Late last year, the San Pasqual Band of Mission Indians sent the state $535,000 as a down payment on $1.8 million in licensing fees for 428 slot machines it wanted to add to its San Diego County casino.

The state Gambling Control Commission promptly sent the money back, saying new slot machine licenses were not available in California.

Now San Pasqual is demanding that the state pay $550 million in damages for lost casino revenue and breach of contract. The claim, a precursor to a lawsuit, reveals an intriguing legal and political fight as some California Indian tribes say they refuse to be shaken down by Gov. Arnold Schwarzenegger to pay for new casino deals.

On multiple fronts, tribes are challenging a California slot machine limit set under 1999 gambling compacts with 61 tribes. While individual tribes were allowed up to 2,000 slot machines, the state imposed a 32,151 statewide limit on the calculation that few tribes had the market capacity for major casinos.

But the California tribal gambling industry exploded from tiny rural casinos to lavish gambling resorts. And Schwarzenegger saw an opening to negotiate new deals – allowing individual tribes to bypass the state slot cap in exchange for making tens of millions of dollars in payments into California's revenue fund.

From the time he ran against Gray Davis in the 2003 recall, Schwarzenegger famously argued that the 1999 gambling deals under Davis were a boondoggle for California because the state got no cut of casino profits.

His efforts to amend 1999 compacts to cut new deals for wealthy tribes fueled a significant expansion of tribal gambling in California. Yet now some tribes are pushing back.

The San Pasqual tribe of San Diego County, which currently operates 1,572 slot machines, told Schwarzenegger to forget about any new deal. It asserts in a June 1 claim for damages that it refuses "to pay unconscionable sums" to get additional slots it believes it is entitled to under its 1999 deal.

"We've talked to Schwarzenegger and the Gambling Control Commission, and we're not interested in any new compact," said San Pasqual's attorney, Stephen Warren Soloman. "We have had a compact since 1999, and we want them to live up to their obligation."

Early this year, the Colusa Indian Community sued the state because it was unable to add 300 slot machines to its 846-slot Colusa Casino Resort due to the state cap.

Colusa attorney George Forman said the state limit is an arbitrary figure "that the tribes never saw in negotiations" for 1999 gambling deals.

On April 22, U.S. District Court Judge Frank C. Damrell Jr. in Sacramento, decided in favor of Colusa and a second tribe that sued Schwarzenegger and the Gambling Control Commission.

In ruling for Colusa and the Picayune Rancheria of the Chukchansi Indians, Damrell said the state's formula for calculating a statewide slot machine cap in 1999 was wrong. He said it should have been set at 42,700 licenses.

If it stands, his ruling means that more than 10,000 new slot machines licenses will become available for tribes with 1999 agreements without them having to negotiate new deals with the governor.

Schwarzenegger's spokeswoman Camille Anderson said the governor intends to appeal Damrell's decision to the 9th U.S. Circuit Court of Appeals. She declined comment on San Pasqual's demand for damages, saying, "Any claim filed on the basis of an anticipated ruling is premature."

With its insistence that no more slot licenses were available for tribes with 1999 gambling deals, the Schwarzenegger administration was able to extract bigger state general fund payments from casinos than many ever envisioned.

In 2008, the Shingle Springs Band of Miwok Indians, unable to get its 2,000 slots under the 1999 compact, signed an amended compact with Schwarzenegger to allow it to open its El Dorado County casino with rights to up to 5,000 slot machines. The tribe agreed to pay the state 20 percent to 25 percent of net winnings.

In 2007, the governor signed new agreements with five wealthy Southern California tribes that were operating 2,000 slots under the 1999 deals to allow 22,500 new slot machines. The tribes promised annual payments to the state of $20 million to $45 million on existing slots plus, plus 15 percent to 25 percent of new slot machine earnings, depending how many they installed. One of the tribes, the Sycuan Band of the Kumeyaay Nation, later opted out of its deal for 3,000 new slots.

Those pacts followed 2004 compacts that allowed six tribes, including the United Auburn Indian Community and the Rumsey Band of Wintun Indians, operators of the Thunder Valley and Cache Creek casinos near Sacramento, to add unlimited slots.

California tribes now operate more than 60,000 slot machines in an $8 billion casino industry. Yet the state insists the limit of slot machine licenses under the 1999 compacts stands.

Forman helped negotiate the 2007 deal that gave the Morongo Band of Mission Indians permission to add up to 5,500 slot machines. But he said other tribes – such as Colusa – either aren't interested or can't afford to fork over millions in casino revenue to get new state gambling agreements. "Schwarzenegger found tribes that could afford to pay a lot of money to the state," he said. But he said other tribes are "unwilling to pay dearly for that privilege."

Call Peter Hecht, Bee Capitol Bureau, (916) 326-5539.