Legislative Analyst's Office
Analysis of the 2001-02 Budget Bill
California Gambling Control Commission (0855)
The California Gambling Control Commission was established by Chapter 867, Statues of 1997 (SB 8, Lockyer). The five-member commission is appointed by the Governor subject to Senate confirmation. The commission (1) monitors and enforces the terms of tribal-state gaming compacts (including the administration and distribution of funds received by the state as a result of Indian gaming activities); (2) is responsible for the licensing and regulation of card rooms, card room owners, and certain card room employees; and (3) provides oversight for specified aspects of horse track betting.
The 2001-02 Governor's Budget proposes $4.7 million ($2.8 million from the Indian Gaming Special Distribution Fund and $1.9 million from the Gambling Control Fund) and 42.8 personnel-years (PYs) for support of the commission and its activities. This compares to the half-year funding the Legislature provided in the 2000-01 Budget Act of $576,000 (Gambling Control Fund) and 11 positions (including the commissioners). The Governor's budget indicates that the administration will seek legislation to augment the current-year funding by $2.4 million ($1.7 million from the Indian Gaming Special Distribution Fund and $0.7 million from the Gambling Control Fund) and increase staff by 15 PYs. According to the Governor's budget, the proposed funding from the Indian Gaming Special Distribution Fund in the current year and budget year is dependent on a General Fund loan because there are no expected revenues to this fund in either year.
The Commission's Role in the Tribal-State Gaming Compacts. As a result of the passage of Proposition 1A in March 2000, Class III gambling (such as slot machines and banked or percentage card games) became legal on California Indian land for those Indian tribes that enter into a tribal-state compact approved by the Legislature, the Governor, and the federal government. The primary role of the commission is to interact with the tribal gaming agencies to ensure the terms of the compacts are followed. The following is a list of some of the commission's major responsibilities under the compacts:
We withhold recommendation on the proposed $4.7 million for support of the California Gambling Control Commission because the commission's roles, responsibilities, and planned activities, and the division of responsibilities between the commission and the Department of Justice, need clarification.
The budget year is the first full year of operation for the commission. In the current year, the commission is authorized five commissioners and six staff. On August 29, 2000, the Governor announced the appointments of four members to the commission. As of January 2001, the fifth commissioner had not been appointed. Prior to the appointments of the commissioners, the Department of Justice's (DOJ's) Division of Gambling carried out the investigation and review of licenses and employment applications as called for under the compacts. The commission, now that it is in operation, needs to determine the extent to which the commissioners will assume the responsibilities for these activities. This would include, but not be limited to, the development of a work plan that specifically identifies the duties and responsibilities of both the commission and the division.
Roles and Responsibilities Need to Be Clearly Defined. Although the commission has provided a descriptive narrative for the organization, the roles, responsibilities, and expected workload of each unit as it relates to oversight of Indian gaming has not been delineated. Although no historical workload data exists, the commission should develop a work plan that reflects these roles and responsibilities and anticipated workload activities. For example, for the licensing oversight division the commission should address the role of the unit, its specific responsibilities, and the expected activities of the staff (such as the number of licenses and employment applications to be reviewed and licensed machines to be verified). This information would give the Legislature a benchmark for assessing the commission's budget-year request. In addition, the commission needs to identify the specific responsibilities of the DOJ under the compacts and explain how the commission's activities will be coordinated with the department's. This information should be available to the Legislature for review before it approves the commission's budget. Pending receipt and review of this information, we withhold recommendation on the commission's budget-year request.
We recommend the California Gambling Control Commission report to the Legislature during the budget hearings on the status of funds received for deposit into the Revenue Sharing Trust Fund and the Special Distribution Fund and various other information required to conduct appropriate oversight of Indian gambling.
Currently, there are 61 approved tribal-state compacts. These compacts lay out the legal relationship between the tribes and the state with respect to Indian gambling.
Gaming Machines Authorized Under Compacts. A significant provision of the compacts is the number of gaming machines (such as slot machines) that each tribe is allowed to operate and the total number of machines allowed throughout the state. Pursuant to the compacts, each tribe that signed a compact was required to report the number of gaming machines operated by the tribe as of September 1, 1999. Based on the 61 compacts, there was a total of 19,005 gaming machines in operation at that time. Figure 1 summarizes the distribution of these machines.
Under the compacts, the maximum number of machines a tribe can operate is 2,000. The total number of machines that can be operated throughout the state is less certain. This is because the compact language concerning calculation of the total number of authorized machines is unclear and subject to different interpretations. It is essential to clarify this uncertainty for several reasons. First, the total number of machines will determine the overall magnitude of Nevada-style gambling that can occur on Indian land within the state. It is also needed in order for the commission to carry out its state oversight role to determine if the tribes are complying with the level of gambling authorized in the compacts. Finally, the number of statewide machines determines the amount of money that will be distributed to certain tribes.
| Indian Gaming Machines|
In Operation September 1, 1999
| Number of Gaming
Machines Per Tribe
|Number of Tribes|
|1 to 350||
|351 to 750||
|751 to 1,250||
|1,251 to 2,000||
Revenue Sharing Trust Fund. This fund is to be distributed annually to each noncompact tribe in the amount of either $1.1 million or an equal share of the fund should there be insufficient funds to provide the full $1.1 million each. A noncompact tribe is defined by the compacts as a federally recognized tribe that either does not operate machines or is operating fewer than 350 machines. Payments to the Revenue Sharing Trust Fund are dependent on the number of licenced machines. The compacts state that a tribe may acquire and maintain a license to operate a gaming machine by paying into the Revenue Sharing Trust Fund, on a quarterly basis, as shown in Figure 2. In addition, a tribe must pay a one-time nonrefundable fee of $1,250 per machine to obtain a license for the machine. These license fees also are deposited into the fund.
The commission is the trustee of the fund and is responsible for collection, deposit, and distribution of the fund. The compacts provide the commission no discretion with respect to use or disbursement of the fund.
Special Distribution Fund. This fund is subject to legislative appropriation for the following statewide purposes:
| Revenue Sharing Trust Fund|
Annual Payment per Machine
|Number of Licensed Gaming Machines|| Fee Per Machine|
Per Year a
|1 to 350|||
|351 to 750||$900|
|751 to 1,250||1,950|
|1,251 to 2,000||4,350|
|a Fee is paid on the number of machines in each increment. For example, a tribe with 800 machines pays no fee on the first 350, then $900 per machine on the next 400, and $1,950 per machine on the last 50 machines.|
Revenues to the fund are dependent on the number of machines in operation as of September 1, 1999. Beginning the last half of 2001-02, tribes must contribute from 0 percent to 13 percent of the average quarterly net win from these machines. Figure 3 summarizes how these contributions are made based on the number of machines. The commission is responsible for collecting the appropriate amount of payments into this fund.
| Special Distribution Fund|
Payments By Tribes Into Fund
|Machines Operating as Of September 1, 1999|| Percent of Average|
Quarterly Net Win a
|1 to 200||
|201 to 500||
|501 to 1,000||
|a Fee is based on number of machines in each increment.|
Commission Needs to Provide Status Report to the Legislature. In view of the issues outlined aboveuncertainty surrounding the number of machines currently operating in the state, the maximum number of machines authorized under the compacts, and the status of the two funds established under the compactsthe commission, prior to budget hearings, needs to provide the Legislature a status report addressing the following:
Revenue Sharing Trust Fund
Status of Special Distribution Fund