2008 Primary Election: Propositions 94, 95, 96, 97

The Indian Gaming propositions on the ballot have received more exposure than any of the others and for good reason; there’s lots of money at stake. The four tribes that negotiated these new compacts with the Governer would be able to expand their operations by tripling their slot machines and pay increased taxes on the new slots. Las Vegas casinos, racetracks, card clubs and other Indian tribe’s who are not included in these exclusive compacts are threatened with an increase in competition. To further throw a wrench in the situation these propositions weren’t meant for voter review. These compacts were negotiated behind closed doors and only through a campaign by other casinos and racetracks were enough signatures gathered to force these changes to be voted on by us.

I have to break my analysis of these propositions up into two portions: how it will affect the state financially and how morals play into the situation. The morals involved in the situation are much simpler than the financials. I am personally opposed to gambling engineered to part people from their money. You can’t prevent people from making bad decisions with their money, but games like slots are programmed to pay out certain amounts and the odds are always in the casino’s favor. I guess the the casinos are providing some sort of service by giving a player a feeling of satisfaction while they lose their money. No matter how you feel though, a yes vote will allow expansion of Indian gaming operations in California and a no vote keeps things where they are.

I normally don’t base decisions solely on feelings or emotions so the financial impacts are an important factor for these propositions. Both sides have been pouring millions of dollars into TV ads and we all know how truthful political TV ads are. In these ads, both sides have been lying through their teeth and blowing the consequences of a yes or no vote completely out of proportion. Let’s look at some facts:

• Just for perspective, in 2006 all Californian Indian Casinos took in a between $5 billion and $7.7 billion
• Currently tribal casinos pay $0 into the General Fund, instead the tribes pay into special funds
• These 4 tribes pay $74 million into the Special Distribution Fund (SDF) which covers costs associated with Indian gaming and $2 million into the Revenue Sharing Trust Fund (RSTF) which pays $1.1 million to about 70 other tribes with small or no casinos
• Payments to SDF would end, shortfalls in RSTF made up from SDF then from money going to General Fund
• 17,000 new slots for 4 tribes (for comparison, MGM Grand in Vegas has about 3,400)
• Initial payment increase would start at $122 million and then grow as more slots are added, predicted to grow to $400-$500 million a year if all 17,000 slots installed (15% rate for first 1000-2000 slots or so and then 25% for the last ones)
• As casinos expand about $140 million in tax revenues could be shifted from racetracks and other casinos which could also grow as more slots are installed and business shifted to Indian casinos

The tribes would also make some concessions on environmental and state regulations and open up employees to unionization, but these are pretty minor points. Right off the bat, the shift of funding from RSTF to the General Fund will lead to a deficit and money will get pulled back in to cover shortfalls. So that $122 million in initial payments to the General Fund is more like $50 million. As slots numbers grow this payment will increase, but here comes the biggest fallacy of the whole situation: tax revenue does not grow linearly with the number of slot machines. The main reason for this is that there is a finite supply of gamblers and money to gamble away. Adding 17,000 slots will not create 17,000 new gamblers, a portion of any growth will be shifted from other gambling venues which means tax revenues are also just shifted around. The estimates I saw for this shifting tax revenue were around $140 million, reducing the actual gains being touted by these propositions even further.

I think it is fair to say that the claims of the 4 tribes that would benefit from these compacts are grossly exaggerated. The state will probably end up getting more money each year and it might add up to a few billion over the next 20 years, but this is hardly a solution to our budget problems. You also have to consider the costs of such expansion and whether encouraging people to gamble is healthy for our society. The fact that these deals are unfair to other tribes also bothers me; I would probably consider supporting a deal like this if it applied to all the tribal casinos and evenly distributed the increase in slot machines among them. On top of all this the number of slots is downright unsettling considering these propositions would add the slot machine equivalent of 5 MGM Grands to California.

Oh and here’s a little gem hidden away in the propositions:

Tribal Payments to State May Decline in Certain Instances. Under the compact amendment, if the state allows a nontribal entity to operate slot machines or certain card games in nearby areas, the tribe’s required payments to the state would be significantly reduced or eliminated.

Props 94, 95, 96, 97 – No