Proposition 1A

Gambling on Tribal Lands.

SCA 11 (Resolution Chapter 142, Statutes of 1999)


Gambling in California

The State Constitution and various other state laws limit the types of legal gambling that can occur in California. The State Constitution specifically:

Other state laws specifically prohibit the operation of slot machines and other gambling devices (such as roulette). With regard to card games, state law prohibits: (1) several specific card games (such as twenty-one), (2) "banked" games (where the house has a stake in the outcome of the game), and (3) "percentage" games (where the house collects a given share of the amount wagered).

State law allows card rooms, which can operate any card game not otherwise prohibited. Typically, card room players pay a fee on a per hand or per hour basis to play the games.

Gambling on Indian Land

Gambling on Indian lands is regulated by the 1988 federal Indian Gaming Regulatory Act (IGRA). The IGRA defines gambling under three classes:

An Indian tribe can operate Class III games only if the tribe and the state have agreed to a tribal-state compact that allows such games. The compact can also include items such as regulatory responsibilities, facility operation guidelines, and licensing requirements. After the state and tribe have reached agreement, the federal government must approve the compact before it is valid.

Gambling on Indian Lands in California

According to the federal Bureau of Indian Affairs, there are over 100 Indian rancherias/reservations in California. Currently, there are about 40 Indian gambling operations in California, which offer a variety of gambling activities.

In the past two years there have been several important developments with regard to Indian gambling in California:


This proposition amends the State Constitution to permit Indian tribes to conduct and operate slot machines, lottery games, and banked and percentage card games on Indian land. These gambling activities could only occur if (1) the Governor and an Indian tribe reach agreement on a compact, (2) the Legislature approves the compact, and (3) the federal government approves the compact. (Although this proposition authorizes lottery games, Indian tribes can currently operate lottery games--subject to a gambling compact. This is because the State Constitution permits the State Lottery, and Indian tribes can operate any games already permitted in the state.)

As discussed above, the Governor and the Legislature have approved virtually identical tribal-state compacts with 57 Indian tribes in California. If this proposition is approved, those compacts would go into effect if approved by the federal government. (See Figure 1 for a brief description of these compacts' major provisions.)

Figure 1
September 1999 Compacts That Could Go

Into Effect If Proposition 1A Passes

Major Provisions
Slot Machines
  • The compacts allow each tribe at least 350 slot machines.
  • Tribes may pay for licenses for additional machines, but generally may not operate more than 2,000 machines.
Revenue Sharing Trust Fund
  • Tribes will make quarterly payments into this fund based on the number of licensed slot machines they operate. The money will be used to provide annual payments to noncompact tribes and those tribes operating fewer than 350 machines. These payments could be up to $1.1 million per tribe per year.
Special Distribution Fund
  • Tribes will make quarterly payments into this state fund (beginning in 2002) based on the number of machines they were operating as of September 1, 1999.
  • The Legislature could spend monies from the fund for the following statewide purposes: (1) grants for programs to address gambling addiction, (2) grants to the state and local governments affected by tribal gaming, (3) reimbursements of state regulatory costs, (4) payment of shortfalls in the Revenue Sharing Trust Fund, and (5) other purposes specified by the Legislature.
Banked and Percentage Card Games
  • The compact places no limit on the types or quantity of card games tribes could offer.
Other Provisions
  • The compacts authorize casino workers to unionize.
  • They set the age for gambling in Indian casinos at 18.

Fiscal Effect

State and Local Revenue Impact

This measure would likely result in an increase in economic activity in California. The magnitude of the increase would depend primarily on (1) the extent to which tribal gambling operations expand and (2) the degree to which new gambling activity in California is from spending diverted from Nevada and other out-of-state sources (as compared to spending diverted from other California activities).

While the measure would likely result in additional economic activity in California, its impact on state and local revenues is less clear. This is because, as sovereign governments, tribal businesses and members are exempt from certain forms of taxation. For example, profits earned by gambling activities on tribal lands would not be subject to state corporate taxes. In addition, gambling on tribal lands is not subject to wagering taxes that are currently levied on other forms of gambling in California (horse race wagers, card rooms, and the Lottery). Finally, wages paid to tribal members employed by the gambling operation and living on Indian land would not be subject to personal income taxes.

Even with these exemptions, tribal operations still generate tax revenues. For example, wages paid to nontribal employees of the operations are subject to income taxation. In addition, certain nongambling transactions related to the operations are subject to state and local sales and use taxes. However, on average, each dollar spent in tribal operations generates less tax revenue than an equivalent dollar spent in other areas of the California economy.

Given these factors, the net impact of this measure on state and local government revenues is uncertain. For example, revenues could increase significantly if the measure were to result in a large expansion in gambling operations and a large portion of the new gambling was spending that would have otherwise occurred outside of California (such as in Nevada). On the other hand, if the expansion of gambling were relatively limited or if most of the new gambling represented spending diverted from other areas in the state's economy that are subject to taxation, the fiscal impact would not be significant.

Other Governmental Fiscal Impacts

The measure could result in a number of other state and local fiscal impacts, including: regulatory costs, an increase in law enforcement costs, potential savings in welfare assistance payments, and an increase in local infrastructure costs. We cannot estimate the magnitude of these impacts.

Passage of this proposition would result in the implementation of tribal-state compacts approved in September 1999--assuming these compacts are approved by the federal government. Under these compacts, the tribes would pay license fees to the state totaling tens of millions of dollars annually. The state could spend this money on Indian gambling regulatory costs, other gambling-related costs, and other purposes (as determined by the Legislature).

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