For more than three months, chronic reports have promised an imminent deal between Governor Arnold Schwarzenegger’s administration and Indian casino tribes that would provide new revenue to the state’s reeling general fund and allow expansion of tribal casinos. Each time the reports have been wrong. Since the governor has $500 million in his budget for new revenue from Indian casinos and the June 30 constitutional deadline for passing a budget is rapidly approaching, we will soon see what, if any, deal is made.

A number of high-ranking Republicans with ties to the governor tell of a shadowy, parallel negotiating effort under way, to strike an alternative compromise that would bring more revenue to the state than is said to be emerging from the Schwarzenegger negotiations. The counterproposal is being worked on by advocates of one of two megabucks casino initiatives that have qualified for the November ballot — this one sponsored by California racetracks and card rooms — and would involve the roughly 50 tribes that have no casinos and receive little money from their much wealthier compatriots.

Under this proposed compact, details of which are still emerging, the initiative’s funding formula would be flexible and yield more revenue both to the state and to the non-gaming tribes than the governor’s. A well-informed source says this deal would generate between $2 billion and $3 billion to state and local government on an annual basis. This would help the state with its looming future budget problems and help Schwarzenegger keep his promise to local government of restored funding after two years of sharp cuts.

The gambling profits of California’s Indian casino tribes are estimated at $5 billion to $8 billion a year. Under the compact negotiated by the Gray Davis administration, casino tribes pay nothing into the state’s general fund and only about $140 million to tribes without casino operations and to mitigate environmental and law-enforcement effects on nearby communities. This became a huge issue last year when Schwarzenegger took on the casino tribes during the recall campaign and won with his message that Indian casinos need to pay “their fair share” to the state.

Since then, two ballot initiatives have emerged, both now slated for a November vote. An initiative pushed by the Palm Springs–based Agua Caliente tribe would provide less revenue than the other big casino initiative on the November ballot, at an 8.8 percent corporate-tax rate — and that would likely end up being much less. Two top Schwarzenegger political consultants are pushing the 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, racetracks and card rooms would carry out their own expansion, ending the Indian monopoly. That expansion would consist of 30,000 new slot machines at five racetracks and 11 card rooms, a 50 percent expansion of slot machines in California. If either initiative passes, it would supersede any compact. If both pass, the one with the most votes goes into effect.


We’ve become a state of gamblers. Political gamblers. Governor Schwarzenegger is gambling that he can control a three-ring circus of rival gambling interests and extract enough money from California’s Indian casino tribes to justify a major expansion of casino gambling by the tribes. Some casino tribes are gambling that they can work with the governor and get a deal that gives them a green light on unlimited slot machines and expansion into urban areas. Other casino tribes are gambling that they can use an initiative to supersede whatever Schwarzenegger comes up with and pay as little as many corporations. Racetracks and card rooms are gambling that they can use casino tribes’ opposition to paying the 25 percent that tribes pay in Connecticut as a wedge for their initiative to open casinos at five racetracks and 11 card rooms. Nevada interests are gambling that they can stay just attached enough to some casino tribes to keep getting a big piece of some bigger action and that any gambling expansion here is by the Indian tribes only.

All this is taking place in what might be described as a wilderness of mirrors. The Schwarzenegger administration is enforcing a secrecy policy. The governor himself has not returned my phone calls on the topic, and his staff has a policy of making no substantive comments on pending negotiations.

In March, when rumors of an imminent deal swept the Capitol, a highly placed Republican said that $2 billion was on the table for the taking by the state in one-time revenues, to be funded by bonds sold by the tribes. Since then, with the advent of the Agua Caliente initiative, the number of tribes involved in the negotiations has shrunk, and the one-time gain to the state now rumored is about $1 billion.

Most of the tribes that have consistently been at the table are represented by attorney Howard Dickstein, a dove during last year’s epic, multimillion-dollar recall battle between candidate Arnold and casino tribes backing Cruz Bustamante and Gray Davis. A ranking Republican notes that the so-called Pala Compact, negotiated during Pete Wilson’s administration, was in large part worked out between Dickstein and the man who is now Schwarzenegger’s chief negotiator with the tribes, Daniel Kolkey. The powerful Pechanga tribe is also said to be “in the room,” though not actually negotiating.

So Team Arnold seems to be getting a better deal than previous governors, but from the same group that has worked harmoniously with Kolkey in the past. One backer of the racetracks/card-rooms plans dismissed Schwarzenegger’s pending agreement as “a model compact. They still have only four or five tribes.” Another source, a Republican with ties to Schwarzenegger, puts it this way: “We don’t need the one-time revenue as much this year as we did in January [with the tax windfall that eased the need for bloodying programs or temporary tax increases]. So if it’s a billion now and only $130 to $250 million a year ongoing, is it the best deal?”

But a key Schwarzenegger backer insists that the governor will succeed in getting more tribes to participate.

During the campaign, Schwarzenegger seemed to favor expansion of Indian casinos, but on existing reservation sites in more rural areas rather than into urban areas. “They can expand gaming activity, but we don’t want it all over the place,” he said then. Now the word is that he favors some expansion into urban areas in exchange for revenues for the state.

Although Schwarzenegger hasn’t commented, this is said to include the pending casino in San Pablo, situated in the Bay Area within 15 miles of San Francisco and Oakland. Last week the San Pablo deal was reported to be imminent, but then a tribal spokesman denied it.

If Schwarzenegger cuts a deal with the tribes, it will be difficult for Republican legislators to oppose it. Where are the Democrats? The Democrats are usually with the casino tribes. Indeed, no gubernatorial compact with the casino tribes has failed. This fact parallels the rise of the tribes as a megapower in California’s money politics, spending upward of $120 million since the late 1990s. The racetracks and card rooms have not been in that spending class. However, some things are different now. The tribes’ losing big-money struggle with Schwarzenegger during the recall campaign dented their gauzy Dances With Wolves image, though most California voters continue to support tribal casino gambling. And the “fair share” notion advanced by Schwarzenegger in the recall campaign has taken hold. If the fair-share deal isn’t very big, it could be in trouble.

Powerful Southern California casino tribes, such as the Barona, Morongo and San Manuel, are reportedly up in the air. If the big Southern California tribes aside from the Viejas were to oppose the Schwarzenegger compact, then he could have trouble in the Legislature with Southern California Republicans.

Amusingly, Schwarzenegger himself was one of a million California voters to receive a letter sent out on official-looking stationery by state Senator Jim Battin, the Palm Springs–area Republican who moonlights as a public-relations consultant for Indian casinos. The letter solicited support for the Agua Caliente initiative. Schwarzenegger, brandishing the letter, told Battin to drop the initiative because “We can get more.”

We’ll see soon enough if that’s right, if the guv’s hot winning streak continues, or if he sees fit to adopt elements of the emerging alternative proposal and win that way. SchwarzWorld is never a dull place.

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