Economic Issues Affecting Indian Gaming

Gaming Law Review & Economics has published a note, "Economic Issues Affecting Native American Gaming," featuring Gabe Galanda's remarks during a roundtable discussion last fall regarding economic issuing impacting the $26.5 billion Indian gaming industry. On the state of Indian gaming markets vis-a-vis that of domestic commercial gaming meccas:

[T]he New York Times wrote about this phenomenon, indicating that Reno and Lake Tahoe are seeing their revenues erode by as much as 25%–40%. That is juxtaposed with places like the Pacific Northwest, which are seeing modest, perhaps even healthy, growth during the same time period.

On the state of tribal financing:

[Y]ou are seeing that gaming tribes can only take out bank debt based on 2 to 2.5 times historical EBITDA, meaning proven cash flow. You once were able to leverage, very favorably, relatively unproven cash flows. Now though, unless you have historical, proven cash flow, you are going to have a very difficult time obtaining any money, and what money you are going to be able to obtain is probably far less—and it will cost you far more— than in prior years.

On the state of Indian gaming contracting:

There are a number of contracts, both in form and substance, that pertain to Class II or Class III gaming—most notably, those for gaming machines. We are now seeing the same type of financial scrutiny of deal terms in these contracts that we are talking about in regard to significant financing or restructuring transactions. We are seeing that scrutiny of what historically have been almost boilerplate agreements between tribal casino operators and their business partners . . .

On the states' budget crises:

[T]here is an estimated $112 billion shortfall amongst the states collectively. I will tell you that on the ground, in the offices of state or local assessors, there are government officials who are looking perhaps beyond the casino itself, the monies flowing from that particular casino and the properties within that casino, but still towards the tribe, to figure out how they can get their hooks into gaming proceeds running to the tribal government.

On state Class III gaming "fees" in lieu of taxes:

[W]e will see state governments in particular trying to develop new ways of imposing fees on gaming activities in circumvention of the stated intent, purpose, and spirit of IGRA, in desperate attempt to balance hemorrhaging state budgets.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-owned law firm.  He is an enrolled member of the Round Valley Indian Tribes of Covelo, California.  He can be reached at 206.691.3631 or gabe@galandabroadman.com, or via galandabroadman.com.

More Legal Challenges Ahead for Tribes in 2011

Anthony Broadman is featured in a column in Indian Gaming magazine, More Legal Challenges Ahead for Tribes in 2011.

Tribal governments have educated states regarding tribal sovereignty, tribal governmental gaming, and the risk of attacking tribes and their casinos in the courtroom. So much so that, while high profile tribal-state disputes remain and continue, a new generation of intergovernmental fight may soon outnumber them. States’ younger siblings – counties, cities, and municipalities – do not yet understand tribal sovereignty. And as local governments struggle to fund operations and please an increasingly fickle local electorate, look for more disputes like we’ve seen recently in the non-gaming context, at Oneida, Passamaquoddy, Cayuga, and elsewhere.

The tribal-federalist system puts tribes in the awkward position of possessing a right to government-to-government relations with the United States and the individual states, but still needing, at times, to act as local governments. The jurisdictional overlap with other local governments not surprisingly drives tax and services disputes, and can sour local relationships. Counties often fail to perceive tribes as governments. And when a tribe undertakes economic development “in” a county, casino or not, it should expect a fight. Even when a county first welcomes economic development, later versions of the same local government can see tribal ventures as potential revenue sources, which they attack accordingly.

Tribes can and will fight inappropriate local government activity in federal court. But litigation should be the last resort. Not only are federal (and state) courts unfriendly to tribal interests, but, as compared to cities and counties, tribes have far more to lose on their own behalf and on that of their sister tribes. Tribal governments should explore constructive government-to-government arrangements even at the local level, under which tribes can secure some measure of certainty by binding counties, cities, and their future leaders. The intergovernmental agreement may be commonplace with states, but it is difficult for their younger siblings to grasp. As difficult as it may seem to stoop the local governmental level, counties and cities will not educate themselves. It is up to Tribes to school local governmental actors, teach them how to behave like good neighbors, and secure the kind of jurisdictional and legal certainty necessary for sustainable economic growth.

Anthony Broadman is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-owned law firm.  His practice focuses on company-critical business litigation and representing tribal governments. He can be reached at 206.691.3631 or anthony@galandabroadman.com, or via galandabroadman.com.

2011 Gaming Industry Forecast: Year of the ‘New Normal’

Gabe Galanda is featured in Casino Enterprise Magazine's 2011 Gaming Industry Forecast.

Indian Country, be warned: the state tax man cometh in 2011.

In the coming year, state and local government will aggressively attempt to tax tribal governmental gaming proceeds. The states are facing a $112 billion budget deficit maelstrom, and desperately looking for novel revenue sources. Offices of state governors, treasurers and revenue agents and local tax assessors, not to mention state legislators and county officials, are already looking to the tribal gaming industry to replenish state coffers.

Congress has declared that Indian gaming activities cannot be taxed. Period. States must remember that the United States Constitution vests the Federal Government with authority over tribal “commerce,” in recognition of the inherent sovereignty of tribal governments, and as such, Indian tribes and tribal members are exempt from state taxation within tribal territory. Period.

For these reasons, the federal appellate courts have time and again foreclosed efforts of states like California that demand a percentage of a tribe’s net gaming revenues, most recently saying that such a revenue-sharing demand constitutes not only bad faith, but an illegal tax on Indian gaming.

Still, as log as tribal governmental gaming is profitable, “rational actors” in state and local government will attempt to impose “fees” on tribal gaming manufacturers, distributors and service suppliers. To be clear, “fees” that resemble taxes on Indian gaming proceeds have also been struck down by the federal circuit courts. But that will not stop states from assessing fees and forcing the issue of whether the fees are illegal taxes into a state or federal – meaning non-tribal ¬ court. They will tax now, and sort out the illegalities later.

State and local tax collectors will also look for any opportunity to tax those net gaming revenues that tribes use for economic development (as expressly intended by IGRA) in partnership with private industry. Whether the subject of state or local taxation is tribal cigarettes, hotel rooms, concessions, or even property, the state tax man cometh.

Accordingly, tribal governments and their gaming enterprises and business partners must redouble their efforts to prevent taxation of the tribal treasury. Indian gaming leaders should re-evaluate the terms of their business partnerships, and related federal, state and tribal tax law, to make sure the deal is bulletproof regarding non-tribal taxation. If necessary to prevent against the possibility of non-tribal tax assessment, deals should be restructured. Do so now rather than wait for the inevitable attack.

Tribal leaders should legislate what matters are, and are not, taxable, as a matter of tribal law. The tribe may desire to impose excise taxes on the on-reservation sales of various commodities, such as cigarettes, fuel or lodging; yet explicitly bar any taxation of certain business activities or of any form of property on tribal lands. In this way, the tribe will help exclude state and local taxation of reservation-based transactions.

Tribes and their gaming business partners must also be vigilant in attacking any state legislation or administrative rulemaking that seeks to impose taxes or “fees” against tribal gaming vendors.

Will your tribe and tribal gaming enterprise be ready when the state tax man cometh in 2011?

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-owned law firm.  He is an enrolled member of the Round Valley Indian Tribes of Covelo, California.  He can be reached at 206.691.3631 or gabe@galandabroadman.com, or via galandabroadman.com.