BILL NUMBER: AB 3096 CHAPTERED 09/09/04 CHAPTER 438 FILED WITH SECRETARY OF STATE SEPTEMBER 9, 2004 APPROVED BY GOVERNOR SEPTEMBER 9, 2004 PASSED THE SENATE AUGUST 19, 2004 PASSED THE ASSEMBLY MAY 10, 2004 INTRODUCED BY Committee on Governmental Organization (Jerome Horton (Chair), Plescia (Vice Chair), Bermudez, Calderon, Chavez, Corbett, Dutra, Dymally, Firebaugh, Harman, Levine, Negrete McLeod, Oropeza, Reyes, Samuelian, Wiggins, and Yee) MARCH 18, 2004 An act to amend Sections 8880.22, 8880.30, 8880.46, and 8880.57 of the Government Code, relating to the California State Lottery. LEGISLATIVE COUNSEL'S DIGEST AB 3096, Committee on Governmental Organization. California State Lottery. (1) Existing law requires the California State Lottery Commission to make quarterly reports of the operations of the lottery to the Governor, the Attorney General, the Controller, the Treasurer, and the Legislature. Existing law requires those reports to include, among other financial materials, balance sheets and statements of operation. This bill would delete those requirements and instead require the reports to include a statement of assets, statement of revenues, expenses, and changes in net assets. (2) Existing law requires a lottery game utilizing a drawing of winning numbers, a drawing among entries, or a drawing among finalists to be witnessed by a representative of a firm of independent certified public accountants and requires the equipment used in drawings to be inspected by that representative. This bill would instead require the above duties to be performed by an independent lottery contractor having qualifications established by the California State Lottery Commission. The bill would also revise other provisions relating to the operation and security of the California State Lottery. (3) The Lottery Act provides that none of its provisions may be changed, except to further its purpose by a bill passed by a 2/3 vote of each house of the Legislature and signed by the Governor. This bill would declare that its provisions further the purposes of the act. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 8880.22 of the Government Code is amended to read: 8880.22. The Commission shall make quarterly reports of the operation of the Lottery to the Governor, the Attorney General, the Controller, the Treasurer, and the Legislature. The reports shall be due 75 days after the close of the quarter for which the information is being required. The reports shall include a full and complete statement of lottery revenues, prize disbursements, expenses, net revenues, and all other financial transactions involving lottery funds, including a statement of assets, statement of revenues, expenses, changes in net assets, and changes in financial position with all attached financial notes. SEC. 2. Section 8880.30 of the Government Code is amended to read: 8880.30. The Commission shall promulgate regulations that specify the method for determining winners in each lottery game, provided: (a) A lottery game may be based on the results of a horse race with the consent of the association conducting the race and the California Horse Racing Board. Any compensation received by an association for the use of its races to determine the winners of a lottery game shall be divided equally between commissions and purses. (b) If a lottery game utilizes a drawing of winning numbers, a drawing among entries, or a drawing among finalists, the drawings shall always be open to the public. No manual or physical selection in the drawings shall be conducted by any employee of the Lottery. Except for computer automated drawings, drawings shall be witnessed by an independent lottery contractor having qualifications established by the Commission. Any equipment used in the drawings shall be inspected by the independent lottery contractor and an employee of the Lottery both before and after the drawings. The drawings and the inspections shall be recorded on both videotape and audiotape. (c) It is the intent of this chapter that the Commission may use any of a variety of existing or future methods or technologies in determining winners. SEC. 3. Section 8880.46 of the Government Code is amended to read: 8880.46. After the first nine months of sales to the public, the Commission shall engage an independent firm experienced in security procedures, including, but not limited to, computer security and systems security, to conduct a comprehensive study and evaluation of all aspects of security in the operation of the Lottery. This study shall include, but not be limited to, personnel security, Lottery Game Retailer security, Lottery Contractors security, security of manufacturing operations of Lottery Contractors, security against ticket counterfeiting and alterations and other means of fraudulently winning, security of drawings, computer security, data communications security, data base security, security controls and physical security, security in distribution, security involving validation and payment procedures, security involving unclaimed prizes, security aspects applicable to each particular Lottery Game, security against locating winners in Lottery Games having preprinted winners, and any other aspects of security applicable to the Lottery and its operations. The portion of the report containing the overall evaluation of the Lottery in terms of each aspect of security shall be presented to the Commission, the Governor, the Controller, the Treasurer, the Attorney General, and the Legislature. The portion of the report containing specific recommendations shall be exempt from public disclosure and shall be presented only to the Commission, the Attorney General, the Controller and the Governor. Upon request, all materials and data used in the production of the report shall be made available to the Commission, the Attorney General, the Controller, and the Governor. Similar audits of security shall be conducted every two years after the completion of the first audit. SEC. 4. Section 8880.57 of the Government Code is amended to read: 8880.57. In order to allow an evaluation of the competence, integrity, and character of potential Lottery Contractors for the California State Lottery, any person, corporation, trust, association, partnership, or joint venture that submits a bid, proposal, or offer as part of procurement for a contract for any goods or services for the California State Lottery, other than materials, supplies, services, and equipment which are common to the ordinary operations of state agencies, shall comply with each of the following: (a) Bidders, as required by the Lottery, shall disclose the bidder' s name and address and, as applicable, the name and address of the following: (1) If the bidder is a corporation, the officers, directors, and each owner, directly or indirectly, of any equity security or other ownership interest in the corporation. However, in the case of owners of publicly held equity securities of a publicly traded corporation, only the names and addresses of those known to the corporation to beneficially own 5 percent or more of the publicly held securities need be disclosed. (2) If the bidder is a trust, the trustee and all persons entitled to receive income or benefit from the trust. (3) If the bidder is an association, the members, officers, and directors. (4) If the bidder is a subsidiary, the officers, directors, and stockholders of the parent company thereof. However, in the case of owners of publicly held equity securities of a publicly traded corporation, only the names and addresses of those known to the corporation to beneficially own 5 percent or more of the publicly held securities need be disclosed. (5) If the bidder is a partnership or joint venture, all of the general partners, limited partners, or joint venturers. (6) If the parent company, general partner, limited partner, or joint venturer of any bidder is itself a corporation, trust, association, subsidiary, partnership, or joint venture, then the disclosure of information needed to determine ultimate ownership. However, in the case of owners of publicly held equity securities of a publicly traded corporation, only the names and addresses of those known to the corporation to beneficially own 5 percent or more of the publicly held securities need be disclosed. (7) If the bidder proposes to subcontract any substantial portion of the work to be performed to a subcontractor, then all of the information required in this section shall be disclosed for the subcontractor as if it were itself a bidder. (b) After receipt of a bid, proposal, or offer, but prior to the award of a contract, the Commission may require a potential Lottery Contractor to provide any or all of the following information: (1) A disclosure of all the states and jurisdictions in which the bidder does business, and the nature of that business for each state or jurisdiction. (2) A disclosure of all the states and jurisdictions in which the bidder has contracts to supply gaming goods or services, including, but not limited to, lottery goods and services, and the nature of the goods or services involved for each state or jurisdiction. (3) A disclosure of all the states and jurisdictions in which the bidder has applied for, has sought renewal of, has received, has been denied, has pending, or has had revoked a gaming license of any kind, and the disposition in each state or jurisdiction. If any gaming license has not been renewed or any gaming license application has been either denied or has remained pending for more than six months, all of the facts and circumstances underlying this failure to receive a gaming license shall be disclosed. (4) A disclosure of the details of any conviction or judgment of a state or federal court against the bidder of any gambling-related offense, or criminal offense other than traffic violations. (5) A disclosure of the details of any bankruptcy, insolvency, or reorganization, or any judgment or pending litigation involving fraud or deceit against the bidder. (6) A disclosure for each bidder of the employment, residence, educational, and military history since the age of 18 years of any of its owners, directors, members, officers, employees, or agents identified by the Lottery. (7) A disclosure consolidating all reportable information on all reportable contributions by the bidder to any local, state, or federal political candidate or political committee in this state for the past five years that is reportable under any existing state or federal law. (8) A disclosure of the identity of any entity with which the bidder has a joint venture or other contractual arrangement to supply any state or jurisdiction with gaming goods or services, including, but not limited to, lottery goods or services; including a disclosure with regard to the entity of all of the information requested under paragraphs (1) to (8), inclusive. (9) In the instance of a procurement for the printing of lottery tickets, for goods or services involving the receiving or recording of number selections, or for goods or services involving the determination of winners, an additional disclosure consisting of the individual federal and state income tax returns for the past three years and a current individual financial statement for each bidder and any of the bidder's owners, directors, members, officers, employees, or agents identified by the Lottery. The disclosures provided in this paragraph shall be considered confidential and shall be transmitted directly to the Deputy Director for Security and the Attorney General for their review. (10) Any additional disclosures and information as may be appropriate for the procurement involved as determined by the Commission. (c) With respect to the persons or entities described in paragraphs (1) to (7), inclusive, of subdivision (a), the Commission may request the disclosure of any information required in subdivision (b), which shall be relevant to the award of any contract. (d) No contract with any bidder who has not complied with the disclosure requirements described in this section shall be entered into or be enforceable. Any contract with any lottery contractor who does not comply with these requirements for maintaining the currency of the disclosures during the term of the contract as may be specified in the contract may be terminated by the Commission. In addition, the Commission may deny or cancel a contract with a lottery contractor or any of the persons or entities included in paragraphs (1) to (7), inclusive, of subdivision (a) if any of the following apply: (1) False statements have been made in any information which is required under this section. (2) Any of the persons or entities have been convicted of a crime punishable as a felony. (3) Any of the persons or entities have been convicted of an offense involving dishonesty or any gambling-related offense. (e) This section shall be construed broadly and liberally to achieve the end of full disclosure of all information necessary to allow for a full and complete evaluation of the competence, integrity, and character of potential suppliers of the California State Lottery Commission. SEC. 5. The Legislature finds and declares that this act furthers the purpose of the California State Lottery Act of 1984 enacted by Proposition 37 at the November 6, 1984, general election.