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Who's Watching the Casinos?

Indian Gaming Is Transforming California Into the World's Gambling Mecca. Does Anyone in Sacramento Care?

Fred Dickey

last wrote for the magazine about Levi Strauss.

Copyright Los Angeles Times Sunday Magazine

February 16, 2003

It's a beautiful Sunday evening in December on the edge of Temecula. Malls nearby are packed with customers, and so is a new $262-million gambling casino and resort owned by the Pechanga Band of Luiseno Mission Indians.

A few years ago, California's Indian casinos were shabby and claustrophobic. But this one wouldn't be out of place on the Las Vegas Strip. Certainly, more than one casino on the strip would happily trade crowds with it--even if certain Vegas-style games, including roulette and craps, aren't allowed on Indian lands in California.

The Pechangas built this the size of a football field. The crowd seems more Laundromat than Las Vegas. Some have kids in tow. Hundreds of people pull the handles of hundreds of slot machines, and others move their heads in a slow circular motion watching the tantalizing ball of a roulette wheel.

Roulette? Wait a minute. Isn't that game specifically forbidden by the state Constitution?

The Pechangas have a ready answer: This game is not "roulette." Well, yes, it does have a roulette wheel and a ball. Yes, the wheel spins, and the ball bounces and lands in a colored, numbered slot. The odds are the same, and the sign above the table says: Roulette.

But the Pechangas say it is not roulette. They say it's a "slot machine," and cite a recent ruling by the National Indian Gaming Commission, two of whose three members are Indians. The commission determined that this roulette is not that roulette because no human being spins the wheel or rolls the ball. Those tasks are performed mechanically. Hence, it is not "roulette." As if ice cream ceases to be ice cream if the crank is turned electrically rather than by hand.

Alarmed by the commission's interpretation, which has led to similar non-"roulette" roulette games on Indian lands around the nation, the attorneys general of 21 states and the Virgin Islands have opposed the interpretation, arguing that it has no foundation in law.

The situation suits the Indians just fine, says Guy Martin, a Washington, D.C., attorney who has represented both tribes and their opponents. "The tribes know that even if they eventually--and I stress eventually--lose these arguments in court, they will have enjoyed years of very rich revenues from these games. So, even if they lose years later, they still win."

In some ways, California's tribes could be seen as similar to many an American business enterprise--they behave aggressively and leave it to government regulators to draw the line. But what happens if the regulators aren't regulating? Those 22 attorneys general protesting roulette, for instance, do not include Bill Lockyer, the attorney general of the biggest Indian gaming state--this one.

It can't be for lack of interest. Indian tribes, now the largest single group contributing to state election campaigns and initiatives, gave $466,700 in the past two years alone to Lockyer's campaign bank account. That's a little less than half the $978,000 they gave to Gov. Gray Davis, the man Lockyer aspires to succeed. Lockyer declined to be interviewed for this article.

Davis, of course, is the official who negotiated and signed a gambling compact with 61 tribes three years ago, establishing the terms for Indian gaming. As the only tool at Davis' disposal for dealing with gaming on Indian lands--which have the status of sovereign nations--the compact could have required the tribes to send a share of the gaming revenues to the state treasury, as is the case in many states. It could have given the state stronger oversight of the casinos, to ensure the gambling was fair. It could have banned casinos in urban areas and forced tribes to abide by local zoning, environmental and water and sewer ordinances.

But it does none of those things.

Today, with not one nickel of gaming revenue going into the state's general funds, and California facing a budget deficit estimated at $26 billion to $35 billion over the next 16 months, Davis wants a share of the take. The compact reopens to negotiations in March as the Indians are invoking their right to new talks if they want to expand their operations--which they do. Davis says he'll ask that tribes turn over as much as $1.5 billion in revenues from their estimated $5-billion industry.

State taxpayers might rejoice that Davis and other state officials are at least talking about demanding money from the tribes. But as the Pechangas' roulette wheel suggests, the issues surrounding Indian gaming these days involve a lot more than simply money for the public treasury. In three short years, gambling on Indian lands has raised a numbing set of enforcement and regulatory problems, even if you wouldn't know it from listening to officials in Sacramento responsible for keeping watch.

Under the terms of the compact, each California tribe bears primary responsibility for policing its casinos. However, the state does have limited powers to monitor the gaming in its 51 Indian casinos. The California Division of Gambling Control and state and local police are responsible for investigating crimes in the casinos. In addition, Gambling Control, with a staff of 122, is supposed to check the number and types of games the tribes offer and to conduct criminal background checks on "key" casino employees to help determine their fitness for employment. The division has the authority to conduct undercover investigations and respond to criminal complaints from gamblers who believe they have been defrauded, says Peter Melnicoe, chief counsel of the California Gambling Control Commission.

Harlan Goodson is director of the Division of Gambling Control, which is part of Lockyer's Justice Department. Here are portions of an interview with him last month:

Question: In the last year, how many investigations has your office initiated on fraud or theft?

Goodson: "I don't know the answer to that question. We have not initiated any investigations in fraud or theft."

How many hours of undercover work have you done?

"I'm not going to answer that question."

How many arrests have been made relating to Indian gambling?

"That's a local issue. You'll have to check with the sheriff."

How many complaints of fraud have come from patrons or employees?

"That's a local issue. I don't know."

How many key employees are in the tribal casinos?

"Somewhere between 10,000 and 15,000."

How many names have been turned over to you by the tribes for checking?

"I think we've got about 1,200 applications in house."

How many completed investigations have been turned over to the [California Indian Gambling] Commission?

"Something in the neighborhood of 300."

So, what is the problem with the gap there?

"I don't understand the question."

In other words, in the last three years, you've got 10,000 to 15,000 to check, you've done 1,200, and only 300 have been turned over as completed.

"I don't have the staff to handle that. They were dumped on us all at once."

On May 7 and May 18, 2001, did you send letters to all the gambling tribes to advise them you were going to be visiting them to do an updated count of gaming devices and review of compliance?

"I don't know."

If you had done that, would that have been proper?

"If I had done it, it would have been proper."

The compact says you only have to notify the tribes when you reach the door. Correct?

"I don't have the compact in front of me."

Doesn't it make sense in law enforcement, that if you're counting machines to make sure there are not too many, you don't tell them you're coming, so they can't remove them?

"I don't know whether that makes sense or not."

Goodson time and again referred questions to local law enforcement officials, arguing that they have primary responsibility for enforcing gambling laws in casinos--even if his division has more expertise. However, here's how a typical local law-enforcement agency sees the equation.

"If I'm a patrol commander and a deputy gets called to a casino, I'm going to have them there to preserve the peace," says Capt. Earl Wentworth of the San Diego County Sheriff's Department. "If there's a gambling crime that we suspect has been committed by the casino, unless it's real obvious, that's something that would require an investigation by someone with real expertise."

Nicholas Pileggi, best-selling author of "Casino" and "Wiseguy: Life in a Mafia Family," has met many characters in the gambling world. Although he'd generally match the honesty of gambling types against many "respectable" businessmen--say, Enron executives--he believes the rapid spread of gambling has stretched casino management talent thin. It's an industry that cries out for strong regulation, he says, for there never seems to be a shortage of crooked dealers, pit bosses and "cross-roaders" [crooked players] always happy to make a dishonest buck.

In New Jersey and Nevada, the two states where legalized gambling flourished long before Indian gaming began, state governments recognize the potential for abuses. To address them, government not only polices illegality in the industry but also monitors gaming practices, such as advertising claims, and even decrees a minimum payout on slot machine dollars. If a casino in Nevada, for example, touted a 98% payout on its slots--meaning slots pay 98 cents for every $1 bet--the state would inspect to ensure the claim was valid.

Indian gambling has no such oversight--although the issue certainly was negotiable in California three years ago. No one tells the tribes what the payouts must be, and no outside agency monitors their claims. "If I played slot machines in Nevada or New Jersey, I would be paid back at least 90%, and maybe up to 96% or 97%," says Tony Hope, chairman of the National Indian Gaming Commission in the George Bush and Bill Clinton administrations. Both Hope and Brian Sandoval, once chairman of the gambling commission in Nevada and now that state's attorney general, estimate that the payout in some California Indian casinos could be as low as 70%.

Gambling interests in California deny that. Howard Dickstein of Sacramento, a leading tribal attorney, calls the 70% estimate a joke. "These are remarks born of ignorance. I know of no tribe in the state that doesn't pay back at least 90%."

Asked about the payout rate of the Rincon band's casino in San Diego County, the tribe's chairman, John Currier, sounds somewhat astonished by the question. "I can't tell you that," he says.

So what is the payout in California? Seventy percent? Ninety percent? Who knows? Which is exactly the point. Neither gamblers nor the Indians can point to an independent voice to confirm the payout levels of the 2,000 slot machines each tribe is permitted under the compact.

On paper, the role of chief overseer of casinos might seem to fall to the National Indian Gaming Commission. But Phil Hogen, the new chairman of that agency, says that it has little day-to-day control because those duties are to fall to the tribes themselves. Besides, he has a budget of just $8 million for the entire nation, and his California office has a staff of only five.

Under the California compact, each tribe is required to form an internal regulatory agency to police itself, to decide who counts the money, who watches the house, who watches the players, and, with so many small tribes hiring outsiders to manage their casinos, who watches the bosses. Some call that self-regulation, others call it an oxymoron. At least two tribal agencies consist of a single person. Of those, one is a former Yolo County Board of Supervisors chairwoman. She serves as the sole watchdog for the Cache Creek casino near Davis.

The final levels of regulation come from two state agencies. One, the California Gambling Control Commission, is mainly administrative. The other is Goodson's division. Goodson says his staff is too small to carry out the burdens placed upon it, which is why at this point, nearly all of the 10,000 to 15,000 "key" employees at casinos could have criminal records and the state wouldn't know it.

A private New York gambling consultant, Eugene Christiansen, whose clients have included gaming tribes nationwide, acknowledges the lack of strong regulation: "I would have to say that's true, and it's unfortunate. This is not going to win me any friends in Indian country, but I believe strong regulation is good for all concerned."

Asked if he knows any tribes that have been found to cheat, he says: "I'd rather not go into that. Let me put it this way: If the only economic engine you have on your reservation is a 7-Eleven store, the potential for trouble is small. If you're suddenly handed an economic engine that's pumping out hundreds of millions of dollars, a lot of things change."

One of the leading critics of the present regulatory system is Wayne Smith, a member of the Sioux nation who recently left the Bureau of Indian Affairs as the No. 2 person. Smith believes that the solution to ineffectual regulation would be a joint commission composed of federal, state and tribal representatives who have the same powers of the Nevada or New Jersey gaming commissions. He says the tribes can't be left to regulate themselves. "It's not about race," he says, anticipating complaints from the tribes. "It's about human nature and money--a whole lot of both."

Tribal attorney Dickstein counters that more regulation isn't needed because there is "no evidence statewide that challenges the integrity of the gaming operation. No examples of abuses that anyone can point to."

"That's the problem," Smith replies. "If there are no complaints, that means there is no one doing any policing."

The state official who pushed hardest for tighter regulation of tribal casinos in recent years was John Hensley, an Indian who is the departing chairman of the California Gambling Control Commission. "Hensley was the one person in Sacramento who stood up to the casino lobby," says Barb Lindsay, an anti-gambling activist from Thousand Oaks.

But Hensley announced Jan. 7 that he would soon leave the post for "personal reasons," a move that will clearly satisfy many tribes. As Pechanga tribe Chairman Mark Macarro says: "I'm elated. It's good that he's going. His main failing was that he refused to accept that state regulators are a second tier. Regulation is a tribal responsibility."

Interviewed before he resigned, Hensley said the commission has no tally of consumer complaints. Those that come to his office are immediately referred to the individual tribes, with copies sent to Goodson's division. If a crime were alleged, he said, the Division of Gambling Control would have the authority to investigate. But as Goodson says, the division hasn't started any investigations.

Before Indian gaming exploded in California, few people aside from casino interests foresaw that the industry would evolve from those shabby slot-machine dens far removed from urban areas to enormous resorts complete with golf courses, hotels, restaurants, Vegas-style shows, shopping and more. Skeptics who feared rampant growth were assured by tribal leaders and state officials alike that the industry would be held in check, that casinos would be restricted to distant Indian lands, that casinos would be good citizens in their communities.

Since voters approved the gaming compact in March 2000, however, tribes have tried to swap land for casino sites much closer to cities. In the Los Angeles basin, two factions of the Gabrielino Indians are attempting to push through federal legislation so they can be recognized as tribes, presumably so that they can open L.A.'s very first tribal casinos.

The Upper Lake Pomo tribe is attempting to put a casino within a mile of the state Capitol, and the Scotts Valley Pomo tribe is seeking land for a casino at the port of Richmond. Fifty-four tribes that have been dormant for years are seeking federal recognition, many for the obvious purpose of getting into the gambling business.

Elsewhere, conflicts are raging between local communities and nearby casinos, who enjoy the Congress-created sovereignty unique to them. Indian tribes "have no obligation to work with local governments, and in general, they don't because we have no legal recourse," says Valerie Brown, a three-term assemblywoman who's now a Sonoma County supervisor. "They say they're helping by providing jobs and by giving money to charity, which is welcome, even though the jobs are mainly entry level and offer few benefits. But they pay no taxes, and they absorb services. So here we have a government that pays nothing into the community or the state in which they reside."

For instance, last March 16, about 50 deputies, city police and Highway Patrol officers were called to the Morongo casino in Riverside County to break up a brawl at an "Ultimate Fighting Championship" event. Taxpayers--not the tribe--had to pay the tab. Several of the 200 or so brawlers from the crowd of 3,500 were hospitalized. "There were multiple agencies involved, so your guess is as good as mine" as to the cost, says a spokesman for the Riverside County Sheriff's Department.

In Sonoma County, the Dry Creek Rancheria caused a furor by building a casino on property that does not yet have federal status as an Indian reservation. The Indians, it has been charged, have also rushed construction so precipitously that silt and sediment have been pushed into a stream inhabited by endangered steelhead trout, and have cut native oaks and madrones from steep slopes, thus creating the danger of flooding and erosion.

In sparsely populated western Yolo County, residents are fearful of accidents on an unlit two-lane road designed for rural traffic that now funnels thousands of cars into the Rumsey Tribe's casino. A Caltrans review has determined that the road has twice the number of vehicular wrecks as on similar roads in California. Additionally, the tribe has applied for a liquor license that residents believe will greatly increase highway dangers.

In suburban San Diego County, the Jamul Indians are considering a casino on a six-acre "reservation." Neighbors protest that there isn't enough room for parking or enough water, and that the roads are inadequate. Some tribal elders who live on the land don't want the casino built. However, nonresident tribal members are forging ahead and are trying to buy land adjoining the six acres. If that fails, they say they might go high-rise.

In Wildcat Canyon, in the high-desert rural area east of San Diego, ranchers claim the Barona tribe is pumping excessive ground water to keep its new casino-resort golf course lush. As a result, several neighbors say they are forced to truck in water at great cost. The tribe at first discounted reports of wells drying up. Recently, however, it has attempted to buy additional water from the city of San Diego for its resort.

The Chumash tribe in the Santa Ynez Valley of Santa Barbara County is fighting over a proposal to place a sewer plant for its casino upstream from main wells. Local residents say the plant would endanger the water supply. The tribe also has threatened a federal lawsuit against the local airport for allowing planes to fly over the reservation and its casino, thus violating the tribe's "airspace."

I'm a paraIf the Chumash or the Barona or the Jamul or any of those tribes were typical U.S. businesses, they would have to conform to local law--and ease the strain on public services by paying taxes and making traffic, environmental, water and sewer or other concessions before being allowed to build. The only possible financial relief is a Special Distribution Fund that the Indians began contributing to last October as part of the compact. The fund is to help pay for regulation, to defray the environmental effects of casinos and for undetermined other purposes. But the fund is projected to generate less than $100 million per year, a sum that could not begin to cover the statewide costs.graph. Click once to begin entering your own content. You can change my font, size, line height, color and more by highlighting part of me and selecting the options from the toolbar.

What's more, many local officials doubt they will ever see the money because it is up to the Legislature to divide it up. "They're going to find a way to take back 90 cents of every dollar," says Mike McGowan, a Yolo County supervisor. "By the time they get through messing this up, there's going to be no real money left."

McGowan says counties need collective muscle of their own to deal with tribes--muscle that could be negotiated into the compacts. "When they can pick us off singly on their casino projects, with their power and money, we don't stand a chance."

Toward that end, the California State Association of Counties intends to ask the governor to include several protections in revised compacts: Casino-operating tribes should be required to seek approval for and should pay a fair share of off-reservation impacts; should be subject to local jurisdiction over health and safety issues; should pay a fair share of utilities and other services; and should allow state court enforcement of agreements.

Tribal interests say that will never happen. "Putting tribes under state land-use regulations is a nonstarter," Dickstein says. "There is no way any tribe is going to give up authority over its own activities. The way to go is for each tribe and county to establish voluntary relations on a government-to-government basis . . . just like treaties among nations."

"The tribes will never submit to [state environmental laws]--absolutely not. That would kill us," says Currier of the Rincon band. "We've dealt with local governments just fine, and we've proven to be a good citizen, within reason. The truth is, we're poor tribes who don't have tax bases or anything else. So when counties come around, it's like we're the Salvation Army or something. It's a little frustrating."

When the state of Connecticut counted the reciepts to its treasury for 2001, there was a $350.4-million check from Indian casinos. The money has helped ease that state's budget crunch from the nationwide economic downturn. California should be so lucky.

California projects a deficit of at least $26 billion through the 2003-04 fiscal year, but so far the state can't count on a cent from Indian gambling. It's not as if the Indians can't afford to help. In the past five years, gambling tribes found enough spare change to give $122.6 million to state candidates and ballot initiatives, far more than any other special-interest group in California.

"What we're talking about here are huge expenditures," says San Francisco attorney Leo T. McCarthy, a former Speaker of the Assembly and three-term lieutenant governor. "We're talking about something enormous. It's intimidating. It silences people who might have questions, even among those who support the tribes."

Under federal law, the state can't tax casinos. But Davis, drawing on the strong bargaining powers given to governors by the federal Gaming Regulatory Act of 1988, could have demanded a fee structure that would pay part of the gambling proceeds to the state, just as governors of many other states have done. In addition, California tribes were desperate to get a compact in 1999 because they were operating many slot machines illegally, and the federal government was threatening to shut them down.

But Davis failed to capitalize. "What Davis did was basically leave a couple of billion dollars on the table," says William Eadington, an economics professor at the University of Nevada, Reno, and a specialist on the gambling industry. "In their negotiations, the tribes got a statewide monopoly, and Davis got nothing in return."

The governor declined to be interviewed for this story, but recently, in response to questions from reporters, he explained why he didn't seek income from slot machines in the 1999 talks. "That was not uppermost on anyone's mind. We obviously were doing well financially in 1999 and 2000. Raising taxes on anyone seemed unnecessary at that time."

Fred Jones is an Auburn attorney who was a legislative chief of staff for Republican Assemblyman Bruce Thompson of Fallbrook in 1999. He remembers the situation differently. "The compact was loaded with ambiguity, and that was deliberate. You couldn't even figure out how many slot machines it authorized--was it 113,000, as the Legislative Analyst's Office said, or 43,000, as Davis claimed?" Jones says that when the compact was sent to the Legislature, "Passage was so greased that all the rules were waived so this could slide through both houses in three days with almost no opposition. There was not public scrutiny. The press totally went to sleep on it."

At least one Capitol-watcher agrees. Dan Walters, political columnist for the Sacramento Bee, says, "I think the idea was to leave the compact as fuzzy as possible so the tribes essentially would be the interpreters of what to do and what not to do." He says the tribes make a tough adversary. "In Sacramento, the tribes never lose. They never lose. They always get their way."

However, Walters thinks Davis might be more demanding in the new negotiations, scheduled to begin next month. "Davis is a very unpopular man, and I think there's a piece of him that wants to leave a more positive legacy," Walters says.

Davis seems optimistic. But the $1.5 billion in revenue from Indian gaming written into his budget will be a tall order, given that it represents about a third of current Indian gambling's gross revenues. Also, his hand will be much weaker in the coming negotiations because the topic will be how much the casinos are allowed to expand, not the broader issues of three years ago.

Pechanga Chairman Macarro says Davis will never get $1.5 billion. "Hogwash. It's a nonstarter. It's an insult to the intelligence of all California Indians. He did that without talking to any tribe in the state, as far as I know, and I've talked to dozens of tribal leaders. He wants to stick his hand in what he thinks is a deep pocket. Well, his hand is going to get cut off."

None of this, of course, takes into consideration the money the Indians are supposed to collect in state and local sales taxes. Some tribes don't charge the tax, which is a lure for shoppers. Others do collect it but refuse to turn it over to the governments. If you stay in the 10-story, 522-room Pechanga hotel, you'll pay $149 plus an additional $12.67 in occupancy tax. If you buy the attractive $84 turquoise bracelet at the gift shop, add on $6.72 in sales tax.

Federal courts have ruled that California can require tribes to collect the taxes. But those courts have not made clear how the tribes can be forced to then turn it over. Since the state can't sue the tribes on nongaming matters, it remains at an impasse.

So the tribes are collecting the money and keeping it, and will continue to do so unless Congress changes the law. "It goes right into our own tribal government fund, straight in," Currier says. "It's our sovereign right to tax."

How much money is at stake? The state doesn't know, and the tribes aren't saying. Mike Bradford, president of the Lakeside Inn & Casino at Lake Tahoe, Nev., says that, based on how revenue is usually divided in casino operations, California is probably losing out on upward of $25 million per year in sales and hotel taxes.

"Why should [taxes] go to the state?" Macarro asks. "This is our business. Tribes are governments. It's axiomatic that governments don't tax other governments."

Well, if that's axiomatic, why isn't this? In California, all governments are barred from giving campaign money to candidates or to influence initiatives. But tribal governments can contribute. They are giving more money than any special interest in state history--and there is only more to come. Gaming experts predict that California's annual casino gross will soon reach $8 billion to $10 billion. "California in the very near future will be the gambling capital of the world--not of the U.S.--of the world," says McCarthy, who also had served on the National Gambling Impact Commission. "Nevada will become merely a California gambling satellite."

The irony is that as the gaming tribes prosper, the majority of Californians of Indian descent aren't seeing a penny from the casinos. The state estimates that California has 333,000 residents of Indian descent. Of those, about 36,600 are sharing the wealth--while also still receiving checks from the federal government. For instance, the San Manuel band in San Bernardino County is reported to make $900,000 per year per member from gambling. It also received $172, 825 in federal assistance in fiscal 2001-02.

Talk like that arouses insecurity and anger among the tribes, which are not yet accustomed to their newfound wealth, and historically have good reason to dislike government. As attorney Dickstein says: "Anytime the tribes get anything, there's a sense they've grown too big for their britches. They used to be too poor, but now they're too rich.

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