Davis Helped Gambling Hit $6-Billion Jackpot

SACRAMENTO -- Gov. Gray Davis, who repeatedly has said he endorses merely modest growth of gambling, instead has presided over a rapid expansion, fueled by the rise of casinos on Indian land.

Since Davis signed compacts with Native American tribes in 1999, his first year in office, revenue at Indian casinos has more than tripled, from $1.5 billion in 1999 to about $5 billion a year, and the number of casinos has grown to 50, up from 38 in 1999.

Davis also has signed legislation expanding off-track betting on horse races and ensuring that card rooms can continue to operate. The California Lottery continues to flourish as well, with more games and more people buying tickets than ever.

Altogether, revenue to casinos, card rooms and racetracks approaches $6 billion a year. Under Davis’ watch, California operators’ winnings has surpassed New Jersey’s $4.3 billion, and is second to Nevada’s $9.3 billion.

“For sure, California is the fastest-growing state in terms of gaming revenue, slot machine growth and employment,” said Jason Ader, gambling industry analyst for Bear, Stearns & Co. “There are countries that could be comparable ... but not individual states.”

The rise of tribal casinos has created a new political force in California, evident in campaign contributions and in local land-use disputes. Taken together, tribes have become among the state’s richest campaign donors, having spent more than $120 million on ballot measures and legislative and statewide races since 1998. Davis has accepted $1.34 million from the tribes since he took office in 1999, and gambling interests altogether account for about $2.5 million of the $67 million he has raised in that period.

Major Test

Neither Davis nor his Republican challenger Bill Simon Jr. have discussed gambling in any detail during the campaign. The next governor will face a major test early next year when negotiations reopen over key parts of the compact with the tribes, including the number of slot machines that tribes can have. Simon and Davis refused in recent days to discuss how they would handle the negotiations.

At a recent campaign stop, Davis said he has kept his promise about “not letting the number of machines get out of hand.” He portrayed himself as having had little choice about how he handled the compact negotiations in 1999.

“I’m responding to the will of the electorate,” Davis said. He added that a 1988 federal law requires governors to negotiate with tribes over the extent of gambling. “I have to follow the law,” he said.

Davis and tribal representatives cite economic gains for California Indians brought about by gambling. Employment by tribes grew to 35,000 in the last year, a 12% jump. “If tribes make money, good things happen,” Davis said.

The 1999 deal, which was ratified by the Legislature and approved by voters, grants California’s 105 bands of Native Americans exclusive rights to operate casinos with slot machines and various other games of chance on their land. Proposition 1-A, drafted by the Davis administration, permits casinos on Indian land. It amended a state constitutional provision, approved in 1986 when voters authorized the state lottery, that specifically barred “Nevada-style casinos” in California.

Under the deal, each tribe can have two casinos with a combined 2,000 slot machines, about the number in large Las Vegas Strip casinos. Tribes without casinos or with relatively small casinos were promised payments of $1.1 million a year from the bigger tribes.

“For too long, California’s Indians have been denied the respect and dignity they deserve,” Davis said in 1999. “That sad chapter in our history ends today.”

His words marked an about-face for the state. Davis’ predecessor, Republican Gov. Pete Wilson, had blocked tribes from any significant expansion. Federal authorities had sued to shut down the casinos.

Tribes reacted by spending $63 million to win passage of Proposition 5 in 1998. Proposition 5 would have given them the right to operate casinos of any size on their land, but the state Supreme Court struck it down in August 1999.

The compacts ended the uncertainty and launched a construction blitz.

“What the Davis administration did with those compacts was ... secure and legitimize the industry for the foreseeable future,” said attorney Howard Dickstein, who represents five casino tribes. “That had a tremendous impact.”

Tribes File Suit

But some have been critical of the compacts, which are based on a single template, complaining of ambiguity or that they give the state little power to regulate the casinos. Two tribes sued earlier this week seeking to clarify parts of the document. “The compact is woefully inadequate,” said Sonoma County Counsel Steven Woodside, among the officials fighting unsuccessfully to stop an Indian casino, financed by a Texas company, in the wine country of Alexander Valley.

The governor publicly has been ambivalent about gambling, often vetoing bills one year, then signing similar measures later. In 1999 and 2001, he rejected bills to permit more mule racing and allow horse tracks to increase the size of purses, thus adding to the appeal.

“I do not personally favor gambling, and I certainly do not encourage others to gamble,” Davis said as he vetoed the mule racing bill. “Therefore, I am not generally inclined to support measures that allow more than a modest expansion of gaming.”

Davis reversed himself this year by signing a single bill allowing more mule racing and richer purses. With the growth of gambling has come conflict. In San Diego County, there have been disputes over a tribe’s demand for water for its resort, and the county’s eight casinos worsen sprawl.

“Nobody anticipated the wildly dramatic dimensions of the development,” said state Sen. Steve Peace (D-El Cajon), who like most legislators voted for measures approving tribal casinos. “Clearly, we made a mistake. I don’t know how to fix it.”

In the state’s rural reaches, residents can do little to stop casino development. That has become obvious at the Dry Creek Rancheria in the Alexander Valley, a prime wine grape region.

Atty. Gen. Bill Lockyer in July wrote to the Pomo Indians complaining that they failed to comply with the compact’s safety and environmental provisions, and asking to meet to resolve the dispute. Three months later, construction crews financed by Nevada Gold & Casino Inc., of Houston, remain hard at work, having bulldozed the tops of hills to accommodate a casino with 1,600 slots. Gamblers already play slot machines in a finished section.

There are no water or sewer lines to the casino. Water is trucked up, and sewage trucked out. Sonoma County Fire Marshal Jack Rosevear warned in an affidavit of fire danger on the brush- and oak-covered hillside. A blaze “could present a serious problem for guests in terms of panic from smoke and possible fire exposure,” Rosevear said. The road to the casino may be too narrow for firetrucks to squeeze past fleeing vehicles.

The tribe’s attorney, Frank R. Lawrence, responded by telling Sonoma County officials that they have no authority over the construction, and warning that if they return, they’re “at grave risk of personal individual liability in a federal civil rights lawsuit that the tribe is presently contemplating.”

Looking for Help

If Davis’ first term has brought security to the state’s gambling industry, the winner of Tuesday’s election may be tempted to look to the industry for help with California’s returning budget shortfall.

Given that tribes pay no state taxes on casino profits, the next governor could agree to raise the cap of 2,000 slots machines per tribe so long as tribes help the state solve its fiscal crisis by paying some form of fee or tax. Connecticut, home to the largest Indian casino, receives 20% of the operation’s slot machine revenue.

Slots are especially lucrative, with each device bringing in $100,000 or more a year. Ten tribes have 2,000 slots each, or nearly that number. Some may seek to remove the cap.

“The tribes hope the governor would be open to letting the market decide,” said Jacob Coin, director of the California Indian Nations Gaming Assn., a lobby group in Sacramento. Aware that tribes may be asked to help bail out the state, Coin said: “Clearly, there will be a search for more revenue.”

Exactly how many slot machines the tribes can amass under the current company remains in dispute.

The hastily drawn agreement is ambiguous on this key point. Davis initially contended that the compacts limited tribes to a combined total of no more than 40,000 slots, twice the 19,137 machines in operation in 1999.

The nonpartisan state Legislative Analyst contends the compact permits 113,000 machines.

Taking a middle ground, the California Gambling Control Commission places the number of machines authorized under the compact at 61,957.

Citing the latest number of 44,913 machines in operation, Davis said the deal he struck “allowed for a modest increase in the number of machines.... I think we’ve kept our promise.”