Foes Say Gambling Vote Could Foil State

The expensive, high-stakes ballot fight between gambling interests and Gov. Arnold Schwarzenegger has predictably become a battle of lawyers looking for loopholes.

Attorneys for the governor believe they’ve found one that might surprise voters. If two November gambling initiatives pass in a certain way, rather than securing the state a larger share of gambling revenues, they would permit unlimited gambling on Indian land -- without casinos having to pay the state anything.

The Indian tribes say that’s nonsense, that Schwarzenegger’s committee has dreamed up a conspiracy theory about the way Propositions 68 and 70 were written and simply want to scare voters into rejecting the measures, said James Fisfis, a spokesman for Indian-backed Proposition 70. For Schwarzenegger’s people, he said, “it’s not necessary to get to the truth; it’s necessary to confuse.”

But Barry Fadem, the election attorney who drafted racetrack-supported Proposition 68, said he also thinks Indian tribes could be off the hook for paying revenue to the state under the way Proposition 70 is written: “So the tribes would not have to pay anything. That would be the likely result.”

The dispute over the wording of Propositions 68 and 70 highlights the intense nature of the political fight over gambling this year. Schwarzenegger has been busy raising money to defeat the initiatives because he believes they would interfere with his right to sign contracts with tribes that would bring the state revenue in exchange for expanding gambling operations.

The new legal interpretation arises because the two initiatives contain provisions that either conflict or harmonize with each other, raising the obvious question: What happens if voters approve both?

The answer is that California courts probably would be called on to sort it out -- exactly the kind of thing that frustrates voters about initiatives in California, experts say.

“It’s the nature of the initiative process,” said Rick Hasen, a Loyola Law School professor and election law expert. “This is one of the criticisms: The issues are presented in an all-or-nothing basis for voters to accept or reject, unlike with the Legislature, where there is room for bargaining and compromise.”

For Schwarzenegger’s people, the stage has been set for “the worst of both possible worlds: unlimited, untaxed, full-scale tribal casinos and 30,000 slot machines where card rooms and racetracks are located,” according to a legal memo written by election attorneys at Nielsen, Merksamer, the firm working for Schwarzenegger’s committee.

This scenario occurs under a specific circumstance: if both propositions are approved, and Proposition 68 gets more votes than 70. In this case, Proposition 68 requires that the gambling initiatives be “harmonized,” or combined. Therefore, the combined propositions would permit Indian casino gambling and slot machines at card rooms and racetracks, under the most likely scenario.

But the two initiatives would be in conflict on the issue of payments to the state. In this case, the revenue provisions in Proposition 70 -- the 8.84% tax on gambling revenue -- would not apply because Proposition 68 would be the dominating new law. Under that initiative, tribes would not have to pay any revenue to the state if they lost their monopoly on gambling.

And because 30,000 slot machines would be added in California under Proposition 68, the monopoly -- and the requirement to pay taxes -- would go away.

“What you would have is gambling at the racetrack and card rooms and you would have all kinds of gaming at tribal lands, and no money to the state,” said Cathy Christian, an attorney with Nielsen, Merksamer.

But the man who wrote Proposition 70, Frederic D. Woocher, said the law is clear: The initiative that gets the most votes is the one that wins the whole game. So if Proposition 68 gets more votes, nothing in Proposition 70 would become law -- no tax increase and no gambling expansion. End of argument.

I. Nelson Rose, a gambling law expert at Whittier Law School in Costa Mesa who has advised the Proposition 68 campaign, said he believes the courts would allow only Proposition 68 to go into effect. That is because Proposition 70 contains a so-called “poison pill” -- a provision that says unless it gets the most votes, the entire initiative is invalid. Rose said that amounts to a “self-destruct mechanism.”

Amid this arcane debate, money is flowing into efforts supporting both initiatives. Backers of Proposition 68 have put $6.4 million into their campaign account since the end of August, including $1.4 million each from Kentucky’s Churchill Downs, which owns Hollywood Park racetrack, and owners of Bay Meadows racetrack in San Mateo.

As it stands, backers of Proposition 68 have spent $19 million; its opponents have spent $18.9 million.

Since the start of the month, three tribes have contributed $8 million to the defeat of Proposition 68. The Pechanga Band of Luiseno Indians, which owns a casino in Temecula, and United Auburn Indian Community, owners of a casino east of Sacramento, have given $3 million each, while the Rumsey Band of Wintun Indians, owners of a casino west of Sacramento, chipped in $2 million.

Proposition 70’s backers have raised $18.77 million so far, including $10 million from the San Manuel Band of Mission Indians, owners of a large casino in San Bernardino, and $8.7 million from the initiative’s sponsor, the Agua Caliente Band of Cahuilla Indians, the owners of two casinos in and near Palm Springs.

Schwarzenegger aides have said that the governor’s campaign accounts have about $1 million that he could use to help defeat Proposition 70. They said killing the initiative was his most important target for the November election.

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Times staff writer Dan Morain contributed to this report.