California Must Hedge Its Bet

Californians are beginning to realize that casino gambling has not been a great bet for them. While more than 50 -- and counting -- casino tribes are grossing an estimated $5 billion a year, they contribute less than 5% to government coffers or to noncasino tribes. Yet everyone in California is burdened with the increasing social costs of tribal gambling: from traffic control to crime fighting, environmental degradation and liability suits.

In light of this, Gov. Arnold Schwarzenegger must renegotiate the gambling compacts struck between the tribes and the state so that they serve not only the interests of the tribes but all 34 million Californians.

Schwarzenegger should take a warning from my home state, Connecticut. We charge our two casino tribes 25% of their slot machine revenues to do business in the state. That’s close to $400 million a year. But even so, Connecticut is working to curtail Indian gaming and grappling with the damage the casinos are inflicting on surrounding towns and cities. We have seen a significant rise in pathological gambling among men, women and teenagers, in gambling-related suicides, bad debts and petty and major crimes, to say nothing of traffic congestion, loss of local tax revenue, loss of zoning and environmental control and declining residential property values.

Indian casinos were allowed in Connecticut for much the same reason they were let into California -- historical guilt. Citizens and political leaders felt empathy for the downtrodden and thought gambling was an easy fix.

In Connecticut, officials mistakenly believed that by giving the Pequots a monopoly on slots, in exchange for 25% of the winnings, the state could limit the spread of gambling. Under the terms of the deal, if the state allowed non-Indian casinos, the Pequots could stop payments. This has, so far, kept non-Indian gambling illegal, but meanwhile, tribal casinos are proliferating. Today, the Pequots’ Foxwoods Casino has been joined by the nearby Mohegan Sun Casino -- they are, respectively, the two largest in the world -- and another 13 or so Indian bands are seeking a piece of the action.

The state government seems to be permanently on the defensive against those increases -- and against the law of unintended consequences. As one of the Pequots’ lead attorneys told me: “Never underestimate the ignorance of your opponents. People can be real stupid sometimes.”

Particularly disturbing to people in Connecticut has been the erosion of state and local control. Newly emboldened with gambling money, the tribes have aggressively sought to expand their reservations by petitioning the federal government to take more land into trust for them. Long before California’s Lt. Gov. Cruz Bustamante got a dime from his state’s tribes, the tribes in Connecticut were showering campaign contributions on politicians and hiring as lobbyists just about every former federal, state and local official of any consequence. In Connecticut, people have learned that the phrase “sovereign rights” translates to “special interests.”

Sadly, the social costs of Indian gambling in California will be even greater than in Connecticut, if for no other reason than that California has so many more tribes and so many more casinos. The good news is that the potential revenue is larger as well.

The new pacts that are negotiated with the tribes should increase state and local governments’ share of revenue until it matches the actual costs of law enforcement, regulation and environmental mitigation at the casinos themselves and covers harder-to-quantify costs -- the effect on local schools, highway repair and even the creation of programs to deal with problem gambling.

But how to get the tribes to negotiate, given that the primary compacts have 18 years to run? There is talk of an initiative, backed by friends of the governor but not directly tied to him, that would force the tribes to come back to the table or face competition in the form of slot machines added to racetracks and card clubs in California. Or the governor could immediately propose an even broader legalization of gambling in the state.

Either approach should do the trick. The last thing the tribes want is competition, whether it comes from slot machines at the horse tracks or new non-Indian casinos managed by the same folks who brought you the Bellagio and the Venetian in Las Vegas.

Once the tribes come to the table, Schwarzenegger needs to make sure that the public understands that the costs of gambling are real and significant -- after all, the state’s voters approved tribal gaming. That support has given a negotiating advantage to the Indians.

And the governor has to put the right person in charge of making a deal. He has one good candidate: Warren Buffett -- investor, consultant, dealmaker and part-time Californian. No one is savvier than Buffett. He once told me that if you are playing poker and you don’t know who the patsy is, you’re the patsy.

California, get to the table, and don’t be a patsy.

Brett D. Fromson is the author of “Hitting the Jackpot: The Inside Story of the Richest Indian Tribe in History” (Atlantic Monthly Press, 2003 ). He was a longtime staff writer for the Washington Post and Fortune magazine.