Regulatory Updates

NIGC Holds Final Hearing on Proposed Class II Regulations

by AJ Naff, Editor
Indian Gaming Magazine

Last month the National Indian Gaming Commission (NIGC) held the final public hearing on its proposed Class II definitions and classification standards for the Indian gaming industry at the Department of Interior in Washington, D.C. The hearing included six panels of tribal and industry leaders and was the last opportunity for those in the industry to testify about the proposed regulations, which if imposed, would drastically alter the way tribal casinos operate.

The position of the NIGC is that a clear line needs to be drawn between Class II bingo machines and Class III gaming machines. While the Indian Gaming Regulatory Act (IGRA) allows tribes the use of technologic aids to the play of bingo, the NIGC and the U.S. Department of Justice feel that technology has blurred the distinction between the two classes of machines and that the new regulations will clarify what machines can be legally manufactured and put into play. However, the industry was united in its opposition to these regulations. The overwhelming sentiment at this hearing was that this clear line does indeed exist, that every federal judge to rule on the issue has agreed, and that the regulations the NIGC is proposing would be detrimental to tribes and the industry.

Panel 1 - Tribal Leadership
Panelists: Brian Campbell, Administrator of Commerce, Chickasaw Nation; Tracie Stevens, Governmental Affairs, Tulalip Tribes; Charlie Lombardo, Sr. Vice President of Gaming Operations, Seminole Tribe of Florida; Marjorie Mejia, Chairwoman, Lytton Band of Pomo Indians; Ray Halbritter, Nation Representative, Oneida Indian Nation

The first panel was unanimously critical of the NIGC's proposed regulations, claiming Class II gaming is an essential element to funding tribal programs. “Under the proposed rules, not a single electronically-aided Class II game played today in Indian country would remain lawful,” Brian Campbell, Administrator of Commerce for the Chickasaw Nation, testified, “including those games affirmed by the federal courts and those games previously authorized by the NIGC.”

Margie Mejia, Chairwoman of the Lytton Band of Pomo Indians, explained her tribe's need for the revenue Class II gaming provides. Of her tribe's 253 enrolled members, 15% are homeless, 75% live in substandard housing, and almost half of the adult members are unemployed or live at near poverty levels. “Understandably, with these kinds of statistics,” she testified, “it is vital that Lytton be able to pursue viable economic development to allow it to assist its members.”

Once the first panel concluded, the floor was opened up for public comments. “I ask the Commission and the Commissioner, don't put a chokehold on this economic engine that we have,” said Bill Coleman, a Council Member of the Nooksack Indian Tribe. “Be here to work for us, not against us.” Shawn Yanity, Chairman of the Stillaguamish Tribe of Indians, stated that the opening of his tribe's Angel of the Winds Casino has helped pave the way for numerous programs, such as a methadone clinic, dental clinic, and a behavioral health clinic. “I urge you to reconsider,” he said to the NIGC, “because small tribes like ours look at what that facility has done for our people. Without it, we wouldn't have these things.”

Panel 2 - State Governments and Testing Labs
Panelists: Tom Gede, Executive Director, Conference of Western Attorneys General; Sharon Tolton-Reese, Deputy Director, Washington State Gaming Commission; Nick Farley, President, Nick
Farley and Associates; Drew Pawlak, Vice President, BMM Testlabs

Nick Farley of Nick Farley & Associates, Inc., stated that a number of items found within the proposed regulations are in contrast to the operation of games that are currently operating with a favorable NIGC advisory opinion. While he asserts that adopting regulatory standards for Class II gaming is a daunting task, he can envision tribes and manufacturers raising concerns over the NIGC's proposed regulations. “It is my belief that IGRA did not intend to limit technology in the play of bingo,” he testified. “The systems currently in play, and soon to be released to the pubic, are an ingenious way to present bingo to adults that are enticed by the thrill of spinning reels.”

Two members of the second panel were in favor of the NIGC's proposed regulations and were the only two during the entire hearing to hold such views. Tom Gede, Executive Director of the Conference of Western Attorneys General, called the NIGC's proposed regulations “particularly commendable.” Sharon Tolton-Reese, Deputy Director of the Washington State Gaming Commission (WSGC) stated, “Without agencies to make the tough and sometimes unpopular decisions, there is much more to risk to the industry as a whole in those who take advantage of unfair regulation, lack of adequate or knowledgeable enforcement, or outright illegal activity.”

During the public comment period, Tracie Stevens of the Tulalip Tribes called Tolton-Reese's testimony into question. “There was a comment that you made in your testimony that there is some 'outright illegal activity' going on. What do you mean by that comment?” Stevens asked. “I think my script read that there is potential for illegal activity without clear regulations,” replied Tolton-Reese. Stevens questioned Tolton-Reese further, asking if there is any evidence of a problem or any need for the WSGC to speculate as to whether the definitions of Class II and Class III are blurry. “Speaking from the state perspective as a whole, the reason there are agencies like ours is to prevent those types of problems,” Tolton-Reese answered. “We've had very limited issues related to any negative activity with regard to gambling.”

Panel 3 - Attorneys
Panelists: Michael Anderson, Monteau Peebles, LLP; Elizabeth Homer, Homer Law Office; Joe Webster, Hobbs, Straus, Dean and Walker, LLP; Judy Shapiro, Shapiro Law Office

The panel of attorneys unanimously disapproved of the NIGC's proposed regulations. “I would respectfully urge the Commission to reconsider the issuance of this proposed rulemaking,” Elizabeth Homer of Homer Law testified. Homer maintained that the classification of gaming machines is a legal question and that the NIGC's proposed classification standards don't represent legal elements. “Instead they simply reflect a means to vindicate legal theories clearly rejected by the courts in a manner consciously designed to undermine the economic viability of Class II gaming.”

“Chairman Hogen, I remember clearly in the spring of 2003 you spoke to the Oklahoma Indian Gaming Association about the Seneca-Cayuga decision,” Judith Shapiro of Shapiro Law Office testified. “You expressed satisfaction that the court had deferred to the NIGC's definition of technologic aids - the same definition you now propose to set aside.” Shapiro, like many, feels that the NIGC's proposed regulations would unnecessarily delay the play of Class II games, limit the machines' design options, and undercut the opportunity Congress intended when it authorized Class II technologic aids. “The NIGC should not limit the tribes' right to use the same technology available to the rest of the country.”

Panel 4 - Manufacturers
Panelists: Knute Knudson, IGT; Mark Lerner, Bally Technologies; Gary Loebig, Multi-Media Games; Ron Harris, Rocket Gaming Systems; Eric Casey, Planet Bingo

Knute Knudson, Vice President of Native American Development for IGT, testified that the regulations are unnecessary and that they are designed to cure a nonexistent problem. “The proposed regulations will not serve to distinguish one class of games from another, as that distinction already exists today,” he stated. “However, the proposed regulations will serve to damage the playability of the games and so damage tribal revenues.”

“It is my opinion as a manufacturer that the proposed classification standards, if published, will not allow the development of a commercially viable product,” stated Ron Harris, Vice President of the Gaming Division for Rocket Gaming Systems. Harris feels the regulations would not only be devastating to tribes that rely on Class II gaming to fund tribal programs, but would also eliminate a viable fallback position for tribes negotiating state compacts. Additionally, Harris expressed doubts as to whether manufacturers can even develop profitable Class II games in accordance with the NIGC's proposed regulations. “If we built it, I'm not sure it will be fun. If it happens to be fun, I don't think anyone's going to make any money with it.”

In his testimony, Eric Casey, Director of Sales and Strategic Planning for Planet Bingo, outlined the progression of the game of bingo itself through numerous mediums. Each progressive level of technology, he asserted, has served to enhance the game while maintaining the core attributes that separate bingo from games of chance: multiple players in a common game and a winner every time. “In 1988, the IGRA distilled these core attributes into three statutory criteria to identify Class II bingo,” he testified. “And these criteria hold up no matter what medium the game of bingo is played in.”

Panel 5 - Economic Impact
Panelists: Buford Rolin, Chairman, Poarch Band of Creek Indians; Michael Marchand, Business Council Chair, Confederated Tribes of the Colville Reservation; Ernie Stevens, Jr., Chairman, National Indian Gaming Association

The fifth panel testified on the economic impact these proposed regulations would have on the Indian gaming industry. “The NIGC has repeatedly told tribes that no economic impact study has been done,” Michael Marchand, Business Council Chair for the Confederated Tribes of the Colville Reservation, stated in his testimony. “No determination has been made about the economic devastation this proposed rule will have in Indian Country. Unfortunately, the NIGC has the cart before the horse.”
Ernie Stevens, Jr., Chairman of the National Indian Gaming Association, stated that the NIGC's proposed regulations will disrupt the legal certainty and industry stability that has resulted from a decade of litigation. “The millions of dollars that have been invested in reliance on the current settled law will be lost,” he testified, “ensuring future litigation.”

Panel 6 - Tribal Leadership
Panelists: Paul Spicer, Chief, Seneca-Cayuga Tribe of Oklahoma; Jim Ransom, Chief, St. Regis Mohawk Tribe; Rogelio Elizondo, Treasurer, Kickapoo Traditional Tribe of Texas; Erma Vizenor, Chairwoman, White Earth Reservation; Mark Macarro, Chairman, Pechanga Band of Luiseño Indians

The final panel, like the first, was comprised of tribal leadership and unanimously critical of the NIGC's proposed regulations. “If the NIGC adopts the proposed rules as currently drafted, it would have a devastating impact on our Class II operations,” stated Erma Vizenor, Chairwoman of the White Earth Reservation Tribal Council. According to Vizenor, if these regulations are passed, the games her tribe currently operates will be in noncompliance and replacing them will be an enormous cost. She feels the games the tribe would be forced to use would play at slower speeds and the display and entertainment features would be greatly diminished. “Quite frankly, games available under the new regulations simply may not be viable.”

“Interestingly, it is only the Commission - and the Justice Department for that matter - that seems confused by the distinctions between Class II and Class III games,” Mark Macarro, Tribal Chairman of the Pechanga Band of Luiseño Mission Indians, stated in his testimony. “The courts understand these differences and, believe me, so do our customers.” Macarro, too, expressed concern over the Class II machines allowed under the proposed regulations, which he feels will be too slow and cumbersome to be profitable. “If, however, the Commission is so concerned with the outward appearance of the games, then simply require us to put a sign on them and be done with it.”

Public Comments
Senator Jim Battin of California was among the many who took to the floor for public comments after the panels concluded. “I think the NIGC has a solution looking for a problem,” he said. “There is really no need to make these changes unless you want to take away any ability for the tribes to have any leverage in negotiation.” Battin also rejects the notion that a “clear line” between Class II and Class III machines must be drawn. “There is already a difference between Class II and Class III. If all these machines are the same, why would tribes go through the agony of compacting?”

If the NIGC's proposed regulations are put into effect, many tribes will find themselves stuck with Class II machines that are no longer legal to operate. The changes this would impose upon tribes would be very costly. “Our tribe did the responsible thing,” Kevin Parker, Director of Gaming for Angel of the Winds Casino, told the NIGC. “We followed all of the classification standards, yet you changed the rules on us. Now who is going to pay for these changes?”

“The number of Class III machines we're allowed by the State of Washington is limited, so we've been using Class II machines to make our casino more profitable,” James L. Peters, Tribal Council Chairman of the Squaxin Indian Tribe, told Indian Gaming magazine. Peters attended the hearing because his tribe, like so many others, depends on the revenue from Class II to fund its numerous programs. “We hear the same arguments time and again from the NIGC, but they haven't shown any facts that these machines have caused any problem at all.”

Many in attendance felt that if these proposed regulations are enacted, they will impede not only tribal programs, but also the effect tribes have on their surrounding communities. “This would be absolutely devastating to our tribe and I want to point out that we have an impact on city and state government,” said Shana Swanson, Enterprise Corporation President for the Stillaguamish Tribe of Indians. “We help with the fire department, for example, and there's no way we could do that without gaming.”

It was widely felt during the hearing that the NIGC had already made up its mind. Though the NIGC assured those in attendance that this was not the case, many disagreed. “Listening to the Chairman Hogen's comments, I believe that they've already made their decision,” Senator Jim Battin said. “I respectfully disagree that the NIGC hasn't made up its mind,” said Daniel F. Decker, an attorney with Decker & Desjarlais, PLLC. “In terms of the NIGC's track record, when they submit something as a draft, it's the direction they tend to go.”

Not all shared this sentiment, however. “Obviously the NIGC is listening to and studying what we have to say, it's just a very complicated process,” said Tracy Burris, Gaming Commissioner for the Chickasaw Nation. “I'm personally not happy with the current proposed rules, though. I hope they take this forum and analyze this issue a lot further.”

At the hearing's conclusion, Chairman Hogen thanked those who came to testify as well as those who came to listen. “I assure you that not only did I listen, but hopefully I heard what was said,” he stated. He said that though he would like to give tribes everything they are asking for, the oath he took doesn't always permit him to give the popular response or answer. “I have to try to find the right answer.”

The NIGC was expected to close the comment period on September 30. However, several in attendance requested that this date be extended, citing such reasons as the lack of an economic impact study. Hogen took those requests into consideration and extended the deadline to November 15.

AJ Naff is Editor of Indian Gaming Magazine. He can be reached by calling (425) 885-6006 or email aj@indiangaming.com