20 years later, state-tribal gaming compacts still produce friction

The compacts that regulate Indian-run gambling in the state never came up for a vote in the Minnesota Legislature.

In fact, the whole affair happened rather quietly.

“It was really not controversial in the sense that there wasn’t any attention paid to it,” said Bob Vanasek, a lobbyist who served as DFL speaker of the House in 1989, when the first Indian gambling compacts — essentially contracts between the tribes and the state that spelled out the terms of the Indian gambling franchise — were signed by former DFL Gov. Rudy Perpich.

Newspapers at the time did not publish reports until at least a week after the deal was finalized.
“I don’t think anybody at the time, including those who were doing the negotiating, saw how big it was going to be,” Vanasek said recently.

Today Minnesota’s 22 separate compacts with 11 Indian tribes are generally viewed as the most favorable to tribes of any state in the nation. Minnesota’s compacts do not require Indian-owned gambling operations to provide any revenue or other benefits to the state from the tribal gambling industry. And there is no provision in law to require the periodic opening of the compacts to renegotiation.

While it is difficult to estimate how much revenue Indian gambling generates each year — the tribes are not obligated by law to release the data — some informed sources put the profit estimates between $400 million and $500 million annually but note “it could be double that.” (For purposes of estimation, most observers assume that gambling profits amount to about 10 percent of overall revenue — which would put the total revenue from Minnesota’s tribal gambling operations at somewhere between $4 billion and $10 billion annually.) Meanwhile the state’s Department of Public Safety receives about $150,000 a year to manage the compacts.

Other states, by comparison, managed to extract a share of Indian gambling profits for their own budgets. By the middle of the last decade, Connecticut was receiving $300 million to $400 million a year from its two major Indian casinos, including the gigantic Foxwoods operation. Since around that time, a number of other states have taken advantage of expiring compacts to sweeten the terms of their take from tribal gambling operations.

But the negotiators of Minnesota’s agreements, along with most observers at the time, “thought it was going to be a nickel-and-dime operation — just a few machines here and there,” former DFL Senate Majority Leader Dean Johnson remembered. “Well, it turned into a several-billion-dollar operation per year. Folks had no idea it was going to be this big.”

As the moneymaking reality of gambling hit politicos, and tribes became a political force in St. Paul, the fighting started. The history behind the compacts contains numerous flare-ups of political resentment over the favorable terms of the compacts and the now-perennial issue of whether to break the tribes’ monopoly on casino gambling with a major facility in the metro area, electronic gambling in bars and restaurants, or the construction of a racino. From former Gov. Tim Pawlenty and a host of individual legislators to less powerful Minnesota tribes, many have tried to come in and take a bite from the tribal gambling apple.

“It’s an issue that, when I came to the Legislature, was not an issue, and when I left it was a hot-button issue,” Johnson said. “It continues to be on the forefront, and it’s not going to go away. It’s just too much money to ignore.”

State originally pushed back on gambling

Throughout most of the state’s history, Minnesota government wanted little to do with the gambling industry.

In fact, the state’s efforts to push back on gambling are older than statehood. In 1851 the territorial Legislature enacted strict prohibitions against all forms of gambling, and the state’s Constitution expressly dictated that the Legislature shall “never authorize any lottery or the sale of lottery tickets.” That stern view was perpetuated for nearly a century, as not only the lottery but most forms of gambling became illegal.

Gambling as an industry didn’t come to the forefront until the 1980s, after a U.S. Court of Appeals in Florida held that the state could not enforce its bingo law on the Seminole reservation, meaning the tribe could run gambling operations without state involvement. After the ruling, bingo parlors started to pop up on Indian land across the country and flourished in Minnesota. By 1987 there were at least 14 Indian bingo parlors in the state. That same year, the door was opened for gambling to expand beyond bingo after the U.S. Supreme Court ruled that Indian gambling “in general” could proceed without state or federal regulation.

Few in Minnesota took notice of the first organized gambling operations to appear on Indian reservations. The federal government, however, did notice. In 1988 Congress passed and President Ronald Reagan signed the Indian Gaming Regulatory Act, which established the first federal gambling structure. The law protected gambling as a means of producing revenue for tribes and limited the influence of state government.

The Legislature quickly responded by passing a bill to authorize Perpich to negotiate tribal-state compacts, making Minnesota the first state to do so. Perpich appointed a DFL negotiating team in 1989 consisting of Rep. Becky Kelso, Sen. Ron Dicklich and Revenue Department attorney Dorothy McClung. Attorney General Skip Humphrey presided over the process as the team’s legal counsel.

In the fall of 1989, Perpich signed the first seven tribal-state compacts to allow operation of video games on Indian land. The DFL governor also signed off on two more compacts before he left in 1991, and Republican Gov. Arne Carlson signed the final two tribal compacts in the early part of his first term. The compacts are virtually identical; they give the state no cut of Indian gambling revenue and allow the tribes to operate blackjack and video games of chance.

The “sweetheart deal,” as it came to be known by some, was the beginning of a long alliance between the tribes and the Minnesota Democratic-Farmer-Labor Party. “Democrats were in control in the 1980s and 1990s when the compacts were passed,” former Republican House Speaker Steve Sviggum said. “I assume that [the tribes] found the majority party to have ears that were very open to them. They were closely aligned with Democrats, and that’s where they buttered their bread.”

Though it was little noted at the time, one key provision of the 1989 statute passed by the Minnesota Legislature to enable the drawing of the compacts provided that the agreements would have no expiration date. Instead, they would remain in effect until renegotiated. Both parties had to be willing to come to the table for negotiations to begin. Most states took a different approach, including provisions to establish expiration dates for the agreements. Minnesota’s failure to do so has proved to be a source of recriminations in subsequent arguments on gambling in the state. “Minnesota was one of the first states to negotiate a compact, and they didn’t have that track record,” Vanasek said. “Other states could look at what Minnesota did and say, ‘Let’s do this differently.’”

The state’s animosity toward gambling also lingered, one gambling lobbyist noted: “The state just wanted nothing to do with gaming. They wanted it out of their hands and threw it to the tribes. They thought they would screw it up or something, and they didn’t.”

Drawing political lines

With a firm legal footing in federal and state law, Indian gambling took off. By 1992 there were 14 casinos in the state offering more than 9,200 video gambling machines and blackjack. A year later the number of Indian casinos reached 17.

The tribes also started to become a potent political force.

In the early days of the compacts, tribes remained a relatively minor political force at the Capitol. Their campaign contributions were spread across legislative caucuses from both parties. But their pockets were shallow before the gambling boom took hold. As Indian gambling operations flourished, a combination of factors — a marked increase in tribes’ wealth, their interest in safeguarding an increasingly lucrative franchise, and the political efforts of some key Republicans to pass racino legislation in the late 1990s and early 2000s — turned the tribes into “major league” political players (Johnson’s phrase) and solidified their support for the DFL.

The 2003-04 legislative session was particularly rough for the relationship between the tribes and Republicans. In order to balance a budget deficit of more than $4 billion, a number of legislators in the majority House GOP caucus who originally opposed racino, including Sviggum, supported the expanded gambling as means to help patch the state’s coffers. “I had to push rather strongly with the caucus to make sure it was part of the agenda,” Sviggum said. “There were a few [caucus meetings] that were fairly controversial.”

As the money rolled in, there were other attempts at breaking the Indian gambling monopoly, including a bill to quash gambling in the state altogether. A bill introduced in the 2004 session by Republican lawmakers Jim Knoblach and Tom Neuville sought to remove the legal basis in state law for slot machines unless the tribes renegotiated their compacts to share revenue with the state. Knoblach eventually withdrew the bill.

The two Indian communities that benefited least from tribal gambling — the Red Lake and White Earth bands — also spearheaded a challenge to the tribal monopoly. The two tribes, which operated fewer than 15 percent of video gambling machines and were not included in the membership of the Minnesota Indian Gaming Association (MIGA), attempted to team up with lawmakers for a state-tribal casino venture in the metro area. The Leech Lake band also considered joining. MIGA vigorously opposed the bill, creating the first open split among tribes. MIGA eventually prevailed.

Pawlenty takes on the tribes

Pawlenty did nothing to improve Republicans’ standing among the tribes in his first term as governor. He used his second State of the State address, in 2004, to fire a shot across the bow. “I opposed the expansion of gambling in the past,” he said. “However, we need to recognize that times have changed. The compacts negotiated with the American Indian tribes almost 15 years ago do not reflect current circumstances — and we need to address the issue.”

With a GOP-controlled House and a Pawlenty administration openly pursuing a share of their revenues, one Indian gambling representative thought a conciliatory tone was apt. In August 2004, Mille Lacs Band of Ojibwe Chief Executive Melanie Benjamin sent a letter to Pawlenty proposing discussions on several revenue-sharing proposals for nontribal purposes.

Benjamin’s letter proposed to discuss using a share of tribal gambling dollars for sports stadiums or a charitable foundation to support state nonprofit organizations. But Benjamin was not proposing to reopen the existing compacts or to share tribal revenues directly with the state. In exchange for any state budget relief from tribal gambling proceeds, she wanted additional new compacts that would ratify a further expansion of the tribes’ own gambling franchise. Among her ideas: new compacts to allow tribes to conduct off-track betting and other new forms of gambling on reservations. She also suggested that the tribes and the state collaborate on a challenge to the federal ban on setting up sports betting operations in tribal gambling facilities.
Pawlenty invited tribal leaders to meet with him to discuss a proposal to require tribes to pay a percentage of their casino profits to the state in return for a continued monopoly on gambling. Other states have negotiated similar deals with tribes to stave off nontribal gambling expansion.
But his suggested figure of $350 million a year soured the tribes on pursuing the matter any further. MIGA Director John McCarthy said the letter was more like a “summons” than an invitation, while Upper Sioux Chairwoman Helen Blue-Redner accused the governor of “practicing a form of racial profiling” by trying to burden the tribes with fixing the state’s financial woes. Only the White Earth and Leech Lake tribes showed up to the meeting.

In 2005 Pawlenty went after the tribes again in an effort to use racino to balance a budget deficit and end a state government shutdown. The attempt failed, and Pawlenty eventually backed away from pursuing gambling revenues altogether after the DFL took control of the state House in 2006.

Pawlenty “stuck his neck out in 2004, but the tribes went after people who were supporters in the DFL caucuses,” former House Minority Leader Marty Seifert said. “When [DFLers] took over control of the Legislature in 2006, it looked like there wasn’t going to be steam on that. It looked pretty hopeless after that election that anything was going to happen.”

New session, new dynamic

Sviggum, like most longtime Capitol hands, believes the issue is destined to remain on the state’s political radar. Initially he thought that the 2011 session — with Republicans in control of the Legislature for the first time in nearly four decades, a governor open to gambling and a huge budget deficit — presented a near-ideal opportunity for a racino or other state revenue-producing gambling to pass.

That didn’t happen, but there is the real possibility that the upcoming November economic forecast will set the stage for another — albeit considerably smaller — budget deficit to tackle at the start of the next session, and lobbyists like former Republican Senate Minority Leader Dick Day are hoping to use fallout from this year’s budget battle to pass racino.

“Using the racino to pay back the school shift really caught fire at the end of last session,” Day said. “We had people who were never with us before who said they would do it if the money was used to pay back the school shift.”

Johnson believes that at some point in the near future, the Legislature will pass an expansion of gambling in the state. Only then, in his view, are the tribes likely to consider renegotiating the compacts. A renegotiation is “a possibility,” he said, “but only when the tribes see that the crack in the compacts is so large that there is no turning around.”