Props 94 through 97 would allow four southern California Indian tribes to expand their casinos so they would be among the largest in the world. In exchange the tribes would pay billions of dollars into the state’s General Fund. Sounds like a painless solution California’s budget crisis, right? That’s certainly what the legislature and governor thought when they approved these compacts last June. But this isn’t a good way to balance the budget, and the agreements are tilted too heavily in the tribes’ favor anyway. We can do better—much better. Vote down the compacts to encourage a better solution to our budget crisis, or at least send the parties back to the bargaining table.
The tribes in question—Pechanga, Morongo, Sycuan and Agua Caliente—currently operate five casinos in Riverside and San Diego counties. Their existing compacts with the state allow each of them 2,000 slot machines. Props 94-97 will increase this to 5,000 for Sycuan and Agua Caliente and 7,500 for Pechanga and Morongo. This would place the latter two on par with the Foxwoods casino in Connecticut, currently the world leader in slots with over 7,400. For comparison, the enormous MGM Grand in Las Vegas has only half that number at 3,700.
Calculating from one of the compacts, each slot machine brings in approximately $130,000 a year in net profit (after payouts), so the four tribes’ 8,000 machines currently bring in $1.04 billion profit a year. Under the existing compacts the tribes pay nothing to the state’s General Fund. Instead, they pay roughly $74 million into special funds for local governments, poorer tribes, and other purposes. That’s an effective tax rate of 7%. Pretty sweet for the tribes.
Props 94-97 will impose a new payment to the General Fund. It will start with a base of $123 million (11.8% of the profit on the existing 8,000 machines), and add 15% of the net profit from the first 20,000 new slot machines, plus an additional 10% of the net profit on the final 5,000 machines at Pechanga and Morongo. If the $130,000 per machine figure holds for all new slots, this would mean $675 million in new income for the General Fund once all 25,000 new slot machines are operational. Pretty sweet for the state.
Or is it?
The profits from all 33,000 machines will be about $4.3 billion, yielding an effective tax rate of 15%. This might be high for a regular business, but we’re talking about gambling. Compare it to the Lottery, which is “taxed” at a whopping 83%—that is, of income not used for prizes or operational costs, 83% goes to public education, with the rest used for retailer commissions and bonuses. Props 94-97 will turn that equation around for Indian casinos: 85% of profit will go to the tribes, the rest to the state. Obviously we should negotiate a better deal. If these propositions fail, that’s what will happen.
Why did Arnold and the Legislature make such bad deals? Two reasons: campaign contributions and the budget gap. The four tribes regularly make lavish contributions to both political parties and elected officials, so everyone in Sacramento is, shall we say, predisposed to be nice to them. And the impending huge budget shortfall has made lawmakers even more desperate for a solution, so they’re willing to settle for any agreement they can get.
But the competitive climate is right to renegotiate. The tribes on this ballot are only four of more than 50 tribes operating casinos in California today. If these measures fail, the pressure will be on Pechanga et al. If they don’t agree to give more than 15% to the General Fund, competing tribes surely will. I’d like to see the state go for 50% or more. That would still leave billions in profits for the tribes, yet pale in comparison to the Lottery.
There are other provisions of the proposed compacts that make them bad deals for the state. Under the existing compacts, the state has the right to inspect casino records to verify payment levels. Props 94-97 allow the tribes to audit themselves instead. The temptation to shortchange the state may be too great to resist. Moreover, the propositions effectively grant the tribes exclusive franchises on card and slot machine gambling in their local areas. I can’t see any justification for this give-away.
The propositions also fail to address two important problems with the existing compacts: casinos’ immunity from the California Environmental Quality Act and the lack of labor union protections for casino employees.
But putting aside quibbles over the terms of the compacts, there are deeper reasons to oppose Props 94-97. See if any of these resonate with you.
“Sin taxes” have been around forever, and it’s hard to argue against them. It makes sense to tax, and thereby discourage, nonessential activities such as gambling, smoking and drinking, that have no societal merit. But I’m queasy about closing a budget deficit by creating more sins to tax. Props 94-97 hope to balance our state’s budget not by discouraging, but by expanding slot-machine gambling, which is an addictive, self-destructive behavior on par with smoking and drinking. This strategy seems to contradict the entire rationale for sin taxes.
Let’s take the strategy a step further. If it’s fine to close the budget gap partially by legalizing, franchising, and taxing one “victimless” activity, wouldn’t it be better to close it completely with more? We could legalize prostitution, grant a franchise to the Police Athletic League, and direct 35% of the profits into the General Fund. It would be worth billions! Why stop there? Let’s legalize marijuana, let the Salvation Army sell it, and collect 40%. Budget surpluses as far as the eye can see! Crystal meth, sold by the Girl Scouts? The state income tax becomes unnecessary! Heroin from the Church of Christ? No more sales tax!
Is this really how we want to structure our state budget? Should government income depend on the public level of avarice? Should schoolchildren suffer when there isn’t enough lust, greed and gluttony to pay for their textbooks? Of course not. I am not arguing that we should outlaw gambling, but rather that the state has no business depending so heavily on slot machines. Props 94-97 are emblematic of a legislature that cannot control spending, will not raise taxes, and is turning to desperate, stop-gap measures that will ultimately cause a much bigger problem than they solve.
The problem I refer to is gambling addiction. “Gambling can be as serious as a drug addiction, yet it is a government-subsidised form of addiction,” says addiction specialist Eric Nestler of the University of Texas. “We need to be made more aware of the potential risks, and we need … [to] remove subsidies for addictive behaviors: tobacco, gambling, state lotteries—it’s absurd.” According to New Scientist magazine, “Some researchers predict as many as 10 per cent of the US population will soon have a gambling problem.”
The $9 billion that proponents claim will flow into the General Fund over the lifetime of the compacts will have to come from someone. That “someone” is ordinary Californians, who must lose $60 billion to the slot machines authorized by these propositions if the promised government funding is to materialize.
That much money—the equivalent of $2,400 in gambling losses by every adult in the state—cannot possibly come just from casual gamblers having a wholesome night at the casino. Instead, most of that $60 billion will come from addicts: people who have lost control over their actions. One study reportedly suggests 60% of slot machine revenues come from gambling addicts. That lost money could be funding retirements, or paying off credit card debts, or buying goods and services in the local community. Instead it will drain into slot machines, leaving the losers poorer and ever more vulnerable. Will that be good for our economy or society? Think about it.
Since 1980, when he was a student at Harvard, Pete Stahl has been writing what he calls “sensible” opinions on the California ballot propositions. Often provocative, frequently irreverent, usually progressive, Pete cuts through the posturing on either side of each measure, distilling the true issues underlying them.
Pete Rates the Propositions is non-partisan and unaffiliated with any candidate or organization. Pete remains obstinately undoctrinaire, considering each ballot proposition on its merits. He is proud to have offended (and persuaded) voters of all political stripes. This originally appeared on Pete Rates the Propositions and is republished with the permission of the author.
