Regulatory Updates

McCain/Pombo: Stop to Shopping?

Heidi McNeil Staudenmaier
Heidi McNeil Staudenmaier

by Heidi McNeil Staudenmaier, Partner Coordinator
Snell & Wilmer

Multiple challenges from different viewpoints have been launched against the Indian Gaming Regulatory Act (IGRA) – with such attacks starting literally before the ink had even dried when the Act was first signed into law in October, 1988. To date, none of these challenges has been successful – until now.

Arizona Senator John McCain, who chairs the Senate Committee on Indian Affairs, is leading the charge to amend the IGRA after nearly 20 years and introduced his proposed changes in November of last year (SB 2078). California Representative Richard Pombo recently jumped into the fray, with his own amendments being teed up in early March before the House Resources Committee (which he chairs). The Pombo bill was not a surprise. At least two discussion drafts had been circulated for public comment in 2005.

McCain has wasted little time getting down to work and seeking public comment on the proposed amendments. Since the beginning of this year, he has already held several hearings with anticipated markups to the amendments expected by late March. McCain hopes to schedule a Committee vote before the end of the March. What happens from there is anyone's guess. What many believe, however, is that something will happen in terms of amending the IGRA. The real question is exactly what and how much will be changed. Although McCain has purported to support tribal rights over the years, his potential Presidential bid in 2008 as well as the Jack Abramoff lobbying scandal seem to have heightened McCain's particular interest in the $20 billion Indian gaming industry.

When McCain opened the hearings in February, he observed, “Certain controversial activities continue to concern myself, my colleagues, and many communities around the country, therefore I have determined... to continue to look at these activities and whether additional changes to IGRA are needed.”

The hearings held in February and March primarily focused on what has been dubbed as "reservation shopping" as well as the scope of the National Indian Gaming Commission's authority and jurisdiction pursuant to the IGRA.

In connection with the off-reservation gaming proposal, McCain voiced his concern that the “process of taking land into trust under the restored lands and initial reservation exceptions may not be adequate to be fair to all people impacted by the arrival of a casino.” McCain seemed to criticize the practice of newly-recognized tribes looking for the “best place to place a casino” as opposed to a “location that meets the cultural and social needs” of the tribe's members.

McCain's reservation shopping amendments would eliminate the two-part determination under the IGRA. The two- part determination allows tribes to acquire off reservation lands for gaming if (1) the Secretary of the Interior concludes the acquisition is in the best interest of the tribe and will not be detrimental to the surrounding community, and (2) the Governor of the State where the land is to be acquired is in agreement.

McCain noted during one of the hearings that the “proliferation of proposals by tribes with existing reservations and their developer backers to site casinos off-reservation on lands on which the tribes often bear no historic relationship is fostering opposition to all Indian gaming.”

Interestingly, George Skibine, Acting Deputy Assistant Secretary - Indian Affairs for Policy and Economic Development, Department of the Interior, noted at the same hearing that such off reservation gaming acquisitions have not been a problem from a historical perspective. In fact, the Secretary has only approved three applications for off-reservation gaming acquisitions since 1988.

The McCain Amendments purportedly target exploitation of the exceptions under IGRA permitting gaming on lands acquired after the passage of IGRA and not within a tribe's traditional reservation boundaries. The proposed changes are intended to further limit the exceptions already set forth in IGRA permitting post IGRA land acquisitions for gaming purposes. Tribes may still conduct gaming on lands proven to be taken illegally and where such lands are located within the state where the tribe has or had its last recognized reservation. Newly recognized or restored tribes will still be permitted to secure lands for gaming. However, the land must be determined by the Secretary to have a “temporal, cultural, geographic nexus to the land.”

The Pombo bill, scheduled for hearing in March, focuses only on off-reservation gaming. This issue has become particularly heated in the State of California where there are multiple applications pending before the Secretary for off-reservation acquisitions under the restored lands exception. There are numerous landless tribes in California vying for lands on which to conduct gaming operations. Certainly, the closer the land is to urban areas, the more lucrative the tribal casino operations. However, in some cases, these proposed land acquisitions have no significant relationship to the tribe's historical and traditional lands. That's where the Pombo bill comes into play. The Pombo bill would prohibit any land acquisitions for any newly recognized, restored or landless tribe unless certain criteria is met.

Specifically, Pombo would require the following:

(1) Secretary must determine that such lands are within the State of the applicant tribe and are within the “primary geographic, social, historical, and temporal nexus” of the tribe;

(2) Secretary determines that the proposed gaming activity would not be "detrimental to the surrounding community and nearby Indian tribes;

(3) The Governor and the State Legislature of the State in which the gaming activities will be conducted agree with the acquisition;

(4) Indian tribes within 75 miles of the proposed land acquisition agree;

(5) An advisory referendum by the county/parish contiguous to the proposed land acquisition has been
conducted to determine local support or opposition; and

(6) The tribe and the county/parish shall enter into a Memorandum of Understanding setting forth mitigation of direct impact on the county/parish infrastructure, including direct payment to mitigate such infrastructure costs.

The Pombo bill also would permit Indian tribes with land eligible for IGRA gaming to host one or more other Indian tribes to “participate in or benefit from gaming conducted” on the host Indian tribe's land. However, the invited tribe cannot have any ownership interest in any other tribal casino on any other Indian lands. The invited tribe also must have its “primary geographic, social, historical and temporal nexus” to land in the State in which the land of the host Indian tribe is located. The proposed vehicle for conducting such consolidated gaming between tribes would be a lease subject to review and approval by the Secretary.

Finally, the Pombo bill is aimed to curtail any off-reservation gaming acquisitions by tribes going outside the borders of the states where they are currently located. The bill provides that a tribe “shall not conduct gaming regulated by [IGRA] outside of a State in which the Indian tribe has a reservation on the date of the enactment of this subsection, unless such Indian lands are contiguous to such a reservation of that Indian tribes in that State.”

The McCain/Pombo off-reservation amendments have been subject to varying views in Indian Country. Many tribes with existing casinos – particularly in California – have been vocal opponents against other tribes shopping for land near heavily populated areas where the lands have no historical connection to the tribe itself. The view is that these tribes should not be permitted to gain an unreasonable advantage, but that the playing field should remain level. Nevertheless, these same tribes agree that the general act of opening up the IGRA to any amendments whatsoever is rife with problems and concerns. In response, Pombo told the local media, “Off-reservation gaming is a nationwide concern and I knew we had many different opinions and concerns to keep in mind. By working openly in Indian Country and the American public over the last year, I believe I have crafted the strongest bill possible. This will put local communities in control and encourage economic opportunities for tribes at the same time.”

While the Pombo bill focuses solely on off-reservation gaming, the McCain Amendments are much farther reaching in their proposed changes to the IGRA. The proposed amendments also would expand the NIGC's current authority over gaming contract approval. At present, the NIGC is only authorized to approve management contracts. All other contracts do not require the NIGC's approval, although many parties seek declination letters confirming that their contract does not constitute a management agreement requiring NIGC approval.

SB 2078 expansively defines "gaming-related contract" as:

(A) A contract or other agreement relating to the management and operation of an Indian tribal gaming activity, including a contract for services under which the gaming-related contractor:

(1) exercises material control over the gaming activity; or

(2) advises or consults with a person who exercises material control over the gaming activity;

(B) An agreement relating to the development or construction of a gaming facility, including any ancillary facility (the cost of which is greater than $250,000); or

(C) An agreement that provides for compensation or fees based on a percentage of the net revenues of a tribal gaming activity.

In the March 8 hearings, NIGC Chairman Philip Hogen provided his views on the NIGC's authority over gaming-related contracts. Although Hogen commended the general concept of providing greater authority to the NIGC with respect to oversight of certain contracts and business relationships involved in tribal gaming operations, he did express concern that if the NIGC is tasked to review and approve “all 'gaming-related contracts', broadly defined, it could become a bureaucratic bottleneck that would threaten to stifle the day-to-day operations of tribal gaming facilities.”

Hogen proposed that the definition of gaming-related contracts be more narrowly defined and to provide the NIGC with discretion to review ancillary contracts as needed and for cause. Hogen feels that providing such discretionary review would permit the NIGC to address problematic situations yet still permit that the smooth and efficient operation of the vast majority of tribal gaming operations'
contracts for goods and services would go unimpeded.

The NIGC Chair also spent considerable time during his Committee testimony advocating the clarification of the NIGC's authority over Class III gaming. As a result of the District Court of the District of Columbia's decision in Colorado River Indian Tribes v. NIGC, 383 F. Supp. 2d 123 (D.D.C. 2005), the NIGC was found to have exceeded its authority in issuing Minimum Internal Control Standards for Class III gaming operations.

Hogen also pointed out that, absent clarification on this issue of authority, there will be “temptations, generated by demands for per capita payments or other tribal needs, to pare down tribal regulatory efforts and bring more dollars to the bottom line. There will be no federal standard that will stand in tribes' way should this occur.” Hogen concluded that the clarification concerning the NIGC's authority over Class III was an imperative change to the IGRA.

To date, the proposed IGRA amendments have not touched upon the other big controversy in Indian Country – the classification and regulation of Class II gaming. The proposed Johnson Act amendments, circulated last Fall for discussion by the Department of Justice (DOJ), have yet to be introduced in either the Senate or the House. Indeed, in February, the DOJ announced that it had significantly revised the proposed amendments based on tribal input.

Although the revamped Johnson Act amendments had yet to be released as of March 8, the DOJ representatives claim that the most hotly contested provisions dealing with the Class II definitions have been deleted. The DOJ contends that the changes will instead return the jurisdictional power and authority over Class II devices to the NIGC. The revised amendments will direct the NIGC to develop its own definitions – something that already had been in process for a year or more before the DOJ's Johnson Act amendment announcement last Fall.

The DOJ further contends that the reworked amendments will instruct the NIGC to conduct a study of the economic impacts of the proposed Class II definitions. Once the final "vetting" process takes place over the proposed amendments, the DOJ anticipates that the bill will be introduced first in the Senate, with McCain as the likely sponsor.

It remains to be seen how the Johnson Act proposal will fare as the current legislative session moves forward. Regardless, the 2006 Congressional agenda as it pertains to the Indian gaming industry, has everyone on the edge of their seat waiting and watching to see what happens next.

Heidi McNeil Staudenmaier is Partner Coordinator of the Snell & Wilmer Indian and Gaming Law Practice Group and is located in the firm's Phoenix office. She can be reached by calling (602) 382-6366 or email hstaudenmaier@swlaw.com