by John M. Curtis
(310) 204-8700

Copyright August 25, 2004
All Rights Reserved.

ooking to gaming to bail out California's mounting debt, Gov. Arnold Schwarzenegger signaled his intent to replace Nevada as the nation's number one gambling Mecca. Signing new compacts with Indian tribes, Arnold hopes to add billions to the state piggy bank, seeking thousands of new slot machines to existing card clubs and gaming establishments. Schwarzennegger, and his zealous budget director Donna Arduin, hopes to balance the state's budget on the backs of the Indian gaming industry, though it's doubtful that tribal gambling will bail the state out of the current fiscal mess. Gaming promises to add jobs—and income tax revenue—but doesn't expand manufacturing base and service economy needed to solve California's budget woes. What looks like a U-turn from the state's old fashioned image, Schwarzenegger now wants to compete with sin city.

      When California voters passed Proposition 13 in 1978, property tax revenues began to shrink, forcing legislators to find new ways of raising money, including card clubs and the state lotery. Prop 13's authors, Howard Jarvis and Paul Gann, knew that the real estate inflation in the late ‘70s punished property owners, generating obscene profits for state and county governments. Yet the state's initial loss of revenue prompted new revenue fixes, leading to statewide propositions in 1998 and 2000 approving Indian gaming. “People liked gambling, they would drive to Nevada,” said Roger Dunstan, who authored a definitive study on gambling for the State Research Bureau. Dunstan also found that respondents didn't want gambling encroaching on neighborhoods, prompting cities to pass strict ordinances restricting gambling and strip clubs to industrial areas away from schools and churches.

      New ballot propositions slated for November remove the restriction on slot machines, allowing tribal casinos to exceed a 2,000 limit. California casinos currently have 60,000 slot machines in contrast to the 220,000 in Nevada. Slot machines generate the highest profits, or, put another way, pay the lowest returns for casino gamblers. California's slots generate about $5-6 billion in annual revenue, a figure expected to rise should Propositions 68 and 70 pass in November. State officials are licking their chops anticipating the tax windfall expected from dramatically expanding slot machines around the state. Swarzenegger's plan offers existing Indian casinos the opportunity to add slot machines as long as the state gets its cut. California's dense population offers great opportunities for the Nevada gaming industry, interested in expanding market share in the Golden State.

      Unlike Las Vegas, California's tribal casinos are spread throughout the state in remote locations, drawing local inhabitants, unlikely to siphon significant numbers from Nevada. From the state's perspective, as long as new casinos pay their fair share it doesn't matter whether Nevada has a significant stake in California's gaming industry. “We're very bullish on California. The market is there. The demand is there,” said Scott Nielson, executive vice president of Las Vegas' Station Casinos Inc. Steve Wynn—owner the Las Vegas Mirage and Bellagio—sees great investment opportunities in a proposed Indian casino in Garden Grove, only minutes from Disneyland. Las Vegas gaming has nothing to lose and everything to gain controlling interests in California's gambling market. Gaining a piece of the action in California assures Nevada's big shots an unending gold mine.

      Economists expect California to overtake Nevada's gaming industry by 2010. That's not too surprising when you consider Nevada's entire population is less than Orange County—the home of Disneyland. Building a luxury casino near Disneyland could spell trouble for Las Vegas, currently boasting about how it caters to families. Few venues can compete with Disneyland when it comes to family entertainment. California's casinos are currently concentrated in rather remote locations, especially in the low desert Indian lands around Palm Springs. Concerns about Indian casinos corrupting the state's neighborhoods, spreading a scourge of compulsive gambling and fueling crime haven't been confirmed by today's research. Former Lieutenant Gov. Leo McCarthy, a past member of National Gambling Impact Commission, warns that casinos lead to crime and pathological gambling.

      Whether Propositions 68 or 70 pass or not won't stop the governor from adding unlimited slot machines to new and existing Indian casinos. Expanding the number of slots promises to generate more revenue, assuming enough Californians take an interest in Las Vegas-style gaming. It's going to be tough trying to convince voters that gambling produces more crime and moral depravity, when the state's still battling stubborn unemployment and big budget deficits. “It's hard to resist the economics,” said Dunstan, estimating that California stands to gain an initial lump sum of $1 billion plus an annual income of at least $400 million, reflecting deals with only 10 tribes. More tribes promise even bigger paydays for the state's beleaguered treasury. Upgrading California's bond rating, Wall Street already voiced its approval of Schwarzenegger's brainstorm to get Indian tribes to pony up.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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