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Proposition 70

Proposition 70:
The Indian Gaming Fair-Share Revenue Act of 2004.

By Chad Salzman

Copyright © 2004 by University of the McGeorge School of Law

J.D., McGeorge School of Law, University of the Pacific
to be conferred May 2006
B.A., History, Arizona State University, 2004

 

Table of Contents

I. Executive Summary
II. Legal Issues
III. Drafting Issues
IV. Constitutional and Statutory Issues
V. Public Policy Issues
VI. Conclusion

I. Executive Summary

California’s tribal lands are currently home to 53 gaming facilities. Institute of Government Studies Library, Propositions 68 & 70: Tribal Gaming, http://www.igs.berkeley.edu/library/htProp68&70TribalGaming.html (accessed Sept. 8, 2004). Both California and federal law treat these gaming facilities as special businesses, exempt from most federal, state, and local taxes. California Secretary of the State, California Official Voter Information Guide, Analysis of Proposition 70 (2004).

Proposition 70, known as the Indian Gaming Fair-Share Revenue Act of 2004, is an attempt to increase the State’s general revenue through Indian gaming. California Secretary of the State, California Official Voter Information Guide, Analysis of Proposition 70 (2004). The proposition purports to treat Indian gaming facilities in the same manner as other private businesses, subjecting them to the same corporate tax rate (currently 8.84%). Cal. Prop. 70 (§3 adding Cal. Const. art. IV, §19(h)(1)). This will result in the collection of millions of dollars from existing gaming facilities. California Secretary of the State, California Official Voter Information Guide, Analysis of Proposition 70 (2004). Additionally, Proposition 70 will expand Indian gaming by removing many of the regulations currently impeding the growth of California’s casinos. Yes on Prop 70, Indian Fair Share Questions & Answers, http://www.indianfairshare.com/questions/ (accessed Sept. 8, 2004).

Proposition 70 will give California Indian tribes the right to either amend or sign new 99-year gaming compacts, which will contain provisions for expanding casino size, the number of slot machines allowed, and the types of games permitted. Cal. Prop. 70 §3 (amending Cal. Const. art. IV, §19(f), adding §19(h)). These compacts also give the Indian tribes the exclusive right to operate slot machines and other Class III gaming in California. Cal. Prop. 70 §3 (adding Cal. Const. art. IV, §19(h)).

II. Legal Issues

A. Current Law

1. Indian Gaming

In October 1988, the United States Congress passed the Indian Gaming Regulatory Act (IGRA). 25 U.S.C.S. §§2701-2721 (LEXIS 2004). The IGRA grants Indian tribes the right to enter into tribal-state compacts to regulate gaming on Indian land, provided the land is located in a state that permits such gaming. 25 U.S.C.S. §2710(b)(1). This Act splits gaming into three classes. 25 U.S.C.S. §2703(6)-(8). Class I gaming is social gaming played solely for prizes of minimal value, and is within the exclusive jurisdiction of the Indians tribes and not subject to the provisions of the IGRA. 25 U.S.C.S. §§2703(6), 2710(a)(1). Class II gaming includes Bingo and “non–banked” card games, such as poker. 25 U.S.C.S. §2703(7). Class III gaming is all gaming that is not Class I or Class II. 25 U.S.C.S. §2703(8). Class II and Class III gaming are permitted on Indian land only if the land is located in a state which permits such gaming. 25 U.S.C.S. §2710(b), (d).

Article IV of the California Constitution permits Class II and III Indian gaming, including the operation of slot machines, lottery games, and banking and percentage card games, but excluding craps or roulette. Cal. Const. art. IV, §19(f). The IGRA requires that any Indian tribe having jurisdiction over land where Class III gaming is to be conducted, request that the State, in which land is located, enter into negotiations with the State to create a tribal-state compact. 25 U.S.C.S. §2710(d)(3)(A). California law requires that state-tribal compacts be authorized by the Governor and ratified by the Legislature. Cal. Const. art. IV, §19(f). To finalize, the Secretary of the Interior and the Chairman of the Nation Indian Gaming Commission must then approve the compacts. 25 U.S.C.S. §2710(b), (d).

2. Current Compacts

Currently in California, 64 tribes have tribal-state gaming compacts, operating 53 casinos with more than 54,000 slot machines in total. California Secretary of the State, California Official Voter Information Guide, Analysis of Proposition 70 (2004). California signed most of its tribal-state compacts in 1999. Id. Under the 1999 compacts, each tribe may operate no more than two casinos with a maximum of 2,000 slot machines each. Id. Under these compacts, the State collects approximately $100 million dollars annually. Id. The money collected from these compacts is only for purposes specified by the compacts (such as sharing the money with tribes who either have no gaming facilities or operate less then 350 slot machines in total). Id. Under these compacts, the tribes have agreed to prepare environmental studies concerning the addition or expansion of any tribal gaming facility. Id. The 1999 compacts will expire in 2020. Id.

In 2004, 10 tribes signed new or amended tribal-state compacts. California Governor’s Office, Governor Schwarzenegger Signs New Indian Gaming Compacts Meaning Millions for California, http://www.governor.ca.gov/state/govsite/ gov_htmldisplay.jsp?sCatTitle=%20&sFilePath=/govsite/spotlight/august23_update.html (accessed Oct. 3, 2004). Under the 2004 compacts, the tribes may operate more slot machines than permitted by the 1999 compacts. Id. In exchange, the tribes are required to make additional payments for each slot machine added to their facilities. Id. The 2004 compacts will give the State a one time $1 billion dollar payment and approximately $180 million per year. Id. Unlike the 1999 compacts, the money collected under the 2004 compacts may be used for State purposes, in addition to Indian community needs. Id. Under these compacts, the tribes have agreed to prepare more detailed environmental studies concerning the addition or expansion of any tribal gaming facility. Id. Further, the tribes have agreed to negotiate with local governments regarding payments to reduce the negative impact of gaming facilities. Id. These compacts will expire in 2030. Id.

B. Changes Proposed by Proposition 70

Proposition 70 will change the California Constitution to require the Governor, within 30 days of a request, to amend or enter into new compacts with California tribes. Cal. Prop. 70 §3 (adding Cal. Const. art. IV, §19(h)). These new or amended compacts would include specific provisions permitted by this proposition. Id.

The new or amended compacts would contain provisions for the expansion of Indian gaming in California. Id. The new provisions would give the Indian tribes the right to operate any and all forms of Class III gaming, including additional casino games currently prohibited, such as roulette and craps. Cal. Prop. 70 §3 (amending Cal. Const. art. IV, §19(f)). Further, the measure eliminates the current limits on the number of casinos and slot machines allowed per tribe. Cal. Prop. 70 §3 (adding Cal. Const. art. IV, §19(h)(4)). Finally, the measure requires that the new or amended compacts remain in effect for 99 years. Cal. Prop. 70 §3 (adding Cal. Const. art. IV, §19(h)(5)).

The new or amended compacts would contain a provision indicating the amount of gambling revenues the State could collect. Cal. Prop. 70 §3 (adding Cal. Const. art. IV, §19(h)(1)). Indian tribes would pay a percentage of their net income from gambling activities equivalent to the corporate tax rate paid by private businesses (currently 8.84%). Id. These would be the only payments required of the Indian gaming facilities. Id. The measure allows the State to spend the revenue from Indian tribe payments for any State purpose. Id. However, the proposition also contains a provision that excuses all payments if the State takes away the Indians’ exclusive right to operate Class III gaming in California. Id.

The new or amended compacts would also require a provision to ensure off-reservation impact assessments for all new or expanded gaming facilities. Cal. Prop. 70 §3 (adding Cal. Const. art. IV, §19(h)(2)). Off-reservation impact assessments are reports used to determine what effect new gaming facilities would have on the surrounding population. Id. These compacts would require a provision that would call for tribes to give the public officials and the public at large an opportunity to submit comments concerning the mitigation of significant adverse effects of new tribal gaming facilities. Id. The tribe must then make good faith efforts to mitigate these adverse effects. Id. However, the proposition does not identify what a good faith effort would be, allowing for judicial interpretation to define this phrase. Id.

C. Comparison To Proposition 68

Proposition 68 is a competing measure also appearing on the November 2, 2004, general election ballot which would give California Indian tribes, who currently have existing compacts, two options. Cal. Prop. 68 §3 (adding Cal. Const. art. IV, §19(h), (i) (2004)). Either the tribes must agree to revise their existing compacts, to add a provision requiring the tribes to pay 25% of their “net win” to the State, or non-tribal gaming facilities would be given the right to operate slot machines. Id. In comparison, Proposition 68 has the complete opposite purpose and effect of Proposition 70. Instead of expanding Indian gaming, it would slow the expansion of tribal gaming by redirecting revenue from the tribes, either directly through payments to the State, or indirectly through added competition from non-tribal gaming facilities.

III. Drafting Issues

A. Severability

Proposition 70 contains a severability clause. The severability clause states: “If any provision of this Act… is held invalid or unconstitutional, such invalidity or unconstitutionality shall not affect other provisions… of this Act.” Cal. Prop. 70 §6. This clause is a common provision in many initiatives, used to prevent the invalidation of the entire proposition if one portion is determined to be invalid or unconstitutional. Gerken v. Fair Political Practices Commission, 6 Cal. 4th 707, 714 (1993).

The use of the severability clause in Proposition 70 will be subjected to a three part test established in Gerken. Id. at 715. The California Supreme Court has said that a provision of an initiative is severable if it grammatically, functionally, and volitionally separable from the rest of the initiative. Id. A provision is grammatically and functionally separable if the words of the provision are distinct, and the provision to be severed is capable of independent action. People’s Advoc., Inc. v. Super. Ct., 181 Cal. App.3d 316, 331 (App. 3rd Dist. 1986). A provision is volitionally separable if, severing the provision would not change the initiative so dramatically that it would no longer be likely that the electorate would have passed the initiative lacking the severed provision. Gerken, 6 Cal. 4th at 715-716.

Proposition 70 is a small proposition with only two law changing sections; one that amends the California Constitution, and another that adds a section to the California Government Code. Cal. Prop. 70 §§3, 4. If one were severed, the other would not be capable of expanding Indian gaming as Proposition 70 purports to do. Each provision contains changes in the law which are essential to the application of the other. Thus, it is unlikely that any provision of Proposition 70 is severable.

B. Inconsistency With Other Ballot Measures

The California Constitution states: “If provisions of 2 or more measures approved at the same election conflict, those of the measure receiving the highest affirmative vote shall prevail.” Cal. Const., art. II, § 10(b). Proposition 70 contains a provision recognizing the existence of Proposition 68 on the ballot, and asserts to follow the California Constitution’s if both measures are adopted. Cal. Prop. 70 §5. 

IV. Constitutional and Statutory Issues

A. Federal Law

1. Indian Gaming Regulatory Act

The IGRA states: “Any State and any Indian tribe may enter into a tribal-state compact governing gaming activities on …Indian land.” 25 U.S.C.S. §2710(d)(3)(B). Further, the state has a duty to negotiate these compacts in good faith. 25 U.S.C.S. §2710(d)(3)(A). Failure to complete these compacts as a result of the state breaching its duty to negotiate in good faith, can lead to judicial action forcing the state to agree to such compacts. 25 U.S.C.S. §2710(d)(7)(A)(i), B(iv).

Proposition 70 would change the California Constitution to include a provision requiring the Governor, upon request, to amend or enter into new tribal-state compacts, which would contain the new provisions created by Proposition 70. Cal. Prop. 70 §3 (adding Cal. Const. art. IV, §19(h)). The language of this Constitutional amendment would conflict with the IGRA which provides that only the State may enter these compacts. 25 U.S.C.S. §2710(d)(3)(B) (emphasis added). If the Governor is required to amend the compacts, this would not give the State bargaining power to adjust the compact to make it as economically beneficial as possible. Cal. Prop. 70 §3 (adding Cal. Const. art. IV, §19(h)). Therefore, the question is whether the State is required to amend or enter these compacts.

If the State refuses to amend the compacts with the new provisions, the Indian tribes would have the right to bring a suit in Federal court to force the State to agree to the compacts. 25 U.S.C.S. §2710(d)(7)(A)(i), B(iv). The tribes would claim that the State is not following its own Constitution, and therefore breached its duty to negotiate in good faith. The State’s failure to follow its own Constitution would likely lead the Federal court to find that the State breached its duty of good faith, and would command the State to agree to these amended or new compacts.

However, the court may determine that the provisions of Proposition 70 violate the IGRA, as it requires the State to amend or enter compacts where the IGRA gives states the choice. This may lead to the invalidation of the entire proposition, and California gaming law would return to its current state.

B. State Constitution

Proposition 70 does not appear to raise any issues with the California Constitution.

V. Public Policy Issues

A. Proponents

Proponents of Proposition 70 claim that Indian tribal gaming operations should be treated the same as other private businesses. IGS Library, Propositions 68 & 70: Tribal Gaming, http://www.igs.berkeley.edu/library/htProp68&70TribalGaming.html (accessed Sept. 8, 2004). They claim that it is not fair to burden the gaming tribes with alleviating the State’s budget problems as Proposition 68 purports to do. Yes on Prop 70, Indian Fair Share Questions & Answers, http://www.indianfairshare.com/questions/ (accessed Sept. 8, 2004). Proposition 70 would place some of the burden of the State’s budget problems on the gaming tribes, but would allow the tribes to expand their gaming operations to help make more money for everyone. Id. It would keep casinos isolated on tribal land, and prevent the expansion of racetracks and card rooms into full Las Vegas-style casinos. Id.

The full fiscal effect of Proposition 70 is still unknown. California Secretary of the State, California Official Voter Information Guide, Analysis of Proposition 70 (2004). Proponents believe that over the next few years California would likely experience increased slot machine operations on Indian land, increased State revenues in the hundreds of millions of dollars, and increased payments to local governments to address the impact of gaming. Id. Proponents also believe that tribal-state compacts that last 99 years would put a stop to the constant battle in State politics over the future of Indian gaming. Id.

Proposition 70 would lead to an increase in Indian gaming across the State. Id. California is home to only 53 tribal gaming facilities, but that number would increase once the burdens of current compact law disappear. Id. More Californians would have access to these facilities, and would no longer have to drive hours to play the table games they enjoy. Yes on Prop 70, Indian Fair Share Questions & Answers, http://www.indianfairshare.com/questions/ (accessed Sept. 8, 2004).

Proponents of Proposition 70 include: the California Nations Indian Gaming Association, Howard Jarvis Taxpayers Association, The National Tax-Limitation Committee, California State Senator Jim Brulte and Jack O’Connell, and the California State Superintendent of Public Instruction. Yes on Prop 70, Indian Fair Share Endorsements, http://www.indianfairshare.com/endorsements/ (accessed Sept. 8, 2004).

B. Opponents

Opponents of Proposition 70 argue that this measure will vastly expand Indian gaming throughout California. No on 68 and 70, Get the Facts, http://www.fairsharegaming.org/facts_70_general.html (accessed Sept. 8, 2004). The measure eliminates the current restrictions placed on Indian gaming. Id. In particular, Indian tribes will no longer be restricted to two facilities per tribe, nor the 2,000 slot machine per facility limitation. California Secretary of the State, California Official Voter Information Guide, Analysis of Proposition 70 (2004).

Opponents believe that Proposition 70 will undermine the State’s current fiscal goals for Indian gaming. No on 68 and 70, Get the Facts, http://www.fairsharegaming.org/facts_70_general.html (accessed Sept. 8, 2004). In the summer of 2004, the State signed 10 new or amended compacts that arguably will provide more revenue for the State than compacts created under Proposition 70. Id. If the State is allowed to continue creating compacts in the current manner, opponents believe that this will result will in more revenue for the State than compacts created under Proposition 70. Id. The 2004 compacts raised $1 billion this year, and will result in approximately $180 million annually. Id.

Although the full effect of the measure is unknown, the opponents claim it would “massively” expand gaming, and give the tribes a 99-year exclusive monopoly on all casino style gaming in California. Id. If the Indians lose their exclusive right to operate casino style gaming, the measure would excuse all payments under these compacts. Id. Further, the Indian tribes will be encouraged to create many additional facilities in close proximity to residential areas in response to the ever growing population of California. Id. Finally, Proposition 70 lays out no plan for the distribution of the money once collected by the State creating the possibility of misuse or misappropriation. California Secretary of the State, California Official Voter Information Guide, Analysis of Proposition 70 (2004).

Opponents of Proposition 70 include: Governor Arnold Schwarzenegger, California District Attorneys’ Association, California State Sheriffs’ Association, California Police Chiefs’ Association, California AFL-CIO, California Republican Party, Democratic Party of San Fernando Valley, Senior Action Network, League of California Cities, and the California Taxpayers Association. No on 68 and 70, Who We Are, http://www.fairsharegaming.org/who.html (accessed Sept. 8, 2004).

VI. Conclusion

The future of Indian gaming in California is unclear. In less than 30 years, all of California’s current tribal-state compacts will expire. As a result, California Indian tribes will need to renegotiate new tribal-state compacts to ensure their economic future. Indian gaming now plays a major role in the economy of the State, creating jobs and additional revenue. It also creates a great deal of controversy by allowing a form of entertainment that some find troubling. By allowing 99-year compacts, and guaranteeing the Indian tribes excusive rights to Class III gaming, Proposition 70, is designed to help future California Indian tribes by granting them a more expansive framework under which to create new compacts.