80R10687 YDB-F

By: Flores H.B. No. 3335

A BILL TO BE ENTITLED

AN ACT

relating to the operation of video lottery games for this state to provide additional money to fund governmental programs; the creation, powers, and duties of the Texas Gaming and Boxing Commission; the powers and duties of the Texas Lottery Commission, the Texas Racing Commission, and the Texas Commission of Licensing and Regulation, and the regulation of gaming and other gambling activities authorized by law in this state; making an appropriation; providing penalties.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

ARTICLE 1. AUTHORIZATION OF VIDEO LOTTERY

SECTION 1.01. Section 466.002, Government Code, is amended by amending Subdivisions (2) and (4)-(10) and adding Subdivisions (2-a), (5-a), and (11)-(35) 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.

(2-a) "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," with respect to a video lottery terminal, an electronic computer component 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, including on Indian lands in this state, means the sale, lease, marketing, offer, or other disposition of any of those items.

(5-a) "Division" means the lottery division established by the commission under Chapter 467.

(6) "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, 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.

(7) [(4)] "Executive director" means the executive director of the commission.

(8) "Gaming agreement" means an agreement authorized under Subchapter K between this state and a federally recognized Indian tribe under which this state allows the tribe to conduct limited gaming activities authorized under this chapter or applicable federal law.

(9) "House-banked game" means a game of chance:

(A) in which the house plays as a participant;

(B) in which the house competes against all players, collects from all losers, and pays all winners; and

(C) that the house has an opportunity to win.

(10) "Indian lands" means land over which an Indian tribe exercises governmental power and:

(A) that was held in trust by the United States on January 1, 1998, for the benefit of the Indian tribe or an individual member of the Indian tribe pursuant to the Restoration Acts (25 U.S.C. Section 731 and 25 U.S.C. Section 1300 et seq.); or

(B) on which Class III gaming is permitted under the Indian Gaming Regulatory Act (18 U.S.C. Section 1166 et seq. and 25 U.S.C. Section 2701 et seq.).

(11) "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.

(12) [(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 and determined 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].

(13) [(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].

(14) [(7)] "Lottery operator" means a person selected under Section 466.014(b) to operate a lottery game.

(15) "Manufacture," with respect to a video lottery terminal, an electronic computer component 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, including on Indian lands in this state, means to design, assemble, fabricate, produce, program, or make modifications to any of those items.

(16) "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 and bonuses, 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.

(17) "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).

(18) "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.

(19) [(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.

(20) "Racetrack" means a racetrack as defined by Section 1.03(25), Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes), that is:

(A) a class 1, class 2, or class 3 horse racetrack for which a pari-mutuel license was in effect on June 1, 2007, or for which a person by that date had applied for a pari-mutuel license to conduct horse racing as a class 1 or class 2 racetrack; or

(B) a greyhound racetrack for which a pari-mutuel license was in effect on June 1, 2007, or for which a person by that date had applied and qualified for a pari-mutuel license to conduct greyhound racing.

(21) [(9)] "Sales agent" or "sales agency" means a person licensed under this chapter to sell tickets.

(22) "Slot machine" means a mechanical, electrical, or other type of device, contrivance, or machine that plays or operates on insertion of a coin, currency, token, or similar object or on payment of any other consideration, and the play or operation of which, through the skill of the operator, by chance, or both, may deliver to the person playing or operating the machine, or entitle the person 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 used or authorized in connection with the play of bingo under Chapter 2001, Occupations Code.

(23) "Substantial interest holder" means any of the following that is not 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 business holder:

(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.

(24) [(10)] "Ticket" means any tangible evidence issued to provide participation in a lottery game authorized by this chapter other than a video lottery game.

(25) "Video lottery central system" means the system of procedures and facilities operated and controlled by the commission that is designed to link together all video lottery terminals operated in this state, determines the outcome of all video lottery games, and allows the commission to continuously monitor the activity of each video lottery terminal and to disable any video lottery terminal in this state.

(26) "Video lottery central system provider" means a person that, under a contract with the commission, provides the video lottery central system.

(27) "Video lottery equipment" means:

(A) a video lottery terminal;

(B) equipment, a component, or a contrivance 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; and

(iv) provide for the connection of video lottery terminals to the video lottery central system; or

(C) any other communications technology or equipment necessary for the operation of a video lottery terminal.

(28) "Video lottery game" means an electronically simulated game displayed on a video lottery terminal 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 displaying symbols that roll on drums to simulate a classic casino slot machine or themes of other card games and keno may be used.

(29) "Video lottery manager" means a person who:

(A) is licensed by the commission under this chapter to manage a video lottery terminal establishment; or

(B) provides management services for a video lottery terminal establishment on Indian lands for an Indian tribe that has entered into an agreement with the governor for the operation of video lottery games.

(30) "Video lottery retailer" means a person licensed to operate a video lottery terminal establishment at which video lottery games are conducted under Subchapter K.

(31) "Video lottery system" means the system authorized under Subchapter K and controlled and operated by the commission under which individuals play lottery games on video lottery terminals as authorized under that subchapter.

(32) "Video lottery terminal" means an interactive electronic device that is capable of displaying video lottery games.

(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 a gaming agreement.

(34) "Video lottery terminal provider" means a person in the business of manufacturing or distributing video lottery terminals in this state.

(35) "Video lottery ticket" means the tangible evidence issued by a video lottery terminal to reflect winnings from the play of a video lottery game.

SECTION 1.02. 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 terminal 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 1.03. 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;

(4) a tax, fee, or other assessment on consideration paid to play a video lottery game; or

(5) a tax or fee for attendance at or admission to a video lottery terminal establishment or a racetrack at which a video lottery terminal establishment is located unless specifically authorized by statute.

SECTION 1.04. 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 must be eligible under the same standards as those applicable to the registration or approval by the commission of a video lottery terminal provider 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 or 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 must comply with procurement procedures prescribed under:

(1) Subtitle D, Title 10; and

(2) Section 466.101.

SECTION 1.05. 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 21 [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 1.06. Section 466.017, Government Code, is amended to read as follows:

Sec. 466.017. AUDITS. (a) The commission [executive director] shall contract with the state auditor for the state auditor [provide for a certified public accountant] to conduct an independent audit of the commission's annual financial statements in accordance with the standards applicable to financial audits under the Government Auditing Standards (2003 Revision) issued by the Comptroller General of the United States [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, 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, sales agent, video lottery manager, video lottery retailer, video lottery terminal provider, or video lottery central system provider [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, [or] sales agent, video lottery manager, video lottery retailer, video lottery terminal provider, or video lottery central system provider. The executive director or state auditor may conduct an examination at the principal office or any other office of the person subject to the audit [lottery operator or sales agent] or may require the person [lottery operator 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 certificate of 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. A video lottery manager, video lottery retailer, video lottery terminal provider, or video lottery central system provider that is audited as provided by this section is responsible for the costs incurred by the commission or auditor in conducting the audit. Section 321.013(h) does not apply to an audit of a lottery operator, [or] sales agent, video lottery manager, video lottery retailer, video lottery terminal provider, or video lottery central system provider.

SECTION 1.07. 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, a video lottery manager, a video lottery retailer, a video lottery terminal provider, or a video lottery central system provider.

SECTION 1.08. 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; or

(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, video lottery terminal establishments, and video lottery central system providers; and

(14) other security aspects of lottery operations, including video lottery game operations.

SECTION 1.09. 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 examine [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 1.10. Section 466.022, Government Code, is amended by amending Subsection (b) and adding Subsections (c), (d), and (e) 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;

(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; and

(5) information that pertains to an applicant's criminal record, antecedents, and background and is furnished to or obtained by the commission from any source, including information obtained by the commission under Section 411.108(d).

(c) Information that qualifies as confidential under Subsection (b)(4) or (5) may be disclosed wholly or partly only as necessary to administer this chapter or under a court order. 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.

(d) For the annual report required under Section 466.016, the commission 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 or certificate holder, or video lottery terminal establishment.

(e) Notwithstanding any other provision of state law, the information provided under Subsection (c) or (d) may not otherwise be disclosed without specific commission authorization.

SECTION 1.11. Section 466.024, Government Code, is amended to read as follows:

Sec. 466.024. PROHIBITED GAMES. (a) Except as provided by Chapter 2004, Occupations Code, the [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) Except as provided by Chapter 2001 or 2005, Occupations Code, the [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 the commission 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 1.12. 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 net terminal income for the preceding week.

SECTION 1.13. 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 a contract for the purchase or lease of video lottery equipment:

(A) is not a registered video lottery terminal provider if a certificate of registration is required; or

(B) would be deemed unsuitable to be a video lottery terminal provider under Subchapter K.

SECTION 1.14. 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 1.15. 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 1.16. 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 1.17. 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 1.18. 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, Sections 466.020 and 466.201, and Subchapter K, 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 shall 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, certificate of registration, or other commission authorization required under Subchapter K or of any person required to be named in an application for a license, certificate of 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 1.19. 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 1.20. 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 1.21. 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 unless the operation, use, or possession is expressly authorized by this chapter or other law.

(b) Except for transport to or from a video lottery terminal 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, except funds retained by the commission to pay administrative costs. An offense under this subsection is a felony of the third degree.

(c) Notwithstanding Subsection (b), a video lottery retailer, video lottery manager, or registered or approved 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.

(d) 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 1.22. 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 1.23. 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 21 [18] YEARS OF AGE.

SECTION 1.24. Section 466.3051, Government Code, is amended by amending Subsections (a), (b), (c), (d), and (e) and adding Subsection (a-1) to read as follows:

(a) A sales agent or an employee of a sales agent commits an offense if the person intentionally or knowingly sells or offers to sell a ticket to an individual that the person knows is younger than 21 [18] years of age.

(a-1) A video lottery manager, a 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 21 years of age to play a video lottery game.

(b) An individual who is younger than 21 [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 21 [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.

(c) A person 21 [18] years of age or older may purchase a ticket to give as a gift to another person, including an individual younger than 21 [18] years of age.

(d) It is a defense to the application of Subsection (b) that the individual younger than 21 [18] years of age is participating in an inspection or investigation on behalf of the commission or other appropriate governmental entity regarding compliance with this section.

(e) An offense under Subsection (a) or (a-1) is a Class C misdemeanor.

SECTION 1.25. 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 1.26. 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 1.27. 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 1.28. 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 1.29. 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 1.30. Section 466.355, Government Code, is amended by amending Subsection (a) and adding Subsection (d) 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.

(d) Immediately after the comptroller makes the August transfer to the foundation school fund under Subsection (b)(4) and the transfer to the foundation school fund for the following September 15 under Subsection (c), the comptroller shall determine whether the total amount transferred to the foundation school fund from the state lottery fund in the current fiscal year is less than the total amount transferred to the foundation school fund from the state lottery account in the fiscal year ending August 31, 2007. If the comptroller determines that the total amount transferred to the foundation school fund in the current fiscal year is less than the total amount transferred in the fiscal year ending August 31, 2007, the comptroller not later than August 31 shall transfer to the foundation school fund from the state video lottery account in the general revenue fund an amount equal to the difference.

SECTION 1.31. 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 1.32. 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 1.33. Section 466.409, Government Code, is amended to read as follows:

Sec. 466.409. TREATMENT OF PRIZE PAYABLE ON TICKET PURCHASE BY INELIGIBLE PERSON. If an individual listed in Section 466.254 purchases a ticket or claims or otherwise attempts to collect or receive a lottery prize or a share of a lottery prize or an individual younger than 21 [18] years of age directly purchases a ticket, the individual is not eligible to receive a prize or share of a prize, and the prize or share of a prize otherwise payable on the ticket is treated as an unclaimed prize as provided by Section 466.408.

SECTION 1.34. 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's public policy prohibiting gambling is subject only to limited exceptions provided by the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes) or enumerated in the Texas Constitution and approved by the voters.

(2) Any game that is a lottery cannot lawfully be operated in this state unless the game is excepted from the constitutional prohibition against lotteries. In 1991, the electorate approved a constitutional amendment authorizing the state to operate lotteries. In 2007, the electorate approved a constitutional amendment allowing expansion of the existing state lottery through a state-controlled video lottery system allowing video lottery terminals connected to a state-controlled and determined video lottery central system to be placed at locations determined in accordance with law enacted by the legislature.

(3) The purpose and intent of this chapter is to carry out the intent of the voters as established by the approval of Section 47-a, Article III, Texas Constitution.

(4) The people of this state intend to allow only state-controlled video lottery games to be conducted in this state and only in locations licensed by this state to operate video lottery terminals or at locations on Indian lands under an agreement between this state and the appropriate Indian tribe.

(5) 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 to licensed establishments;

(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.

(6) 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 and determined system will defend against criminal infiltration of gambling operations.

(7) The video lottery games operated at video lottery terminal establishments under this chapter are controlled and determined by this state in a manner that allows this state to continuously monitor all video lottery terminals and to disable any video lottery terminal for the protection of the public and this state.

(8) 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 a video lottery central system.

(9) By limiting the operation of video lottery terminals to those connected to the state-controlled and determined 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. Limiting video lottery terminals to those controlled by this state and located at licensed establishments is reasonably designed to defend against the criminal infiltration of gambling operations and adverse impacts on communities statewide. By restricting video lottery terminals to limited locations and video lottery terminals controlled by this state that may be disabled by this state if necessary to protect the public, this chapter furthers the state's purpose of ensuring that such gambling activities are free from criminal and undesirable elements.

(10) 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 prohibited under other state law.

(11) To effectuate the will of the voters, any video lottery games on lands of Indian tribes must be in strict compliance with state law, unless otherwise required by federal law, or in accordance with a gaming agreement negotiated with the governor and ratified by the legislature.

(12) This state has conferred a substantial economic benefit on federally recognized Indian tribes by allowing operation of video lottery terminals on lands held in trust by the Indian tribes and on Indian lands on which gaming is allowed under applicable federal law. Federally recognized Indian 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 to fund governmental programs can be promoted.

(13) The public has an interest in video lottery game operations, and other gaming operations conducted under Section 47-a, 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 holder of a license, certificate of registration, or approval under this chapter is considered a privilege conditioned on the proper and continued qualification of the holder and on the discharge of the affirmative responsibility of each holder to provide to the commission or other 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, the legislature intends this chapter to:

(A) preclude the creation of any property right in any license, certificate of 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 certificate; and

(B) require that participation in video lottery game operations be solely conditioned on the individual qualifications of persons seeking this privilege.

(14) 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. CONSTRUCTION; APPLICABILITY OF OTHER LAWS. (a) 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.

(b) To the extent of any inconsistency between Chapter 2003 and this subchapter or a commission rule governing video lottery terminals, this subchapter or the commission rule controls in all matters related to video lottery terminals, including hearings before the State Office of Administrative Hearings.

(c) Video lottery equipment operated under commission authority and this chapter is exempt from 15 U.S.C. Section 1172.

Sec. 466.503. AUTHORITY TO OPERATE VIDEO LOTTERY SYSTEM. (a) The commission may implement and operate a video lottery system and control the operation of video lottery terminals at video lottery terminal establishments in accordance with this chapter and, for a video lottery terminal establishment at a racetrack, the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes). This chapter supersedes any conflicting or inconsistent provision of the Texas Racing Act.

(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.

Sec. 466.504. VIDEO LOTTERY GAMES; STATE OWNERSHIP AND PROPRIETARY INTEREST. (a) This state must own all video lottery games conducted through the video lottery system, regardless of ownership of the video lottery terminal on which the game is played. This state must possess a proprietary interest in:

(1) the main logic boards and any electronic storage medium used in video lottery equipment or games; and

(2) software consisting of computer programs, documentation, and other related materials necessary for the operation of the video lottery system.

(b) 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.

Sec. 466.505. STATE CONTROL OF VIDEO LOTTERY SYSTEM. (a) The commission shall control and operate the video lottery system and the video lottery central system.

(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 this subchapter.

Sec. 466.506. 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 through which the commission has the exclusive and unilateral ability to:

(1) control and determine the outcome of all video lottery games;

(2) 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; and

(3) provide the auditing and other information required by the commission.

(b) The video lottery central system must be a central determinant system that communicates lottery outcomes from a central determination computer to video lottery terminals in a manner prescribed by the commission.

(c) The commission shall provide to a registered video lottery terminal provider or an applicant applying for a certificate of 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 the transmission of auditing information and for activation and disabling of video lottery terminals.

(d) The video lottery central system may not limit or preclude potential providers from providing the video lottery terminals, other than providers that fail to meet specifications established by the commission.

(e) The video lottery central system provider may not sell or distribute video lottery terminals in this state.

(f) The commission may contract with a video lottery central system provider to establish the video lottery central system.

(g) The commission may not contract with a person to provide the video lottery central system if within the preceding five years that person owned any interest in a racetrack or pari-mutuel license in this state.

Sec. 466.507. VIDEO LOTTERY TERMINAL PROVIDER: REGISTRATION OR APPROVAL REQUIRED. (a) A person may not manufacture or distribute video lottery equipment for use or play in this state unless the person is registered as a video lottery terminal provider or is otherwise approved by the commission to manufacture or distribute video lottery equipment in this state.

(b) A person who manufactures and distributes video lottery terminals must obtain a separate certificate of registration or commission approval for each of those activities.

(c) Unless suspended or revoked, the certificate of registration or approval expires on the date specified by the commission, which may not be later than the fifth anniversary of the date of issuance of the certificate or approval. A person may renew an unexpired certificate of registration or approval by paying a renewal fee in the amount determined by the commission to cover the costs of administering the renewal application and complying with the requirements of this subchapter and commission rule.

(d) To be eligible for a certificate of registration or commission approval as required by this section, an applicant must satisfy all applicable requirements under this subchapter.

Sec. 466.508. VIDEO LOTTERY TERMINAL PROVIDER: APPLICATION; CHANGE IN INFORMATION. (a) The commission shall adopt rules governing the registration or approval of video lottery terminal providers. The rules must require:

(1) the application and any other form or document submitted to the commission by or on behalf of the applicant to determine the applicant's qualification under this section to be sworn to or affirmed before an officer qualified to administer oaths; and

(2) the certificate of registration or approval to designate whether the provider is a manufacturer or distributor.

(b) An applicant seeking registration or approval as a video lottery terminal provider to manufacture and distribute video lottery terminals in this state may apply for both approvals or certificates of registration in a single application.

(c) An applicant for a video lottery terminal provider certificate of registration or approval 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 law other than the laws of this state, the applicant's irrevocable designation of the secretary of state as the applicant's 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 to conduct gambling-related activities during the 10 years preceding the date of the filing of the application;

(11) a statement, including all related details, 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; 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.

(d) 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.

(e) The applicant must:

(1) 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; and

(2) submit to an on-site review of the applicant's manufacturing equipment and process for each separate type of authorized video lottery equipment to ensure compliance with the requirements of this chapter and commission rules.

(f) Not later than the 10th day after the date of any change in the information submitted on or with the application form, the applicant shall notify the commission of the change, including a change that occurs after the certificate of registration or other commission approval has been granted.

(g) The applicant shall comply with all federal and state laws, local ordinances, and rules.

Sec. 466.509. VIDEO LOTTERY TERMINAL PROVIDER: APPLICATION AND CERTIFICATE OF REGISTRATION OR APPROVAL FEE. (a) An applicant seeking certificate of registration or approval or renewal of registration or approval as a video lottery terminal provider must pay a nonrefundable application fee in the amount of $100,000 and an annual fee due on each anniversary of initial registration or approval of $100,000.

(b) An applicant seeking registration or approval as both a manufacturer and distributor must pay a separate application and annual fee for each registration or approval.

(c) Application fees 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.

Sec. 466.510. VIDEO LOTTERY RETAILER OR VIDEO LOTTERY MANAGER LICENSE REQUIRED. Except as provided by Chapter 2005, Occupations Code, or a gaming agreement, a person may not own or operate a video lottery terminal if the person does not satisfy the requirements of this subchapter and is not licensed by the commission to act as a video lottery retailer or video lottery manager.

Sec. 466.511. VIDEO LOTTERY RETAILER OR VIDEO LOTTERY MANAGER: APPLICATION AND QUALIFICATION. (a) An applicant for a video lottery retailer or video lottery manager license 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.

(b) Except as provided by other law, an applicant for a video lottery retailer license must hold a valid racing license granted under the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes) and operate a racetrack as defined by Section 466.002.

(c) An applicant for a video lottery manager license must:

(1) have a valid and executed contract with a racetrack that satisfies the requirements of Subsection (b) to act as a video lottery manager for the racetrack subject to licensing under this chapter; or

(2) 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.

(d) Each 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.

(e) 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 video lottery, or do not create or enhance the dangers of unsuitable, unfair, or illegal practices, methods, and activities in the conduct of video lottery or in the carrying on of the business and financial arrangements incidental to video 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 from a source that meets the requirements of this subchapter and is adequate to support the successful performance of the duties and responsibilities of the license holder and disclose 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;

(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 in the applicant 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.

(f) An application 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.

(g) 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.

(h) An applicant for a license or renewal of a license as a video lottery retailer or video lottery manager 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.

(i) Except as otherwise provided by this subchapter, 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.

Sec. 466.512. VIDEO LOTTERY RETAILER OR VIDEO LOTTERY MANAGER: APPLICATION AND ANNUAL LICENSE FEES. (a) An applicant for a video lottery retailer or video lottery manager license must pay a nonrefundable application fee in the amount of:

(1) $500,000 for an applicant applying to operate a video lottery terminal establishment at a class 1 racetrack or a greyhound racetrack; or

(2) $200,000 for an applicant applying to operate a video lottery terminal establishment at a class 2 or class 3 racetrack.

(b) A video lottery retailer or video lottery manager must pay an annual license fee due on each anniversary of initial licensing in the amount of:

(1) $50,000 for a license holder operating a video lottery terminal establishment at a class 1 racetrack or a greyhound racetrack; or

(2) $25,000 for a license holder operating a video lottery terminal establishment at a class 2 or class 3 racetrack.

(c) An application may not be processed until the applicant pays the application fee. If the application fee is not received by the 30th day after 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.

(d) 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 are not received by the commission by the 15th day after the date the commission notifies the applicant of the amount of the fees, the investigation and evaluation processes shall be suspended.

(e) The commission shall retain an application fee paid under this section to defray costs incurred in the administration and enforcement of this chapter relating to the operation of video lottery terminals.

Sec. 466.513. VIDEO LOTTERY RETAILER OR VIDEO LOTTERY MANAGER: EMPLOYEE INFORMATION. (a) A video lottery retailer or video lottery manager shall 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 466.559.

(b) 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.

Sec. 466.514. VIDEO LOTTERY TERMINAL ESTABLISHMENT: REQUIREMENTS; LOCATION. (a) A video lottery retailer or video lottery manager may not operate video lottery terminals at any place that is not licensed as a video lottery terminal establishment.

(b) The commission by rule shall establish standards for video lottery terminal establishments to ensure that establishments are accessible, safe, comfortable, durable, and of sufficiently high-quality construction to promote investments in establishments and related facilities that foster lasting economic development and continuity in producing state revenue, and that protect the health and welfare of employees, patrons, and all state residents. The standards must include or incorporate high-quality commercial building standards, including safety, air-conditioning, heating, and electrical standards.

(c) An applicant for a video lottery terminal establishment license must:

(1) consent to the application of state laws with exclusive venue in Travis County, Texas, related to any action arising out of the operation of video lottery terminals;

(2) provide office space for at least one commission employee as required by commission rule; and

(3) provide free and unrestricted access to the establishment by the commission.

(d) An applicant for a video lottery terminal establishment license must provide the maps, surveys, site plans, architectural plans, and financial statements required by the commission and update the information at least annually if required by the commission.

(e) Notwithstanding Sections 466.155 and 466.511(i), the commission may not deny, suspend, or revoke a license under this subchapter 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.

(f) The commission may not issue a video lottery terminal establishment license to a racetrack if as of January 1, 2007, any part of the real property on which the licensed premises of the racetrack is located is less than one-half mile from any part of the real property on which a public school is located.

Sec. 466.515. LICENSE HOLDER AS SALES AGENT. The holder of a video lottery retailer or video lottery manager license may operate as a sales agent for lottery tickets in accordance with this chapter.

Sec. 466.516. TERM OF LICENSE, REGISTRATION, OR APPROVAL; RENEWAL ELIGIBILITY. (a) Unless suspended or revoked, a license, certificate of registration, or approval issued under this subchapter expires:

(1) except as provided by Subdivision (2), on the date specified in the license, which may not be later than the fifth anniversary of the date of issuance; or

(2) for a video lottery retailer license held by a pari-mutuel license holder, on the date the person's pari-mutuel license expires.

(b) To be eligible for renewal of a license or certificate, an applicant must satisfy all applicable licensing, registration, or approval requirements under this subchapter, including payment of any renewal fee charged by the commission to cover costs of administering a renewal application.

Sec. 466.517. RULES FOR ADDITIONAL LICENSE QUALIFICATIONS. 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.

Sec. 466.518. APPLICATION AS REQUEST FOR CHARACTER DETERMINATION. An application under this subchapter to receive or renew a license, certificate of registration, or approval 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.

Sec. 466.519. IMMUNITY FOR STATEMENT MADE IN PROCEEDING OR INVESTIGATION. 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.

Sec. 466.520. SUITABILITY FINDING. To promote the integrity and security of the lottery, 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, registration, or approval from the commission for the person's video lottery-related operations.

Sec. 466.521. SUMMARY SUSPENSION OF VIDEO LOTTERY RETAILER OR VIDEO LOTTERY MANAGER LICENSE; 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 section 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) an act or omission occurs that, under commission rules, justifies the termination of video lottery terminal operations to:

(A) protect the integrity of the lottery or the public health, welfare, or safety; or

(B) 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. 466.522. LICENSING, REGISTRATION, SUITABILITY, AND REGULATORY APPROVAL AS REVOCABLE PERSONAL PRIVILEGES. (a) An applicant for a license, certificate of registration, suitability, or other affirmative regulatory approval under this subchapter does not have any right to the license, certificate of registration, suitability, or approval sought.

(b) Any license, certificate of registration, or suitability 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.

(c) The courts of this state do not have jurisdiction to review a decision to deny, limit, or condition the license, registration, suitability, or 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. The state court must affirm the commission's action unless the violation is proven by clear and convincing evidence. 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 466.572.

(d) A license, certificate of registration, suitability, or regulatory approval granted or renewed under this subchapter may not be transferred or assigned to another person, and a license, registration, suitability, or approval may not be pledged as collateral. The purchaser or successor of a person who has been granted a license, certificate of registration, suitability, or regulatory approval must independently qualify for a license, certificate, suitability, or approval required by this subchapter.

(e) The following acts void the license, certificate, suitability, 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. 466.523. CAPITAL INVESTMENTS AND IMPROVEMENT REQUIREMENTS FOR VIDEO LOTTERY TERMINAL ESTABLISHMENT. (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 may not issue a license for the operation of a video lottery terminal establishment at a class 2 racetrack that has not made at least $40 million in capital investments or improvements to new or existing facilities at the racetrack.

Sec. 466.524. LIST OF AUTHORIZED VIDEO LOTTERY PROVIDERS, GAMES, AND TERMINALS. 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.

Sec. 466.525. VIDEO LOTTERY TERMINAL: DISTRIBUTION AND COMMISSION APPROVAL. (a) 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.

(b) Only a video lottery terminal provider registered with or approved by the commission may apply for approval of a video lottery terminal or other video lottery equipment.

(c) Not later than the 10th day 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.

Sec. 466.526. VIDEO LOTTERY TERMINAL: TESTING; REPORT. (a) 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.

(b) 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 a video lottery terminal provider to provide specialized equipment or pay for an independent technical expert or laboratory to test the terminal.

(c) 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.

(d) 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.

(e) 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.

Sec. 466.527. VIDEO LOTTERY TERMINAL: INSTALLATION; MODIFICATION REQUEST. (a) A video lottery terminal provider is responsible for the assembly and installation of all video lottery terminals and other video lottery equipment.

(b) A video lottery terminal provider or a 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.

(c) 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.

Sec. 466.528. VIDEO LOTTERY TERMINAL REMOVAL. (a) 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.

(b) The commission may order that an unapproved terminal be seized and destroyed and that a malfunctioning terminal not repaired and returned to play within 30 days or as otherwise prescribed by the commission be disposed of in compliance with Section 466.531(b).

(c) The commission may suspend or revoke the license of a 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.

Sec. 466.529. VIDEO LOTTERY TERMINAL SPECIFICATIONS. (a) 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.

(b) A commission-approved video lottery terminal must meet the following minimum specifications:

(1) the terminal must:

(A) operate through a player's insertion of a coin, currency, voucher, or token into the 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 terminal to randomly select symbols or numbers;

(B) allow 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

(C) allow the player at any time to clear all game play credits and receive a video lottery ticket or other representation of credit entitling the player to receive the cash value of those credits;

(2) 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 (4);

(3) the operation of each video lottery terminal may not be adversely affected by any static discharge or other electromagnetic interference;

(4) 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;

(5) 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;

(6) 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 provided by the commission to each registered video lottery terminal provider, which must include information retrieval and programs to activate and disable the terminal; and

(7) a video lottery terminal may be operated only if connected to the video lottery central system, and play on the terminal may not be conducted unless the terminal is connected to the video lottery central system.

(c) The commission may reject any instructions for play required under Subsection (b)(5) that the commission determines to be incomplete, confusing, or misleading.

Sec. 466.530. VIDEO LOTTERY TERMINALS: HOURS OF OPERATION; COMMUNICATION; LOCATION. (a) The hours of operation for video lottery terminals are subject to restrictions or other conditions provided by commission rules.

(b) The commission by rule may prescribe restrictions or conditions 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.

(c) 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.

(d) Except as 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.

Sec. 466.531. VIDEO LOTTERY TERMINAL: TRANSPORT; DISPOSITION OF OBSOLETE TERMINAL. (a) The 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.

(b) 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 another person in a jurisdiction outside this state for use in that jurisdiction.

Sec. 466.532. VIDEO LOTTERY TERMINALS: MAXIMUM NUMBER. (a) 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 to fund state governmental programs.

(b) The commission shall determine the number of video lottery terminals that may 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 criteria prescribed by Subsection (a).

Sec. 466.533. REGISTRATION OF VIDEO LOTTERY TERMINALS. (a) A video lottery retailer or video lottery manager may not operate or display a video lottery terminal for play in this state unless the terminal is annually registered with the commission in accordance with this section and the certificate of registration is affixed to the terminal.

(b) To obtain a certificate of registration under this section, a person must:

(1) file with the commission a registration application on a form prescribed by the commission; and

(2) pay a $1,000 registration fee to the commission for each video lottery terminal that is the subject of the application.

(c) Chapter 2153, Occupations Code, does not apply to a video lottery terminal.

Sec. 466.534. LICENSE AND REGISTRATION 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 applicants for a license, certificate of registration, or approval and of license, certificate, or approval holders.

(b) The commission shall determine the amount initially deposited and the amount maintained in the fund by each applicant or license, certificate, or approval holder and shall administer the money in the fund as a revolving fund available to the commission.

(c) If the commission does not receive the initial deposit required by Subsection (b) before the 30th day following the date the commission notifies the applicant or license, registration, or approval holder of the initial deposit amount, the commission may not issue or renew the license, certificate, or approval. The investigative trust fund is in the state treasury and is held in trust with the comptroller's treasury operations division.

(d) 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.

(e) The commission at least quarterly shall provide each applicant or license, certificate, or approval holder a written accounting of the costs and charges incurred in oversight investigations for that applicant or holder. An applicant or a license, certificate, or approval holder shall deposit money not later than the 10th day after receipt of the accounting to maintain the fund balance required by the commission.

(f) If an applicant for a license, certificate of registration, or approval is not licensed, registered, or approved, or if a license, registration, or approval is not renewed, the commission shall refund to the applicant or holder any balance in the fund paid by the applicant or holder not offset by costs incurred in an investigation for that applicant or holder.

Sec. 466.535. CONSENT TO COMMISSION DETERMINATION. (a) An application for a license, certificate of registration, finding of suitability, or other approval under this chapter 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.

(b) 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. 466.536. ABSOLUTE AUTHORITY OF COMMISSION. To protect the integrity of the lottery or the public health, welfare, or safety, or to prevent financial loss to this state, the commission has full and absolute power and authority to:

(1) deny any application or limit, condition, restrict, revoke, or suspend any license, certificate of registration, or finding of suitability or approval; and

(2) fine any person licensed, registered, found suitable, or approved for any cause deemed reasonable by the commission.

Sec. 466.537. WAIVER OF REQUIREMENTS. (a) The commission may waive, either selectively or by general rule, one or more of the requirements of Sections 466.508 and 466.511 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.

(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 and applies for a waiver in compliance with Section 466.538 and commission rules.

(c) An institutional investor is not eligible for the waiver, except as otherwise provided by Subsection (f), 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.

(d) 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.

(e) A waiver granted under Subsection (b) 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 subchapter.

(f) 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:

(1) if the additional ownership results from a stock repurchase program conducted by the publicly traded corporation; and

(2) on the conditions that:

(A) 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

(B) 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.

(g) The one-year period under Subsection (f)(2)(B) may be extended for a reasonable time on commission approval.

(h) 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 inquiries of management of the type normally made by securities analysts for information purposes and not to cause a change in management, policies, or operations; or

(6) any other activity the commission determines to be consistent with the investment intent.

(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. 466.538. WAIVER APPLICATION REQUIREMENTS. An application for a waiver under Section 466.537(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:

(A) states that the voting securities were acquired and are held for investment purposes only in accordance with Section 466.537;

(B) provides 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 Section 466.537(b); and

(C) includes 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 Section 466.537(f);

(4) the names, addresses, telephone numbers, dates of birth, and social security numbers of:

(A) the officers and directors of the institutional investor or the officers' and directors' equivalents; and

(B) 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 in the preceding year, including 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 12 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 et seq.) 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.

Sec. 466.539. CHANGE IN INVESTMENT FOLLOWING WAIVER; NOTICE. (a) An institutional investor that has been granted a waiver of a finding of suitability under Section 466.537 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, not later than the second business day 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 considers appropriate.

(b) If the commission finds that an institutional investor has failed to comply with this chapter or should be 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.

(c) 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 Section 466.537.

Sec. 466.540. EFFECT OF DENIAL OF LICENSE OR REGISTRATION. (a) A person whose application for a license or certificate of 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 approval of the commission.

(b) Any contract related to the operation of video lottery terminals in this state between a person holding a license or certificate of registration and a person denied a license or registration must be terminated immediately. If the person denied a license or certificate has previously been granted a temporary license or certificate, the temporary license or certificate expires immediately on denial of the permanent license or certificate.

(c) Except as otherwise authorized by the commission, a person denied a license or certificate of registration may not reapply for any license or certificate before the second anniversary of the date of the denial.

Sec. 466.541. PRACTICE BY VIDEO LOTTERY RETAILER OR VIDEO LOTTERY MANAGER. 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 chapter, 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 chapter;

(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.

Sec. 466.542. RACETRACK REQUIREMENTS. (a) Except as provided by other law or this section, a video lottery retailer at all times must hold a valid pari-mutuel wagering license. 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.

(b) If a video lottery retailer is not licensed as required by Subsection (a) 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.

(c) Subject to the commission's discretion, a video lottery retailer may continue to operate the video lottery terminal establishment after the second anniversary of the date a license lapses or is revoked, suspended, or surrendered only to satisfy the establishment's existing outstanding debt attributable to video lottery operation.

Sec. 466.543. PRIZE RULES. 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.

Sec. 466.544. VIDEO LOTTERY CENTRAL SYSTEM: COMMUNICATION TECHNOLOGY. 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.

Sec. 466.545. RESPONSIBILITY FOR VIDEO LOTTERY GAME OPERATIONS. (a) A video lottery retailer or a video lottery manager, if applicable, is responsible for the management of video lottery game operations, including:

(1) the validation and payment of prizes; and

(2) the management of cashiers, food and beverage workers, floor workers, security personnel, the security system, building completion, janitorial services, landscaping design, and maintenance.

(b) Nothing in Subsection (a) 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.

(c) 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 at all times 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 a person who is under 21 years of age or who is visibly intoxicated from placing a wager;

(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 any person doing business at the video lottery terminal establishment, including a person operating or managing an auxiliary service such as a restaurant, refuses 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, which must prohibit 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.

Sec. 466.546. TECHNICAL STANDARDS FOR VIDEO LOTTERY EQUIPMENT. The commission by rule shall establish minimum technical standards for video lottery equipment that may be operated in this state.

Sec. 466.547. INCIDENT REPORTS. (a) 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.

(b) A video lottery retailer or video lottery manager shall assign each incident, without regard to materiality, a sequential number and, at a minimum, provide the following information 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. 466.548. EXCLUSION OF PERSONS. (a) The commission shall compile a list of persons that a 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.

(b) A 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.

(c) A 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.

(d) 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).

(e) 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. 466.549. REPORT ON LITIGATION. (a) A video lottery retailer or video lottery manager shall report to the commission any litigation relating to the retailer's or manager's video lottery terminal establishment, including a criminal proceeding, a proceeding involving an issue related to racing activities that impact video lottery operations, or a matter related to character or reputation relevant to a person's suitability under this subchapter.

(b) The report required under Subsection (a) must be filed not later than the fifth day after acquiring knowledge of the litigation.

Sec. 466.550. COMMISSION APPROVAL REQUIRED FOR PROCEDURES AND ADMINISTRATIVE AND ACCOUNTING CONTROLS. (a) The commission's approval is required for:

(1) all internal procedures and administrative and accounting controls of a video lottery retailer or video lottery manager; and

(2) 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.

(b) The commission by rule shall establish general accounting and auditing requirements and internal control standards for video lottery retailers and video lottery managers.

Sec. 466.551. FINANCIAL AND OPERATING INFORMATION. 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 in order for the financial operating position of the retailer or manager and performance and trends of the video lottery game industry in this state to be evaluated.

Sec. 466.552. VIDEO LOTTERY TERMINAL EVENTS. 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 section.

Sec. 466.553. 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. For each employee of the retailer or manager, the report must provide 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(c).

(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 commit any act prohibited by this chapter;

(2) concealed or refused to disclose any material fact in any commission investigation;

(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 commission approval is required after commission 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) wilfully 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 a revocation or suspension of any gaming or wagering license, permit, or approval or for any other 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.

(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. 466.554. REPORT OF VIOLATIONS. A person who holds a license or certificate of 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 certificate holder, by an employee of a license or certificate holder, or by any person on the premises of a video lottery terminal establishment, whether or not associated with the license or certificate holder.

Sec. 466.555. SECURITY. (a) In addition to the security provisions applicable under Section 466.020, a video lottery retailer or video lottery manager shall:

(1) continuously monitor all video lottery terminals through the use of a closed-circuit television system that records activity for a continuous 24-hour period, retain all videotapes or other media used to store video images for at least 30 days, and make the tapes or media available to the commission on request;

(2) submit for commission approval a security plan and a floor plan of the area where video lottery terminals are operated showing video lottery terminal locations and security camera mount locations; and

(3) 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.

(b) Private security personnel must be present during all hours of operation at each video lottery terminal establishment.

(c) 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.

(d) 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. 466.556. VIDEO LOTTERY TERMINAL ESTABLISHMENT: COMMISSION RIGHT TO ENTER. The commission or the commission's representative, after displaying appropriate identification and credentials, has the free and unrestricted right to:

(1) enter the premises of a video lottery terminal establishment;

(2) enter any other locations involved in operation or support of video lottery games at all times to examine the systems; and

(3) inspect and copy the records of a video lottery retailer or video lottery manager pertaining to the operation of video lottery games.

Sec. 466.557. APPOINTMENT OF SUPERVISOR. (a) The commission by rule may provide for the appointment of a supervisor to manage and operate a video lottery terminal establishment at the direction of the commission and perform any act that a video lottery retailer or video lottery manager is entitled to perform in the event that:

(1) a video lottery retailer license or other license required for operation of the establishment is revoked or suspended, lapses, or is surrendered;

(2) a video lottery terminal establishment has been conveyed or transferred to a secured party receiver or trustee who does not hold the licenses necessary to operate the establishment; or

(3) any other event occurs that causes the establishment to cease the operation of video lottery terminals.

(b) The rules may allow the commission to:

(1) take any action or adopt any procedure necessary to operate a video lottery terminal establishment pending the licensing of a video lottery retailer, video lottery manager, the video lottery establishment, or a successor on the transfer or sale of the establishment or property; and

(2) if necessary to continue the operation of the video lottery establishment, sell the establishment to a person that holds or has applied for the licenses required to operate the establishment under this subchapter and make appropriate distributions of the proceeds of the sale.

Sec. 466.558. OFFENSE: CONVEYANCE OF VIDEO LOTTERY TERMINAL ESTABLISHMENT PROPERTY. (a) 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:

(1) sells, leases, or otherwise conveys for less than full market value or pledges as security any property of a video lottery terminal establishment; or

(2) 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.

(b) An offense under Subsection (a) is a felony of the third degree.

Sec. 466.559. INDEMNIFICATION, INSURANCE, AND BONDING REQUIREMENTS. (a) A license or certificate 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 or certificate holder, the commission, this state, and the members, officers, employees, and authorized agents of this state or the commission arising from the license or certificate 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 conduct 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 a video lottery retailer, video lottery manager, or video lottery terminal provider, 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 a video lottery retailer or video lottery manager; and

(6) crime insurance for the location.

Sec. 466.560. LIABILITY FOR CREDIT AWARDED OR DENIED; PLAYER DISPUTE. 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.

Sec. 466.561. STATE VIDEO LOTTERY ACCOUNT. (a) The commission shall deposit money 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 subchapter, money in the account may be used solely to fund state governmental programs and the administration of the video lottery system.

(b) Not more than two percent of the net terminal income received by this state under Section 466.562 may be used to defray expenses incurred in administering this chapter related to video lottery games, including expenses incurred to operate the video lottery central system.

Sec. 466.562. ALLOCATION OF NET TERMINAL INCOME; TRANSFER OF MONEY. (a) Net terminal income derived from the operation of video lottery games in this state is allocated as follows:

(1) net terminal income generated from the operation of video lottery terminals at a video lottery terminal establishment shall be distributed 65 percent to the establishment and 35 percent to this state; and

(2) net terminal income generated from the operation of video lottery terminals on Indian lands under a gaming agreement authorized under this subchapter shall be distributed in accordance with the gaming agreement.

(b) The amount of $10 million of the net terminal income received by this state under Subsection (a)(1) in each fiscal year shall be transferred in equal monthly installments to the Texas Racing Commission to fund a compulsive gambling program established by the racing commission.

(c) The amount of $10 million of the net terminal income received by this state under Subsection (a)(1) in each fiscal year shall be transferred in equal monthly installments to the criminal justice planning fund for use by the criminal justice division of the governor's office to assist in the prosecution of offenses under Chapter 47, Penal Code.

(c-1) Except as otherwise provided by Subsection (c-2):

(1) one-quarter of one percent of the net terminal income received by this state under Subsection (a)(1) shall be allocated to the municipality in which the video lottery terminal establishment is located; and

(2) one-quarter of one percent of the net terminal income received by this state under Subsection (a)(1) shall be allocated to the county in which the video lottery terminal establishment is located.

(c-2) If a video lottery terminal establishment is located in an unincorporated area, one-half of one percent of the net terminal income received by this state under Subsection (a)(1) shall be allocated to the county in which the establishment is located.

(c-3) Two percent of the net terminal income received by this state under Subsections (a) and (b) shall be transferred to the performance horse development fund, administered by the Texas Racing Commission to fund a broad spectrum of the horse industry outside the racing industry and to develop the agriculture industry in this state. Money from the fund is allocated annually as follows:

(1) 40 percent of the fund to American Quarter Horse Association sanctioned events;

(2) 20 percent to National Cutting Horse Association sanctioned events;

(3) 20 percent to American Paint Horse Association sanctioned events; and

(4) 20 percent to the Department of Agriculture to promote the agricultural industry in this state.

(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.

(e) 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.

(f) 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 money.

(g) The commission by rule shall establish the procedures for:

(1) depositing money from video lottery terminal operations into electronic funds transfer accounts; and

(2) handling money from video lottery terminal operations.

(h) 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.

(i) 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 10 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.

(j) A video lottery retailer or video lottery manager 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.

(k) A video lottery retailer and video lottery manager shall remit payment as directed by the commission if the electronic transfer of money 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.

Sec. 466.563. COMMISSION EXAMINATION OF FINANCIAL RECORDS. The commission may examine all accounts, bank accounts, financial statements, and records in the possession or control of a person licensed under this subchapter or in which the license holder has an interest. The license holder must 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.

Sec. 466.564. FINANCIAL INFORMATION REQUIRED. (a) 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.

(b) 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 money.

(c) The commission is not responsible for any interruption or delays in the transfer of money. The video lottery retailer or video lottery manager is responsible for any interruption or delay in the transfer of money.

Sec. 466.565. DEDUCTIONS FROM VIDEO LOTTERY PROCEEDS AT RACETRACKS. (a) The pari-mutuel license holder that owns or operates a racetrack at which video lottery games are conducted under this subchapter and the officially recognized horsemen's organization representing the horsemen at the racetrack or the state breed registry representing the greyhound breeders at the racetrack may enter into a written agreement to allocate a percentage of net terminal income to be used for purses at that racetrack.

(b) Unless otherwise agreed to under Subsection (a) by the pari-mutuel license holder that owns or operates a horse racetrack at which video lottery games are conducted under this subchapter and the officially recognized horsemen's organization representing the horsemen at the racetrack, the license holder shall allocate a percentage determined by the Texas Racing Commission of the net terminal income generated from the operation of video lottery terminals at the racetrack to purses. The percentage must be sufficient to ensure the purses at the racetrack are nationally competitive, and may not be less than 6.5 percent of the net terminal income generated from the operation of video lottery terminals at the racetrack.

(c) Unless otherwise agreed to under Subsection (a) by the pari-mutuel license holder that owns or operates a greyhound racetrack at which video lottery games are conducted under this subchapter and the state breed registry representing the greyhound breeders at the racetrack, the license holder shall allocate a percentage determined by the Texas Racing Commission of the net terminal income generated from the operation of video lottery terminals at the racetrack to purses. The percentage must be sufficient to ensure the purses at the racetrack are nationally competitive, and may not be less than 6.5 percent of the net terminal income generated from the operation of video lottery terminals at the racetrack.

(d) The Texas Racing Commission shall adopt rules to administer this section. A matter considered by the racing commission under this section is a contested case under Chapter 2001, Government Code, and requires a public hearing.

(e) A state breed registry that receives net terminal income under this section may allocate up to 50 percent of the amount received for Texas breeder awards.

Sec. 466.566. LIABILITY OF VIDEO LOTTERY RETAILER AND VIDEO LOTTERY MANAGER. (a) 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.

(b) Net terminal income received by the video lottery retailer or video lottery manager is 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.

(c) 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 are liable in an amount not to exceed the value of their equity investment.

Sec. 466.567. PRIZE PAYMENT AND REDEMPTION. (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 must be redeemed not later than the 180th day 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.

(d) 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. 466.568. REVOCATION OF LICENSE, CERTIFICATE OF REGISTRATION, OR OTHER REGULATORY APPROVAL. (a) The commission shall revoke or suspend a license, certificate of registration, or other regulatory approval issued under this subchapter if the holder of the license, certificate, or 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, certificate of registration, or other approval issued under this subchapter may be grounds for suspension or revocation, or both, of a license, certificate, or other approval issued under this subchapter.

Sec. 466.569. DISCIPLINARY HEARING. (a) Before the commission revokes or suspends a video lottery terminal provider's certificate of 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 certificate 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 certificate 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.

(d) If the commission receives a timely request under Subsection (c), 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 Subsection (c), the commission may impose the penalty, revoke or suspend a license or certificate of registration, or sustain the revocation or suspension without a hearing.

(e) Except as provided by Subsection (f) the hearing must be held not earlier than the 11th day after the date the written request is submitted to the commission.

(f) 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.

(g) 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 this section. 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 certificate holder or on a finding of good cause by the commission or administrative law judge.

(h) To prevail in a post-deprivation administrative hearing under this section, the license or certificate 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.

(i) 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.

(j) 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 this state incurred in bringing the proceeding.

(k) 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 section shall be paid to the commission.

Sec. 466.570. JUDICIAL REVIEW OF REVOCATION, SUSPENSION, OR PENALTY IMPOSITION. (a) A person aggrieved by a final decision of the commission to revoke or suspend a certificate of registration or license or to impose any monetary penalty may obtain judicial review before a district court in Travis County.

(b) 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.

(c) 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.

(d) 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 certificate of registration and the continued distribution, manufacture, or operation of video lottery terminals.

(e) 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 certificate revocation.

Sec. 466.571. LICENSE OR CERTIFICATE OF REGISTRATION: AGREEMENT TO WAIVE ENFORCEABILITY. A license or certificate holder by virtue of accepting the license or certificate agrees that the privilege of holding a license or certificate under this subchapter is conditioned on the holder's agreement to Sections 466.568-466.570 and waives any right to challenge or otherwise appeal the enforceability of those sections.

Sec. 466.572. 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 for this state may not waive this 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 with jurisdiction in the county where the Indian lands are located, or if the federal court lacks jurisdiction, to the jurisdiction of a district court in Travis County, 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. 466.573. ABSOLUTE PRIVILEGE OF REQUIRED COMMUNICATIONS AND DOCUMENTS. (a) Any communication, document, or record of a video lottery central system provider, video lottery terminal provider, video lottery retailer, or video lottery manager, an applicant, or a license or certificate holder or holder of a regulatory approval that is made or transmitted to the commission or any of its employees to comply with any law, including a rule of the commission, to comply with a subpoena issued by the commission, or to 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.

(b) If a communication, document, or record provided under Subsection (a) contains any information that is privileged under state law, that privilege is not waived or lost because the communication, document, or record is disclosed to the commission or any commission employees.

(c) The commission shall maintain all privileged information, communications, documents, and records in a secure place as determined in the commission's sole discretion that is accessible only to commission members and authorized commission employees.

Sec. 466.574. 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. 466.575. MODEL GAMING AGREEMENT. (a) The governor shall execute, on behalf of this state, a gaming agreement with the Ysleta del Sur Pueblo Indian tribe, the Alabama-Coushatta Indian tribe, or the Kickapoo Traditional Tribe of Texas 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 tribe, 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 Chapter 466, Texas Government Code).

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 employed by the Tribe as chief operating or executive officer, chief financial officer, chief of security, or manager of a video lottery terminal establishment or operations of video lottery terminals, or any other person who may directly influence the management of a video lottery terminal establishment or the 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 and 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. "Texas regulatory commission" means the state agency that regulates video lottery games in Texas under Chapter 466, Texas Government Code.

Sec. 3.14. "Transfer agreement" means a written agreement authorizing the transfer of video lottery terminal operating rights between the Tribe and another Indian tribe.

Sec. 3.15. "Transfer notice" means a written notice that the Tribe must provide to the Texas regulatory commission of the Tribe's intent to acquire or transfer video lottery terminal operating rights pursuant to a transfer agreement.

Sec. 3.16. "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. 3.17. "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. 3.18. "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. 3.19. "Tribal gaming license" means any license issued by the TCA as required by and in compliance with this agreement.

Sec. 3.20. "Tribe" means [Name of Tribe], a federally recognized Indian tribe.

Sec. 3.21. "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 throughout the state. The exceptions to this prohibition are limited under Texas law to specified types of gaming and to limited locations that meet specific criteria. Any gaming not expressly authorized is prohibited.

Sec. 4.6. The parties recognize that 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, with the operation of video lottery games on non-Indian lands restricted to licensed racetracks in existence in 2007 or racetracks for which a license application was filed on or before June 1, 2007, and to a limited number of licensed tourist destinations in locations that provide the Tribe with a substantial exclusive territory for its video lottery terminal operations. 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 generated at a video lottery terminal establishment. The requirement to collect and remit these State taxes does not apply to an item sold to or used or consumed by a Tribe member.

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 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 a Class II game 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 a 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 its own 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, the manager must be licensed under Subchapter K, Chapter 466, Texas Government Code, and all video lottery operations shall be subject to and in strict compliance with that subchapter. Any video lottery manager conducting business on Indian lands shall indemnify and hold harmless the State and the Texas regulatory 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 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 owns 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 regulatory commission under Subchapter K, Chapter 466, 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 Subchapter K, Chapter 466, 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 nonrenewal of the video lottery terminal provider's registration.

Sec. 7.2. The Texas regulatory commission shall provide the Tribe a list of registered video lottery terminal providers, commission approved video lottery games, and commission approved video lottery terminals. The Tribe may not operate a video lottery terminal that has not been authorized by the commission.

Sec. 7.3. The Tribe shall file with the Texas regulatory commission any order placed for video lottery terminals simultaneously with the submission of the order 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 regulatory 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 regulatory commission, as described in this agreement.

Sec. 8.4. Video Lottery Terminal Establishment. (a) A 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. The Tribe shall promptly certify in writing to the Texas regulatory commission each time the license is renewed. The certification must 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 the codes 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 in effect on the date this agreement takes effect. Nothing in this agreement 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) The TCA shall issue a video lottery terminal establishment a certificate of occupancy 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 certificate shall be reviewed for continuing compliance once every two years. 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, and State agents may participate in 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 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 to the conduct of the lottery; 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 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 regulatory 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 must 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 must be licensed by the TCA within 90 days of such execution. The TCA shall review licenses 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 nonrenewal of the Financial Source's license by the TCA based on a determination of unsuitability by the Texas regulatory 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 regulatory 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)-(e) 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 in this gaming agreement, 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 regulatory 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) the TCA has conducted a preliminary background investigation, and the investigation or other information held by the TCA 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 the applicant's 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 regulatory 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 in this agreement 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 regulatory 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 a license, registration, suitability, qualification, or request 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) The TCA may deny any application for a tribal gaming license and may revoke any license issued 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 summarily suspend a license in accordance with Section 8.9.5. All rights to notice and hearing shall be governed by tribal law. The TCA shall notify the applicant in writing of the tribal law provisions and of the intent to suspend or revoke the license.

(b) On receipt of notice that the Texas regulatory 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. An applicant for renewal of a license must 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 regulatory 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. Summary 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 to the suspension are 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 regulatory commission a notice of intent to license the applicant, together with all of the following:

(1) a copy of all tribal license application materials and information received by the TCA from the applicant;

(2) an original set of fingerprint cards;

(3) a current photograph; and

(4) 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 regulatory 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 video lottery terminal establishment 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 video lottery retailer license in connection with video lottery operations at a video lottery terminal establishment under Subchapter K, Chapter 466, Texas Government Code. 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 regulatory 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 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 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 for unsuitability.

(d) The Tribe, on a monthly basis, shall provide the Texas regulatory 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 regulatory commission and shall advise the commission of any change to the list not later than the 10th day following the date of the change.

(f) Before denying an application for a determination of suitability, the Texas regulatory 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 a license, registration, suitability, qualification, or request for approval unless the 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) Annually, on or before August 1 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 on 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. The payments must be deposited with the Texas regulatory 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, not later than the 30th day following the date provided for the payment, may appeal an assessment or payment to the Texas regulatory 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 regulatory 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 regulatory 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 and the procedures for 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 regulatory 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. On 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 regulatory 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 regulatory 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 regulatory 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 regulatory 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 equal to or exceeding that provided by the standards set forth in 25 C.F.R. Part 542.

Sec. 9.3. Records. (a) In addition to other records required to be maintained herein, the Tribe shall maintain in permanent written or electronic form the following records related to implementation of this gaming agreement:

(1) a log recording all surveillance activities of the video lottery terminal establishment, including 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 year following the date the records were made;

(2) payout from the conduct of all video lottery games;

(3) maintenance logs for all video lottery gaming equipment used by the video lottery terminal establishment;

(4) security logs as kept in the normal course of conducting and maintaining security at the video lottery terminal establishment, which at a minimum must conform to industry practices for such reports;

(5) books and records on video lottery terminals, as described more particularly in Section 9.4, which shall be maintained in accordance with generally accepted accounting principles (GAAP) and the standards set forth in Section 9.4; and

(6) all documents generated in accordance with this gaming agreement.

(b) The Tribe shall make the records maintained under Subsection (a) of this section available for inspection by the Texas regulatory commission for not less than four years from the date the records are generated.

(c) The security logs required under Subsection (a) of this section must 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.

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 regulatory commission, on 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 regulatory 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 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 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 regulatory 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 if 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 did not discover any 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 regulatory 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 regulatory commission within 30 days of completion. The auditor's work papers concerning video lottery games shall be made available to the commission on request.

(g) Representatives of the Texas regulatory commission may, on 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 videotapes 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 regulatory 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 regulatory 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 21 may be allowed to play video lottery games or be allowed 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 allow play of video lottery terminals by persons under the age of 21, 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 21 may be employed as a gaming employee unless the employment would be allowed under state law.

(c) No person under the age of 21 may be employed in the service of alcoholic beverages at any video lottery terminal establishment, unless such employment would be allowed under state law.

Sec. 9.10. Destruction of Records. Books, records, and other materials documenting the operation of video lottery terminals may 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 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)(1), all books and records with respect to the operation of video lottery terminals or the operation of the video lottery terminal establishment, including 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. The Tribe shall notify the Texas regulatory 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 by Chapter 466, Texas Government Code.

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 regulatory 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 regulatory 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. Circumstances justifying termination include 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 TCA shall set the maximum wager authorized for any single play of a video lottery terminal consistent with any maximum wager set by rule of the Texas regulatory 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. (a) 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 regulatory 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 be treated as net terminal income. 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.

(b) Nothing herein shall limit the ability of the Tribe or video lottery manager to provide promotional prizes, including wide area progressive networks, in addition to prize payouts regulated by the commission.

Sec. 9.16. Patron Disputes. (a) The State and the Texas regulatory 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 shall be resolved:

(1) if the fair market value of the prize is less than $1,000, in accordance with commission approved written policies of the TCA with no relief available from the commission or the State; or

(2) if the fair market value of the prize is $1,000 or more, by the commission in its sole discretion pursuant to rules established by the commission.

(b) No court of this state or of 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 regulatory 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 30 days before the execution of a transfer agreement the Tribe shall send to the Texas regulatory 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 Regulatory Commission Denial of Transfer. (a) The Texas regulatory commission may deny a transfer as set forth in a transfer notice only if:

(1) the proposed transfer violates the conditions set forth in this agreement; or

(2) the proposed transfer agreement does not contain the minimum requirements listed in this agreement.

(b) The commission's denial of a proposed transfer must be in writing, must include the specific reasons 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 the 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 regulatory commission within the period specified in Section 9.17.3, 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 regulatory 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 regulatory 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 21 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 noncash 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 comply with guidelines established by the TCA that are consistent with criteria established by the Texas regulatory commission.

Sec. 9.22. Remedies and Penalties for Unlawful Gaming. Operation or possession of any gaming devices not expressly authorized under this gaming agreement or Texas law (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 of 1968 (25 U.S.C. Sections 1301-1303);

(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. On finalization of the emergency access and preparedness plans, the TCA or the Tribe shall forward copies of the plans to the Texas regulatory 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 on 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 suspected or reported violation of this gaming agreement and shall require the correction of the violation. The TCA shall prepare and retain in its files a timely written report of each investigation and any action taken in response to the investigation, and shall forward copies of the report to the Texas regulatory commission within 15 days of the date of the 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 that 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 regulatory commission shall meet at least annually 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 Regulatory Commission. Any financial obligation of the Texas regulatory 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 regulatory 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 regulatory commission exercises its right to disable all video lottery terminals operated by the Tribe, the commission shall have the right to enter 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 owned by the State.

Sec. 10.6. No Liability of the State Related to Enforcement. The State and the Texas regulatory commission are not liable for any enforcement of the provisions of this gaming agreement.

SECTION 11.0. STATE MONITORING OF GAMING AGREEMENT.

Sec. 11.1. (a) The Texas regulatory commission shall, pursuant to the provisions of this gaming agreement, have the authority to monitor the conduct of video lottery games to ensure 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:

(1) the commission shall have access to the video lottery terminal establishment only during the video lottery terminal establishment's normal operating hours; provided that to the extent such inspections are limited to areas of the video lottery terminal establishment where the public is normally allowed, commission agents may inspect the video lottery terminal establishment without giving prior notice to the Tribe;

(2) any suspected or claimed violations of this gaming agreement or of law shall be directed in writing to the TCA; commission agents may 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

(3) before entering any nonpublic area of the video lottery terminal establishment, commission agents must provide proper photographic identification to the TCA.

(b) A TCA agent shall accompany a commission agent in nonpublic areas of the video lottery terminal establishment. 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 regulatory commission shall have the right to review and copy documents or other records related to the operation of video lottery terminals. The review and copying of those records shall be during normal business hours or hours otherwise at the Tribe's discretion. However, the commission may not copy those portions of any records 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 records 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 records shall be deemed confidential records owned by the Tribe and are not subject to public disclosure by the State.

Sec. 11.3. At the completion of any commission inspection or investigation, the Texas regulatory 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 regulatory commission and the Tribe, however, on 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 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 at least as stringent as 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 agreement;

(b) adopt and comply with standards at least as stringent as 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 not less than $1 million 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 in this subsection. 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 at least as stringent as 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 at least as stringent as 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 at least as stringent as 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 social security, unemployment insurance, disability payments, or public assistance payments;

(i) adopt and comply with standards that are at least as stringent as 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 Sections 13.2(a)-(c) and (e)-(j) 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 allowing 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. The 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 in this subsection. 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 to 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 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 the amounts as provided by State law.

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 those weapons on the premises of a racetrack under Section 46.03, Texas Penal Code, shall also apply to the prohibition of possession of the weapons in video lottery terminal establishments. In addition, 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.

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. The plan shall provide that sufficient tribal law enforcement resources are available 24 hours a day, seven days a 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 a 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 regulatory 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 regulatory 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 after the effective date of this gaming agreement authorize a person to operate video lottery terminals or any additional form of gaming that would be considered a lottery or gift enterprise under Section 47(a), Article III, Texas Constitution, without the Tribe's written consent within the exclusive territory designated by this gaming agreement for the operation of video lottery games by the Tribe, the Tribe agrees to pay the 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). The 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 10 percent of all net terminal income received by the Tribe in a calendar year.

Sec. 14.2. Start-Up Assessment. On the effective date of this gaming agreement, the Tribe shall deposit with the Texas regulatory commission a Start-Up Assessment in the sum of $10,000. 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 on the Tribe or the video lottery terminal establishment except as expressly authorized pursuant to this gaming agreement under Sections 4.6 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 regulatory commission. Any state sales tax on the sale of goods and services to non-Indians at video lottery terminal establishments 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, allow the nontribal operation of any video lottery games or other gaming that would be considered a lottery or gift enterprise under Section 47(a), Article III, Texas Constitution, without the Tribe's written consent within ______ [limitation on state video lottery or other new lottery gaming in exclusive Indian video lottery territory]. 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 that operates any such games within the prohibited territory to remit to the State not less than 50 percent of any revenue from those games. The State further agrees to remit that revenue at least quarterly to Eligible Tribes, as liquidated damages. For purposes of this part, "Eligible Tribes" shall mean those tribes that have entered into a gaming agreement with the State under Section 466.575, Texas Government Code, and are operating gaming pursuant to the gaming agreement within ______ [description of exclusive territory for tribal video lottery]. Such liquidated damages shall be allocated pro rata to the Eligible Tribes based on the number of video lottery terminals operated by each Eligible Tribe in the period when those revenues were generated.

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 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 with jurisdiction over the location or planned location of the Tribe's video lottery terminal establishment or, if the federal courts lack jurisdiction, in a state district court in Travis County. 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 or arbitrators 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 466.572, 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, and Subchapter K, Chapter 466, Texas Government Code. If any final and nonappealable judicial determination authorizes or requires the State to authorize that any Class III gaming be operated by the Tribe other than video lottery terminals connected to the video lottery system or to a government operated video lottery system structured identically 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 on 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 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 an initial term of 10 years from the effective date, renewable for an additional 10 years; provided that the Tribe and the State, acting through its Governor, may renegotiate the terms of this gaming agreement after the initial term. 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 Texas regulatory 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. On issuance of such a declaration, the complaining party may unilaterally terminate this gaming agreement on 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 regulatory 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.

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. On 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 on 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 or officials represent that the official or officials are duly authorized and have the authority to execute this gaming agreement on behalf of the Tribe for whom the official or officials are signing. APPROVED: [Name of Tribe] _________________________Date:__________ [CHIEF EXECUTIVE OFFICER] State of Texas _________________________Date:__________ Governor of Texas

Sec. 466.576. 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 this state on terms that are different from those set forth in the gaming agreement under Section 466.575, or the ability of this state to engage in negotiations and to reach agreement under any applicable federal law.

(b) In offering to enter into a gaming agreement with Indian tribes in this state under Section 466.575(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) this 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 this state or a political subdivision of this state to impose the tax, fee, charge, or other assessment.

(c) 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. Section 1166 and 25 U.S.C. Section 2701 et seq.), on terms different than those prescribed in the gaming agreement in Section 466.575(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, provided that 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 or authorized under Texas law and may not engage in Class III gaming that is not expressly authorized in the gaming agreement or under Texas law;

(2) a provision prescribing that any operation or possession by the tribe of any gaming devices not expressly authorized under the gaming agreement or other Texas law, 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 this 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;

(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 this state may not waive sovereign immunity except to the extent expressly permitted under Section 466.572;

(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 requiring any video lottery manager doing business on Indian lands to indemnify and hold harmless the commission, this state, and the members, officers, employees, and authorized agents of the commission and this state from any and all claims which may be asserted against a license or certificate holder, the commission, this state, or the employees arising from the license or certificate holder's participation in the video lottery system authorized under the gaming agreement;

(6) a provision requiring the tribe to 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 net terminal revenue between the tribe and this state as payment for the exclusivity or other substantial benefit;

(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 video lottery terminals and facilities operating the video lottery terminals authorized under the gaming agreement to be owned by the tribe;

(10) a provision requiring the video lottery games authorized by the gaming agreement to 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 provide to the commission verification that this requirement has been satisfied;

(11) a provision requiring 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 federal, state, or local government agency; 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 allowing the commission, under the provisions of the gaming agreement, to 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 granting the Department of Public Safety and agents of the commission reasonable access to all areas of the facility related to the conduct of video lottery games in order to properly monitor the conduct of video lottery games;

(13) a provision specifying jurisdiction of tribal, state, and federal courts with regard to matters arising from the gaming agreement or the operation of video lottery terminals, or both, as authorized by the agreement and consistent with Section 466.572;

(14) a provision requiring the tribe to adopt and comply with standards at least as stringent as state public health standards for food and beverage handling at any facilities where video lottery terminals are operated;

(15) a provision requiring the tribe to adopt and comply with standards at least as stringent as federal water quality and safe drinking water standards applicable in this state at any facilities where video lottery terminals are operated, and requiring the tribe to 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 requiring the tribe to carry at least $5 million in public liability insurance for patron claims and providing reasonable assurance that the claims will be promptly and fairly adjudicated and that legitimate claims will be paid;

(17) a provision requiring the tribe to adopt and comply with standards at least as stringent as federal workplace and occupational health and safety standards for any facilities where video lottery terminals are operated, and requiring the tribe to 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 requiring the tribe to adopt and comply with standards at least as stringent as 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 tribe members, pursuant to a duly adopted tribal ordinance;

(19) a provision requiring the tribe to adopt and comply with standards that are at least as stringent as state laws prohibiting the use of proceeds of a check issued as a payment under the financial assistance program 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 requiring the tribe to adopt and comply with standards at least as stringent as 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 compulsive gambling;

(21) a provision requiring the tribe to participate in state statutory programs related to employment in video lottery terminal operations or instead of participation in this state workers' compensation system, allowing the tribe to create and maintain a system that provides redress for employee work-related injuries through requiring insurance or self-insurance 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 requiring the tribe 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:

(A) requiring the tribe 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;

(B) requiring the defenses that apply to the possession of weapons on the premises of a racetrack under Section 46.03, Penal Code, to apply to possession of the weapons in a video lottery terminal establishment; and

(C) requiring tribal security or tribal law enforcement personnel to be allowed to possess firearms and clubs at a video lottery terminal establishment as authorized by tribal law;

(24) a provision requiring the tribe to agree 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 requiring the tribe to agree 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 requiring the tribe 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 requiring the tribe 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 generated at a video lottery terminal establishment, other than on an item sold to or used or consumed by a tribe member.

(d) The legislature finds that, in any proceeding described by Subsection (c)(2), irreparable injury and inadequate remedy at law shall be presumed once this state has demonstrated that the violation has occurred. If this 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, this state may bring an action to enjoin the unlawful conduct.

Sec. 466.577. IMPLEMENTATION OF GAMING AGREEMENT. The governor shall execute any documents necessary to implement a gaming agreement authorized under this subchapter.

Sec. 466.578. INCORPORATION INTO STATE LAW. The model gaming agreement set out in Section 466.575(b) is hereby incorporated into state law, and the operation of video lottery terminals authorized under the agreement is expressly authorized as a matter of state law for any Indian tribe entering into the gaming agreement in accordance with this subchapter.

Sec. 466.579. 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. 466.580. 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 1.35. 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, supplies, services, or advertising or video lottery equipment or games and that employee is directly involved in the manufacturing, distribution, selling, or production of lottery equipment, supplies, services, or advertising or video lottery equipment or games;

(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 1.36. 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 shall create a division to oversee the video lottery system 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 certificate of 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 1.37. 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 1.38. Section 411.108, Government Code, is amended by adding Subsection (d) to read as follows:

(d) The Texas Lottery Commission or a successor agency 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(c) and 466.206.

SECTION 1.39. Article 6, Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes), is amended by adding Section 6.20 to read as follows:

Sec. 6.20. LIVE RACING REQUIREMENT. (a) Except as provided by Subsections (b) and (c) of this section, a person who holds a class 1 or class 2 racetrack license for a racetrack that is a video lottery terminal establishment under Subchapter K, Chapter 466, Government Code, shall conduct the greater of:

(1) for each breed, not less than the number of live racing days conducted by the racetrack for that breed in 2002; or

(2) for quarter horses and thoroughbreds, not less than 50 live race days or 500 live races.

(b) A class 2 racetrack that has not previously conducted live racing and that becomes licensed as a video lottery terminal establishment under Subchapter K, Chapter 466, Government Code, shall conduct live racing not later than the second anniversary of the date the license is issued under that subchapter.

(c) A person who holds a class 1 or class 2 racetrack license may conduct fewer live racing days than required by Subsection (a) of this section if the racetrack, the affected breed registry, and the recognized horsemen's organization enter into a written agreement to conduct fewer races.

(d) A greyhound racetrack that is a video lottery terminal establishment under Subchapter K, Chapter 466, Government Code, shall offer for pari-mutuel wagering not less than 420 live greyhound racing performances in each calendar year, unless otherwise agreed to in writing by the racetrack and the official state greyhound breed registry. For purposes of this subsection, "greyhound racing performance" means the consecutive running of not fewer than 12 greyhound races.

SECTION 1.40. Section 16.18, Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes), is amended by adding Subsection (d) to read as follows:

(d) This section does not apply to a county in which is located a racetrack that is authorized to operate video lottery terminals under Subchapter K, Chapter 466, Government Code.

SECTION 1.41. The Legislature finds and declares the following:

(1) This state is facing a crisis in providing funding for state governmental programs. Contingent on the approval of the voters, in order to generate additional revenue to fund 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 article.

(2) In light of the financial needs of the state and the need to fund 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 article 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 critical financial need 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 article, the Texas Lottery Commission may conduct limited pre-implementation acts before the constitutional amendment proposed by the 80th Legislature, Regular Session, 2007, to authorize the state to operate video lottery games is submitted to the voters for approval.

SECTION 1.42. (a) As soon as practicable after the constitutional amendment to authorize the state to operate video lottery games proposed by the 80th Legislature, Regular Session, 2007, is approved by the voters and becomes effective, the Texas Lottery Commission or the Texas Gaming and Boxing Commission, as applicable, 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 is submitted to the voters, the Texas Lottery Commission may expend money from the commission's appropriation for the 2008-2009 state fiscal 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 to fund the establishment of the state video lottery system.

(c) Before the proposed constitutional amendment 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 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 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, certificate of 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 to operate video lottery games is approved by the voters and becomes effective.

(g) Before the proposed constitutional amendment 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 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 466.508, Government Code, as added by this Act, except that the application fee required under Section 466.509(a), 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 466.509(a), 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 to operate video lottery games is approved by the voters and becomes effective.

(j) Notwithstanding Section 466.509, 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 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 is submitted to the voters, the Texas Lottery Commission may negotiate and enter contracts as necessary to establish the video lottery system.

(m) Before the proposed constitutional amendment 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 1.43. Sections 1.01 through 1.40 of this article take effect on the date the amendment adding Section 47-a, Article III, Texas Constitution, authorizing the operation of video lottery games at racetracks and on certain Indian lands, authorizing the regulation of gaming to provide additional money to fund governmental programs, and regulating locations at which gambling may be conducted, proposed by the 80th Legislature, Regular Session, 2007, becomes effective. Sections 1.41 and 1.42 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 1.41 and 1.42 of this article and this section take effect on the 91st day after the last day of the legislative session. Sections 1.41 and 1.42(m) of this article expire March 1, 2008.

ARTICLE 2. ESTABLISHMENT OF TEXAS GAMING AND BOXING COMMISSION AND

REGULATING OTHER GAMING

SECTION 2.01. Subtitle A, Title 13, Occupations Code, is amended by adding Chapters 2004 and 2005 to read as follows: CHAPTER 2004. TEXAS GAMING AND BOXING COMMISSION SUBCHAPTER A. GENERAL PROVISIONS

Sec. 2004.001. DEFINITIONS. In this chapter:

(1) "Commission" means the Texas Gaming and Boxing Commission.

(2) "Commission member" means a member of the commission.

(3) "Executive director" means the executive director of the commission.

(4) "Person that has a significant financial interest in the lottery or in gaming regulated under Chapter 2005" means:

(A) a person or a board member, officer, trustee, or general partner of:

(i) a person licensed or required to be licensed under Chapter 2005; or

(ii) a person that manufactures, distributes, sells, or produces lottery equipment, video lottery equipment, gaming equipment, video lottery games, video lottery central systems, supplies, services, or advertising;

(B) an employee of:

(i) a person licensed or required to be licensed under Chapter 2005 and that employee is directly involved in gaming; or

(ii) a video lottery terminal provider, video lottery central system provider, or person that manufactures, distributes, sells, or produces lottery equipment, gaming equipment, supplies, services, or advertising or video lottery equipment or games and that employee is directly involved in the manufacturing, distribution, selling, or production of lottery equipment, supplies, services, or advertising or video lottery equipment or games;

(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 person licensed under Chapter 2005, a sales agent, video lottery retailer, video lottery manager, video lottery terminal provider, or video lottery central system provider.

(5) "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.

Sec. 2004.002. APPLICATION OF SUNSET ACT. (a) The Texas Gaming and Boxing Commission is subject to Chapter 325, Government Code (Texas Sunset Act). Unless continued in existence as provided by that chapter, the commission is abolished and this chapter expires September 1, 2019.

(b) On the date the commission is abolished under Subsection (a), the following statutes are repealed:

(1) Chapter 2001;

(2) Chapter 2005;

(3) Chapter 2052;

(4) Chapter 466, Government Code; and

(5) the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes).

Sec. 2004.003. REFERENCES TO LICENSE INCLUDE CERTIFICATE OF REGISTRATION OR OTHER APPROVAL. Except as expressly provided by this chapter, other law, or commission rule, a reference in this chapter to a license applies to a certificate of registration, finding of suitability, or prior approval under this chapter, other law, or commission rule. [Sections 2004.004-2004.050 reserved for expansion] SUBCHAPTER B. TEXAS GAMING AND BOXING COMMISSION

Sec. 2004.051. COMMISSION; MEMBERSHIP. (a) The Texas Gaming and Boxing Commission is composed of seven members. Six members shall be appointed by the governor with the advice and consent of the senate. The chairman of the Public Safety Commission is an ex officio voting member of the commission.

(b) Appointments to the commission shall be made without regard to the race, color, disability, sex, religion, age, or national origin of the appointee.

Sec. 2004.052. QUALIFICATIONS OF COMMISSION MEMBERS. (a) To be eligible for appointment to the commission, a person:

(1) must be a citizen of the United States;

(2) must have resided in this state for the two years preceding the date of the person's appointment;

(3) must submit a financial statement that contains the information required by Chapter 572, Government Code;

(4) may not own a financial or other interest in a person engaged in the conduct of gaming, or in a security issued by that person, or be related within the second degree by affinity or the third degree by consanguinity, as determined under Chapter 573, Government Code, to an individual who owns such a financial or other interest or security;

(5) may not be an applicant for or holder of a license, certificate of registration, or approval under a law administered by the commission or hold an equity interest or creditor interest in an owner license holder requiring qualification under Section 2005.061; and

(6) may not be a member of the governing body of a political subdivision of this state.

(b) A person holding an elective office or an officer or official of a political party is not eligible for appointment to the commission.

(c) A person is not eligible for appointment as a member of the commission if the person or the person's spouse:

(1) is registered, certified, or licensed by an occupational regulatory agency in the field of gaming;

(2) is employed by or participates in the management of a business entity or other organization regulated by the commission or receiving funds from the commission;

(3) owns or controls, directly or indirectly, more than a 10 percent interest in a business entity or other organization regulated by the commission or receiving funds from the commission; or

(4) uses or receives a substantial amount of tangible goods, services, or money from the commission, other than compensation or reimbursement authorized by law for commission membership, attendance, or expenses.

Sec. 2004.053. MEMBERSHIP AND EMPLOYEE RESTRICTIONS. (a) In this section, "Texas trade association" means a cooperative and voluntarily joined association of business or professional competitors in this state designed to assist its members and its industry or profession in dealing with mutual business or professional problems and in promoting their common interest.

(b) A person may not be a member of the commission or an employee of the commission employed in a "bona fide executive, administrative, or professional capacity," as that phrase is used for purposes of establishing an exemption to the overtime provisions of the federal Fair Labor Standards Act of 1938 (29 U.S.C. Section 201 et seq.) if:

(1) the person is an officer, employee, manager, or paid consultant of a Texas trade association in the field of gaming; or

(2) the person's spouse is an officer, manager, or paid consultant of a Texas trade association in the field of gaming.

(c) A person may not be a member of the commission or act as general counsel to the commission if the person is required to register as a lobbyist under Chapter 305, Government Code, because of the person's activities for compensation on behalf of a profession related to the operation of the commission.

Sec. 2004.054. TERMS; VACANCIES. (a) Appointed members of the commission serve staggered six-year terms. The terms of two members expire on February 1 of each odd-numbered year.

(b) A vacancy in an appointive position on the commission shall be filled by appointment of the governor with the advice and consent of the senate.

Sec. 2004.055. PRESIDING OFFICER. The governor shall designate a member of the commission as presiding officer of the commission to serve in that capacity at the pleasure of the governor.

Sec. 2004.056. MEETINGS; OFFICIAL RECORD. (a) The commission shall meet not less than six times each year.

(b) The commission may meet at other times at the call of the presiding officer or as provided by commission rule.

(c) The commission shall keep an official record of all commission meetings and proceedings.

Sec. 2004.057. GROUNDS FOR REMOVAL. (a) It is a ground for removal from the commission that a member:

(1) does not have at the time of taking office the qualifications required by Section 2004.052;

(2) does not maintain during service on the commission the qualifications required by Section 2004.052;

(3) is ineligible for membership under Section 2004.053;

(4) cannot, because of illness or disability, discharge the member's duties for a substantial part of the member's term; or

(5) is absent from more than half of the regularly scheduled commission meetings that the member is eligible to attend during a calendar year without an excuse approved by a majority vote of the commission.

(b) The validity of an action of the commission is not affected by the fact that it is taken when a ground for removal of a commission member exists.

(c) If the executive director has knowledge that a potential ground for removal of a commission member exists, the executive director shall notify the presiding officer of the commission of the potential ground. The presiding officer shall then notify the governor and the attorney general that a potential ground for removal exists. If the potential ground for removal involves the presiding officer, the executive director shall notify the next highest officer of the commission, who shall notify the governor and the attorney general that a potential ground for removal exists.

Sec. 2004.058. TRAINING. (a) A person who is appointed to and qualifies for office as a member of the commission may not vote, deliberate, or be counted as a member in attendance at a meeting of the commission until the person completes a training program that complies with this section.

(b) The training program must provide the person with information regarding:

(1) this chapter and the other laws administered by the commission and the commission's programs, functions, rules, and budget;

(2) the results of the most recent formal audit of the commission;

(3) the requirements of laws relating to open meetings, public information, administrative procedure, and conflict of interest; and

(4) any applicable ethics policies adopted by the commission or the Texas Ethics Commission.

(c) A person appointed to the commission is entitled to reimbursement, as provided by the General Appropriations Act, for travel expenses incurred in attending the training program regardless of whether the attendance at the program occurs before or after the person qualifies for office.

Sec. 2004.059. QUALIFICATIONS AND STANDARDS OF CONDUCT INFORMATION. The executive director or the executive director's designee shall provide to members of the commission, as often as necessary, information regarding their:

(1) qualifications for office under this chapter; and

(2) responsibilities under applicable laws relating to standards of conduct for state officers.

Sec. 2004.060. BOND. (a) Before assuming the duties of office, an appointed member of the commission must execute a bond in the amount of $25,000 payable to the state and conditioned on the member's faithful performance of the member's duties of office.

(b) The bond must be approved by the governor.

(c) The cost of the bond shall be paid by the commission.

Sec. 2004.061. PROHIBITION OF CERTAIN ACTIVITIES. (a) An appointed member of the commission may not:

(1) use the member's official authority to affect the result of an election or nomination for public office; or

(2) directly or indirectly coerce, attempt to coerce, command, or advise a person to pay, lend, or contribute anything of value to another person for political purposes.

(b) A commission member or the spouse of a commission member may not solicit or accept employment from a license, certificate of registration, or approval holder under a law administered by the commission or from an applicant for such a license, certificate, or approval before the second anniversary of the date the commission member's service on the commission ends.

(c) A person who violates this section commits an offense. An offense under this subsection is a Class B misdemeanor.

Sec. 2004.062. APPLICATION OF FINANCIAL DISCLOSURE LAW. For purposes of Chapter 572, Government Code, a member of the commission, the executive director, and the division directors are appointed officers of a major state agency.

Sec. 2004.063. PER DIEM; EXPENSES. (a) Each appointed member of the commission is entitled to:

(1) a per diem in an amount prescribed by appropriation for each day spent in performing the duties of the member; and

(2) reimbursement for actual and necessary expenses incurred in performing those duties.

(b) Reimbursement for expenses under this section is subject to any applicable limitation in the General Appropriations Act.

(c) The ex officio member is entitled to reimbursement for expenses from that member's agency as provided by law for expenses incurred in the performance of that member's other official duties.

Sec. 2004.064. EXECUTIVE DIRECTOR. (a) The commission shall appoint an executive director, who serves at the pleasure of the commission.

(b) A person holding an elective office or an officer or official of a political party is not eligible for appointment as executive director.

(c) The executive director must have five or more years of responsible administrative experience in public or business administration or possess broad management skills.

(d) The executive director may not pursue any other business or occupation or hold any other office for profit.

(e) The executive director must meet all eligibility requirements relating to members of the commission, except the requirement for prior residency in this state.

(f) The executive director is entitled to an annual salary and other compensation specified by the commission.

(g) The executive director may not, before the second anniversary of the date the director's service to the commission ends, acquire a direct or indirect interest in or be employed by a person licensed or registered by the commission in connection with the conduct of gaming in this state.

Sec. 2004.065. OFFICES. The commission shall maintain its primary office in Travis County and may maintain other offices determined to be necessary by the commission.

Sec. 2004.066. AUTHORITY TO SUE OR BE SUED. (a) The commission may sue and be sued.

(b) Service of process in a suit against the commission may be secured by serving the executive director.

(c) A suit against the commission must be brought in Travis County.

Sec. 2004.067. AUDIT. The transactions of the commission are subject to audit by the state auditor under Chapter 321, Government Code.

Sec. 2004.068. ACCESS TO CRIMINAL HISTORY RECORDS. (a) The governor shall 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 relating to an individual the governor intends to appoint to the commission.

(b) The commission shall 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 relating to an individual the commission intends to employ. [Sections 2004.069-2004.100 reserved for expansion] SUBCHAPTER C. POWERS AND DUTIES OF COMMISSION

Sec. 2004.101. GENERAL POWERS. (a) The commission has broad authority and shall exercise strict control and close supervision over all activities authorized and conducted in this state under a law administered by the commission, including:

(1) Chapter 2001;

(2) this chapter;

(3) Chapter 2005;

(4) Chapter 2052;

(5) Chapter 466, Government Code; and

(6) the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes).

(b) The commission shall ensure that all gaming activities subject to the oversight or regulatory authority of the commission are conducted fairly and in compliance with the law.

(c) The commission also has the powers and duties granted under:

(1) Chapter 2001;

(2) Chapter 2005;

(3) Chapter 2052;

(4) Chapter 466, Government Code; and

(5) the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes).

(d) All aspects of this chapter and the other laws administered by the commission, including those relating to licensing, qualification, execution, and enforcement, shall be administered by the executive director and the commission for the protection of the public and in the public interest.

(e) In the acquisition or provision of facilities, supplies, equipment, materials, or services related to the implementation of gaming under Chapter 2005, the commission must comply with procurement procedures prescribed under:

(1) Subtitle D, Title 10, Government Code; and

(2) other law applicable to state agencies generally.

(f) The commission and the executive director have full power and authority to hold hearings, and in connection to the hearings, to issue subpoenas, to compel the attendance of witnesses at any place in this state, to administer oaths, and to require testimony under oath. Any process or notice relating to a hearing may be served in the manner provided for service of process and notices in civil actions. The commission and the executive director may pay transportation and other expenses of witnesses as they consider reasonable.

(g) The executive director and the executive director's authorized employees may:

(1) inspect and examine a premises where gaming is conducted or equipment or supplies, including a gaming device, or associated equipment is manufactured, assembled, produced, programmed, sold, leased, marketed, distributed, repaired, or modified for use in gaming;

(2) for good cause, seize and remove from a premises and impound equipment or supplies for the purpose of examination and inspection; and

(3) demand access to, inspect, examine, photocopy, or audit papers, books, and records of applicants and license and certificate holders, on their premises or elsewhere as practicable, in the presence of the license or certificate holder or the license or certificate holder's agent, reporting the gross income produced by a gaming business, verification of the gross income, and other matters affecting the enforcement of this chapter.

(h) For the purpose of conducting audits after the cessation of gaming by a license or certificate holder, a former license holder shall furnish, on demand of the executive director or the executive director's authorized employees, books, papers, and records as necessary to conduct the audits. The former license or certificate holder shall maintain all books, papers, and records necessary for audits for three years after the date of the surrender or revocation of the license or certificate and is responsible for the costs incurred by the commission in the conduct of an audit under this section. If the former license or certificate holder seeks judicial review of a deficiency determination or files a petition for a redetermination, the former license or certificate holder must maintain all books, papers, and records until a final order is entered on the determination.

Sec. 2004.102. RULEMAKING AUTHORITY. (a) The commission shall adopt rules the commission considers necessary or desirable for the public interest in carrying out the policy and provisions of this chapter and the other laws administered by the commission.

(b) The rules shall set out:

(1) the method and form of application that an applicant for a license or certificate of registration under Chapter 2005 must follow and complete before consideration of an application by the commission;

(2) the information to be furnished by an applicant or license or certificate holder under Chapter 2005 concerning antecedents, habits, character, associates, criminal record, business activities, and financial affairs;

(3) the criteria to be used in the award, revocation, and suspension of licenses or certificates under Chapter 2005;

(4) the information to be furnished by a license or certificate holder under Chapter 2005 relating to the holder's employees;

(5) the manner and procedure of hearings conducted by the commission or a hearing examiner of the commission;

(6) the payment of fees or costs an applicant or license or certificate holder under Chapter 2005 must pay;

(7) the procedures for the issuance of temporary licenses and certificates and temporary qualification to hold equity interests and creditor interests in owner license and certificate holders under Chapter 2005;

(8) the manner and method of collection and payment of fees and the issuance of licenses and certificates;

(9) the definition of "unsuitable method of operation";

(10) the conditions under which the nonpayment of a gambling debt by a license or certificate holder constitutes grounds for disciplinary action;

(11) the manner of approval of new games and gaming devices and the method to determine whether the gaming device is a video lottery terminal that must comply with Subchapter K, Chapter 466, Government Code;

(12) access to confidential information obtained under this chapter, Chapter 2005, or other law and means to ensure that the confidentiality of the information is maintained and protected;

(13) financial reporting and internal control requirements for license or certificate holders;

(14) the manner in which winnings, compensation from games and gaming devices, and gross gaming revenue must be computed and reported by an owner license or certificate holder under Chapter 2005;

(15) requirements for the annual audit of the financial statements of a license or certificate holder;

(16) requirements for periodic financial reports from each license or certificate holder consistent with standards and intervals prescribed by the commission;

(17) the procedures to be followed by a license or certificate holder for excluding a person from a gaming establishment; and

(18) the procedures for exempting or waiving institutional investors from the licensing or registration requirements for shareholders of publicly traded corporations.

Sec. 2004.103. AUTHORITY OF EXECUTIVE DIRECTOR. (a) With commission approval, the executive director may create executive positions as the director considers necessary to implement the provisions of this chapter, Chapter 2005, and any other law administered by the commission.

(b) The executive director shall employ directors in the areas of audit, investigation, and enforcement. The audit director must be a certified public accountant, have five or more years of progressively responsible experience in general accounting, and have a comprehensive knowledge of the principles and practices of corporate finance or must possess qualifications of an expert in the field of corporate finance and auditing, general finance, gaming, and economics. Other directors must possess five or more years of training and experience in the fields of investigation, law enforcement, law, or gaming.

(c) The executive director may investigate, for the purpose of prosecution, a suspected criminal violation of this chapter or another law administered by the commission. For the purpose of the administration and enforcement of this chapter or another law administered by the commission, the executive director and employees designated by the executive director may be commissioned as peace officers.

(d) The executive director, to further the objectives and purposes of this chapter or another law administered by the commission, may:

(1) direct and supervise all administrative actions of the commission;

(2) bring legal action in the name and on behalf of the commission;

(3) make, execute, and effect an agreement or contract authorized by the commission;

(4) employ the services of persons considered necessary for consultation or investigation and set the salaries of or contract for the services of legal, professional, technical, and operational personnel and consultants, except that outside legal assistance may be retained only with the approval of the attorney general;

(5) acquire furnishings, equipment, supplies, stationery, books, and all other things the executive director considers necessary or desirable in carrying out the executive director's functions; and

(6) perform other duties the executive director may consider necessary to effect the purposes of this chapter or another law administered by the commission.

(e) Except as otherwise provided in this chapter, the costs of administration incurred by the executive director shall be paid in the same manner as other claims against the state are paid.

Sec. 2004.104. OFFICE OF HEARING EXAMINERS. (a) The commission shall create an office of hearing examiners to assist the commission in carrying out its powers and duties.

(b) The office of hearing examiners shall:

(1) hold hearings under the authority of the commission on matters relating to the commission's administration of this chapter or another law administered by the commission as the commission orders; and

(2) report after hearing in the manner prescribed by the commission.

(c) The commission shall refer any contested case arising under this chapter or another law administered by the commission to the office of hearing examiners.

(d) The office of hearing examiners is independent of the executive director and is under the exclusive control of the commission.

(e) The office of hearing examiners is under the direction of a chief hearing examiner appointed by the commission.

(f) The commission may authorize the chief hearing examiner to delegate to one or more hearing examiners the authority to hold any hearing called by the chief hearing examiner.

(g) The chief hearing examiner and all assistant hearing examiners employed by the office of hearing examiners must be attorneys licensed to practice law in this state.

(h) The chief hearing examiner and all assistant hearing examiners may administer oaths, receive evidence, and issue subpoenas to compel the attendance of witnesses and the production of papers and documents in all matters delegated by the commission.

(i) The chief hearing examiner and all assistant hearing examiners are entitled to an annual salary and other compensation specified by the commission.

(j) The office of hearing examiners may contract for additional services it considers necessary to carry out its powers.

Sec. 2004.105. JUDICIAL REVIEW IN CONTESTED CASES. A final ruling of the commission in a contested case is subject to judicial review under Chapter 2001, Government Code. Judicial review is under the substantial evidence rule.

Sec. 2004.106. RECORDS. (a) The executive director shall maintain a file of all applications for licenses, registrations, or approvals under Chapter 2005 or another law administered by the commission, together with a record of all action taken with respect to the applications.

(b) The commission and the executive director may maintain other records they consider desirable.

(c) The information made confidential by this subsection may be revealed, wholly or partly, only in the course of the necessary administration of this chapter or other law administered by the commission, under Section 2005.452, or on the order of a court of competent jurisdiction, except that the executive director or the commission may disclose the information to an authorized agent of any agency of the United States, another state, or a political subdivision of this state authorized under commission rules. Notice of the content of any information furnished or released under this subsection may be given to any affected applicant or license, certificate of registration, or approval holder as prescribed by commission rule. The following information is confidential:

(1) information requested by the commission or the executive director to be furnished to either of them under this chapter, Chapter 2005, or another law administered by the commission or that may otherwise be obtained relating to the finances, earnings, or revenue of an applicant or license, registration, or approval holder;

(2) information pertaining to an applicant's criminal record, antecedents, and background that has been furnished to or obtained by the commission or the executive director from any source;

(3) information provided to the commission or the executive director or a commission employee by a governmental agency or an informer or on the assurance that the information will be held in confidence and treated as confidential; and

(4) information obtained by the executive director or the commission from a license, certificate, or approval holder, relating to the manufacturing, modification, or repair of gaming devices.

Sec. 2004.107. REPRESENTATION BY ATTORNEY GENERAL. (a) The attorney general shall represent the commission and the executive director in any proceeding to which the commission or the executive director is a party under this chapter or another law administered by the commission or in any suit filed against the commission or executive director.

(b) The office of the attorney general on request shall advise the commission and the executive director in all other matters, including representing the commission when the commission acts in its official capacity.

Sec. 2004.108. RULES RESTRICTING ADVERTISING OR COMPETITIVE BIDDING. (a) The commission may not adopt rules restricting advertising or competitive bidding by a person regulated by the commission except to prohibit false, misleading, or deceptive practices by that person.

(b) The commission may not include in its rules to prohibit false, misleading, or deceptive practices by a person regulated by the commission a rule that:

(1) restricts the use of any advertising medium;

(2) restricts the person's personal appearance or the use of the person's voice in an advertisement;

(3) relates to the size or duration of an advertisement by the person; or

(4) restricts the use of a trade name in advertising by the person.

Sec. 2004.109. RULES ON CONSEQUENCES OF CRIMINAL CONVICTION. (a) The commission shall adopt rules necessary to comply with Chapter 53.

(b) In its rules under this section, the commission shall list the specific offenses for which a conviction would constitute grounds for the commission to take action under Section 53.021.

Sec. 2004.110. SUBPOENA. (a) The commission may request and, if necessary, compel by subpoena:

(1) the attendance of a witness for examination under oath; and

(2) the production for inspection and copying of records and other evidence relevant to the investigation of an alleged violation of this chapter or another law administered by the commission.

(b) If a person fails to comply with a subpoena issued under this section, the commission, acting through the attorney general, may file suit to enforce the subpoena in a district court in Travis County or in the county in which a hearing conducted by the commission may be held.

(c) The court shall order a person to comply with the subpoena if the court determines that good cause exists for issuing the subpoena.

Sec. 2004.111. USE OF TECHNOLOGY. The commission shall implement a policy requiring the commission to use appropriate technological solutions to improve the commission's ability to perform its functions. The policy must ensure that the public is able to interact with the commission on the Internet.

Sec. 2004.112. NEGOTIATED RULEMAKING AND ALTERNATIVE DISPUTE RESOLUTION POLICY. (a) The commission shall develop and implement a policy to encourage the use of:

(1) negotiated rulemaking procedures under Chapter 2008, Government Code, for the adoption of commission rules; and

(2) appropriate alternative dispute resolution procedures under Chapter 2009, Government Code, to assist in the resolution of internal and external disputes under the commission's jurisdiction.

(b) The commission's procedures relating to alternative dispute resolution must conform, to the extent possible, to any model guidelines issued by the State Office of Administrative Hearings for the use of alternative dispute resolution by state agencies.

(c) The commission shall designate a trained person to:

(1) coordinate the implementation of the policy adopted under Subsection (a);

(2) serve as a resource for any training needed to implement the procedures for negotiated rulemaking or alternative dispute resolution; and

(3) collect data concerning the effectiveness of those procedures, as implemented by the commission.

Sec. 2004.113. COMMITTEES. The commission may appoint committees that it considers necessary to carry out its duties.

Sec. 2004.114. ANNUAL REPORT. (a) The commission shall file annually with the governor and the presiding officer of each house of the legislature a complete and detailed written report accounting for all money received and disbursed by the commission during the preceding fiscal year.

(b) The annual report must be in the form and be reported in the time provided by the General Appropriations Act.

Sec. 2004.116. GIFT OR POLITICAL CONTRIBUTION TO OFFICER OR EMPLOYEE. (a) A commission member, the executive director, or an employee of the commission may not intentionally or knowingly accept a gift or political contribution from:

(1) a person that has a significant financial interest in the lottery or in gaming regulated under Chapter 2005, or in any other activity regulated under another law administered by the commission;

(2) a person related in the first degree of consanguinity or affinity to a person that has a significant financial interest in the lottery or in gaming regulated under Chapter 2005, or in any other activity regulated under another law administered by the commission;

(3) a person that owns more than a 10 percent interest in another person that has a significant financial interest in the lottery or in gaming regulated under Chapter 2005, or in any other activity regulated under another law administered by the commission;

(4) a political committee that is directly established, administered, or controlled wholly or partly by a person that has a significant financial interest in the lottery or in gaming regulated under Chapter 2005, or in any other activity regulated under another law administered by the commission; or

(5) a person who, within the two years preceding the date of the gift or contribution, won a lottery prize exceeding $600 in amount or value.

(b) A person may not make a gift or political contribution to a person known by the actor to be a commission member, the executive director, or an employee of the commission, if the actor:

(1) is a person that has a significant financial interest in the lottery or in gaming regulated under Chapter 2005, or in any other activity regulated under another law administered by the commission;

(2) is related in the first degree of consanguinity or affinity to a person that has a significant financial interest in the lottery or in gaming regulated under Chapter 2005, or in any other activity regulated under another law administered by the commission;

(3) owns more than a 10 percent interest in another person that has a significant financial interest in the lottery or in gaming regulated under Chapter 2005, or in any other activity regulated under another law administered by the commission;

(4) is a political committee that is directly established, administered, or controlled wholly or partly by a person that has a significant financial interest in the lottery or in gaming regulated under Chapter 2005, or in any other activity regulated under another law administered by the commission; or

(5) within the two years preceding the date of the gift or contribution, won a lottery prize exceeding $600 in amount or value.

(c) A person commits an offense if the person violates this section. An offense under this section is a Class A misdemeanor.

Sec. 2004.117. DIVISIONS. (a) The commission shall establish separate divisions to oversee and regulate:

(1) bingo;

(2) the state lottery;

(3) video lottery;

(4) combative sports and boxing;

(5) other gaming authorized by law, if the commission considers such a division necessary; and

(6) pari-mutuel racing.

(b) To facilitate the operations of the commission or a division of the commission, the commission or executive director may delegate to a division or a division director a specific power or duty given to the commission or executive director under this chapter or other law.

(c) A division director shall, at the request of the executive commissioner, assist in the development of rules and policies for the operation and provision of a division of the commission. The division director:

(1) acts on behalf of the executive director in performing the delegated function; and

(2) reports to the executive director regarding the delegated function and any matter affecting commission programs and operations.

(d) The commission shall delegate responsibilities in the administration of Chapter 466, Government Code, 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 certificate of 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.

Sec. 2004.118. RESTRICTIONS ON EMPLOYMENT. (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;

(2) a lottery sales agency or a lottery operator;

(3) any video lottery activity regulated under Subchapter K, Chapter 466, Government Code, or a person licensed, registered, or approved under that subchapter;

(4) any gaming activity regulated under this chapter or Chapter 2005 or a person licensed under Chapter 2005;

(5) combative sports regulated under Chapter 2052; or

(6) pari-mutuel wagering regulated under the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes).

(b) The commission may not employ or continue to employ a person who is a spouse, child, brother, sister, or parent residing as a member of the same household in the principal place of residence of a person who is subject to a disqualification prescribed by Subsection (a).

(c) In employing the executive director and other employees, the commission shall strive to reflect the diversity of the population of the state as regards race, color, handicap, sex, religion, age, and national origin. [Sections 2004.119-2004.150 reserved for expansion] SUBCHAPTER D. PUBLIC PARTICIPATION AND COMPLAINT PROCEDURES

Sec. 2004.151. PUBLIC INTEREST INFORMATION. (a) The commission shall prepare and disseminate consumer information that describes the regulatory functions of the commission and the procedures by which consumer complaints are filed with and resolved by the commission.

(b) The commission shall make the information available to the public and appropriate state agencies.

Sec. 2004.152. COMPLAINTS. (a) The commission by rule shall establish methods by which consumers and service recipients are notified of the name, mailing address, and telephone number of the commission for the purpose of directing complaints to the commission. The commission may provide for that notice:

(1) on each form, application, or written contract for services of a person regulated under a law administered by the commission;

(2) on a sign prominently displayed in the place of business of each person regulated under a law administered by the commission; or

(3) in a bill for service provided by a person regulated under a law administered by the commission.

(b) The commission shall list with its regular telephone number any toll-free telephone number established under other state law that may be called to present a complaint about a person regulated under a law administered by the commission.

Sec. 2004.153. RECORDS OF COMPLAINTS. (a) The commission shall maintain a system to promptly and efficiently act on complaints filed with the commission. The commission shall maintain:

(1) information about the parties to the complaint and the subject matter of the complaint;

(2) a summary of the results of the review or investigation of the complaint; and

(3) information about the disposition of the complaint.

(b) The commission shall make information available describing its procedures for complaint investigation and resolution.

(c) The commission shall periodically notify the parties of the status of the complaint until final disposition of the complaint.

Sec. 2004.154. GENERAL RULES REGARDING COMPLAINT INVESTIGATION AND DISPOSITION. The commission shall adopt rules concerning the investigation of a complaint filed with the commission. The rules must:

(1) distinguish between categories of complaints;

(2) ensure that complaints are not dismissed without appropriate consideration;

(3) require that the commission be advised of a complaint that is dismissed and that a letter be sent to the person who filed the complaint explaining the action taken on the dismissed complaint;

(4) ensure that the person who files a complaint has an opportunity to explain the allegations made in the complaint; and

(5) prescribe guidelines concerning the categories of complaints that require the use of a private investigator and the procedures for the commission to obtain the services of a private investigator.

Sec. 2004.155. DISPOSITION OF COMPLAINT. (a) The commission shall:

(1) dispose of each complaint in a timely manner; and

(2) establish a schedule for conducting each phase of a complaint that is under the control of the commission not later than the 30th day after the date the commission receives the complaint.

(b) Each party shall be notified of the projected time requirements for pursuing the complaint. The commission shall notify each party to the complaint of any change in the schedule established under Subsection (a)(2) not later than the seventh day after the date the change is made.

(c) The executive director shall notify the commission of a complaint that is not resolved within the time prescribed by the commission for resolving the complaint.

Sec. 2004.156. PUBLIC PARTICIPATION. (a) The commission shall develop and implement policies that provide the public with a reasonable opportunity to appear before the commission and to speak on any issue under the commission's jurisdiction.

(b) The commission shall prepare and maintain a written plan that describes how a person who does not speak English may be provided reasonable access to the commission's programs.

Sec. 2004.157. INFORMAL SETTLEMENT CONFERENCE. The commission shall establish guidelines for an informal settlement conference related to a complaint filed with the commission. CHAPTER 2005. OTHER GAMING REGULATION

Sec. 2005.001. DEFINITION. In this chapter, "commission" means the Texas Gaming and Boxing Commission.

Sec. 2005.002. GENERAL POWERS. (a) The commission may regulate any form of gaming involving wagering conducted in this state that:

(1) is conducted by a public or private entity;

(2) is authorized under the Texas Constitution or other law, including a court decision;

(3) is not prohibited by state or federal law; and

(4) is not regulated under other state law by the commission or another state agency.

(b) The commission has broad authority and shall exercise strict control and close supervision over all gaming to which this chapter applies to promote public health and safety and to ensure integrity, security, honesty, and fairness in the operation and administration of gaming.

(c) The commission has the same powers and authority to regulate gaming under this chapter as the commission has to regulate any other type of gaming the commission is authorized to regulate under other law, including the state lottery and charitable bingo.

(d) In exercising the commission's power under this chapter, the commission shall protect the public health, safety, welfare, and economic development of this state and regulate gaming in a manner that optimizes revenue to fund state governmental programs.

Sec. 2005.003. RULES. With respect to gaming to which this chapter applies, the commission by rule may:

(1) limit the number of locations at which a person may be licensed or permitted to conduct the gaming;

(2) establish the eligibility requirements for a person to hold a license or permit to conduct the gaming;

(3) establish the moral character requirements, including honesty, trustworthiness, and integrity, an applicant or license or permit holder must satisfy to hold a license or permit;

(4) establish the form and procedures for applying for a license or permit;

(5) establish and collect fees to cover the costs of regulation of the gaming, including license and permit application and renewal fees and fees for conducting gaming activities;

(6) establish the term of a license or permit and renewal procedures; and

(7) establish disciplinary actions to impose against a license or permit holder that violates the rules adopted by the commission.

SECTION 2.02. Section 47.01, Penal Code, is amended by amending Subdivisions (4) and (9) and adding Subdivision (10) to read as follows:

(4) "Gambling device" means any device:

(A) on which a game or other activity can be played or conducted for consideration; and

(B) that is designed, constructed, adapted, or maintained to afford a user of the device an opportunity to obtain a thing of value based solely or partially on chance [electronic, electromechanical, or mechanical contrivance not excluded under Paragraph (B) 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, 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 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].

(9) "Thing of value" means any property, money, right, privilege, or other benefit, including a representation of value redeemable for any property, money, right, privilege, or other benefit [but does not include an unrecorded and immediate right of replay not exchangeable for value].

(10) "Device" includes all or part of an operable or inoperable mechanical, electronic, or electromechanical contrivance, machine, or apparatus.

SECTION 2.03. Section 47.02(c), Penal Code, is amended to read as follows:

(c) It is a defense to prosecution under this section that the actor reasonably believed that the conduct:

(1) was permitted under Chapter 2001, Occupations Code;

(2) was permitted under Chapter 2002, Occupations Code;

(3) consisted entirely of participation in the state lottery or video lottery authorized by the State Lottery Act (Chapter 466, Government Code);

(4) was permitted under the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes); [or]

(5) consisted entirely of participation in a drawing for the opportunity to participate in a hunting, fishing, or other recreational event conducted by the Parks and Wildlife Department; or

(6) was permitted under Chapter 2005, Occupations Code.

SECTION 2.04. Sections 47.06(e) and (f), Penal Code, are amended to read as follows:

(e) An offense under this section is a felony of the third degree [Class A misdemeanor].

(f) It is a defense to prosecution under Subsection (a) or (c) that the person owned, manufactured, transferred, or possessed the gambling device, equipment, or paraphernalia for the sole purpose of shipping it:

(1) to a person licensed or permitted under Chapter 2005, Occupations Code, to conduct gaming regulated under that chapter; or

(2) to another jurisdiction where the possession or use of the device, equipment, or paraphernalia was legal.

SECTION 2.05. Section 47.09(a), Penal Code, is amended to read as follows:

(a) It is a defense to prosecution under this chapter that the conduct:

(1) was authorized under:

(A) Chapter 2001, Occupations Code (Bingo Enabling Act);

(B) Chapter 2002, Occupations Code (Charitable Raffle Enabling Act); [or]

(C) the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes); or

(D) Chapter 2005, Occupations Code;

(2) consisted entirely of participation in the state lottery or video lottery authorized by Chapter 466, Government Code; or

(3) was a necessary incident to the operation of the state lottery or video lottery and was directly or indirectly authorized by[:

[(A)] Chapter 466, Government Code[;

[(B) the lottery division of the Texas Lottery Commission;

[(C)the Texas Lottery Commission; or

[(D) the director of the lottery division of the Texas Lottery Commission].

SECTION 2.06. Chapter 47, Penal Code, is amended by adding Section 47.091 to read as follows:

Sec. 47.091. DEFENSES FOR CERTAIN AMUSEMENT DEVICES. (a) It is a defense to prosecution under Section 47.02 that the conduct consists entirely of the use of a gambling device in which:

(1) skill is the predominate requirement for the user to win or be awarded a thing of value; and

(2) the user may not win or be awarded a thing of value for playing or using the device other than:

(A) noncash merchandise available only on the premises where the device is located; or

(B) a ticket, coupon, or other representation of value redeemable only on the premises where the device is located for noncash merchandise.

(b) For purposes of Subsection (a)(2):

(1) the noncash merchandise or representation of value redeemable for noncash merchandise that may be won or awarded for a single play of a game or activity on the device may not have a wholesale value of more than 10 times the amount charged for a single play or $5, whichever is less; and

(2) an item of noncash merchandise that may be won or awarded for playing or using the device or for which a person may redeem one or more tickets, coupons, or other representations of value won or awarded for playing or using the device may not have a wholesale value of more than $50.

(c) It is a defense to prosecution under Section 47.02 that:

(1) the conduct consists entirely of the use of a gambling device for which the user of the device may win or be awarded only the opportunity to continue playing the game or conducting an activity on the device; and

(2) the opportunity to continue is not exchangeable for another thing of value.

(d) It is a defense to prosecution under Section 47.03, 47.04, or 47.06 that the conduct consists of or is a necessary incident to offering, using, or maintaining one or more gambling devices used exclusively for conduct for which Subsection (a) or (c) provides a defense to a person using the device, including the manufacturing, transporting, storing, or repairing of such a device.

(e) In this section, "noncash merchandise" does not include:

(1) cash;

(2) an item of cash equivalent, including a check, money order, cashier's check, or traveler's check; or

(3) a gift certificate, gift card, coupon, voucher, or other item that entitles the bearer to receive money or any other thing of value at a location other than the premises where the gambling device is located.

SECTION 2.07. 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 or the Texas Gaming and Boxing Commission under Chapter 466, Government Code, or of the Texas Gaming and Boxing Commission under Chapter 2005, Occupations Code.

SECTION 2.08. Section 11.05, Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 11.05. UNLAWFUL WAGERING. A person shall not wager on the result of a greyhound race or horse race in this state except as permitted by this Act or by Chapter 2005, Occupations Code.

SECTION 2.09. The governor shall make the initial appointments to the Texas Gaming and Boxing Commission not later than January 1, 2008. In making the initial appointments to the Texas Gaming and Boxing Commission, the governor shall designate two members for terms expiring in 2009, two members for terms expiring in 2011, and two members for terms expiring in 2013.

SECTION 2.10. Section 47.02(e), Penal Code, is repealed.

SECTION 2.11. The change in law made by this article applies only to an offense committed on or after the effective date of this article. An offense committed before the effective date of this article is covered by the law in effect when the offense was committed, and the former law is continued in effect for that purpose. For purposes of this section, an offense was committed before the effective date of this article if any element of the offense was committed before that date.

SECTION 2.12. This article takes effect on the date the constitutional amendment proposed by the 80th Legislature, Regular Session, 2007, authorizing the operation of video lottery games at racetracks and on certain Indian lands, authorizing the regulation of gaming to provide additional money to fund governmental programs, and regulating locations at which gambling may be conducted is approved by the voters. If that amendment is not approved by the voters, this article has no effect.

ARTICLE 3. TRANSFER OF POWERS AND DUTIES OF OTHER STATE AGENCIES TO

TEXAS GAMING AND BOXING COMMISSION

SECTION 3.01. Sections 466.002(1) and (3), Government Code, are amended to read as follows:

(1) "Commission" means the Texas Gaming and Boxing [Lottery] Commission.

(5-a) [(3)] "Division" means the state lottery division established by the commission under Chapter 2004, Occupations Code [467].

SECTION 3.02. Section 2001.002(8), Occupations Code, is amended to read as follows:

(8) "Commission" means the Texas Gaming and Boxing [Lottery] Commission.

SECTION 3.03. Sections 2052.002(5), (7), (9), and (20), Occupations Code, are amended to read as follows:

(5) "Commission" means the Texas Gaming and Boxing Commission [of Licensing and Regulation].

(7) "Division" ["Department"] means the combative sports division of the commission [Texas Department of Licensing and Regulation].

(9) "Executive director" means the executive director of the commission [department] or the executive director's designated representative.

(20) "Ringside physician" means an individual licensed to practice medicine in this state who is registered with the division [department].

SECTION 3.04. Section 2052.051, Occupations Code, is amended to read as follows:

Sec. 2052.051. ADMINISTRATION OF CHAPTER. The commission [department] shall administer this chapter.

SECTION 3.05. Section 2052.052(b), Occupations Code, is amended to read as follows:

(b) The commission may adopt rules:

(1) governing boxing, kickboxing, martial arts, or mixed martial arts contests and exhibitions;

(2) establishing reasonable qualifications for an applicant seeking a license or registration from the division [department] under this chapter;

(3) recognizing a sanction, medical suspension, or disqualification of a licensee or registrant by a combative sports authority in any state, provided that if licensure or registration is denied based on those actions, an applicant has an opportunity for a hearing as prescribed by rule;

(4) establishing practice requirements or specialty certifications that a person licensed to practice medicine in this state must meet to register as a ringside physician;

(5) requiring a contestant to present with an application for licensure or license renewal documentation of recent blood test results that demonstrate whether the contestant is free from hepatitis B virus, hepatitis C virus, human immunodeficiency virus, and any other communicable disease designated by commission rule and providing that a contestant's failure to provide the required blood test results disqualifies the contestant;

(6) providing that to participate in any event a contestant must be free of hepatitis B virus, hepatitis C virus, human immunodeficiency virus, and any other communicable disease designated by rule;

(7) requiring that a contestant present with an application for licensure or license renewal documentation of the results of a physical examination, including an ophthalmologic examination, and providing for disqualification of a contestant who is determined by an examining physician to be unfit;

(8) establishing additional responsibilities for promoters; and

(9) governing regulated amateur events.

SECTION 3.06. Section 2052.055(a), Occupations Code, is amended to read as follows:

(a) The presiding officer of the commission, with the commission's approval, may appoint a medical advisory committee to advise the division [department] concerning health issues for combative sports event contestants.

SECTION 3.07. Section 2052.109(c), Occupations Code, is amended to read as follows:

(c) A company that issues a bond shall notify the division [department] in writing of the cancellation of the bond not later than the 30th day before the date on which the bond is canceled.

SECTION 3.08. Section 2052.114(b), Occupations Code, is amended to read as follows:

(b) The holder of a license, registration, or permit may renew the license, registration, or permit by paying a renewal fee and complying with other renewal requirements prescribed by division [department] rule before the expiration date. The division [department] shall issue a renewal certificate to the holder at the time of renewal.

SECTION 3.09. Sections 2052.152(a) and (c), Occupations Code, are amended to read as follows:

(a) A person on whom a tax is imposed under Section 2052.151, not later than three business days after the end of the event or telecast for which the tax is due, shall submit to the division [department] a verified report on a form acceptable to the division [department] stating:

(1) the number of tickets sold to the event;

(2) the ticket prices charged;

(3) the gross price charged for the sale or lease of broadcasting, television, and motion picture rights without any deductions for commissions, brokerage fees, distribution fees, advertising, or other expenses or charges; and

(4) the amount of gross receipts obtained from the event.

(c) The division [department] may audit a report filed under Subsection (b).

SECTION 3.10. Section 2052.302(b), Occupations Code, is amended to read as follows:

(b) The promoter shall surrender any purse or funds withheld as provided by Subsection (a) to the executive director on demand. Not later than the fifth working day after the event, the division [department] shall notify in writing the promoter and any person from whom a sum was withheld of the date of a hearing to determine whether all or part of the purse or funds withheld should be forfeited to the state. The hearing must be scheduled for a date not later than the 10th day after the date of the notice. Not later than the 10th day after the date of the hearing, the executive director shall enter an order with findings of fact and conclusions of law determining whether all or part of the purse or funds should be forfeited. Any funds not forfeited shall be distributed to the persons entitled to the funds.

SECTION 3.11. Section 2052.303(b), Occupations Code, is amended to read as follows:

(b) The attorney general or the commission [department] may file a civil suit to:

(1) assess and recover a civil penalty under Subsection (a); or

(2) enjoin a person who violates or threatens to violate this chapter or a rule adopted under this chapter from continuing the violation or threat.

SECTION 3.12. Sections 1.03(3) and (5), Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes), are amended to read as follows:

(3) "Commission" means the Texas Gaming and Boxing [Racing] Commission.

(5) "Executive secretary" means the executive director [secretary] of the Texas Gaming and Boxing [Racing] Commission.

SECTION 3.13. The heading to Article 2, Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes), is amended to read as follows:

ARTICLE 2. TEXAS GAMING AND BOXING [RACING] COMMISSION

SECTION 3.14. Section 3.09(b), Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes), is amended to read as follows:

(b) The commission shall deposit the money it collects under this Act in the State Treasury to the credit of a special fund to be known as the Texas Racing [Commission] fund. The Texas Racing [Commission] fund may be appropriated only for the administration and enforcement of this Act. Any unappropriated money remaining in that special fund at the close of each fiscal biennium shall be transferred to the General Revenue Fund and may be appropriated for any legal purpose. The legislature may also appropriate money from the General Revenue Fund for the administration and enforcement of this Act. Any amount of general revenue appropriated for the administration and enforcement of this Act in excess of the cumulative amount deposited in the Texas Racing [Commission] fund shall be reimbursed from the Texas Racing [Commission] fund not later than one year after the date on which the general revenue funds are appropriated, with 12 percent interest per year until August 31, 1993, and 6 3/4 percent interest thereafter with all payments first attributable to interest.

SECTION 3.15. Section 6.091(a), Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes), is amended to read as follows:

(a) An association shall distribute from the total amount deducted as provided by Sections 6.08(a) and 6.09(a) of this Act from each simulcast pari-mutuel pool and each simulcast cross-species pool the following shares:

(1)(A) until January 1, 1999, an amount equal to 0.25 percent of each simulcast pari-mutuel pool and each simulcast cross-species simulcast pool as the amount set aside to reimburse the general revenue fund for amounts that are appropriated for the administration and enforcement of this Act and that are in excess of the cumulative amount of funds deposited in the Texas Racing [Commission] fund, until the excess amount and interest on the excess amount are fully reimbursed;

(B) an amount equal to one percent of each simulcast pool as the amount set aside for the state; and

(C) an amount equal to 1.25 percent of each cross-species simulcast pool as the amount set aside for the state;

(2) an amount equal to 0.25 percent of each pool set aside to reimburse the general revenue fund for amounts that are appropriated for the administration and enforcement of this Act and that are in excess of the cumulative amount of funds deposited in the Texas Racing [Commission] fund, until the excess amount and interest on the excess amount are fully reimbursed;

(3) if the association is a horse racing association, an amount equal to one percent of a multiple two wagering pool or multiple three wagering pool as the amount set aside for the Texas-bred program to be used as provided by Section 6.08(f) of this Act;

(4) if the association is a greyhound association, an amount equal to one percent of a multiple two wagering pool or a multiple three wagering pool as the amount set aside for the Texas-bred program for greyhound races, to be distributed and used in accordance with rules of the commission adopted to promote greyhound breeding in this state; and

(5) the remainder as the amount set aside for purses, expenses, the sending association, and the receiving location pursuant to a contract approved by the commission between the sending association and the receiving location.

SECTION 3.16. (a) The following laws are repealed:

(1) Sections 2.01-2.05, Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes);

(2) Sections 2.073-2.11, Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes); and

(3) Sections 6.093(a) and 18.01(a), Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes).

(b) Chapter 467, Government Code, is repealed effective September 1, 2009.

SECTION 3.17. (a) On September 1, 2008, or an earlier date specified in the transition plan required under Section 3.19 of this article, the following powers, duties, functions, programs, and activities are transferred to the Texas Gaming and Boxing Commission:

(1) all powers, duties, functions, programs, and activities related to administrative support services, such as strategic planning and evaluation, audit, legal, human resources, information resources, accounting, purchasing, financial management, and contract management services, of a state agency or entity abolished by Section 3.22 of this article;

(2) all powers, duties, functions, programs, and activities of the Texas Lottery Commission related to:

(A) the operation of the state lottery or video lottery under Chapter 466, Government Code; and

(B) the regulation of bingo under Chapter 2001, Occupations Code;

(3) all powers, duties, functions, programs, and activities of the Texas Racing Commission under the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes); and

(4) all powers, duties, functions, programs, and activities of the Texas Commission of Licensing and Regulation and the Texas Department of Licensing and Regulation under Chapter 2052, Occupations Code.

(b) On the date specified by Subsection (a) of this section:

(1) all obligations and contracts of a state agency or entity that are related to a power, duty, function, program, or activity transferred from the agency or entity under Subsection (a) of this section are transferred to the Texas Gaming and Boxing Commission;

(2) all property and records in the custody of a state agency or entity that are related to a power, duty, function, program, or activity transferred from the agency or entity under Subsection (a) of this section and all funds appropriated by the legislature for the power, duty, function, program, or activity shall be transferred to the Texas Gaming and Boxing Commission; and

(3) all complaints, investigations, or contested cases that are pending before a state agency or entity or the governing body of the agency or entity and that are related to a power, duty, function, program, or activity transferred from the agency or entity under Subsection (a) of this section are transferred without change in status to the Texas Gaming and Boxing Commission.

(c) A rule or form adopted by a state agency or entity that relates to a power, duty, function, program, or activity transferred from the agency or entity under Subsection (a) of this section is a rule or form of the Texas Gaming and Boxing Commission and remains in effect until altered by the commission.

(d) A reference in law to a state agency or entity abolished by Section 3.22 of this article, or to the governing body of the agency or entity, that relates to a power, duty, function, program, or activity transferred under Subsection (a) of this section means the Texas Gaming and Boxing Commission.

(e) A license, permit, or certification in effect that was issued by a state agency or entity abolished by Section 3.22 of this article or described in Subsection (a)(4) of this section and that relates to a power, duty, function, program, or activity transferred under Subsection (a) of this section is continued in effect as a license, permit, or certification of the Texas Gaming and Boxing Commission.

SECTION 3.18. (a) The Texas Gaming and Boxing Commission Transition Legislative Oversight Committee is created to facilitate the transfer of powers, duties, functions, programs, and activities between the state's gaming agencies and the Texas Gaming and Boxing Commission as provided by this article with a minimal negative effect on the operation of those regulated activities in this state.

(b) The committee is composed of seven members, as follows:

(1) two members of the senate, appointed by the lieutenant governor not later than December 1, 2007;

(2) two members of the house of representatives, appointed by the speaker of the house of representatives not later than December 1, 2007; and

(3) three members of the public, appointed by the governor not later than December 1, 2007.

(c) Once the other members of the committee have been appointed, the executive director of the Texas Gaming and Boxing Commission serves as an ex officio member of the committee.

(d) An appointed member of the committee serves at the pleasure of the appointing official.

(e) The lieutenant governor and the speaker of the house of representatives shall alternate designating a presiding officer from among their respective appointments. The speaker of the house of representatives shall make the first appointment after the effective date of this section.

(f) A member of the committee may not receive compensation for serving on the committee but is entitled to reimbursement for travel expenses incurred by the member while conducting the business of the committee as provided by the General Appropriations Act.

(g) The committee shall:

(1) facilitate the transfer of powers, duties, functions, programs, and activities between the state's gaming agencies and the Texas Gaming and Boxing Commission as provided by this article with a minimal negative effect on the gaming activities regulated in this state;

(2) with assistance from the Texas Gaming and Boxing Commission and the gaming agencies listed in Section 3.17(a) of this article, advise the executive commissioner of the Texas Gaming and Boxing Commission concerning:

(A) the powers, duties, functions, programs, and activities transferred under this article and the funds and obligations that are related to the powers, duties, functions, programs, or activities; and

(B) the transfer of the powers, duties, functions, programs, activities, records, property, funds, obligations, and employees by the entities as required by Section 3.17 of this article;

(3) meet at the call of the presiding officer;

(4) research, take public testimony, and issue reports on other appropriate issues or specific issues requested by the lieutenant governor, speaker, or governor; and

(5) review specific recommendations for legislation proposed by the Texas Gaming and Boxing Commission or the other agencies.

(h) The committee may request reports and other information from the Texas Gaming and Boxing Commission, other state agencies, and the attorney general relating to gaming in this state and other appropriate issues.

(i) The committee shall use existing staff of the senate, the house of representatives, and the Texas Legislative Council to assist the committee in performing its duties under this section.

(j) Chapter 551, Government Code, applies to the committee.

(k) The committee shall report to the governor, lieutenant governor, and speaker of the house of representatives not later than November 15 of each even-numbered year. The report must include:

(1) identification of significant issues within gaming regulation, with recommendations for action;

(2) an analysis of the effectiveness and efficiency of gaming regulation, with recommendations for any necessary research; and

(3) recommendations for legislative action.

SECTION 3.19. (a) The transfer of powers, duties, functions, programs, and activities under Section 3.17 of this article to the Texas Gaming and Boxing Commission must be accomplished in accordance with a schedule included in a transition plan developed by the executive commissioner of the Texas Gaming and Boxing Commission and submitted to the governor and the Legislative Budget Board not later than September 1, 2008. The executive commissioner shall provide to the governor and the Legislative Budget Board transition plan status reports and updates on at least a quarterly basis following submission of the initial transition plan. The transition plan must be made available to the public.

(b) Not later than March 1, 2008, the Texas Gaming and Boxing Commission shall hold a public hearing and accept public comment regarding the transition plan required to be developed by the executive commissioner of the Texas Gaming and Boxing Commission under Subsection (a) of this section.

(c) In developing the transition plan, the executive commissioner of the Texas Gaming and Boxing Commission shall hold public hearings in various geographic areas in this state before submitting the plan to the governor and the Legislative Budget Board as required by this section.

SECTION 3.20. An action brought or proceeding commenced before the date of a transfer prescribed by this article in accordance with the transition plan required under Section 3.19 of this article, including a contested case or a remand of an action or proceeding by a reviewing court, is governed by the laws and rules applicable to the action or proceeding before the transfer.

SECTION 3.21. (a) The Texas Gaming and Boxing Commission shall implement the powers, duties, functions, programs, and activities assigned to the commission under this article in accordance with a work plan designed by the commission to ensure that the transfer of gaming regulation in this state is accomplished in a careful and deliberative manner.

(b) A work plan designed by the commission under this section must include the following phases:

(1) a planning phase, during which the commission will focus on and stabilize the organization of the agency's powers, duties, functions, programs, and activities, and which must include:

(A) initiation of recommendations made by the Texas Gaming and Boxing Commission Transition Legislative Oversight Committee;

(B) creation of interagency and intra-agency steering committees;

(C) development of global visions, goals, and organizational strategies; and

(D) development of communications and risk management plans;

(2) an integration phase, during which the commission will identify opportunities and problems and design customized solutions for those problems, and which must include:

(A) identification of key issues related to costs or legal requirements for other commission activities;

(B) planning for daily operations; and

(C) validation of fiscal and program synergies;

(3) an optimization phase, during which the commission will complete and expand on the initial transitions, and which must include:

(A) optimization of initial implementation initiatives;

(B) use of enterprise teaming operations;

(C) building infrastructures to support and facilitate changes in gaming regulation and oversight; and

(D) identification and use of beneficial assets management and facilities approaches; and

(4) a transformation phase, during which the commission will continue implementing initial and additional changes in gaming regulation and oversight, and which must include implementation of changes in agency management activities.

SECTION 3.22. (a) The Texas Lottery Commission and the Texas Racing Commission are abolished on the date on which their respective powers, duties, functions, programs, and activities are transferred under Section 3.17 of this article, and after that date a reference in any law to the Texas Lottery Commission or to the Texas Racing Commission means the Texas Gaming and Boxing Commission.

(b) The abolition of a state agency or entity listed in Subsection (a) of this section and the transfer of its powers, duties, functions, programs, activities, obligations, rights, contracts, records, property, funds, and employees as provided by this article do not affect or impair an act done, any obligation, right, order, permit, certificate, rule, criterion, standard, or requirement existing, or any penalty accrued under former law, and that law remains in effect for any action concerning those matters.

SECTION 3.23. (a) Except as provided by Subsection (b), Sections 3.01 through 3.16 of this article take effect on the date the Texas Lottery Commission and the Texas Racing Commission are abolished under Section 3.22 of this article.

(b) Sections 3.17 through 3.22 of this article and this section take effect on the date the amendment adding Section 47-a, Article III, Texas Constitution, authorizing the operation of video lottery games at racetracks and on certain Indian lands, authorizing the regulation of gaming to provide additional money to fund governmental programs, and regulating locations at which gambling may be conducted, proposed by the 80th Legislature, Regular Session, 2007, becomes effective. If that amendment is not approved by the voters, this article has no effect.