Indian Givers
Things are bad in California. Some legislators want to make them worse.
Monday, September 8, 2003 12:01 a.m. EDT
California's Lt. Gov. Cruz Bustamante drew rare criticism from fellow Democrats last week when he used a dubious loophole to accept more than $2 million in contributions from Indian casino interests. "It creates a bad impression in the media, and it could have been avoided," said state Democratic chairman Art Torres.
That's unfair. The Oct. 7 recall election is making the political pressure in California too intense to avoid at least a few unseemly political contributions. Several Indian tribes know their interests coincide with the elevation of Mr. Bustamante, whose brother Andrew is general manager of an Indian casino owned by the Mono tribe. They apparently intend to counter the impact of any negative publicity by pouring money into ads promoting Mr. Bustamante or touting his opposition to Ward Connerly's Racial Privacy Initiative. The Indian contributions are a reward for a politician who has been a compliant supporter. As Assembly speaker he once took to the floor and asked for a moment of silence to mourn restrictions on tribal gambling. It's also part of a larger effort to influence officials in Sacramento--an effort that is already paying off. This week Democrats plan to pass legislation that will ensure windfall profits for tribes that sell tax-free cigarettes.
That may only be the beginning in a whirlwind final week of the legislative session that promises to be one payout after another to special interests--the very behavior that put California in the financial soup in the first place.
Liberal lawmakers, fearing that a Republican might win the governor's mansion, are scrambling to pass as many bills as Gov. Gray Davis can sign before the recall. One bill would give Indian tribes the power to stop development on private land within five miles of a sacred tribal site; the potential for abusive shakedowns of developers should be obvious to anyone. Another bill would water down legislative term limits. A couple of bills awaiting action smell like such blatant attempts to enrich contributors that Gov. Davis may have to shy away from them.
The worst idea before the Legislature is Senate Bill 2, written by John Burton of San Francisco, the liberal president of the state Senate. It would compel businesses with more than 20 workers to pay almost all health insurance costs for employees--even part-time workers--and their dependents. Companies would have to pay at least 95% of health-care costs for low-income workers, and 80% for everyone else.
Jill Stewart, a columnist and former Los Angeles Times reporter, describes the measure as "closer to socialism than anything I've seen heading for approval in 20 years." This bill would create a powerful incentive businesses to stay below the 20-employee limit by stunting their own growth, or drop below the limit by laying off workers. Ms. Stewart reports the bill was ghostwritten by the Service Employees International Union, a major Democratic contributor.
The real beneficiary of the bill may not be the unions, but rather the Indian tribes. The Western Political Report says the bill was rewritten over the weekend and also includes a whopping cigarette-tax increase to $2.37 a pack, up from 87 cents. California's new tax would be the highest in the country outside New York City, creating a massive incentive to buy tax-free cigarettes from Indian stores or their Internet sites.
Normally a bill that raises taxes would require a two-thirds vote of both houses of the Legislature, giving minority Republicans leverage in slowing down the legislation. But Democrats plan to make SB 2 "revenue neutral" by adding a tax credit for employers who will suffer from the costs of mandated health care for their employees. Under that arrangement, the bill could pass with a simple majority. Some Republicans promise to take the issue to court, but that fight would take years to resolve.
The tax swap is estimated to gain the state $1.5 billion from higher cigarette taxes while it loses an equivalent amount in business tax credits. But revenue projections based on higher tobacco taxes are notoriously unreliable. A few years back, Quebec raised its cigarette taxes to exorbitant levels and lost so much revenue to smuggling and Internet sales that it had to roll the taxes back. New York City is getting less than half the $250 million a year in new revenue it expected from last year's mammoth increase in cigarette taxes, even after accounting for reduced demand for cigarettes. If Mr. Burton's projections in California are off by anything close to that, the state's huge budget deficit will grow substantially.
The Western Political Report says "the scheme could give the tribes a virtual monopoly on the cigarette industry in California," as tribal smoke shops undercut legitimate nontribal retailers while paying no taxes to the state. Since Californians bought more than a billion packs of cigarettes last year, tobacco could conceivably make more money for the tribes than gambling.
But that presumes California will continue to keep its present limits on Indian gambling. Right now, the tribes operate 62,000 slot machines. Each takes in more than $300 in profit every day, since Indian slots pay back only about 70% on the dollar (far less than machines in Atlantic City and Nevada).
A growing number of complaints about Indian casinos prompted Gov. Davis to hold each tribe to a maximum of 2,000 slot machines. He also slowed down the applications of 35 tribes who want new gambling licenses. By backing Mr. Bustamante, the San Jose Mercury News reports, "Indian tribes have anted up for a man who has pledged to loosen the reins that Governor Gray Davis has held since he signed gambling compacts with 61 tribes." Contributions to Mr. Bustamante are "a cheap bet" for the tribes, observes Nelson Rose, a Whittier College law professor who tracks gambling issues. "In return they get a monopoly on a casino industry that this year alone is going to make $4 billion or $5 billion." Indian gambling interests already represent the biggest political contributor in California, having plowed $122 million into state political races in the past five years. If their clout leads to a further expansion of their profits under a Bustamante governorship, they could become a force that no one in California would want to--or could--challenge.
Even tribes outside California have gotten a piece of the action. In 2001 it was revealed that Sen. Burton, who played a leading role in getting Indian gambling approved in California, had received 2,500 shares in a company that was developing a casino in Wisconsin. Mr. Burton said "the shares were given to me in return for political advice" to the Menominee tribe and its non-Indian investors. Since he admitted he worked less than 20 hours on the project, and other investors had to pay $25 for each share they got, his compensation represented the equivalent of $3,125 per hour. The senator told the San Francisco Chronicle that he hadn't had to reveal his receipt of the shares on his financial disclosure forms because the casino company didn't do any business in California. After a barrage of criticism, Mr. Burton returned the shares, saying they "have become a pain."
Pain is exactly what Mr. Burton and the California Legislature may inflict on California's economy this week as they scramble to push through radical legislation that's designed to maintain their shaky hold on power. If ever California voters need to pay attention to what lawmakers are doing in their name, it's this coming week.
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