Gambling Deals Are Downsized

Gov. Arnold Schwarzenegger, who struck deals with Indian tribes last year aimed at infusing state coffers with more than $1.3 billion, now concedes that the state will receive no more than $16 million this year.

Some Democrats on Tuesday accused the Republican governor of overstating the benefits of his gambling deals to win legislative approval of them and to help derail two November initiatives that would have expanded gambling without his participation.

They also cast doubt on whether the bulk of the money, most of it earmarked for transportation projects, would materialize anytime soon.

“We’re gambling on gaming too much,” said state Sen. Tom Torlakson (D-Antioch), who chairs the Transportation Committee. “Rolling the dice doesn’t provide the certainty transportation planners need.”

Schwarzenegger, relying on his negotiators’ estimates about the benefits of the gambling deals, made his prediction after signing deals last June granting five Indian tribes the right to unlimited expansion of slot machines. He approved deals with four other tribes later in the year.

In exchange, the tribes agreed to help the state out of what was a $14-billion shortfall. Tribes with casinos would use their new financial clout to secure a $1-billion bond for state transportation projects and make annual payments to the state based on the number of slot machines they added to their casinos.

Administration officials, contending that tribes would add the highly profitable devices rapidly, predicted last summer that payments would amount to $300 million, plus the $1-billion bond in the current fiscal year.

The administration revised that projection in Schwarzenegger’s new budget proposal, released on Monday. The reduction reflects Finance Director Tom Campbell’s goal of presenting an honest budget, said Finance Department spokesman H.D. Palmer.

“Any assumptions in this budget are going to be conservative and defensible,” Palmer said.

Finance Department analysts determined that the tribes were expanding their gambling operations more slowly than the administration had predicted. As a result, they concluded, the state stands to receive $16.3 million from slot machine expansion in the current fiscal year, and $34.3 million next year -- not the $300 million in the budget approved last summer.

The analysts said tribes that have signed deals with the administration won’t add sufficient numbers of slots -- roughly 8,400, or twice the number they now have -- to exceed $100 million in payments until the 2008-09 fiscal year.

Assemblyman Jerome Horton (D-Inglewood), who chairs the Assembly committee with jurisdiction over gambling, had predicted last year that the money would fall short.

“He misled the people,” Horton said Tuesday, referring to Schwarzenegger. He added, “The governor is intentionally overstating the amount of revenue.”

Palmer dismissed allegations that Schwarzenegger inflated the benefits last year, saying the original numbers were based “on the best estimate of the administration at the time.”

At the same time, the Schwarzenegger administration’s goal of selling the $1-billion bond by the end of 2004 -- and thus helping to solve the state’s budget problems quickly -- was stymied when horse-racing tracks sued to invalidate the first five compacts.

Track owners, who hope to end tribes’ exclusive right to operate slot machines in California and install them at their facilities, contend the compacts violate the state Constitution. Attorneys representing the state say the bonds cannot be sold until the suit is resolved.

Finance Department analysts do not believe the suit, which was filed last September in Oakland, will be resolved by June 30, when the current fiscal year ends, and do not anticipate the state will receive the money this year.

They do, however, expect that the state will win the suit, which would open the way for sale of the bond in the 2005-06 fiscal year. What’s more, they are counting on the bond yielding $1.2 billion.

Treasurer Phil Angelides, whose office must sell the bond to investors, estimates the state will receive “closer to $800 million.”

“The governor’s budget has been rife with both borrowing and fictional borrowing and revenue,” said Angelides, a Democrat considering running against Schwarzenegger for governor next year.

Schwarzenegger struck the deals with the tribes as he campaigned last fall against the two gambling initiatives, both of which lost by a landslide.

Schwarzenegger’s predecessor, Gov. Gray Davis, struck deals with more than 60 tribes in 1999 and capped the number of slot machines any one tribe could operate at 2,000.

Schwarzenegger has offered to authorize tribes to expand the number of slot machines as long as they make payments to the state.