on the basis of the
outcome of a sports event.
(b) The [commission shall adopt rules prohibiting the]
operation of any game using a video lottery machine, slot [or]
machine, or other gambling device that is not connected to the video
lottery central system and controlled and supervised by this state
as required by Section 47, Article III, Texas Constitution, and
this chapter is prohibited.
(c) In this section, "sports[:
[(1) "Sports] event" means a football, basketball,
baseball, or similar game, or a horse or dog race on which
pari-mutuel wagering is allowed.
[(2) "Video lottery machine" or "machine" means any
electronic video game machine that, upon insertion of cash, is
available to play or simulate the play of a video game, including
video poker, keno, and blackjack, using a video display and
microprocessors in which the player may receive free games or
credits that can be redeemed for cash, coins, or tokens, or that
directly dispenses cash, coins, or tokens.]
SECTION 9.12. Section 466.025, Government Code, is amended
to read as follows:
Sec. 466.025. REPORTS OF TICKETS SOLD, NET TERMINAL INCOME,
AND PRIZES AWARDED. For each lottery game, other than a video
lottery game, after the last date on which a prize may be claimed
under Section 466.408(d), the director shall prepare a report that
shows the total number of tickets sold and the number and amounts of
prizes awarded in the game. The report must be available for public
inspection. For video lottery games, the director shall prepare a
weekly report that shows the net terminal income for the week of the
report.
SECTION 9.13. Section 466.103(a), Government Code, is
amended to read as follows:
(a) Except as provided by Subsection (b), the executive
director may not award a contract for the purchase or lease of
facilities, goods, or services related to lottery operations to a
person who:
(1) would be denied a license as a sales agent under
Section 466.155; or
(2) with regard to video lottery games:
(A) is not a registered video lottery terminal
provider if registration is required; or
(B) is deemed unsuitable under Subchapter K.
SECTION 9.14. Section 466.110, Government Code, is amended
to read as follows:
Sec. 466.110. PROHIBITED ADVERTISEMENTS. The legislature
intends that advertisements or promotions sponsored by the
commission or the division for the lottery not be of a nature that
unduly influences any person to purchase a lottery ticket or number
or play a video lottery game.
SECTION 9.15. Section 466.151(b), Government Code, is
amended to read as follows:
(b) The executive director may establish a provisional
license or other classes of licenses necessary to regulate and
administer the quantity and type of lottery games provided at each
licensed location of a sales agent.
SECTION 9.16. Section 466.158(a), Government Code, is
amended to read as follows:
(a) Unless suspended or revoked, a license issued under this
subchapter expires on the date specified in the license, which may
not be later than the second anniversary of its date of issuance.
SECTION 9.17. Section 466.201(a), Government Code, is
amended to read as follows:
(a) The commission is entitled to conduct an investigation
of and is entitled to obtain criminal history record information
maintained by the Department of Public Safety, the Federal Bureau
of Investigation Identification Division, or another law
enforcement agency to assist in the investigation of:
(1) a sales agent or an applicant for a sales agent
license;
(2) a person required to be named in a license
application;
(3) a lottery operator, video lottery manager, video
lottery retailer, video lottery terminal provider, or video lottery
central system provider, or prospective lottery operator, video
lottery manager, video lottery retailer, video lottery terminal
provider, or video lottery central system provider;
(4) an employee of a lottery operator, video lottery
manager, video lottery retailer, video lottery terminal provider,
or video lottery central system provider or prospective lottery
operator, video lottery manager, video lottery retailer, video
lottery terminal provider, or video lottery central system
provider, if the employee is or will be directly involved in lottery
operations;
(5) a person who manufactures or distributes lottery
equipment or supplies, or a representative of a person who
manufactures or distributes lottery equipment or supplies offered
to the lottery;
(6) a person who has submitted a written bid or
proposal to the commission in connection with the procurement of
goods or services by the commission, if the amount of the bid or
proposal exceeds $500;
(7) an employee or other person who works for or will
work for a sales agent or an applicant for a sales agent license;
(8) a person who proposes to enter into or who has a
contract with the commission to supply goods or services to the
commission; or
(9) if a person described in Subdivisions (1) through
(8) is not an individual, an individual who:
(A) is an officer or director of the person;
(B) holds more than 10 percent of the stock in the
person;
(C) holds an equitable interest greater than 10
percent in the person;
(D) is a creditor of the person who holds more
than 10 percent of the person's outstanding debt;
(E) is the owner or lessee of a business that the
person conducts or through which the person will conduct
lottery-related activities;
(F) shares or will share in the profits, other
than stock dividends, of the person;
(G) participates in managing the affairs of the
person; or
(H) is an employee of the person who is or will be
involved in:
(i) selling tickets; or
(ii) handling money from the sale of
tickets.
SECTION 9.18. Subchapter E, Chapter 466, Government Code,
is amended by adding Section 466.206 to read as follows:
Sec. 466.206. CRIMINAL HISTORY INVESTIGATION FOR VIDEO
LOTTERY. (a) Except as otherwise provided by this section and
Sections 466.020, 466.201, and 466.5034, a criminal history
investigation of a video lottery retailer, video lottery manager,
video lottery terminal provider, or video lottery central system
provider is governed by commission rules adopted under Subchapter
K, which may consider a criminal history investigation conducted
under the Texas Racing Act (Article 179e, Vernon's Texas Civil
Statutes).
(b) The Department of Public Safety or a state or local law
enforcement agency in this state, in accordance with an interagency
agreement with the commission, shall provide any assistance
requested by the commission in the administration and enforcement
of this chapter, including conducting background investigations of
a person seeking a license, registration, or other commission
authorization required under Subchapter K or of any person required
to be named in an application for a license, registration, or other
commission authorization under that subchapter.
(c) This section does not limit the commission's right to
obtain criminal history record information from any other local,
state, or federal agency. The commission may enter into a
confidentiality agreement with the agency as necessary and proper.
(d) Except as otherwise provided by Section 411.108(d) or
another provision of this chapter, criminal history record
information obtained by the commission under this section may be
disclosed only:
(1) to another law enforcement agency to assist in or
further an investigation related to the commission's operation and
oversight of video lottery; or
(2) under a court order.
SECTION 9.19. Section 466.252, Government Code, is amended
to read as follows:
Sec. 466.252. PLAYER [PURCHASE OF TICKET] AGREEMENT TO
ABIDE BY RULES AND INSTRUCTIONS. (a) By purchasing a ticket in a
particular lottery game or participating as a player in a lottery
game, a player agrees to abide by and be bound by the commission's
rules and instructions, including the rules or instructions
applicable to the particular lottery game involved. The player
also acknowledges that the determination of whether the player is a
valid winner is subject to:
(1) the commission's rules, instructions, and claims
procedures, including those developed for the particular lottery
game involved; [and]
(2) any validation tests established by the commission
for the particular lottery game involved; and
(3) the limitations and other provisions prescribed by
this chapter.
(b) If the lottery uses tickets, an abbreviated form of the
rules or a reference to the rules may appear on the tickets.
SECTION 9.20. Section 466.3011, Government Code, is amended
to read as follows:
Sec. 466.3011. VENUE. Venue is proper in Travis County or
any county in which venue is proper under Chapter 13, Code of
Criminal Procedure, for:
(1) an offense under this chapter;
(2) an offense under the Penal Code, if the accused:
(A) is a lottery operator, lottery vendor, sales
agent, video lottery manager, video lottery retailer, video lottery
terminal provider, video lottery central system provider, or
employee of the division; and
(B) is alleged to have committed the offense
while engaged in lottery activities, including video lottery
activities; or
(3) an offense that involves property consisting of or
including lottery tickets under Title 7 or 11, Penal Code.
SECTION 9.21. Subchapter G, Chapter 466, Government Code,
is amended by adding Section 466.3031 to read as follows:
Sec. 466.3031. UNAUTHORIZED OPERATION, USE, OR POSSESSION
OF VIDEO LOTTERY TERMINAL. (a) A person may not operate, use, or
possess a video lottery terminal or other electronic gambling
device unless the operation, use, or possession is expressly
authorized by this chapter.
(b) Except during transport to or from a video lottery
establishment and as provided by this chapter, a person commits an
offense if the person operates, uses, or possesses any video
lottery terminal that is not at all times connected to the video
lottery central system or that does not generate revenue for this
state solely to fund public education, except funds retained by the
commission to pay administrative costs. An offense under this
subsection is a felony of the third degree.
(c) A person commits an offense if the person operates,
uses, or possesses a gambling device, other than a video lottery
terminal authorized under this chapter, including a slot machine,
dice game, roulette wheel, house-banked game, or game in which a
winner is determined by the outcome of a sports contest. An offense
under this subsection is a felony of the third degree.
(d) Notwithstanding Subsection (b) or (c), a video lottery
retailer, video lottery manager, or registered video lottery
terminal provider may store a video lottery terminal as authorized
by the commission for a period not to exceed 120 consecutive days,
and the commission may possess video lottery terminals for study
and evaluation.
(e) Nothing in this section shall be construed to prohibit
the operation, use, or possession of equipment, machines,
technological aids, or other devices allowed in connection with the
play of bingo under Chapter 2001, Occupations Code.
SECTION 9.22. Section 466.305(a), Government Code, is
amended to read as follows:
(a) A sales agent, video lottery manager, or video lottery
retailer, or an employee of a sales agent, video lottery manager, or
video lottery retailer, commits an offense if the person
intentionally or knowingly sells a ticket to another person or
allows the person to play or conduct a game on a video lottery
terminal by extending credit or lending money to the person to
enable the person to purchase the ticket or play the game.
SECTION 9.23. The heading to Section 466.3051, Government
Code, is amended to read as follows:
Sec. 466.3051. SALE OF TICKET OR LOTTERY GAME TO OR PURCHASE
OF TICKET OR LOTTERY GAME BY PERSON YOUNGER THAN 18 YEARS OF AGE.
SECTION 9.24. Section 466.3051, Government Code, is amended
by adding Subsection (a-1) and amending Subsections (b) and (e) to
read as follows:
(a-1) A video lottery manager, video lottery retailer, or an
employee of a video lottery manager or video lottery retailer
commits an offense if the person intentionally or knowingly allows
a person younger than 18 years of age to play a video lottery game.
(b) An individual who is younger than 18 years of age
commits an offense if the individual:
(1) purchases a ticket;
(2) plays a video lottery game; or
(3) [(2)] falsely represents the individual to be 18
years of age or older by displaying evidence of age that is false or
fraudulent or misrepresents in any way the individual's age in
order to purchase a ticket or play a video lottery game.
(e) An offense under Subsection (a) or (a-1) is a Class C
misdemeanor.
SECTION 9.25. Section 466.3053, Government Code, is amended
to read as follows:
Sec. 466.3053. PURCHASE OF TICKET OR VIDEO LOTTERY GAME
WITH PROCEEDS OF AFDC CHECK OR FOOD STAMPS. (a) A person commits an
offense if the person intentionally or knowingly purchases a ticket
or plays a video lottery game with:
(1) the proceeds of a check issued as a payment under
the Aid to Families with Dependent Children program administered
under Chapter 31, Human Resources Code; or
(2) a food stamp coupon issued under the food stamp
program administered under Chapter 33, Human Resources Code.
(b) An offense under this section is a Class C misdemeanor.
SECTION 9.26. Section 466.306, Government Code, is amended
to read as follows:
Sec. 466.306. FORGERY; ALTERATION OF TICKET. (a) A person
commits an offense if the person intentionally or knowingly alters
or forges a ticket or video lottery ticket.
(b) An offense under this section is a felony of the third
degree unless it is shown on the trial of the offense that the prize
alleged to be authorized by the ticket or video lottery ticket
forged or altered is greater than $10,000, in which event the
offense is a felony of the second degree.
SECTION 9.27. Section 466.309(a), Government Code, is
amended to read as follows:
(a) A person commits an offense if the person intentionally
or knowingly tampers with, damages, defaces, or renders inoperable
any vending machine, electronic computer terminal, video lottery
terminal or other video lottery equipment, or other mechanical
device used in a lottery game.
SECTION 9.28. The heading to Section 466.317, Government
Code, is amended to read as follows:
Sec. 466.317. PROHIBITION AGAINST SALE OF CERTAIN LOTTERY
TICKETS OR OPERATION OF CERTAIN VIDEO LOTTERY SYSTEMS.
SECTION 9.29. Section 466.317, Government Code, is amended
by adding Subsection (a-1) and amending Subsections (b) and (c) to
read as follows:
(a-1) A person may not control or operate a video lottery
system in this state except as provided by this chapter.
(b) The state may enter into a compact with another state or
state government [or an Indian tribe or tribal government] to
permit the sale of lottery tickets of this state in the state's[,
tribe's,] or government's jurisdiction and to allow the sale of the
state's[, tribe's,] or government's lottery tickets in this state.
(c) A person commits an offense if the person violates this
section. An offense under this section is a felony of the third
degree [Class A misdemeanor].
SECTION 9.30. Subchapter H, Chapter 466, Government Code,
is amended by adding Section 466.360 to read as follows:
Sec. 466.360. VIDEO LOTTERY TERMINAL REVENUE. Revenue
generated from the operation of video lottery terminals is governed
by Subchapter K and commission rules.
SECTION 9.31. Section 466.355(a), Government Code, is
amended to read as follows:
(a) The state lottery account is a special account in the
general revenue fund. The account consists of all revenue received
from the sale of tickets, license and application fees under this
chapter, other than Subchapter K [chapter], and all money credited
to the account from any other fund or source under law. Interest
earned by the state lottery account shall be deposited in the
unobligated portion of the general revenue fund.
SECTION 9.32. Section 466.402, Government Code, is amended
by adding Subsection (e) to read as follows:
(e) This section does not apply to the payment of prizes for
video lottery games governed by Subchapter K.
SECTION 9.33. Chapter 466, Government Code, is amended by
adding Subchapter K to read as follows:

SUBCHAPTER K. VIDEO LOTTERY
Sec. 466.501. LEGISLATIVE FINDINGS AND DECLARATIONS. The
legislature finds and declares the following:
(1) This state has a long-standing public policy
prohibiting gambling. The Texas Constitution of 1845 and every
subsequent Texas Constitution has included a prohibition against
lotteries. The constitutions of 1845, 1861, 1866, and 1869 stated
that "[n]o lottery shall be authorized by this State; and the buying
[and/or] selling of lottery tickets within this state is
prohibited." As early as 1874, the Texas Supreme Court made clear
that this prohibition covered any activity in which the element of
chance is connected with or enters into the distribution of prizes.
This prohibition against lotteries includes slot machines, "bank
night," and any other activity that has the following three
elements:
(A) the offering of a prize;
(B) the determination of the winner by chance;
and
(C) the giving of consideration for an
opportunity to win the prize.
(2) This state's public policy prohibiting gambling is
subject only to very limited exceptions enumerated in the Texas
Constitution and approved by the voters. These limited exceptions
fall into three categories: bingo games conducted by enumerated
charitable or nonprofit organizations; pari-mutuel wagering on
horse and greyhound races; and a state operated lottery limited to
lottery tickets sold by licensed sales agents on behalf of this
state and video lottery games conducted at certain racetracks and
on certain Indian lands in this state. Accordingly, it is the
intent of the people of this state that gambling not be expanded
beyond these limited exceptions in this state.
(3) Any game that is a lottery cannot lawfully be
operated in this state unless the game is expressly excepted from
the constitutional prohibition against lotteries. In 1991, the
electorate approved a constitutional amendment allowing only for a
traditional form of a state operated lottery. In 2004, the
electorate approved a constitutional amendment allowing expansion
of the existing state lottery through a state-controlled video
lottery system allowing only video lottery terminals connected to
the state-controlled video lottery central system to be placed at
certain racetracks conducting live horse or greyhound racing and at
facilities located on certain Indian lands in this state.
(4) The purpose and intent of this chapter is to carry
out the intent of the voters as established by the approval of
Section 47(f), Article III, Texas Constitution, to expand the
revenue-generating ability of the state lottery to provide
additional money for funding public education and supporting other
state governmental programs by authorizing the state to operate a
video lottery system consistent with public policy strictly
limiting the expansion of gambling in this state.
(5) In approving the constitutional amendment
permitting the legislature to authorize state-controlled video
lottery, it was the intent of the voters to continue the
prohibitions on all other electronic gambling devices and
casino-style gaming.
(6) Except for the operation of video lottery
terminals on certain Indian lands as defined by the Texas
Constitution, the people of this state intend to allow only
state-controlled video lottery games to be conducted in this state
and only in locations at which pari-mutuel wagering is conducted at
racetracks.
(7) This state has the authority and responsibility to
control the proliferation of gambling by:
(A) limiting the total number of video lottery
terminals permitted at authorized locations in this state;
(B) limiting video lottery licensing to a fixed
number of existing racetracks;
(C) extending strict and exclusive state
oversight and supervision to all persons, locations, practices, and
associations related to the operation of video lottery games; and
(D) providing comprehensive law enforcement
supervision of video lottery game activities.
(8) This state's ability to monitor and control the
operation of all video lottery terminals ensures the integrity of
the system and provides for the most efficient oversight and
supervision. Costs incurred for oversight and supervision of
gambling will be significantly less than if video lottery terminals
were not operated as part of the video lottery system. In addition,
providing for the state-controlled system will defend against
criminal infiltration of gambling operations.
(9) Casino gaming of the type operating in Nevada and
New Jersey in 2004 is materially different from the limited scope of
video lottery operations at licensed racetracks and tribal gaming
facilities authorized under this chapter, in that casino gaming:
(A) commonly offers patrons a broad spectrum of
house-banked games, including slot machines, dice games, roulette
wheels, house-banked card games, or games in which winners are
determined by the outcome of a sports contest, all of which are
prohibited under this chapter;
(B) allows gambling on credit;
(C) is not restricted in scope and scale in the
manner required by the Texas Constitution; and
(D) does not require profits to be dedicated, as
is the policy of this state, for funding public education and other
state governmental programs, and with regard to revenues generated
from video lottery operations on Indian lands, to support tribal
purposes, including tribal government services and programs.
(10) Unlike casino gaming of the type described by
Subdivision (9), the video lottery games operated at racetracks
under this chapter are controlled by this state in a manner that
allows the state to continuously monitor all video lottery
terminals and to disable any video lottery terminal for the
protection of the public and this state.
(11) Through the video lottery system this state will
monitor the network of video lottery terminals to ensure maximum
security unique to state-operated gambling. Except as may
otherwise be required by federal law governing Indian lands, each
operating video lottery terminal in this state will be connected to
the video lottery central system.
(12) The authorization for state-controlled video
lottery terminals for the purpose of raising revenue for public
education and other state governmental programs is consistent with
this state's public policy prohibiting gambling so long as the
gambling is not, in any way, expanded beyond that directly
controlled by this state. Expanded gambling beyond this limited
form of state-controlled gambling would compromise the public
safety, law, and long-standing policy against gambling in this
state. In addition, such expanded gambling could impose
prohibitive cost on this state's regulatory system and, therefore,
defeat the effort to raise revenue for public education and other
state governmental programs through authorized video lottery
terminals. For all of these reasons, any interpretation that allows
for casino gaming of the type operating in Nevada and New Jersey in
2004 at racetracks or on Indian lands as a result of the
authorization of video lottery terminals would have severe adverse
consequences on this state's efforts to raise revenue for public
education and other governmental programs through the operation of
video lottery terminals and would violate the public policy against
gambling in such a way that would clearly outweigh any potential
positive economic consequences.
(13) In authorizing only a state-controlled and
state-operated video lottery system and state-controlled video
lottery terminals in limited locations and continuing the general
prohibition on gambling in this state as a matter of public policy,
this state is protecting the state's legitimate interests by
restricting such vice activity. By limiting operation of video
lottery terminals to those connected to the state-controlled video
lottery system and to certain lands and certain types of games, the
legislature seeks to foster this state's legitimate sovereign
interest in regulating the growth of gambling activities in this
state. Historically, this state has banned commercial gambling
altogether and, therefore, it is in this state's best interest to
limit the placement of commercial gambling operations to certain
locations. Limiting video lottery terminals to those controlled by
this state and located on racetracks where regulated gambling
already occurs is reasonably designed to defend against the
criminal infiltration of gambling operations and adverse impacts on
communities statewide. By restricting gambling such as video
lottery terminals to carefully limited locations and video lottery
terminals controlled by this state that may be disabled by this
state if necessary to protect the public, this state furthers the
state's purpose of ensuring that such gambling activities are free
from criminal and undesirable elements.
(14) This chapter is game-specific and may not be
construed to allow the operation of any other form of gambling
unless specifically allowed by this chapter. This chapter does not
allow the operation of slot machines, dice games, roulette wheels,
house-banked games, including house-banked card games, or games in
which winners are determined by the outcome of a sports contest that
are expressly prohibited under state law.
(15) In considering limitations on expanded gambling
in this state, it is a critical factor to effectuate the will of the
voters that any gaming on lands of the Ysleta del Sur Pueblo and
Alabama-Coushatta Indian tribes must be in strict compliance with
state law. The Kickapoo Traditional Tribe of Texas is only entitled
to operate video lottery terminals in strict compliance with state
law, unless otherwise required by federal law and in accordance
with a gaming agreement negotiated with the governor and ratified
by the legislature. A tribe may not under any circumstances operate
Class III gaming as defined by federal law other than video lottery
terminals connected to a video lottery central system controlled
and operated by this state.
(16) The voters have conferred a substantial economic
benefit on federally recognized Indian tribes by allowing operation
of video lottery terminals on lands held in trust by the Ysleta del
Sur Pueblo and Alabama-Coushatta Indian tribes at the time of the
ratification and approval of Section 47(f), Article III, Texas
Constitution, and on Indian lands of the Kickapoo Traditional Tribe
of Texas on which gaming is allowed under applicable federal law.
These tribes have the exclusive right to operate video lottery
terminals at locations on the Indian lands in this state without
incurring the investment necessary to construct, maintain, and
operate racetracks for live racing, and through revenue-sharing
both the policy of self-governance for the tribes and this state's
interests in generating additional revenue for public education and
other state governmental programs can be promoted.
(17) The public has an interest in video lottery game
operations, and lottery operations conducted under Section 47(f),
Article III, Texas Constitution, and this chapter represent an
exception to the general policy of this state prohibiting wagering
for private gain. Therefore, participation in a video lottery game
by a license or registration holder under this chapter is
considered a privilege conditioned on the proper and continued
qualification of the license or registration holder and on the
discharge of the affirmative responsibility of each license or
registration holder to provide to the regulatory and investigatory
authorities established by this chapter any assistance and
information necessary to assure that the policies declared by this
chapter are achieved. Consistent with this policy, it is the intent
of this chapter to:
(A) preclude the creation of any property right
in any license, registration, or approval issued or granted by this
state under this chapter, the accrual of any value to the privilege
of participation in any video lottery game operation, or the
transfer of a license or permit; and
(B) require that participation in video lottery
game operations be solely conditioned on the individual
qualifications of persons seeking this privilege.
(18) Only video lottery terminals lawfully operated in
connection with a video lottery system authorized by this
subchapter may be lawfully operated on Indian lands under the
Johnson Act (15 U.S.C. Section 1175).
Sec. 466.502. LOCAL LAW PREEMPTED; APPLICABILITY OF OTHER
LAWS. (a) This subchapter applies uniformly throughout this state
and all political subdivisions of this state.
(b) Nothing contained in this chapter may be construed to
implicitly repeal or modify existing state laws with respect to
gambling, except that the state lottery and video lottery terminals
are not prohibited by another law if conducted as authorized under
this subchapter.
(c) To the extent of any inconsistency between Chapter 2003
and a commission rule governing video lottery terminals or a
provision of this subchapter, the commission rule or provision of
this subchapter controls in all matters related to video lottery
terminals, including hearings before the State Office of
Administrative Hearings.
Sec. 466.503. AUTHORITY TO OPERATE VIDEO LOTTERY. (a) The
commission may implement and operate a video lottery system and
control the operation of video lottery terminals at racetracks in
accordance with this chapter and the applicable provisions of the
Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes).
This chapter supersedes any conflicting or inconsistent provision
of the Texas Racing Act (Article 179e, Vernon's Texas Civil
Statutes) or other state law.
(b) The commission may allow the operation of video lottery
terminals pursuant to this chapter at locations on Indian lands in
accordance with an effective gaming agreement and in compliance
with applicable federal law.
(c) This state owns all video lottery games, regardless of
ownership of the video lottery terminal. This state possesses a
proprietary interest in the main logic boards, any electronic
storage medium used in video lottery equipment or games, and
software consisting of computer programs, documentation, and other
related materials necessary for the operation of the video lottery
system.
(d) For purposes of this chapter, this state may acquire a
proprietary interest in video lottery game software through:
(1) ownership of the software; or
(2) an exclusive product license agreement with a
provider in which the provider retains copyrighted ownership of the
software but the license granted to this state is nontransferable
and authorizes this state to operate the software program, solely
for the state's own use, on the video lottery central system and
video lottery terminals connected to the video lottery central
system.
(e) Video lottery equipment operated under commission
authority and this chapter is exempt from 15 U.S.C. Section 1172.
Sec. 466.5031. STATE CONTROL OF VIDEO LOTTERY SYSTEM.
(a) In accordance with Section 47(f), Article III, Texas
Constitution, the commission shall control and operate the video
lottery system and the video lottery central system through which
this state has the exclusive and unilateral ability to monitor
activity of video lottery terminals and remotely disable video
lottery terminals for the public safety, health, and welfare or the
preservation of the integrity of the lottery.
(b) The commission may disable a video lottery terminal if a
video lottery retailer's or video lottery manager's license is
revoked, surrendered, or summarily suspended under Section
466.50341.
Sec. 466.5032. VIDEO LOTTERY CENTRAL SYSTEM. (a) The
commission shall establish or cause to be established a video
lottery central system to link all video lottery terminals in the
video lottery system. The video lottery central system must
provide the auditing and other information required by the
commission.
(b) The commission shall provide to a registered video
lottery terminal provider or an applicant applying for registration
as a video lottery terminal provider the protocol documentation
data necessary to enable the provider's or applicant's video
lottery terminals to communicate with the commission's video
lottery central system for transmission of auditing program
information and for activation and disabling of video lottery
terminals.
(c) The video lottery central system may not limit or
preclude potential providers from providing the video lottery
terminals based on:
(1) prohibitive costs to implement program
modifications necessary to communicate or link with the system; or
(2) the inability of video lottery terminals of more
than one provider to communicate or link with the system.
(d) The video lottery central system provider may not sell
or distribute video lottery terminals in this state.
(e) The commission may contract with a video lottery central
system provider to establish the video lottery central system.
Sec. 466.5033. REGISTRATION AND APPROVAL OF VIDEO LOTTERY
TERMINAL PROVIDERS. (a) A person may not manufacture or
distribute video lottery equipment for use or play in this state
unless the person is registered under this chapter as a video
lottery terminal provider or is otherwise approved by the
commission to manufacture or distribute video lottery equipment in
this state.
(b) Unless suspended or revoked, the registration or
approval expires on the date specified by the commission, which may
not be later than the third anniversary of the date of the
registration or approval.
(c) To be eligible for registration or commission approval
as required by this section, an applicant must satisfy all
requirements under this subchapter.
(d) The commission shall adopt rules governing the
registration and approval of video lottery terminal providers. The
rules at a minimum must require the application and any other form
or document submitted to the commission by or on behalf of the
applicant to determine qualification under this section to be sworn
to or affirmed before an officer qualified to administer oaths. The
applicant must provide the following information:
(1) the full name and address of the applicant;
(2) the full name and address of each location at which
video lottery equipment is or will be manufactured or stored in this
state;
(3) the name, home address, and share of ownership of
the applicant's substantial interest holders;
(4) a full description of each separate type of video
lottery equipment that the applicant seeks to manufacture or
distribute in this state;
(5) the brand name under which each type of video
lottery equipment is to be distributed;
(6) if the applicant is incorporated under laws other
than the laws of this state, an irrevocable designation by the
applicant of the secretary of state as resident agent for service of
process and notice in accordance with the law of this state;
(7) a list of all businesses or organizations in this
state in which the applicant has any financial interest and the
details of that financial interest, including all arrangements
through which a person directly or indirectly receives any portion
of the profits of the video lottery terminal provider and
indebtedness between the license holder and any other person, other
than a regulated financial institution, in excess of $5,000;
(8) a list of all affiliated businesses or
corporations in which the applicant or an officer, director, or
substantial interest-holder of the applicant, either directly or
indirectly, owns or controls as a sole proprietor or partner more
than 10 percent of the voting stock of a publicly traded
corporation;
(9) a list of all businesses or corporations licensed
to conduct gambling activities or to supply gambling-related
equipment, supplies, or services in which the applicant or an
officer, director, or substantial interest-holder of the applicant
has any interest;
(10) a list of all jurisdictions in which the
applicant or an officer, director, or substantial interest-holder
of the applicant has been licensed, registered, qualified, or
otherwise approved for gambling-related activities during the
preceding 10 years from the date of the filing of the application;
(11) a statement indicating whether the applicant or
an officer, director, or substantial interest-holder of the
applicant has ever had a license, registration, qualification, or
other approval for gambling-related activities denied, revoked, or
suspended by any jurisdiction or has been fined or otherwise
required to pay penalties or monetary forfeitures for
gambling-related activities in any jurisdiction, including all
related details; and
(12) a statement acknowledging that the applicant will
make available for review at the time and place requested by the
commission all records related to the ownership or operation of the
business.
(e) The commission may require the following information
from an applicant:
(1) personal financial and personal history records of
all substantial interest-holders;
(2) all records related to the scope of activity,
including sales of product, purchases of raw materials and parts,
and any contracts, franchises, patent agreements, or similar
contracts or arrangements related to manufacturing or distributing
video lottery terminals; and
(3) records related to any financial or management
control of or by customers and suppliers.
(f) The applicant must demonstrate the ability to comply
with all manufacturing, quality control, and operational
restrictions imposed on authorized video lottery equipment,
patented or otherwise restricted video lottery games, or other
video lottery equipment that the applicant seeks to manufacture or
distribute for use in this state. The registration process must
include an on-site review of the applicant's manufacturing
equipment and process for each separate type of authorized video
lottery equipment to ensure capability to comply with all
regulatory requirements of this chapter or rules adopted under this
chapter.
(g) The applicant, not later than the 10th day after the
date of the change, shall notify the commission of any change in the
information submitted on or with the application form, including
changes that occur after the registration or other commission
approval has been granted.
(h) The applicant shall comply with all federal and state
laws, local ordinances, and rules.
(i) An applicant seeking registration or approval under
this section must pay a nonrefundable application fee in the amount
of $300,000. Application fees paid under this subsection shall be
retained by the commission to defray costs incurred in the
administration and enforcement of this chapter relating to the
operation of video lottery terminals.
Sec. 466.5034. LICENSING OF VIDEO LOTTERY RETAILERS AND
VIDEO LOTTERY MANAGERS. (a) Except as provided by a gaming
agreement, a person may not own or operate a video lottery terminal
if the person does not satisfy the requirements of this section and
is not licensed by the commission to act as a video lottery retailer
or video lottery manager.
(b) An officer, partner, director, key employee,
substantial interest-holder, video lottery game operation
employee, and owner of video lottery game operations must be
eligible and maintain eligibility in accordance with this
subchapter to be involved in video lottery games in this state.
(c) A person licensed under this section must provide to the
commission the name and address of each employee involved in the
operation of video lottery games and the name and address of the
providers of surety and insurance required by Section 466.511. Not
later than the 10th day following the date of the change, a license
holder must report to the commission any change in an officer,
partner, director, key employee, substantial interest-holder,
video lottery game operation employee, or owner and any change in a
surety or insurance provider.
(d) An applicant for a video lottery retailer or video
lottery manager license must submit a nonrefundable application
processing fee in the amount of $100,000. An application may not be
processed until the applicant provides the nonrefundable
application fee. If the application fee is not received within 30
days of the date the commission notifies the applicant of the amount
of the fee, the application is considered withdrawn and may not be
considered by the commission.
(e) The commission shall set any additional application fee
necessary to pay the costs of determining the applicant's
eligibility, including costs to conduct all investigations
necessary for processing the application. An investigation may not
begin until the applicant has submitted all required fees to the
commission. If additional fees are required by the commission
during the course of the investigation or processing of the
application and the fees are not received by the commission within
15 days of the date the commission notifies the applicant of the
amount of fees, the investigation and evaluation processes must be
suspended. An application fee paid under this section shall be
retained by the commission to defray costs incurred in the
administration and enforcement of this chapter relating to the
operation of video lottery terminals.
(f) An applicant for a license under this section must apply
to the commission under rules adopted by the commission, provide
the information necessary to determine the applicant's eligibility
for a license, and provide other information considered necessary
by the commission. An applicant must:
(1) hold a valid racing license granted by the Texas
Racing Commission under the Texas Racing Act (Article 179e,
Vernon's Texas Civil Statutes) and be a racetrack as defined by
Section 466.002;
(2) have a valid and executed contract with a
racetrack that satisfies the requirements of Subdivision (1) to act
as a video lottery manager for the racetrack subject to licensing
under this chapter; or
(3) demonstrate to the commission's satisfaction that
the applicant seeks to act as a video lottery manager for a
federally recognized Indian tribe that has entered into a gaming
agreement with this state that is in effect and governs the
regulation of video lottery terminals on Indian lands in this
state.
(g) An applicant for a video lottery retailer or video
lottery manager license has the burden of proving qualification for
a license by clear and convincing evidence. In addition to
satisfying minimum requirements established by commission rules,
an applicant for a video lottery retailer or video lottery manager
license must:
(1) be a person of good character, honesty, and
integrity;
(2) be a person whose background and prior activities,
including criminal record, reputation, habits, and associations,
do not pose a threat to the security and integrity of video lottery
or to the public interest of this state or to the effective
operation and control of the lottery, or do not create or enhance
the dangers of unsuitable, unfair, or illegal practices, methods,
and activities in the conduct of the lottery or in the carrying on
of the business and financial arrangements incidental to the
lottery;
(3) if applying for a new license, provide
fingerprints for a criminal records evaluation by the Texas
Department of Public Safety or other law enforcement agency,
including fingerprints for each person required to be named in an
application, accompanied by a signed authorization for the release
of information to the commission by the department of public safety
and the Federal Bureau of Investigation;
(4) not have been convicted of an offense under this
chapter or of any crime related to theft, bribery, gambling, or
involving moral turpitude;
(5) demonstrate adequate business probity,
competence, experience, and financial stability as defined by the
commission;
(6) demonstrate adequate financing for the operation
of the facility at which the video lottery terminals will be
operated by disclosing all financing or refinancing arrangements
for the purchase, lease, or other acquisition of video lottery
equipment in the degree of detail requested by the commission, and
the commission shall determine whether the financing is from a
source that meets the requirements of this section and is adequate
to support the successful performance of the duties and
responsibilities of the license holder;
(7) when applying for a new license or renewing a
license under this chapter, present evidence to the commission of
the existence and terms of any agreement regarding the proceeds
from the operation of video lottery terminals;
(8) demonstrate that each substantial interest-holder
meets all applicable qualifications under this subchapter;
(9) provide all information, including financial data
and documents, consents, waivers, and any other materials requested
by the commission for purposes of determining qualifications for a
license; and
(10) as part of its application, expressly waive any
and all claims against the commission, this state, and a member,
officer, employee, or authorized agent of the commission or this
state for damages resulting from any background investigation,
disclosure, or publication relating to an application for a video
lottery retailer or video lottery manager license.
(h) An application, registration, or disclosure form and
any other document submitted to the commission by or on behalf of
the applicant for purposes of determining qualification for a video
lottery retailer or video lottery manager license must be sworn to
or affirmed before an officer qualified to administer oaths.
(i) An applicant who knowingly fails to reveal any fact
material to qualification for a license, finding of suitability, or
other approval or who knowingly submits false or misleading
material information is ineligible for a video lottery retailer or
video lottery manager license.
(j) An applicant for a facility site for a video lottery
terminal establishment must:
(1) provide certification by an independent party that
the facility complies with all requirements under this section;
provided, however, that this subsection does not preclude a license
holder from conducting video lottery terminal operations in a
qualified temporary facility as authorized by the commission for
the period prescribed by the commission;
(2) conform to the high-quality commercial building
standards approved by the commission;
(3) provide a mechanical system to ensure an indoor
environment that is healthful, comfortable, and free of
objectionable odors; provide a heating, air conditioning, and
ventilation system that at a minimum complies with the American
Society of Heating, Refrigerating, and Air-Conditioning Engineers,
Inc.'s, standards for ventilation for acceptable indoor air quality
and standards for thermal environmental conditions for human
occupancy applicable on May 1, 2004, or other standards determined
by the board;
(4) provide that all electrical wiring, parts, and
loads meet the National Fire Protection Association National
Electrical Code in effect on May 1, 2004, or other standards
determined by the board;
(5) provide electrical service to the facility
sufficient to provide electrical energy for lights, equipment, and
heating, ventilating, and air conditioning;
(6) provide free and unrestricted access to the video
lottery terminal establishment and full cooperation with all state
oversight agencies, the commission, and commission vendors;
(7) consent to the application of state laws with
regard to any action arising out of the operation of video lottery
terminals with exclusive venue in Travis County, Texas; and
(8) provide office space for a minimum of one
commission employee that meets the requirements of the commission
to ensure that the space allows the commission to efficiently
perform its duties.
(k) An applicant or license holder must provide the
following information relating to the applicant's or license
holder's video lottery terminal establishment and update the
information at least annually:
(1) a comprehensive map and location grid showing all
major highways and cities that are adjacent to the establishment;
(2) a professionally surveyed property site plan
clearly identifying all existing public and private roads or lanes,
including roadway widths and composition accessing the
establishment;
(3) all existing utility routes, details, and
specifications;
(4) a site plan showing all existing structures,
parking, and landscape features;
(5) the proposed building site plan clearly
identifying all proposed improvements to the proposed building;
(6) plans scalable to architectural standards that
include a site plan, proposed site plan, building site plan, and
building exterior elevations, and the plans and subsequent notes
must include all specifications and construction scope to the
building site and structure and be submitted in an outline format
that explains the major design and construction elements of the
establishment and related site;
(7) a proposed building site plan;
(8) well-developed ingress and egress plans; and
(9) an audited financial statement.
(l) An applicant shall notify the commission of any change
in the application information for a license or renewal of a license
not later than the 10th day after the date of the change, except
that a publicly traded corporation or other business association or
entity applicant is not required to notify the commission of a
transfer by which any person directly or indirectly becomes the
beneficial owner of less than 10 percent of the stock of the
corporation or association.
(m) Except as provided by Subsection (n), the commission
shall deny an application for a license or shall suspend or revoke a
license if the commission finds that the applicant would be subject
to denial or revocation of a sales agent license under Section
466.155.
(n) Notwithstanding Section 466.155, the commission may not
deny, suspend, or revoke a license under this chapter based on the
fact that a video lottery terminal establishment or a proposed
video lottery terminal establishment is a location for which a
person holds a wine and beer retailer's permit, mixed beverage
permit, mixed beverage late hours permit, private club registration
permit, or private club late hours permit, issued under Chapter 25,
28, 29, 32, or 33, Alcoholic Beverage Code.
(o) The holder of a license under this subchapter may
operate as a sales agent for lottery tickets in accordance with this
chapter.
(p) Unless suspended or revoked, a license issued under this
subchapter expires on the date specified in the license, which may
not be later than the fifth anniversary of the date of issuance. To
be eligible for renewal of a license, an applicant must satisfy all
licensing requirements under this subchapter.
(q) An application to receive or renew a license or to be
found suitable constitutes a request for a determination of the
applicant's general character, integrity, and ability to
participate or engage in or be associated with the operation of
video lottery terminals. Any written or oral statement made in the
course of an official commission proceeding or investigative
activities related to an application for commission licensing,
registration, or other approval under this subchapter, by any
member or agent or any witness testifying under oath that is
relevant to the purpose of the proceeding is absolutely privileged
and does not impose liability for defamation or constitute a ground
for recovery in any civil action.
(r) The commission by rule may establish other license
qualifications the commission determines are in the public interest
and consistent with the declared policy of this state.
(s) The commission in its discretion may require a
suitability finding for any person doing business with or in
relation to the operation of video lottery terminals who is not
otherwise required to obtain a license or registration from the
commission for the person's video lottery-related business
operations.
Sec. 466.50341. SUMMARY SUSPENSION; TERMINAL DISABLED. (a)
The commission may summarily suspend the license of a video lottery
retailer or video lottery manager without notice or hearing if the
commission finds the action is necessary to maintain the integrity,
security, honesty, or fairness of the operation or administration
of the lottery or to prevent financial loss to this state and:
(1) the license holder fails to deposit money received
from video lottery terminal operations as required by this chapter
or commission rule;
(2) an event occurs that would render the license
holder ineligible for a license under this subchapter;
(3) the license holder refuses to allow the
commission, the commission's agents, or the state auditor, or their
designees, to examine the license holder's books, records, papers,
or other objects under Section 466.017; or
(4) the executive director learns the license holder
failed to disclose information that would, if disclosed, render the
video lottery retailer or video lottery manager ineligible for a
license under this subchapter.
(b) A summary suspension under this subchapter must comply
with the notice and procedure requirements provided by Section
466.160.
(c) The commission may disable a video lottery terminal
operated by a license holder under this subchapter at the time:
(1) a proceeding to summarily suspend the license is
initiated;
(2) the commission discovers the license holder failed
to deposit money received from video lottery terminal operation as
required if the license is being summarily suspended under this
section; or
(3) of the occurrence of an act or omission that, under
commission rules, justifies the termination of video lottery
terminal operations to protect the public health, welfare, or
safety or the integrity of the lottery or to prevent financial loss
to this state.
(d) The commission shall immediately disable a video
lottery terminal if necessary to protect the public health,
welfare, or safety.
Sec. 466.5035. LICENSING, REGISTRATION, SUITABILITY,
QUALIFICATION, AND REGULATORY APPROVAL AS REVOCABLE PERSONAL
PRIVILEGES. (a) An applicant for a license, registration,
suitability, qualification, or other affirmative regulatory
approval under this subchapter does not have any right to the
license, registration, suitability, or qualification, or the
granting of the approval sought. Any license, registration,
suitability, or qualification issued or other regulatory approval
granted under this subchapter is a revocable privilege, and a
holder of the privilege does not acquire any vested right in or
under the privilege. The courts of this state do not have
jurisdiction to review a decision to deny, limit, or condition the
license, registration, suitability, qualification, or request for
approval unless the judicial review is sought on the ground that the
denial, limitation, or condition is based on a suspect
classification, such as race, color, religion, sex, or national
origin, in violation of the Equal Protection Clause of the
Fourteenth Amendment to the United States Constitution. If a state
court has jurisdiction over a claim under this section, then this
state's sovereign immunity is waived only to the extent expressly
provided by Section 466.515.
(b) A license, registration, suitability, qualification, or
regulatory approval granted or renewed under this subchapter may
not be transferred or assigned to another person, and a license,
registration, suitability, qualification, or approval may not be
pledged as collateral. The purchaser or successor of a person who
has been granted a license, registration, suitability,
qualification, or regulatory approval must independently qualify
for a license, registration, suitability, qualification, or
approval required by this subchapter.
(c) The following acts void the license, registration,
suitability, qualification, or other regulatory approval of the
holder unless approved in advance by the commission:
(1) the transfer, sale, or other disposition of an
interest in the holder that results in a change in the identity of a
substantial interest holder; or
(2) the sale of the assets of the holder, other than
assets bought and sold in the ordinary course of business, or any
interest in the assets, to any person not already determined to have
met the applicable qualifications of this subchapter.
Sec. 466.5036. VIDEO LOTTERY TERMINAL ESTABLISHMENT;
PROCUREMENT OF VIDEO LOTTERY TERMINALS. (a) A video lottery
retailer or video lottery manager shall provide all necessary
capital investments and required improvements at a video lottery
terminal establishment operated by the retailer or manager.
(b) The commission shall provide all video lottery
retailers or video lottery managers with a list of registered video
lottery terminal providers, video lottery games, and video lottery
terminals authorized for operation under this subchapter. At the
time and in the manner prescribed by commission rule, a video
lottery retailer or video lottery manager shall remit to the
commission a fee of $25,000 for each video lottery terminal
delivered to the video lottery terminal establishment operated by
the retailer or manager.
(c) A video lottery terminal provider may not distribute a
video lottery terminal or other video lottery equipment for
placement at a video lottery terminal establishment in this state
unless the video lottery terminal has been approved by the
commission. Only a video lottery terminal provider registered with
the commission may apply for approval of a video lottery terminal or
other video lottery equipment. At least 10 days before the date of
shipment to a location in this state, a video lottery terminal
provider shall file a report with the commission itemizing all
video lottery terminals and other video lottery equipment to be
provided to a video lottery retailer or video lottery manager in the
shipment.
(d) A video lottery terminal provider shall submit two
copies of terminal illustrations, schematics, block diagrams,
circuit analysis, technical and operation manuals, and any other
information requested by the commission for the purpose of
analyzing and testing the video lottery terminal or other video
lottery equipment.
(e) The commission may require up to four working models of
a video lottery terminal to be transported to a location designated
by the commission for testing, examination, and analysis. The video
lottery terminal provider shall pay all the costs of testing,
examination, analysis, and transportation of the models. The
testing, examination, and analysis of video lottery terminals may
require dismantling of the terminal, and some tests may result in
damage or destruction to one or more electronic components of the
model. The commission may require that the video lottery terminal
provider provide specialized equipment or pay for an independent
technical expert or laboratory to test the terminal.
(f) The video lottery terminal provider shall pay the cost
of transporting up to four video lottery terminals to the
headquarters of the commission or a location designated by the
commission. The commission shall conduct an acceptance test to
determine terminal functions and compatibility with the video
lottery central system. At the expense of the video lottery
terminal provider, the commission may contract with an independent
technical expert or laboratory to determine compatibility and
terminal functions. If the video lottery terminal fails the
acceptance test conducted by the commission, the video lottery
terminal provider shall make all modifications required by the
commission before distribution in this state.
(g) After each test under this section has been completed,
the commission shall provide the video lottery terminal provider
with a report containing findings, conclusions, and pass or fail
results. The report may contain recommendations for modifications
to bring a video lottery terminal into compliance with this chapter
and commission standards. Before approving a particular video
lottery terminal model, the commission may require a field trial
period not to exceed 60 days for a licensed video lottery terminal
establishment to test the terminal. During the trial period,
modifications may not be made to the video lottery terminal model
unless approved by the commission.
(h) The video lottery terminal provider is responsible for
the assembly and installation of all video lottery terminals and
other video lottery equipment. The video lottery terminal provider
and video lottery retailer or video lottery manager may not change
the assembly or operational functions of a video lottery terminal
authorized by the commission for placement in this state unless a
request for modification of an existing video lottery terminal
prototype is approved by the commission. The request must contain:
(1) a detailed description of the type of change;
(2) a detailed description of the reasons for the
change; and
(3) technical documentation of the change.
(i) A video lottery terminal approved by the commission for
placement at a video lottery terminal establishment must conform to
the exact specifications of the video lottery terminal prototype
tested and approved by the commission. If any video lottery
terminal that has not been approved by the commission is
distributed by a video lottery terminal provider or operated by a
video lottery retailer or video lottery manager or if an approved
video lottery terminal malfunctions, the commission shall require
the terminal to be removed from use and play. The commission may
order that an unapproved terminal be seized and destroyed and that a
malfunctioning device not repaired and returned to play within 30
days or as otherwise prescribed by the commission be disposed of in
compliance with Section 466.504(g). The commission may suspend or
revoke the license of the video lottery retailer or video lottery
manager or the registration of a video lottery terminal provider
for the distribution, possession, or operation of an unauthorized
video lottery terminal.
(j) The commission shall adopt rules for approval of video
lottery terminals, including requirements for video lottery game
tickets, maximum and minimum payout, and maximum wagers. A
commission-approved video lottery terminal must meet the following
minimum specifications:
(1) a surge protector must be installed on the
electrical power supply line to each video lottery terminal, a
battery or equivalent power backup for the electronic meters must
be capable of maintaining the accuracy of all accounting records
and video lottery terminal status reports for a period of 180 days
after power is disconnected from the video lottery terminal, and
the power backup device must be in the compartment specified in
Subdivision (3);
(2) the operation of each video lottery terminal may
not be adversely affected by any static discharge or other
electromagnetic interference;
(3) the main logic boards of all electronic storage
mediums must be located in a separate compartment in the video
lottery terminal that is locked and sealed by the commission;
(4) the instructions for play of each game must be
displayed on the video lottery terminal face or screen, including a
display detailing the credits awarded for the occurrence of each
possible winning combination of numbers or symbols, and the
commission may reject any instructions for play that the commission
determines to be incomplete, confusing, or misleading;
(5) communication equipment and devices must be
installed to enable each video lottery terminal to communicate with
the video lottery central system through the use of a
communications protocol which must include information retrieval
and programs to activate and disable the terminal provided by the
commission to each registered video lottery terminal provider; and
(6) a video lottery terminal may be operated only if
connected to the video lottery system, and play on the terminal may
not be conducted unless the terminal is connected to the video
lottery central system.
Sec. 466.5037. LICENSE AND REGISTRATION HOLDER
INVESTIGATIVE TRUST FUND. (a) The investigative trust fund is
created as a trust fund to pay all expenses incurred by the
commission related to oversight investigations of license and
registration holders. The amount initially deposited and the
amount maintained in the fund by each license and registration
holder is determined by the commission and the money in the fund
will be administered as a revolving fund available to the
commission. If the initial deposit is not received by the
commission within 30 days of the date the commission notifies the
license or registration holder of the amount of the initial
deposit, the commission may not issue the license or registration.
The investigative trust fund is in the state treasury and is held in
trust with the comptroller's treasury operations division.
(b) Expenses may be advanced from the investigative fund,
and expenditures may be made from the fund without regard to any
other state law regarding travel expenses of state employees. The
commission shall provide each license or registration holder a
written accounting at least quarterly of the costs and charges
incurred in oversight investigations for that license or
registration holder. A license or registration holder shall
deposit money not later than the 10th day after receipt of the
accounting to maintain the balance of the fund as required by the
commission. In the event the license or registration holder is no
longer licensed or registered, the commission shall refund to the
license or registration holder any balance in the fund paid by the
license or registration holder not offset by costs incurred in an
investigation for that license or registration holder.
Sec. 466.5038. CONSENT TO COMMISSION DETERMINATION. An
application for a license, registration, finding of suitability,
qualification, or other approval and any other factor attaching to
an application under this chapter or Chapter 467 and the rules
adopted under this chapter or Chapter 467 constitutes a request to
the commission for a decision on the applicant's general
suitability, character, integrity, and ability to participate or
engage in or be associated with the lottery in the manner or
position sought. By filing an application with the commission, the
applicant specifically consents to the commission's decision at the
commission's election when the application, after filing, becomes
moot for any reason other than death.
Sec. 466.5039. ABSOLUTE AUTHORITY OF COMMISSION; AUTHORITY
TO WAIVE REQUIREMENTS; EFFECT OF DENIAL. (a) The commission has
full and absolute power and authority to deny any application or
limit, condition, restrict, revoke, or suspend any license,
registration, or finding of suitability or approval, and to fine
any person licensed, registered, found suitable, or approved for
any cause deemed reasonable by the commission.
(b) The commission may waive any requirement under this
chapter for a finding of suitability of an institutional investor
that is a substantial interest holder with respect to the
beneficial ownership of the voting securities of a publicly traded
corporation if the institutional investor holds the securities for
investment purposes only. An institutional investor is not
eligible for the waiver, except as otherwise provided by Subsection
(c), if the institutional investor beneficially owns, directly or
indirectly, more than 15 percent of the voting securities and if any
of the voting securities were acquired other than through a debt
restructuring. Voting securities acquired before a debt
restructuring and retained after a debt restructuring or as a
result of an exchange, exercise, or conversion after a debt
restructuring, or any securities issued to the institutional
investor through a debt restructuring, are considered to have been
acquired through a debt restructuring. A waiver granted under this
subsection is effective only as long as the institutional
investor's direct or indirect beneficial ownership interest in the
voting securities meets the limitations set forth in this section,
and if the institutional investor's interest exceeds the limitation
at any time, the investor is subject to the suitability findings
required under this chapter.
(c) An institutional investor that has been granted a waiver
under Subsection (b) may beneficially own more than 15 percent, but
not more than 19 percent, of the voting securities of a publicly
traded corporation registered with or licensed by the commission
only if the additional ownership results from a stock repurchase
program conducted by the publicly traded corporation and on the
conditions that the institutional investor does not purchase or
otherwise acquire any additional voting securities of the publicly
traded corporation that would result in an increase in the
institutional investor's ownership percentage and the
institutional investor reduces its ownership percentage of the
publicly traded corporation to 15 percent or less before the first
anniversary of the date the institutional investor receives
constructive notice that it exceeded the 15 percent threshold,
based on any public filing by the corporation with the United States
Securities and Exchange Commission. The one-year time period may
be extended for a reasonable time on commission approval.
(d) An institutional investor may not be considered to hold
voting securities of a publicly traded corporation for investment
purposes only unless the voting securities were acquired and are
held in the ordinary course of business as an institutional
investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board
of directors, any change in the corporate charter, bylaws,
management, policies, or operations of the corporation registered
with or licensed by the commission or any of its gaming affiliates,
or any other action which the commission finds to be inconsistent
with investment purposes only. The following activities may not be
considered to be inconsistent with holding voting securities for
investment purposes only:
(1) voting, directly or indirectly through the
delivery of a proxy furnished by the board of directors, on all
matters voted on by the holders of the voting securities;
(2) serving as a member of any committee of creditors
or security holders formed in connection with a debt restructuring;
(3) nominating any candidate for election or
appointment to the board of directors in connection with a debt
restructuring;
(4) accepting appointment or election as a member of
the board of directors in connection with a debt restructuring and
serving in that capacity until the conclusion of the member's term;
(5) making financial and other management inquiries of
the type normally made by securities analysts for information
purposes and not to cause a change in management, policies, or
operations; and
(6) any other activity the commission determines to be
consistent with the investment intent.
(e) An application for a waiver under Subsection (b) must
include:
(1) a description of the institutional investor's
business and a statement as to why the institutional investor meets
the definition of an institutional investor set forth in this
chapter;
(2) a certification, made under oath and penalty of
perjury, that the voting securities were acquired and are held for
investment purposes only as defined in Subsection (b), provided the
certification also states that the applicant agrees to be bound by
and comply with this chapter and the rules adopted under this
chapter, to be subject to the jurisdiction of the courts of this
state, and to consent to this state as the choice of forum in the
event any dispute, question, or controversy arises regarding the
application or any waiver granted under Subsection (b), and a
statement by the signatory explaining the basis of the signatory's
authority to sign the certification and bind the institutional
investor to its terms;
(3) a description of all actions, if any, taken or
expected to be taken by the institutional investor related to the
activities described in Subsection (c);
(4) the names, addresses, telephone numbers, dates of
birth, and social security numbers of the officers and directors of
the institutional investor, or the officers' and directors'
equivalents, as well as the persons that have direct control over
the institutional investor's holdings of voting securities of the
publicly traded corporation registered with or licensed by the
commission;
(5) the name, address, telephone number, date of
birth, and social security number or federal tax identification
number of each person who has the power to direct or control the
institutional investor's exercise of its voting rights as a holder
of voting securities of the publicly traded corporation registered
with or licensed by the commission;
(6) the name of each person that beneficially owns
more than five percent of the institutional investor's voting
securities or other equivalent;
(7) a list of the institutional investor's affiliates;
(8) a list of all securities of the publicly traded
corporation registered with or licensed by the commission that are
or were beneficially owned by the institutional investor or its
affiliates within the preceding year, setting forth a description
of the securities, the amount of the securities, and the date of
acquisition or sale of the securities;
(9) a list of all regulatory agencies with which the
institutional investor or any affiliate that beneficially owns
voting securities of the publicly traded corporation registered
with or licensed by the commission files periodic reports, and the
name, address, and telephone number of the person, if known, to
contact at each agency regarding the institutional investor;
(10) a disclosure of all criminal or regulatory
sanctions imposed during the preceding 10 years and of any
administrative or court proceedings filed by any regulatory agency
during the preceding five years against the institutional investor,
its affiliates, any current officer or director, or any former
officer or director whose tenure ended within the preceding twelve
months, except that for a former officer or director, the
information need be provided only to the extent that it relates to
actions arising out of or during the person's tenure with the
institutional investor or its affiliates;
(11) a copy of the institutional investor's most
recent Schedule 13D or 13G and any amendments to that schedule filed
with the United States Securities and Exchange Commission
concerning any voting securities of the publicly traded corporation
registered with or licensed by the commission;
(12) a copy of any filing made under the Securities
Exchange Act of 1934 (15 U.S.C. Section 78a) with respect to the
acquisition or proposed acquisition of voting securities of the
publicly traded corporation registered with or licensed by the
commission; and
(13) any additional information the commission may
request.
(f) An institutional investor that has been granted a waiver
of a finding of suitability and that subsequently intends not to
hold the investor's voting securities of the publicly traded
corporation for investment purposes only or that intends to take
any action inconsistent with the investor's prior intent shall,
within two business days after the date of the decision, deliver
notice to the commission in writing of the change in the investor's
investment intent. The commission may then take any action the
commission deems appropriate. If the commission finds that an
institutional investor has failed to comply with this chapter or is
subject to a finding of suitability to protect the public interest,
the commission may require the institutional investor to apply for
a finding of suitability. Any publicly traded corporation
registered with or licensed by the commission shall immediately
notify the commission of any information about, fact concerning, or
actions of an institutional investor holding any of its voting
securities that may materially affect the institutional investor's
eligibility to hold a waiver under this section.
(g) The commission may waive, either selectively or by
general rule, one or more of the requirements of Sections 466.5033
and 466.5034 if the commission makes a written finding that the
waiver is consistent with the policy of this state, the public
health, safety, and welfare, and the integrity of the lottery.
(h) A person whose application for a license or registration
has been denied may not have any interest in or association with a
video lottery retailer or video lottery manager or any other
business conducted in connection with video lottery without prior
permission of the commission. Any contract between a person holding
a license or registration and a person denied a license or
registration must be terminated immediately. If the person denied
a license or registration has previously been granted a temporary
license or registration, the temporary license or registration
expires immediately on denial of the permanent license or
registration. Except as otherwise authorized by the commission, a
person denied a license or registration may not reapply for any
license or registration before the second anniversary of the date
of the denial.
(i) For purposes of this section, "debt restructuring"
means:
(1) a proceeding under the United States Bankruptcy
Code; or
(2) any out-of-court reorganization of a person that
is insolvent or generally unable to pay the person's debts as they
become due.
Sec. 466.504. LIMITATION ON OPERATION OF VIDEO LOTTERY
TERMINALS. (a) Except as otherwise provided by the commission, the
hours of operation for video lottery terminals are subject to
restrictions only as provided by commission rules. The commission
by rule may prescribe restrictions on the hours of video lottery
terminal operations for purposes determined by the commission,
including accounting for and collecting revenue generated by video
lottery terminal operations and performing other operational
services on the video lottery system.
(b) Communication between the video lottery central system
and each video lottery terminal must be continuous and on a
real-time basis as prescribed by the commission.
(c) Except as may be provided by a gaming agreement,
placement or movement of video lottery terminals in a video lottery
terminal establishment must be consistent with a
commission-approved video lottery terminal establishment floor
plan.
(d) A video lottery retailer or video lottery manager must:
(1) be aware of patron conditions and prohibit play by
visibly intoxicated patrons;
(2) comply with state alcoholic beverage control laws;
(3) at all times maintain sufficient change and cash
in denominations accepted by video lottery terminals;
(4) promptly report all video lottery terminal
malfunctions and down-time;
(5) install, post, and display prominently any
material required by the commission;
(6) prohibit illegal gambling and any related
paraphernalia;
(7) except as otherwise provided by this subchapter,
at all times prohibit money lending or other extensions of credit at
the video lottery terminal establishment;
(8) supervise employees and activities to ensure
compliance with all commission rules and this subchapter;
(9) maintain continuous camera coverage of all aspects
of video lottery game operations, including video lottery
terminals; and
(10) maintain an entry log for each video lottery
terminal on the premises of the video lottery terminal
establishment and maintain and submit complete records on receipt
of each video lottery terminal on the premises as determined by the
commission.
(e) A video lottery retailer at all times must hold a valid
pari-mutuel wagering license, except that the commission may allow
a video lottery retailer whose pari-mutuel wagering license has
lapsed or been revoked, suspended, or surrendered to reapply for a
license in order to operate the video lottery terminal
establishment or by rule may establish a period not to exceed two
years during which time the video lottery terminal establishment
may be operated pending acquisition by a person qualified and
licensed under this chapter to operate video lottery terminals. If
the video lottery retailer is not licensed before the second
anniversary of the date a license lapses or is revoked, suspended,
or surrendered or a new video lottery manager or video lottery
retailer is not licensed and authorized to operate the facility
before the second anniversary, the racetrack shall permanently lose
eligibility under this chapter to operate video lottery terminals.
Subject to the commission's discretion, the video lottery retailer
may continue to operate the video lottery terminal establishment
after the second anniversary only to satisfy the establishment's
existing outstanding debt attributable to video lottery operation.
(f) All transportation and movement of video lottery
terminals into or within this state is prohibited, except as
permitted by this subchapter and approved by the commission.
(g) An obsolete video lottery terminal or a video lottery
terminal that is no longer in operation must be promptly reported to
the commission and, if taken out of use and play, must immediately
be sold or otherwise transferred to a registered video lottery
terminal provider or other persons in jurisdictions outside this
state for use in the jurisdictions.
(h) A video lottery retailer or a video lottery manager, if
applicable, is responsible for the management of video lottery game
operations, including validation and payment of prizes and the
management of cashiers, food and beverage workers, floor workers,
security personnel, the security system, building completion,
janitorial services, landscaping design, and maintenance. Nothing
in this subsection limits the authority of the commission, the
Department of Public Safety, or another law enforcement agency to
administer and enforce this chapter as related to video lottery.
(i) The commission shall adopt rules governing:
(1) the amount a player may be charged to play each
video lottery game; and
(2) the prizes and credits that may be awarded to the
player of a video lottery game.
(j) The video lottery central system provider shall pay for
the installation and operation of commission-approved
communication technology to provide real-time communication
between each video lottery terminal and the video lottery central
system.
(k) In addition to other requirements under this chapter
relating to video lottery, a video lottery retailer or a video
lottery manager at all times shall:
(1) operate only video lottery terminals that are
distributed by a registered video lottery terminal provider and
provide a secure location for the placement, operation, and play of
the video lottery terminals;
(2) prevent any person from tampering with or
interfering with the operation of a video lottery terminal;
(3) ensure that communication technology from the
video lottery central system to the video lottery terminals is
connected and prevent any person from tampering or interfering with
the operation of the connection;
(4) ensure that video lottery terminals are in the
sight and control of designated employees of the video lottery
retailer or video lottery manager and in the sight of video cameras
as required under this subchapter;
(5) ensure that video lottery terminals are placed and
remain placed in the specific locations in the video lottery
terminal establishment that are consistent with the retailer's or
manager's commission-approved floor plan;
(6) monitor video lottery terminals to prevent access
to or play by persons who are under 18 years of age or who are
visibly intoxicated;
(7) refuse to accept a credit card payment from a
player for the exchange or purchase of video lottery game credits or
for an advance of coins, currency, vouchers, or tokens to be used by
a player to play video lottery games, refuse to extend credit, in
any manner, to a player that enables the player to play a video
lottery game, and ensure that all persons doing business at the
video lottery terminal establishment, including a person operating
or managing an auxiliary service such as a restaurant, refuse to
accept a credit card payment or to extend credit in a manner
prohibited by this subdivision, except that:
(A) a license holder may cash a check for a player
if the license holder exercises reasonable caution cashing the
check and does not cash checks for any player in an amount exceeding
$1,000 in any 24-hour period; and
(B) an automated teller machine may be located at
a video lottery terminal establishment in compliance with the Texas
Racing Act (Article 179e, Vernon's Texas Civil Statutes) or an
effective gaming agreement;
(8) pay all credits won by a player on presentment of a
valid winning video lottery game ticket;
(9) conduct only the video lottery game advertising
and promotional activities consistent with criteria prescribed by
the commission, including prohibiting undue influence, offensive
language, and anything that would affect the integrity of video
lottery operation;
(10) install, post, and display prominently at the
licensed location redemption information and other informational
or promotional materials as required by the commission;
(11) maintain general liability insurance coverage
for the video lottery terminal establishment and all video lottery
terminals in the amounts required by the commission;
(12) assume liability for money lost or stolen from
any video lottery terminal; and
(13) annually submit an audited financial statement to
the commission in a format approved by the commission.
(l) The commission by rule shall establish the maximum
number of video lottery terminals that may be operated at each video
lottery terminal establishment operated by a video lottery retailer
or video lottery manager based on factors prescribed by commission
rule, including demographics, to ensure that the number of permits
to operate video lottery terminals requested by the retailer or
manager is not detrimental to the public health, safety, welfare,
and economic development of this state and will result in the
optimization of revenue for the support of the public education
system in this state and other state governmental programs.
(m) The commission shall determine the number of video
lottery terminals that may only be operated by an Indian tribe in
connection with the tribe's video lottery system in accordance with
the applicable gaming agreement entered into pursuant to this
chapter and the statutory criteria prescribed by Subsection (l).
Sec. 466.5041. TECHNICAL STANDARDS FOR VIDEO LOTTERY
EQUIPMENT. The commission by rule shall provide minimum technical
standards for video lottery equipment that may be operated in this
state.
Sec. 466.5042. INCIDENT REPORTS. A video lottery retailer
or video lottery manager shall record all unusual occurrences
related to gaming activity in a video lottery terminal
establishment operated by the retailer or manager. Each incident,
without regard to materiality, shall be assigned a sequential
number and, at a minimum, the following information must be
recorded in a permanent record prepared in accordance with
commission rules to ensure the integrity of the record:
(1) the number assigned to the incident;
(2) the date and time of the incident;
(3) the nature of the incident;
(4) each person involved in the incident; and
(5) the name of the employee or other agent of the
video lottery retailer or video lottery manager who investigated
the incident.
Sec. 466.5043. EXCLUSION OF PERSONS. (a) The commission
shall compile a list of persons that the video lottery retailer or
video lottery manager must bar from a video lottery terminal
establishment based on a person's criminal history or association
with criminal offenders or because the person poses a threat to the
integrity of the lottery. The video lottery retailer or video
lottery manager shall employ the retailer's or manager's best
efforts to exclude such persons from entry into the establishment.
The video lottery retailer or video lottery manager may exclude a
person for any reason not related to the person's race, sex,
national origin, physical disability, or religion.
(b) A person who believes the person may be playing video
lottery games on a compulsive basis may request that the person's
name be placed on the list compiled by the commission under
Subsection (a). All video lottery game employees shall receive
training in identifying players with a compulsive playing problem
and shall be instructed to ask the players to leave the
establishment. Signs and other materials shall be readily
available to direct compulsive players to agencies that offer
appropriate counseling.
Sec. 466.505. ACCOUNTING, FINANCIAL, AND OTHER REPORTING
PROCEDURES. (a) Not later than the fifth day after acquiring
knowledge of any litigation relating to a video lottery terminal
establishment, including a criminal proceeding, a proceeding
involving an issue related to racing activities that impact video
lottery operations, and a matter related to character or reputation
relevant to a person's suitability under this subchapter, a video
lottery retailer or video lottery manager shall report the
litigation to the commission.
(b) All internal procedures and administrative and
accounting controls of a video lottery retailer or video lottery
manager must be approved by the commission. All internal
procedures and administrative and accounting controls of a video
lottery terminal provider that relate to the manufacturing and
distribution of video lottery terminals to be used in this state
must be approved by the commission. The commission by rule shall
establish general accounting and auditing requirements and
internal control standards for video lottery retailers and video
lottery managers.
(c) A video lottery retailer or video lottery manager shall
submit financial and operating information and statistical data to
the commission in a format approved by the commission so that the
financial operating position of the retailer or manager and
performance and trends of the video lottery game industry in this
state may be evaluated.
(d) A video lottery retailer or video lottery manager shall
keep a database of video lottery terminal events. The commission by
rule shall determine what constitutes a video lottery terminal
event for purposes of this subsection.
Sec. 466.5051. EMPLOYEE REPORTING. (a) On or before the
15th day of each month, a video lottery retailer or video lottery
manager shall submit to the commission an employee report for the
video lottery terminal establishment operated by the retailer or
manager. The report must provide for each employee of the retailer
or manager the employee's name, job title, date of birth, and social
security number.
(b) The employee report is confidential and may not be
disclosed except under commission order or in accordance with
Section 466.022(d).
(c) The commission may conduct criminal history
investigations for employees of video lottery retailers and video
lottery managers.
(d) The commission may prohibit an employee from performing
any act relating to video lottery terminals if the commission finds
that an employee has:
(1) committed, attempted, or conspired to do any act
prohibited by this chapter;
(2) concealed or refused to disclose any material fact
in any investigation by the commission;
(3) committed, attempted, or conspired to commit
larceny or embezzlement;
(4) been convicted in any jurisdiction of an offense
involving or relating to gambling;
(5) accepted employment in a position for which the
employee is required to have commission approval after approval was
denied for a reason involving personal unsuitability or after
failing to apply for a license or approval on commission request;
(6) been prohibited under color of governmental
authority from being present on the premises of any gaming
establishment or any establishment where pari-mutuel wagering is
conducted for any reason relating to improper gambling activity or
for any illegal act;
(7) willfully defied any legislative investigative
committee or other officially constituted body acting on behalf of
the United States or any state, county, or municipality that sought
to investigate alleged or potential crimes relating to gaming,
corruption of public officials, or any organized criminal
activities; or
(8) been convicted of any felony or any crime
involving moral turpitude.
(e) The commission may prohibit an employee from performing
any act relating to video lottery terminals based on any reason the
commission finds appropriate, including a refusal by a regulatory
authority to issue a license, permit, or other approval for the
employee to engage in or be involved with the lottery or with
regulated gaming or pari-mutuel wagering in any jurisdiction, and a
revocation or suspension of any gaming or wagering license, permit,
or approval.
(f) In this section, "employee" includes any person
connected directly with or compensated by an applicant or license
holder as an agent, personal representative, consultant,
independent contractor, or lobbyist for the advocacy of the
adoption or amendment of a law related to gaming or lottery
activities or the furtherance of gaming or lottery activities in
any jurisdiction or as otherwise specified by commission rule.
Sec. 466.5052. REPORT OF VIOLATIONS. A person who holds a
license or registration under this subchapter shall immediately
report a violation or suspected violation of this chapter or a rule
adopted under this chapter by any license or registration holder,
by an employee of a license or registration holder, or by any person
on the premises of a video lottery terminal establishment, whether
or not associated with the license or registration holder.
Sec. 466.506. SECURITY. (a) In addition to the security
provisions applicable under Section 466.020, a video lottery
retailer or video lottery manager shall comply with the following
security procedures:
(1) all video lottery terminals must be continuously
monitored through the use of a closed-circuit television system
that records activity for a continuous 24-hour period and all video
tapes or other media used to store video images shall be retained
for at least 30 days and made available to the commission on
request;
(2) access to video lottery terminal locations shall
be restricted to persons over the age of 18;
(3) the video lottery retailer or video lottery
manager must submit for commission approval a security plan and a
floor plan of the area where video lottery terminals are to be
operated showing video lottery terminal locations and security
camera mount locations; and
(4) each license holder shall employ at least the
minimum number of private security personnel the commission
determines is necessary to provide for safe and approved operation
of the video lottery terminal establishment and the safety and
well-being of the players. Private security personnel must be
present during all hours of operation at each video lottery
terminal establishment.
(b) An agent or employee of the commission or the Department
of Public Safety or other law enforcement personnel may be present
at a video lottery terminal establishment at any time.
(c) The commission may adopt rules to impose additional
surveillance and security requirements related to video lottery
terminal establishments and the operation of video lottery
terminals.
Sec. 466.507. VIDEO LOTTERY TERMINAL ESTABLISHMENT VISITS.
The commission or the commission's representative after displaying
appropriate identification and credentials has the free and
unrestricted right to enter the premises of a video lottery
terminal establishment and to enter any other locations involved in
operation or support of video lottery at all times to examine the
systems and to inspect and copy the records of a video lottery
retailer or video lottery manager pertaining to the operation of
video lottery.
Sec. 466.508. SUPERVISION OF CERTAIN VIDEO LOTTERY
RETAILERS AND VIDEO LOTTERY MANAGERS. (a) The legislature hereby
finds and declares that:
(1) the stability and continuity of video lottery
retailers and video lottery managers of racetracks in this state
are important to this state's generation of revenue for the public
education system and other state governmental programs;
(2) any closure of a video lottery retailer because of
the surrender, lapse, revocation, or suspension of the retailer's
license or the license of a video lottery manager at the video
lottery terminal establishment of a video lottery retailer may
cause unnecessary financial hardship to employees, creditors, and
investors and may have an adverse economic effect on this state's
budget;
(3) public confidence and trust in the ability of this
state to control lottery operations must not be sacrificed by any
relaxation of strict controls merely to allow video lottery
terminals to continue to operate; and
(4) placing the management and control of a video
lottery retailer or video lottery manager whose license is
surrendered, lapsed, suspended, or revoked under a competent
supervisory official may ensure the proper regulation of the
establishment while maintaining the establishment's value for
creditors and investors, protecting the interests of other persons,
avoiding any disruption of the revenue generated for the public
education system and other state governmental programs and,
therefore, promoting the general welfare of this state.
(b) In this section, "supervisor" means the person
appointed by a district court in Travis County as a fiduciary to
manage and control a video lottery terminal establishment at a
racetrack in accordance with this subchapter.
(c) The commission shall adopt rules pertaining to the
administration of a video lottery terminal establishment by a
supervisor and any other matters relating to a supervisor which are
not inconsistent with this section. The commission must provide
for a hearing regarding the appointment of a supervisor within 15
days after the date of the suspension or revocation of a license.
The commission must provide for notice to the video lottery
retailer or video lottery manager, or both, of the meeting and
afford the video lottery retailer and video lottery manager the
opportunity to be heard concerning the appointment. At the
hearing, the commission shall exercise its discretion to determine
whether to petition the district court for appointment of a
supervisor in accordance with this subchapter.
(d) Except as provided by Subsection (i), if the license of
any person whose license is predicate to the operation of a video
lottery retailer or video lottery manager is revoked or suspended
by the commission, or lapses or is surrendered because the video
lottery terminal establishment or the ownership of the
establishment has been conveyed or transferred to a secured party
receiver or trustee who does not hold the licenses necessary to
operate the establishment, the commission may ex parte petition a
district court in Travis County, the exclusive venue for the
petition, for appointment by the court of a supervisor to manage the
establishment. The court shall give preference to supervision
hearings brought under this section. The petition is discretionary
with the commission and this section does not create any property
right or interest in continued operation of video lottery terminals
at the establishment.
(e) The petition must contain the names of two or more
persons who the commission believes are suitable and qualified to
manage a video lottery terminal establishment as a video lottery
manager and are available for appointment as a supervisor unless,
in the opinion of the commission, only one person is available who
is qualified to serve, in which case the commission may name only
that person.
(f) On receipt of a petition under this section, the court
shall appoint a person who is listed in the petition as supervisor
of the video lottery establishment. The court shall immediately
notify the commission of the appointment. On receipt of notice from
the court, the commission shall immediately notify all interested
persons.
(g) The petition may be presented under this section even if
the time period has not expired for a petition for judicial review
of the final commission determination to revoke or suspend the
video lottery retailer's or video lottery manager's license.
(h) The commission may not petition any court for the
appointment of a supervisor under this section if:
(1) a rehearing has been granted by the commission to
the license holder on the revocation or suspension of the license;
and
(2) the rehearing has not been concluded.
(i) If the commission does not petition for the appointment
of a supervisor, a court of this state may not issue an order that
allows a video lottery retailer or video lottery manager to
continue operation of a video lottery terminal establishment.
(j) If a pari-mutuel wagering license required for a video
lottery retailer's or video lottery manager's license under this
subchapter is revoked, is suspended, lapses, or is otherwise
surrendered, the commission may appoint a supervisor to operate the
video lottery terminal establishment for the exclusive benefit of
the state for a period not to exceed two years or longer in
accordance with Section 466.504(e) during which time the video
lottery retailer or video lottery manager may seek reinstatement of
the pari-mutuel wagering license from the Texas Racing Commission
or the supervisor may either make provisions for the conclusion of
operations or administer the sale of the property under this
section to a new license holder. During any period of supervision
under this subsection, the commission must pay to the owner of the
video lottery establishment the fair market value for rental of the
facility.
(k) A court of this state may not issue any order to stay the
appointment of a supervisor appointed under this section or to
enjoin a supervisor from exercising the supervisor's duties and
powers under this section, whether or not a petition has been filed
for judicial review of a determination to revoke or suspend the
license required for operation of the video lottery terminal
establishment.
(l) The court that appoints the supervisor shall allow
reasonable compensation that may not exceed the amount of
compensation or proceeds that would otherwise have been paid to the
video lottery retailer or video lottery manager, out of the revenue
of the video lottery terminals operated at the video lottery
terminal establishment, for the services, costs, and expenses of
the supervisor and for any other persons whom the supervisor may
employ to assist in the supervisor's duties.
(m) A supervisor is subject to this chapter and any rules
adopted under this chapter as if the supervisor is a licensed video
lottery manager of a video lottery terminal establishment or a
video lottery retailer. The court that appoints the supervisor has
jurisdiction over all powers and duties of the supervisor in any
proceeding relating to the exercise of the powers and duties and may
issue any order or decree in the proceeding that the court
determines necessary. After the court appoints a supervisor, the
license of the video lottery retailer or video lottery manager is
considered transferred and the previously licensed operation is
considered a continuing operation for a period not to exceed two
years.
(n) On appointment of a supervisor, the right, title, and
interest of all persons in a video lottery terminal establishment
are extinguished and automatically vested in the supervisor,
subject to any liens, claims, and encumbrances on the
establishment. The supervisor shall protect the money and property
acquired by managing the property on a prudent businesslike basis.
With regard to any areas of the racetrack other than the video
lottery terminal establishment, the supervisor may only operate the
areas as allowed by the former license holder.
(o) The supervisor shall:
(1) take immediately into his possession all property
of the video lottery terminal establishment, including money,
accounts, books, records, and evidences of debts owed to the
establishment; and
(2) continue the business of the establishment.
(p) The supervisor may:
(1) hire, discipline, and dismiss employees of the
video lottery terminal establishment and fix the compensation of
the employees;
(2) engage independent legal counsel and accountants;
(3) settle or compromise with any debtor or creditor
of the establishment;
(4) prosecute actions on behalf of or defend actions
against the establishment;
(5) enter into any contract or borrow money on behalf
of the establishment and pledge, mortgage, or otherwise encumber
the establishment's property as security for the repayment of any
loan, except that the power to borrow money or encumber property is
limited by any provision of an existing document of credit;
(6) grant or renew leases of establishment property;
and
(7) perform any act on behalf of the video lottery
terminal establishment that an owner, video lottery retailer, or
video lottery manager is entitled to perform.
(q) Subsection (p) does not authorize the sale of the video
lottery terminal establishment by the supervisor.
(r) If any property of a video lottery terminal
establishment is withheld from a supervisor after the supervisor's
appointment, the supervisor may petition the district court that
appointed the supervisor for an order compelling delivery of the
property to the supervisor.
(s) This section does not affect the right of a creditor to
commence or continue foreclosure or other proceedings to collect a
secured or unsecured debt, and, consistent with the public policy
of this chapter, the appointment of a supervisor may not be treated
as an event precipitating a default or acceleration under any note,
lease, deed of trust, or other extension of credit. Except as
provided by this section, the supervisor is not entitled to assert
any right, claim, or defense other than one available to the license
holder under the right, claim, or defense.
(t) Except as otherwise provided by Subsection (u) and
subject to prior approval by the court that appointed the
supervisor, a supervisor, consistent with commission rules, may
make periodic distribution of earnings to the former legal owner of
the video lottery terminal establishment.
(u) On petition to the court by the commission, earnings
that would otherwise be distributed under Subsection (t) shall,
except as otherwise provided by this subsection, be paid into the
court pending judicial review of the commission's final
determination. An amount of the earnings that represents the
reasonable value of the premises must be retained by the supervisor
for distribution to the former legal owner. If the commission has
ordered suspension or revocation of a license, the commission's
order of suspension or revocation is upheld after final judicial
review, and the video lottery terminal establishment is sold under
this section, all earnings, except the amount representing the
reasonable rental value of the premises as determined by the court,
that were paid into the court under this section are forfeited and
must be deposited to the credit of the state video lottery account.
If that order is reversed or otherwise modified and the former legal
owner regains a license, the earnings must be distributed to the
owner.
(v) A supervisor shall file with the court that appointed
the supervisor and the commission reports on the administration of
the video lottery terminal establishment in the form and at the
intervals prescribed by the court. The reports may be made
available for inspection by any creditor of the video lottery
terminal establishment or any person with a substantial interest in
the establishment, and the court may direct that copies of the
reports be mailed to the creditors or persons.
(w) On satisfaction of all requirements under Subsection
(x), the supervisor shall petition the court that appointed the
supervisor for approval of a sale under this section, providing
notice to parties as the court may direct. If the court grants
approval, the supervisor shall carry out the sale on the terms and
conditions agreed to between the parties.
(x) Any person who owns an interest in a video lottery
terminal establishment on the date of a supervisor's appointment
may secure a willing and able buyer for the establishment before the
date by which the supervisor must offer the property for sale under
Subsection (y). A person or persons who owned a majority of the
interest in the establishment on the date of the supervisor's
appointment must approve the terms and conditions of the proposed
sale and the buyer must obtain a license to operate the video
lottery terminal establishment within six months after the date by
which the supervisor must offer the property for sale under
Subsection (y).
(y) Except as provided in Subsection (z), the supervisor of
a video lottery terminal establishment:
(1) shall offer the establishment for sale:
(A) at any time before the applicable date
provided by Paragraph (B), (C), or (D) if requested in writing by
the owners of a majority of the equity interest in the establishment
to initiate sale proceedings;
(B) on the date that is six months after the date
the commission refuses to renew a license for failure of a license
holder to fulfill a condition of the license;
(C) if a petition for judicial review of the
commission's determination to revoke or suspend the license is not
filed, on the date that is six months after the last date on which a
petition for judicial review could have been filed; or
(D) if a petition for judicial review is filed,
on the date that is six months after exhaustion of any right of
appeal in the courts of this state resulting in a final
determination that upholds the revocation or suspension of the
license;
(2) shall exert the supervisor's best efforts to
secure a buyer for the video lottery terminal establishment,
including advertising, to assure a fair price and may employ
brokers and other persons to assist in securing a suitable buyer;
(3) may not accept any offer to purchase the video
lottery terminal establishment made by a person who does not hold a
license issued under this subchapter, except that a supervisor may
accept an offer which is contingent on the buyer's obtaining a
license; and
(4) shall petition the court that appointed the
supervisor for approval of the terms and conditions of the sale, and
if the court approves the sale, the supervisor shall, if the buyer
obtains a license to operate the video lottery terminal
establishment, consummate the sale.
(z) The supervisor may not offer the video lottery terminal
establishment for sale if a timely sale of the establishment has
been consummated under Subsections (w) and (x).
(aa) All known creditors and other persons designated by the
court who are known to have had a legal ownership interest in a
video lottery terminal establishment immediately before the
appointment of the supervisor must be notified of the proposed sale
at least 30 days before the date of the hearing on the petition for
approval of the sale. The notice must be delivered personally or
sent by registered or certified mail to the last known address of
each person. The court shall order that notice be published in a
newspaper of general circulation in the county in which the
establishment is located. If the address of a creditor or owner is
not known, or personal service is not possible for some other
reason, service by publication shall be considered adequate. Any
person notified as provided by this subsection may file with the
court a statement of objections to the proposed sale, including all
grounds for the objections, at least 10 days before the hearing.
(bb) On completion of a sale under this section, the
appointment of the supervisor terminates, except that the
supervisor shall convey the supervisor's right, title, and interest
in the property of the video lottery terminal establishment to the
buyer and shall pay the net proceeds of the sale to the persons who
owned the property at the time the supervisor acquired the
establishment, or their successors or assignees, according to their
respective interests.
(cc) A person who suffers or is likely to suffer direct
financial injury as the result of an act or omission of a supervisor
may file an objection with the commission to the suitability of the
supervisor. The person may petition the court that made the
appointment for an accounting or for a review of the supervisor's
qualifications or performance.
(dd) If at any time the district court finds that a
supervisor is not qualified or available to serve as supervisor,
the court shall request from the commission the names of two or more
persons the commission believes are suitable and qualified to
manage a video lottery terminal establishment and are available to
serve as a supervisor unless, in the opinion of the commission, only
one person is available who is qualified to serve, in which case the
commission may name only that person.
(ee) The commission, at any time after appointment of a
supervisor, may petition the court for the removal of the
supervisor and the appointment of a new supervisor or for the
termination of the supervision.
(ff) The appointment of a supervisor terminates if any court
of this state or of the United States overrules the commission's
decision to revoke or suspend the license for operation of the video
lottery terminal establishment or if the commission's petition for
termination is granted, except that the supervisor shall transfer
to the appropriate persons their respective interests in the
establishment.
(gg) A supervisor is not personally liable for:
(1) any secured or unsecured debt of the video lottery
terminal establishment incurred before, during, or after the
supervisor's appointment;
(2) any penalty which may be assessed against a former
license holder for failure to pay or the late payment of any license
fee or tax imposed under this chapter; or
(3) any act or omission made by the supervisor in the
exercise of prudent business judgment or under an order of any
court.
(hh) A person commits an offense if during the pendency of
any proceeding before the commission that may result in the
appointment of a supervisor or during the period of supervision the
person sells, leases, or otherwise conveys for less than full
market value or pledges as security any property of a video lottery
terminal establishment, removes from this state or secretes from
the commission or the supervisor any property, money, books, or
records of the video lottery terminal establishment, including
evidences of debts owed to the establishment. An offense under this
subsection is a third degree felony.

[Sections 466.509-466.510 reserved for expansion]
Sec. 466.511. INDEMNIFICATION, INSURANCE, AND BONDING
REQUIREMENTS; PATRON DISPUTES. (a) A license or registration
holder shall indemnify and hold harmless this state, the
commission, and all officers and employees of this state and the
commission from any and all claims which may be asserted against a
license holder, the commission, this state, and the members,
officers, employees, and authorized agents of this state or the
commission arising from the license holder's participation in the
video lottery system authorized under this chapter.
(b) Surety and insurance required under this subchapter
shall be issued by companies or financial institutions financially
rated "A" or better as rated by A.M. Best Company or other rating
organization designated by the commission and duly licensed,
admitted, and authorized to do business in this state, or by other
surety approved by the commission.
(c) The commission shall be named as the obligee in each
required surety and as an additional insured in each required
insurance contract.
(d) A video lottery retailer or video lottery manager may
not be self-insured with regard to video lottery terminal
operations under this section.
(e) The commission by rule shall establish minimum
insurance coverage requirements for video lottery retailers, video
lottery managers, and video lottery terminal providers, including:
(1) insurance for performance;
(2) insurance against losses caused by fraudulent or
dishonest acts by an officer or employee of a video lottery
retailer, video lottery manager, or video lottery terminal
provider;
(3) general liability insurance;
(4) property insurance;
(5) liability insurance for drivers and vehicles
employed by the video lottery retailer or video lottery manager;
and
(6) crime insurance for the location.
(f) This state and the commission are not liable for any
video lottery terminal malfunction or error by a video lottery
retailer, video lottery manager, or video lottery terminal provider
that causes credit to be wrongfully awarded or denied to players.
Any dispute arising between a player and a video lottery retailer or
video lottery manager shall be resolved by the commission as
follows:
(1) if the fair market value of the prize is less than
$1,000, the dispute shall be resolved in accordance with the
commission-approved written policies of the video lottery retailer
or video lottery manager and without any relief available from the
commission or this state; or
(2) if the fair market value of the prize is $1,000 or
more, the dispute shall be resolved by the commission in the
commission's sole discretion in accordance with commission rules.
(g) A court of this state does not have jurisdiction to
review the decision of the commission resolving a dispute between a
player and a video lottery retailer, video lottery manager, or
video lottery terminal provider.
Sec. 466.512. COLLECTION OF REVENUE; ACCOUNTING AND
DISTRIBUTION OF NET TERMINAL INCOME. (a) The commission shall
deposit funds received under this subchapter to the state video
lottery account. The state video lottery account is a special
account in the general revenue fund. The account consists of all
revenue received by this state from the operation of video lottery
terminals. Except as otherwise provided by this section or another
provision of this subchapter, money in the fund may be used solely
to fund public education and the administration of the video
lottery system.
(a-1) Except as provided by Subsection (b), all revenue
received by this state from the operation of the video lottery
system shall be distributed solely to reimburse the commission
until the $5 million authorized under this section is repaid to the
state lottery account. From funds previously appropriated to the
commission for the state fiscal biennium ending August 31, 2005,
and notwithstanding Section 466.355(b), the commission is
authorized to expend an amount not to exceed $5 million from the
state lottery account during that biennium to establish the video
lottery system in accordance with this chapter. From revenue
deposited in the state video lottery account during that biennium,
the commission is hereby appropriated the amount necessary to
reimburse the state lottery account for the total amount of funds
expended to establish the video lottery system from the
appropriation to the state lottery account, and the commission
shall deposit that amount to the state lottery account. This
subsection expires January 1, 2007.
(b) Two percent of the net terminal income distributed to
this state under Subsection (c) shall be allocated to the
commission to defray expenses incurred in administering this
chapter related to video lottery including expenses incurred to
operate the video lottery central system. All money allocated to
the commission under this subsection may be retained by the
commission to defray expenses of administering this chapter related
to video lottery and shall be deposited in the state video lottery
account.
(c) Net terminal income derived from the operation of video
lottery games in this state is allocated as follows:
(1) net terminal income generated from video lottery
terminals operated at racetracks shall be distributed 40 percent to
the racetracks and 60 percent to this state; and
(2) net terminal income generated from video lottery
terminals operated on Indian lands under a gaming agreement
authorized under this subchapter shall be distributed as set forth
in the gaming agreement; provided that the agreement must provide
that this state shall receive no more than 25 percent of the net
terminal income.
(d) The commission shall require a video lottery retailer or
video lottery manager to establish a separate electronic funds
transfer account for depositing money from video lottery terminal
operations, making payments to the commission or its designee, and
receiving payments from the commission or its designee. A video
lottery retailer or video lottery manager may not make payments to
the commission in cash. As authorized by the commission, a video
lottery retailer or video lottery manager may make payments to the
commission by cashier's check.
(e) The commission at least daily shall transfer this
state's share of net terminal income of a video lottery retailer or
video lottery manager to the commission through the electronic
transfer of the funds. The commission by rule shall establish the
procedures for depositing money from video lottery terminal
operations into electronic funds transfer accounts, as well as
procedures regarding the handling of money from video lottery
terminal operations. This state's share of net terminal income
from video lottery terminal operations shall be held in trust for
the state.
(f) Unless otherwise directed by the commission, a video
lottery retailer or a video lottery manager shall maintain in its
account this state's share of the net terminal income from the
operation of video lottery terminals, to be electronically
transferred by the commission on dates established by the
commission. On a license holder's failure to maintain this
balance, the commission may disable all of a license holder's video
lottery terminals until full payment of all amounts due is made.
Interest shall accrue on any unpaid balance at a rate consistent
with the amount charged under Section 111.060, Tax Code. The
interest shall begin to accrue on the date payment is due to the
commission. In the commission's sole discretion, rather than
disable a license holder's video lottery terminals, the commission
may elect to impose a fine on a license holder in an amount
determined by the commission not to exceed $250,000 for each
violation. If the license holder fails to remedy the violation,
including payment of any amounts assessed by or due to this state,
within ten days, the commission may disable the license holder's
video lottery terminals or use any other means for collection as
provided by the penalty chart established by the commission.
(g) The license holder is solely responsible for resolving
any income discrepancies between actual money collected and the net
terminal income reported by the video lottery central system.
Unless an accounting discrepancy is resolved in favor of the video
lottery retailer or video lottery manager, the commission may not
make any credit adjustments. Any accounting discrepancies which
cannot otherwise be resolved shall be resolved in favor of the
commission.
(h) A video lottery retailer and video lottery manager shall
remit payment as directed by the commission if the electronic
transfer of funds is not operational or the commission notifies the
license holder that other remittance is required. The license
holder shall report this state's share of net terminal income, and
remit the amount generated from the terminals during the reporting
period.
(i) The commission has the right to examine all accounts,
bank accounts, financial statements, and records in a license
holder's possession or control or in which the license holder has an
interest and the license holder shall authorize and direct all
third parties in possession or in control of the accounts or records
to allow examination of any of those accounts or records by the
commission.
(j) A video lottery retailer or video lottery manager shall
furnish to the commission all information and bank authorizations
required to facilitate the timely transfer of money to the
commission. A video lottery retailer or video lottery manager must
provide the commission 30 days' advance notice of any proposed
account changes in information and bank authorizations to assure
the uninterrupted electronic transfer of funds. The commission is
not responsible for any interruption or delays in the transfer of
funds. The video lottery retailer or video lottery manager is
responsible for any interruption or delay in the transfer of funds.
Sec. 466.5121. DEDUCTIONS FROM VIDEO LOTTERY PROCEEDS AT
HORSE RACETRACKS. A racetrack that conducts horse races under the
Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes)
shall allocate 13.5 percent of its share of the video lottery
proceeds retained under Section 466.512(c) to a purse fund to be
used as follows:
(1) 90 percent of the amount deposited in the fund
shall be used to supplement purses at the racetrack; and
(2) 10 percent of the amount deposited in the fund
shall be transferred to the following breed registries in the
specified amounts:
(A) two percent to the breed registry for Arabian
horses;
(B) one percent to the breed registry for Paint
horses;
(C) 29.10 percent to the breed registry for
Quarter horses; and
(D) 67.90 percent to the breed registry for
Thoroughbreds.
Sec. 466.5122. DEDUCTIONS FROM VIDEO LOTTERY PROCEEDS AT
GREYHOUND RACETRACKS. A racetrack that conducts greyhound races
under the Texas Racing Act (Article 179e, Vernon's Texas Civil
Statutes) shall allocate 13.5 percent of its share of the video
lottery proceeds retained under Section 466.512(c) to a purse fund
to be used as follows:
(1) 90 percent of the amount deposited in the fund
shall be used to supplement purses at the racetrack; and
(2) 10 percent of the amount deposited in the fund
shall be transferred to the breed registry.
Sec. 466.5123. LIABILITY OF VIDEO LOTTERY RETAILER AND
VIDEO LOTTERY MANAGER. A video lottery retailer, video lottery
manager, or both, are liable to the commission for the state's share
of net terminal income reported by the video lottery central
system. Net terminal income received by the video lottery retailer
or video lottery manager shall be held in trust for the benefit of
this state before delivery of the state's share to the commission or
electronic transfer to the state treasury, and the video lottery
retailer or video lottery manager, or both, are liable to the
commission for the full amount of the money held in trust. If the
video lottery retailer or video lottery manager is not an
individual, each officer, director, or owner of the video lottery
retailer or video lottery manager is personally liable to the
commission for the full amount of the money held in trust, except
that shareholders of a publicly held corporation shall be liable in
an amount not to exceed the value of their equity investment.
Sec. 466.513. PRIZES. (a) Payment of prizes is the sole
and exclusive responsibility of the video lottery retailer or video
lottery manager. A prize may not be paid by the commission or this
state except as otherwise authorized.
(b) Nothing in this subchapter limits the ability of a video
lottery retailer or video lottery manager to provide promotional
prizes, including wide area progressive networks, in addition to
prize payouts regulated by the commission.
(c) A video lottery ticket is redeemable only for 180 days
following the date of issuance. If a claim is not made for prize
money on or before the 180th day after the date on which the video
lottery ticket was issued, the prize money becomes the property of
this state. The commission shall enact rules consistent with this
section governing the use and redemption of prizes and credits
recorded on electronic player account records, such as players'
club cards and smart cards.
Sec. 466.514. REVOCATION OF LICENSE, REGISTRATION, OR OTHER
REGULATORY APPROVAL. (a) The commission shall revoke or suspend a
license, registration, or other regulatory approval issued under
this subchapter if the license or registration holder or holder of
the approval at any time fails to meet the eligibility requirements
set forth in this subchapter.
(b) Failure to timely remit revenue generated by video
lottery terminals to the commission or any tax or other fee owed to
this state as demonstrated by report from the applicable taxing
authority or to timely file any report or information required
under this subchapter as a condition of any license, registration,
or other approval issued under this subchapter may be grounds for
suspension or revocation, or both, of a license, registration, or
other approval issued under this subchapter.
Sec. 466.5141. DEPRIVATION HEARING FOR REVOCATION OR
SUSPENSION OF REGISTRATION OR LICENSE. (a) Before the commission
revokes or suspends a video lottery terminal provider's
registration or video lottery retailer's or video lottery manager's
license, or imposes monetary penalties for a violation of this
subchapter, the commission shall provide written notification to
the license or registration holder of the revocation, the period of
suspension, or the monetary penalty. The notice shall include:
(1) the effective date of the revocation or the period
of suspension or the amount of the monetary penalty, as applicable;
(2) each reason for the revocation, suspension, or
penalty;
(3) an explanation of the evidence supporting the
reasons;
(4) an opportunity to present the license or
registration holder's position in response on or before the 15th
day after the effective date of the revocation; and
(5) a statement explaining the person's right to an
administrative hearing to determine whether the revocation,
suspension, or penalty is warranted.
(b) The notice required under Subsection (a) must be made by
personal delivery or by mail to the person's mailing address as it
appears on the commission's records.
(c) To obtain an administrative hearing on a suspension,
revocation, or penalty under this section, a person must submit a
written request for a hearing to the commission not later than the
20th day after the date notice is delivered personally or is mailed.
If the commission receives a timely request under this subsection,
the commission shall provide the person with an opportunity for a
hearing as soon as practicable. If the commission does not receive
a timely request under this subsection, the commission may impose
the penalty, revoke or suspend a license or registration, or
sustain the revocation or suspension without a hearing. Except as
provided by Subsection (d) the hearing must be held not earlier than
the 11th day after the date the written request is submitted to the
commission.
(d) The commission may provide that a revocation or
suspension takes effect on receipt of notice under Subsection (a)
if the commission finds that the action is necessary to prevent or
remedy a threat to public health, safety, or welfare. The
commission by rule shall establish a nonexclusive list of
violations that present a threat to the public health, safety, or
welfare. A hearing on a revocation or suspension that takes effect
on receipt of notice must be held not later than the 14th day after
the date the commission receives the request for hearing under
Subsection (c). The revocation or suspension continues in effect
until the hearing is completed. If the hearing is continued, the
revocation or suspension shall continue in effect beyond the 14-day
period at the request of the license or registration holder or on a
finding of good cause by the commission or administrative law
judge.
(e) To prevail in a post-deprivation administrative hearing
under this section, the license or registration holder must
demonstrate by clear and convincing evidence that the deprivation
or imposition of a penalty was unwarranted or otherwise unlawful.
The post-deprivation hearing may be conducted by the commission or
referred to the State Office of Administrative Hearings. The
administrative record created by the hearing conducted by the State
Office of Administrative Hearings shall be provided to the
commission for review and determination on the revocation or
suspension. If an administrative law judge of the State Office of
Administrative Hearings conducts a hearing under this section and
the proposal for decision supports the commission's position, the
administrative law judge shall include in the proposal a finding of
the costs, fees, expenses, and reasonable and necessary attorney's
fees the state incurred in bringing the proceeding. The commission
may adopt the findings for costs, fees, and expenses and make the
finding a part of the final order entered in the proceeding.
Proceeds collected from a finding made under this subsection shall
be paid to the commission.
(f) Any person aggrieved by a final decision of the
commission to revoke or suspend a registration or license or to
impose any monetary penalty may obtain judicial review before a
district court in Travis County. The judicial review must be
instituted by serving on the commission and filing a petition not
later than the 20th day after the effective date of the final
decision and must identify the order appealed from and the grounds
or reason why the petitioner contends the decision of the
commission should be reversed or modified. The review must be
conducted by the court sitting without jury, and must not be a trial
de novo but is confined to the record on review. The reviewing
court may only affirm the decision, remand the case for further
proceedings, or reverse the decision if the substantial rights of
the petitioner have been violated.
(g) If any court of competent jurisdiction concludes on
judicial review limited to the administrative record before the
commission and subject to the substantial evidence standard that
the deprivation or penalty was unwarranted or otherwise unlawful,
the sole remedy available is invalidation of the penalty or
reinstatement of the license or registration and the continued
distribution, manufacture, or operation of video lottery
terminals. The commission, this state, or the members, officers,
employees, and authorized agents of either are not under any
circumstances subject to monetary damages, attorney's fees, or
court costs resulting from the penalty or license or registration
revocation.
(h) A license or registration holder agrees that the
privilege of holding a license or registration under this
subchapter is conditioned on the holder's agreement to this section
in its entirety and, thereby, waives any right to challenge or
otherwise appeal the enforceability of this section.
Sec. 466.515. LIMITED WAIVER OF SOVEREIGN IMMUNITY; NO
LIABILITY OF STATE FOR ENFORCEMENT. (a) This state does not waive
its sovereign immunity by negotiating gaming agreements with Indian
tribes or other persons for the operation of video lottery
terminals or other lottery games under this chapter. An actor or
agent on behalf of this state does not have any authority to waive
the state's sovereign immunity absent an express legislative grant
of the authority. The only waiver of sovereign immunity relative to
video lottery terminal operations is that expressly provided for in
this section.
(b) With regard to video lottery terminal operations on
Indian lands, this state consents to the jurisdiction of the
District Court of the United States situs in the county where the
Indian lands are located solely for the purpose of resolving
disputes arising from a gaming agreement authorized under this
subchapter for declaratory or injunctive relief or contract damages
of $100,000 or more. Any disputes relating to damages or other
awards valued at less than $100,000 shall be arbitrated under the
rules of the American Arbitration Association, provided, however,
that application of the rules may not be construed as a waiver of
sovereign immunity.
(c) All financial obligations of the commission are payable
solely out of the income, revenues, and receipts of the commission
and are subject to statutory restrictions and appropriations.
(d) This state and the commission are not liable if
performance by the commission is compromised or terminated by acts
or omissions of the legislature or the state or federal judiciary.
(e) This state and the commission are not liable related to
any enforcement of this chapter.
Sec. 466.516. ABSOLUTE PRIVILEGE OF REQUIRED
COMMUNICATIONS AND DOCUMENTS. Any communication or document of a
video lottery central system provider, video lottery terminal
provider, video lottery retailer, or video lottery manager, an
applicant, or a license or registration holder that is made or
transmitted to the commission or any of its employees to comply with
any law or the rules of the commission, comply with a subpoena
issued by the commission, or assist the commission or its designee
in the performance of their respective duties is absolutely
privileged, does not impose liability for defamation, and is not a
ground for recovery in any civil action. If the document or
communication contains any information which is privileged under
state law, that privilege will not be waived or lost because the
document or communication is disclosed to the commission or any of
the commission's employees. The commission shall maintain all
privileged information, documents, and communications in a secure
place as determined in the commission's sole discretion accessible
only to members of the commission and authorized commission
employees.
Sec. 466.517. INTELLECTUAL PROPERTY RIGHTS OF COMMISSION.
The legislature finds and declares that the commission has the
right to establish ownership of intellectual property rights for
all lottery products, including video lottery terminals and related
video lottery equipment.
Sec. 466.518. MODEL GAMING AGREEMENT. (a) The governor
shall execute, on behalf of this state, a gaming agreement
containing the terms set forth in Subsection (b), as a ministerial
act, without preconditions, not later than the 30th day after the
date the governor receives a request from the Ysleta del Sur Pueblo
Indian tribe, the Alabama-Coushatta Indian tribe, or the Kickapoo
Traditional Tribe of Texas, accompanied by or in the form of a duly
enacted resolution of the tribe's governing body, to enter into the
gaming agreement.
(b) A gaming agreement executed under Subsection (a) must be
in the form and contain the provisions as follows:

GAMING AGREEMENT GOVERNING

VIDEO LOTTERY TERMINAL OPERATIONS

Between the [Name of Tribe]

and the STATE OF TEXAS
This agreement is made and entered into by and between the
[Name of Tribe], a federally recognized Indian Tribe ("Tribe"), and
the State of Texas ("State"), with respect to the operation of video
lottery terminals (as defined by Section 466.002, Texas Government
Code) on the Tribe's Indian lands (as defined by Section 47(f),
Article III, Texas Constitution).
SECTION 1.0. TITLE.
Sec. 1.1. This document shall be referred to as "The [Name
of Tribe] and State of Texas gaming agreement."
SECTION 2.0. PURPOSES AND OBJECTIVES.
Sec. 2.1. The terms of this agreement are designed and
intended to:
(a) evidence the good will and cooperation of the
Tribe and State in fostering a mutually respectful
government-to-government relationship that will serve the mutual
interests of the parties;
(b) develop and implement a means of regulating limited
Class III gaming on the Tribe's Indian lands to ensure fair and
honest operation in accordance with the applicable federal and
state law, and, through that regulated limited Class III gaming,
enable the Tribe to develop self-sufficiency, promote tribal
economic development, and generate jobs and revenues to support the
Tribe's government and governmental services and programs; and
(c) ensure fair operation of video lottery games and
minimize the possibilities of corruption and infiltration by
criminal influences; promote ethical practices in conjunction with
that gaming, through the licensing and control of persons employed
in, or providing goods and services to, the Tribe's video lottery
operation and protecting against the presence or participation of
persons whose criminal backgrounds, reputations, character, or
associations make the persons unsuitable for participation in
gaming, thereby maintaining a high level of integrity in government
gaming.
SECTION 3.0. DEFINITIONS.
As used in this agreement, all terms have the meaning
assigned by Section 466.002, Texas Government Code, unless
otherwise specified:
Sec. 3.1. "Class III gaming" means the forms of Class III
gaming defined in 25 U.S.C. Section 2703(8) and by regulations of
the National Indian Gaming Commission.
Sec. 3.2. "Financial source" means any person providing
financing, directly or indirectly, to the Tribe's video lottery
terminal establishment or operation of video lottery terminals
authorized under this gaming agreement.
Sec. 3.3. "Gaming activities" means the limited Class III
gaming activities authorized under this gaming agreement.
Sec. 3.4. "Gaming employee" means any person who:
(a) operates, maintains, repairs, or assists in any gaming
activities, or is in any way responsible for supervising the gaming
activities or persons who conduct, operate, account for, or
supervise the gaming activities;
(b) is in a category under applicable federal or tribal
gaming law requiring licensing;
(c) is an employee of the Tribal Compliance Agency with
access to confidential information; or
(d) is a person whose employment duties require or authorize
access to areas of the video lottery terminal establishment that
are not open to the public.
Sec. 3.5. "Gaming ordinance" means a tribal ordinance or
resolution authorizing the conduct of Class III Gaming Activities
on the Tribe's Indian lands and approved under IGRA or other
applicable federal law.
Sec. 3.6. "IGRA" means the Indian Gaming Regulatory Act of
1988 (18 U.S.C. Sec. 1166 et seq. and 25 U.S.C. Sec. 2701 et seq.),
any amendments to the act and all regulations promulgated under the
act.
Sec. 3.7. "Key employee" means any person whom the Tribe
employs as chief operating or executive officer, chief financial
officer, chief of security, or manager of the video lottery
terminal establishment or operations of the video lottery
terminals, or any other person who may directly influence
management of the video lottery terminal establishment or operation
of video lottery terminals.
Sec. 3.8. "NIGC" means the National Indian Gaming
Commission.
Sec. 3.9. "Patron" means any person who is on the premises
of a video lottery terminal establishment, for the purpose of
playing a video lottery game authorized by this gaming agreement.
Sec. 3.10. "Principal" means, with respect to any entity,
the entity's sole proprietor or any partner, trustee, beneficiary,
or shareholder holding 10 percent or more of the entity's
beneficial or controlling ownership, either directly or
indirectly, or more than 10 percent of the voting stock of a
publicly traded corporation, or any officer, director, principal
management employee, or key employee of the entity.
Sec. 3.11. "Restoration Act" means the Ysleta del Sur
Pueblo and Alabama Coushatta Indian Tribes of Texas Restoration Act
(25 U.S.C. Section 731 et seq. and 25 U.S.C. Section 1300g et seq.).
Sec. 3.12. "State" means the State of Texas or an authorized
official or agency of the state.
Sec. 3.13. "Transfer agreement" means a written agreement
authorizing the transfer of video lottery terminal operating rights
between the Tribe and another Indian tribe.
Sec. 3.14. "Transfer notice" means a written notice that
the Tribe must provide to the Texas Lottery Commission of the
Tribe's intent to acquire or transfer video lottery terminal
operating rights pursuant to a transfer agreement.
Sec. 3.15. "Tribal chairperson" means the person duly
elected or selected under the Tribe's organic documents, customs,
or traditions to serve as the primary spokesperson for the Tribe.
Sec. 3.16. "Tribal Compliance Agency" ("TCA") means the
Tribal governmental agency that has the authority to carry out the
Tribe's regulatory and oversight responsibilities under this
gaming agreement. Unless and until otherwise designated by the
Tribe, the TCA shall be the [Name of Tribe] Gaming Commission. A
gaming employee may not be a member or employee of the TCA. The
Tribe has the ultimate responsibility for ensuring that the TCA
fulfills its responsibilities under this gaming agreement. The
members of the TCA are subject to background investigations and
shall be licensed to the extent required by any applicable Tribal or
federal law and in accordance with this gaming agreement. The Tribe
shall ensure that all TCA officers and agents are qualified for the
position and receive ongoing training to obtain and maintain skills
sufficient to carry out their responsibilities in accordance with
industry standards.
Sec. 3.17. "Tribal law enforcement agency" means a police
or security force established and maintained by the Tribe under the
Tribe's powers of self-government to carry out law enforcement
duties at or in connection with a video lottery terminal
establishment.
Sec. 3.18. "Tribal gaming license" means any license issued
by the TCA as required by and in compliance with this agreement.
Sec. 3.19. "Tribe" means [Name of Tribe], a
federally-recognized Indian tribe.
Sec. 3.20. "Video lottery terminal establishment" means any
premises at which the operation of video lottery terminals is
authorized under this gaming agreement.
SECTION 4.0. RECITALS.
Sec. 4.1. This agreement governs all operations of video
lottery terminals as defined by Section 466.002, Texas Government
Code, on the Tribe's Indian lands.
Sec. 4.2. A principal goal of Federal Indian policy is to
promote tribal economic development and tribal self-sufficiency.
The State and the Tribe find the goal to be consistent with
applicable federal law, state public policy, and the public health,
safety, and welfare to regulate video lottery terminals on Indian
lands in accordance with this gaming agreement.
Sec. 4.3. The Tribe is a federally recognized Indian tribe
possessing sovereign powers and rights of self-government. The
Tribe's governing body has authorized the officials of the Tribe to
enter into contracts and agreements of every description, including
this gaming agreement, with the State.
Sec. 4.4. The Tribe exercises governmental authority within
the [name of Reservation] (the "Reservation"), which for purposes
of this gaming agreement means those lands within the current
boundaries of the Reservation and any other Indian lands over which
the Tribe exercises governmental authority.
Sec. 4.5. The State of Texas is a state of the United States
of America possessing the sovereign powers and rights of a state.
The State has a legitimate sovereign interest in regulating the
growth of Class III gaming activities in Texas. Mindful of that
interest, the State of Texas, pursuant to Chapter 466, Texas
Government Code, authorized certain gaming agreements with Indian
tribal governments in the State of Texas to permit the operation of
video lottery terminals on Indian lands. It is the general policy
of the State to prohibit commercial gambling. The limited
exceptions to this prohibition are enumerated under Texas law. Any
gaming not expressly authorized is prohibited.
Sec. 4.6. The parties recognize this agreement provides the
Tribe substantial benefits that create a unique opportunity for the
Tribe to operate video lottery terminals in an economic environment
of limited competition from gaming on non-Indian lands in Texas
that is restricted to licensed racetracks in existence in 2004 with
minimum requirements for live racing. The parties are mindful that
this unique environment is of economic value to the Tribe. In
consideration for the substantial rights enjoyed by the Tribe, and
in further consideration for the State's willingness to enter into
this gaming agreement and allow the Tribe the opportunity to
operate video lottery terminals connected to the State's video
lottery system, the Tribe has agreed to provide to the State, on a
sovereign-to-sovereign basis, a portion of revenue generated by
video lottery terminals on Indian lands and to collect and remit to
the comptroller State sales and use taxes and State taxes on motor
fuels, alcoholic beverages, cigarettes and tobacco products, and
hotel occupancy. The requirement to collect and remit these State
taxes does not apply to taxes on the sale, use, or consumption of an
item by a member of the Tribe.
Sec. 4.7. The Tribe desires to offer the play of video
lottery terminals, as a means of generating revenue for the support
of tribal governmental programs, such as health care, housing,
sewer and water projects, police, corrections, fire, judicial
services, highway and bridge construction, general assistance for
tribal elders, day care for the children, economic development,
educational opportunities, and other typical and valuable
governmental services and programs for tribal members.
Sec. 4.8. The State recognizes that the positive effects of
this gaming agreement may extend beyond the Tribe's lands to the
Tribe's neighbors and surrounding communities and will generally
benefit all of Texas. These positive effects and benefits may
include not only those described in Section 4.7, but also may
include increased tourism and related economic development
activities that, through the Tribe's revenue sharing with the
State, will generate additional funds for the public education
system and other state governmental programs.
Sec. 4.9. The Tribe and the State jointly wish to protect
their citizens from any criminal involvement in the gaming
operations regulated under this gaming agreement.
Sec. 4.10. Nothing in this agreement shall supplant the
role or duties of the Texas Department of Public Safety under state
law. The Texas Racing Commission and the Texas Comptroller of
Public Accounts do not have any role in regulation or oversight of
gaming activities conducted by a Tribe.
Sec. 4.11. The terms of this gaming agreement strictly
define and limit the relationship of the parties. Nothing in this
gaming agreement shall be construed to create or imply a joint
venture, partnership, principal/agent, or any other relationship
between the parties.
SECTION 5.0. CLASS III GAMING AUTHORIZED AND PERMITTED.
Sec. 5.1. The Tribe is hereby authorized and permitted to
engage only in the Class III gaming activities expressly referred
to in Section 6.0 and may not engage in Class III gaming that is not
expressly authorized in that section. Nothing in this agreement
shall be construed to allow Internet gaming.
SECTION 6.0. AUTHORIZATION OF VIDEO LOTTERY TERMINALS.
Sec. 6.1. Authorized and Permitted Class III Gaming. The
Tribe is hereby authorized and permitted to operate the following
Class III gaming under the terms and conditions set forth in this
agreement.
Sec. 6.2. The Tribe and State agree that the Tribe is
authorized to operate video lottery terminals only in accordance
with this gaming agreement. However, nothing in this agreement
limits any right of the Kickapoo Traditional Tribe of Texas to
operate any game that is Class II under IGRA and Class II games are
not subject to the exclusivity payments required under this gaming
agreement.
Sec. 6.2.1. Operation of Video Lottery Terminals. Video
lottery terminals must be operated in connection with the video
lottery system and at all times be connected through communication
technology or other video lottery equipment controlled by the State
to the State controlled and operated video lottery central system.
The Tribe may enter into a management gaming agreement, for a third
party video lottery manager or the Tribe may act as the video
lottery manager.
(a) Third Party Video Lottery Manager. If the Tribe enters
into a management gaming agreement for a third party video lottery
manager, then the manager must be licensed by the Texas Lottery
Commission under Section 466.5034, Texas Government Code, and all
video lottery operations shall be subject to and in strict
compliance with Subchapter K, Chapter 466, Texas Government Code.
Any video lottery manager conducting business on Indian lands shall
indemnify and hold harmless the State and the commission and all
officers and employees of both from any and all claims which may be
asserted against a license holder, the commission, the State, and
the members, officers, employees, and authorized agents of either,
arising from the license holder's participation in the video
lottery system authorized under the gaming agreement.
(b) Tribe as Video Lottery Manager. If the Tribe elects to
manage video lottery terminal operations, then Sections 7.0 through
14.0 of this agreement govern the procurement and operation of the
video lottery terminals on the Indian lands of the Tribe.
Sec. 6.3. In order to remain eligible to operate video
lottery terminals under this gaming agreement, the Tribe must
strictly comply with all requirements of the gaming agreement,
timely file all reports required by this gaming agreement, and, as
applicable, by Chapter 466, Texas Government Code, timely remit all
payments to the State required under this gaming agreement or
applicable state law, including the taxes collected as provided by
Section 4.6.
Sec. 6.4. Regardless of ownership of video lottery
terminals, the state shall own all video lottery games.
SECTION 7.0. PROCUREMENT OF VIDEO LOTTERY TERMINALS.
Sec. 7.1. All video lottery terminals shall be procured
only from a video lottery terminal provider registered with the
Texas Lottery Commission under Section 466.5033, Texas Government
Code. The Tribe may not enter into, or continue to make payments
pursuant to, any contract or agreement for the provision of video
lottery equipment with any person who is not registered by the
commission as a video lottery terminal provider under Section
466.5033, Texas Government Code. Any agreement between the Tribe
and a video lottery terminal provider shall be deemed to include a
provision for the agreement's termination without further
liability on the part of the Tribe, except for the bona fide
repayment of all outstanding sums, exclusive of interest, owed as
of, or payment for services or materials received up to, the date of
termination, on revocation or non-renewal of the video lottery
terminal provider's registration.
Sec. 7.2. The Texas Lottery Commission shall provide the
Tribe a list of registered video lottery terminal providers,
commission approved video lottery games, and commission approved
video lottery terminals. A video lottery terminal that has not been
authorized by the commission may not be operated by the Tribe.
Sec. 7.3. Any order placed for video lottery terminals must
be filed with the commission simultaneously with its submission to
a commission-approved video lottery terminal provider.
Sec. 7.4. The Tribe or the video lottery manager shall
provide all necessary capital investments and required
improvements at a video lottery terminal establishment.
SECTION 8.0. LICENSING.
Sec. 8.1. Gaming Ordinance and Regulations. All video
lottery operations conducted under this agreement, at a minimum,
shall comply with all terms and conditions of this gaming
agreement, a Gaming Ordinance adopted by the Tribe and approved in
accordance with this agreement and any applicable federal law, and
with all rules, regulations, procedures, specifications, and
standards adopted by the TCA. All licensing related to the
operation of video lottery terminals shall be conditioned on an
agreement by the license holder to indemnify and hold harmless the
State and the Texas Lottery Commission and all officers and
employees of both from any and all claims which may be asserted
against a license holder, the commission, the State and the
members, officers, employees, and authorized agents of either
arising from the license or registration holder's participation in
the video lottery system authorized under this agreement.
Sec. 8.2. Tribal Ownership and Regulation of Gaming
Operation. Except as otherwise provided by this agreement, the
Tribe shall have the sole proprietary interest in the video lottery
terminal establishment and video lottery terminals. This provision
may not be construed to prevent the Tribe from granting security
interests or other financial accommodations to secured parties,
lenders or others, or to prevent the Tribe from entering into leases
or financing agreements or a gaming management agreement with a
video lottery manager.
Sec. 8.3. Government-to-Government Cooperation. The
parties intend that the licensing process provided for in this
gaming agreement shall involve joint cooperation between the TCA
and the Texas Lottery Commission, as more particularly described
herein.
Sec. 8.4. Video Lottery Terminal Establishment. (a) Any
video lottery terminal establishment authorized by this agreement
shall be operated by a licensed video lottery manager or the Tribe
and licensed by the TCA in conformity with the requirements of this
gaming agreement, the Tribal Gaming Ordinance, and any applicable
federal law. The license shall be reviewed and renewed, if
appropriate, every two years thereafter. Verification that this
requirement has been satisfied shall be provided by the Tribe to the
Texas Lottery Commission every two years. The TCA's certification
to that effect shall be posted in a conspicuous and public place in
the video lottery terminal establishment at all times.
(b) In order to protect the health and safety of all video
lottery terminal establishment patrons, guests, and employees, all
video lottery terminal establishments of the Tribe constructed
after the effective date of this gaming agreement, and all
expansions or modifications to a site facility for a video lottery
terminal establishment in existence as of the effective date of
this gaming agreement, shall meet or exceed the building and safety
codes of the Tribe. As a condition for engaging in that
construction, expansion, modification, or renovation, the Tribe
shall amend the Tribe's existing building and safety codes if
necessary, or enact such codes if there are none, so that they meet
the standards of the building and safety codes of any county in
which the video lottery terminal establishment is located,
including all uniform fire, plumbing, electrical, mechanical, and
related codes then in effect. Nothing herein shall be deemed to
confer jurisdiction on any county or the State with respect to any
reference to such building and safety codes. Any construction,
expansion, or modification must also comply with the federal
Americans with Disabilities Act of 1990 (42 U.S.C. Sec. 12101 et
seq.), as amended.
(c) Any video lottery terminal establishment shall be
issued a certificate of occupancy by the TCA prior to occupancy if
it was not used for any lawful gaming prior to the effective date of
this gaming agreement, or, if it was so used, within one year after
the effective date. The issuance of this certificate shall be
reviewed for continuing compliance every two years thereafter.
Inspections by qualified building and safety experts shall be
conducted under the direction of the TCA as the basis for issuing
any certificate hereunder. The TCA shall determine and certify
that, as to new construction or new use for gaming activities, the
video lottery terminal establishment meets the Tribe's building and
safety code, or, as to facilities or portions of facilities that
were used for the Tribe's gaming before this gaming agreement, that
the video lottery terminal establishment or portions of the
establishment do not endanger the health or safety of occupants or
the integrity of the video lottery system. The Tribe may not offer
video lottery gaming in a video lottery terminal establishment that
is constructed or maintained in a manner that endangers the health
or safety of occupants or the integrity of the video lottery system.
(d) The State shall designate an agent or agents to be given
reasonable notice of each inspection by the TCA's experts, which
State agents may accompany any such inspection. The Tribe agrees to
correct any video lottery terminal establishment condition noted in
an inspection that does not meet the standards set forth in
Subsections (b) and (c). The TCA and the State's designated agent
or agents shall exchange any reports of an inspection within 10 days
after completion of the report, and the reports shall also be
separately and simultaneously forwarded by both agencies to the
Tribal chairperson. On certification by the TCA's experts that a
video lottery terminal establishment meets applicable standards,
the TCA shall forward the experts' certification to the State
within 10 days of issuance. If the State's agent objects to that
certification, the Tribe shall make a good faith effort to address
the State's concerns, but if the State does not withdraw its
objection, the matter will be resolved in accordance with the
dispute resolution provisions of this gaming agreement.
Sec. 8.5. Suitability Standard Regarding Tribal Gaming
Licenses. In reviewing an application for a tribal gaming license,
and in addition to any standards set forth in the Tribal gaming
ordinance, the TCA shall consider whether issuance of the license
is inimical to public health, safety, or welfare, and whether
issuance of the license will undermine public trust that the
Tribe's operation of video lottery terminals, or tribal government
gaming generally, is free from criminal and dishonest elements and
would be conducted honestly. A license may not be issued unless,
based on all information and documents submitted, the TCA is
satisfied that the applicant, in addition to any other criteria in
any applicable federal law is all of the following:
(a) a person of good character, honesty, and integrity;
(b) a person whose prior activities, criminal record (if
any), reputation, habits, and associations do not pose a threat to
the security and integrity of the lottery or to the public interest
of the State or to the effective operation and control of the
lottery, or create or enhance the dangers of unsuitable, unfair, or
illegal practices, methods, or activities in the conduct of the
lottery, or in the carrying on of the business and financial
arrangements incidental thereto; and
(c) a person who in all other respects is qualified to be
licensed as provided in this gaming agreement, any applicable
federal law, the Tribal Gaming Ordinance, and any other criteria
adopted by the TCA or the Tribe. An applicant may not be found to be
unsuitable solely on the ground that the applicant was an employee
of a tribal gaming operation in Texas that was conducted before the
effective date of this gaming agreement. Employment in an
unauthorized gaming operation in Texas subsequent to the effective
date of this agreement, however, shall impose a presumption of
unsuitability.
Sec. 8.6. Gaming Employees. (a) Every gaming employee
shall obtain, and thereafter maintain current, a valid tribal
gaming license, which shall be subject to biennial renewal,
provided that in accordance with Section 8.8.2, a person may be
employed on a temporary or conditional basis pending completion of
the licensing process.
(b) Without the concurrence of the Texas Lottery
Commission, the Tribe may not employ or continue to employ any
person whose application to the commission for a registration,
license, determination of suitability, or other regulatory
approval, or for a renewal of a registration, license,
determination of suitability, or other regulatory approval, has
been denied or has expired without renewal.
Sec. 8.7. Financial Sources. Any person providing
financing, directly or indirectly, to the Tribe's video lottery
terminal establishment or operation of video lottery terminals
shall be licensed by the TCA before receipt of that financing,
provided that any person who is providing financing at the time of
the execution of this gaming agreement shall be licensed by the TCA
within ninety (90) days of such execution. The licenses shall be
reviewed at least every two years for continuing compliance. In
connection with the review, the TCA shall require the Financial
Source to update all information provided in the previous
application. Any agreement between the Tribe and a Financial
Source is deemed to include a provision for its termination without
further liability on the part of the Tribe, except for the bona fide
repayment of all outstanding sums, exclusive of interest, owed as
of the date of termination, on revocation or non-renewal of the
Financial Source's license by the TCA based on a determination of
unsuitability by the Texas Lottery Commission. The Tribe may not
enter into, or continue to make payments pursuant to any contract or
agreement for the provision of financing with any person whose
application to the commission for a determination of suitability
has been denied or has expired without renewal. A video lottery
terminal provider who provides financing exclusively in connection
with the sale or lease of video lottery equipment obtained from that
video lottery terminal provider may be registered solely in
accordance with the commission's registration procedures for video
lottery terminal providers. The TCA may, in its discretion,
exclude from the licensing requirements of this section, financing
provided by:
(1) a federally regulated or state-regulated bank,
savings and loan, or other federally regulated or state-regulated
lending institution;
(2) any agency of the federal, state, or local
government; or
(3) any investor who, alone or in conjunction with
others, holds less than 10 percent of any outstanding indebtedness
evidenced by bonds issued by the Tribe.
Sec. 8.8. Processing License Applications. Each applicant
for a tribal gaming license shall submit the completed application
on forms prescribed by the TCA and approved by the Texas Lottery
Commission, along with the required information and an application
fee, to the TCA in accordance with the rules and regulations of that
agency. The parties agree that for purposes of this agreement, the
standards set forth under federal law with regard to information
required for Tribal gaming operation applications shall govern.
Accordingly, at a minimum, the TCA shall require submission and
consideration of all information required under federal law,
including 25 C.F.R. Section 556.4, for licensing primary management
officials and key employees. For applicants who are business
entities, the licensing provisions apply to the entity and:
(a) each officer and director;
(b) each principal management employee, including any chief
executive officer, chief financial officer, chief operating
officer, and general manager;
(c) each owner or partner, if an unincorporated business;
(d) each shareholder who owns more than 10 percent of the
shares of the corporation, if a corporation; and
(e) each person or entity, other than a financial
institution the TCA has determined does not require a license under
the preceding section, that, alone or in combination with others,
has provided financing in connection with any video lottery
equipment or video lottery terminal establishment under this gaming
agreement, if that person or entity provided more than five percent
of:
(1) the start-up capital;
(2) the operating capital over a 12-month period; or
(3) a combination thereof.
For purposes of this section, if any commonality of the
characteristics identified in Subsections (a) to (e), inclusive,
exist between any two or more entities, the entities may be deemed
to be a single entity. Nothing herein precludes the Tribe or TCA
from requiring more stringent licensing requirements.
Sec. 8.8.1. Background Investigations of Applicants. (a)
The TCA shall conduct or cause to be conducted all necessary
background investigations reasonably required to determine that
the applicant is qualified for a tribal gaming license under the
standards set forth herein, and to fulfill all requirements for
licensing under any applicable federal law, the Tribal Gaming
Ordinance, and this gaming agreement. The TCA may not issue any
license other than a temporary license until a determination is
made that the qualifications have been met.
(b) Instead of completing its own background investigation,
and to the extent that doing so does not conflict with or violate
any applicable federal law or the Tribal Gaming Ordinance, the TCA
may contract with the Texas Lottery Commission or an independent
contractor approved by the commission for the conduct of background
investigations. An applicant for a tribal gaming license must
provide releases to the commission to make available to the TCA
background information regarding the applicant. The commission
shall cooperate in furnishing to the TCA that information, unless
doing so would violate any agreement the commission has with a
source of the information other than the applicant, or would impair
or impede a criminal investigation, or unless the TCA cannot
provide sufficient safeguards to assure the commission that the
information will remain confidential.
Sec. 8.8.2. Temporary Licensing of Employees.
Notwithstanding any contrary provision in this gaming agreement,
the TCA may issue a temporary license and may impose specific
conditions on the license pending completion of the applicant's
background investigation as the TCA in its sole discretion shall
determine, if:
(a) the applicant for a tribal gaming license has completed
a license application in a manner satisfactory to the TCA; and
(b) that agency has conducted a preliminary background
investigation, and the investigation or other information held by
that agency does not indicate:
(1) that the applicant has a criminal history that
could pose a threat to the security and integrity of the lottery or
to the public interest of the State or the effective operation and
control of the lottery, or create or enhance the dangers of
unsuitable, unfair, or illegal practices, methods, or activities in
the conduct of the lottery, or in the carrying on of the business
and financial arrangements incidental thereto;
(2) other information in his or her background that
would either disqualify the applicant from obtaining a license or
cause a reasonable person to investigate further before issuing a
license; or
(3) that the applicant is otherwise unsuitable for
licensing.
(c) The TCA may require special fees to issue or maintain a
temporary license.
(d) A temporary license shall remain in effect until
suspended or revoked, or until a final determination is made on the
application. At any time after issuance of a temporary license, the
TCA may suspend or revoke the temporary license in accordance with
Sections 8.9.1 or 8.9.5, and the Texas Lottery Commission may
request suspension or revocation in accordance with Section 8.9.
(e) For purposes of this agreement, the parties agree that
the standards set forth in 25 C.F.R. Part 558 govern licensing and
investigations required under the provisions of this agreement.
Nothing herein shall be construed to relieve the Tribe of any
obligation under this agreement to comply with the standards set
forth in 25 C.F.R. Part 558.
Sec. 8.9. Tribal Gaming License Issuance. (a) On
completion of the necessary background investigation, the TCA may
issue a tribal gaming license on a conditional or unconditional
basis. Nothing herein shall create a property or other right of an
applicant in an opportunity to be licensed, or in a license itself,
both of which shall be considered to be privileges granted to the
applicant in the sole discretion of the TCA subject to oversight by
the Texas Lottery Commission as provided herein. Any license,
registration, suitability, qualification issued, or other
regulatory approval granted pursuant to or in compliance with this
gaming agreement is a revocable privilege, and a holder does not
acquire any vested right therein or thereunder.
(b) State and Tribal courts shall have no jurisdiction to
review decisions to deny, limit, or condition such licenses,
registration, suitability, qualification, or requests for approval
unless the judicial review is sought on the ground that such a
denial, limitation, or condition is proven by clear and convincing
evidence to be based on a suspect classification such as race,
color, religion, gender, or national origin, protected under the
Equal Protection Clause of the United States Constitution.
Sec. 8.9.1. Denial, Suspension, or Revocation of Licenses.
(a) Any application for a tribal gaming license may be denied, and
any license issued may be revoked, if the TCA determines the
application is incomplete or deficient, or if the applicant is
determined to be unsuitable or otherwise unqualified for the gaming
license. Pending consideration of revocation, the TCA may suspend
a license in accordance with Section 8.9.5. All rights to notice and
hearing shall be governed by tribal law, as to which the applicant
will be notified in writing along with notice of an intent to
suspend or revoke the license.
(b) On receipt of notice that the Texas Lottery Commission
has determined a person would be unsuitable for licensure in a video
lottery terminal establishment or related to video lottery terminal
operations subject to the jurisdiction of the commission, the TCA
shall promptly revoke any license issued to the person.
Sec. 8.9.2. Renewal of Licenses; Extensions; Further
Investigation. The term of a tribal gaming license may not exceed
five years, and application for renewal of a license must be made
before the license's expiration. Applicants for renewal of a
license shall provide updated material as requested, on the
appropriate renewal forms, but, at the discretion of the TCA, may
not be required to resubmit historical data previously submitted or
that is otherwise available to the TCA. At the discretion of the
TCA, an additional background investigation may be required at any
time if the TCA determines the need for further information
concerning the applicant's continuing suitability or eligibility
for a license. Before renewing a license, the TCA shall deliver to
the Texas Lottery Commission copies of all information and
documents received in connection with the application for renewal.
Sec. 8.9.3. Identification Cards. The TCA shall require
all persons who are required to be licensed to wear, in plain view
at all times while in the video lottery terminal establishment,
identification badges issued by the TCA. Identification badges
must include a photograph and an identification number that is
adequate to enable TCA agents to readily identify the person and
determine the validity and date of expiration of the license.
Sec. 8.9.4. Fees for Tribal Gaming License. The fees for all
tribal gaming licenses shall be set by the TCA.
Sec. 8.9.5. Suspension of Tribal Gaming License. The TCA
may summarily suspend a tribal gaming license if the TCA determines
that the continued licensing of the person or entity could
constitute a threat to the public health or safety or may violate
the TCA's licensing or other standards or any provision of
applicable federal or state law or of this agreement. Any right to
notice or hearing in regard thereto shall be governed by Tribal law
provided the law is not inconsistent with any provision of this
agreement.
Sec. 8.9.6. State Certification Process. (a) On receipt of
a completed tribal gaming license application and a determination
by the TCA that it intends to issue the earlier of a temporary or
permanent license, the TCA shall transmit to the Texas Lottery
Commission a notice of intent to license the applicant, together
with all of the following:
(i) a copy of all tribal license application materials
and information received by the TCA from the applicant;
(ii) an original set of fingerprint cards;
(iii) a current photograph; and
(iv) except to the extent waived by the commission,
the releases of information, waivers, and other completed and
executed forms obtained by the TCA.
(b) Except for an applicant for licensing as a non-key
gaming employee, the TCA shall require the applicant to file an
application with the Texas Lottery Commission, before issuance of a
temporary or permanent tribal gaming license, for a determination
of suitability for licensure under Subchapter K, Chapter 466, Texas
Government Code. Investigation and disposition of that application
is governed entirely by state law, and the commission shall
determine whether the applicant would be found suitable for
licensure in a video lottery terminal establishment or in relation
to video lottery terminal operations at a racetrack subject to the
commission's jurisdiction. Additional information may be required
by the commission to assist in a background investigation, provided
that the commission requirement is no greater than that which may be
required of applicants for a State video lottery retailer license
in connection with video lottery operations at a racetrack. A
determination of suitability is valid for the term of the tribal
license held by the applicant, and the TCA shall require a license
holder to apply for renewal of a determination of suitability at the
time the license holder applies for renewal of a tribal gaming
license. The commission and the TCA, together with tribal gaming
agencies under other gaming agreements, shall cooperate in
developing standard licensing forms for tribal gaming license
applicants, on a statewide basis, that reduce or eliminate
duplicative or excessive paperwork, and the forms and procedures
must take into account the Tribe's requirements under any
applicable federal law and the expense thereof.
(c) Background Investigations of Applicants. On receipt of
completed license application information from the TCA, the Texas
Lottery Commission may conduct a background investigation pursuant
to state law to determine whether the applicant would be suitable to
be licensed for association with a video lottery terminal
establishment or operation subject to the jurisdiction of the
commission. If further investigation is required to supplement the
investigation conducted by the TCA, the applicant will be required
to pay an application fee charged by the commission in an amount
that reimburses the commission for actual costs incurred, provided
that in requesting any deposit, the commission shall take into
consideration reports of the background investigation already
conducted by the TCA and the NIGC, if any. Failure to pay the
application fee or deposit may be grounds for denial of the
application by the commission. The commission and TCA shall
cooperate in sharing as much background information as possible,
both to maximize investigative efficiency and thoroughness, and to
minimize investigative costs. On completion of the necessary
background investigation or other verification of suitability, the
commission shall issue a notice to the TCA certifying that the State
has determined that the applicant would be suitable, or that the
applicant would be unsuitable, for licensure in a video lottery
terminal establishment subject to the jurisdiction of the
commission and, if unsuitable, stating the reasons therefore.
(d) The Tribe, on a monthly basis, shall provide the Texas
Lottery Commission with the name, badge identification number, and
job descriptions of all non-key gaming employees.
(e) The Tribe shall, at all times, have a list of key
employees on file with the Texas Lottery Commission and shall
advise the commission of any change to the list within 10 days.
(f) Before denying an application for a determination of
suitability, the Texas Lottery Commission shall notify the TCA and
afford the Tribe an opportunity to be heard. The courts of the
State and the Tribe shall have no jurisdiction to review decisions
to deny, limit, or condition such licenses, registration,
suitability, qualification, or requests for approval unless such a
denial, limitation, or condition is proven by clear and convincing
evidence to be based on a suspect classification such as race,
color, religion, sex, or national origin, protected under the Equal
Protection Clause of the United States Constitution. Under these
circumstances, any requirement for tribal court exhaustion is
hereby waived by the Tribe.
Sec. 8.9.7. State Assessment for Costs of Oversight. (a)
The State shall make annually an assessment sufficient to
compensate the State for actual costs of oversight of the operation
of video lottery terminals pursuant to this gaming agreement.
(b) On or before August 1, annually, beginning with the
first such date following the implementation of video lottery
operations under this gaming agreement, the State shall render to
the TCA a statement of the total cost of oversight and any law
enforcement for the preceding fiscal year ending July 31 together
with proposed assessments for the forthcoming fiscal year based on
the preceding fiscal year cost. In the first year of the effective
date of this gaming agreement, however, the assessment must be
prospective and based upon a pro rata allocation of costs if this
gaming agreement becomes operative in the course of a fiscal year
and must be established following consultation with the TCA. On
September 1 annually, the State, after receiving any objections to
the proposed assessments and making such changes or adjustments as
may be indicated, shall provide a written notice that assesses the
Tribe for the costs of the oversight and any necessary law
enforcement. Annually, the Tribe shall pay one-third of the
assessment within 20 days of the receipt of the written notice and
shall pay the remaining two-thirds of the assessment in two equal
payments on January 1 and April 1. Such payments must be deposited
with the Texas Lottery Commission in a video lottery account
established solely for funds related to video lottery terminals
operated by the Tribe.
(c) In the event that the total assessment paid by the Tribe
during any fiscal year of the State exceeds the actual costs of the
oversight and any necessary law enforcement during that fiscal
year, the State shall adjust the assessment for the succeeding
fiscal year in the amount necessary to offset such excess
assessment. If the Tribe is aggrieved because of any failure by the
State to make such an adjustment, any claim for such an adjustment
must be presented in the appeal of the assessment as provided in
Section 8.9.8.
Sec. 8.9.8. Procedure for Appeal of Assessments or Payments
Made to the State. If the Tribe is aggrieved because of any
assessment levied or payment made to the State as required by this
gaming agreement, the Tribe may, not later than one month from the
time provided for the payment, appeal an assessment or payment to
the Texas Lottery Commission. If the Tribe is aggrieved by the
commission's decision, it may invoke the dispute resolution
provisions of this agreement provided that the Tribe must prove by
clear and convincing evidence that any collection or assessment of
payment to the State was inappropriate.
Sec. 8.9.9. Collection and Distribution of Revenue. (a)
The Tribe shall establish separate electronic funds transfer
accounts for the purposes of depositing money from video lottery
terminal operations, making payments to the Texas Lottery
Commission, and receiving payments from the commission.
(b) The State's share of net terminal income of the Tribe's
video lottery terminal operations shall be transferred to the Texas
Lottery Commission through the electronic transfer of funds daily
by the commission. The commission shall establish the procedures
for depositing money from video lottery terminal operations into
electronic funds transfer accounts, as well as procedures regarding
the handling of money from video lottery terminal operations. The
State's share of net terminal income from video lottery terminal
operations shall be held in trust for the State.
(c) Unless directed otherwise by the Texas Lottery
Commission, the Tribe shall maintain in its account the State's
share of the net terminal income from the operation of video lottery
terminals, to be electronically transferred by the commission.
Upon the Tribe's failure to maintain this balance, the commission
may disable all of the Tribe's video lottery terminals until full
payment of all amounts due is made. Interest shall accrue on any
unpaid balance at a rate consistent with the amount charged under
Section 111.060, Texas Tax Code. The interest shall begin to accrue
on the date payment is due to the commission. In the commission's
sole discretion, rather than disable the Tribe's video lottery
terminals, the commission may elect to impose contract penalties in
an amount to be determined by the commission not to exceed $250,000
for each violation. If the Tribe fails to remedy the violation,
including payment of any amounts due to the State, within 10 days,
the commission may disable the Tribe's video lottery terminals or
use any other means for collection agreed to by the Tribe instead of
disabling the Tribe's video lottery terminals.
(d) The Tribe is solely responsible for resolving any income
discrepancies between actual money collected and the net terminal
income reported by the video lottery central system. Unless an
accounting discrepancy is resolved in favor of the Tribe, the Texas
Lottery Commission may not make any credit adjustments. Any
accounting discrepancies which cannot be resolved shall be resolved
in favor of the commission.
(e) Tribes shall remit payment as directed by the Texas
Lottery Commission if the electronic transfer of funds is not
operational or the commission notifies the Tribe that remittance by
this method is required. The Tribe shall report the State's share
of net terminal income, and remit the amount as generated from its
terminals during the reporting period.
(f) The Tribe agrees to furnish to the Texas Lottery
Commission all information and bank authorizations required to
facilitate the timely transfer of money to the commission. The
Tribe agrees to provide the commission 30 days' advance notice of
any proposed account changes in order to assure the uninterrupted
electronic transfer of funds. However, in no event shall the
commission be responsible for any interruption or delays in
transferring of funds. Rather, the Tribe shall be responsible for
any interruption or delay in transferring of funds.
SECTION 9.0. RULES AND REGULATIONS; MINIMUM REQUIREMENTS
FOR OPERATIONS.
Sec. 9.1. Regulations. The Tribe shall promulgate any
rules and regulations necessary to implement this gaming agreement,
which at a minimum shall expressly include or incorporate by
reference all requirements of this gaming agreement. Nothing in
this gaming agreement shall be construed to affect the Tribe's
right to amend its rules and regulations, provided that any such
amendment shall be in conformity with this gaming agreement. The
Texas Lottery Commission may propose additional rules and
regulations related to implementation of this gaming agreement to
the TCA at any time, and the TCA shall give good faith consideration
to such suggestions and shall notify the commission of its response
or action with respect thereto.
Sec. 9.2. Compliance; Internal Control Standards. All
video lottery operations shall comply with, and all video lottery
games approved under the procedures set forth in this gaming
agreement shall be operated in accordance with the requirements set
forth in this gaming agreement and applicable state law. The
parties agree that for purposes of this agreement, the standards
set forth in 25 C.F.R. Part 542 shall govern minimum requirements
for tribal internal control standards. Accordingly, the Tribe
agrees that all tribal video lottery operations shall comply with
tribal internal control standards that provide a level of control
that equals or exceeds those set forth in 25 C.F.R. Part 542.
Sec. 9.3. Records. In addition to other records required to
be maintained herein, the Tribe shall maintain the following
records related to implementation of this gaming agreement in
permanent form and as written or entered, whether manually or by
computer, and which shall be made available for inspection by the
Texas Lottery Commission for no less than four years from the date
generated:
(a) a log recording all surveillance activities of the video
lottery terminal establishment, including, but not limited to,
surveillance records kept in the normal course of operations and in
accordance with industry standards; provided, notwithstanding
anything to the contrary herein, surveillance records may, at the
discretion of the Tribe, be destroyed if no incident has been
reported within one (1) year following the date such records were
made. Records, as used in this gaming agreement, shall include
video tapes and any other storage media;
(b) payout from the conduct of all video lottery games;
(c) maintenance logs for all video lottery gaming equipment
used by the video lottery terminal establishment;
(d) security logs as kept in the normal course of conducting
and maintaining security at the video lottery terminal
establishment, which at a minimum shall conform to industry
practices for such reports. The security logs shall document any
unusual or nonstandard activities, occurrences, or events at or
related to the video lottery terminal establishment or in
connection with the video lottery terminal operations. Each
incident, without regard to materiality, shall be assigned a
sequential number for each such report. At a minimum, the security
logs shall consist of the following information, which shall be
recorded in a reasonable fashion noting:
(1) the assigned number of the incident;
(2) the date of the incident;
(3) the time of the incident;
(4) the location of the incident;
(5) the nature of the incident;
(6) the identity, including identification
information, of any persons involved in the incident and any known
witnesses to the incident; and
(7) the Tribal compliance officer making the report
and any other persons contributing to its preparation;
(e) books and records on video lottery terminals, as
described more particularly in Section 9.4 below, shall be
maintained in accordance with generally accepted accounting
principles (GAAP) and the standards set forth in Section 9.4 below;
and
(f) all documents generated in accordance with this gaming
agreement.
Sec. 9.4. ACCOUNTING.
Sec. 9.4.1. Accounting Records Required. The Tribe agrees
with regard to any video lottery terminal operations, to keep
accurate, complete, legible, and permanent records of all
transactions pertaining to revenue for six years. If the Tribe
keeps permanent records in a computerized or microfiche fashion, it
shall provide the Texas Lottery Commission, upon request, with a
detailed index to the microfiche or computer records that is
indexed by date.
Sec. 9.4.2. Accounting Systems. The Tribe agrees with
regard to all video lottery terminal operations, to keep general
accounting records on a double entry system of accounting,
maintaining detailed, supporting, and subsidiary records,
including:
(a) detailed records that identify the revenues, expenses,
assets, liabilities, and equity of the video lottery terminal
establishment and operations;
(b) records required by the Tribe's Minimum Internal
Control System;
(c) journal entries prepared by the Tribe and its
independent accountant; and
(d) any other records that the TCA may require.
Sec. 9.4.3. Net Terminal Income and Expenses. The Tribe
agrees with regard to all video lottery terminal operations, to
create and maintain records sufficiently accurate to reflect the
net terminal income and expenses of the video lottery terminal
establishment and operation of video lottery terminals.
Sec. 9.4.4. Financial Statements. (a) The Tribe agrees to
prepare financial statements covering all financial activities of
the video lottery terminal establishment and operation of video
lottery terminals for a business year. The statements required by
this subsection must be presented on a comparative basis.
(b) If the Tribe changes its business year, it must prepare
and submit audited or reviewed financial statements to the Texas
Lottery Commission covering the "stub" period from the end of the
previous business year to the beginning of the new business year not
later than 120 days after the end of the stub period or incorporate
the financial results of the stub period in the statements for the
new business year.
Sec. 9.5. Audits. The parties agree that for purposes of
this agreement, the standards set forth in 25 C.F.R. Section 571.12
shall govern audits required under this agreement. The TCA shall
ensure that an annual independent financial audit of the Tribe's
conduct of video lottery games subject to this gaming agreement and
of the video lottery terminal establishment is secured. The audit
shall, at a minimum, examine revenues and expenses in connection
with the operation of video lottery terminals in accordance with
generally accepted auditing standards and shall include, but not be
limited to, those matters necessary to verify the determination of
net terminal income and the basis of the payments made to the State
pursuant to this gaming agreement.
(a) The auditor selected by the TCA shall be a firm of known
and demonstrable experience, expertise, and stature in conducting
audits of this kind and scope and shall be approved by the Texas
Lottery Commission.
(b) The audit shall be concluded within five months
following the close of each calendar year, provided that extensions
may be requested by the Tribe and may not be refused by the State
where the circumstances justifying the extension request are beyond
the Tribe's control. An extension, however, may not extend the
conclusion of an audit required by this gaming agreement to more
than 12 months following the close of the relevant calendar year.
(c) The audit of the operation of video lottery terminals
may be conducted as part of or in conjunction with the audit of the
video lottery terminal establishment, but if so conducted shall be
separately stated for the reporting purposes required herein.
(d) The audit shall conform to generally accepted auditing
standards. As part of the audit report, the auditor shall certify
to the TCA that, in the course of the audit, the auditor discovered
no matters within the scope of the audit which were determined or
believed to be in violation of any provision of this gaming
agreement. If the auditor discovers matters determined or believed
to be in violation of any provision of this gaming agreement, the
auditor shall immediately notify the Texas Lottery Commission of
the alleged violation and the basis for the auditor's conclusion.
(e) The Tribe shall assume all costs in connection with the
audit.
(f) The audit report for the conduct of video lottery games
shall be submitted to the Texas Lottery Commission within thirty
(30) days of completion. The auditor's work papers concerning
video lottery games shall be made available to the commission upon
request.
(g) Representatives of the Texas Lottery Commission may,
upon request, meet with the auditors to discuss the work papers, the
audit, or any matters in connection therewith; provided such
discussions are limited to video lottery information and pursue
legitimate state video lottery interests.
Sec. 9.6. Security. (a) All video lottery terminals shall
be continuously monitored through the use of a closed circuit
television system that records all activity for a continuous
24-hour period. All video tapes or other media used to store video
images shall be retained for a period of at least 30 days.
(b) Access to video lottery terminal locations shall be
restricted to persons legally entitled by age under State law to
play video lottery games.
(c) The Tribe must submit for approval by the Texas Lottery
Commission a security plan and a floor plan of the area or areas
where video lottery terminals are to be operated showing video
lottery terminal locations and security camera mount locations.
This commission approved security plan shall be subject to review
by the commission which may require revision of the plan on a
biennial basis.
(d) Security personnel shall be present during all hours of
operation at each video lottery terminal establishment. The Tribe
shall employ at least the number of security personnel the Texas
Lottery Commission determines is necessary to provide for safe and
approved operation of the video lottery terminal establishment and
the safety and well-being of the players.
(e) The communication technology used in connection with
video lottery operations must meet accepted industry standards for
security sufficient to minimize the possibility of any third-party
intercepting any data transmitted to or from the video lottery
terminals.
Sec. 9.7. Exclusion of Persons. The Tribe's rules and
regulations shall require at a minimum the exclusion of persons
based on their prior conduct at the video lottery terminal
establishment or who, because of their criminal history or
association with criminal offenders, pose a threat to the integrity
of the conduct of video lottery games or may be playing video
lottery games compulsively.
(a) The TCA shall establish a list of the persons to be
excluded from any video lottery terminal establishment under this
provision.
(b) The Tribe shall employ its best efforts to exclude
persons on such list from entry into its video lottery terminal
establishment.
(c) Patrons who believe they may be playing video lottery
games on a compulsive basis may request that their names be placed
on the list. All gaming employees shall receive training on
identifying players who have a problem with compulsive playing and
shall be instructed to ask them to leave. Signs and other materials
shall be readily available to direct such compulsive players to
agencies where they may receive counseling. Notwithstanding any
other provision of this agreement, the TCA's list of self-excluded
persons shall not be open to public inspection.
(d) The Tribe or video lottery manager also may exclude any
other person for any reason not related to that person's race, sex,
national origin, physical disability, or religion.
Sec. 9.8. Sale of Alcoholic Beverages. The sale and service
of alcoholic beverages in a video lottery terminal establishment
shall be in compliance with state, federal, and tribal law in regard
to the licensing and sale of such beverages.
Sec. 9.9. Age Restrictions. (a) No person under the age of
18 shall be permitted to play video lottery games, be admitted into
any area in a video lottery terminal establishment where video
lottery games are played, nor be permitted to operate, or obtain a
prize from or in connection with the operation of, any video lottery
game, directly or indirectly. If during the term of this agreement,
the State amends its law to permit play of video lottery terminals
by persons under the age of 18, the Tribe may amend tribal law to
reduce the lawful gaming age under this agreement to correspond to
the lawful gaming age under state law.
(b) No person under the age of 18 shall be employed as a
gaming employee unless such employment would be otherwise permitted
under state law.
(c) No person under the age of 21 shall be employed in the
service of alcoholic beverages at any video lottery terminal
establishment, unless such employment would be otherwise permitted
under state law.
Sec. 9.10. Destruction of Documents. Books, records, and
other materials documenting the operation of video lottery
terminals shall be destroyed only in accordance with rules and
regulations adopted by the TCA, which at a minimum shall provide as
follows:
(a) material that might be utilized in connection with a
prize claim, including but not limited to incident reports,
surveillance records, statements, and the like, shall be maintained
at least 180 days beyond the time which a claim can be made under
this gaming agreement or, if a prize claim is made, beyond the final
disposition of such claim; and
(b) except as otherwise provided in Section 9.3(a), all
books and records with respect to the operation of video lottery
terminals or the operation of the video lottery terminal
establishment, including, but not limited to, all interim and final
financial and audit reports and materials related thereto which
have been generated in the ordinary course of business, shall be
maintained for the minimum period of four years.
Sec. 9.11. Location. The Tribe may establish facilities
for and operate video lottery terminals only on its Indian lands as
defined by Section 47(f), Article III, Texas Constitution. The
Tribe shall notify the Texas Lottery Commission of any potential
new video lottery terminal establishment following the effective
date of this gaming agreement. Nothing herein shall be construed as
expanding or otherwise altering the term "Indian lands," as that
term is defined in the Texas Constitution.
Sec. 9.12. Placement and Movement of Video Lottery
Terminals. Placement and movement of video lottery terminals
within a video lottery terminal establishment must be consistent
with a video lottery terminal floor plan approved by the Texas
Lottery Commission.
Sec. 9.13. Monitoring of Operation of Video Lottery
Terminals. All terminals connected to the video lottery system
will be continuously monitored by the Texas Lottery Commission and
disabled, when, in the commission's discretion, a problem arises
threatening the public health, safety or welfare, or financial loss
to the State, or jeopardizing the integrity of the video lottery.
Such circumstances justifying termination include, but are not
limited to, malfunction of a video lottery terminal or any game
displayed on a video lottery terminal, misuse of any video lottery
terminal or video lottery game, or a material breach by the Tribe in
the operating requirements or a material provision of this
agreement.
Sec. 9.14. Wager Limitations. The maximum wager authorized
for any single play of a video lottery terminal shall be established
by the TCA consistent with any such maximum established by rule of
the Texas Lottery Commission. During the term of this agreement,
the wager limitation set forth in this section shall be
automatically increased without the need to amend this agreement on
each two-year anniversary of the effective date to an amount equal
to the wager limitation multiplied by the CPI adjustment rate,
rounded up to the next whole dollar.
Sec. 9.15. Prizes. Payment of prizes shall be the sole and
exclusive responsibility of the Tribe or video lottery manager. No
prizes shall be paid by the Texas Lottery Commission or the State
except as otherwise authorized. Video lottery tickets shall be
redeemable only for a period of 180 days following the date of
issuance. If a claim is not made for prize money on or before the
180th day after the date on which the video lottery ticket was
issued, the prize money shall become the property of the State. The
Tribe agrees to enact rules consistent with this provision and
authorized by the commission, governing use and redemption of
prizes and credits recorded on electronic player account records,
such as players' club cards and smart cards.
Nothing herein shall limit the ability of the Tribe or video
lottery manager to provide promotional prizes, including but not
limited to, wide area progressive networks, in addition to prize
payouts regulated by the commission.
Sec. 9.16. Patron Disputes. The State and the Texas Lottery
Commission shall not be liable for any video lottery terminal
malfunction or error by the Tribe or video lottery manager that
causes credit to be wrongfully awarded or denied to players. Any
disputes arising between players and the Tribe or video lottery
manager, (i) if the fair market value of the prize is less than
$1,000, shall be resolved in accordance with commission approved
written policies of the TCA with no relief available from the
commission or the State; (ii) if the fair market value of the prize
is $1,000 or more, shall be resolved by the commission in its sole
discretion pursuant to rules established by the commission. No
court of this state or the Tribe shall have jurisdiction to review
the decision of the commission resolving a dispute between players
and the Tribe or a video lottery manager.
Sec. 9.17. Transfer of Gaming Device Operating Rights.
During the term of this agreement, the Tribe may enter into a
transfer agreement with one or more federally recognized Indian
tribes with Indian lands in this state to acquire or transfer video
lottery terminal operating rights on Indian lands. The Tribe's
acquisition or transfer of video lottery terminal operating rights
is subject to the following conditions:
(a) Gaming Agreement. Each Indian tribe that is a party to a
transfer agreement must have a valid and effective gaming agreement
with the State that contains a provision substantially similar to
the provision herein permitting transfers of the Indian tribe's
video lottery terminal operating rights.
(b) Forbearance Agreement. If the Tribe enters into a
transfer agreement to transfer some or all of its video lottery
terminal operating rights, the Tribe also shall execute a
forbearance agreement with the State. The forbearance agreement
shall include a waiver of all rights of the Tribe to put into play or
operate the number of video lottery terminal operating rights
transferred during the term of the transfer agreement.
(c) The Tribe must be operating video lottery terminals at
least equal to its current video lottery terminal allocation
before, or simultaneously with, the Tribe acquiring the right to
operate additional video lottery terminals by a transfer agreement.
The Tribe is not required to utilize any video lottery terminal
operating rights it acquires, or to utilize them before acquiring
additional video lottery terminal operating rights.
(d) The Tribe shall not at any time simultaneously acquire
video lottery terminal operating rights and transfer video lottery
terminal operating rights pursuant to transfer agreements.
Sec. 9.17.1. Transfer Agreements. The transfer of video
lottery terminal operating rights may be made pursuant to a
transfer agreement between two Indian tribes. A transfer agreement
must include the following provisions:
(a) the number of video lottery terminal operating rights
transferred and acquired;
(b) the duration of the transfer agreement;
(c) the consideration to be paid by the Indian tribe
acquiring the video lottery terminal operating rights to the Indian
tribe transferring the video lottery terminal operating rights and
the method of payment;
(d) the dispute resolution and enforcement procedures,
including a provision for the State to receive notice of any such
proceedings; and
(e) a procedure to provide quarterly notice to the Texas
Lottery Commission of payments made and received, and to provide
timely notice to the commission of disputes, revocation, amendment,
and termination.
Sec. 9.17.2. Transfer Notice. At least thirty days before
the execution of a transfer agreement the Tribe shall send to the
Texas Lottery Commission a transfer notice of intent to acquire or
transfer video lottery terminal operating rights. The transfer
notice shall include a copy of the proposed transfer agreement, the
proposed forbearance agreement, and a copy of the tribal resolution
authorizing the acquisition or transfer.
Sec. 9.17.3. Texas Lottery Commission Denial of Transfer.
The Texas Lottery Commission may deny a transfer as set forth in a
transfer notice only if:
(a) the proposed transfer violates the conditions set forth
in this agreement; or
(b) the proposed transfer agreement does not contain the
minimum requirements listed in this agreement.
The commission's denial of a proposed transfer must be in
writing, must include the specific reason(s) for the denial
(including copies of all documentation relied upon by the
commission to the extent allowed by state law), and must be received
by the Tribe within 60 days of the commission's receipt of the
transfer notice. If the Tribe disputes the commission's denial of a
proposed transfer, the Tribe shall have the right to have such
dispute resolved pursuant to the dispute resolution process
provided in Section 15.0 herein.
Sec. 9.17.4. Effective Date of Transfer. If the Tribe does
not receive a notice of denial of the transfer from the Texas
Lottery Commission within the time period specified above, the
proposed transfer agreement shall become effective on the later of
the 61st day following the commission's receipt of the transfer
notice or the date set forth in the transfer agreement.
Sec. 9.17.5. Use of Brokers. The Tribe shall not contract
with any person to act as a broker in connection with a transfer
agreement. No person shall be paid a percentage fee or a commission
as a result of a transfer agreement, nor shall any person receive a
share of any financial interest in the transfer agreement or the
proceeds generated by the transfer agreement. Any person acting as
a broker in connection with a transfer agreement is providing
gaming services.
Sec. 9.17.6. Revenue from Transfer Agreements. The Tribe
agrees that all proceeds received by the Tribe as a transferor under
a transfer agreement shall be used for the governmental purposes
permitted under this agreement for revenue generated by video
lottery terminal operations. The Tribe shall include the proceeds
in an annual audit and shall make available to the State that
portion of the audit addressing proceeds from transfer agreements.
Sec. 9.17.7. Agreed Upon Procedures Report. The Tribe
agrees to provide to the Texas Lottery Commission, either
separately or with the other party to the transfer agreement, an
agreed upon procedures report from an independent certified public
accountant. The procedures to be examined and reported upon are
whether payments made under the transfer agreement were made in the
proper amount, made at the proper time, and deposited in an account
of the Indian tribe transferring the video lottery terminal
operating rights.
Sec. 9.17.8. State Payment. Proceeds received by the Tribe
as a transferor under a transfer agreement from the transfer of
video lottery terminal operating rights are not subject to any
payment to the State under this agreement or otherwise.
Sec. 9.17.9. Access to Records Regarding Transfer
Agreements. The Texas Lottery Commission shall have access to all
records of the Tribe directly relating to transfer agreements and
forbearance agreements.
Sec. 9.18. Supervision of Patrons. The Tribe agrees to
ensure that gaming employees, at all times, monitor video lottery
terminals to prevent access to or play by persons who are under the
age of 18 years or who are visibly intoxicated.
Sec. 9.19. Hours of Operation. The Tribe may establish by
ordinance or regulation the permissible hours and days of operation
of video lottery terminal operations; provided, however, that with
respect to the sale of liquor, the Tribe agrees to adopt and comply
with standards at least as restrictive as any applicable state
liquor laws at all video lottery terminal establishments.
Sec. 9.20. Automatic Teller Machines. The Tribe agrees to
adopt and comply with a Tribal ordinance establishing responsible
restrictions on the provision of financial services at video
lottery terminal establishments. At a minimum, the ordinance shall
prohibit:
(a) locating an automatic teller machine ("ATM") adjacent
to, or in proximity to, any video lottery terminal, however, an ATM
may be installed in a video lottery terminal establishment,
provided that the Tribe adopts and complies with an ordinance
establishing standards no less restrictive than any state and
federal law governing installation of ATMs within a gaming
facility;
(b) locating in a video lottery terminal establishment an
ATM that accepts electronic benefit transfer cards issued pursuant
to a state or federal program that is intended to provide for needy
families or individuals; and
(c) accepting checks or other non-cash items issued
pursuant to a state or federal program that is intended to provide
for needy families or individuals.
Sec. 9.21. Advertising. Advertisements or promotions must
be consistent with Texas Lottery Commission determined criteria.
Sec. 9.22. Remedies and Penalties for Unlawful Gaming.
Operation or possession of any gaming devices not expressly
authorized under this gaming agreement (excluding any Class II
gaming authorized under applicable federal law) shall be considered
a material breach of the gaming agreement and justify termination
of the agreement. Under those circumstances, the State may bring an
action in state court and shall be entitled to an injunction
prohibiting the continued operation of any unlawful gaming activity
upon a showing by a preponderance of evidence that the breach has
occurred. In any such proceeding, it is the finding of the
legislature that irreparable injury and inadequate remedy at law
shall be presumed once the State has demonstrated the violation has
occurred. If the State does not seek an injunction for such a
material breach of the gaming agreement, the Tribe agrees to pay a
contract penalty of $10,000 per day for every day the violation or
breach continues. If the breach or violation is not cured within 30
days, the State shall bring an action to enjoin the unlawful conduct
and may disable all video lottery terminals operated by the Tribe or
operated by a video lottery manager on the Indian lands of the
Tribe.
SECTION 10.0. ENFORCEMENT OF GAMING AGREEMENT PROVISIONS.
Sec. 10.1. The Tribe and TCA shall be responsible for
regulating activities pursuant to this gaming agreement. As part
of its responsibilities, the Tribe shall:
(a) take reasonable measures to assure the physical safety
of video lottery terminal establishment patrons and personnel,
prevent illegal activity at the video lottery terminal
establishment, and protect any rights of patrons under the Indian
Civil Rights Act (25 U.S.C. Sections 1302-1303);
(b) promptly notify appropriate law enforcement authorities
of persons who may be involved in illegal acts in accordance with
applicable tribal, federal, and state law;
(c) assure that the construction and maintenance of the
video lottery terminal establishment meets or exceeds federal and
Tribal standards for comparable buildings and minimum standards
under this gaming agreement; and
(d) prepare adequate emergency access and preparedness
plans to ensure the health and safety of all video lottery terminal
establishment patrons. Upon the finalization of emergency access
and preparedness plans, the TCA or the Tribe shall forward copies of
such plans to the Texas Lottery Commission.
Sec. 10.2. Members and employees of the TCA shall be
licensed in accordance with the provisions of this agreement. All
licenses for members and employees of the TCA shall be issued
according to the same standards and terms applicable to video
lottery terminal establishment employees. The TCA shall employ
qualified compliance officers under the authority of the TCA. The
compliance officers shall be independent of the video lottery
terminal establishment, and shall be supervised by and accountable
only to the TCA. A TCA compliance officer shall be available to the
video lottery terminal establishment during all hours of operation
upon reasonable notice, and shall have immediate access to any and
all areas of the video lottery terminal establishment for the
purpose of ensuring compliance with the provisions of this gaming
agreement. The TCA shall investigate any such suspected or
reported violation of this gaming agreement and shall require the
correction of such violations. The TCA shall officially enter into
its files timely written reports of investigations and any action
taken thereon, and shall forward copies of such reports to the Texas
Lottery Commission within 15 days of such filing. Any such
violations shall be reported immediately to the TCA, and the TCA
shall immediately forward the same to the commission. In addition,
the TCA shall promptly report to the commission any such violations
which it independently discovers.
Sec. 10.3. In order to develop and foster a positive and
effective relationship in the enforcement of the provisions of this
gaming agreement, representatives of the TCA and the Texas Lottery
Commission shall meet, not less than on an annual basis, to review
past practices and examine methods to improve the regulatory scheme
created by this gaming agreement. The meetings shall take place at
a location mutually agreed to by the TCA and the commission. The
commission, before or during such meetings, shall disclose to the
TCA any concerns, suspected activities, or pending matters
reasonably believed to possibly constitute violations of this
gaming agreement by any person, organization, or entity, if such
disclosure will not compromise the interest sought to be protected.
Sec. 10.4. Financial Obligations of the Texas Lottery
Commission. Any financial obligation of the Texas Lottery
Commission or of the State, under this gaming agreement or arising
from the operation of the video lottery on the Tribe's Indian lands,
shall be payable solely out of the income, revenues, and receipts of
the commission resulting from the operation of video lottery
terminals on Indian lands of the Tribe.
Sec. 10.5. Penalties and Remedies for Noncompliance. (a)
Failure to timely remit revenue generated by video lottery
terminals to the Texas Lottery Commission or any sales tax or other
fee owed to the State or to timely file any report or information
required under this gaming agreement or by applicable federal or
state law shall constitute a material breach of this gaming
agreement. After receiving at least 24 hours written notice from
the commission and an additional 48 hours for the opportunity to
remedy the breach or otherwise correct the violation, the Tribe
shall be subject to contract penalties in the amount of $10,000 per
day for the breach. If the breach is not cured within 30 days, the
commission shall disable all video lottery terminals operated by
the Tribe.
(b) If the Tribe is in material breach of this agreement and
the Texas Lottery Commission exercises its right to disable all
video lottery terminals operated by the Tribe, the commission shall
have the right to enter upon the premises of any video lottery
terminal establishment on the Tribe's Indian lands and remove any
video lottery games or other video lottery equipment that is owned
by the State.
Sec. 10.6. No Liability of the State Related to
Enforcement. The State and the Texas Lottery Commission shall have
no liability related to any enforcement of the provisions of this
gaming agreement.
SECTION 11.0. STATE MONITORING OF GAMING AGREEMENT.
Sec. 11.1. The Texas Lottery Commission shall, pursuant to
the provisions of this gaming agreement, have the authority to
monitor the conduct of video lottery games to ensure that the video
lottery games are conducted in compliance with the provisions of
this gaming agreement. In order to properly monitor the conduct of
video lottery games, in addition to the State's operation and
control of the central system and video lottery system, agents of
the commission shall have reasonable access to all areas of the
video lottery terminal establishment related to the conduct of
video lottery games as provided herein:
(a) access to the video lottery terminal establishment by
the commission shall be during the video lottery terminal
establishment's normal operating hours only; provided that to the
extent such inspections are limited to areas of the video lottery
terminal establishment where the public is normally permitted,
commission agents may inspect the video lottery terminal
establishment without giving prior notice to the Tribe;
(b) any suspected or claimed violations of this gaming
agreement or of law shall be directed in writing to the TCA;
commission agents shall not interfere with the functioning of the
video lottery terminal establishment unless the public safety,
welfare, or financial loss to the State, or integrity of the state
lottery so requires; and
(c) before commission agents enter any nonpublic area of the
video lottery terminal establishment, they shall provide proper
photographic identification to the TCA. Commission agents shall be
accompanied in nonpublic areas of the video lottery terminal
establishment by a TCA agent. A one-hour notice by the commission
to the TCA may be required to assure that a TCA officer is available
to accompany commission agents at all times.
Sec. 11.2. Subject to the provisions herein, agents of the
Texas Lottery Commission shall have the right to review and copy
documents related to the operation of video lottery terminals. The
review and copying of such documents shall be during normal
business hours or hours otherwise at the Tribe's discretion.
However, the commission shall not be permitted to copy those
portions of any documents related to the Tribe's operation of video
lottery terminals that contain business or marketing strategies or
other proprietary and confidential information, including customer
lists, business plans, marketing studies, and customer
demographics or profiles. No documents of the Tribe related to its
conduct of video lottery games or copies thereof shall be released
to the public by the State. All such documents shall be deemed
confidential documents owned by the Tribe and shall not be subject
to public release by the State.
Sec. 11.3. At the completion of any commission inspection
or investigation, the Texas Lottery Commission shall forward a
written report thereof to the TCA. The TCA shall be apprised on a
timely basis of all pertinent, nonconfidential information
regarding any violation of federal, or state laws, rules or
regulations, or this gaming agreement. Nothing herein prevents the
commission from contacting Tribal or federal law enforcement
authorities concerning suspected criminal wrongdoing involving the
TCA. The TCA may interview commission agents and inspectors upon
reasonable notice and examine work papers in the same fashion that
commission agents and inspectors may examine auditors' notes and
make auditor inquiry unless providing such information to the TCA
will compromise the interests sought to be protected.
Sec. 11.4. Nothing in this gaming agreement shall be deemed
to authorize the State to regulate the Tribe's government,
including the TCA, or to interfere in any way with the Tribe's
selection of its governmental officers, including members of the
TCA. The Texas Lottery Commission and the Tribe, however, upon
request of the Tribe, shall jointly employ, at the Tribe's expense,
an independent firm to perform on behalf of the commission the
duties set forth in Sections 11.2 and 11.3.
SECTION 12.0. JURISDICTION.
Sec. 12.1. Except as expressly provided herein, this gaming
agreement shall not alter tribal, federal, or state civil
adjudicatory or criminal jurisdiction.
Sec. 12.2. The Tribe expressly consents to the State's
jurisdiction to enforce the terms of this gaming agreement
including, but not limited to, any request for judicial injunctive
relief to prohibit unlawful gaming activities.
SECTION 13.0. PUBLIC AND WORKPLACE HEALTH, SAFETY, AND
LIABILITY.
Sec. 13.1. The Tribe will not conduct any gaming activity in
a manner that endangers the public health, safety, or welfare.
Sec. 13.2. For the purposes of this gaming agreement, the
Tribe agrees to:
(a) adopt and comply with standards no less stringent than
state public health standards for food and beverage handling at any
video lottery terminal establishment. The Tribe will allow
inspection of food and beverage services at any video lottery
terminal establishment by state or county health inspectors, during
normal hours of operation, to assess compliance with these
standards, unless inspections are routinely made by an agency of
the United States government to ensure compliance with equivalent
standards of the United States Public Health Service. Nothing
herein shall be construed as submission of the Tribe to the
jurisdiction of those state or county health inspectors, but any
alleged violations of the standards shall be treated as alleged
violations of the gaming agreements;
(b) adopt and comply with standards no less stringent than
federal water quality and safe drinking water standards applicable
in Texas at any video lottery terminal establishment. The Tribe
will allow for inspection and testing of water quality at any video
lottery terminal establishment by state or county health
inspectors, as applicable, during normal hours of operation, to
assess compliance with these standards, unless inspections and
testing are made by an agency of the United States pursuant to, or
by the Tribe under express authorization of, federal law, to ensure
compliance with federal water quality and safe drinking water
standards. Nothing herein shall be construed as submission of the
Tribe to the jurisdiction of those state or county health
inspectors, but any alleged violations of the standards shall be
treated as alleged violations of this gaming agreement;
(c) comply with the building and safety standards set forth
in Section 8.4 of this agreement;
(d) carry no less than five million dollars ($5,000,000) in
public liability insurance for patron claims. The Tribe herein
provides reasonable assurance that such claims will be promptly and
fairly adjudicated, and that legitimate claims will be paid;
provided that nothing herein requires the Tribe to agree to
liability for punitive damages or attorneys' fees. On or before the
effective date of this gaming agreement or not less than 30 days
before the commencement of operation of video lottery terminals
under this gaming agreement, whichever is later, the Tribe shall
adopt and make available to patrons a tort liability ordinance
setting forth the terms and conditions, if any, under which the
Tribe waives immunity to suit for money damages resulting from
intentional or negligent injuries to person or property at the
video lottery terminal establishment or in connection with the
Tribe's operation of video lottery terminals. The tort liability
ordinance shall include procedures for processing any claims for
such money damages. Nothing in this section shall require the Tribe
to waive its immunity to suit except to the extent of the policy
limits set out above. Any insurance policy provided in compliance
with the terms of this subsection shall provide that the policy
provider shall not raise the Tribe's sovereign immunity as a
defense or otherwise to avoid payment of a claim under this
subsection;
(e) adopt and comply with standards no less stringent than
federal workplace and occupational health and safety standards at
any video lottery terminal establishment. The Tribe will allow for
inspection of video lottery terminal establishment workplaces by
state inspectors, during normal hours of operation, to assess
compliance with these standards, unless inspections are regularly
made by an agency of the United States government to ensure
compliance with federal workplace and occupational health and
safety standards. Nothing herein shall be construed as submission
of the Tribe to the jurisdiction of those state inspectors, but any
alleged violations of the standards shall be treated as alleged
violations of this gaming agreement;
(f) comply with tribal codes and any applicable federal law
regarding public health and safety;
(g) adopt and comply with standards no less stringent than
federal laws and state laws forbidding employers generally from
discriminating in the employment of persons to work for the Tribe in
relation to its operation of video lottery terminals or in the video
lottery terminal establishment on the basis of race, color,
religion, national origin, gender, sexual orientation, age, or
disability. However, nothing herein shall preclude the Tribe from
giving a preference in employment to Indians, pursuant to a duly
adopted tribal ordinance;
(h) adopt and comply with standards that are no less
stringent than state laws prohibiting a video lottery manager or
any employee thereof from cashing any check drawn against a
federal, state, county, or city fund, including but not limited to,
social security, unemployment insurance, disability payments, or
public assistance payments;
(i) adopt and comply with standards that are no less
stringent than state laws, governing the extension of credit to,
the cashing of checks for, and other financial transactions with
patrons calculated to protect players from problem and pathological
gambling; and
(j) adopt and comply with the provisions of the Bank Secrecy
Act (31 U.S.C. Sections 5311-5314), as amended, and all reporting
requirements of the Internal Revenue Service, insofar as such
provisions and reporting requirements are applicable to gaming
facilities.
Sec. 13.2.1. The Tribe agrees to adopt and, not later than
30 days after the effective date of this gaming agreement, make
available on request the standards described in Subsections (a)-(c)
and (e)-(j) of Section 13.2 to which the Tribe is held with regard
to operation of video lottery terminals. In the absence of a
promulgated tribal standard in respect to a matter identified in
those subsections, or the express adoption of an applicable federal
statute or regulation instead of a tribal standard in respect to any
such matter, an applicable state statute or regulation shall be
deemed to have been adopted by the Tribe as the applicable standard.
Sec. 13.3. Participation in State Statutory Programs
Related to Employment. (a) Instead of permitting the Tribe to
participate in the state statutory workers' compensation system for
employees of a video lottery terminal establishment or otherwise
engaged in the operation of video lottery terminals, the Tribe may
create and maintain a system that provides redress for employee
work-related injuries through requiring insurance or
self-insurance, which system must include a scope of coverage,
availability of an independent medical examination, right to
notice, hearings before an independent tribunal, a means of
enforcement against the employer, and benefits comparable to those
mandated for comparable employees under state law. Not later than
the effective date of this gaming agreement, or 60 days before the
commencement of video lottery terminal operations under this gaming
agreement, the Tribe will advise the State of its election to
participate in the statutory workers' compensation system or,
alternatively, will forward to the State all relevant ordinances
that have been adopted and all other documents establishing the
system and demonstrating that the system is fully operational and
compliant with the comparability standard set forth above. The
parties agree that independent contractors doing business with the
Tribe must comply with all state workers' compensation laws and
obligations.
(b) The Tribe agrees that it will participate in the State's
program for providing unemployment compensation benefits and
unemployment compensation disability benefits with respect to
employees of the video lottery terminal establishment, and the
Tribe consents to the jurisdiction of the state agencies charged
with the enforcement of that code and of the courts of the State of
Texas for purposes of enforcement.
(c) As a matter of comity, with respect to persons employed
at the video lottery terminal establishment in capacities otherwise
related to the operation of video lottery terminals, other than
members of the Tribe, the Tribe shall withhold all taxes due to the
State as provided by Texas law, and shall forward such amounts as
provided in said Codes to the State.
Sec. 13.4. Emergency Service Accessibility. The Tribe
shall make reasonable provisions for adequate emergency fire,
medical, and related relief and disaster services for patrons and
employees of the video lottery terminal establishment.
Sec. 13.5. The Tribe agrees to prohibit the intentional,
knowing, or reckless possession of a firearm, illegal knife, club,
explosive weapon, machine gun, firearm silencer, knuckles,
armor-piercing ammunition, a chemical dispensing device, or a zip
gun, as those terms are defined in Section 46.01, Texas Penal Code,
at all times in the video lottery terminal establishment. The
defenses that apply to the prohibition of possession of such
weapons on the premises of a racetrack under Section 46.03, Texas
Penal Code, shall also apply to the prohibition of possession of
such weapons in video lottery terminal establishments. In
addition, Tribal security or Tribal law enforcement personnel,
shall be permitted to possess firearms and clubs at a video lottery
terminal establishment as authorized by Tribal law.
Sec. 13.6. Tribal Law Enforcement Plan. The Tribe agrees to
implement a written tribal law enforcement services plan that
provides a comprehensive and effective means to address criminal
and undesirable activity at the video lottery terminal
establishment. This plan shall provide that sufficient tribal law
enforcement resources are available 24 hours a day, seven days per
week to protect the public health, safety, and welfare at the video
lottery terminal establishment. To accommodate investigations and
intelligence sharing, the Tribe will provide that a police officer
holding current Texas police officer standards and training
certification is employed by the Tribe and assigned to handle video
lottery terminal related matters when they arise. Intelligence
liaisons will be established at the tribal police department or TCA
and also at the Texas Lottery Commission. There will be federal,
tribal, and state cooperation in task force investigations. The
commission's intelligence unit will gather, coordinate,
centralize, and disseminate accurate and current intelligence
information pertaining to criminal and undesirable activity that
may threaten patrons, employees, and assets of a video lottery
terminal establishment or the video lottery system. The State and
the Tribe will coordinate the use of resources, authority, and
personnel of the State and the Tribe for the shared goal of
preventing and prosecuting criminal or undesirable activity by
players, employees, or businesses in connection with tribal video
lottery terminal operations.
Sec. 13.7. Annual Statement of Compliance Regarding Use of
Revenue. The Tribe agrees to submit to the Texas Lottery Commission
an annual statement of compliance regarding the use of its share of
revenue generated from video lottery terminal operations and a copy
of a current tribal ordinance requiring that revenue generated from
video lottery terminal operations be used exclusively for the
establishment and improvement of governmental services and
programs.
SECTION 14.0. EXCLUSIVITY AND FEES.
Sec. 14.1. The parties acknowledge and recognize that this
gaming agreement provides the Tribe territorial exclusivity
through the permitted operation of video lottery terminals without
requiring construction or operation of a racetrack for live horse
or dog racing. This territorial exclusivity and the additional
benefits to the Tribe are of substantial benefit to the Tribe and,
consistent with Federal Indian policy, provide special
opportunities for tribal economic opportunity through gaming
within the external boundaries of Texas. In consideration thereof,
as long as the State does not change its laws after the effective
date of this gaming agreement in the manner that would increase the
number of persons to operate video lottery terminals, or the
operation of any additional form of gaming by any non-Indian
licensee, or change its laws to permit any electronic or machine
gaming other than video lottery terminals within Texas, the Tribe
agrees to pay fees described in this section.
(a) The Tribe covenants and agrees to pay to the State a fee
derived from net terminal income calculated as set forth in
Subsection (b) of this section. Such fee shall be deducted from the
daily deposit of funds into the State's account from the video
lottery terminal operations prior to the State's transfer of funds
back to the Tribe for such operations.
(b) The fee shall be 25 percent of all net terminal income
over $20 million received by a Tribe in a calendar year.
Sec. 14.2. Start-Up Assessment. Upon the effective date of
this gaming agreement, the Tribe shall deposit with the Texas
Lottery Commission the sum of $100,000 ("Start-Up Assessment").
The purpose of the Start-Up Assessment shall be to assist the State
in initiating its administrative and oversight responsibilities
hereunder, and shall be a one-time payment to the State for such
purposes.
Sec. 14.3. Nothing in this gaming agreement shall be deemed
to authorize the State to impose any tax, fee, charge, or assessment
upon the Tribe or the video lottery terminal establishment except
as expressly authorized pursuant to this gaming agreement under
Sections 4.6, 6.21(b), and 13.3(c). To the extent that the Tribe is
required under federal law to report prizes awarded, the Tribe
agrees to copy such reports to the Texas Lottery Commission.
Nothing in this gaming agreement, however, shall be interpreted to
preclude the State from requiring the Tribe to collect and remit to
the State state sales tax on goods sold to non-Indians that are not
produced on tribal land, developing and marketing a tribal resource
or for which the Tribe has not participated in any meaningful way to
their design. Any state sales tax on the sale of such goods to
non-Indians shall be conclusively presumed to be a direct tax on the
retail consumer, pre-collected for the purpose of convenience and
facility.
Sec. 14.4. In consideration for the covenants and
agreements contained herein, the State agrees that it will not,
during the term of this gaming agreement, permit the nontribal
operation of any video lottery games outside of those permitted at
licensed racetracks with live horse or dog racing, otherwise
presently prohibited by law within the state outside of the
designated locations authorized by Subchapter K, Chapter 466, Texas
Government Code. The state recognizes the importance of this
provision to the Tribe and agrees, in the event of a breach of this
provision by the State, to require any nontribal entity which
operates any such devices or machines outside of the designated
location to remit to the State no less than fifty percent (50%) of
any increase in the entities' revenue following the addition of
such machines. The State further agrees to remit at least quarterly
to Eligible Tribes, as liquidated damages, a sum equal to fifty
percent (50%) of any increase in the entities' revenue following
the addition of such excess machines. For purposes of this part
"Eligible Tribes" shall mean those tribes which have entered into a
gaming agreement with the State under Section 466.520, Texas
Government Code, and are operating gaming pursuant to the gaming
agreement within forty-five (45) miles of an entity which is
operating video lottery terminals in excess of the number
authorized, or outside of the location designated by Subchapter K,
Chapter 466, Texas Government Code. Such liquidated damages shall
be allocated pro rata to Eligible Tribes based on the number of
video lottery terminals operated by each Eligible Tribe in the time
period when such revenues were generated.
Sec. 14.5. The Tribe shall remit to the State a fee of
$25,000 for each video lottery terminal delivered to a video
lottery establishment of the Tribe.
SECTION 15.0. DISPUTE RESOLUTION.
Sec. 15.1. Voluntary Resolution; Reference to Other Means
of Resolution. In recognition of the government-to-government
relationship of the Tribe and the State, the parties shall make
their best efforts to resolve disputes that occur under this gaming
agreement by good faith negotiations whenever possible. Therefore,
without prejudice to the right of either party to seek injunctive
relief or specific relief provided in this agreement against the
other when circumstances are deemed to require immediate relief,
the parties hereby establish a threshold requirement that disputes
between the Tribe and the State first be subjected to a process of
meeting and conferring in good faith in order to foster a spirit of
cooperation and efficiency in the administration and monitoring of
performance and compliance by each other with the terms,
provisions, and conditions of this gaming agreement, as follows:
(a) either party shall give the other, as soon as possible
after the event giving rise to the concern, a written notice setting
forth, with specificity, the issues to be resolved;
(b) the parties shall meet and confer in a good faith
attempt to resolve the dispute through negotiation not later than
10 days after receipt of the notice, unless both parties agree in
writing to an extension of time;
(c) if the dispute is not resolved to the satisfaction of
the parties within 30 calendar days after the first meeting, then
either party may seek to have the dispute resolved by an arbitrator
in accordance with this section; and
(d) disagreements that are not otherwise resolved by
arbitration or other mutually acceptable means as provided herein
may be resolved in the United States District Court where the
Tribe's video lottery terminal establishment is located, or is to
be located, and the Fifth Circuit Court of Appeals (or, if those
federal courts lack jurisdiction, in any state court of competent
jurisdiction and its related appellate courts). The disputes to be
submitted to court action are limited to claims of breach or
violation of this gaming agreement or failure to negotiate in good
faith as required by the terms of this gaming agreement. The
parties agree that, except in the case of imminent threat to the
public health, safety, or welfare or the integrity of the lottery,
reasonable efforts will be made to explore alternative dispute
resolution avenues prior to resorting to judicial process.
Sec. 15.2. Arbitration Rules. Arbitration shall be
conducted in accordance with the policies and procedures of the
Commercial Arbitration Rules of the American Arbitration
Association, provided that application of these rules shall not be
construed to waive the State's sovereign immunity to an extent
greater than otherwise authorized herein. Arbitration shall be
held at such location as the parties may agree. Each side shall
bear its own costs, attorneys' fees, and one-half the costs and
expenses of the American Arbitration Association and the
arbitrator, unless the arbitrator rules otherwise. Only one
neutral arbitrator may be named, unless the Tribe or the State
objects, in which case a panel of three arbitrators (one of whom is
selected by each party) will be named. The decision of the
arbitrator(s) shall be in writing, shall give reasons for the
decision, and shall be binding. Judgment on the award may be entered
in any federal or state court having jurisdiction thereof.
Sec. 15.3. Limited Waiver of Sovereign Immunity. (a) In
the event that a dispute is to be resolved in federal court or a
state court of competent jurisdiction as provided in this section,
the State and the Tribe expressly consent to be sued therein and
waive any immunity therefrom that they may have provided that:
(1) the dispute is limited solely to issues arising
under this gaming agreement;
(2) neither side makes any claim for monetary damages
(that is, only injunctive, specific performance, including
enforcement of a provision of this gaming agreement requiring
payment of money to one or another of the parties, or declaratory
relief is sought); and
(3) no person or entity other than the Tribe and the
State is party to the action, unless failure to join a third party
would deprive the court of jurisdiction, provided that nothing
herein shall be construed to constitute a waiver of the sovereign
immunity of either the Tribe or the State in respect to any such
third party.
(b) In the event of intervention by any additional party
into any such action without the consent of the Tribe and the State,
the waivers of either the Tribe or the State provided for herein may
be revoked, unless joinder is required to preserve the court's
jurisdiction, provided that nothing herein shall be construed to
constitute a waiver of the sovereign immunity of either the Tribe or
the State in respect to any such third party.
(c) The waivers and consents provided for under this section
shall extend to civil actions authorized by this gaming agreement,
such as actions to compel arbitration, any arbitration proceeding
herein, any action to confirm or enforce any judgment or
arbitration award as provided herein, and any appellate proceedings
emanating from a matter in which an immunity waiver has been
granted. Except as stated herein or elsewhere in this gaming
agreement, no other waivers or consents to be sued, either express
or implied, are granted by either party.
(d) The State only waives sovereign immunity to the extent
authorized by Section 466.515, Texas Government Code.
SECTION 16.0. CONSTRUCTION OF GAMING AGREEMENT; FEDERAL
APPROVAL.
Sec. 16.1. Each provision, section, and subsection of this
gaming agreement shall stand separate and independent of every
other provision, section, or subsection. In the event that a
federal district court or a state court of competent jurisdiction
as provided in this agreement shall find any provision, section, or
subsection of this gaming agreement to be invalid, the remaining
provisions, sections, and subsections of this gaming agreement
shall remain in full force and effect, unless the invalidated
provision, section, or subsection is material. It is a material
provision of this gaming agreement that Class III gaming be limited
to that expressly authorized under this gaming agreement,
Subchapter K, Chapter 466, Texas Government Code, and Article III,
Section 47(f), Texas Constitution. If any final and nonappealable
judicial determination authorizes or requires the State to
authorize that any Class III gaming be operated by the Tribe or by
any federally recognized Indian tribe in the state, other than
video lottery terminals connected to the video lottery system or to
a government operated video lottery system structured identical to
that expressly authorized under Subchapter K, Chapter 466, Texas
Government Code, if so required by federal law, then this gaming
agreement shall be null and void for all purposes.
Sec. 16.2. Each party hereto agrees to defend the validity
of this gaming agreement and the legislation in which it is
embodied.
Sec. 16.3. The parties shall cooperate in seeking approval
of this gaming agreement from an appropriate federal agency if so
required by federal law.
SECTION 17.0. NOTICES.
All notices required under this gaming agreement shall be
given by certified mail, return receipt requested, commercial
overnight courier service, or personal delivery, to the following
persons:
Governor
Chair, State-Tribal Relations Committee
Attorney General
[Principal Chief, Governor or Chair]
[Name of Tribe]
[Address]
With copies to: _______________________
SECTION 18.0. DURATION, NEGOTIATION, AND TERMINATION.
Sec. 18.1. This gaming agreement shall become effective
upon the last date of the satisfaction of the following
requirements:
(a) due execution on behalf of the Tribe, including
obtaining all tribal resolutions and completing other tribal
procedures as may be necessary to render the Tribe's execution
effective including, but not limited to, a final and nonappealable
decision of a tribal court of competent jurisdiction that the
Tribe's execution of this gaming agreement is effective and that
all parts and provisions of the gaming agreement are enforceable by
and against the Tribe as set forth herein;
(b) any federal regulatory approval required under federal
law and, if so required, publication in the Federal Register or
satisfaction of any other requirement of federal law; and
(c) payment of the Start-up Assessment provided for in
Section 14.2 of this gaming agreement.
Sec. 18.2. This gaming agreement shall have a term which
will expire 10 years from the effective date; provided that within
one hundred eighty (180) days of the expiration of this gaming
agreement or any renewal thereof, either the Tribe or the State,
acting through its Governor, may request to renegotiate the revenue
sharing terms of this gaming agreement. The Tribe's noncompliance
with any operational, reporting, or other requirements under this
gaming agreement shall justify termination of operation of video
lottery terminals on the Tribe's Indian lands. The Tribe shall be
entitled to notice and a hearing on the compliance issue as set
forth under Chapter 466, Texas Government Code, and accompanying
rules of the commission. If the Tribe does not remedy the
noncompliance issue within 180 days of the termination or 60 days
after a final decision of the commission that the Tribe is out of
compliance, then this gaming agreement shall terminate without
penalty against the commission or the State.
Sec. 18.3. This gaming agreement shall remain in full force
and effect until the sooner of expiration of the term, termination
as provided herein, or termination by mutual consent of the
parties. In addition to the remedies set forth above, either party
may bring an action in federal court, after providing a 60-day
written notice of an opportunity to cure any alleged breach of this
gaming agreement, for a declaration that the other party has
materially breached this gaming agreement. Upon issuance of such a
declaration, the complaining party may unilaterally terminate this
gaming agreement upon service of written notice on the other party.
In the event a federal court determines that it lacks jurisdiction
over such an action, the action may be brought in the district court
for the county in which the Tribe's video lottery terminal
establishment is located. The parties expressly waive their
immunity to suit for purposes of an action under this subsection,
subject to the qualifications stated herein. Nothing in this
provision shall be construed to limit other remedies available to
and contract penalties enforceable by the Texas Lottery Commission,
as expressly provided herein, in the event of the Tribe's material
breach. The Tribe and the State recognize and agree that the narrow
and enumerated provisions for such immediate remedies and
enforcement by the State are necessary to protect the public
health, safety, and welfare and the integrity of the video lottery.
SECTION 19.0. AMENDMENTS; RENEGOTIATIONS.
Sec. 19.1. The terms and conditions of this gaming
agreement may be amended at any time by the mutual and written
agreement of both parties. Any such amendment, however, shall
require ratification and approval by the Texas Legislature.
Sec. 19.2. This gaming agreement is subject to
renegotiation in the event the Tribe wishes to engage in forms of
Class III gaming other than those games authorized herein and
requests renegotiation for that purpose, provided that no such
renegotiation may be sought for 24 months following the effective
date of this gaming agreement.
SECTION 20.0. AUTHORITY TO EXECUTE.
This gaming agreement, as an enactment of the State
Legislature, is deemed approved by the State. Upon valid execution
by the Tribe and the Governor of the State, no further action by the
State or any State official is necessary for this gaming agreement
to take effect upon any necessary approval by any federal agency as
required by applicable federal law, including publication in the
Federal Register, if required. The undersigned tribal official(s)
represents that he or she is duly authorized and has the authority
to execute this gaming agreement on behalf of the Tribe for whom he
or she is signing.

APPROVED:

[Name of Tribe]

_________________________Date:__________

[CHIEF EXECUTIVE OFFICER]

State of Texas

_________________________Date:__________

Governor of Texas
Sec. 466.5181. NEGOTIATION FOR DIFFERENT GAMING AGREEMENT
TERMS. (a) Nothing in this subchapter may be construed to limit
the ability of a federally recognized Indian tribe to request that a
gaming agreement be negotiated with the state on terms that are
different from those set forth in the gaming agreement under
Section 466.520, or the ability of the state to engage in
negotiations and to reach agreement under any applicable federal
law. In offering to enter into a gaming agreement with Indian
tribes in Texas under Section 466.520(b), and, except for
assessments by this state as provided in that section of the amounts
necessary to defray state costs of regulating activities as
provided under the gaming agreement, nothing in this chapter may be
construed to mean that:
(1) the state is imposing any tax, fee, charge, or
other assessment on an Indian tribe or on any other person or entity
authorized by an Indian tribe as a condition to engaging in a Class
III activity; or
(2) this state is refusing to enter into gaming
agreement negotiations based on the lack of authority of the state
or a political subdivision of the state to impose the tax, fee,
charge, or other assessment.
(b) If any federally recognized tribe with jurisdiction
over Indian lands in this state requests that the governor enter
into negotiations for a gaming agreement under federal law
applicable to the tribe, including the Indian Gaming Regulatory Act
(18 U.S.C. Sec. 1166 and 25 U.S.C. Sec. 2701 et seq.), on terms
different than those prescribed in the gaming agreement in Section
466.520(b), the governor shall enter into those negotiations under
the federal law applicable to the tribe and without preconditions
and is authorized to reach agreement and execute the agreement on
behalf of this state, subject to ratification by the legislature
provided the gaming agreement does not expand the scope of gaming
expressly authorized under this chapter and entitles the tribe only
to operate video lottery terminals in strict compliance with state
law, unless otherwise required by applicable federal law, and
provided that the gaming agreement includes the following
provisions:
(1) a provision prescribing that the tribe is
authorized and allowed to engage only in the Class III gaming
activities expressly referred to in the gaming agreement and may
not engage in Class III gaming that is not expressly authorized in
the agreement;
(2) a provision prescribing that any operation or
possession of any gaming devices not expressly authorized under the
gaming agreement, excluding any Class II gaming authorized under
applicable federal law, shall be considered a material breach of
the gaming agreement and justify termination of the agreement and
the state may bring an action in federal court or, in the event the
federal court declines jurisdiction, in state court and shall be
entitled to an injunction prohibiting the continued operation of
any unlawful gaming activity on the tribal lands on a showing by a
preponderance of evidence that the breach has occurred. The
legislature finds that, in any such proceeding, irreparable injury
and inadequate remedy at law shall be presumed once the state has
demonstrated the violation has occurred. If the state does not seek
an injunction for such a material breach of the gaming agreement,
the tribe agrees to pay a contract penalty of $10,000 per day for
every day the violation or breach continues. If the violation or
breach is not cured within 10 days, the state may bring an action to
enjoin the unlawful conduct;
(3) a provision waiving state and tribal sovereign
immunity for purposes of operation of video lottery terminals and
enforcement of the gaming agreement, provided that the state may
not waive sovereign immunity except to the extent expressly
permitted under Section 466.515;
(4) a provision establishing minimum internal control
standards at least as restrictive as those provided under this
subchapter and any standards set forth under applicable federal
law;
(5) a provision that any video lottery manager doing
business on Indian lands shall indemnify and hold harmless the
commission, this state, and the members, officers, employees, and
authorized agents of the commission and state from any and all
claims which may be asserted against a license or registration
holder, the commission, the state, or the employees arising from
the license or registration holder's participation in the video
lottery system authorized under the gaming agreement;
(6) a provision that the tribe shall pay all
regulatory costs incurred by this state in relation to the
operation of video lottery terminals on the Indian lands of the
tribe to assure compliance with all federal and state law and all
provisions of the agreement;
(7) a provision recognizing the substantial benefit of
the exclusivity or other substantial benefits afforded to the Tribe
under the agreement and providing for the sharing of revenue
between the tribe and state as payment for the exclusivity or other
substantial benefit so long as the state does not extend the
privilege to non-Indians or otherwise expand Class III gaming on
non-Indian lands;
(8) a provision establishing investigative and
licensing standards at least as restrictive as those provided under
this subchapter and under any applicable federal law;
(9) a provision requiring that video lottery terminals
and facilities operating the video lottery terminals authorized
under the gaming agreement shall be owned by the tribe;
(10) a provision that the video lottery authorized by
the gaming agreement shall be licensed by the tribe in conformity
with the requirements of the agreement, the Tribal Gaming
Ordinance, and any applicable federal law, every five years and the
tribe shall review and renew the license, if appropriate, and the
tribe shall provide to the commission verification that this
requirement has been satisfied;
(11) a provision for the licensing of all video
lottery employees and any person extending financing, directly or
indirectly, to the tribe's video lottery operation before extending
that financing, provided that any person who is extending financing
at the time of the execution of the agreement must be licensed by
the tribe not later than the 90th day after the date of execution,
and the provision may allow the tribe, in its discretion, to exclude
from the licensing requirements of this section financing provided
by:
(A) a federally regulated or state-regulated
bank, savings and loan, or other federally or state-regulated
lending institution;
(B) any agency of the federal, state, or local
government; or
(C) any investor who, alone or in conjunction
with others, holds less than 10 percent of any outstanding
indebtedness evidenced by bonds issued by the tribe;
(12) a provision that the commission, under the
provisions of the agreement, may monitor the conduct of video
lottery games to ensure that the video lottery games are conducted
in compliance with the provisions of the agreement, and to properly
monitor the conduct of video lottery games, the Department of
Public Safety and agents of the commission shall have reasonable
access to all areas of the facility related to the conduct of video
lottery games;
(13) a provision specifying jurisdiction of tribal,
state, and federal courts with regard to matters arising from the
agreement or the operation of video lottery terminals, or both, as
authorized by the agreement and consistent with Section 466.515;
(14) a provision that the tribe agrees to adopt and
comply with standards no less stringent than state public health
standards for food and beverage handling at any facilities where
video lottery terminals are operated;
(15) a provision that the tribe agrees to adopt and
comply with standards no less stringent than federal water quality
and safe drinking water standards applicable in this state at any
facilities where video lottery terminals are operated, and that the
Tribe will allow for inspection and testing of water quality by
state or county health inspectors, as applicable, during normal
hours of operation, to assess compliance with these standards,
unless inspections and testing are made by an agency of the United
States pursuant to or by the Tribe under express authorization of
federal law to ensure compliance with federal water quality and
safe drinking water standards;
(16) a provision that the tribe agrees to carry no less
than $5 million in public liability insurance for patron claims and
provides reasonable assurance that the claims will be promptly and
fairly adjudicated and that legitimate claims will be paid;
(17) a provision that the tribe agrees to adopt and
comply with standards no less stringent than federal workplace and
occupational health and safety standards for any facilities where
video lottery terminals are operated, and the tribe will allow for
inspection of the workplaces by state inspectors during normal
hours of operation to assess compliance with these standards,
unless inspections are regularly made by an agency of the United
States government to ensure compliance with federal workplace and
occupational health and safety standards;
(18) a provision that the tribe agrees to adopt and
comply with standards no less stringent than federal laws and state
laws forbidding employers generally from discriminating in the
employment of persons to work for the facility operating video
lottery terminals on the basis of race, color, religion, national
origin, gender, sexual orientation, age, or disability, provided
that nothing in the provision precludes the tribe from giving a
preference in employment to Indians, pursuant to a duly adopted
tribal ordinance;
(19) a provision that the tribe agrees to adopt and
comply with standards that are no less stringent than state laws
prohibiting the use of proceeds of a check issued as a payment under
the Aid to Families with Dependent Children program administered
under Chapter 31, Human Resources Code, or a food stamp coupon
issued under the food stamp program administered under Chapter 33,
Human Resources Code, for gaming or other wagering;
(20) a provision that the tribe agrees to adopt and
comply with standards no less stringent than state laws governing
the extension of credit to, the cashing of checks for, and other
financial transactions with patrons calculated to protect players
from problem and pathological gambling;
(21) a provision that the tribe agrees to participate
in state statutory programs related to employment in video lottery
terminal operations or instead of participation in the state
statutory workers' compensation system, the tribe may create and
maintain a system that provides redress for employee work-related
injuries through requiring insurance or self-insurance and that
includes a scope of coverage, availability of an independent
medical examination, right to notice, hearings before an
independent tribunal, a means of enforcement against the employer,
and benefits comparable to those mandated for comparable employees
under state law;
(22) a provision that the tribe agrees to make
reasonable provisions for adequate emergency fire, medical, and
related relief and disaster services for patrons and employees of
the video lottery terminal operations;
(23) a provision that the tribe agrees to prohibit the
intentional, knowing, or reckless possession of a firearm, illegal
knife, club, explosive weapon, machine gun, firearm silencer,
knuckles, armor-piercing ammunition, a chemical dispensing device,
or a zip gun, as those terms are defined in Section 46.01, Penal
Code, at all times in the video lottery terminal establishment; and
the defenses that apply to the possession of weapons on the premises
of a racetrack under Section 46.03, Penal Code, also apply to
possession of the weapons in a video lottery terminal
establishment; and tribal security or tribal law enforcement
personnel shall be allowed to possess firearms and clubs at a video
lottery terminal establishment as authorized by tribal law;
(24) a provision that the tribe agrees that on or
before the effective date of the agreement, or not less than 90 days
before the commencement of any project constructed to serve as the
site of video lottery terminals, the tribe shall adopt an ordinance
providing for the preparation, circulation, and consideration by
the tribe of environmental impact reports concerning potential
off-reservation environmental impacts of the construction to be
commenced on or after the effective date of the agreement;
(25) a provision that the tribe agrees to establish
separate electronic funds transfer accounts for the purposes of
depositing money from video lottery terminal operations, making
payments to the commission, and receiving payments from the
commission, which must prohibit the tribe from making payments to
the commission in cash, but as authorized by the commission may
allow a tribe to make payments to the commission by cashier's check;
(26) a provision that the tribe agrees to adopt and
comply with the Bank Secrecy Act (31 U.S.C. Sections 5311-5314), as
amended, and all reporting requirements of the Internal Revenue
Service, insofar as the provisions and reporting requirements are
applicable to gaming facilities; and
(27) a provision that the tribe agrees to collect and
remit to the comptroller state sales and use taxes and state taxes
on motor fuels, alcohol beverages, cigarettes and tobacco products,
and hotel occupancy, other than taxes on the sale, use, or
consumption of an item by a member of the tribe.
Sec. 466.5182. IMPLEMENTATION OF GAMING AGREEMENT. The
governor shall execute any documents that may be necessary to
implement a gaming agreement authorized under this subchapter.
Sec. 466.5183. INCORPORATION INTO STATE LAW. The model
gaming agreement set out in Section 466.520(b) is hereby
incorporated into state law, and the operation of video lottery
terminals authorized under the agreement is expressly declared to
be allowed as a matter of state law to any Indian tribe entering
into the gaming agreement in accordance with this subchapter.
Sec. 466.5184. REGULATORY MONEY RECEIVED UNDER GAMING
AGREEMENT. All money received by the commission under a gaming
agreement for regulatory costs incurred relative to tribal
operations of video lottery terminals shall be deposited to the
credit of the state video lottery account to defray expenses of the
commission incurred in the oversight, compliance with, and
enforcement of video lottery terminal operations conducted
pursuant to a gaming agreement.
Sec. 466.519. INJUNCTION; CIVIL PENALTY. (a) If the
commission, the appropriate governing body for an Indian tribe, or
the attorney general has reason to believe that this chapter has
been or is about to be violated, the attorney general may petition a
court for appropriate injunctive relief to restrain the violation.
Filing of the petition does not waive applicable sovereign
immunity.
(b) Venue for an action by this state seeking injunctive
relief is in a district court in Travis County.
(c) If the court finds that this chapter has been knowingly
violated, the court shall order all proceeds from any illegal
gambling to be forfeited to the appropriate governing body as a
civil penalty.
(d) The remedies provided herein are not exclusive. The
commission may suspend or revoke a license, impose an
administrative penalty, or seek injunctive or civil penalties or
both, depending on the severity of the violation.
SECTION 9.34. Section 467.001, Government Code, is amended
by amending Subdivision (9) and adding Subdivision (12) to read as
follows:
(9) "Person that has a significant financial interest
in the lottery" means:
(A) a person or a board member, officer, trustee,
or general partner of a person that manufactures, distributes,
sells, or produces lottery equipment, video lottery equipment,
video lottery games, video lottery central systems, supplies,
services, or advertising;
(B) an employee of a video lottery terminal
provider, video lottery central system provider, or person that
manufactures, distributes, sells, or produces lottery equipment,
video lottery games, supplies, services, or advertising and that
employee is directly involved in the manufacturing, distribution,
selling, or production of lottery equipment, supplies, services, or
advertising;
(C) a person or a board member, officer, trustee,
or general partner of a person that has made a bid to operate the
lottery in the preceding two years or that intends to make a bid to
operate the lottery or an employee of the person if the employee is
directly involved in making the bid; or
(D) a sales agent, video lottery retailer, video
lottery manager, video lottery terminal provider, or video lottery
central system provider.
(12) "Video lottery central system," "video lottery
equipment," "video lottery game," "video lottery manager," "video
lottery retailer," and "video lottery terminal provider" have the
meanings assigned by Section 466.002.
SECTION 9.35. Section 467.031, Government Code, is amended
to read as follows:
Sec. 467.031. DIVISIONS. The commission shall establish
separate divisions to oversee bingo and the state lottery. The
commission may create a division to oversee video lottery and
delegate responsibilities in the administration of Chapter 466 to
the executive director, the director of the appropriate division
and the division's staff; provided, however, that the commission
may not delegate the following actions:
(1) a final determination in any application or
request for licensing or registration under Chapter 466;
(2) a final determination in any proceeding involving
the suspension or revocation of a registration or license under
Chapter 466;
(3) a final determination that Chapter 466 has been
violated; or
(4) a final determination or imposition of an
assessment of fines or penalties under a law administered by the
commission.
SECTION 9.36. Section 467.035(a), Government Code, is
amended to read as follows:
(a) The commission may not employ or continue to employ a
person who owns a financial interest in:
(1) a bingo commercial lessor, bingo distributor, or
bingo manufacturer; or
(2) a lottery sales agency, [or] a lottery operator, a
video lottery retailer, a video lottery manager, a video lottery
terminal provider, a video lottery central system provider, or a
manufacturer of video lottery games.
SECTION 9.37. Section 411.108, Government Code, is amended
by adding Subsection (d) to read as follows:
(d) The Texas Lottery Commission may obtain from the
department, subject to an interagency agreement entered into under
Section 466.020(d) or 466.206, criminal history record information
maintained by the department that relates to any natural person,
corporation, association, trust, partnership, limited partnership,
joint venture, government, subsidiary, or other entity, regardless
of its form, structure, or nature that the commission has the
authority to investigate under Chapter 466 as related to the
commission's operation and oversight of video lottery. Criminal
history record information obtained by the commission under this
subsection may be released or disclosed only as provided in
Sections 466.022(d) and 466.206.
SECTION 9.38. Section 47.09, Penal Code, is amended by
adding Subsection (c) to read as follows:
(c) Subsection (a)(3) applies to a person manufacturing,
distributing, possessing, or operating a gambling device with the
authorization of the Texas Lottery Commission under Subchapter K,
Chapter 466, Government Code.
SECTION 9.39. Chapter 47, Penal Code, is amended by adding
Section 47.095 to read as follows:
Sec. 47.095. INTERSTATE OR FOREIGN COMMERCE DEFENSE. It is
a defense to prosecution under this chapter that a person sells,
leases, transports, possesses, stores, or manufactures a gambling
device with the authorization of the Texas Lottery Commission under
Subchapter K, Chapter 466, Government Code, for transportation in
interstate or foreign commerce.
SECTION 9.40. Section 47.01(4), Penal Code, is amended to
read as follows:
(4) "Gambling device" means any electronic,
electromechanical, or mechanical contrivance not excluded under
Paragraph (B) or (C) that for a consideration affords the player an
opportunity to obtain anything of value, the award of which is
determined solely or partially by chance, even though accompanied
by some skill, whether or not the prize is automatically paid by the
contrivance. The term:
(A) includes, but is not limited to, gambling
device versions of bingo, keno, blackjack, lottery, roulette, video
poker, slot machines, or similar electronic, electromechanical, or
mechanical games, or facsimiles thereof, that operate by chance or
partially so, that as a result of the play or operation of the game
award credits or free games, and that record the number of free
games or credits so awarded and the cancellation or removal of the
free games or credits; [and]
(B) does not include any electronic,
electromechanical, or mechanical contrivance designed, made, and
adapted solely for bona fide amusement purposes if:
(i) the contrivance rewards the player
exclusively with noncash merchandise prizes, toys, or novelties, or
a representation of value redeemable for those items, that have a
wholesale value available from a single play of the game or device
of not more than 10 times the amount charged to play the game or
device once or $5, whichever is less;
(ii) any merchandise or a representation of
value received by a player may be exchanged only at the same
business and business location at which the contrivance operated by
the player is located and may not be exchanged for a gift
certificate or similar conveyance that is redeemable at another
business or business location; and
(iii) the contrivance or device does not
resemble a slot machine or any other casino game; and
(C) does not include equipment, machines,
technological aids, or other devices allowed in connection with the
playing of bingo under Chapter 2001, Occupations Code, or video
lottery terminals authorized under Chapter 466, Government Code.
SECTION 9.41. The Legislature finds and declares the
following:
(1) This state is facing a crisis in providing funding
for the public education system. Contingent on the approval of the
voters, in order to generate additional revenue to fund public
education and other state governmental programs, a limited and
narrow exception to the constitutional prohibition on lotteries has
been proposed to authorize a state-controlled and state-operated
video lottery system in accordance with this Act.
(2) In light of the financial emergency faced by the
state and the need to fund public education and other state
governmental programs, in the event the voters approve this limited
state-controlled and state-operated video lottery system, the
Texas Lottery Commission must be authorized to commence operation
of the video lottery system in accordance with this Act at the
earliest possible date, consistent with the intent of the voters
and legislative directive.
(3) The implementation of the video lottery system
will require significant time for application investigations and
determinations and for video lottery terminal and video lottery
central system providers and manufacturers of video lottery games
to develop prototypes for testing for the video lottery central
system and video lottery terminals and games.
(4) The state's budget crisis constitutes an imminent
peril to the public welfare, requiring the adoption of rules and
authorization for the Texas Lottery Commission to conduct certain
limited pre-implementation activities related to the establishment
of the video lottery system to promote and ensure the integrity,
security, honesty, and fairness of the operation and administration
of the video lottery system.
(5) In order to commence operation of the video
lottery system at the earliest possible date and to maintain the
integrity of state-controlled and state-operated video lottery
established by this Act, the Texas Lottery Commission may conduct
limited pre-implementation acts before the constitutional
amendment proposed by the 78th Legislature, 4th Called Session,
2004, to authorize the state video lottery system is submitted to
the voters for approval.
SECTION 9.42. (a) As soon as practicable after the
constitutional amendment to authorize the state video lottery
system proposed by the 78th Legislature, 4th Called Session, 2004,
is approved by the voters and becomes effective, the Texas Lottery
Commission shall adopt the rules necessary to implement video
lottery in accordance with Subchapter K, Chapter 466, Government
Code, as added by this Act.
(b) Before the proposed constitutional amendment to
legalize the state video lottery system is submitted to the voters,
the Texas Lottery Commission may expend money from the commission's
appropriation for the 2004-2005 biennium for purposes of conducting
pre-implementation activities to establish the state video lottery
system in accordance with Subchapter K, Chapter 466, Government
Code, as added by this Act. Notwithstanding Section 466.355,
Government Code, the money authorized to be expended under this
section may be withdrawn from the state lottery account and
considered a part of the transfer of funds from the state lottery
account authorized under Section 466.512, Government Code, as added
by this Act, to fund the establishment of the state video lottery
system.
(c) Before the proposed constitutional amendment to
authorize the state video lottery system is submitted to the
voters, the Texas Lottery Commission may develop and approve forms
for applications for licensing and registration required under
Subchapter K, Chapter 466, Government Code, as added by this Act.
(d) Before the proposed constitutional amendment to
authorize the state video lottery system is submitted to the
voters, the Texas Lottery Commission may accept pre-implementation
applications for video lottery retailers and video lottery managers
under Subchapter K, Chapter 466, Government Code, as added by this
Act. On receipt of a complete application, completion of all
investigations, and submittal of the nonrefundable investigatory
fees the commission requires consistent with Subchapter K, Chapter
466, Government Code, as added by this Act, the commission may make
preliminary findings of suitability for an applicant and location
of a video lottery terminal establishment. If the commission
determines that all the requirements under Subchapter K, Chapter
466, Government Code, have been satisfied, the commission may issue
a letter advising the applicant of the status of approval of the
application pending approval by the voters of the proposed
constitutional amendment to authorize the state video lottery
system. If the commission determines that any requirements under
Subchapter K, Chapter 466, Government Code, have not been
satisfied, the commission may request additional information or
conduct further investigations the commission considers necessary
and may issue a letter advising the applicant of the status of the
application.
(e) Before the proposed constitutional amendment to
authorize the state video lottery system is submitted to the
voters, the Texas Lottery Commission may request and receive
information related to applications for licensing and registration
under Subchapter K, Chapter 466, Government Code, as added by this
Act. An applicant's failure to comply with any requests made by the
Texas Lottery Commission under this subsection may be considered
grounds for denial of an application.
(f) The Texas Lottery Commission may not issue any license,
registration, or temporary license related to the state video
lottery system under Subchapter K, Chapter 466, Government Code, as
added by this Act, unless and until the constitutional amendment
authorizing the state video lottery system is approved by the
voters and becomes effective.
(g) Before the proposed constitutional amendment to
authorize the state video lottery system is submitted to the
voters, the Texas Lottery Commission may conduct investigations and
collect investigative fees related to information requested and
received for pre-implementation applications under this section
and necessary for the commission's evaluation and determination of
an application for any licensing, registration, or commission
approval required under Subchapter K, Chapter 466, Government Code,
as added by this Act.
(h) Before the proposed constitutional amendment to
authorize the state video lottery system is submitted to the
voters, the Texas Lottery Commission may conduct preregistration of
potential video lottery terminal providers. To qualify for
preregistration under this subsection, an applicant must satisfy
the minimum application requirements under Section 466.5033,
Government Code, as added by this Act, except that the application
fee required under Section 466.5033(i), Government Code, as added
by this Act, is not due until the applicant files an application for
registration under Subchapter K, Chapter 466, Government Code, as
added by this Act. A preregistration application must be
accompanied by a nonrefundable deposit to the Texas Lottery
Commission in the amount of $25,000. A preregistration applicant
shall submit additional money not later than the 10th day after the
date the applicant receives notice from the commission that it has
incurred actual costs for the preregistration investigation in
excess of the initial deposit required under this subsection. If
the commission does not receive the additional money from the
applicant on or before the 15th day after the date the applicant
receives the commission's notice, the commission shall suspend the
application until the money is received by the commission. Any
deposit or other nonrefundable money provided under this subsection
shall be credited toward an application fee required under Section
466.5033(i), Government Code, as added by this Act.
(i) The Texas Lottery Commission may not register any video
lottery terminal providers unless and until the constitutional
amendment authorizing the state video lottery system is approved by
the voters and becomes effective.
(j) Notwithstanding Section 466.5033, Government Code, as
added by this Act, a video lottery terminal provider that has been
preregistered by the Texas Lottery Commission in accordance with
this section, a video lottery central system provider, or a
manufacturer of video lottery games, under a contract with the
commission, may manufacture and test prototypes of or existing
video lottery equipment for a video lottery central system, video
lottery terminals, and video lottery games for the commission's
consideration.
(k) Before the proposed constitutional amendment to
authorize the state video lottery system is submitted to the
voters, the Texas Lottery Commission may negotiate contracts with
preregistered video lottery terminal providers. The commission may
enter into contracts with preregistered video lottery terminal
providers, video lottery central system providers, and
manufacturers of video lottery games as required for the creation
and testing of a video lottery central system, video lottery
terminals, and video lottery games for the commission's
consideration.
(l) Before the proposed constitutional amendment to
authorize the state video lottery system is submitted to the
voters, the Texas Lottery Commission may negotiate and enter
contracts as necessary to establish the video lottery system. The
commission is exempt from the procurement procedures prescribed
under Subtitle D, Title 10, Government Code; Section 466.101,
Government Code; Chapter 2161, Government Code; and any and all
bidding requirements or contract requirements provided by any other
law or by rules of the commission for the acquisition or provision
of facilities, supplies, equipment, materials, or services related
to the implementation of video lottery under this section.
(m) Before the proposed constitutional amendment to
authorize the state video lottery system is submitted to the
voters, the Texas Lottery Commission may employ additional
full-time equivalent employees to administer this Act and establish
the video lottery system.
SECTION 9.43. Sections 9.01 through 9.40 of this article
take effect on the date the amendment to Section 47, Article III,
Texas Constitution, authorizing a state video lottery system
proposed by the 78th Legislature, 4th Called Session, 2004, becomes
effective. Sections 9.41 and 9.42 of this article and this section
take effect immediately if this Act receives a vote of two-thirds of
all the members elected to each house, as provided by Section 39,
Article III, Texas Constitution. If this Act does not receive the
vote necessary for immediate effect, Sections 9.41 and 9.42 of this
article and this section take effect on the 91st day after the last
day of the legislative session. Sections 9.41 and 9.42(m) of this
article expire on the 91st day after the date the constitutional
amendment to Section 47, Article III, Texas Constitution,
authorizing a state video lottery system, becomes effective.

ARTICLE 10. EFFECTIVE DATE
SECTION 10.01. (a) Except as otherwise provided by this
Act, this Act takes effect January 1, 2005, but only if the
constitutional amendment proposed by H.J.R. No. 1, 78th
Legislature, 4th Called Session, 2004, is approved by the voters.
If that amendment is not approved by the voters, this Act has no
effect.
(b) This subsection and Section 2B.05 of this Act take
effect September 1, 2004, regardless of whether the constitutional
amendment proposed by H.J.R. No. 1, 78th Legislature, 4th Called
Session, 2004, is approved by the voters.