Negotiating meaningful concessions from states in gaming compacts to further tribal economic development: satisfying the "economic benefits" test.

• Author: Fletcher, Ezekiel J.N.

1. INTRODUCTION--THE USE OF TRIBAL GAMING REVENUE TO FOSTER TRIBAL ECONOMIC DEVELOPMENT AND DIVERSIFICATION II. TRIBAL GAMING AS A MEANS TO AN END A. INDIAN GAMING COMES ALIVE: CALIFORNIA V. CABAZON BAND OF MISSION INDIANS B. THE GREAT (AND FRAGILE COMPROMISE: THE INDIAN GAMING REGULATORY ACT 1. Classes of Indian Gaming 2. The Tribal Trump Card: IGRA's Good Faith Negotiation Requirement 3. The Trump Card is Trumped: Judicial Elimination of the Tribal Remedy Under IGRA and the One-Sided Compacting Process Since Seminole Tribe v. Florida 4. 25 C.F.R. Part 291: The Department of the Interior Administratively Replaces the Tribal Trump Card in Response to Seminole Tribe III. GAMING COMPACT SUBJECT AREAS: THE ECONOMIC BENEFITS TEST IV. BARRIERS TO ECONOMIC DEVELOPMENT ON THE RESERVATION AND THE SUBSTANTIAL BENEFITS TEST A. QUANDARIES WITH TRUST LAND AND TAXATION ISSUES B. ATTEMPTING TO RESOLVE THE "DOUBLE TAXATION" PROBLEM AS A SUBJECT OF A GAMING COMPACT TO PROVIDE TRIBES WITH A TAX BASE V. CONCLUSION I. INTRODUCTION--THE USE OF TRIBAL GAMING REVENUE TO FOSTER TRIBAL ECONOMIC DEVELOPMENT AND DIVERSIFICATION

   Tribes in California, Florida, Maine, New York, and Wisconsin, in search of funding for tribal governmental services, opened high-stakes bingo parlors during the 1960s and 1970s long before any federal laws were enacted to address Indian gaming. (1) At the time the Indian Gaming Regulatory Act (2) (IGRA) was enacted in 1988, there were over eighty tribes licensing, conducting, and operating bingo and card games throughout Indian country. (3) Despite the relative infancy of Indian gaming at that time and lack of profitable slot machines, these Indian gaming facilities managed to gross over $110 million for the year. (4)

   At this point, there are over 382 tribal gaming facilities in 28 states, operated by approximately 225 tribes, with gaming revenue surpassing $26 billion for the year 2007. (5) Much of the revenue generated, however, comes from tribal gaming facilities located in metropolitan or at least somewhat populated areas. (6) For example, the two Indian gaming facilities in Connecticut, Foxwoods Resort and Casino (owned by the Mashantucket Pequot Tribe) and the Mohegan Sun (owned by the Mohegan Tribe) account for nearly 10% of all revenue generated by tribal casinos. (7)

   Based upon the yearly tribal gaming revenue statistics released by the National Indian Gaming Commission (NIGC), 22 tribal gaming facilities account for 42% of all tribal gaming revenue. (8) Each of these 22 casinos generates over $250 million yearly in gaming revenue. (9) By contrast, there are 210 tribal facilities generating less than $10 million in yearly revenue, and these tribes account for only 2% of all tribal gaming revenue. (10) In short, not every tribe or individual tribal member is making millions and millions of dollars from tribal gaming facilities and most facilities are rather modest. (11)

   There are 562 Indian tribes recognized by the United States. (12) Roughly one-third of these federally-recognized tribes make up almost all Indian gaming revenue. (13) Not all tribal casinos are successful and many earn only marginal profits. (14) As Professor Kevin Washburn noted, many of the non-gaming tribes include some of the most poverty infested regions of the United States: "Not surprisingly, the most successful gaming operations are located in close proximity to large urban areas. A handful of tribes blessed by geography and demographics have been fabulously successful. The Poorest of tribes have remained the poorest communities in the United States." (15)

   Even though much of the gaming revenue generated by Indian casinos comes from a small minority of tribal facilities, there are still states and citizens' groups that pour a substantial amount of resources into compact negotiations and litigating gaming-related trust land acquisitions. (16) These anti-IGRA states and citizens' groups completely misunderstand the intent and basis behind the enactment of IGRA. Overall, they are ignorant of basic concepts of federal Indian law and seem offended by the notion of tribal sovereignty. Some groups and media continue to assert IGRA must be revisited because IGRA "gives too much power to tribes." (17)

   Of the tribes that have established gaming facilities, class III (casino-style) gaming is generally the most lucrative class of Indian gaming. (18) Class III gaming includes slot machines and other casino-style gaming. (19) In order for tribes to conduct class III gaming, however, a gaming compact must be executed between the tribe and the state in which the tribe is located. (20)

   If and when a state is willing to negotiate with the tribe, the executive branch of state government, generally, will act as the lead state negotiator for state-tribal gaming compacts. Ratification by the state legislature, depending on the state constitution, state law, or state case law, may be required before a compact is finalized; this process has become a constant struggle under state constitutional law as the authority of each branch of state government with regard to state acceptance of tribal gaming compacts. (21)

   Revenue sharing between the tribe and the state has become a topic of much debate among tribes, state governors, and if applicable, state legislatures even though IGRA specifically prohibits the state from taxing gaming revenue. (22) The explicit prohibition on state taxation of Indian gaming revenue is viewed, however, in a seemingly different manner since the United States Supreme Court's decision in Seminole Tribe v. Florida. (23)

   One major effect of the Seminole Tribe decision is that "revenue sharing" between the tribe and the state is now the norm. (24) Many gaming compact negotiations, in fact, are concentrated not on whether any revenue sharing provisions will be included, but rather what the percentage will be. (25) This major impact of the decision in Seminole Tribe negates any statutory bargaining leverage that tribes had under IGRA, and essentially permits states to engage in legal extortion. (26) If tribes are not going to "pony up" and give the state a percentage of gaming revenue (not a small percentage either), tribes are left with absolutely no statutory recourse to require a state to negotiate a class III gaming compact in the wake of Seminole Tribe. (27)

   According to the United States Department of the Interior (DOI), revenue sharing, generally, does not constitute illegal state taxation if the tribes receive "a valuable economic benefit" in return for "substantial exclusivity." (28) DOI officials have testified before Congress regarding revenue sharing provisions and exclusivity:

   Up to now, the Department has only accepted one type of benefit as being sufficient to merit a revenue sharing payment, and that is substantial exclusivity. That is in a [s]tate where Class III gaming may be authorized but is not authorized for non-Indian persons to operate commercial enterprises, but the tribe is authorized to operate those enterprises. Then we would look at whether a revenue sharing payment is warranted and to what degree, given a particular tribe's circumstances. (29) Essentially, if "substantial exclusivity" is not available, and therefore, the bargained-for exchange of a valuable economic benefit is not available, then revenue sharing payments must be relinquished for the compact to be valid under IGRA. (30) Although officials from the DOI have testified before the Senate Committee on Indian Affairs to garner congressional support for amendments to IGRA that would have provided a stronger statutory basis for revenue sharing, the Department has continued to approve compacts containing revenue sharing provisions. (31) DOI, in fact, recommended the maximum revenue sharing payment should be capped at 10% or the payment would constitute a tax in violation of IGRA. (32)

   In the absence of congressional clarification at least one federal court has offered an interpretation of what constitutes "exclusive" by holding that exclusivity means the state will not itself engage in gaming or the state will not permit or will limit non-Indian commercial gaming:

   Tribes enjoy the exclusive "right to operate" so long as the [t]ribes are the only person or entities who have and can exercise the "right to operate" electronic games of chance in the [s]tate or, in other words, as long as all others are prohibited or shut out from the "right to operate" such games. (33) If exclusivity or substantial exclusivity constitutes the bargained-for exchange in return for sharing revenues to the state pursuant to a class III gaming compact, the tribes have negotiated to cease payments (34) or at least decrease the amount (35) given to the state (36) in the event the exclusivity provision is breached. In some cases, however, even if the substantial exclusivity provision is breached by the state and the payment amount is eliminated or decreased, in the event the tribe is able to actually increase revenue levels to 110% of net gaming revenue prior to the state's breach, the tribe will again be required to submit payments to the state. (37)

   Fair enough ... but what does "valuable economic benefit" or "substantial economic benefit" mean? Alternatively, what if the state already engages in, permits, or licenses non-Indian commercial gaming or allows commercial gaming in the form of racinos? Maybe exclusivity does not match the economic benefit of revenue sharing payments distributed to the state. Are there other options available to the tribes? Could a tribe negotiate for other economic benefits in lieu of exclusivity? The recent amendments to the gaming compacts of the Little River Band of Ottawa Indians and Little Traverse Bay Bands of Odawa Indians in Michigan show the DOI discomfort in revenue sharing where there is not a clear showing of substantial exclusivity, or other meaningful concessions. (38)

   This article argues that tribes, in some...