Capitol Alert

California’s share of Indian gambling money dwindles

Gov. Arnold Schwarzenegger and legislative leaders are all smiles after Schwarzenegger signed a bill ratifying 2004 tribal compacts that included significant payments to the general fund. Such payments are now becoming smaller and less common.
Gov. Arnold Schwarzenegger and legislative leaders are all smiles after Schwarzenegger signed a bill ratifying 2004 tribal compacts that included significant payments to the general fund. Such payments are now becoming smaller and less common. Sacramento Bee file

Former Gov. Arnold Schwarzenegger, beginning with the recall campaign and on through his two terms in office, repeatedly linked the state’s tribal casino business to state finances.

“We want to have the Indian gaming tribes pay their fair share to the state,” Schwarzenegger said during a 2004 news conference, “and it looks like we are on that road.”

Today, tribal money is moving in a different direction. A key court decision, a switch in governors and changing casino economics mean that tribal payments to the state’s general fund – which totaled $241 million last year – are beginning to shift elsewhere.

Gov. Jerry Brown and the United Auburn Indian Community, which runs one of the country’s most profitable casinos, last month announced an overhaul of the tribe’s 2004 agreement with the state. It reduces by nearly two-thirds what the tribe pays into the general fund and directs much of the money to local projects and poor tribes. Lawmakers ratified the agreement last week without a dissenting vote.

The federal Indian Gaming Regulatory Act, passed in 1988, set rules for the operation and regulation of casinos on Indian lands.

Other successful tribes making significant payments to the state also are rumored to be interested in talking new terms with Brown, who is seen in a much more positive light by tribes than his predecessor.

The Morongo Band of Mission Indians in Riverside County, which renegotiated its casino agreement in 2006, “hopes to have an opportunity to discuss our compact with the governor soon,” Robert Martin, the tribal chairman, said in a statement last week, noting that “the economy has changed dramatically since 2006.”

The state is required to negotiate casino agreements with tribes under federal law. Beyond finances, the deals address issues such as environmental protections, patron safety and labor relations.

Brown administration officials say the governor seeks to craft pacts good for the state and individual tribes, but note that new rules have been put in place since Schwarzenegger was governor.

“Federal courts have restricted the state’s ability to require tribes to pay into the general fund,” Brown spokeswoman Deborah Hoffman said. “We will negotiate within the framework of federal law to reach terms that further the interests of tribes and their members, the surrounding community and the California public.”

California voters have liked the idea of making money for the state from gambling on Indian reservations, if election results are any indication.

They overwhelmingly rejected a 2004 tribal casino ballot measure, Proposition 70, after opponents, including Schwarzenegger, claimed it would short the state. Four years later, voters upheld casino-expansion agreements with the Morongo tribe and three other Southern California tribes after a campaign in which proponents played to voters’ concerns about the state budget.

If you understand Rincon, then you know that the handwriting is on the wall for compacts that require excessive general fund payments.

Doug Elmets, spokesman for the United Auburn Indian Community

“California faces a looming fiscal crisis. Additional revenue is vital,” said one ad featuring Schwarzenegger.

Then came a lawsuit by the Rincon Band of Luiseño Indians. The San Diego County tribe sued the state in 2004 after refusing to agree to pay millions to the state’s general fund in return for permission to add hundreds of slot machines to its casino.

Lower courts agreed with the tribe’s position that revenue-sharing payments are an illegal tax. The U.S. Supreme Court declined to intervene in 2011, taking general fund payments off the table for future pacts.

“If you understand Rincon, then you know that the handwriting is on the wall for compacts that require excessive general fund payments,” said Doug Elmets, a spokesman for the United Auburn tribe.

What has been unclear since the case, though, is to what extent tribes already making payments to the general fund would seek new agreements. Some tribes did redo their Schwarzenegger-era deals because they couldn’t afford the payments and were financially struggling.

United Auburn is not. The tribe’s Thunder Valley Casino Resort is among the most successful in the country. The agreement would reduce the tribe’s revenue-sharing payments to the general fund, from about $40 million to $15 million, with $9 million of that earmarked for public works projects in Placer County. Overall, the tribe’s total payments would drop from $42 million to $36 million, Joe Dhillon, Brown’s senior adviser for tribal negotiations, told a Senate committee last month.

Elmets noted that tribal revenue-sharing payments, which made up less than 1 percent of the total revenue that flowed into the general fund last year, aren’t a significant chunk of the state’s income.

“In reality, it is better that those funds be redirected into local economic development and infrastructure that benefits both the tribe and the surrounding community,” he said.

Under its new agreement, Elmets said, the tribe will be able to help jump-start new local projects, such as the Placer Parkway and the Sunset Industrial District near Thunder Valley.

73number of California tribes that have ratified casino compacts with the state

60number of casinos operated by 58 tribes

11 number of tribes paying into the state general fund

“I think after Rincon, compacts that require general fund payments are questionable,” said Stephen Hart, the attorney who argued the Rincon case for the tribe. “And I think the Governor’s Office would be smart when they convert some of those compacts to this model you see with United Auburn.”

Some of the heaviest praise for the pact came from members of the Unite HERE union, which represents about 7,000 casino workers statewide. Deals negotiated under Brown have included labor-friendly provisions.

Jack Gribbon, the union’s California political director, said he thinks the Brown administration has the right approach.

“He’s not anti-gambling. He’s not trying to fund the general fund with taxes from gaming tribes,” Gribbon said of Brown. “He’s got a very pro-tribal view of this.”

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