Testimony
of
Anthony R. Pico
Chairman, Viejas Band of Kumeyaay Indians
on S. 1077
Before The Senate Committee on Indian Affairs
October 29, 1997

Mr. Chairman and Members of the Committee:

Thank you for giving me the opportunity to comment on Senator McCain's proposed amendments to the Indian Gaming Regulatory Act, S. 1077.

Today is difficult for me. I do not want to sound ungracious or disrespectful because Senator McCain is a man I admire greatly. Yet, today, I must question the soundness as well as the relevancy of this Bill in its present form.

I would like to address two elements of S. 1077: the regulatory framework, which we find less than desirable, and the Bill's lack of a remedy for tribes in states like mine' which have not acted in "good faith" to negotiate tribal-state compacts for class III gaming.

I trust that throughout this hearing process, my views and those of others will be carefully weighed by the Committee, with appropriate modifications made to create a legal framework that will work for the United States Government, the States, and Indian Nations. I hope that the Committee shares my view that S. 1077 in its present form is a working document, subject to change.

My tribe, the Viejas Band of Kumeyaay Indians, is the owner and operator of a casino, located in rural San Diego County. Like 35 other tribes in my state, we invested money, our hearts and our future in gaming. At Viejas, we are building a $30 million factory outlet mall, own a bank, and support an employee workforce of 1,600 people. The future of all these economic diversification projects, as well as the continued provisions of government services to our people, revenue sharing with seven non-gaming tribes in San Diego County, and environmental renewal of our land depends on electronic video games.

While today, we debate the niceties and fine-tuning of regulating games, in California our games continue to be illegal. After seven years of trying to bring our governor to the table for a fair and economically viable compact, we still don't have one. We have no compact for electronic video games in California, and as a result no state regulatory framework. So, for California tribes, debating the nuances of regulation is like going to marriage counseling when you are not even married. And, we see little prospect for a marriage in the future under the current California governor.

The reason is the Indian Gaming Regulatory Act (IGRA): The very law crafted by the Congress nine years ago that you are today considering amending. This is the law, that during debate, Senator McCain, then Vice-Chairman of the Senate Select Committee on Indian Affairs, stated in the Congressional Record of Sept 15, 1988, has as its purpose "to ensure that Indians are given a level playing field in order to install gaming operations that are the same as the states in which they reside and will not be prevented from doing so because of self-interest of the states in which they reside."

Mr. Chairman and Members of the Committee, before we discuss how to insure the wedding gifts, we want the marriage certificate. We need a remedy for a governor who has said repeatedly he will not expand gaming, specifically Indian gaming. This governor has been true to his word, he has used every means from the courts to politics to avoid negotiating a tribal-state compact for electronic video gaming with us and other gaming tribes in California.

We need you to clean up the legal voids that now exist relative to compacting. We need a federal compact. We need a legal remedy that works for a bad faith governor. We need the protection IGRA promised when, Senator McCain vowed, "that if the states take advantage of this relationship, the so-called compacts, then I would be one of the first to appear before my colleagues and seek repeal of this legislation (IGRA)." In California, as a result of court decisions, and especially the Supreme Court's Seminole v. Florida opinion, which took away a judicial remedy, Viejas and other California tribes are not only being taken advantage of, we are being taken to the cleaners.

Last month my tribe closed down 16 percent of our machines at the request of the U.S. Attorney. Why? It had nothing to do with criminal activities nor was it because of irregularities in our auditing, prizes, or surveillance and security. We sacrificed revenue and our machines, because after seven years we still don't have a compact for electronic video machines. To this day, we do not have a definition of what is allowable for Indians, while the state engages in its own version of electronic video keno. What we do have is the governor's unchanging word that he will never compact for our games, or allow us at the table until we are ready to take the crumbs he is willing to share. If forcing us to agree to a compact that contains little economic incentive isn't enough, the governor wants gaming tribes to give up additional pieces of our sovereignty to regional advisory votes and conform to California's environmental review process.

There's big money at stake in California, not only from local competitors for the gaming dollar -- the government-run horse racing tracks, local government sanctioned card rooms and the state's own lottery and video keno, but from the state next door. There is a lot of interest in containing or restraining tribal gaming in my state by others who are not Californians. Nevada, right across the border, enjoys an annual income of over $8 billion dollars that flows into that state's gaming centers from Californians. Eight billion dollars-that's almost equal to the total amount of revenues generated by all the tribal government gaming operations in the United States. Need I say more?

The first and foremost question on the minds of tribes in states like California, where both the Supreme Court' s Cabazon decision and IGRA are not respected, is: When is the Congress going to mend the holes left by the courts and political battles in each state, and secure compacting remedies for tribes in "bad faith" states?

Our governor wants us to have nothing to regulate. And, he is a very determined and powerful man. He may get his way. In this reality, what do amendments to regulatory schemes mean?

Though we do not have a compact, the Viejas Band, and other California tribes are respectful of, and concerned with the need to protect the integrity of our operations, both for our tribal members and the consumer. It has been the gaming tribes in California, who, through sound self-regulation and a commitment to keeping our facilities clean from fraud or crime, have given tribal gaming credibility with the public. Surveys show we have more respect from the public than the California Lottery and commercial cardrooms. In San Diego County, 86 percent of the voters support tribal games and operations, along with the County Board of Supervisors, Chamber of Commerce, and mayors of neighboring cities. According to surveys, additional regulation is not a concern of California voters. What the public wants is for us to continue to be able to operate our video games -- contrary to the governor's position.

I do not wish to trivialize or diminish what you are attempting to do here today. Decisions made about this bill will affect the credibility of tribal gaming throughout the Nation. If these measures do not live up to the expected protection for the public, states and tribes, then, Indian Country, not Senators, will be punished.

Unfortunately, I do not believe, along with many highly-placed and experienced gaming regulatory auditors, that this bill will do what is envisioned. The rationale for my statement that these amendments will not work is discussed in detail further in my testimony, but I would summarize by saying that S. 1077 misleads the public, the Congress, and the tribes. It would lull everyone into believing that gaming on Indian lands is regulated by a federal gaming authority the way Nevada and Atlantic City are regulated. This is built on a belief that federal minimum standards can be created and implemented. Just as the regulatory standards and procedures differ in Nevada and Atlantic City, and from state to state, there is no consistent level of standards in Indian Gaming.

There cannot be a single formula due to the circumstances of state compacts, cost, economies of scale, and other realities of tribal self-regulation.

Additionally, the funding authorized is unrealistic when compared to the costs and manpower associated with the level of regulation of commercial gaming in Nevada. There is not enough funding authorized is this Bill, and perhaps, all of Indian Country, who account for only approximately 10 percent of the gaming in the Nation, to create a regulatory structure for effective federal regulation of gaming activities.

Gaming on Indian lands will continue to be self-regulated and the public interest is best served by helping gaming patrons understand this fact, and strengthening tribal ability to assume primary responsibilities.

There is so much at stake today, and in this next year, that I feel I must be frank and forthright. Gaming is our economic renaissance, our chance to participate in the American dream, and promises the potential to exercise our governmental responsibilities. Gaming, for some of us, is the means to save our culture and people from economic, if not physical extinction. What Indian Nations need from this Bill and from Congress is the ability and legal support to ensure our own success. Without a legal remedy for states that refuse to compact fairly, and strong, realistic self-regulatory systems, this will not happen.

The basis for my comments that S. 1077 will not work is the observation that gaming on Indian lands is not like regulating gaming in Nevada or Atlantic City. The regulatory scheme created in S.1077 is based on the assumption that this Bill creates a regulatory scheme that will "ensure that gaming is conducted fairly and honestly by both the operator and players" in the same way as the Nevada and Atlantic City regulatory schemes are designed. I do not believe that this Bill will create a regulatory scheme that will meet this objective and the other objectives.

Overview of Nevada and Atlantic City Regulation:

The Nevada and Atlantic City regulatory schemes both have regulatory groups that are led by appointees who are responsible for the overall integrity of gaming and the collection of gaming taxes. They also have significant resources to hire competent specialists to regulate, monitor compliance and prosecute noncompliance with statutes and regulations. The regulatory groups are independent of the gaming operators that they regulate and have the ability to enforce detailed compliance with minimum operating and internal control standards. Both regulatory schemes are benefitted by the ability to have a critical mass of expert gaming personnel in a limited geographical area. Some of the regulation in both jurisdictions is based on the need to ensure that all gaming taxes due the state are properly paid.

The Nevada and Atlantic City regulatory schemes use state gaming auditors, lawyers, investigators and others to determine if gaming operators are in compliance with statutes, regulations and minimum standards. These monitoring groups are staffed with significant numbers of competent and experienced gaming specialists. In addition, the gaming operator must have the casino's financial statements audited and the auditor must also determine compliance with the minimum internal control standards, as opposed to the broader minimum standards described in S. 1077. The instances of non-compliance with statutes, regulations and rninimum standards identified by the state and the gaming operators CPA firm are used to ensure non-compliance is identified and corrected soon after the non-compliance occurs.

The Nevada and Atlantic City regulatory schemes do have several significant differences. On a per-casino or per-revenue basis, Atlantic City significantly outspends Nevada on regulating gaming operators. Nevada and Atlantic City have different gaming statutes and approaches to regulation. The different levels of regulation result in different approaches to background investigations, licensing persons and licensing gaming operations, and the regulation of gaming operations. There are also varying degrees of differences in approaches to regulating surveillance and security systems and personnel, the rules for the play of games, credit extension and collection, the use and operation of gaming equipment, and accounting and internal controls.

Overview of Regulating gaming on Indian Lands:

Regulators of Indian gaming operations are organized in many different ways. Some tribes use tribal councils or committees of tribal councils to regulate gaming operations. Others have set up separate regulatory organizations of generally two to five persons. Some of these regulatory organizations operate as departments of the gaming operation, and others operate separate from the gaming operation. Most of the tribal regulators are tribal members. A small percentage of the regulatory organizations hire legal, auditing and enforcement personnel.

Most tribal regulators do not have the responsibility to collect tax revenues, as taxes are usually not paid in the usual sense. (Instead, net tribal government gammg revenues are taxed 100 percent by the tribal government, with such funds going directly into the tribal government budget to support that government and its programs, consistent with IGRA). Regulators are also usually not independent of the gaming operation. Regulators, as tribal members, benefit directly from the success of gaming operations from per-capita payments of net gaming revenues issued by the tribal government. Many regulators also have close family members who work at the tribal gaming operation.

Tribal gaming operations are usually the most significant source of tribal employment and funding for tribal government operations and programs. The significance of this dependency results in heightened oversight of the tribal gaming operation by the tribal council, other tribal governmental operations and tribal members. The business activities of the gaming operations are usually well known by the tribal government and tribal gaming regulators as a result of information-sharing among tribal members who work at the tribal gaming operation. The tribal member employees of the tribal gaming operation and the importance of the gaming operation to the tribe are two very significant controls over the gaming operation.

Tribal regulatory organizations usually regulate only one gaming operation. As a result, they are not able to assemble the critical mass of gaming specialists or justify the funding to build a regulatory organization that will match the technical skills of the Nevada or Atlantic City regulators. State regulatory organizations usually regulate multiple gaming operations, but they suffer from inadequate funding, the lack of adequate staffing by gaming specialists and difficulties in managing the government-to-government relationship of tribes and states. As a result, state regulators are also not able to assemble the critical mass of gaming specialists to match the technical skills of the Nevada or Atlantic City regulators.

Tribes, tribal gaming associations and state regulators have adopted various standards for background investigations, licensing persons and licensing gaming operations, and regulation of gaming operations. There are also various approaches to regulating surveillance and security systems and personnel, the rules for the play of games, the use and operation of gaming equipment, and accounting and internal controls. These different standards result from differences in tribal governmental organizations, issues that are unique to gaming at a particular tribe, the nature of games offered by the gaming operation, issues present in the gaming compact and tribal self interests. Most of these different minimum standards contain provisions extracted from Nevada or Atlantic City regulations or minimum standards. Most of the different minimum internal control standards tend to follow the Nevada standard.

Overview of S. 1077

The Bill crafts a regulatory scheme that allocates primary regulatory responsibility among four parties. These parties include the NIGC, Tribal and state regulatory bodies, and independent CPA firms. This structure is somewhat similar to the regulatory schemes adopted by several states, including Nevada and New Jersey. This regulatory scheme is also somewhat similar to the regulatory schemes adopted in certain class III compacts because the Nevada and Atlantic City statutes and regulations were used to craft the compacts.

The Bill creates a Federal gaming commission that is responsible for, among many other things:

All of these responsibilities and the administration of the NIGC are to be discharged from a budget of $30 million. On a budget dollar per casino basis or budget dollar per gaming revenue or number of personnel basis, this budget will be significantly less than the Nevada or Atlantic City regulatory budgets.

States and tribes retain the primary responsibility to regulate gaming. If a state or tribe fails to regulate gaming in accordance with the Federal minimum standards, the NIGC will regulate gaming. Before the NIGC can regulate gaming, the NIGC must provide notice and reasonable opportunity to cure violations and be heard, and exhaust other authorized remedies and sanctions. It is not clear from the Bill how the NIGC will become aware of tribes or states that are not regulating gaming operations in accordance with Federal minimum standards. The NIGC does not have the budget or the legislative authority to audit for compliance of the Federal minimum standards. When the NIGC becomes aware of apparent non-compliance with Federal minimum standards, it cannot regulate the gaming operation until all other remedies and sanctions are exhausted.

The Bill requires tribes to hire CPA firms to audit the class II gaming operation's financial statements. Contracts in excess of $50,000 are to be "subject to such independent audit reports." The purpose of the audit is to determine if the financial statements fairly present the gaming operation's financial position and results of operation. The auditor is not reporting on compliance with tribal or Federal minimum standards, and the auditor is not reporting on contracts in excess of $50,000. CPAs are not generally aware of the $50,000 contract provision, and there is no basis in generally accepted auditing standards to explain what the auditor is supposed to do if the auditor is aware of the $50,000 contract provision. Auditors are not regulators and the Bill does not use the auditor to determine compliance with minimum internal control standards which is the case with Nevada and Atlantic City regulations

Conclusions:

The Bill will not accomplish the objectives listed in Section 3 (3) that are to be satisfied through regulation of Indian gaming activities. Those objectives are better satisfied through tribal self-regulation. This conclusion is based on the following five observations:

I thank the Committee again for giving me this opportunity to share these observations with you.

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