Los Angeles Business Journal: You can bet there'll be more gambling

For decades, the closest slot machines were Las Vegas and Reno. Then came casinos in Indian reservations a couple of hours away. And now, thanks to a flurry of proposed initiatives, there could be thousands of slots available within just a few miles.

Vying for the November ballot are four initiatives that would expand slot machine operations in California, either on Indian lands or at existing card clubs and racetracks.

In addition, Gov. Arnold Schwarzenegger, who needs to plug a $15 billion budget deficit, has reopened negotiations with Indian tribes in an attempt to extract more of their casino winnings for the state. In return, the tribes--which claim sovereign status under federal law--would likely receive permission to operate thousands more slot machines.

Finally, Indian tribes are fighting battles in the courts and with local governments over whether they can expand their gaming operations off their existing reservations and into more urban areas.

"You are definitely going to see more gambling and slot machines in California," said Mark Nichols, professor of economics at the University of Nevada, Reno who has studied gaming issues. "The major question is whether it goes to the tribes, or to the card clubs and racetracks or both."

Budget gambit

What's mostly driving the activity is the state budget crisis, which has prompted both state and local governments to seek additional revenues.

As in other states, politicians in California have looked to gaming as a less-painful way to gap revenue shortfalls than cuts in services or higher taxes. But here, as elsewhere, such easy answers often come with unintended consequences--crime, lower property values and infrastructure problems.

"This is going to bring casino gambling closer to major cities in California," said Bill Thompson, professor and casino industry expert from the University of Nevada, Las Vegas.

The biggest fight is likely to be over whether card clubs and racetracks will be allowed to move into casino-style gaming.

Until recently, card clubs and racetracks enjoyed a monopoly on gambling in the state. However, they were limited to card games and could not offer slot machines and other more lucrative forms of gambling.

But two statewide votes in the 1990s allowed slot machines and casinos onto Indian tribal lands. Over the last five years, huge casinos have sprung up in Palm Springs, Temecula and northern San Diego County.

"These Indian casinos came in and took a lot of revenues away from card clubs," said I. Nelson Rose, a law professor at Whittier Law School in Costa Mesa. Rose has just signed on to help card clubs and racetracks in their effort to put a measure on the November ballot to regain some of those revenues.

Specifically, the measure says that if Indian tribes do not agree to turn over at least 33 percent of their winnings to the state, up to 30,000 slot machines would be allowed to go into five racetracks and 11 card clubs in major coastal urban areas. Nearly half of the revenues generated from these machines would go to county education departments for schooling foster children; the rest would go to local governments for police and fire services.

Both of Los Angeles County's major racetracks--Santa Anita and Hollywood Park--are included in the measure. So are six card clubs: the Bicycle Club in Bell Gardens, the Commerce Casino in the City of Commerce, the Crystal Park Casino in Compton, the Hawaiian Gardens Casino in Hawaiian Gardens, and the Hustler Casino and Normandie Casino in Gardena.

Under a complex formula, all other existing card clubs--there are at least 100 in the state--would be allowed to place slot machines at the 11 card clubs named in the measure. These smaller clubs would then receive the income from the slot machines they placed. The idea is to limit the geographic spread of slot machines, according to campaign spokeswoman Shelly Sullivan.

Funding shortfall

While card clubs and racetracks are expected to provide the financial backing for the measure, the named sponsors of the initiative are two county sheriffs: Lou Blanas of Sacramento County and Lee Baca in L.A. County.

"We have a very serious local funding shortfall," said Lt. Glenn Powell, assistant to Sacramento County Sheriff Blanas.

Opponents of the measure, called the "Gaming Revenue Act," say the real aim is to break the monopoly on slot machines now held by the Indian tribes. "It's all a sham, talking about money for foster children," said Dave Fogerty, a spokesman for the opposition, which is allied with Indian interests.

"This only pays for additional personnel. It doesn't pay for all the additional equipment and infrastructure that will be required to service these new mega-casinos. That's why the California Police Chiefs Association and the County Sheriffs' Association have opposed the measure," he said.

Last week, the Gaming Revenue Act became the first gaming-related measure cleared by the state to enter into circulation; it needs 600,000 signatures to qualify for November.

Passage of this or any of the other initiatives is no sure thing. Much will depend on whether Schwarzenegger can prompt the Indian tribes to contribute a greater share of their revenues to the state.

Schwarzenegger said he expects the tribes to pay a cumulative $500 million during the 2004-05 fiscal year, nearly four times the current $130 million annual collection. He also has said he would like to see Indian tribes pay about 25 percent of their gaming revenues to the state, a figure in line with what tribes pay in Connecticut and New York.

(Indian tribes are not required to report the amount of money they take in. Estimates generally range from $4 billion to $6 billion statewide, which would put Indian tribe payments at around 2 percent to 3 percent of total gaming revenues.)

Meanwhile, in what many saw as a negotiating ploy, the Agua Caliente Band of Cahuilla Indians last month introduced an initiative that would require Indian tribes to pay 8.84 percent of profits to the state, the same percentage that corporations pay. In exchange, Indian tribes would be allowed an unlimited number of slot machines. Currently, Indian tribes operate 52,000 slot machines statewide.

Agua Caliente Tribe Chairman Richard Milanovich said at the time that the initiative was designed to ensure Indian tribes pay what he termed a "fair share" of their gaming earnings to California.

But critics say the proposed initiative would only generate slightly more revenues for the state, while vastly expanding the monopoly on casino-style gambling that Indian tribes now enjoy.

"The Agua Caliente proposal would basically have the tribes paying chump change," said Cheryl Schmidt, co-director of Stand Up for California, a Northern California citizen group opposing the expansion of gambling. "Not only that, it would set these terms in stone for 99 years."

Schmidt last week put forward her own initiative, which would require tribes to pay more than 8.9 percent of their profits to the state. The exact amount would be determined in negotiations with the governor. The tribes would be allowed to retain their monopoly control over slot machines. However, if they wanted to expand their operations, they would have to agree to pay for their impact on local infrastructure and services.

"This is a much more moderate alternative that would still allow for expansion and would generate more revenues for state and local governments," Schmidt said.

So far, Schmidt's initiative appears to be a long shot to qualify for the November ballot. She admitted last week that she has no financial backing to fund a signature-gathering drive. "I'm hoping to get some major groups to sign on," she said.

Another proposed initiative would legalize casino-style gambling in Barstow and Oakland. This "pilot program" would last 28 years; if successful, this legalization of gambling could go statewide. This measure is now waiting legal clearance from the state attorney general's office before it can go into circulation.

Meanwhile, Indian tribes have been trying to expand their operations into urban areas. Last week, the Agua Caliente band received approval from the Palm Springs Planning Commission, despite noisy opposition, for a $1 billion resort and casino destination development in downtown Palm Springs.

Nichols believes that voters will support only a limited expansion of gambling.

"My gut feeling is that the voters won't want slot machines everywhere," he said. "I think many voters believe the permission they gave the Indian tribes has been taken way too far."