Indian gaming and beyond: tribal economic development and diversification.

• Author: Meister, Alan P.

1. INTRODUCTION

   Economic development in Indian Country, the topic of this symposium issue, is nearly synonymous with tribal gaming. No other modern industry has had such a substantial economic impact on tribal economies, and no other tribal industry has made such significant contributions outside of tribal economies.

   Just two decades ago, as Congress deliberated over the bill that would become the Indian Gaming Regulatory Act of 1988 (IGRA), (2) Indian gaming consisted of a few tribes' high-stakes bingo halls and card rooms in a handful of states. Today tribal gaming is one of the fastest growing segments of legalized gambling in the United States, fed by the robust demand for casino gaming. In 1988, Indian gaming in a few bingo halls earned about $121 million; in calendar year 2007, revenues from 425 gaming facilities operated by 230 tribes in 28 states topped $26.5 billion (3).

   How did Indian gaming become a multi-billion-dollar industry? What are its economic and fiscal impacts, both on and off the reservation? And what does the future hold for Indian gaming and tribal economic development? We take up each of these questions in turn.

2. A BRIEF HISTORY OF INDIAN GAMING

   1. CALIFORNIA V. CABAZON BAND OF MISSION INDIANS

      The modern Indian gaming industry has its roots in the relatively modest bingo halls and card rooms operated by a number of tribes, most notably in California and Florida, in the late 1970s and 1980s. Almost as soon as tribes opened high-stakes bingo halls, states worked to close them. (4) By relying on the general principle of federal Indian law that states may not regulate tribal lands or tribal governments, tribes created a market advantage: tribes could offer games with higher stakes, longer hours, and bigger jackpots than were allowed under state regulations. (5)

      In 1987, the year before Congress enacted IGRA, the U.S. Supreme Court decided California v. Cabazon Band of Mission Indians. (6) The case arose out of California's attempts to close a high-stakes bingo hall operated by the Cabazon Band of Mission Indians on its reservation near Palm Springs. As California law permitted charitable bingo games, but limited jackpot amounts and restricted the use of revenue to charitable purposes, the state considered the tribe's bingo games illegal. California acknowledged that states ordinarily lacked authority over tribal lands, but argued that Public Law 280 authorized application of California's bingo regulations on the tribes' reservations. (7) Enacted in 1953, Public Law 280 gave certain states, including California, a broad grant of criminal jurisdiction and a limited grant of civil jurisdiction over tribes within their borders. (8)

      The Cabazon Court explained that if California's gambling laws were criminal prohibitions against gambling, the state could enforce them against the tribes under Public Law 280 (9). The extent of the state's civil jurisdiction was another matter. In an earlier case, the Supreme Court had ruled that Public Law 280's grant of civil jurisdiction did not provide broad authority for state regulation generally but rather was limited to private civil litigation in state court--that is, the statute conferred adjudicatory, rather than regulatory, civil jurisdiction. (10) Thus, if California's gambling laws were civil regulatory laws, the state did not have authority to enforce them against the tribes.

      The "criminal/prohibitory-civil/regulatory" distinction required examination of state public policy concerning gambling to determine whether state law constituted a criminal prohibition against gambling generally or mere civil regulation of legalized gambling. At the time, California operated a state lottery and permitted pari-mutuel horserace wagering, bingo, and card games. "In light of the fact that California permits a substantial amount of gambling activity, including bingo, and actually promotes gambling through its state lottery," the Cabazon Court reasoned, "we must conclude that California regulates rather than prohibits gambling in general and bingo in particular." (11) Cabazon's bottom line was that as long as gambling did not violate state public policy, tribes could operate and regulate their own gaming establishments free of state interference. (12)

   2. THE INDIAN GAMING REGULATORY ACT OF 1988

      After Cabazon, states and commercial gaming interests turned to Congress, where they vociferously lobbied for state regulation. (13) Tribes, armed with their victory in the Supreme Court, argued for exclusive tribal regulation or, short of that, federal regulation. Faced with these disparate positions, Congress's Cabazon "fix" took the form of a political compromise meant to bridge the gap between the state and tribal positions, to balance state and tribal authority, and to ensure that gaming was available to tribal governments as a means of generating revenue in accord with federal interests in tribal self-sufficiency and reservation economic development. (14)

      Congress enacted IGRA on October 17, 1988, with the purpose of codifying tribes' right to conduct gaming on Indian lands as a means of promoting tribal economic development, self-sufficiency, and strong tribal governments, and to provide sufficient regulation to ensure legality and to protect the financial interests of gaming tribes. (15) To give effect to the political compromise between state and tribal authority, IGRA categorizes types of gambling by "class" and assigns regulatory authority accordingly. (16) Bingo and similar games, or "Class II" gaming, are regulated by tribes with some federal oversight. (17) State interests in preventing the infiltration of organized crime and controlling gambling generally were most persuasive to Congress in the context of the "cash business" of casinos. At the same time, casino-style gaming was more lucrative than bingo and had greater potential to fuel reservation economic development, a key goal of federal Indian policy. So, for casino-style gambling, or "Class III" gaming, IGRA requires a "tribal-state compact," a negotiated agreement between the tribe and the state governing casino-style gaming on the tribe's reservation. (18)

      Generally speaking, IGRA expressly prohibits states from seeking, through a tribal-state compact, to tax or charge the tribe a fee for the right to engage in casino-style gaming. (19) However, there are three types of direct payments made by tribes to states and local governments in relation to gaming, commonly known as revenue sharing. (20) First, IGRA allows for direct payments to defray the costs of regulating Class III gaming activities. (21) Second, IGRA allows tribes to use gaming profits to "help fund operations of local government agencies." (22) Third, despite IGRA's prohibition against direct state taxation, the U.S. Secretary of the Interior, who is responsible for reviewing and approving gaming compacts between tribes and states, (23) has allowed voluntary compact payments by tribes to states in exchange for the state's grant of valuable economic benefits. (24) Such payments to a state must be deemed "appropriate in light of the benefit conferred on the tribe." (25) Specifically, the Secretary has adopted a practice whereby payments by a tribe must not exceed the value of the benefits received by the tribe. (26) While acceptable types of benefits to tribes have not been enumerated by the Secretary, one example is given: "substantial exclusivity." (27) According to the Secretary's practice, other benefits may be conferred upon a tribe in exchange for revenue sharing, but an economic analysis of the benefits is required in order to demonstrate appropriateness. (28)

      Many tribes make one or more of these three types of direct payments to state and local governments. The percentages and dollar amounts of direct payments by tribes vary substantially, depending on a host of factors, including: prevailing economic climate; whether the gaming at issue was new or existing; actual or expected performance of gaming operations, depending on whether gaming at issue was new or existing; degree of competition; types of gaming offered; and the relative bargaining positions of a state and tribe at the time revenue sharing was negotiated. (29) In calendar year 2007, the total of all identifiable direct payments to state and local governments was approximately $1.3 billion. (30)

      As a legal codification of the political compromise between tribal and federal interests on the one hand and state interests on the other, IGRA's compact provisions reflect congressional efforts to balance these competing interests as well as state and tribal authority. (31) Overall, through IGRA, Congress sought to encourage and protect Indian gaming as a means of furthering federal and tribal goals of tribal economic development, self-sufficiency, and strong tribal governments.

3. THE INDIAN GAMING INDUSTRY (32)

   1. CURRENT STATE OF INDIAN GAMING

      In calendar year 2007, the most current year for which data are available, there were 230 tribes operating 425 gaming facilities in 28 states. (33) Twenty-three of these states had some form of Class III gaming, while five states only had Class II gaming. In total, Indian gaming generated approximately $26.5 billion in gaming revenue and $3.1 billion in non-gaming revenue (i.e., revenue from hotels, restaurants, entertainment, and shopping at Indian gaming facilities). (34) Indian gaming facilities, including non-gaming operations, directly supported approximately 346,000 jobs and paid about $12 billion in wages to employees. (35)

   2. GROWTH OF INDIAN GAMING

      Since IGRA's enactment in 1988, the scope of tribal gaming operations has undergone an impressive transformation from small bingo facilities to largescale casinos. (36) A growing number of tribes have created resort/destination casinos with wide-ranging non-gaming offerings, including hotels, restaurants, entertainment, shopping, and much more. On a nationwide basis, tribal...