Fight Over Indian Casinos Heats Up on Two Fronts

A major fight over the future of gambling in California began taking shape Wednesday, as Gov. Arnold Schwarzenegger tapped a negotiator to extract more from Indian gambling revenue and tribes prepared to fight back -- and to battle an initiative that would end their monopoly on Nevada-style casinos.

The governor appointed attorney Daniel Kolkey, 51, to renegotiate the state’s gambling agreements with tribes that own casinos. Kolkey butted heads with tribes as Gov. Pete Wilson’s chief counsel in the late 1990s, when the Republican fought their demands for casinos of unlimited size.

The appointment came a day after Schwarzenegger reiterated in his State of the State speech that he wanted more from the casinos to help balance California’s budget.

Meanwhile, half a dozen tribes agreed to ante up $1.5 million each to derail a proposed November ballot measure that would allot 30,000 slot machines to racetracks and card rooms, according to a memo describing tribes’ early anti-initiative plans.

The memo, which details a private strategy meeting, says they will fight the measure, sponsored by competing gambling interests, by marshaling their forces into a single campaign. The memo does not include a budget for the campaign.

But the tribes have hired high-profile political consultants Dan Schnur, a Republican and former top aide to Wilson, and Garry South, a Democrat who was chief strategist for former Gov. Gray Davis. The tribes also plan to retain law firms to challenge the measure’s constitutionality, the memo says.

Kolkey said Wednesday that he intended to renegotiate many components of the deal that Davis struck with the tribes in 1999. Later ratified by voters, that agreement opened the way for a major expansion of gambling on Indian land but required tribes to make only modest payments from casino profits.

“Clearly, we think the current compacts do not provide for fair payment to the state in return for what is a monopoly,” Kolkey said in a telephone news conference.

During the recall campaign in which he ousted Davis, Schwarzenegger declared that tribes should pay as much as 25% of their revenue to the state -- which could amount to $1.25 billion a year.

Tribes with casinos spent more than $10 million trying to block Schwarzenegger’s election, putting the bulk of their money behind Lt. Gov. Cruz Bustamante and state Sen. Tom McClintock (R-Thousand Oaks).

On Wednesday, Kolkey did not state an amount he wanted the tribes to pay the state. But he made clear that the administration expected them to pay more.

“Tribes should respect the state’s interest in expecting every business establishment whose viability depends on this state’s customers and workers to pay their fair share,” Kolkey said, “and to afford enforceable and recognized protections to consumers, employees and the environment.”

Tribes now put about $130 million a year into two state funds. Most of that money goes to help tribes that have no gambling operations. Some tribes appear open to paying more, in exchange for the right to expand their casinos. Others balk.

“It is fundamentally prohibited by federal law for tribes to pay into any fund that is created to take down the deficit of the state of California,” said Deron Marquez, chairman of the San Manuel Band of Mission Indians, which operates a major casino outside San Bernardino.

The six tribes that pledged $9 million to fight the ballot measure are the Morongo near Palm Springs; the Viejas, Soboba and Pala in San Diego County; and two Sacramento-area tribes, the Rumsey and United Auburn. Several more are expected to join the effort, the memo says.

The document says the tribes intend to move quickly against the initiative, hoping to increase the cost of gathering signatures to qualify the measure for the ballot. Another aim is “drying up funding of the initiative as potential backers begin to question its ability to win.”

Attorney Howard Dickstein, who represents several tribes with major casinos and is involved in organizing the effort, said, “Hopefully, there will be one campaign to make sure this initiative dies the early death it deserves.”

But George Gorton, a consultant to the initiative’s backers, suggested that the tribes save their money. “They would be better advised to negotiate and work things out and pay their fair share,” he said.

Promoted by card rooms and horse-racing tracks, the ballot proposal would force the tribes to enter talks with the governor over their compacts, requiring that they give the state 25% of their revenue and an array of other concessions or lose their monopoly on Nevada-style casinos.

Although tribes do not publicize their take from gambling, most experts peg it at about $5 billion a year.

The proposed initiative would allow the 11 card rooms and five racetracks financing the initiative to divide the 30,000 slot machines, and would require that they give education programs and police and firefighters 30% of their revenue -- an estimated $1 billion a year.

That the initiative would force the tribes to enter into talks with the administration is not lost on Kolkey. “We’re not relying on that for purposes of leverage,” he said. “But if it does provide some leverage, so much the better.”

Under Wilson, Kolkey helped strike a deal with some tribes to allow limited gambling. But a standoff with others turned bitter and prompted them to push propositions in 1998 and again in 2000 to legalize Nevada-style gambling in California.

Wilson wanted to block tribes from gaining regular slot machines, insisting that they use video slot machines instead. He also hoped to limit the number of machines to 19,000. Under Davis, however, tribes won the right to operate more than 55,000 machines.

Kolkey said Schwarzenegger had no intention of rolling back the number of casinos and slot machines, noting: “The genie is out of the bottle.”

Rather, he said, the governor would focus on having tribes increase payments to the state as long as they had a monopoly. Kolkey also said he hoped to negotiate other changes, including a requirement that tribes help local governments deal with the effects of their casinos.

“A reexamination of these compacts is necessary to provide a more just relationship with the state,” he said. “Frankly, a just relationship with the state will be a long-term and stable relationship for the tribes.”

Kolkey recently stepped down from the state Court of Appeal in Sacramento to join the San Francisco office of the Los Angeles-based law firm Gibson, Dunn & Crutcher.

He has a reputation as a tenacious, unflappable negotiator.