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Blumenthal’s ‘huge and historic’ announcement

HARTFORD, Conn. – In the past month amid flagging slot revenues at Foxwoods Resort Casino and Mohegan Sun, Attorney General Richard Blumenthal announced a “huge and historic” settlement that netted the state $25 million more from slot revenues at the two Indian casinos, and the Mashantucket Pequot Tribal Nation added a one percent sales tax to purchases at its facilities.

The $25 million added to the state coffers was part of a settlement to resolve a lawsuit the state filed against the Mashantucket Pequot Tribal Nation, Foxwoods’ owner, almost three years ago.

The lawsuit sought slot revenue collected through a promotional program called “Free Play.” The marketing strategy gave Foxwoods patrons coupons or electronic credits to play slot machines up to the value of the credit.

Blumenthal said the promotion deprived the state of its cut of gaming revenues.

The Mohegan Tribe, owner of the Mohegan Sun, later initiated a similar free play-type promotional called “eBonus.”

The tribes agreed to settle before the lawsuit went to court.

“This agreement is huge and historic – a tremendous precedent resolving disputed slot revenue significant to the state’s solvency and symbolizing our shared stake in financial success,” Blumenthal said in a press release. “Even more than money, this agreement shows we can reach common ground through government-to-government talks. The tribes have commendably agreed to a settlement that serves all interests – enabling all to benefit from successful promotional programs.”

When the state sued Mashantucket in the fall of 2006 seeking declaratory judgment and damages, nation officials said the free slots promotion was a legitimate marketing effort, but they agreed to deposit 25 percent of the face value of all Free Play coupons or credits in an escrow account in case a future court decision went against them. The officials said this would assure that “the taxpayers of Connecticut would be protected.” The nation said it would continue the promotion.

The state did not file an action against the Mohegan Tribe, Mohegan agreed to place its eBonus revenues in escrow, and abide by the terms of any settlement agreement between the state and the Mashantucket Pequots or any court order.

“We are happy that, once again, our two governments have proven that the best way to resolve an issue is through communication,” said Mohegan Tribal Council Chairman Bruce “Two Dogs” Bozsum.

Jackson King, general counsel for the Mashantucket Pequots, said the agreement was in everyone’s best interest.

The state will continue to collect money from the Free Play or eBonus coupons or credits in the future. The promotions at Foxwoods and Mohegan Sun bring in about $4 million and $2 million a month, respectively, Blumenthal said.

The two nations give the state 25 percent of the gross slot revenues, which has amounted to more than $425 million a year for the past several years. But that amount will drop this year as slot revenues continue to slump in response to the continuing recession.

Foxwoods and Mohegan Sun reported double digit drops in August.

The Mohegan Gaming Authority reported almost $69 million in slot revenue last month, an 11 percent decline over revenues in August 2008 and a nine percent decline from July.

The Mashantucket Pequot Tribal Nation, which also owns MGM Grand at Foxwoods, reported $63.1 million, a 13.3 percent drop compared to August 2008.

The Mashantucket Pequots sent $16.5 million to the state for August 2009, bringing the total amount given to the state to around $2.9 billion since January 1993.

“While the economic environment continues to present challenges to the gaming industry, we have seen some encouraging trends that bode well for our business,” said Michael Speller, president of Mashantucket Pequot Gaming Enterprises, citing a near 100 percent occupancy rate at the nation’s hotels.

The drop in slot revenues came as Mashantucket announced it is seeking to restructure debt of $2.3 billion, news that created a wave of anxiety in Indian country. In the controversy surrounding the debt announcement, the tribal council relieved Chairman Michael Thomas of his post while it conducts an internal investigation, and installed tribal council member Richard Sebastian as acting chair.

At the beginning of September, the Mashantucket Pequots added a one percent tribal tax to the state’s six percent sales tax on items sold at the casinos. Tribal officials said the new tax was not related to the financial woes the tribe is currently experiencing.

The new tax prompted Blumenthal to immediately question whether the tax is legal and promise his office would look into it.

His investigation likely discovered that tribes, as sovereign nations, can impose taxes on their lands, because in a Sept. 9 statement, Blumenthal said he asked Sebastian to identify the one percent tribal tax separately and distinctly from the state tax on all customer receipts at the casinos.

“The ongoing failure to clearly identify the source of the tax has already caused confusion to the public and will continue to mislead consumers, who believe that the entire amount collected is a state tax, not a tribal surcharge,” Blumenthal said.

Matthew Fletcher, associate law professor and director of the Indigenous Law & Policy Center at Michigan State University College of Law, said the tribal sales tax at Indian casinos “imposed on the largely non-Indian customer base is an important and real expression of tribal sovereignty.”

Citing various U.S. Supreme Court decisions, Fletcher said states get most of the money from the on-reservation tribal tax base.

“The one percent tax added on to the state sales tax at Foxwoods is an economic representation of the tribal tax base in stark form,” Fletcher said. “The state gets six percent of tribal sales, and the tribe (if it’s lucky) can tack on an additional one percent. What does the state have to do for this money? Absolutely nothing. They already get 25 percent of the net win in Connecticut. Because of these very unfair Supreme Court decisions, AG Blumenthal can wax politic about sales taxes that are pure windfalls to his state.”

Blumenthal’s concern, Fletcher said, seems to be “really just a way for this troubling AG to get in the papers.”