BILL ANALYSIS
SB 357
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Date of Hearing: July 15, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
SB 357 (Ducheny) - As Amended: April 1, 2009
Policy Committee: Governmental
Organization Vote: 17 - 0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill extends 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.
FISCAL EFFECT
1)The 2009-10 budget does not include any funding for local
mitigation grants. Continuing the local government grant
formula in state law would create significant pressure in
2009-10 and 2010-11 on the SDF and in 2011-12 the GF, likely
in the range of $30 million per year.
2)Assuming the $30 million in annual mitigation grants for local
governments resume due to the extension of this statute and
the SDF continues to be used to fund the $50 million annual
Indian Gaming Revenue Sharing Trust Fund (RSTF) shortfall,
estimates suggest that the state will use up all of the SDF
surplus in 2010-11 and will have a shortfall of approximately
$60 million in 2011-12. Under the 2007 compact amendments,
the state is now obligated to cover the RSTF annual shortfall
if the SDF cannot.
COMMENTS
1)Rationale . This bill seeks to extend the sunset on the Indian
Gaming Special Distribution Fund local government grant
statute from January 1, 2010 to January 1, 2021. This
extension ensures that the grant allocation statute will be
available for the remaining life of the 1999 compacts.
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According to the Barona Band of Mission Indians, this bill
"will help to ensure that the local government mitigation
grants provided for under the compacts are honored by the
state."
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
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
$50 million in the 2009-10 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 that are promulgated in
accordance with individual gaming compacts.
The 2009-10 budget assumes that the SDF will receive $135
million in revenue (down from the $217 million received in
07-08). Of that $135 million, $50 million will be transferred
to the RSTF to cover the shortfall in the funding for
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non-gaming tribes, $16 million is provided to the DOJ, $9
million to the Gambling Control Commission, $8 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 $35 million less than
2008-09).
4)Committee Concerns . This legislation would reverse a 2008-09
budget decision to only extend the local grant statute until
January 1, 2010. This decision was implemented through budget
trailer bill language (AB 158, Torrico; Chapter 754, Statutes
of 2008). 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
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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
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 . 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. 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