As Campaign Issue, Casinos Are a Bad Bet

According to Arnold Schwarzenegger, California’s Indian tribes pay no taxes and virtually no money to the state in return for their lucrative casinos. He says he won’t pander to them or “play that game.” In a television ad that’s been running day and night as the recall election draws closer, he says it’s time for them to pay their “fair share.”

But although Schwarzenegger’s argument may be good election politics, it ignores two basic truths.

The first is that states are prohibited by the federal government from taxing Indian tribes. The U.S. has historically recognized the sovereignty of Indian tribes -- and it is clear that one sovereign cannot tax another. California cannot tax tribes any more than it can tax Arizona. No matter how much Schwarzenegger doesn’t want to “play that game,” the truth is he has no choice.

The second truth is this: California’s ability to negotiate a “fair share” of the casino revenues from the Indians was dramatically curtailed in 1998 when voters overwhelmingly passed Proposition 5, a measure backed by the Indian tribes that gave them the right to create Nevada-style casinos.

That’s because Proposition 5 dictated the precise terms and conditions for Indian gaming. If the California Supreme Court had not struck Proposition 5 down in 1999, our state would have been saddled with disastrous compacts that gave the state no share of casino revenue whatsoever.

The Supreme Court’s decision, however, did not strip the tribes of all bargaining power. It left them with a potent political remedy: They could recast the ballot measure as an amendment to the state Constitution rather than as an amendment to a statute and qualify it for the next election, in the spring of 2000.

Given the margin of victory in the Proposition 5 vote, there was no doubt that the voters liked the idea of rewarding Indian tribes with gaming rights and would vote the same way again.

Confronted with the bleak prospect of having the terms and conditions of Proposition 5 voted into the state’s Constitution, Gov. Gray Davis agreed to negotiate, even though he opposed casino gambling on policy grounds.

Despite threats from some tribal leaders to put another Proposition 5-type initiative on the ballot, Davis drove as hard a bargain as he could under difficult circumstances. For example, in sharp contrast with Proposition 5 -- which permitted the tribes to operate as many Vegas-style slot machines as consumer demand dictated -- the governor was adamant that the number of machines be strictly limited. And Davis prevailed.

The issue of the state’s share of casino revenues was also a bone of contention. The compact that the governor negotiated in 1999 gave California a $100-million share of the casinos’ annual revenues. Under Proposition 5, the state would have received nothing.

The matter was resolved when the tribes agreed to drop their new initiative in favor of a legislative referendum on the spring 2000 ballot. That measure amended the Constitution to allow Indian gaming under compacts that were negotiated, not dictated. Predictably, this referendum was approved by the voters.

Did the state -- in the form of Davis -- bargain hard for what it got? Absolutely, yes. Did it leave any money on the table? Who knows?

What is clear is that -- given the complexity and delicacy of the issues -- the negotiations might have collapsed altogether if the hard bargaining had continued up to the deadline for the tribes to qualify their new version of Proposition 5 for the spring 2000 ballot.

Critics complain that California’s share of the revenue is less than that of Connecticut. But comparing the California compact with the compacts of other states is meaningless without first considering differences in relative bargaining strength of the parties at the time the agreements were struck. For example, had the people of Connecticut recently voted in favor of a one-sided nonnegotiable compact and were they likely to do so again if given a chance?

Perhaps it’s more reasonable to blame former Gov. Pete Wilson. The tribes certainly blame him. They say they were driven to the expense of qualifying and promoting Proposition 5 in 1998 out of despair that Wilson would ever be reasonable in negotiating compacts with them. However, once it passed, the tribes’ bargaining position immediately shifted from relative weakness to relative strength.

The bottom line is that simplistic campaign rhetoric claiming that California made a bad deal because Davis did not bargain hard enough has no basis in truth.