Indian gaming's end run around taxes

By Lyn Nofziger

September 8, 1996

It may be time for their fellow Americans to quit feeling sorry for Native Americans.

Thanks to Congress and the national penchant for gambling, Indian tribes and bands are raking in big bucks these days in untaxed and sometimes illegal dollars.

The money largely comes from Indian-owned gaming casinos that gross between $4 billion and $5 billion tax-free annually.

At last count, there were 237 tax-free casinos run by 200 tribes and sub-tribes -- some with fewer than a hundred members -- on reservations in 29 states. The nation's biggest casino in terms of take is not in Las Vegas or Atlantic City; it's in Connecticut, where the Mashantucket-Pequot tribe's Foxwoods Casino rakes in more than $800 million per year. There are fewer than 500 members of the tribe.

All this has come about because of a 1988 law called The Indian Gaming Regulatory Act.

The act, laden with loopholes, largely ignores state laws that affect non-Indian gaming, as well as the rights of surrounding communities. It requires any state that permits any form of gaming to negotiate "in good faith" with any of the 557 federally recognized tribes that want to offer similar games.

It is, in fact, an open door for any tribe to open a casino on its reservation. It has led New York Gov. George Pataki to worry publicly about "the proliferation of casinos and entertainment complexes that pay no property taxes, no sales taxes and no income taxes."

Because of the unique relationship between Indians and government, both state and federal, opportunities for corruption and illegal activities abound. A recent Government Accounting Office report warns that casinos are in danger of being used for money-laundering purposes. The danger is enhanced by the fact that Indian gaming does not fall under the Bank Secrecy Act of 1970 and therefore is not required to disclose its record-keeping and currency transactions.

Additionally, in California, Attorney General Dan Lungren charges that more than 12,000 slot machines and other gaming devices are being operated illegally by at least 20 Indian casinos. Both Lungren and Gov. Pete Wilson argue that, contrary to the law, the devices are being operated without the benefit of a signed agreement between the governor and the tribes.

A federal court of appeals ruling in 1996 supports their claim, saying that the devices are illegal on Indian lands unless there is a tribal-state compact and that the machines are legal elsewhere in the state.

So far, neither condition has been met.

Regardless, Indian gaming has strong congressional support, including that of Arizona Sen. John McCain, whose state has the nation's third-largest Indian population, behind only Oklahoma and California. McCain, chairman of the Senate Committee on Indian Affairs, has told the National Governors Association that he views it as "intransigent in discussions on amendments to the IGRA" and that he remains committed to the rights of Indian tribes "to conduct gaming."

The governors are urging amendments that would force Indians to follow the same state gambling laws that non-Indian establishments must follow.

The value of the casinos to the states in which they operate is hotly debated.

Proponents point to increased jobs within the Indian community as well as contributions from casino profits to charities and reservation infrastructures. A recent friendly article in The San Diego Union-Tribune  says three casinos in San Diego County attract 15,000 gamblers daily and gross more than $300 million a year. It asserts that the casinos have created more than 5,000 jobs, with an annual payroll of $22 million.

One tribe plans to build a $30 million retail and entertainment center on reservation land with its profits. This is not unusual. Many tribes have opened commercial businesses on reservation land near their casinos. These, too, pay no taxes and thus undercut existing businesses.

Some tribes use casino profits to buy land that is put in "trust" and thus becomes a part of the reservation and pays no property taxes. Commercial ventures placed on trust lands also pay no taxes.

On the surface, the fact that casinos have brought new prosperity to many Indian tribes is something to cheer about. But there is a downside, too.

Take, for instance, the retail and entertainment center.

Because it will pay no taxes, it will underprice merchants in the area, eating not only into the profits but also into state and county tax revenues derived from those merchants. A recent report by the Wisconsin Policy Research Institute found that many businesses adjacent to casinos are significantly hurt by neighboring tax-free, Indian-owned businesses.

In California and other states with state-run lotteries, there also are indications that Indian gaming is diverting large amounts from the lotteries. This means reduced state revenues, which, along with the casinos' negative effect on small business, is almost certain to bring about higher taxes at both state and local levels.

Though Indian casinos and business ventures pay no taxes, they benefit from state and local services, including roads, fire and police protection.

Additionally, casinos and business ventures built on reservation land are not subject to zoning and building codes or other restrictions that apply off the reservation.

Studies also show that the casinos add substantially to the financial burdens of states and nearby localities, not only because of increased crime, but also because of added burdens placed on water, and sewer and traffic systems. Regarding crime, Minnesota is a typical example. There, between 1988 and 1994, counties with casinos had twice as much crime as counties without casinos.

Indian leaders are aware of the increasing opposition to the growth of their tax-free casinos and have adopted a common tactic to fight it; they have hired expensive lobbyists and are contributing heavily to political parties.

In California, the 18-member Cabazon band of Mission Indians has given more than $600,000 in campaign contributions. Between 1994 and 1995, political contributions from Indian groups in the state totaled nearly $2.5 million.

Finally, despite their multibillion-dollar gaming income, Indians still have their hands as deeply as ever in the federal trough. In fact, the 1997 budget request by the Bureau of Indian Affairs, arguably the worst-run federal agency, is $211 million higher than it was for 1996.

NOFZIGER is a Republican strategist and adviser.

Copyright 1996 Union-Tribune Publishing Co.