Lot of Money Is on Table in Gambling Proposition Ads

Voters who flip on their televisions over the next 2 1/2 weeks are almost certain to see a deluge of campaign ads about gambling, even though card rooms and horse tracks have stopped spending money on Proposition 68, one of two casino-related initiatives on the ballot.

The campaign for the other gambling initiative, Proposition 70, is very much alive. Its backers, including tribes with casinos, expect to spend $15 million by election day, while opponents led by Gov. Arnold Schwarzenegger could spend $5 million to oppose the proposition.

In ads that are scheduled to start airing statewide today, Schwarzenegger criticizes backers of Propositions 70 and 68 as “special interests looking for special treatment.” Both measures, he says in the ad, would lead to massive expansion of casinos.

Independent polls have shown Proposition 70 trailing. But vowing to carry the effort through until the end, Gene Raper, campaign manager of the Yes on 70 effort, said: “We may get a little more aggressive.”

The dueling advertising campaigns revolve around a central question: How much is a “fair share” to be paid to the state?

The main backers of Proposition 70 -- the Agua Caliente Band of Cahuilla Indians, which owns casinos in and near Palm Springs, and the San Manuel Band of Mission Indians, which owns a casino near San Bernardino -- argue that a fair share is 8.84% of net revenue, the rate that casino-owning tribes would pay under their ballot measure.

Schwarzenegger inserted the term “fair share” into the political lexicon during last year’s recall campaign. In his view, a fair share is closer to 25% of the tribes’ gross revenue.

Deals that Schwarzenegger has negotiated with 10 tribes would require that they generally pay 10% of their gambling revenue, though for some casinos, the payments could rise to 25%, depending on their expansion. Schwarzenegger argues that Proposition 70 would undermine his authority to negotiate with other tribes, and uses his ad to urge Californians to allow him to retain control over the issue.

The Agua Caliente and San Manuel bands have poured a combined $22.5 million into the campaign. Over the weekend, another tribe from the Palm Springs area, the Morongo Band of Mission Indians, anted up $3.5 million. More is expected.

As for the governor, “this will be a very big deal,” Schwarzenegger spokesman Todd Harris said. “You’re going to hear his voice on radio, and you will see his image on television.”

The initiative and the compacts signed by the governor are rife with complex calculations and arcane questions of law. In essence, voters must decide which is better.

The television and radio ads in favor of Proposition 70 focus on the money.

One ad, referring to an analysis by Jess Huff, a former state Department of Finance director who is being paid $10,000 a month by the Yes on 70 campaign, says that under the measure, Indian casinos would pay “hundreds of millions of dollars to help close the state budget gap.”

Many of the ads in favor of the proposition say it would ensure that “all Indian casinos pay their fair share.” And tribal casinos would “pay the same as other Californians. No more than the rest of us, but no less either.”

That assertion may be true.

Proposition 70 would require the state to sign 99-year deals with tribes. Under those deals, the tribes would pay the state 8.84% of their net gambling revenue. That is the rate the state imposes on corporate profits.

In return, tribes would be allowed unlimited expansion of casinos on their land. Tribes could operate as many slot machines as the market would bear, and they could add games such as craps and roulette that are illegal under current law.

Although the ads may be accurate in saying that tribes would pay the state an amount equivalent to the corporate tax rate, the tribes would continue to be exempt from an array of other taxes and fees most California businesses pay, says Cathy Christian, a Sacramento attorney who represents the No on 70 campaign.

Tribes do not pay property taxes, for example, or local fees such as hotel occupancy levies. They are not required to pay state and local sales taxes on items such as construction material delivered to their reservations, and they need not pay vehicle license fees on vehicles driven primarily on reservations.

Fredric Woocher, a Santa Monica attorney who represents the Yes on 70 campaign and wrote the initiative, acknowledged that tribes did not pay most taxes. He likened the tribes to nations: “We don’t tax France or Canada. Indian tribes are not the same as a regular American corporation.”

The main point, he said, is that if voters approve Proposition 70, tribes will pay far more than they do now.

Currently, casino-owning tribes pay no taxes to the state, but must put about $130 million into two funds.

One helps ease effects on local governments where casinos are located, and the other assists tribes that have small or no gambling operations.

The deals negotiated by the Schwarzenegger administration vary. The five tribes that first signed agreements -- four of which operate some of the state’s largest casinos -- won the right to add as many slot machines to their casinos as they wanted. In exchange, they must provide the state with $1 billion this year. Schwarzenegger and the Legislature have earmarked that money for transportation.

The tribes will provide the money by paying $100 million annually for the next 18 years to finance a $1-billion bond issue. State Treasurer Phil Angelides, a Democrat, estimates that after expenses, the bond issue will probably provide the state with about $850 million.

In addition to the bond, the tribes that agreed to the Schwarzenegger compacts must pay the state based on the number of slot machines they add. The administration estimates that those payments will be about $150 million a year.

Depending on the casino, the payments could equal 10% to 25% of gross revenue, administration officials say.

Woocher contends that Schwarzenegger’s deals include two potentially serious catches.

Tribes’ obligation to make the annual payments on the bond would cease if anyone else, such as card clubs or racetracks, won the right to offer slot machines, he says.

And because the compacts do not require that payments escalate with inflation, some casinos could end up paying less than 10% of their revenue.

I. Nelson Rose, a Whittier Law School professor and an expert on gambling law, said it was possible that the state would receive more money under Proposition 70 than under Schwarzenegger’s compacts.

But the deals negotiated by the governor give the state gambling agency explicit authority to audit tribes and go to court to compel payments if tribes balk.

By contrast, Proposition 70 follows existing law in giving the state little or no authority to audit tribes to ensure they are making payments appropriately, Rose said. Under the proposition, he said, “they audit themselves.”

Woocher dismissed Rose’s contention and said the initiative would leave in place audit provisions in the compacts negotiated by Gov. Gray Davis in 1999.

“The existing compacts require that tribes make all their books and records open to the state gaming agency at any time,” Woocher said. “There is no intent to open up a loophole so that the tribes don’t pay 8.84%.”