State Would Lack Clear Authority Over Casinos

If California voters approve Nevada-style gambling on Indian reservations next month, state authorities will lack clear powers held by Nevada to block convicted felons from working at casinos, conduct unannounced inspections or settle disputes.

Polls show that California voters overwhelmingly favor Proposition 1A, the measure on the March 7 ballot that for the first time would legalize a broad range of casino-style gambling in the state.

However, under an agreement negotiated by Gov. Gray Davis and almost 60 California tribes last September, the state will not have anywhere near the regulatory powers enjoyed by Nevada authorities, who supervise the country’s largest legal gambling industry.

Unlike their counterparts across the state line, Sacramento regulators lack clear authority to audit casino books or inspect slot machines. And unlike Nevada, Davis granted tribes the discretion to permit people as young as 18--the age of many high school seniors--to wager. Moreover, if a tribe disputes a jackpot, the tribes’ own gambling commissions will resolve the dispute. Patrons will not have the right to appeal to courts.

“Self-regulation will not work,” said Nevada Gaming Control Commission Chairman Brian Sandoval. “You have to have an independent entity to resolve disputes and appropriately regulate the industry.”

Part of the reason for the difference between Nevada and what is envisioned for California is that tribes are sovereign. However, a Times comparison of other states’ gambling agreements with Indians shows that California will retain less regulatory control than some. New York’s compact with the Mohawk tribe, for example, specifically gives casino patrons the right to sue.

“We can inspect machines, unannounced,” said Arizona Gaming Department spokesman Paul Walker, astonished at the California agreement. “If you’re a felon, you’re not working at a casino in Arizona.”

Led by Davis, California lawmakers have been all but unanimous in their rush to approve Indians’ right to operate and expand their casinos. Tribes have become a dominant force in state politics, a position they cemented by donating $70 million to state campaigns in 1998, including $750,000 for Davis. Spending a record $63 million, they won landslide passage of Proposition 5, the 1998 measure allowing them to legally operate their casinos. The state Supreme Court struck it down in August, prompting Davis and the tribes to draft their accord and Proposition 1A.

Facing an unfunded opposition effort, the tribes are expected to win easy approval of Proposition 1A, which will ratify the compact and make tribal casinos constitutional.

But some experts say ambiguities in the compact cast doubt on California’s ability to manage an expected boom in slot machines and other games of chance.

“Slapdash is the word I would use,” Whittier Law School professor Nelson Rose, who specializes in gambling law, said of the accord.

Davis administration lawyers who drafted the document decline to discuss it. But Davis spokesman Michael Bustamante defended it, saying the governor sought to give tribes all the respect due another government, and assumes they will operate in an “appropriate” manner.

“This isn’t the ABC Tool & Die Co.,” Bustamante said. “These are sovereign nations that we’re dealing with.”

In the view of some tribal leaders, Native Americans, who generally have dealt directly with the federal government, made a concession by giving the state any say over their affairs. Such tribal-state compacts, however, are required by federal law if the gambling operations are to be legal.

“Once a camel’s nose is under the tent,” said Richard Milanovich, chairman of the Agua Caliente Indians, “they’re going to try again and again to get a larger part of their nose into the tent.”

Tribal leaders say they have the most to lose if regulation is lax, because gamblers won’t bet at casinos they think are poorly run.

“We’re capable of doing it ourselves. If we don’t know, we hire someone who does,” said Ray Patencio, chairman of Agua Caliente’s five-member gaming commission, established to oversee the tribe’s casino in downtown Palm Springs.

Agua Caliente commissioners submit to background checks done by the tribal staff and promise not to gamble at their casino, though they can play elsewhere. The tribe has a system of cameras, locked counting rooms and guards that costs $1.6 million a year to run.

“We see this as setting the standard,” Milanovich said.

The compact assumes the state and the National Indian Gaming Commission will help tribal governments be their own regulators. The federal commission has authority to inspect games, conduct audits, investigate firms that do business with tribal casinos and approve contracts. But its staff is small: Five employees oversee California’s 37 tribal casinos.

1997 Law Set Up Regulations

State gambling regulation is covered by 1997 legislation carried by state Atty. Gen. Bill Lockyer when he was in the Senate. The measure established a division of gambling control in the Department of Justice.

But its 70 auditors, agents and lawyers are currently assigned only to the state’s 125 card clubs.

Lockyer would gain jurisdiction if Proposition 1A passes. To handle the work, Lockyer hopes to double the gambling unit’s staff. The soonest that would happen is July 1, with the adoption of a state budget for the next fiscal year.

Lockyer’s role remains undefined. The compact says tribes must establish an Indian gambling association to implement the document. Each tribe that signs the compact will assign two representatives--meaning the association will have at least 118 tribal members, along with four state representatives.

“The compact contemplates cooperation between the state and tribes,” said Harlan Goodson, who heads the state Department of Justice’s Gambling Control Division.

If that cooperation breaks down, the state could turn to an arbitrator, though the compact gives both sides the right to refuse arbitration. In extreme cases, tribes and the state could litigate in federal courts.

The Department of Justice’s main contact will be with each tribe’s own gambling commission. There’s no set structure for the commissions; the state has no say over their makeup. Most are made up of tribe members.

Like all members of gambling tribes, those who sit on tribal gambling commissions have financial stakes in their casinos. That’s different from, say, Nevada, where gambling regulators cannot have interests in casinos.

Tribal commissioners will take the lead role in licensing casino employees and executives, an area where California lags behind other states. Even California’s own law says owners of non-Indian-owned card rooms cannot have been convicted of felonies. The rule does not extend to tribal casinos, however.

The compacts say tribes must hire casino executives who have “good character, honesty and integrity.” But if state investigators discover that a key employee has an unsavory past, the tribe “may, in its discretion, decline to revoke a tribal license issued to a person employed by the tribe,” the compact says. The state cannot force the ouster of people working at the casinos who have criminal backgrounds if the violations predated their hiring.

“That was an issue that they just felt too strongly about. They would not bend or yield,” Bustamante said. “After a number of discussions on that point, we believed that the tribes would do the right thing and employ the appropriate people.”

In New York, by contrast, a compact negotiated by former Gov. Mario Cuomo says New York can deny a license to anyone “whose prior activities, criminal record, if any, or reputation, habits and associations pose a threat to the effective regulation of gaming.” New York has denied licenses to more than 200 people.

In California, a test could come in the person of Mark Nichols, chief executive of the 44-member Cabazon tribe, owner of Fantasy Springs Casino east of Palm Springs. In October, Nichols, who is not a Native American, pleaded guilty to three misdemeanor violations of federal campaign contributions law; he reimbursed tribe members and employees for $1,000 donations they gave to federal candidates, including President Clinton, in 1994 and 1995, and faces sentencing later this month.

State officials expressed no opinion on Nichols’ ability to retain a license. But the state likely could not force the Cabazons to revoke Nichols’ right to oversee casinos.

That job falls to the Cabazons’ gambling commission, made up of five non-Indians.

The state “wouldn’t have authority to reject key employees,” said Cabazon lawyer Patrick Schoonover. “It’s the tribes’ sovereign right to make decisions regarding licensing.”

If Californians approve Proposition 1A, the stakes are sure to rise. For the first time, highly profitable Nevada-style slot machines will become legal in California. The number of slots allowed is in dispute.

Analysts Disagree on Number of Slots

The governor’s office says the maximum will be 44,798, more than twice as many as the 19,000 quasi-slots in use now. The nonpartisan legislative analyst says that because of the compact’s wording, as many as 113,000 one-armed bandits could be allowed--almost twice as many as the 60,000 on the Las Vegas Strip.

Despite all the money likely to flow through the casinos, the state may have limited authority to conduct audits--an important tool that could reveal evidence of skimming or money laundering.

Bustamante says the compact “provides for sufficient authority to adequately audit.” Lockyer’s aides believe they have audit authority. And attorney Howard Dickstein, who represented several tribes in the negotiations, said the state “can come in and audit all books and records, without notice, at any reasonable time.”

But some tribal leaders question the state’s authority to conduct full audits. And Whittier Law’s Rose cited convoluted wording on the subject. Without clear authorization, Rose said, the state has limited power to intrude.