Arnold and the Indians

Arnold Schwarzenegger has the hottest hand in California politics in many years. Even the L.A. Times has ceased its dogged pursuit of its great white whale. The ex–Mr. Universe’s carefully brokered deal on workers’-compensation reform is just the latest in a string of political victories for a man who one year ago was focused almost entirely on opening a movie about a killer cyborg from the future, the governorship a dream he was just beginning to talk about with a few people.

But the rookie politician’s skillful use of the perception and reality of his ability to use statewide initiatives to impose his will — which nonetheless always involves important compromises with Democrats — is about to run into a buzz saw on the November ballot in the form of what looks to be the biggest-spending initiative battle in California history.

In the process, California appears on the verge of a major expansion of gambling that was not advocated by Schwarzenegger in last year’s recall campaign, and Schwarzenegger may lose control of his prized negotiations for revenue from Indian casino tribes (which currently pay nothing into the state’s general fund) and end up squaring off against two of his top political advisers.

A Schwarzenegger-negotiated settlement with casino tribes made early progress but may be falling apart as tribes peel off to back an initiative pushed by the Agua Caliente tribe that would provide much less revenue to the state, at an 8.8 percent corporate-tax rate, which would likely end up being even less, as is the case with most corporations. Two top Schwarzenegger political consultants are pushing a rival initiative, financed by racetracks and card rooms, that would have California, like Connecticut, take 25 percent of Indian-casino revenues; if any of the tribes didn’t go along with the initiative, racetracks and card rooms would carry out their own expansion of gambling, ending the Indian casino monopoly. That expansion would consist of 30,000 new slot machines at five horse racetracks and 11 card rooms, including one in Gardena owned by Hustlerpublisher Larry Flynt.

This 50 percent expansion of slot machines would generate major new revenue for the state. In the end, Schwarzenegger may square off against both casino tribes and some of his own top advisers, a situation that may have been inevitable at some point given the multiple interests involved. All concerned, Schwarzenegger included, look like they are pushing an expansion of gambling few foresaw last year during the recall campaign.

Longtime Schwarzenegger senior adviser George Gorton and his chief media consultant, Don Sipple, are working with Democratic consultant David Townsend on the gambling initiative backed by the racetracks and card rooms. Longtime Gray Davis consigliereGarry South and former Pete Wilson spokesman Dan Schnur are working for the tribes.

Gorton calls his initiative “a big winner” for California, noting estimates that it would generate more revenue than the other proposals, even if the Indian casino monopoly continues. “Our polling shows this is a hard one to knock down,” he says. But such a major expansion of gambling is very controversial, even with L.A. County Sheriff Lee Baca co-chairing the campaign. The racetrack–card room forces have already begun airing $3.5 million of Sipple-produced ads whose rhetoric echoes that of Schwarzenegger during the recall in demanding a “fair share” of Indian-casino revenue for the state.

The action guv is pushing a negotiated settlement that, according to top Republican inside sources, looked set to reap $2 billion in near-instant revenue for the state, whose finances are still in deep trouble. Casino tribes would float a bond that would be funded by a big expansion of tribal gambling. The state would receive subsequent ongoing revenue from higher fees and fees on new machines. But that figure is now down to $1 billion in quick revenue to help solve the current budget crisis, as many casino tribes have peeled off to back the Agua Caliente initiative.

Schwarzenegger hopes to make the Agua Caliente initiative look like a loser, in part by playing the racetrack–card room initiative backed by part of his political brain trust as a winning alternative at the ballot box. But Schwarzenegger doesn’t actually want the latter initiative as anything more than leverage. Some high-ranking insiders expect Schwarzenegger to oppose that initiative as too great a potential expansion of gambling, as well as the rival Agua Caliente initiative, which he already opposes.

 

Unless the governor can soon get more tribes back to bargaining with his well-regarded chief negotiator, Daniel Kolkey, he may find himself in an uncontrollable situation, his once-promising emerging deal with the casino tribes in tatters, forced either to choose one of the initiatives to back or to oppose both and try again next year, forgoing needed revenue for the current budget crisis for at least a year.

We don’t really know how much business casino-tribe gambling is doing in this state. The commonly accepted figure is $5 billion a year, and growing. Kolkey — who also negotiated with the tribes on behalf of the Wilson administration, for which he was, rather ironically, recruited by Gorton — says they don’t know for sure, since the tribes, because of their sovereignty, are not required to report specific numbers even to the federal government. Some Wall Street analysts know, of course, since casino tribes disclose operating figures to obtain financing from and partnership with Nevada casino-management firms, but analysts I’ve contacted call that information strictly proprietary.