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Report Number : 2016-036

Indian Gaming Special Distribution Fund
The Method Used to Mitigate Casino Impacts Has Changed, and Two Counties' Benefit Committees Did Not Ensure Compliance With State Law When Awarding Grants

Introduction

Background

Gaming on Indian tribal lands in California has experienced extensive growth since the initial agreements between the tribes and the State—known as compacts—were established in 1999. The California Gambling Control Commission (Gambling Commission) estimates that as of September 2016, Indian tribes were operating more than 68,000 class III gaming devices in California.1 According to the National Indian Gaming Commission, revenues from Indian gaming in California and northern Nevada have nearly tripled since the initial compacts were established, growing from $2.9 billion in federal fiscal year 2000 to $7.9 billion in federal fiscal year 2015. During this time, additional compacts have been signed and existing compacts have been amended.

Tribal‑State Gaming Compacts in California

In the March 2000 statewide primary election, voters approved Proposition 1A, which amended the California Constitution to authorize the Governor to negotiate and enter into compacts authorizing gaming on tribal lands in California, subject to ratification by the Legislature. The statutory framework for the compacts had been established in 1988, when the U.S. Congress enacted the IGRA. Unless authorized by an act of Congress, the jurisdiction of state governments and the application of state laws do not extend to Indian lands. Therefore, the provisions of the IGRA generally regulate the relationships between the State and tribal casinos. The proposition also gave federally recognized Indian tribes the authority—consistent with the IGRA—to operate slot machines, lottery games, and certain types of card games on Indian lands in California.

In 1999, anticipating approval of Proposition 1A, the Governor negotiated, and the Legislature approved, legislation ratifying compacts with many tribes. The state law ratifying these initial compacts, which are identical in most respects, affirms that any future compact the State enters into that is identical to the original compact in all material respects is ratified, unless the Legislature objects within 30 days from the date the Governor submits the compact to it. The State eventually entered into 61 of these tribal‑state gaming compacts, known as 1999‑model compacts, which are effective until December 31, 2020. In consideration for the State’s willingness to enter into these compacts, the tribes agreed to provide a portion of their revenues from the gaming devices to the State in the form of license and operation fees. These fees provide money for two funds: the Indian Gaming Revenue Sharing Trust Fund (trust fund), which distributes money to tribes that do not have compacts or that have compacts and operate fewer than 350 gaming devices, and the distribution fund, which finances various state and local government activities. Although the 1999‑model compacts will remain in effect until 2020, the Governor and some Indian tribes have renegotiated and amended some of these compacts for various reasons, such as to increase the number of gaming devices allowed. In addition, some other tribes that did not negotiate compacts in 1999 have since done so. The Appendix provides a list of all compacts entered into or amended as of June 2016, as well as the year the Legislature ratified the most recent compact or amendment for each tribe, whether the tribe has a casino, the number of gaming devices in operation, and the maximum number of gaming devices allowed by the tribe’s compact.

Distribution Fund

The majority of the tribal‑state compacts require tribes operating gaming devices to pay into the distribution fund. For example, the 1999‑model compacts require each tribe that operates more than 200 grandfathered devices—those in operation as of September 1, 1999, before the compacts were ratified—to pay a percentage of its average net win into the distribution fund. Generally, the net win of a gaming device is its gross revenue—the amount players pay into the device—less the amount paid out to winners. The percentage paid to the distribution fund varies depending on the number of grandfathered devices.

State law provides for the Legislature to appropriate money deposited into the distribution fund to address four needs. Table 1 shows these needs, arrayed from highest to lowest funding priority, and the expenditures for each in fiscal years 2013–14 through 2015–16. When the State appropriates funds for the fourth priority, support of local governments affected by tribal gaming through mitigation grants, the State divides the funds among the counties with tribal casinos to use for grants to pay for projects to mitigate the impact of those casinos.

Table 1
Funding Priorities and Expenditures for the Indian Gaming Special Distribution Fund Fiscal Years 2013–14 Through 2015–16
(In Millions)
Priority Expenditures for
fiscal years
2013–14 2014–15 2015–16*
1. Funding the Indian Gaming Revenue Sharing Trust Fund to ensure that it can distribute $1.1 million annually to each tribe that does not have a compact or that has a compact and operates fewer than 350 gaming devices. $28.2 $18.0 $20.8
2. Funding problem‑gambling prevention programs managed by the California Department of Public Health.   8.3 8.2 8.2
3. Funding the Indian gaming regulatory functions of the California Gambling Control Commission and the California Department of Justice.   20.1 20.8 22.3
4. Funding the support of local governments affected by tribal gaming.    9.1 0.0 0.0
Totals $65.7 $47.0       $51.3

Sources: California Government Code sections 12012.85 and 12012.90, and the Governor’s budgets for fiscal years 2015–16 through 2017–18

* Amounts for fiscal year 2015–16 are estimates based on the 2017–18 Governor’s Budget.

State law provides for the Legislature to appropriate money deposited into the distribution fund to address four needs. Table 1 shows these needs, arrayed from highest to lowest funding priority, and the expenditures for each in fiscal years 2013–14 through 2015–16. When the State appropriates funds for the fourth priority, support of local governments affected by tribal gaming through mitigation grants, the State divides the funds among the counties with tribal casinos to use for grants to pay for projects to mitigate the impact of those casinos.

The amounts appropriated annually by the Legislature for mitigation grants have varied over the years. Figure 1 shows a history of new and amended compacts and the annual appropriation of funding for mitigation grants. The State allocated $9.1 million to local governments for mitigation grants in fiscal year 2013–14, using the method defined in state law. As Figure 2 shows, counties with tribes that contribute to the distribution fund (eligible counties) receive 95 percent of these funds, and counties with tribes that are not obligated by their compacts to contribute to the distribution fund receive 5 percent. State law specifies that, for eligible counties, grant money is to be allocated based on the aggregate number of gaming devices in the county for which contributions are made (eligible devices). The more eligible devices within the county, the more grant money the county can receive. For counties without devices subject to the obligation, the law specifies that grant money is to be allocated based on the aggregate number of gaming devices within the county.


Figure 1
Appropriations for Mitigation Grants and New or Amended Compacts by Fiscal Year Related to the Indian Gaming Special Distribution Fund

A timeline showing the total dollars appropriated for mitigation grants from the Indian Gaming Special Distribution Fund, the number of new compacts, and the number of amended compacts for each fiscal year 1999–2000 through 2015–16.

Sources: California Gambling Control Commission’s website, tribal‑state gaming compacts, and Governor’s budgets for fiscal years 2005–06 through 2017–18.
Note: New and amended compacts are shown in the fiscal year the Legislature ratified them. The version of this graphic in our previous report (2013‑036) showed compacts in the fiscal year that they were published in the Federal Register. Therefore, there are slight differences in some years between the two reports.

* In February 2013 the Rincon Band of Luiseno Mission Indians of the Rincon Reservation began operating under Secretarial Procedures, which are the result of mediation between the tribe and the State and are a full substitute for a gaming compact. Because the tribe had a previous compact and now operates under different terms, for ease of discussion we refer to it in this report as having an amended compact.



Figure 2
Allocation of Funding From the Indian Gaming Special Distribution Fund to Local Governments

A flowchart depicting how funding from the Indian Gaming Special Distribution Fund (distribution fund) is allocated to local governments for use to award grants to mitigate the effects of tribal gaming.

Sources: California Government Code sections 12714 and 12715, and Chapter 746, Statutes of 2013.



The State’s allocation to eligible counties in fiscal year 2013–14 was divided among 26 counties and 152 grants. Figure 3 shows the range of allocations to counties for mitigation grants in fiscal year 2013–14. These amounts varied considerably. For example, Modoc County received the smallest allocation of $3,200, representing less than 1 percent of the $9.1 million allocation in fiscal year 2013–14. In contrast, Riverside County received the largest allocation of nearly $2.5 million, or 27 percent of the fiscal year 2013–14 allocation, because its tribes operate many more eligible devices. The Legislature did not appropriate funding for mitigation grants after fiscal year 2013–14.




Figure 3
Appropriations for Mitigation Grants and New or Amended Compacts by Fiscal Year Related to the Indian Gaming Special Distribution Fund

A map of California showing the allocations of funding for mitigation grants to each County Tribal Casino Accounts from the Indian Gaming Special Distribution Fund for fiscal year 2013-14.

Source: State Controller’s Office allocation amounts.

Note: This figure presents allocation amounts for only fiscal year 2013–14 because the Legislature did not appropriate amounts for grant awards to local governments for projects to mitigate the impact of the casinos after that fiscal year.



Entities Involved in County Allocations From the Indian Gaming Distribution Fund for Mitigation Grants

California’s 1997 Gambling Control Act created the Gambling Commission to serve as the State’s primary regulatory body over gambling activities, including Indian gaming. This commission has jurisdiction over the operation, concentration, and supervision of gambling establishments in the State. The Gambling Commission collects trust fund deposits pursuant to the terms of gaming compacts, and it acts as the trustee of the trust fund. It also collects and accounts for contributions received under the provisions of the gaming compacts for deposit into the distribution fund.

When the Legislature appropriates funding from the distribution fund for mitigation grants, the State Controller’s Office (State Controller) is responsible for calculating the allocations, in consultation with the Gambling Commission, for each of the county tribal casino accounts. State law requires the State Controller to release grant funds directly to the entities receiving approved grants.

In each county in which Indian gaming is conducted, state law creates a benefit committee that awards mitigation grants from the distribution fund. The composition of the benefit committees is outlined in state law. State law also specifies that each benefit committee is responsible for establishing procedures for local governments within the county to apply for grants and for selecting eligible applications to receive funds. To allocate funds correctly to local governments in eligible counties, state law requires benefit committees to determine the geographic proximity of cities and the county to an Indian casino and the Indian land upon which that casino is built, using a set of criteria known as the nexus test. As shown in Figure 4, 60 percent of the funds are available to cities and counties that meet two or more of the nexus criteria, and the remainder is awarded as discretionary grants; that is, the benefit committees can choose which qualifying local governments receive the money. These criteria are intended to provide a fair and proportionate system for awarding grants to local governments affected by tribal gaming.

Figure 4
Allocation of Funds From Individual Tribal Casino Accounts

A flowchart that describes the methodology for allocating funds from individual tribal casino accounts to local governments for grants that mitigate tribal gaming.

Sources: California Government Code section 12715.

* These grants are generally limited to service‑oriented and one‑time large capital projects, but in some instances may be awarded for other projects.
These funds must be made available in equal proportions to cities and counties meeting a different number of nexus test criteria if no local governments meet the required number of criteria.




Priority Use of Indian Gaming Special Distribution Fund Grants

California Government Code section 12715.

State law requires grant recipients to clearly show how the requested funds will mitigate the impact of a tribal casino on a local government jurisdiction. The amount each grant recipient can receive must be proportionate to the casino’s impact. For example, a police department might apply for a grant to cover 20 percent of its budget if it can demonstrate that 20 percent of its calls are for incidents related to the casino. State law identifies 12 priorities for the award of grants, as shown in the text box. As an example, grant funds can be used to help pay for maintaining roads in proportion to an increase in traffic from casino patrons or for the proportion of staffing costs related to the additional workload firefighters and law enforcement experience because they must respond to emergencies at the casinos. If a project both mitigates the effect of a tribal casino and also has other benefits that are not related to tribal gaming, such as maintenance for a road that serves both a tribal casino and other city or county traffic, the benefit committee may award funds only for the proportional share of the project that mitigates the effect of tribal gaming.

















Footnotes

1 Class III gaming includes lotteries, certain card games, and slot machines. Gaming device means a slot machine. Go back to text



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