Unions, State Oversight or Cash? California Picks its Battle
By John N. Roberts

In 1999, then-California Gov. Gray Davis negotiated compacts with 57 of California's 107 Indian tribes. The compacts allowed those tribes to conduct Class III gaming for the operation of slot machines and house-banked card games such as Blackjack, but not Roulette or Craps, which are prohibited under California's Constitution. The 1999 compacts have a 20-year term and were eventually signed by 61 tribes.

Three more tribes negotiated compacts under the terms of the 1999 compacts in 2003. The following year, Gov. Arnold Schwarzenegger negotiated two more compacts and seven amended 1999 compacts were negotiated and ratified by California's Legislature. Under the terms of the re-negotiated compacts, five of the larger gaming tribes pay $1 billion to the state, to be financed by a bond repaid over 18 years, which Schwarzenegger says he "will dedicate to desperately needed transportation projects." Tribes will also make payments to the state over the term of their compacts expected to total $700 million.

Three new compacts and one amended compact were negotiated in 2005, but only the amended compact was ratified. A year later, five of the largest gaming tribes re-negotiated their compacts with significant changes to the amount of money that would flow to the state and a large increase in the number of machines each tribe could operate. The tribes would pay up to 25 percent of their net revenue, which could translate to $200 million to $500 million per year for the state. These revised compacts would allow the tribes to have as many as 7,500 machines each; currently they are capped at 2,000 machines per tribe. Although the 1999 compacts allow tribes to have as many as 2,000 machines, the method employed by the state for allocating licenses among the tribes guarantees only a portion will reach that plateau, as there is a cap on the total number of licenses allowed by the state. There have been three lawsuits filed by the Rincon, Colusa and San Pasqual tribes against the state in the past few years challenging this method, all of which have been dismissed due to Rule 19 - indispensable third-party defenses - by the state. The compacts were presented to the Legislature late in the session and were not ratified.

The original 1999 compacts allowed the 61 signatory tribes to have two facilities and up to 2,000 slot machines. Payments would be made to a Revenue Sharing Trust Fund, which distributes the money among the non-gaming tribes in California - that is, tribes with no gaming operations or gaming tribes with less than 350 slot machines. The other fund is the Special Distribution Fund, which charges fees based upon the number of slot machines a tribe had in operation as of Sept. 1, 1999.

Under the compacts' labor provisions, the tribes adopted a model ordinance that provides for union access and secret ballot certification. The 2004 compacts added a labor provision - the card check - that provided for union recognition with 50 percent of employee signatures and no election requirement. The unions agreed to a no-strike provision and binding outside arbitration. The 2006 compacts did not contain these provisions and reverted to the original 1999 labor provisions. This change has created problems for the tribes in the Democrat-controlled Legislature, which is under public pressure from the unions not to ratify these compacts unless the card check provision is included.

In the interim between last year's legislative session and the current one, a federal appeals court upheld two lower court rulings that declared the National Indian Gaming Commission (NIGC) did not have the authority to regulate Class III gaming in tribal casinos, a case that was brought by the Colorado River Indian Tribes and is known as the CRIT decision. The decision has created a contentious issue in California, as the California Gambling Control Commission (CGCC) - one of two state agencies overseeing tribal gaming - has declared it will fill the "void" in regulatory oversight created by CRIT. This is important for California, because earlier tribal compacts cited the federal minimum internal control standards (MICS), not a state MICS. This void now leaves the state, according to the CGCC, in the position of establishing MICS with the tribes. A letter dated March 2 from the CGCC Chair Dean Shelton to the tribal gaming leaders stated the CRIT decision, "altered the regulatory landscape for tribal gaming in California." Subsequently, the CGCC has put forth a proposed set of regulations known as CGCC 8. The current debate raging in California gaming now centers around CGCC 8, which attempts to put the state in the position formerly held by the NIGC as related to the oversight of tribal gaming regulation.

There are a number of potentially confrontational issues contained in CGCC 8. One section lays out procedures for on-site external audits to be performed by the CGCC- an option not favored at present by most of the state's gaming tribes. There is also a 30-day dispute resolution procedure if the tribe and the state disagree over these audits. However, the five CGCC commissioners would make the final decision in any dispute.

Any proposed tribal gaming regulations must be approved by the Tribal State Gaming Association, which is comprised of two delegates from each gaming tribe and two representatives each from the CGCC and the Division of Gambling Control of the California Department of Justice. The association meets at least quarterly and, at present, 34 tribes represent a quorum.

The concern among many of these tribes, especially some of the larger tribes with sophisticated tribal gaming commissions, is the issue of the CGCC's experience - or, rather, their lack of experience. While many of the tribes' gaming commissioners and regulators have been involved in tribal gaming for many years, the CGCC staff is relatively lacking in experience due to a very slow start up, lack of funding, full commission not seated and turnover of staff. The consensus among tribes is that they have, in fact, trained the state and have far more insight and experience in regulatory matters. In addition, the NIGC was instrumental in assisting tribes with internal controls, advice and competent oversight of tribal casino regulators, and had been involved months and sometimes years prior to tribes opening their respective casinos. Further, there has been continuity with its staff, which has resulted in an atmosphere of mutual respect that is clearly missing in the relationship between the state and most of the gaming tribes in California.

The issue of Rule 19 is of paramount importance, as it relates to the proposed state-controlled MICS. The three most recent court decisions in cases filed against the state by gaming tribes have been determined on Rule 19 issues, not the relative merits of these cases. These cases, filed by the Rincon, Colusa and San Pasqual tribes, all revolved around the contention that the state's formula for deterring the number of licenses available to the tribes is flawed, and a higher number should be in play. Rather than allow judicial determination of this issue, the state consistently invokes a Rule 19 defense. Further, the concern is that the dispute resolution mechanism contained in the compact is flawed and absent - that any case brought to court will be tossed out under Rule 19. To further the confusion, the state takes alternate positions on a tribe's status under the compact depending on the issue, i.e., all the tribes are independent sovereigns and the compacts are unique, or all compacts are the same and if one tribe has an issue, all compacted tribes must join in the action.

The compacts are being debated by the Legislature, but they are at an impasse until the state oversight and union issues are resolved. The next meeting of the Tribal State Association is scheduled for early July, at which time the debate over the proposed state MICS will continue.

John N. Roberts is an attorney and Executive Director of the San Pasqual Gaming Commission in Valley Center, Calif. He can be reached at johnrobertsjd@earthlink.net or (858) 603-5309.