Indian gaming and beyond: tribal economic development and diversification

South Dakota Law Review, Fall, 2009 by Alan P. Meister, Kathryn R.L. Rand, Steven Andrew Light

Generally speaking, IGRA expressly prohibits states from seeking, through a tribal-state compact, to tax or charge the tribe a fee for the right to engage in casino-style gaming. (19) However, there are three types of direct payments made by tribes to states and local governments in relation to gaming, commonly known as revenue sharing. (20) First, IGRA allows for direct payments to defray the costs of regulating Class III gaming activities. (21) Second, IGRA allows tribes to use gaming profits to "help fund operations of local government agencies." (22) Third, despite IGRA's prohibition against direct state taxation, the U.S. Secretary of the Interior, who is responsible for reviewing and approving gaming compacts between tribes and states, (23) has allowed voluntary compact payments by tribes to states in exchange for the state's grant of valuable economic benefits. (24) Such payments to a state must be deemed "appropriate in light of the benefit conferred on the tribe." (25) Specifically, the Secretary has adopted a practice whereby payments by a tribe must not exceed the value of the benefits received by the tribe. (26) While acceptable types of benefits to tribes have not been enumerated by the Secretary, one example is given: "substantial exclusivity." (27) According to the Secretary's practice, other benefits may be conferred upon a tribe in exchange for revenue sharing, but an economic analysis of the benefits is required in order to demonstrate appropriateness. (28)

Many tribes make one or more of these three types of direct payments to state and local governments. The percentages and dollar amounts of direct payments by tribes vary substantially, depending on a host of factors, including: prevailing economic climate; whether the gaming at issue was new or existing; actual or expected performance of gaming operations, depending on whether gaming at issue was new or existing; degree of competition; types of gaming offered; and the relative bargaining positions of a state and tribe at the time revenue sharing was negotiated. (29) In calendar year 2007, the total of all identifiable direct payments to state and local governments was approximately $1.3 billion. (30)

As a legal codification of the political compromise between tribal and federal interests on the one hand and state interests on the other, IGRA's compact provisions reflect congressional efforts to balance these competing interests as well as state and tribal authority. (31) Overall, through IGRA, Congress sought to encourage and protect Indian gaming as a means of furthering federal and tribal goals of tribal economic development, self-sufficiency, and strong tribal governments.

III. THE INDIAN GAMING INDUSTRY (32)

A. CURRENT STATE OF INDIAN GAMING

In calendar year 2007, the most current year for which data are available, there were 230 tribes operating 425 gaming facilities in 28 states. (33) Twenty-three of these states had some form of Class III gaming, while five states only had Class II gaming. In total, Indian gaming generated approximately $26.5 billion in gaming revenue and $3.1 billion in non-gaming revenue (i.e., revenue from hotels, restaurants, entertainment, and shopping at Indian gaming facilities). (34) Indian gaming facilities, including non-gaming operations, directly supported approximately 346,000 jobs and paid about $12 billion in wages to employees. (35)