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Nonpartisan In Depth Analysis of

Proposition 5

TRIBAL-STATE GAMING COMPACTS. TRIBAL CASINOS.

Initiative Statute

THE QUESTION

Should the State of California be required to make compacts with Indian tribes permitting specified gambling activities on Indian lands, in facilities owned and regulated by the tribes, with limited state oversight?

PROVISIONS

Proposition 5 would:

  • provide a model compact between Indian tribes and the state that sets terms and conditions for gambling on tribal land

  • require the state to offer this compact upon request by an Indian tribe and that the Governor sign it

  • require the model compact to specify that the following kinds of gambling are legal:
    (See Glossary for explanation of terms)

  • require gaming tribes to contribute 0.5 percent to 3 percent of their "net win" to trust funds for nongaming tribes, to nearby communities, and for statewide emergency medical care programs

  • require that the tribes reimburse the state for the measure's regulatory costs

  • provide that if any section of the compact is held unconstitutional, the other sections remain in effect.

BACKGROUND

In the late 1970s and early 80s California's Indian tribes, in their capacity as sovereign nations, began running high-stakes bingo games. Today 37 out of 100 federally recognized tribes in California operate gambling casinos. Last year Indian-run casinos in California took in $1.4 billion. They provide employment directly for 15,000 workers and indirectly for another 30,000 people, both Indian and non- Indian.

In 1987, the U.S. Supreme Court declared that once a form of gambling becomes legal for any purpose in a state, Indians must be allowed to offer the same game without state restrictions or taxation.

In 1992, after the court decision, several tribes installed video gambling machines resembling the state lottery's Keno machines. The legality of these machines in California is not clear. The state Constitution explicitly allows the state lottery, horse racing with betting, and charitable bingo games. It specifically prohibits "Nevada- and New Jersey-type" casinos but it does not define this phrase. Statutory law allows card rooms to offer games if the card room has no stake in the outcome. It specifically prohibits slot machines and similar gambling devices. Indian affairs, however, fall under federal regulations, which puts the tribal machines out of the state's reach.

Earlier, in 1988, Congress had passed the Indian Gaming Regulatory Act (IGRA) to establish federal rules for the states to follow regarding gaming on Indian land. This act divides gambling into three classes:

  • Class I: These are social games and traditional/ceremonial games. Left up to tribal management.

  • Class II: These are bingo and many "player's pool prize system" card games. Games in which the "house" has a stake in the outcome are explicitly excluded from this category.

  • Class III: All gaming that is not Class I or Class II, such as lotteries, horse race wagering, and tribal gaming terminals where prizes are paid in accordance with a player's pool prize system. (See Glossary.)

The IGRA requires tribes operating casino-style gambling to negotiate a compact with the state in which they are located. None of the tribes running casinos in California has such an agreement. Five tribes do have compacts that allow parimutuel horse race betting, but 37 other tribes are offering various gaming activities without compacts. These activities include approximately 13,000 "tribal gaming terminals" (video slot machines), which account for three-quarters of tribal revenues.

Whatever the legal status of video slot machines per se, it is clear that the operation of any Class III device without a tribal-state compact violates federal law under the IGRA. The U.S. Department of Justice has filed suit to seize the illegal electronic gaming machines.

In an effort to resolve the question of video slot machines, the Governor negotiated a model compact with the Pala Band of Mission Indians in San Diego County in March 1998. It allows a different form of Class III machine that would operate more like a lottery terminal. Each tribe would be limited to 199 machines, and no more than 19,900 machines would be allowed statewide. The compact also has provisions regarding community input into the siting and construction of casinos, unionization, and payment of workers' compensation. To become effective, the compact must be approved by the State Legislature.

Indian tribes object to provisions in the Pala Agreement that provide for local community input into the siting and construction of casinos, require casinos to allow certain employees to unionize and force them to pay workers' compensation and unemployment. The tribes also object to the caps on the number of machines allowed. In an attempt to save their video computers and thwart the Pala Agreement, a coalition of more than 60 California Indian tribes gathered signatures to put this measure on the ballot.

Legalizing the use of video slot machine terminals is at the heart of this initiative. Its mandatory model tribal-state compact specifies that four types of Class III activities that may be offered. It is unclear if the games authorized by this compact would violate the constitutional prohibition on Nevada- or New Jersey-type casinos. Since there is no current definition of this phrase, the Legislative Analyst says "the question would almost certainly have to be decided by a court."

FISCAL EFFECT

The Legislative Analyst says the net impact on state and local government revenues is uncertain. If a large expansion of gambling diverts expenditures from Nevada back to California, revenues could increase "significantly." If spending were merely diverted from other parts of the state economy subject to taxation, there could be losses in state revenues.

Non-gaming tribes will benefit from trust fund payouts of up to 6 percent of the "net win" from video slot machines. The Legislative Analyst says this could total ". . .in the low tens of millions of dollars annually. State and local governments would receive a portion of these funds."

Tribal gaming facilities are exempt from state income taxes and wagering fees required from other forms of gambling in California. However, the state would collect income taxes from non-tribal employees and tribal employees living off the reservation. Overall, though, the Legislative Analyst says ". . . on average, each dollar spent in tribal operations generates less tax revenue than an equivalent dollar spent in other areas of the California economy."

A YES vote means: The state must negotiate agreements with California Indian tribes to allow unlimited use of video slot machines.

A NO vote means: The state would not be required to negotiate the agreement specified in this measure. However, the state could still negotiate with individual Indian tribes regarding the extent of gambling allowed on Indian lands in California.

SUPPORTERS SAY:

  • Proposition 5 would let California's Native Americans be self-reliant.

  • Gaming revenues fund education, economic development, cultural preservation, housing and health care programs for Indian tribes.

  • California would benefit economically from the hundreds of millions of dollars in gaming revenues that would otherwise go into Nevada casinos.

  • Like the state lottery, prizes come only from "player pools," not Las Vegas-style "housebanked" gambling.

OPPONENTS SAY:

  • Tribes are already guaranteed the right to operate casinos on their lands.

  • Card clubs and horse racing tracks in California pay taxes, but Indian casinos pay no taxes on winnings.

  • Indian casinos would be exempt from most of California's environmental, health, safety, and worker protection laws.

SUPPORT AND OPPOSITION

The official ballot argument in support is signed by Daniel Tucker, Chairman, Californians for Indian Self-Reliance; Mary Ann Andreas, Tribal Chairperson, Morongo Band of Mission Indians; and David R. Edwards, Tribal Chairman, Tyme-Maidu Tribe.

The official ballot argument in opposition is signed by Griselda Barajas, Small Business Owner; Jack Gribbon, California Political Director, Hotel Employees and Restaurant Employees International Union, AFL-CIO; and Sheriff Glen Craig, Former President California Police Officers Association.

For more information:
Supporters: www.yeson5.org, 800-258-7471
Opponents: www.bad4cal.org, 800-866-6433



GLOSSARY FOR PROPOSITION 5

Las Vegas-style housebanked gambling
The house "seeds" the game, such as black-jack, with cash to start it and players play against the dealer (house).

Net win
The total wager less any prize payouts.

Parimutuel horse race wagering
A specific "take-out" to cover management expenses is deducted, and everything else bet is paid out to the winners.

Player's Pool Prize System
A prize system where all wagers collected from players are eventually returned to the winners with no opportunity for the establishment to win.

Tribal Gaming Terminal
Also called video slot machines, these include video poker, video keno, and a game that looks like a slot machine. They must not be operated by a handle and must not dispense coins or currency. Instead they are operated by push buttons and are fed by bills. When the player wishes to quit, the machine dispenses a paper receipt that is exchanged for cash.

Tribal, State, and Local Trust Funds

  • 2 percent of net win from Tribal Gaming Terminals must go to non-gaming tribes.
  • 3 percent of net win must go to statewide trust fund for emergency medical care resources.
  • 1 percent of net win to trust fund must support programs in cities and counties where Indian casinos are located.
  • Tribes' obligation to contribute lasts only as long as tribes have a monopoly on electronic gambling devices.


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Last updated: September 13, 1998
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