States Vie for Bigger Payouts from Tribal Casinos
By Pamela M. Prah, Staff Writer
Cash-strapped states are trying to tap into American Indian gambling revenues but aren't always hitting the jackpot.
In California, Gov. Arnold Schwarzenegger (R) won big when he struck a deal with five tribes, giving the state an extra $1 billion this year in exchange for allowing Native American groups to maintain a monopoly on slot machines. But in Minnesota, Gov. Tim Pawlenty (R), thus far, has failed to persuade tribes to give the state a share of the estimated $1.4 billion in tribal gambling revenues in exchange for the okay to expand operations. Talks there are ongoing.
At stake for states are billions in untaxable revenue within their borders -- an estimated $16.7 billion pulled in by Indian-run casinos and tribal gaming in 2003. Because tribal governments are federally recognized as sovereign nations, their gaming businesses are free from federal and state income taxes and local property taxes.
While tribal gaming generates jobs and economic activity in 29 states, only seven -- Arizona, California, Colorado, Michigan, New Mexico, New York and Wisconsin -- have worked out agreements with tribes to share casino revenues, often in exchange for agreements to keep out privately run casinos or to expand tribal businesses. States that don't have revenue-sharing deals with tribes want them, and those that have them want new ones that offer richer payouts.
Tribal casinos have been sprouting on Indian reservations from Connecticut to California ever since Congress passed the Indian Gaming Regulatory Act in 1988, which lays out the framework for tribes to legally conduct gaming.
California and Minnesota are among the top five highest-grossing venues for tribal gaming, with California far in the lead with $4.2 billion in revenues in 2003, according to the Indian Gaming Industry Report, a study by economist Alan Meister of Analysis Group, a Los Angeles-based consulting firm.
Kansas Gov. Kathleen Sebelius (D) wants her state to join that select club that gets a take of the tribal gaming pot. The governor struck a deal with two tribes to build a casino-hotel complex near Kansas Speedway, a tourist draw for the state. But the Legislature has yet to give its stamp of approval. In Wisconsin, a new agreement between Gov. Jim Doyle (D) and 11 tribes was struck down by the state Supreme Court, throwing into question more than $100 million in 2004 revenue-sharing payments that the state expected. The state and tribes are negotiating new terms.
California voters last month heeded Schwarzenegger's advice and rejected two ballot measures that would have expanded tribal gaming and set out a certain percentage of gaming revenue for the state. The governor campaigned against the initiatives, arguing that he could negotiate more lucrative deals for the state. California is home to 45 tribes.
Indian gaming advocates criticize states for what they see as a mad grab for tribal money. "States are trying to balance their budgets on the backs of Indian tribes," attorney Christopher Karnes said in a recent Milwaukee Journal Sentinel article.
The amount states get from Indian gaming is a "pittance," said Judy Zelio, a fiscal expert at the National Conference of State Legislatures. "If you look at a state's overall budget, ... the kind of money that comes from tribal gaming is helpful, but it's certainly not a case of a state relying on tribal money," she said.
Tribal gaming in Connecticut, the second highest-grossing state with $2 billion in revenues in 2003, is expected to bring $345 million to state coffers in fiscal 2005, according to NCSL estimates. Tribes in Arizona, where Indian-run gambling made more $1.2 billion in 2003, could fork over an estimated $50 million in fiscal 2005 as part of a revenue-sharing agreement.
Meister, the author of the tribal revenue study, said the growth of Indian gaming has been impressive in recent years, -- eight times faster than that of commercial casinos. However tribal gaming "still has a ways to go until it catches up" with private casinos, he said. Total gaming revenue in the 11 states that allow commercial casinos reached more than $26.5 billion in fiscal 2003, compared to $16.7 billion from Indian-owned casinos in 29 states.
With high poverty and no sources of livelihood, tribes turned to gaming. Congress requires tribes to reach agreements or "compacts" with states before opening casino-style or high-stakes gambling. These deals don't have to include sharing money with the states, and many do not. Tribal governments don't pay corporate income taxes on gaming revenue, and tribal members who live and work on Indian reservations do not pay state income or property taxes. Tribes do pay other taxes, such as occupational and employment taxes.
"The biggest trend has been revenue sharing whether tribes are doing it or states and local governments are asking," Meister said. "There's always, in these types of agreements, disagreements. The state would always like more, of course, and tribes would like to pay less," he said.