By MICHELLE DeARMOND and JIM MILLER, The Press-Enterprise  

Just a few months ago, images of smiling children, police officers and firefighters filled TV screens and mailboxes across the state, urging voters to support major casino expansions for four Southern California tribes.

Gov. Schwarzenegger and other government officials promised that the tribes would help balance the state’s troubled budget with an influx of gambling dollars. The casino riches would help protect state funding for schools, police and fire departments, health care and roads, the tribes and their supporters said.

Voters approved the deals, but recent signs suggest the promises may not pan out. Deals touted as a sure-fire way to help the state weather economic slumps are now struggling themselves.

Some casinos are making less than they did before they expanded. Voters approved a total of 17,000 new slot machines for the tribes, but just a few thousand have been installed. And state officials aren’t sure how much of a hit the ailing state budget will take because of the gambling decline.

The Pechanga Band of Luiseño Indians near Temecula announced last week that it is laying off about 400 workers at the Pechanga Resort & Casino, and employees say numerous other people have been fired from the resort in recent months, including many just last week.

Other Indian casinos report drops in business. The Morongo Casino, Resort & Spa near Banning cut 400 to 500 positions this year through attrition. The Fantasy Springs Resort Hotel & Casino near Indio has had attrition-related job reductions, although General Manager Paul Ryan has attributed the declines to seasonal slowdowns in the hot Coachella Valley.

The Agua Caliente Band of Cahuilla Indians, which runs a popular downtown Palm Springs casino and another one in the Coachella Valley, also has felt the economic downturn’s effects, Chairman Richard Milanovich said.

The tribal gambling slump comes as lawmakers try to close a $15 billion-plus shortfall between revenue and spending through June 2009.

Gov. Schwarzenegger’s May budget revision banked on $446.7 million in gambling revenue in the current fiscal year for a proposed $101.8 billion budget. In addition, the state expects to get $100 million to repay loans from state transportation accounts.

The estimates did not reflect the possibility that an economic slowdown would reduce casino activity and produce less casino revenue for the state, Department of Finance spokesman H.D. Palmer said.

In an interview with The Press-Enterprise on Thursday, Schwarzenegger denied that he and other supporters oversold the deals.

“They have to make decisions, just like we do or like businesses do anywhere else, according to what is the demand,” Schwarzenegger said of the tribes. “But I think that the compacts were really solid compacts, and there will be, really, billions and billions of dollars over the next 20 years of additional revenues for the state, which the state needs very badly.”

Budget Help

California has had two major rounds of tribal gambling expansion.

In 2004, Schwarzenegger signed new and renegotiated agreements with several tribes, which pay the state’s general fund roughly $35 million annually. In addition, about $100 million from the deals is pledged to pay back loans from transportation accounts.

Schwarzenegger negotiated the second set of agreements in August 2006, and opponents put the deals on the February ballot in hopes of stopping the expansion plans. Schwarzenegger and others campaigned aggressively to get the deals passed.

Voter approval gave four Southern California tribes — the Pechanga, Morongo, Agua Caliente bands in Riverside County plus the Sycuan Band of the Kumeyaay Nation in San Diego County — permission to add a combined 17,000 slot machines.

Another tribe, the San Manuel Band of Mission Indians in San Bernardino County, struck a similar deal that allows it to add 5,500 slot machines.

The tribes all agreed to share profits from their 2,000 existing machines and their new machines.

Leading up to the Feb. 5 votes on the deals, Schwarzenegger and other supporters predicted they would bring in $9 billion through 2030. Critics, who had put the agreements before voters as four ballot initiatives, argued that the state’s take actually could be as little as $3.4 billion.

The first payments are due Thursday. The first payments for the 2008-09 fiscal year, which began July 1, are scheduled to arrive in October.

International gambling expert I. Nelson Rose said the amount of money the tribes were expected to give the state was significant, but never was going to be enough to solve the state’s problems.

“The one thing we don’t know is how long this is going to be, how long this will delay those projected numbers from coming,” said Rose, a professor at Whittier Law School. “Of course they’re still making money, and they’re just not making quite as much as they projected.”

Rose said the amount of money people spend on gambling has always been closely tied to the price of gasoline — when it costs more to travel to a casino, gamblers are less likely to go.

Rising gasoline and food prices and the crashing housing market, combined with high unemployment rates in the region, are taking their toll on people’s entertainment budgets, said John Husing, an Inland economist who has studied the economic impact of gambling for tribes.

“Entertainment is something people do from their discretionary income — money that they have available to spend on things,” he said. “Clearly (casinos) are being affected by that entertainment issue.”

Nonetheless, the experts don’t see this slump as the end of Indian gambling in the region or a sign that the market has too many casinos.

Economist Alan Meister, who studies the tribal gambling industry, said tribal casinos face the same ups and downs as the rest of the economy.

Meister produced a study earlier this year examining the economics of the Pechanga deal and three others that were up for voter approval on the Feb. 5 ballot. The tribes paid for the report.

“We were looking at a little bit different market than we are now,” said Meister, who works for the Los Angeles-based Analysis Group. “It’s the luck of when you get into the market. There are things that are out of your control.

“I don’t believe that the Southern California market is saturated by any means,” he added. “There’s room to grow. It just might not be the right time.”

Reach Michelle DeArmond at 951-368-9441 or mdearmond@PE.com
Reach Jim Miller at 916-455-9973 or jmiller@PE.com
© 2008 Press-Enterprise Company

Posted on July 26th, 2008 by hunwut
Filed under: Gaming, State Government