BILL ANALYSIS
AB 2198
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Date of Hearing: May 5, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2198 (Cook) - As Amended: April 5, 2010
Policy Committee: Governmental
Organization Vote: 22 - 0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill appropriates $30 million from the Indian Gaming
Special Distribution Fund (SDF) to provide grants to local
government agencies impacted by tribal gaming.
FISCAL EFFECT
1)This bill contains a $30 million appropriation.
2)Assuming this $30 million resumes the annual appropriation for
local mitigation grants, and the SDF continues to be used to
fund the $40 million annual Indian Gaming Revenue Sharing
Trust Fund (RSTF) shortfall, estimates suggest that the SDF
will have a shortfall of approximately $37 million in 2012-13.
Under the 2007 compact amendments, the state is obligated to
cover the RSTF annual shortfall if the SDF cannot.
COMMENTS
1)Rationale . According to the author, tribal governments would
like to restore funding from what they consider "the lost
year" that was vetoed by the governor in the 2007-08 budget.
In the 2007-08 fiscal year, Gov. Schwarzenegger vetoed an
appropriation for local governments totaling $30 million,
citing the Bureau of State Audits report discussed below. The
governor requested reforms to the SDF funding process before
restoring the vetoed funds.
2)Background . Both the SDF and the Indian Gaming Revenue Sharing
Trust Fund (RSTF) were established in the 61 tribal-state
gaming compacts negotiated in 1999 by then-Governor Davis and
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ratified by the Legislature that same year.
The 1999 compacts require each tribe that operates more than
200 slot machines as of September 1, 1999, before the compacts
were ratified, to deposit a percentage of its average net wins
(ranging from 7-13%) into the SDF (the state General Fund
receives no revenue from the 1999 compacts). Twenty-five
tribes currently make contributions into the SDF.
Tribes with 1999 compacts are required to purchase slot
machine licenses by paying both a one-time fee and quarterly
fees based upon the number of slot machines the tribe
operates. These fees are deposited into the RSTF and are used
to support the annual $1.1 million payments to the 71
"non-compact" tribes. Unfortunately, the fee structure
established in the 1999 compacts designed to support the $1.1
million payments to the non-compact tribes does not generate
a sufficient level of funding necessary to support this
obligation, thus necessitating annual transfers (approximately
$40 million in the 2010-11 Budget) from the SDF to address
this "shortfall."
3)Special Distribution Fund . Along with covering "shortfalls" in
the RSTF, money paid by gaming tribes into the SDF is required
to be used for funding programs designed to address problem
gambling, support for any local or state government agencies
that are impacted by gaming, compensation for any Department
of Justice (DOJ) regulatory costs, and for implementing any
tribal labor relations ordinances promulgated in accordance
with individual gaming compacts.
The 2010-11 budget assumes the SDF will receive $49 million in
revenue (down from the $109 million received in 07-08). That
amount will be combined with a carryover balance of $117
million from 2009-10. Of that $166 million, $40 million will
be transferred to the RSTF to cover the shortfall in the
funding for non-gaming tribes, $14 million is provided to the
DOJ, $8.5 million to the Gambling Control Commission, $8.5
million to the Department of Alcohol and Drug for the Office
of Problem Gambling, and the remainder would be held in a
reserve for economic uncertainties (approximately $40 million
less than 2008-09).
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4)Committee Concerns . There has long been concern about the
formula used to distribute the grant funding and the way in
which the funding has been used by local governments (See LAO
and Bureau of State Audit discussions below). In addition,
because several large tribes are no longer paying into the SDF
and instead are contributing money directly to the GF, the
committee is concerned with the SDF's ability to sustain its
current obligations.
5)Legislative Analyst's Concerns . In the Legislative Analyst's
Office (LAO) analysis of the 2009-10 budget, and in earlier
reports, the LAO noted that the local grants have outlived
their usefulness due to the major changes in the SDF. The law
governing the local grants was implemented when the SDF was
flush with revenue, paid in large part by tribes that no
longer pay into the fund. Moreover, these tribes that do not
pay into the SDF 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.
The LAO points out that two-thirds of the local grant funding
is provided to Riverside, San Diego and San Bernardino
counties (with 43% going to Riverside alone) and all of the
amended compacts for tribes that no longer pay into the SDF
are located in two of those counties (Riverside and San
Bernardino). Therefore, under this new scenario, the
allocation formula no longer makes sense.
The LAO recommends that any continuation of the local grants
emphasize two key priorities:
a) Ensure that only the highest-priority local
infrastructure, problem gambling, and public safety needs
resulting from casinos receive funding.
b) Ensure that any county receiving mitigation payments
from a tribe with a recently amended compact does not also
receive substantial SDF grant funding related to that
tribe.
This legislation does not include either of those
recommendations.
6)Bureau of State Audits (BSA) Findings . In July 2007, the BSA
released an audit of the local mitigation grants funded by the
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SDF. The auditors reviewed 30 local grants made to six
counties totaling $12.1 million. BSA found five instances
totaling $505,000 when the grants were not used to offset the
adverse effects of casinos. In addition, they found 10
instances totaling $2.3 million where the purpose of the
grants stated in the application may have been somewhat
relevant but appeared to primarily address unrelated needs in
the communities. In addition the auditor found that in some
local communities a significant amount of the distribution
fund money was deposited into local government accounts which
earned interest that was used to pay general county
operational costs rather than for mitigation projects.
7)Related Legislation . SB 357 (Ducheny; Chapter 181, Statutes of
2009) extended the sunset date to 2021 for the law governing
the method of calculating the distribution of appropriations
from the Indian Gaming Special Distribution Fund (SDF) for
grants to local government agencies impacted by tribal gaming.
AB 158 (Torrico; Chapter 754, Statutes of 2008) appropriated
$30 million from the Indian Gaming Special Distribution Fund
to be allocated by the California Gambling Control Commission
for local projects to mitigate the impacts of tribal gaming.
This bill also extended the sunset of the program from January
1, 2009 to January 1, 2010 to local jurisdictions for local
projects that mitigate the impacts of tribal gaming.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081