Gov.’s Got a New Take on Casinos

Talking tough in television ads during last year’s recall race, Arnold Schwarzenegger denounced Indian tribes that own casinos as special interests handing out fat campaign donations while giving little back to the state.

“I don’t play that game,” he intoned in a commercial featuring a spinning slot machine.

But those were a candidate’s words. As governor, Schwarzenegger this week signed deals allowing five tribes unlimited expansion of their gambling operations, subject to legislative approval. In exchange, the state would take a larger cut of those tribes’ casino profits than it does now, albeit less than the 25% Schwarzenegger demanded in his campaign.

“This is a jaw-dropping political metamorphosis for a candidate who railed against the ... influence of Indian gaming,” said Jason Kinney, who was an aide to former Gov. Gray Davis and now works in public relations.

In fact, Schwarzenegger has never opposed gambling. Indeed, before entering politics, he was a pitchman for a group that sought to open casinos in Las Vegas and Atlantic City. And his “Terminator” image appeared on slot machines sold internationally.

After his election in October, Schwarzenegger said in interviews with reporters that he wanted to help tribes expand their operations, saying at one point that he hoped to turn what was estimated to be a $5-billion industry into a $10-billion industry.

Now, facing a yawning budget gap, Schwarzenegger is moving to see that expansion through -- as long as tribes pay the state. What is unclear is how much expansion he will foster as he tries to persuade more tribes to renegotiate the deals they made with the Davis administration, and authorizes tribes that don’t have casinos to open them.

Gambling critics, including former Assembly Speaker Leo McCarthy, predicted that if Schwarzenegger wipes out Davis’ limit of 2,000 slot machines per tribe, the governor could double the casino industry in California. Bear, Stearns & Co. analyst John Mulkey, who tracks the gambling industry in California and elsewhere, projected “modest growth,” noting that the new deals include only five of the 53 tribes that have casinos.

“Certainly the tribes that signed these compacts were willing to renegotiate their compacts for a reason, and that is that they see more growth,” Mulkey said.

While tribes don’t release their financial records, gambling experts believe the group that signed the new compacts includes four of the state’s 10 highest-earning casinos. Several tribes with large casinos oppose the deals, contending that they infringe on tribal sovereignty.

The Legislature could vote on the compacts as early as next week.

Schwarzenegger’s compacts let stand some provisions of the deals Davis struck with 64 tribes, not all of which opened casinos. For example, tribal casinos may admit gamblers as young as 18, the age of many high school seniors. And the new accords guarantee that tribes’ financial records remain shielded from public view, although the state would gain greater authority to audit the tribes’ books and inspect slot machines.

In an appearance in Folsom earlier this week, the governor said his goal was to keep gambling on Indian land, “and ... the most important thing also is that we protect the customers, that they know the machines are not rigged.” He predicted more tribes would join the new pacts “as soon as they feel comfortable that we’re not out to get them, that we actually want to be their partners.”

He also said he wants to restrict gambling to outlying areas, citing his opposition to an initiative on the November ballot that could allow slot machines at card clubs and racetracks in urban areas. The initiative would “turn California into Vegas,” Schwarzenegger said. “I’m against that.”

Schwarzenegger also has vowed to fight a separate initiative, pushed by the Agua Caliente Band of Cahuilla Indians, owners of casinos in and near Palm Springs. The measure would allow unlimited growth of gambling on tribal land.

The fundamental difference between the Davis and Schwarzenegger deals involves the size of casinos and the amounts tribes must pay the state. The Davis pacts require combined annual payments of about $130 million, with most of that sum going to tribes that have small, or no, gambling operations.

The five tribes that signed the new deals must make an initial, one-time infusion of $1 billion, with the money earmarked for transportation. Each signatory also must pay $2 million a year to assist tribes without big gambling enterprises, and make further payments each year as slot machines are added to its casinos.

Those payments won’t approach the sums Schwarzenegger sought, however. A tribe that increases the number of its slot machines from 2,000 to 3,000 would owe the state an extra $12.6 million a year. If 10 tribes made such an expansion, their payments would amount to $126 million, a modest contribution to the state’s $102.8-billion budget.

Schwarzenegger had promised that, if elected, he would renegotiate every Indian casino compact with an eye toward funneling 25% of their casino profits into the state treasury. That would mean between $1 billion and $2 billion a year.

His chief negotiator, former state appellate court Judge Daniel Kolkey, said this week that 25% was not realistic. Some tribes, particularly in Southern California, are close to one another and compete for patrons; many others are so remote that they do not generate sufficient income to part with that much.

Attorney Howard Dickstein, who represented three tribes that signed new deals, predicted that as casinos expand and more tribes sign agreements, the state could receive annual payments of $400 million to $500 million.

California has more federally recognized tribes than any other state -- 107. But few have reservations in areas that could support large casinos. Fifteen tribes have casinos at or near the 2,000-slot maximum now. Although Schwarzenegger says he opposes urban gambling, casinos in heavily populated areas could open on his watch, including one with which he is negotiating in the San Francisco Bay Area. One also is planned east of Sacramento.

Professor William Eadington, a gambling expert at the University of Nevada, Reno, who advised Schwarzenegger’s negotiators, estimated that California tribes could, in time, have 200,000 slot machines, given the number of tribes and their locations. Tribes currently have about 63,000 slots in California. Nevada has about 220,000 slot machines.

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Times staff writer Peter Nicholas contributed to this report.