Casinos: Native American Tribal Casinos

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chapter 5

Indian Gaming: Final Impact Analysis (2004), a report issued by the National Indian Gaming Association (NIGA), reported that casinos operated by Native American tribes made $16.7 billion during 2003. Commercial casinos during that same year made $27 billion, as reported by the American Gaming Association (AGA) in 2004 State of the States: The AGA Survey of Casino Entertainment. Tribal casinos, therefore, had 38% of the casino market during 2003. This percentage is expected to continue to grow throughout the first decade of the twenty-first century.

According to the U.S Census conducted in 2000, more than four million people in the United States (approximately 1.5% of the total population) identify themselves as Native Americans. These individuals belonged to more than five hundred federally recognized tribes. In 2003 more than two hundred tribes were engaged in gaming enterprises. The NIGA reported in Indian Gaming that more than eighteen million Americans visited tribal gaming facilities in 2002. According to Harrah's Survey 2003: Profile of the American Casino Gambler, Native American casinos were the top casino destination for residents of Arizona, California, Connecticut, Florida, Massachusetts, Minnesota, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Washington, and Wisconsin.

Although tribal casinos are being operated throughout much of the United States, they are not welcome everywhere. In 2003 the Passamaquoddy and Penobscot tribes of Maine held a successful petition drive to put a casino referendum on the November 2003 ballot. The referendum was defeated by Maine voters by a two-to-one margin.


The growth of tribal casinos can be traced to the late 1970s, when Native American tribes began to operate bingo halls to raise funds for tribal purposes. Tribes in Florida and Wisconsin tried to open high-stakes bingo games on their reservations. Bingo games were legal in those states but subject to restrictions on the size of the jackpot and how often games could be held. The Oneida Tribe of Wisconsin and the Seminole Tribe of Florida took their respective states to court, claiming that the tribes were sovereign nations and not subject to state limitations on gambling.

In 1981 the Fifth Circuit Federal Court of Appeals ruled in Seminole Tribe of Florida v. Butterworth (658 F.2d 310) that the tribe could operate a high-stakes bingo parlor because the state of Florida did not have regulatory power over the tribe. In other words, the tribe is a sovereign governing entity that is exempt from state regulations. A similar ruling was issued in Oneida Tribe of Indians v. Wisconsin (518 F. Supp. 712). Both cases concluded that the states' gambling laws were regulatory (civil) in nature rather than criminal, because the states already allowed bingo games to take place.

Other tribes also sued, and the issue eventually reached the U.S. Supreme Court, which ruled in February 1987. In California v. Cabazon Band of Mission Indians (480 U.S. 202), the court decided that California could not prohibit a tribe from conducting activities (in this case, high-stakes bingo and poker games) that were legal elsewhere in the state.

In 1989 the Bay Mills Indian Community opened the King's Club in Brimley, Michigan; it was the first Native American gambling hall to offer slots and blackjack games instead of just bingo.


The U.S. Congress passed the Indian Gaming Regulatory Act in 1988. This act allows only federally recognized Indian tribes to open gambling establishments on their reservations if the state in which they are located already permits legalized gambling. It set up a regulatory system and three classes of gambling activities:

  • Class I—Social gaming for minimal prizes and traditional gaming (for example, in tribal ceremonies or celebrations)
  • Class II—Bingo and bingolike games, lotto, pull tabs (two-ply laminated paper tickets with perforated windows concealing symbols or numbers), tip jars (lottery-like games played with preprinted tickets), punch boards (thick cardboard drilled with holes, each of which is covered with foil and contains paper imprinted with symbols or numbers), and nonbanking card games (such as poker, which is played against other players instead of the house)
  • Class III—Banking card games, casino games, slot machines, pari-mutuel betting, horse and dog racing, jai alai, electronic facsimiles of any game of chance, and any other forms of gaming not included in Class I or II

Class I gaming is regulated exclusively by the tribes and requires no financial reporting to other authorities. Class II games are allowed only if the state in which the tribe is located permits such gaming for any purpose by anyone. Class III games are allowed only if such games are already permitted in the state where the tribe is located. According to the U.S. General Accounting Office (GAO), the investigatory branch of Congress, court rulings have maintained that tribes can operate casinos in states that only offer state-run lotteries and charitable casino nights.

Both Class II and III operations require that the tribe adopt a gaming ordinance that is approved by the National Indian Gaming Commission (NIGC). In addition, Class III gaming requires that the tribe and state have an agreement, called a tribal-state compact (or treaty), that is approved by the secretary of the interior. A compact is supposed to balance the interests of the state and the tribe in regard to standards for operation and maintenance, the applicability of state and tribal laws and regulations, and the amount needed by the state to defray its regulatory costs. Tribes may have compacts with more than one state and may have different compacts for different types of gambling operations.


Tribal casinos are regulated at three levels of government: federal, state, and tribal. Federal regulation is performed by the NIGC, which "oversees the licensing of gaming employees and management and reviews tribal gaming ordinances." The NIGC also has enforcement powers. In fact, in June 2004 the NIGC issued an order of temporary closure against the Coyote Valley Band of Pomo Indians in Redwood Valley, California. The casino was allegedly operating Class III gambling devices without a compact in place with the state of California.

The federal government also has criminal jurisdiction over cases involving embezzlement, cheating, and fraud at tribal gaming operations, because such crimes are federal offenses.

State regulation is spelled out in the tribal-state compacts negotiated between the respective governments. Compacts cover such matters as the number of slot machines that may be operated, limits on types and quantities of card games that can be offered, minimum gambling ages in the casinos, authorization for casino workers to unionize, frameworks for how state and tribal regulators will work together, the length of the compact, public health and safety issues, compulsive gambling issues, the effects of tribal gaming on other state enterprises, infrastructure needs, dispute resolution, and how much revenue should be paid to the state and how often.

The tribes themselves are the primary regulators of tribal gaming. The NIGA, a trade organization for Native American casinos, reported in 2004 that more than 2,800 regulatory and enforcement personnel are employed by tribes and that more than $203 million was spent by the tribes on regulation of their industry during 2003.


Native American casinos must be a tribal endeavor, not an individual endeavor. In other words, a random group of Native Americans cannot legally start a casino. Only a tribe's status as a sovereign entity allows it to conduct gaming. A Native American tribe must be granted official federal recognition in order to be a sovereign entity.

The list of federally recognized tribes is maintained by the Bureau of Indian Affairs (BIA), an agency of the U.S. Department of the Interior. The most current list includes the names of 562 tribes. It was published on December 5, 2003, under the title "Indian Entities Recognized and Eligible to Receive Services from the United States Bureau of Indian Affairs," in the Federal Register.

Throughout history, tribes have received federal recognition through treaties with the U.S. government, via congressional actions, or through BIA decisions. Most tribes were officially recognized during the eighteenth and nineteenth centuries. Today, recognition can be achieved either through an act of Congress or through a series of actions known as the "Federal Acknowledgement Process." This can be very long and laborious, sometimes taking decades. Under federal regulation 25 CFR Part 83 a–g, there are seven criteria that a group of Native Americans must meet to be federally recognized as a tribe:

  • They must have been identified as an American Indian entity on a substantially continuous basis since 1900.
  • A predominant portion of the group must comprise a distinct community and have existed as a community from historical times to the present.
  • They must have maintained political influence or authority over their members as an autonomous entity from historical times until the present.
  • They must submit a copy of the group's present governing documents, including membership criteria.
  • The group's membership must consist of individuals who descended from a historical Indian tribe or from historical Indian tribes that combined and functioned as a single autonomous political entity.
  • The membership of the group must be composed primarily of people who are not members of an existing acknowledged North American Indian tribe.
  • The tribe must not be the subject of congressional legislation that has terminated or forbidden a federal relationship.

Federal recognition is extremely important to Native American tribes because tribes must be federally recognized to be sovereign entities and to be eligible for billions of dollars in federal assistance. The federal government has about fifty-four million acres of land held in trust for federally recognized Indian tribes and their members. In general, exemptions from state and local jurisdiction apply to land held in trust by federally recognized tribes. Even if a tribe does not have a land base, the federal government can take land in trust for the tribe once it receives recognition. This land is no longer subject to local jurisdiction, including items such as property taxes and zoning ordinances.

Within a tribe, there are rules for membership. Most tribes require that a person have a particular degree of Native American heritage (usually 25%) to be an enrolled member. Some tribes require proof of lineage for membership. According to the GAO, federally recognized tribes had a membership of approximately 1.7 million as of May 2001.

One of the most contentious issues related to tribal casinos is the authenticity of the tribes themselves. Critics charge that some Native American groups want federal recognition only as a means to enter the lucrative gambling business. In 2001 the GAO examined this issue in a report titled Improvements Needed in Tribal Recognition Process (November 2001). According to the GAO there were 193 tribes with gambling facilities at that time. The report noted that 170 of the tribes (88%) could trace their federal recognition at least back to the time of the Indian Reorganization Act (IRA) of 1934 or similar legislation from the 1930s. In addition, 59% of IRA-era tribes were engaged in gambling operations in 2001, while 45% of tribes recognized since 1960 were engaged in gambling operations.

The GAO report complained that the regulatory process established by the BIA in 1978 to ensure a uniform and objective recognition process has become too lengthy and inconsistent, leading to more and more lawsuits in federal courts.

The number of petitions for recognition received annually by the BIA began to climb during the 1990s. Although the increase was not dramatic, a backlog began to grow. As of August 2001, the BIA had received 250 petitions for recognition under the program. However, only fifty-five of those petitions had completed the documentation required for consideration. Of those, the BIA recognized fourteen tribes, denied recognition to fifteen tribes, and was considering or was scheduled to consider the other twenty-six.

As noted by the GAO, a significant amount of time is required by the BIA for a final decision on official tribal status due to limited budget and personnel, an ineffective structure for making decisions, and involvement in numerous lawsuits. A petition must be supported by substantial documentation. Once all documentation has been received and the petition is determined to be complete, it is called in "ready status." At this point, the petition is ready to be considered. The date of entering "ready status" determines the order in which a petition comes up for consideration. The GAO reported that six of the ten petitions in "ready status" in 2001 had been waiting for consideration for at least five years. During consideration, a petition is in "active status."

According to the GAO, there was a spike in petitions entering "ready status" during the mid-1990s. The BIA had placed fifty-five petitions in "ready status" since the program's inception in 1978. Twenty-three of those petitions (or 42%) were placed in "ready status" between 1993 and 1997. Although active consideration of a completed petition is supposed to take approximately two years, the BIA reported to the GAO that it could take fifteen years for the agency to resolve all of the petitions awaiting active consideration as of 2001.


Because tribes are sovereign governments they are not required by law to make public their revenues. Financial information on individual tribal casinos is not publicly released. Each year the NIGC announces total gaming revenue for the previous year for all tribal gaming facilities combined. It also breaks down the revenue by U.S. region and revenue class. On July 13, 2004, the NIGC released financial information showing that tribal casinos made $16.7 billion during 2003, an increase of 13.7% over


Tribal gaming revenues by region, fiscal years 2002 and 2003
(In thousands)
Fiscal year 2003Fiscal year 2002Increase(decrease)
Number of opertionsGaming revenuesNumber of operationsGaming revenuesNumber of opertionsGaming revenues
Region I Alaska, Idaho, Oregon, and Washington.
Region II California, northern Nevada.
Region III Arizona, Colorado, New Mexico, and southern Nevada.
Region IV Iowa, Michigan, Minnesota, Montana, North Dakota, Nebraska, South Dakota, and Wisconsin
Region V Kansas, Oklahoma, and Texas.
Region VI Alabama, Connecticut, Florida, Louisiana, Mississippi, North Carolina and New York.
Note: Compiled from gaming operation audit reports received and entered by the National Indian Gaming Commission through June 30, 2004.
source: National Indian Gaming Commission Tribal Gaming Revenues (in Thousands) by Region, Fiscal Year 2003 and 2002, in NIGC Announces Indian Gaming Revenue for 2003, National Indian Gaming Commission, July 13, 2004, (accessed August 7, 2004)
Region I431,439,516471,230,194−4209,322
Region II544,699,889513,678,09531,021,794
Region III431,898,522401,782,8743115,648
Region IV913,547,3601093,537,227−1810,133
Region V75822,72779651,841−4170,886
Region VI244,322,134223,835,8252486,309

2002. This revenue is broken down by region in Table 5.1 and by revenue class in Table 5.2.

As shown in Table 5.1 tribal casinos in California and northern Nevada were the most profitable, earning $4.7 billion in 2003. Because there are no tribal casinos in northern Nevada, all of this revenue is actually from California tribal casinos. Gaming tribes in California earned 28% of all tribal casino revenue. Their market share is equivalent to that reported for commercial casinos on the Las Vegas strip during 2002.

The second most profitable region of the nation for gaming tribes during 2003 was Region VI including the states of Connecticut, New York, Louisiana, Mississippi, Alabama, Florida, and North Carolina. This region was responsible for $4.3 billion in casino revenues, or 26% of total tribal revenue. Casinos operating in Connecticut are thought to be the largest source of this region's revenue.

According to the GAO, tribal gambling revenues grew from only $171 million in 1988 (when the Indian Gaming Regulatory Act was passed) to $3.8 billion in 1994. Revenues reported by the NIGC for 1995 through 2003 are shown in Figure 5.1. Over this time period tribal casino revenues increased by 207%. By contrast, revenues at commercial casinos increased by only 69%.

Tribal gaming revenues reported by the NIGC for 2003 are broken down by revenue class in Table 5.2. As shown in this table, 22% of tribal gambling operations earned revenues of less than $3 million. Forty-three operations (13% of the total number) earned $100 million or more during 2003. These forty-three facilities accounted for 64% of all tribal casino revenue. There were only twenty-eight tribal operations in this revenue class in 1999.

The Indian Gaming Regulatory Act requires that net revenues from tribal gaming be used in five specific areas:

  • To fund tribal government operations or programs
  • To provide for the general welfare of the tribe and its members
  • To promote tribal economic development
  • To donate to charitable organizations
  • To help fund operations of local government agencies

According to the NIGA, only one-fourth of the gaming tribes distribute gaming revenues to individual tribe members through per capita payments. Such payments are allowed under law but must be approved by the secretary of interior. The recipients must also pay federal income tax on these payments. For example, in spring 2002 the Puyallup Tribe of Washington began issuing monthly checks of $2,000 to each member of the tribe. The funds issued to children will be held in trust by the tribe until the children reach age eighteen. The tribe operates a riverboat casino and has plans to build a large land-based casino.

The NIGA reports that tribal casinos are increasingly making money from their nongambling enterprises, such as lodging, restaurants, and entertainment. These enterprises brought in $1.8 billion in revenue during 2003, a 5.9% increase from 2002.


Casino building is very expensive. Those tribes that have built casinos have had to borrow large sums of money and/or obtain investors to do so. In general, for


Tribal gaming revenues by revenue class (in thousands), 1999–2003
Gaming Revenue RangeNumber of operationsRevenues (in thousands)Percentage of operationsRevenuesMean (in thousands)Median (in thousands)
source: National Indian Gaming Commission Tribal Gaming Revenues, in NIGC Announces Indian Gaming Revenue for 2003, National Indian Gaming Commission, July 13, 2004, (accessed August 7, 2004)
Gaming operations with fiscal years ending in 2003
$100 million and over4310,714,58113%64%249,176184,332
$50 million to $100 million352,459,69811%15%70,27765,416
$25 million to $50 million551,984,67317%12%36,08537,029
$10 million to $25 million671,144,77920%7%17,08616,894
$3 million to $10 million57350,39817%2%6,1475,819
Under $3 million7376,01922%0%1,041833
Gaming operations with fiscal years ending in 2002
$100 million and over419,510,66012%65%231,967179,101
$50 million to $100 million241,694,6067%12%70,60965,577
$25 million to $50 million551,978,51916%13%35,97638,984
$10 million to $25 million651,067,51319%7%16,42316,570
$3 million to $10 million63386,39918%3%6,1335,373
Under $3 million10078,35929%1%784461
Gaming operations with fiscal years ending in 2001
$100 million and over398,398,52312%65%215,347158,836
$50 million to $100 million191,415,7556%11%74,51379,083
$25 million to $50 million431,528,61113%12%35,54934,264
$10 million to $25 million58997,54618%8%17,19916,328
$3 million to $10 million57385,65417%3%6,7667,292
Under $3 million11496,25735%1%844575
Gaming operations with fiscal years ending in 2000
$100 million and over316,606,28410%60%213,106141,684
$50 million to $100 million241,693,5108%15%70,56373,314
$25 million to $50 million411,360,77713%12%33,19029,944
$10 million to $25 million50856,46416%8%17,12917,335
$3 million to $10 million55350,11018%3%6,3666,250
Under $3 million11091,54535%1%832541
Gaming operations with fiscal years ending in 1999
$100 million and over285,845,7879%60%208,778136,897
$50 million to $100 million191,323,9956%14%69,68470,412
$25 million to $50 million331,193,04911%12%36,15335,990
$10 million to $25 million591,028,83419%10%17,43817,562
$3 million to $10 million54322,26817%3%5,9685,764
Under $3 million11786,90738%1%537395

Native American casinos, the law requires that tribes partner with companies for no more than five years and limits the companies' revenue to 30% of the total revenue. Under some circumstances, the partnership can last seven years and the companies' portion can be as much as 40% of total revenue.

At the end of 2003 the NIGC reported that forty-two gaming tribes had approved management contracts in place with commercial companies. Another eighteen potential contracts were under review at that time. One-third of the existing contracts are with gaming companies based in Las Vegas. Harrah's Entertainment is a partner in five of these contracts.

Tribal casinos have faced fierce opposition from commercial casino operators, who fear the competition. This is particularly true in California, where tribal casinos could cut deeply into Nevada casino revenues, as California's residents provide a large share of Nevada's gambling revenue. However, commercial casino companies see new opportunities for revenue gain through partnerships with Native American tribes. Some tribes have welcomed the investment capital and casino management experience offered by commercial partners. This is particularly true for small tribes.

For example, the Trump 29 Casino is a $60 million venture located in the Mojave Desert 130 miles southeast of Los Angeles, California. The casino, which opened in April 2002,


is owned by the Twenty-Nine Palms Band of Luiseno Mission Indians, which has thirteen adult members. The casino is managed by Trump Hotels and Casino Resorts of Atlantic City, a commercial company owned by billionaire businessman Donald Trump. A tribal spokesperson said that the tribe selected the company for its name recognition appeal and for the management expertise it could bring to the casino.

In July 2002 the Augustine Band of Cahuilla Mission Indians opened a $16 million casino in southern California near the Salton Sea. The tribe has only one adult member. The tribe teamed with the company Paragon Gaming of Las Vegas to develop the casino, which has several table games and about 350 slot machines.

Casino business ventures between companies and very small tribes are particularly controversial. Critics say that small tribes are being manipulated by outside investors who only want to cash in on tribal casinos. The California Nations Indian Gaming Association insists that small tribes should not be denied the tremendous economic opportunities offered by casinos. According to a spokesperson, "The reason some of these tribes have only one or two people left is because Indians were exterminated."


Connecticut Tribal Casinos

Tribal casinos are not required by law to make their financial records public. Although exact figures are not known, various reports indicate that the tribal casinos operating in Connecticut are extremely profitable. In October 2003 the American Gaming Association (AGA) attributed $2.0 billion in annual revenue to Connecticut's tribal casinos, making them the fourth largest casino market in the country, behind only the Las Vegas Strip, Atlantic City, and Chicagoland.

Only two tribal casinos were operating in Connecticut as of mid-2004. The Foxwoods Casino and Resort is operated by the Mashantucket Pequot in Ledyard, and the Mohegan Sun is operated by the Mohegan in nearby Uncasville. Both are located in a rural area of eastern Connecticut.

The Foxwoods is often described as the world's largest casino complex. In August 2004 the resort featured six casinos, 1,400 hotel rooms, a spa, a golf and country club, a 12,000-square-foot shopping mall, dozens of restaurants, and a 4,000-seat arena. The Foxwoods has more than 6,400 slot machines, 350 table games, and the world's largest bingo hall. It also offers keno and sports gambling. The resort receives about 40,000 visitors every day. The Mohegan Sun has just more than 1,000 hotel rooms and twenty-nine restaurants. It also includes a 10,000-seat arena, its own gas station, a showroom, extensive retail complex, and 295,000 square feet of casino floor.

The Foxwoods in particular has an interesting history. According to Kim Isaac Eisler in Revenge of the Pequots: How a Small Native American Tribe Created the World's Most Profitable Casino (New York: Simon and Schuster, 2001), a law was passed in Connecticut in the 1980s that allowed the wagering of "play-money" on casino games such as blackjack, roulette, craps, and poker. The law was championed by the Mothers Against Drunk Driving organization to encourage high schools to hold casino-type events following proms in order to reduce drunk driving by teenagers. Under this law, the Mashantucket Pequot Tribe was able to get a license for a "charity" gambling casino. They also procured $60 million from an Asian investor named Sol Kerzner to begin construction.

The Foxwoods Casino opened in 1992. At that time, slot machines were not permitted. In 1993 the tribe negotiated a deal with Connecticut's governor that provided the tribe with exclusive rights to operate slot machines within the state. In return, the tribe agreed to make yearly payments to the state of $100 million or 25% of their slots revenue, whichever was greater. The next year the Mohegan tribe signed its own compact with the governor to operate a casino. The Mashantucket Pequots granted the Mohegan permission to include slot machines in their new casino. In return, the state set the annual payment required from each tribe at $80 million or 25% of their slots revenue, whichever was greater. The Mohegan Sun opened in 1996 after receiving financing from Sol Kerzner, but by 1997 Foxwoods was the largest and most profitable casino in America.

The Mashantucket Pequot's standing as a tribe is not without controversy. In Without Reservation: The Making


Connecticut tribal gaming payments to state general fund, 1992–2004
Fiscal year end 06/30FoxwoodsMohegan SunSubtotal
1Revenue transferred on cash basis per fiscal year.
2The above transfers represent actual Casino contributions through July 15, 2004, based on reported video facsimile/slot machine revenue through June 30, 2004.
source: Adapted from "Transfers to General Fund," in Connecticut Division of Special Revenue Transfers to General Fund, Accumulative to Date—through June 2004, Connecticut Division of Special Revenue, July 26, 2004, (accessed September 28, 2004)

of America's Most Powerful Indian Tribe and Foxwoods, the World's Largest Casino (New York: HarperCollins, 2001), Jeff Benedict claimed that the Pequots never should have been legally recognized as a tribe by the federal government in 1983 because some members were not actually descendants of the historic Pequot tribe. The tribe achieved its recognition by an act of Congress. Benedict made the allegations a major theme in his unsuccessful run for Congress during the summer of 2002. He later helped to found the Connecticut Alliance against Casino Expansion (CAACE), a nonprofit coalition that lobbied against additional casinos is Connecticut and successfully led the drive to repeal the state's "Las Vegas Night" law that provided the legal opening for the original casinos. The CAACE additionally seeks federal legislation to reform the tribal recognition process.

In Connecticut, legalized gambling is regulated by the Division of Special Revenue, which conducts licensing, permitting, monitoring, and education. It also ensures that the correct revenues are transferred to the state's general fund and to each municipality that hosts a gaming facility or charitable game. Table 5.3 shows the annual and cumulative revenues paid into the general fund by the Foxwoods and Mohegan Sun casinos. Nearly $3 billion had been collected through June 2004. This includes $1.9 billion from Foxwoods and $1.1 billion from Mohegan Sun. This revenue comprises 33% of all gambling revenue collected by the Connecticut general fund since 1972, even though the casinos have only been operating since 1992 and 1996, respectively. (See Figure 5.2.)


In June 2002 two other Connecticut tribes achieved federal recognition: the Eastern Pequots and the Paucatuck Eastern Pequots. The BIA determined that the two bands, which share a 225-acre reservation in North Stonington, are actually one tribe to be called the Historic Eastern Pequots. North Stonington is less than ten miles from the town of Ledyard, where Foxwoods is located. The Eastern Pequots and Paucatuck Eastern Pequots originally petitioned the BIA for recognition in 1978 and 1989, respectively. The recognition was fought by state and local officials, who argued that the two bands were not a legitimate tribe and that the recognition process was too political.

Tribal spokespeople said that recognition was not pursued just to be able to open casinos, but that a casino was in their plans. The Paucatuck Eastern Pequot band's recognition campaign was largely financed by Donald Trump. He has threatened to sue the tribe if it leaves him out of future casino plans. The tribe has a reservation but wants to use it for living purposes only. In order to develop a casino on other lands, the tribe would have to take land into trust and negotiate a new tribal-state compact with Connecticut. Local officials have indicated that they are opposed to any tribal efforts to take more land into trust.

California Tribal Casinos

California has forty-five gaming tribes, by far the most of any state. The state's tribal casinos earned nearly $4.7 billion in 2003, approximately one-fourth of the nationwide tribal total. Industry analysts predict that this percentage will continue to grow as the California market matures. The state includes 108 federally recognized tribes, nearly one-fifth of the national total. Most are described as small extended family groups living on a few acres of federal trust property called rancherias. Some tribes have only a handful of members.

Prior to 2000, California tribes were largely limited to bingo halls because state law prohibited the operation of slot machines and other gambling devices, certain card games, banked games, and games where the house collects a share of the amount wagered. In 2000 California voters passed Proposition 1A, amending the state constitution to permit Native American tribes to operate lottery games, slot machines, and banking and percentage card games on tribal lands. The constitutionality of the measure was immediately challenged in court.

In January 2002 California governor Gray Davis signed sixty-two gambling compacts with California tribes. The compacts allowed each tribe to have a maximum of two thousand slot machines. The governor also announced plans to cap the number of slot machines in the state at 45,000. At the time, there were already 40,000 slot machines in operation and dozens of tribal casinos in the planning stages. The governor put a moratorium on new compacts while the constitutionality of Proposition 1A was challenged in court. In August 2002 a U.S. district court ruled that tribal casinos were entitled to operate under the provisions of the state gaming compacts and Proposition 1A.

In 2003 the State of California suffered a severe budget crisis. Governor Davis was ultimately forced out of office through a special recall election held in October 2003 in which Arnold Schwarzenegger became the new governor. In televised campaign ads Schwarzenegger promised voters to make tribal casinos "pay their fair share" arguing that "their casinos make billions, yet pay no taxes and virtually nothing to the state." The California Nations Indian Gaming Association (CNIGA) was outraged and issued a press release calling the remarks "hurtful" and accusing Schwarzenegger of having "a complete and almost frightening lack of understanding of the legal status of Indians and tribal governments." CNIGA also reminded voters that the gaming tribes paid more than $100 million per year into a special fund designated to pay for impacts of tribal gaming on local communities ("Schwarzenegger Far Off the Mark on Tribal Governments," California Nations Indian Gaming Association Press Release, September 23, 2003).

In June 2004 Governor Schwarzenegger signed new compacts with five California tribes preserving the tribes' exclusive gaming rights. The five tribes are as follows:

  • Pala Band of Mission Indians
  • Pauma Band of Mission Indians
  • Rumsey Band of Wintun Indians
  • United Auburn Indian Community
  • Viejas Band of Kumeyaay Indians

The slot machine cap was also increased above two thousand machines per tribe. In exchange the tribes agreed to pay the state $1 billion up front and a licensing fee for each new slot machine added above the current limit. This is estimated to result in payments of $150–275 million per year through the compact's expiration date in 2030. The governor announced plans to negotiate similar deals with other tribes in the state. However, several tribes announced plans to fight the new compacts. The Rincon Indian Tribe sued the state, arguing that the new compacts showed favoritism to some tribes and put others at an economic disadvantage. Other tribes announced plans to push for statewide ballot initiatives that would tax tribal casinos at fixed rates, but allow expansion of casino-type gambling in the state.