A Sucker Bet for California

Amid all the talk about a bad business climate, one industry in California is booming: Indian-owned casinos. Gov. Arnold Schwarzenegger is after some of the tribes’ hefty profits to help the state balance the budget, but because of the generosity of former Gov. Gray Davis, he doesn’t have much leverage. The result could be another giveaway, allowing big gambling expansions in exchange for a slim slice of the profits. Even in such bad times, Californians should think twice.

Schwarzenegger seeks $500 million in tribal gambling revenues -- not in taxes, because tribes are sovereign entities under federal law and cannot be taxed. Call it a contribution, or a sharing of revenues. Also call it very difficult to get, because the tribes hold most of the cards in this negotiating game.

Since voters approved what was framed as something like reparations to the tribes in 2000, nearly 60 Nevada-style casinos have arisen, grossing an estimated $5 billion to $6 billion a year. No one knows just how much because tribes are not required to report earnings as they are in Nevada and other states, and the state cannot audit them. The tribes became big campaign donors to Davis and other candidates.

Davis, having given away the store in negotiations that eventually led to a ballot proposition, promised during his fight against the recall to recoup for the state as much as 25% of casino earnings -- roughly $1.25 billion -- a figure that was echoed by Schwarzenegger during his recall election campaign. After the recall election, Davis unconscionably waived a rule that would have strengthened the weak environmental protections in the existing deals with the tribes. Controls can be negotiated, but tribes cannot be forced to comply with state or federal environmental law.

The current 20-year compacts limit each tribe to 2,000 slot machines and require token profit sharing with nongaming tribes and a drop to the state for administrative costs. Davis opposed urban casinos, but that didn’t stop the wildly successful Thunder Valley casino in the Sacramento suburbs, barely 20 minutes from the state Capitol.

The compacts can be renegotiated only by mutual agreement. Schwarzenegger has appointed former Judge Daniel Kolkey to be his chief negotiator with the tribes. As legal advisor to former Gov. Pete Wilson, Kolkey cut the first casino deals with tribes but rejected their primary demand for Nevada-style slot machines, the big moneymakers. Late last week, Anthony Miranda, chairman of the California Indian Nations Gaming Assn., stopped short of rejecting Schwarzenegger’s proposal out of hand, but called it “amusing and troubling.”

Davis and the voters, however, let the genie out of the bottle. Unless Schwarzenegger has something new up his sleeve, the tribes are likely to concede only a modest share of profits in exchange for easing or eliminating the limit on slot machines. The governor and Legislature must weigh the dollars gained against the added social effects of gambling addiction and associated crime and traffic, as well as a possible future spread of slots to racetracks and card clubs. That seems to be a losing deal.