Monday, March 14, 2005

Exclusive Tribal Casinos--A Viable Option?

More than 440 commercial and almost 300 tribal casinos have been constructed during the past 15 years in the U.S., with more on the way. In 2003, patrons lost more than $27 billion in commercial casinos, $16 billion in tribal casinos, and $2 billion in racetrack casinos in the United States. Casinos are now within a short driving distance to almost every American. It is clear that states across the U.S. will continue to expand casino gambling without examining an option that could be less damaging than unfettered expansion.

For example, on November 2, 2004, Nebraskans overwhelmingly rejected two proposals for expanded casino gambling. Supporters tout the benefits of keeping money in Nebraska, but these proposals are based on a commercial casino model, in which profits are likely to leave the state. However, a casino proposal will be back on Nebraska's ballot as well as on other state ballots in the near future.

Voters should also consider another option that normally does not appear on the ballot -- a Tribal casino with exclusive rights – which has the potential to keep even more money in the state and allow for a slower and more economically viable expansion of casinos in a state.

The Indian Gaming Regulatory Act (IGRA) imposes significant limits on state and Tribal powers to conduct gaming on tribal lands. Tribes in a state may not currently conduct casino gambling on Tribal lands if these games are not legal elsewhere in the state. However, if a state chooses to legalize casino gambling, the state will have an obligation to compact with Tribes that wish to operate a casino. This may well change the nature and extent of gambling in a state in two ways.
First, any proposal to limit casino locations, as contained on a ballot initiative may well be thwarted by Tribal casino expansion. Although the IGRA limits tribal gambling to Tribal lands, the scope of these lands has been a matter of some dispute. For example, restored tribes have obtained lands in California that have never been used as a Tribal reservation, solely for the purpose of opening a casino. Significantly, these decisions are made at the Federal level without local approval.

Second, Tribal casinos opened pursuant to the IGRA are not subject to state and local taxes on gaming revenues. State taxing powers are limited to recovering amounts necessary to cover regulatory costs with amounts above this as pure voluntary contributions. Thus, tribal casinos not only fail to generate gaming taxes, but they may also erode the tax base through competition with their commercial counterparts.

Despite the IGRA limits on state taxing powers, states have been allowed to negotiate a gaming compact that exacts a payment for granting exclusive gaming rights to Tribal interests. For example, this model is followed in Connecticut, which has no commercial casino, but two tribal casinos. By granting exclusive rights to the Tribes, Connecticut reaped $396.4 million in payments in lieu of taxes from these two casinos in 2003 -- an effective tax rate of more than four times that paid by tribal casinos without this exclusivity.

If states without casinos desire to expand the scope of gambling, this “Connecticut” approach to casino gambling deserves consideration. This approach includes Native American residents in a way that keeps more of the money in the state through Tribal, rather than commercial ownership. A creative compact approach may even include revenue sharing among the tribes, including those that choose not to participate in the casino venture, as is done in California.

This approach would deliver revenue to state coffers, as well as to tribal communities that are notorious for limited economic opportunities. It may also provide a means to limit the scope of casino gambling – and the scope of problem gambling behaviors and related social costs – in a way that is not possible under any of the existing plans outside of Connecticut. A creative compact might well be able to restrict casino locations when the state bargains from a position of strength, rather than weakness, after it is required to grant compact rights upon legalizing commercial gambling.

Once commercial casino gambling is approved within a state, this Tribal alternative is effectively unavailable, as the state can no longer grant exclusive rights. In this event, the state can expect burdens from social costs, but few tax benefits from these tribal operations. However, producing a plan granting tribal exclusivity takes more time but from an economic development prospective is more advantageous than unbridled expansion within a state which is currently taking place in states approving casino gambling. Our plan would at least limit some of the "bad" surrounding casino expansion.

Ed Morse, JD, School of Law, Creighton University
Ernie Goss, Ph.D., College of Business, Creighton University

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