BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair AB 1417 (Hall) Hearing Date: 8/25/2011 Amended: 6/22/2011 Consultant: Maureen Ortiz Policy Vote: GO: 11-0 _________________________________________________________________ ____ BILL SUMMARY: AB 1417 appropriates $18.2 million from the Indian Gaming Special Distribution Fund to the California Gambling Control Commission to provide grants to local agencies for the purpose of mitigating the adverse impacts of tribal gaming. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2011-12 2012-13 2013-14 Fund Grants $18,200 $0 $0 Special* *Indian Gaming Special Distribution Fund _________________________________________________________________ ____ STAFF COMMENTS: SUSPENSE FILE. The $18.2 million appropriated in this measure will be used to provide grants to local governments for the purpose of mitigating the adverse impacts of tribal gaming. Existing law creates the Indian Gaming Special Distribution Fund (SDF) for the receipt of revenue contributions made by tribal governments pursuant to the terms of the 1999 model Tribal-State Gaming Compacts and authorizes the Legislature to appropriate money from the SDF for the following purposes: a) grants for gambling addiction programs, b) grants for the support of state and local government agencies impacted by tribal gaming, c) compensation for regulatory costs incurred by the California Gambling Control Commission and the Department of Justice in connection with implementation and administration of compacts, d) payment of shortfalls that may occur in the Indian Gaming Revenue Sharing Trust Fund, e) disbursements for the purpose of implementing the terms of tribal labor relations ordinances promulgated in accordance with the terms of the 1999 compacts, AB 1417 (Hall) Page 1 and f) any other purpose specified by law. However, pursuant to compact renegotiations that took place with several of the larger gaming tribes during the previous administration, revenue from those tribes is directed into the state General Fund, instead of the Special Distribution Fund. New and amended tribal-state gaming compacts require tribes to negotiate directly with local governments to mitigate casino impacts rather than contribute to the distribution fund. Consequently, the SDF is expected to become insolvent in FY 2013-14. If $18.2 million is appropriated pursuant to this measure, the fund will likely become insolvent by FY 2012-13 and any future obligations to backfill the Revenue Sharing Trust Fund (RSTF) will have to be made from the General Fund. Existing law also establishes an Indian Gaming Local Community Benefit Committee in each county in which gaming is conducted, specifies the composition and responsibilities of that committee, and requires that committee to make the selection of grants from the casino accounts. The committee is responsible for establishing all application policies and procedures for grants from the casino accounts. The State Auditor is required to conduct an audit every three years and report its findings to the Legislature regarding the allocation and use of SDF grant monies. Appropriations have been made from the SDF for local community grants in prior years as follows: $25 million in 2003-04; $30 million in 2004-05, 2005-06, 2006-07, 2007-08, 2008-09, and 2010-11. The Governor blue penciled the $30 million appropriation in 2007-08 but that funding was later restored through the budget act. However, declining revenue going into the SDF and the annual obligation to cover any shortfall in the Revenue Sharing Trust Fund, make it impossible for the SDF to maintain a $30 million annual appropriation for grants to local communities. There are 71 non-gaming tribes that will be eligible for RSTF distributions of $1.1 million each during FY 2011-12 for a total payment of $78.1 million. The California Gambling Control AB 1417 (Hall) Page 2 Commission notes that the RSTF revenue for 2011-12 is projected to total approximately $51 million which will result in a shortfall of about $27.1 million which must be transferred from the SDF in FY 2011-12. In July 2007, the Bureau of State Audits reported numerous instances where the grant funds provided to local governments to mitigate the effects of gaming were used inappropriately or for entirely unrelated purposes. In February 2011 the State Auditor conducted a follow-up review of 20 grants awarded by benefit committees in seven counties and found that local benefit committees still have trouble complying with the distribution requirements. The audit found that in 2008-09, of the $30 million appropriated by the Legislature, nearly $400,000 was used for projects that were unrelated to the casinos' impact or not proportionally related to any adverse impacts; local governments could not provide evidence that $3.2 million in grant funding was used to mitigate the impact of a casino; one county granted all of its funds totaling $336,000 to an entity that was not eligible to receive the money; and five local governments received $1.2 million less than the amount the law set aside for them. The auditor further concluded that nearly 25% of the benefit committee members in the seven counties reviewed failed to provide a statement of economic interest. The Legislative Analyst Office, in its review of the 2009-10 budget, concluded that local grants have outlived their usefulness due to the major changes in the revenue stream to the SDF. As a result of several compact renegotiations by the previous administration, many tribes no longer contribute to the SDF. These tribes instead have separate obligations under their new compacts to enter into enforceable agreements with local jurisdictions to mitigate the effects of their casinos on nearby counties. In addition, the LAO points out that two-thirds of the funding is provided to Riverside, San Diego, and San Bernardino counties (with 43% going to Riverside) and all of the amended compacts for tribes that no longer pay into the SDF are located in Riverside and San Bernardino counties. It is the LAO's conclusion, therefore, that the current allocation formula is inappropriate and outdated. AB 1417 (Hall) Page 3 Government Code Section 12713 provides that the Department of Finance, in consultation with the Gambling Control Commission, shall calculate the total revenue in the Indian Gaming Special Distribution Fund that will be available for the current budget year for local government agencies impacted by tribal gaming. The Department of Finance then includes the information in the May Revision of the state budget. The projected balance of the SDF as of June 30, 2012 is estimated to be $43.7 million and due to the structural imbalance with expenditures exceeding revenues, the fund is expected to have a negative balance by FY 2013-14. Therefore, no money was appropriated in the May Revision for local government mitigation grants this year.