The state of California cannot force American Indian tribes to share gaming profits to solve the state's budget deficit, the 9th U.S. Circuit Court of Appeals said on April 20th, 2010.
In an astonishing blow to Governor Arnold Schwarzenegger's moves when dealing with Indian tribes wanting casino facilities, a divided three-member panel of the appeals court said that Gov. Schwarzenegger cannot ask for money for California's general fund without giving something in return because that move will amount to an illegal tax.
The court upheld a 2008 decision by a federal judge in San Diego that the governor was not dealing fairly with North County's Rincon Indian band. Rincon Chairman Bo Mazzetti said that this is big message to California officials that their days of trying to threaten Indian tribes around are over.
In the decision, Judge Milan Smith Jr. from Pasadena compared California's efforts to those of the federal government when it acquired the land from the Sioux tribe after Lt. Col. George Custer reported discovering gold in the Black Hills of South Dakota.
Judge Jay Bybee said in his dissent that Indian tribes with casino facilities in the state and around the country have agreed to share gaming revenue with casinos, just as what the governor was seeking.
Jeff Macedo, a spokesperson for Gov. Schwarzenegger said that they will seek to have the decision evaluated by a bigger panel of 9th Circuit judges. Legal analysts disagreed on whether case should be reviewed by a bigger panel or by the U.S. Supreme Court.
The decision has big effect on Schwarzenegger, who promise to make the tribes pay their fair share for casino expansions during his campaign. Matthew L.M. Fletcher, a law professor at Michigan State University who follows Indian legal issues in the U.S., said that it is all about millions of dollars to California.
The decision could also affect other casino talks. The issue comes down to what kind of agreement that states and tribes can make. The federal 1988 IGRA (Indian Gaming Regulatory Act) laid out how Indian tribes can set-up Las Vegas-style casino facilities.
It stated that such gambling needs the approval of the state, but that states cannot impose taxes on the profits of the tribes. Tribal governments cannot be taxed nor can their gaming operations, like casinos. The law also said that if talks for gaming compacts fail, Indian tribes can file a lawsuit to force a deal.
Despite the no-tax condition, tribes and states have entered into gaming compacts in which tribes have paid part of their earnings in exchange for permission to open casino facilities. The federal government has approved such profit-sharing agreements. Fletcher said that everyone agrees that such set-up is a violation of the IGRA but they turn a blind eye because that is the only to do gambling.
He added that calling the idea that those gambling payments are not tax "a legal fiction". In the first gambling compact set up by the state of California in 1999, Indian tribes with casino facilities paid in two funds-one for the Indian tribes with small casino establishments or no gaming and the other for communities near casinos operating at that time. No money went into the general fund.
That was a big problem for Gov. Schwarzenegger, who won in 2003 in part by protesting that the tribes do not pay state taxes like other California businesses do. He assumed office just as Rincon and other Indian tribes, in the midst of a gaming expansion boom, were hoping to increase the number of slot machines that they offer.
Some Indian tribes agreed to the compact that the state proposed, which called millions of dollars for the general fund. Others disagreed with such set-up. In the talks with the Rincon tribe, California said that it wanted money for the general fund.
It said that it would give Rincon the exclusive right to feature gambling-although other Indian tribes already have that right-and offered to give Rincon more slot machines or a longer gaming compact. Rincon said that it did not want to contribute to the general fund, but would pay for the casino's effects on its neighbors-including money for the roads, additional police officers and fire protection.
As for California's offer, Rincon said that they and the tribe already possessed a monopoly on Las Vegas-style gaming indicated in the state constitution, so California's offer was not a true deal. It also said that federal law prevented California from demanding contributions for the general fund in exchange for additional slot machines. The profit-sharing deal was an unacceptable agreement.
In exchange for adding nine hundred slot machines to the 1,600 machines it had at its Harrah's casino facility, the tribe's yearly income would improve by $2 million dollars, to $61 million dollars from the $59 million dollars it earned in 2005, according to an expert hired by California.
In contrast, the state's portion would go from nothing to $38 million dollars. Mazzetti said that federal law expects a win-win situation in tribal-state gaming compact talks-not the state wins and the tribe loses.
If the decision stands, California and the Rincon tribe would be forced into a sixty-day negotiation period. If they cannot agree on a gaming compact, an arbitrator would pick which is the best final offer from both sides.