To help close California's $34.6 billion budget deficit, Gov. Gray Davis hopes to wager on a windfall from an unusual source: American Indian casinos.
He becomes only the latest governor to reach for a share of tribal gambling money as casinos revenues soar while budget deficits rock capitals nationwide.
"The change in the economic environment has wrought a new view of Indian gaming as being a new source of revenue for state governments," said Michael Lombardi, a tribal gambling consultant in California. "It is a significant change in the Indian gaming environment nationwide."
In Arizona, voters approved a measure in November that will allow tribes more slot machines and Nevada-style blackjack while giving the state a share of gambling revenue for the first time, up to $102 million per year.
In Wisconsin, tribal revenue is a key piece of Gov. Jim Doyle's budget proposal. He expects to get at least $118 million from the state's 11 tribes in each of the next two years under new compacts he's negotiating.
In New Mexico, a deal reached in 2001 has tribes paying 3 percent to 8 percent of their revenue to the state. In New York, lawmakers pressured for money after Sept. 11, 2001, agreed to let the Seneca Nation of Indians open up to three casinos in western New York in exchange for paying up to 25 percent to the state.
"States are facing budget deficits and they're looking for ways to increase revenue," said Seneca attorney Barry Brandon. "They're looking at a lot of different ways, but one of the ways they're looking at is to essentially tax Indian gaming."
It's a trend that was not foreseen when Congress passed the Indian Gaming Regulatory Act in 1988, which allowed tribes to negotiate compacts with states to conduct gambling.
The act bars states from taxing tribes. But a series of decisions by the U.S. Department of the Interior, which reviews compacts, led to a policy of allowing revenue-sharing in exchange for an exclusivity agreement, such as the exclusive right to conduct gambling in a specific jurisdiction.
The Department said it will not approve revenue-sharing under other circumstances. Department officials nixed a New Mexico compact last year on the grounds that the benefits to the tribe did not justify the revenue it would be paying, even though the tribe had sought the compact and agreed to it.
Still, many Indian leaders believe Congress never intended tribal revenue, estimated at $12.7 billion nationwide in 2001, to flow into state coffers. While conceding that tribes can gain from revenue-sharing agreements, they're eyeing the trend warily.
"Arizona isn't going to share any revenue with California. The United States certainly isn't going to share with Mexico," said Ivan Makil, a tribal leader from Arizona. "That's really the concept that people ought to be paying attention to and respecting. Tribes are governments."
The first revenue-sharing agreement was reached 10 years ago when the Mashantucket Pequots agreed to pay Connecticut 25 percent in exchange for the exclusive right to operate slot machines in the state. The agreement was subsequently expanded to another tribe, the Mohegans, and still stands as the richest in the nation, expected to yield $400 million this year.
"It was really a unique thing at the time, because everyone from Indian country was well versed with the concept that direct taxation was prohibited," said Mark Van Norman, executive director of the National Indian Gaming Association.
"But people could see there was a mutuality of benefits because it created a new economic opportunity, and from there obviously other states tried to look to that example."
Davis has cited the Connecticut agreement in requesting $1.5 billion from California tribes, but tribal officials argue that Connecticut, where two tribes share a huge and concentrated market, cannot be compared to California.
California tribes already pay $130 million annually to the state, but it goes into funds for non-gambling tribes and programs to address gambling addiction, traffic congestion and other consequences caused by the proliferation of casinos. The money doesn't pay for state programs in general.
Tribal officials have dismissed Davis' request for an additional $1.5 billion as unrealistic, but a handful of larger tribes also have indicated they will provide more revenue if Davis lifts the 2,000-per-tribe slot machine limit now in place. Negotiations are under way.
There are still only about half-a-dozen revenue sharing agreements nationwide among the 23 states that have gambling compacts with tribes. The number is growing, but some experts say they would be more prevalent if such arrangements had been common in the past, or if then-prosperous states had foreseen the deficits ahead.
"It would be the norm except for the fact that states like California have given away the store and now are trying to get it back," said I. Nelson Rose, who teaches gambling law at Whittier Law School in Costa Mesa, Calif.