1998 Indian Gaming Compacts. Referendum Statute.
	Analysis by the Legislative Analyst

Background

Gambling in California

The State Constitution and various other state laws limit the types of legal gambling that can occur in California. The State Constitution specifically:

• Authorizes the California State Lottery, but prohibits any other lottery.
• Allows horse racing and wagering on the result of races.
• Allows bingo for charitable purposes (regulated by cities and counties).
• Prohibits Nevada- and New Jersey-type casinos.

Other state laws specifically prohibit the operation of slot machines and other gambling devices (such as roulette). With regard to card games, state law prohibits: (1) several specific card games (such as twenty-one), (2) "banked" games (where the house has a stake in the outcome of the game), and (3) "percentage" games (where the house collects a given share of the amount wagered).

State law allows card rooms, which can operate any card game not otherwise prohibited. Typically, card room players pay a fee on a per hand or per hour basis to play the games.

Gambling on Indian Land

Gambling on Indian lands is regulated by the 1988 federal Indian Gaming Regulatory Act (IGRA). The IGRA defines gambling under three classes.

• Class I gambling includes social games and traditional/ceremonial games. An Indian tribe can offer Class I games without restriction.Class II gambling includes bingo and certain card games.
• Class II gambling, however, specifically excludes all banked card games. An Indian tribe can offer only the Class II games that are permitted elsewhere in the state.
• Class III gambling includes all other forms of gambling such as banked card games (including twenty-one and baccarat), virtually all video or electronic games, slot machines, parimutuel horse race wagering, most forms of lotteries, and craps.

An Indian tribe can operate Class III games only if the tribe and the state have agreed to a tribal-state compact that allows Class III activities. The compact can also include items such as regulatory responsibilities, facility operation guidelines, and licensing requirements. After the state and tribe have reached agreement, the federal government must approve the compact before it is valid.

Gambling on Indian Lands in California

According to the federal Bureau of Indian Affairs, there are over 100 Indian rancherias/reservations in California. Currently, there are about 40 Indian gambling operations in California, which offer a variety of gambling activities.

In the past two years there have been several important developments with regard to Indian gambling in California:

• April 1998. The Governor concluded negotiations with the Pala Band of Mission Indians to permit a specific type of Class III gambling on tribal land. The compact resulting from these negotiations--the "Pala" Compact--was subsequently signed by ten other tribes. These 11 compacts were approved in legislation in August of 1998.
• November 1998. State voters approved the Tribal Government Gaming and Economic Self-Sufficiency Act--Proposition 5. The proposition, which amended state law but not the State Constitution, required the state to enter into a specific compact with Indian tribes to allow certain Class III gambling activities.
• November 1998. A referendum on the August 1998 legislation approving the 11 Pala compacts qualified for the March 2000 ballot (this proposition). Once qualified, the August 1998 legislation was put "on hold" until the vote on this proposition.
• August 1999. Proposition 5 was ruled unconstitutional by the State Supreme Court on the basis that the measure would permit the operation of Nevada- and New Jersey-type casinos.
• September 1999. The Governor negotiated and the Legislature approved compacts with 57 tribes--including the tribes that signed the Pala compacts--authorizing certain Class III games. These take the place of all previously approved compacts, including the Pala compacts. These new compacts, however, will become effective only if (1) Proposition 1A (also on the March 2000 ballot) is approved by the voters and (2) the federal government approves the compacts.

Proposal

If approved by the voters, this proposition would allow the Pala compacts approved by the Governor and the Legislature in 1998 to go into effect.

The Pala compact authorizes the operation of Indian "video lottery terminals" if they operate as lotteries, not slot machines. The compact contains a provision that if the terminals are found by the courts to be slot machines, then the compact is void. The Pala compact does not allow any other Class III games (such as twenty-one or craps).

These compacts, however, would not go into effect if the voters approve Proposition 1A on this ballot. This is because the newer compacts approved in September 1999 become effective if Proposition 1A is approved and the federal government approves the compacts. In this case, the September 1999 compacts replace all previously approved compacts--including the Pala compacts.

Fiscal Effect

The fiscal effect of this proposition depends on voter action on Proposition 1A on this ballot.

If Proposition 1A Is Approved by the Voters. In this case, the Pala compacts would be replaced by newer compacts, and this proposition would have no fiscal effect.

If Proposition 1A Is Not Approved by the Voters. In this case, under Proposition 29 the Pala compacts would become effective. Indian tribes could then operate the lottery-type gambling machines throughout the state. It is, however, difficult to estimate the fiscal effect of the Pala compacts on state and local governments. The actual effect would depend on such factors as (1) a court ruling on the legality of the lottery machines and, if legal, the number of these machines that would be operated throughout the state; and (2) whether Indian gambling as allowed under the Pala compacts diverted much spending from Nevada and other out-of-state sources. The fiscal impact is unknown, but it probably would not be significant.

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