Casino Royale Politics

May 30, 2002
From the Wall Street Journal

Indian tribes with casinos argue that gambling is the yellow brick road to Native American economic development. The jury is still out on that and not everyone in Indian country is so sanguine. But one thing is undisputed: The political clout of casino tribes is sharply on the rise, and it is beginning to purchase favors that affect other Americans.

This new power was on vivid display recently in California, where the Board of Equalization reversed established regulations and voted 5-0 to create a big new sales-tax exemption for Indian reservations. The ruling evolved from a lawsuit brought by the casino-owning Agua Caliente tribe against the state. Rather than appeal a federal judge’s ruling that most beverages and prepared food sold on the reservation should be exempt from sales tax, the board astonishingly folded its hand.

The ruling creates a loophole big enough to drive truckloads of retail goods through. Under a loose definition of “reservation-based value,” Indian retailers will be exempt from sales tax if they make a “substantial contribution” to the product, or if the product has a “substantial connection” to the retailer through financing, manufacturing or marketing. It also exempts restaurants.

The new ruling is a big deal to many California communities and small businesses that suddenly face government-favored competition. Sacramento Bee columnist Dan Walters warned recently that tax-exempt retail facilities adjacent to casinos “would have built-in price advantages over non-Indian retailers.” There is also the matter of lost tax revenue, in this case about $17 million for a state with a huge budget deficit.

We suspect it’s no coincidence that a torrent of casino money has also been pouring through California’s politicians. The money comes from 61 tribes that have signed gambling compacts with the state and the big-money interests that back them. According to campaign finance reports, gambling tribes have lavished more than $40 million on state politicians since 1995, and another $80 million on casino propositions before California voters. Governor Gray Davis has received more than $1 million from gambling tribes. Virtually overnight, casino-owning Indian tribes have become one of California’s most powerful political lobbies.

Johan Klehs, a member of the Equalization Board that made the sales-tax call, received $10,000 in campaign contributions from tribes in a failed primary race for state controller. He’s defended his record, saying, “I vote my conscience.” But it’s notable that the board overruled its own staff’s recommendation that state policy remain unchanged and sales tax be collected. We’re reminded of the two Clinton-era heads of the Bureau of Indian Affairs who overruled numerous staff recommendations that tribal recognition not be granted to casino-seeking Indian groups.

Under the new federal campaign finance laws, by the way, tribal power will increase even more. While tribes must abide by the $2,000 per candidate limit, they can donate to as many candidates as they want. Other Americans are capped at a total of $95,000 in contributions per election; tribes are not. With more than 500 Indian tribes, that’s a lot of wampum.

Senator John McCain and his fellow activists made no attempt to close this campaign-finance loophole, which was opened by a Federal Election Commission ruling in the waning days of the Clinton Administration. Mr. McCain sits on the Indian Affairs Committee and received the largest amount of tribal donations to any one candidate in the 2000 election cycle, more than $42,000.

No one disputes the right of Indian tribes to lobby their government. But that right is being abused when it is used to buy special political favors. The $10 billion Indian casino industry has become one of America’s political giants with almost no public scrutiny. It’s time the political system noticed.