Skip to comments.CA: Stacked odds - Negotiating more money from Indian casinos won't be easy
Posted on 12/30/2003 9:55:46 AM PST by NormsRevenge
AS one of his New Year's resolutions, Gov. Arnold Schwarzenegger is seeking to get one of the biggest moneymaking industries in the state to cough up a larger share of its billions in tax-free income: Indian casinos.
Good luck to him.
It's not going to be easy to squeeze more money out of a politically powerful lobby that has long-term agreements signed by the past administration that let it off virtually scot-free from sharing some of its billions in tax-free annual revenue.
But as tough as it will be to undo the damage done by former Gov. Gray Davis, it's the right thing to try to do.
Schwarzenegger was elected to reverse the destructive, suicidal course of the state government that Davis had charted, which included tripling the car tax, overspending into a deep financial hole and pandering to special interests.
In a state where businesses are taxed every which way possible, Davis a few years ago cut a deal that gave 20-year compacts with 61 Indian tribes to run casinos and required that they pay only a pittance annually to a fund for infrastructure and to help out nongaming Indian tribes.
For his troubles, Davis got his campaign coffers stuffed with cash from the Indian gaming industry.
Just days before leaving the governor's office, Davis made another political payout to the Fort Mojave Indian tribe. That deal was slightly tougher than the other compacts, but still extracted very little from the gaming interests. The tribe could build a 350-slot casino outside Needles and pay the state 5 percent of its profits.
All in all, still not a good deal for the state.
The model that Schwarzenegger is looking at is the arrangement the Indian gaming industry works under in Connecticut, wherein it shares 25 percent of its revenue with state government. Even less than that would go a long way toward contributing a fairer share of revenue to California.
The casinos on Indian reservation lands have become tremendously lucrative operations in recent years, bringing in between $4 billion and $6 billion every year -- tax-free.
It's great that the casinos have allowed California American Indians to grab a piece of the great American dream. And as all groups with a lot of money at stake do, they developed a hugely powerful political lobby with millions of dollars to throw around to curry favor with politicians.
In other words, they became a well-funded special-interest group.
Sovereign nation or not, it's only fair that these businesses pay a fair contribution to the coffers of their host state -- a state in fiscal crisis, no less. Indian gaming doesn't only affect tribal lands. It has tremendous social and physical impact upon California and Californians, and will continue to do so as the gaming industry expands in future years.
Schwarzenegger needs to level the playing field for all Californians, which means ending the days of political payoff for questionable deals to all special interests.
America's love of gambling has made tribes billions; now others want in.
First in a series
Twice a week, 83- year-old Mimi Shore giddily climbs aboard a van in West Covina for a free ride to San Manuel Bingo and Casino.
Shore usually joins six other bingo regulars in the van, one of about 30 shuttles going to the casino on the edge of north San Bernardino on an average weekday and one of hundreds that take thousands like her to Indian casinos across Southern California every day.
Some play bingo. Others prefer the slots. Some, like Victor Valenzuela a 44-year-old Carlsbad teacher do a little of everything.
"I like (gambling) a lot,' says Valenzuela, who wagers up to $10,000 a year at the racetrack, in Las Vegas, and at card tables at the Indian- run Pala Casino, Pechanga Resort and Casino and Viejas Casino.
"I like the thrill of winning,' Valenzuela says. "Am I to the point where I am addicted? No.'
Dreams of a big payoff have propelled Indian gaming into a recession-proof, $14.5 billion industry and turned tiny, once-impoverished tribes into major economic entities.
But the proliferation of Indian casinos has also incited strife at every turn.
In California, Gov. Arnold Schwarzenegger has made a bold demand for as much as $2 billion of tribal gambling money, despite the tribes' political clout, support and legal standing.
Gambling's old guard racetracks and card clubs have joined in the fray, proposing a state initiative that would force the tribes to share their wealth or let the tracks and card clubs have slots.
Meanwhile, heated debates are taking place in towns and tribes that never considered gambling but need the cash that casinos generate.
On top of all that are lingering moral arguments and a concern about gambling addiction.
Despite these conflicts and bad economic times, Indian gaming saw its revenues jump 70 percent from 1998 to 2002. Today, there are more than 330 Indian gaming operations nationwide.
"(Indian gaming) has grown faster than population. It has grown faster than inflation,' said Steve Rittvo, gaming analyst for New Orleans-based Innovation Group.
It has also created vast wealth for once-poor tribes. Although financial details are kept a closely guarded secret under tribal sovereignty rules, insiders say that in some cases, the payoff from casinos may be from $20,000 to $90,000 per month per adult tribe member.
Some have been able to rechannel those dollars into other business ventures.
In 2002, the San Manuel Band of Serrano Mission Indians entered the lucrative bottled-water business with its Big Bear Mountain Spring Water subsidiary, making the tiny tribe with fewer than 70 adult members an even bigger economic, political and philanthropic force in the Inland Empire.
In the past two months alone, the tribe has given $1 million to help in the recovery effort from the October fires.
Most Indian casinos are a far cry from the bingo halls or card parlors that predated the legalization of gambling on reservations in 1988.
Now tribes are building casinos with hotels, golf courses and million-dollar jackpots.
The keys to their success are location and a special tax status that excludes them from paying corporate income tax.
"Their cash flow is unbelievable,' said Andrew Zarnett, a gaming analyst for Merrill Lynch. "That business will continue to expand.'
Especially in California, which has more tribes 107 than any other state.
In 2001, California's 48 Indian casinos brought in $2.89 billion. By the next year, there were 52 casinos posting revenues of $3.59 billion an increase of $700 million.
"California is the only rapidly growing market at this time,' said William Eadington, director of the Institute for Gambling and Commercial Gaming at the University of Nevada, Reno.
In Southern California, 19 Indian casinos have popped up since the early 1980s and more are coming.
Nowhere are the stakes higher than in the Inland Empire. The San Manuel casino will double in size by 2006. Casino Morongo near Banning is growing into a 23-story hotel-casino. And there are three proposals for casinos in Hesperia and Barstow.
The Agua Caliente Band of Cahuilla Indians opened a new resort- casino in downtown Palm Springs in November, the Cabazon Band of Mission Indians near Indio is adding a hotel to the Fantasy Springs Casino, and Pechanga Resort and Casino near Temecula is also growing.
A new casino could soon pop up near Needles if the Fort Mojave Tribe can get the OK.
Schwarzenegger's willingness to let casinos have more slot machines if they give $1 billion to $2 billion to the state's ailing general fund could ignite even more growth.
But there are limits.
"We can't offer what Las Vegas offers,' said Deron Marquez, chairman of the San Manuels.
Unlike the Vegas Strip, Indian casinos are spread miles apart and have to market themselves locally and regionally.
"The prize in Indian gaming is to get Los Angeles County and Orange County, and they are responding magnificently,' said Michael Lombardi, an Indian gaming consultant.
Even before the rise in Indian casinos when legalized gambling was largely confined to racetracks, bingo halls, lotteries and casinos in Nevada and Atlantic City, N.J. there was money to be made.
By 1982, it had grown to a $10.2 billion industry. Twenty years later, legalized gambling had mushroomed to a $69.7 billion industry.
People gamble on the Internet, and lottery tickets are sold everywhere. But casinos are the hot ticket.
There are limited-bet casinos in South Dakota and Colorado, riverboats throughout the Midwest and Louisiana, racetracks with casinos in six states and some form of Indian gaming in 29 states. The Las Vegas Strip has shed its skin so many times it is hard to remember what it looked like a decade ago.
"(Casino gambling) has become a more acceptable form of entertainment,' said Lawrence A. Klatzkin, managing director of equity research for Jefferies & Co. Casino gambling also is challenging many other forms of entertainment for discretionary spending. According to the Innovation Group, spending in non-Indian casinos, $28.1 billion in 2001, was greater than spending on golf, movie box-office sales and snack food.
There are enough Mimi Shores and Victor Valenzuelas going to local Indian casinos to scare Nevada casinos.
After Thunder Valley opened this year off Interstate 80 between Sacramento and Reno, many experts were predicting the downfall of the "Biggest Little City In the World.'
And though casinos in Las Vegas, Laughlin and Primm, Nev., say they are not worried about Southern California casinos, they worked hard against a proposition to legalize slot machines in California Indian casinos in 1998.
At this point, however, Vegas isn't hurting.
"People are substituting a couple of trips a year to Las Vegas for something closer,' said Rittvo. "Will I give up my Las Vegas experience completely? No.'
But other Nevada towns might be vulnerable. Primm could lose business if tribes trying to bring a casino to Hesperia or Barstow is successful.
Anyone traveling to Laughlin already has plenty of casinos to hit before reaching the Nevada border.
"Why would you drive 80 miles to gamble when a casino is right next to you?' said Maurice Lyons, chairman of the Morongo tribe.
To hedge their bets, companies like Harrah's Entertainment, Park Place Entertainment and Station Casinos have all made deals with California Indian tribes in recent years, with more on the way.
A bigger battle is being waged between the tribes and racetracks.
Some tracks are so close to Indian casinos that they can't hold onto serious gamblers. But most complain the tribes' political clout stops them from keeping up with the changing market.
John Van de Kamp, a former state attorney general who is president of the Thoroughbred Owners of California, blames tribes for holding up legislation that would expand off- track betting. He also said tribes have blocked big racetracks from having slot machines and tables.
But "racinos' have popped up in West Virginia, Delaware, Louisiana, New Mexico, Rhode Island and Iowa. California has none.
The California racetracks are hoping to get slots by using Schwarzenegger's recent demands that tribes share their revenues with the state. If voters approve a proposed initiative the Gaming Revenue Act of 2004 tribes will be asked to share 25 percent of their slot machine revenue.
If the tribes refuse, five racetracks and 11 card clubs would get slot machines.
Fight or join 'em
Many Indians vow to fight for the monopoly.
"Tribes have slot machines because they are sovereign entities,' said Mark Macarro, chairman of the Pechanga Band of Luiseo Indians near Temecula. "That is why card clubs and racetracks can't do it. It is about economics. It is about a market base. We want to protect that.'
But the San Manuels' Deron Marquez said racetrack casinos in California are inevitable, especially since they are seen as cures for budgetary problems.
"It is going to happen by 2010,' Marquez said. "More and more states are looking at racinos. You see a trend and they are not going to go away.'
As several tribes push to place themselves in prime locations next to Interstate 15 in Hesperia and Barstow, not everyone is welcoming them with open arms.
Meeting after meeting, residents argued vehemently that a casino will bring ruin to the small towns. An equal amount say the towns have to do something to cure their economic ills and that a casino would be perfect.
Hesperia residents will have a chance to decide which argument carries more clout when they vote on their casino in March.
The over-saturation of gambling is another concern.
Rittvo said that coastal Louisiana and Biloxi, Miss., are already at saturation points, and that in Southern California, a number of Indian casinos are fighting each other for the same clientele.
"Is anybody oversupplied? No,' Rittvo said. "(But) the low-hanging fruit is gone.'
But gaming consultant Michael Lombardi said Las Vegas worried about over-saturation during the 1990s and it never stopped building more casinos.
"Every time they built a casino, they said, 'Oh the bubble is going to burst now',' he said.
Coming Wednesday: Schwarzenegger's political gamble.
FRom the San Bernardino Sun
By BEN SCHNAYERSON, Staff Writer
Stakes rise higher and higher as Gov. Schwarzenegger tries to get money for the state from gaming tribes, while a proposed state ballot measure could complicate the gambling scene even more.
The odds of Gov. Arnold Schwarzenegger arm-wrestling a "fair-share" 25 cents out of every dollar netted by Indian slot machines are about as likely as your winning the Lotto.
The gaming tribes wield too much clout. Their political contributions have bought them the loyalty of many legislators. And the law is on their side.
"I don't think (Schwarzenegger) had the foggiest idea what he was talking about when he was talking `fair share,'" said Mark Macarro, chairman of the Pechanga Band of Luiseþo Mission Indians near Temecula.
Further complicating the issue is a ballot proposal dubbed the Gaming Revenue Act of 2004. Submitted by the sheriffs of Los Angeles and Sacramento counties, the initiative is under review by the state Attorney General's Office and is being targeted for the November ballot if enough signatures can be collected.
As the initiative is currently written, it could result in Las Vegas-style gambling moving off the reservations and into urban areas at card clubs and racetracks. That would occur if the tribes don't pay the state 25 percent of their slot revenues.
Five racetracks would share 30,000 slots, and 11 card clubs would share another 30,000. Thirty percent of net winnings from the slots would go to a fund for abused and neglected children, local public safety and other purposes.
But the initiative also would exempt the racetracks and card clubs with slots from certain tax increases, allow the racetracks to discontinue horse races and exclude more than 80 other card clubs and two racetracks from getting slots.
Opponents claim the initiative may violate federal law and could be struck down as misleading by the federal courts.
"They have got Indian tribes as whipping boys to stir up support for the expansion of gambling," said Howard Dickstein, a lawyer representing such tribes as the Pala Band of Mission Indians in San Diego County.
Proponents of the initiative did not return phone calls regarding the legal implications.
Schwarzenegger's aides say he has not taken a position on the initiative.
"He would prefer to negotiate directly with the tribes," said the governor's spokesman, Vince Sollito. "The initiative would put a timetable on how they conduct negotiations."
A SEQUEL TO DAVIS
The state's demand for a bigger share of Indian revenue began shortly after the 2002 re-election of then-Gov. Gray Davis. He asked the tribes to pay $1.5 billion into the state's ailing general fund. The tribes were outraged.
Davis also demanded that local governments have a say in casino construction to head off negative off-reservation impacts. Tribes said it was an infringement on their sovereignty.
"Our goal has never been to be good neighbors," said Jacob Coin, executive director of the California Nations Indian Gaming Association. "We tried the good-neighbor thing in 1492, and look where it got us."
Although Davis and Schwarzenegger disagreed on plenty during the October recall campaign, the film star didn't hesitate to take a page from his predecessor on the issue of gaming.
In a TV campaign ad, Schwarzenegger said he would make tribes pay $1 billion to $2 billion of their casino money into the state's general fund.
After taking office in November, Schwarzenegger again vowed to renegotiate the 64 state compacts with the tribes and using Connecticut's success as an example get 25 cents for every dollar of slot-machine revenue collected by the tribes.
Schwarzenegger spokesman H.D. Palmer said the governor would like California tribes to be as open as those in Connecticut, where the tribes make their payouts and earnings public.
"A very open approach is what he is talking about," Palmer said. "Just so everyone knows that this is an industry that is very open and very legitimate."
Schwarzenegger's aides say he wants to start negotiating in January, but many tribes call his 25 percent demand ridiculous.
Collectively, a majority of gaming tribes already contribute about $125 million each year to two state funds. The funds are supposed to give $1.1 million each year to tribes that don't have gaming or have fewer than 350 slots, to support gambling addiction treatment and to pay for the state's oversight of Indian gaming.
The funds also are used to ease the negative effects of casinos on cities and counties. San Bernardino County is to receive $1.5 million next year and Riverside County $10.5 million.
In November, 10 tribes, including the Fort Mojave Tribe near Needles offered to negotiate revenue sharing with Schwarzenegger if they could get more slots. Others tribes are hinting at doing the same.
Experts say it is foolish for Schwarzenegger to take on the tribes because they can pour millions into politicians' pockets and into ad campaigns.
Area tribes are some of the biggest donors to local and state campaigns.
Since 2000, the Morongos have given $10.9 million, the Pechangas $7.6 million, the Agua Caliente Band of Cahuilla Indians in Palm Springs $3.4 million and the San Manuels $1.8 million, according to the California Secretary of State's Office.
"(Their donations) have been on a meteoric rise since 1998," said Jim Knox, executive director of the watchdog group California Common Cause.
"They will be one of the most influential groups in Sacramento for the foreseeable future ... because the financial resources of the tribes are growing exponentially," he said.
Some tribes dole out $1,000 and $2,000 donations to state legislators as if it were an allowance.
"There are still many legislators who support tribes and are supported by tribes," said Thad Kousser, a political science professor at UC San Diego. "That is a fight Schwarzenegger doesn't want to pick."
The Gaming Revenue Act also may face a public relations hurdle because state voters seem to sympathize with American Indian causes.
"Generally speaking, there is a positive view of the tribes ... (and) we like gambling," said Shaun Bowler, a political science professor at UC Riverside.
The most telling example of public support was the overwhelming approvals of state propositions 5 and 1A.
"I don't think that much has changed since Proposition 1A," Macarro said. "The fact remains there is a compact in place, the product of the will of the people. At some level, the governor has to either know about it or be informed about that."
Tribes also regularly donate money to local charities and schools. After the devastating fires in San Bernardino County, the San Manuel and Morongo tribes donated $1 million each to the recovery effort.
But the tribes did get some criticism during the recall campaign after contributing nearly $8 million to two candidates, Lt. Gov. Cruz Bustamante, a Democrat, and state Sen. Tom McClintock, R-Thousand Oaks.
"Californians have for a long time been uneasy with the amount of money tribes have spent on the political process," Kousser said.
Carole Goldberg, a professor at the UCLA School of Law, said public image matters a lot to tribes.
"I don't think they are indifferent to this," Goldberg said. "First of all because (Californians) are the customers and second of all because political hostility from the community can make it difficult when the tribes want to do expansions."
Still, many political experts say the initiative will be a tough sell.
"It is gambling on a wider and potentially uglier scale," Kousser said. "All you have to do to defeat an initiative is to latch on to one bad part of it."
The California Police Chiefs Association and the California State Sheriffs' Association are already on record opposing it.
And Morongo Chairman Maurice Lyons said some local tribes are meeting to figure out how to respond to the initiative.
One ace the tribes hold is that they're not legally obligated to renegotiate the compacts they signed with Davis until they expire. For most, that's in 2019.
George Skibine, director of the Indian gaming office for the U.S. Department of Interior, said the state has to offer "a significant economic benefit in exchange for revenue." He declined to speculate on what that might be.
He said the Interior Department generally has a problem with states requiring so much money in exchange for gaming.
Connecticut apparently won its 25 percent of slot revenues by giving exclusive gambling rights to two tribes. Their casinos are the closest to the New York metropolitan area. In addition, they have been granted thousands more slots than allowed in California.
The Interior Department recently approved revenue-sharing compacts for the La Posta Band of Mission Indians and the Santa Ysabel Band of Diegeþo Indians, both in San Diego County. The tribes will give up to 5 percent of their slot-machine revenue to the state.
Last year, the Interior Department rejected a compact between the Jena Band of Choctaw Indians and Louisiana because the state offered almost nothing for 16 percent of the slot machine revenue.
Slots could also become less of a talking point because of a recent opinion issued by the National Indian Gaming Commission. It said that bingo machines aren't slot machines, and therefore tribes can have as many as they want.
The initiative has so many elements that a court may not let it go on the ballot, Dickstein said. In addition to all the legal changes that favor only certain racetracks and card clubs, the initiative also forces state environmental laws on the tribes.
Only the federal government can impose its environmental laws on tribes, Dickstein said.
On top of all that, the initiative states that if the governor and every single gaming tribe come to an agreement and the U.S. secretary of interior doesn't approve it, the racetracks and card clubs get slots.
"No matter what happens, they get slot machines," Dickstein said.
Rick Baedeker, president of the Hollywood Park racetrack in Inglewood, said the priority is for tribes to share their revenue, but slots would be nice.
"We hope, as a matter of fact, that we do get the ability to have slot machines and can dramatically increase our purses," Baedeker said.
Other possible consequences of the initiative:
If the tribes lose exclusivity promised by the compacts, payments to the state would be canceled.
The state limit of 2,000 slot machines may no longer matter.
With the stakes so high, the public will soon see who is bluffing and who is holding the best cards.
Let the bluffing begin. ;-)
That said, they should also not be entitled to ANY FedGov subsidies, compensations, grants, etc. Federal funding should be COMPLETELY CUT to all tribes.
The goal of every tribe is to be self sufficient, but the membership does not realize that as long as they have to ask permission to do something on their rez, or share revenues from their ventures with a non-tribal entity, they will NEVER be self sufficient and will ALWAYS be under the thumb of FedGov.
Much like the position we non-tribal Americans find ourselves in. Whether it be Seasoned citizens asking for more handouts, or welfare mothers asking for handouts or whatever the case may be - the goal of EVERY AMERICAN, black, white, yellow, brown and every shade in between should be sustained self sufficiency.
If they're really sovereign nations, it's illegal for them to make campaign contributions to US politiciains, interfere in US elections or to hold a US political office.
Before you flame me, I'm only saying the tribes are only sovereign to a POINT.
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