Economic Development

Raid on The Reservation

Casinos linked to Indian tribes bring in billions of dollars. States get only a fraction of that money. Many of them want more.
by | June 2003
 

Like many new governors this year, Mitt Romney of Massachusetts spent much of his early time in office wishing his budget problems would go away. At one point, though, he thought he had an ideal solution. Not only would it raise tens of millions of dollars, it would do so without an increase in taxes. All the money would come from entities located at a safe distance, outside the commonwealth.

It would come from gamblers and Indian tribes. One small Massachusetts tribe, the Wampanoags, on Martha's Vineyard, had been trying for years to open a casino within state borders. Romney let it be known to established casinos elsewhere in New England that he would be willing to block the Wampanoag move--if those enterprises sent the Bay State $75 million in "casino mitigation" fees. As Romney explained it, gambling operations throughout New England could rest easy, knowing that their parking lots would remain full of cars that had been driven down from Boston. Tribes located in Massachusetts would continue to pose no competitive threat. "If they refuse to provide at least $75 million to us," Romney warned, "then we will engage in video lottery terminals of our own."

Romney liked his stratagem so much he included the expected $75 million windfall in his initial budget. Others were not quite as enamored with it. "The plan clearly appears to be like a form of extortion," said Mark Brown, chairman of the Mohegan tribe, which operates a major casino in Connecticut. In the end, Romney retreated from the plan, deciding instead to follow the well-trod path of his brethren in Pennsylvania and Maryland and promote slot machines as a budget fix instead.

But the audacity of Romney's ploy, even if unsuccessful, points to the growing sentiment in many states that casinos on Indian reservations, a bonanza in recent years for a select few tribes and Native American citizens, can be used to relieve the current fiscal crunch.

Under federal law, states can enter into compacts with Indian tribes not only to regulate the casino business but to share in the profits. Where the state already is getting a share of the take, governors are trying to entice tribes back to the table to renegotiate the terms, promising to license expanded operations or simply increase the number of slot machines allowed in casinos.

In California, Governor Gray Davis hopes to boost the state's share of casino profits by $680 million a year. (He originally asked for double that.) In return, he promises casino-owning tribes that he will lift the current cap on the number of slot machines any one tribe can operate. Wisconsin Governor Jim Doyle has negotiated new compacts with several tribes that will lead to a quadrupling of casino payments to the state. In Oregon, Portland city officials have asked the Grand Ronde tribe to consider financing a major league baseball stadium in exchange for the right to open a casino in the metropolitan area.

Arizona voters approved a ballot initiative last fall that allows 17 tribes to engage in house-banked blackjack, slot machines and video games. In return, the state will assume more regulatory authority and get up to 8 percent of the profits. The state Department of Gaming projects that tribal casinos will generate $54 million for the state and its schools in the coming fiscal year alone. Michigan is similarly hoping for a sweeter deal with casino-operating tribes. New York is engaged in a long-term battle to force its tribes to collect state sales taxes on non-gambling purchases made on casino premises.

CHANGING THE RULES

States have not always been quite so hungry for Indian gambling dollars. Some of the earliest compacts with tribes, such as the ones drawn up in Minnesota and South Dakota in the 1980s, did not include any revenue-sharing agreements at all. The tribes were simply allowed to keep whatever they took in. A few other states chose to collect only enough money to pay the cost of regulating the games. A few, such as Connecticut and New York, were tougher negotiators and came away with as much as a quarter of total casino profits.

Now some of the older compacts are expiring, just as states face their most serious budget shortages in decades. It's not surprising that several are looking to strike new deals that will boost their take from Indian casinos by hundreds of millions of dollars. "It looks like we're not going to get any help from the federal government, so we have to explore all options," says Wisconsin state Senator Robert Wirch.

Given the history of U.S. relationships with Indian tribes, the current pressure for more money has generated a bit of cynicism. "Anytime Indians have something worth money--land in 1890, oil paintings and casinos today," writes Scott L. Malcomson in his history, "One Drop of Blood," "white folks will try to take it."

Indians turned to gambling--primarily bingo games--as a means of economic development during the 1980s. By the middle of the decade, they were generating about $100 million annually. Then, in 1987, the U.S. Supreme Court ruled that states could not prevent tribes from sponsoring gambling on reservations as long as gambling was legal elsewhere in the state. The following year, in response, Congress passed the Indian Gaming Regulatory Act, under which states share the right to regulate the casinos, although they cannot tax them. "The federal government has done this consistently for 200 years," says Anthony Gulig, a historian at the University of Wisconsin-Whitewater. "When Indians win in court, Congress passes a law to modify the victory."

There is no disputing the significance of the casino windfall. Revenues from Indian gaming increased nearly 40-fold in little more than a decade after passage of the 1988 federal law. Nearly 200 of the 562 federally recognized tribes now run some form of gambling, with revenues totaling $12.7 billion in 2001.

PLAYING MONOPOLY

Gambling has presented different tribes with wildly different financial situations. In 2000, only eight tribes accounted for 40 percent of all income from Indian gaming. Most other tribal casinos were not nearly so profitable and, of course, the majority of tribes don't run gambling operations at all. Still, given the overall growth of the industry, some of the states that settled for fixed annual payments in their initial compacts began to wake up to the fact that they hadn't made very shrewd deals. "I think that the previous governors, Thompson and McCallum, certainly did not get enough money from the gaming compacts," says Wisconsin Senator Wirch.

Doyle, the Democrat who unseated McCallum last fall, is doing everything he can to change that situation. Under his proposal, several tribes would be able to raise betting limits and expand the hours and the types of games they could offer. Their deals with the state would also become permanent, as opposed to the five- and seven- year compacts they're under now. But in return, Doyle is asking for a percentage of their business, as opposed to the current fixed payments. His budget for the next biennium assumes $206 million in state gaming revenues, a big leap from current payments of $51 million.

Doyle's plan has generated enormous controversy in recent months, both partisan and institutional. Former Governor Tommy Thompson told the state GOP convention in May, "If I would have negotiated that, it would have been in the neighborhood of $1 billion." The Wisconsin legislature wants authority over any deal the governor negotiates, and twice this year has passed bills giving itself that authority.

Doyle vetoed both and simply negotiated new tribal arrangements without consulting the legislature. Frustrated by their inability to override his vetoes, Republican legislators in April filed a lawsuit to block the new compacts, which they call an unconstitutional expansion of gaming.

Doyle was able to talk the tribes into more generous payments to the state by granting them monopoly rights. This is a strategy that several other governors have used successfully. Connecticut, for example, has only two casinos, both enormous and both with monopolies in their markets. Not coincidentally, those tribes turn a higher percentage of casino profit back to the state than their counterparts anywhere in the country.

Other states, however, have a much more competitive environment. In California, with 50 tribes operating 51 casinos and Nevada gambling outlets hugging the state border, profits are modest and tribes spend as much as one-third of their take on marketing and advertising to gain an edge over competitors. Current compacts, signed three years ago, limit each tribe to no more than 2,000 slot machines. Governor Davis is offering to lift that limit in exchange for an increased state share of the till, but except in a handful of cases, the tribes don't do enough business to justify even the 2,000 slots. "There's no incentive for them to renegotiate," says a spokesman for the California Nations Indian Gaming Association.

Tribes in Arizona are adjusting to a deal with the state which followed two years of negotiation and was ratified by voters last November. Much of the gambling money that the tribes will be handing over to the state will be earmarked for particular purposes, rather than just patching holes in the general fund. The tribes even have discretion over the 12 percent of their gambling revenues that they contribute to localities. The Salt River Pima-Maricopa County Indian Community is contributing millions to gene research in Phoenix, satisfying the requirement that it help with local economic development and also responding to the high incidence of diabetes among the local Indian population.

The reason the state didn't simply insist on direct cash payments to fill budget holes, says Christa Severns, of the Arizona Department of Gaming, is that until recently, raising money was a lower priority than ensuring adequate regulation of gambling. "When we went through our negotiation process," she says, "we had the fortunate circumstance that the state didn't have a deficit. Getting tribal contributions was never a way to balance a budget." If they were sitting down at the table today, Severns concedes, the emphasis on money would be a much greater motivating factor.

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