State May Let Casinos Pay to Grow

Six tribes are in talks with Schwarzenegger to expand gambling in exchange for $1 billion to help budget. Initiative campaign moves ahead.

By Dan Morain
Times Staff Writer

April 1, 2004

SACRAMENTO Gov. Arnold Schwarzenegger is considering granting major casino expansion rights to a half-dozen California Indian tribes in exchange for $1 billion or more to help solve the state's budget woes, administration and tribal representatives said Wednesday.Talks over the high-stakes deal are not expected to be complete for at least a month. And though aides to Schwarzenegger expressed optimism that a deal would be struck, it remained unclear whether the governor would attain his goal of obtaining more Indian gambling revenue.

There were no signs that other tribes might be interested in such an agreement. In fact, several successful gambling tribes did not join in a meeting Wednesday with the Republican governor.And even as talks proceed between the governor's aides and six of the state's 107 tribes, competing gambling interests one a casino tribe, the other a coalition of racetrack and card room operators are speeding ahead with plans to place separate initiatives on the November ballot.

After Schwarzenegger met for an hour with representatives of five casino tribes that are close to agreement, Rob Stutzman, the governor's communications director, proclaimed Wednesday that the governor was "very pleased at where the negotiations are at." Stutzman declined to discuss components of the deal, saying that "there are still fluid issues.""The governor's request today," said Stutzman, "was that [parties] move quickly to close out on those final issues that need to be addressed, and we're going to have some very good news for some tribes of California and for the people of California in the very near future."

Other sources familiar with the closed-door talks but speaking on the condition that they not be identified described the outlines of the package. Tribes signing onto the deal would gain the right to unlimited expansion of casinos on their land. Currently, individual tribes cannot operate more than 2,000 slot machines, the most lucrative game for any casino owner.In exchange, the tribes would use their blue chip credit standings to finance a bond giving the state $1 billion and perhaps more depending on the number of tribes that participate to help solve California's budget woes in the coming fiscal year. Tribes would pay off the bond, at an aggregate annual cost of about $100 million, spread over 18 years.

Additionally, tribes would pay a few thousand dollars to up to $25,000 a year for each new slot machine they install. Over time, payments from the half-dozen tribes involved in the current talks could amount to $500 million a year.Negotiators are haggling over an array of other issues, such as whether tribes must comply with state environmental law when they expand their casinos; and whether patrons would have the right to sue if they are injured on casino property. As it is, tribes are sovereign entities that do not have to comply with state law and are immune from lawsuits.

As outlined, the deal appears to give Schwarzenegger more than he had sought. In his proposed budget, Schwarzenegger had called on the 53 tribes that operate 54 casinos to pay the state at least $500 million in the coming fiscal year.Among the participants in the talks is the United Auburn Indian Community, owners of ThunderValley in suburban SacramentoThunderValley is expected to gross as much as $300 million in its first year of operation. It has 1,906 slot machines and probably could double that number.

Other tribes involved in the talks include the Pala Band of Mission Indians in San DiegoCounty, and the Rumsey Band of Wintun Indians, which will open its expanded casino-resort west of Sacramento next week.The Viejas Band of Kumeyaay Indians, owners of a 2,000-slot machine casino outside San Diego, is part of the group, as is the Pauma Band of Mission Indians, which has licenses for 850 slot machines in San DiegoCounty.

Urban Gambling

A final tribe involved in the talks though not represented Wednesday is the Lytton Band of Pomo Indians, which hopes to open a casino in San Pablo, near Oakland and San Francisco. It would be the first Nevada-style casino in a major urban area in California."We're very close," said Viejas council member Alan Barrett, who attended Wednesday's meeting. "We're very excited about this, and we're going to continue to move ahead quickly."Negotiating for Schwarzenegger is former Judge Daniel Kolkey. The talks are taking place in the Sacramento offices of attorney Howard Dickstein, representing the Pala,Rumsey and United Auburn tribes.

Several tribes with large casinos walked away from the talks at least for now largely because they consider the proposed payments too rich."We were never in the group," said David Baron of the Barona Band of Mission Indians, owners of a large casino outside San Diego."The deal with Howard is probably close to being done," added Deron Marquez, chairman of the San Manuel Band of Mission Indians, owners of a casino near San Bernardino. "But there is no deal on my table that has a chance of being final tomorrow. Short of a miracle, I don't see it happening any time soon."Any deal struck by Schwarzenegger and the tribes would be subject to legislative approval.If that deal fails to include a majority of the state's 53 gambling tribes, there could be a replay of a legislative fight and gambling initiative war that took place in 1998 when then-Gov. Pete Wilson sought to limit gambling.

Tribes reacted then by spending more than $60 million on an initiative that sought to give them unfettered rights to operate casinos on their land. The state Supreme Court struck down that measure, leading to the current deal fashioned by Gov. Gray Davis in 1999.Under those agreements, the tribes pay into a revenue-sharing fund $130 million a year, with most of it going to tribes that have small or no gambling operations.

Marquez noted, however, that several tribes were content with the Davis deal, which does not expire until 2020. Under that deal, individual tribes cannot have more than 2,000 slot machines. At least 15 tribes are at or near the 2,000-slot machine limit. Schwarzenegger wants to reopen the deal to extract more money from the tribes, while some tribes have bridled at the slot machine cap. "We are a tribe that can expand, but at what cost?" Marquez said. San Manuel's representatives had been part of the negotiations earlier but stepped away from the table in part because of the amount that the state was hoping to extract.

"I am not interested in doing things that compromise my government and my people for the sake for getting more machines," Marquez said. "Unfortunately, the governor and the governor's people feel and think this is about the greenback. It is much deeper than that."Backers of the two competing gambling initiatives said Wednesday that they intended to press ahead, despite exhortations by Schwarzenegger's aides that they allow the governor to negotiate the new gambling agreement. They must submit 600,000 valid signatures of registered voters by the middle of April to place their measures on the November ballot.

Card rooms and racetracks have contributed $3.5 million into a campaign fund backing their measure, which would require all tribes to pay 25% of their gambling winnings to state and local governments. If they refuse, tracks and card rooms would gain the right to 30,000 slot machines and pay 33% of their winnings mainly to state law enforcement, fire and education-related programs.

"It is important that the governor continue to strive for 25%," said Greg Larsen, spokesman for the initiative pushed by card rooms and racetracks. "That is what we believe the fair share should be."At the same time, the AguaCaliente Band of Cahuilla Indians plans to go forward with its initiative, said Agua consultant Gene Raper, who is overseeing the campaign.

Alternative Plan

Agua's initiative would give tribes unlimited casino expansion rights on reservation land. In exchange, tribes would pay the state 8.84% of their net profits, the equivalent of the tax that other corporations pay. Raper added that the deal being fashioned by the governor "is not acceptable, or else we'd be there."

Stutzman, Schwarzenegger's spokesman, said the governor opposed the Agua initiative, and had not taken a position on the card room measure. Stutzman stopped short of saying the timing of Wednesday's announcement was intended to persuade the initiative promoters to back away from their plans.

"Someone else may draw that conclusion," Stutzman said. "I'm not specifically here saying this is designed in any way to head off any proposed initiatives."

Some budget experts raise their eyebrows at the concept that the state could be relying on gambling to help solve its budget problems. The state already has sold $2.6 billion in bonds financed by payment from tobacco companies to fill past budget gaps."It would make us more dependent on vices. If they dry up, that money won't come in," said Kim Rueben, a budget analyst at the Public Policy Institute of California.Still, several lawmakers said Wednesday that a payment to the state of $1 billion or more was likely to win legislative approval.

"It beats cutting poor people," said Senate President Pro Tem John Burton (D-San Francisco)."Legislative opposition to giving us $1.5 billion? I can't imagine what it would be," said Assemblyman Tim Leslie (R-TahoeCity). "I don't see why. The more money we could raise right now, the better."