Indian gaming in California is a complex and controversial public policy issue. Essentially, California is grappling with the issue within the regulatory framework of a 1988 federal law requiring gaming tribes and state governments to enter into compacts regulating gaming on tribal lands. After a series of negotiated compacts and the passage of statewide ballot measures in 1998 and 2000, the issue shows no signs of abating. Two Indian gaming measures are on the ballot for the November 2004 general election.
The Two Ballot Measures
In the 2003 gubernatorial recall campaign candidate Schwarzenegger called on California's gaming tribes to contribute more of their gambling revenue to the state, and after he became governor he began renegotiating compacts with the leading gaming tribes. One of the critical negotiating issues was whether to increase the number of slot machines allowed per tribe in return for more state revenue from gaming operations. Under existing compacts each tribe was limited to 2,000 slot machines which could pay up to $300/day/machine.
Meanwhile, as negotiations continued, a coalition of California card clubs and race tracks qualified an initiative for the November 2004 ballot called the "Gambling Revenue Act of 2004," which became Proposition 68. Proposition 68 would require all 53 gambling tribes to pay 25% of their gross revenue to the state. Refusal by even one tribe to pay would trigger a provision allowing racetracks and card clubs to install slot machines at their sites, thus breaking the tribes' monopoly on casino-style gambling.
The gaming tribes countered Proposition 68 by qualifying their own initiative for the November ballot, the "Indian Gaming Fair-Share Revenue Act of 2004," which became Proposition 70. Proposition 70 would put an 8.84% tax on the tribes' gambling revenue, equal to the state's corporate tax rate, and would remove all limits on the scope and size of gambling the tribes could offer in their casinos.
Governor Schwarzenegger announced his opposition to both Propositions 68 and 70, and as an alternative put forward a set of compacts renegotiated with the five leading gaming tribes. Announced on June 21, 2004, the compacts preserve the tribes' monopoly on casino-style gambling, but require the tribes to make an initial $1 billion payment to the state, and thereafter annual payments estimated to range between $150 million and $275 million. Under the compacts tribes may exceed the 2000 limit on the number of slot machines, but must pay increasingly more to do so. Tribes must also submit to various environmental, labor relations, and building safety constraints. Significantly, tribes must abide by binding arbitration in certain kinds of disputes with local governments and customers. The compacts were approved by the state legislature, as all such compacts must be. The governor negotiated five additional compacts in August 2004, and the legislature approved all but one involving a controversial casino expansion in the city of San Pablo. The passage of Proposition 68 or 70 would undo all of the compacts negotiated by the governor.
If both Propositions 68 and 70 pass, the provisions of the measure with more votes take effect.
Proposition 68 essentially makes this proposition to the gaming tribes: pay 25% of your "net win" to the state or lose your monopoly on casino-style gambling. "Net win" is the take from all slot machines after prizes are paid out, not including operational expenses. Tribal casinos in Connecticut and New York pay up to 25% in their respective states, and Proposition 68 backers view 25% as a "fair share." The tribes would also have to comply with state laws on environmental protection, gambling regulation, and political campaign contributions.
If Proposition 68 passes, California's 64 gaming tribes (those with tribal compacts) would have 90 days to agree to the 25% charge. If even one dissented, the tribal gaming monopoly would end, and casino-style gambling would be open to card clubs and racetracks.
If casino-style gambling were enabled in card clubs and racetracks, they could install up to 30,000 slot machines. Card clubs would pay 30% of the net win to the state and between 1% and 2% to the county and city hosting the casino. Racetracks would pay an additional 20% into a fund to benefit the horse racing industry.
In both monopoly and non-monopoly scenarios, the net win revenue would go to a new Gaming Revenue Trust Fund, and the bulk of it would be redistributed to local governments throughout the state for additional child protective, police, and firefighting services. Net win revenue could be over $1 billion in either scenario, according to the Legislative Analyst.
Proposition 68 proponents say that the gaming tribes consume public services, but pay almost nothing in taxes from casino income, and that in return for their slot machine monopoly, the tribes should pay taxes on a par with gaming tribes in other states. If the tribes are unwilling to do so, proponents contend, the monopoly should end, and card clubs and racetracks should have the option of offering slot machines too.
The official ballot argument against Proposition 68 contends that the proposition is "really a deceptive attempt to change California’s Constitution to create huge Las Vegas-size commercial casinos on non-Indian lands throughout California." Opponents also object that almost none of the net win revenue would go to the state, and that because Proposition 68 would negate the current gaming compacts, the state would suffer a substantial revenue loss. Opponents claim that the compacts negotiated by Governor are a better deal for the gaming tribes and California taxpayers.
According to press reports, Proposition 68 backers ended their effort to pass the measure on October 6, 2004, after having spent more than $20 million on the campaign. In the face of poor showings in public opinion polls and strong opposition from Governor Schwarzenegger, backers concluded that the measure had no chance of passage and suspended their advertising campaign.
Essentially, Proposition 70 would:
- Continue the tribal gaming monopoly, with no limits on the number of machines, facilities, or types of games on Indian land. Casinos could offer roulette and craps (currently forbidden), and have any number of slot machines.
- Tax Indian gaming income at the state corporate tax rate, currently 8.84%, and waive most other state and local taxes and fees on tribal gambling activities.
- Require the governor to negotiate new 99-year compacts at a gaming tribe's request. Existing compacts expire in 2020 or 2030.
- Require gaming tribes to prepare environmental impact studies for new and expanded casinos.
The Legislative Analyst says the amount the state would receive in gaming revenue from Proposition 70 is uncertain, and tribal payments to local governments would be reduced by millions of dollars annually.
Proposition 70 supporters say that the state should treat tribal gambling operations as it would any other business, and tax them the same way. It is not fair, they maintain, to burden the gaming tribes with alleviating the state's budget difficulties, as Governor Schwarzenegger has attempted to do with his renegotiated compacts. Proponents note that, unlike Proposition 68, Proposition 70 restricts tribal gambling operations to Indian lands.
Proposition 70 opponents contend that its monopoly status makes tribal gaming unlike other businesses, and that the fiscal relations between gaming tribes and state and local governments are best governed by the compacts negotiated by the governor. Proposition 70, opponents say, is a tax giveaway to the gaming tribes and an open door to an unprecedented expansion of gambling operations in the state. Opponents also object to the lack of an auditing requirement for independently confirming taxable gaming income, and criticize the 99-year compact provision as too long.
Official Voter Information
California Budget Project
Gambling and the future of California: Propositions 68 and 70 examined
"Times California exit poll results," Los Angeles Times Poll, Nov. 2, 2004.
Los Angeles Times Poll
"Late-breaking surge of No votes on Prop. 66 (three strikes limits) puts outcome in doubt. Declining support for Prop. 62 (open primary). Heavy No vote on two Indian gambling measures.," Field Poll, Oct. 30, 2004. (Release #2146).
"Gambling initiatives: voters oppose Prop. 70 four to three: three to one opposition to Prop. 68 before backers suspended advertising, Field Poll, Oct. 9, 2004. (Release #2138).
“Support for open primary; health insurance referendum lags despite health care worries,"PPIC Statewide Survey, Sept. 2004.
PPIC Statewide Survey (See p. vi.)
"Propositions 68 and 70: both gaming initiatives not appealing to state's voters," Field Poll, Aug. 13, 2004. (Release #2128).
"Two competing gambling initiatives supported by a majority of the state's voters," Field Poll, June 9, 2004. (Release #2120).