US Indian Gaming Supports Cash-Strapped State Budgets

by Leroy James, Tax-News.com, New York

11 December 2002

Several prominent members of Congress are planning to re-introduce legislation in the new year that would ban Internet gambling. Motives are a mixture of morality and anti money-laundering activism; but such a law will run up against heavy opposition from cash-strapped states which are dependent on growing streams of tax revenue from permitted gambling operations, both on- and off-line.

In some cases, State gambling laws are aimed at Indian tribes, ostensibly giving such economically-disadvantaged communities a means of self-support they are otherwise denied. But opponents say that the laws are often no more than thinly-disguised conspiracies between state legislatures and white gaming operators to take advantage of the Indian tribes, most of whose members gain nothing from the deal.

Certainty is hard to find in this shifting quicksand of conflicting moral and economic factors.

Congress enacted the Indian Gaming Regulatory Act in 1988. But, said Time Magazine in a recent article, it was so riddled with loopholes, so poorly written, so discriminatory and subject to such conflicting interpretations that 14 years later, armies of lawyers are still debating the definition of a slot machine. What is clear, though, is that it opens the door to many lucrative opportunities for casino and gaming operations.

As an example, in last month's elections, Arizona's voters approved Proposition 202, which orders the governor to sign deals to increase the number of slot machines that tribes can operate and allows tribes to offer Las Vegas-style house-banked blackjack. In exchange the state receives 8% of revenue. Currently there are 9,000 slots in the state's $1bn Indian gambling market; this number is expected to increase to 16,000.

It's estimated that, nation-wide, 290 Indian casinos in 28 states had revenues last year of at least $12.7 billion. 'While most Indians continue to live in poverty,' says Time, 'many non-Indian investors are extracting hundreds of millions of dollars—sometimes in violation of legal limits—from casinos they helped establish, either by taking advantage of regulatory loopholes or cutting backroom deals.'

The Arizona deal is at least fairly transparent, but in many other cases the states wink at deals which profit non-Indian owners, and their own tax revenues. Such deals may be within the law as it stands, but they certainly run counter to the intentions of those who framed the 1988 legislation. Regulation of the Indian gaming sector bypasses the normal agencies, and is in the hands of the National Indian Gaming Commission, whose tiny budget makes it almost completely ineffective.

The development of on-line gambling adds an entirely new, and potentially vast dimension to the possibilities for Indian tribes and those who exploit them. It's currently impossible to estimate the value of reservation-based on-line gaming (most or all of which would be illegal if carried out by non-Indians), but in the light of the estimated current $5bn value of offshore on-line gaming, it's reasonable to suppose that the opportunity has not been lost on the Indian tribes and their backers.

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