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IRS investigating tax-exempt bonds at Cabazon

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SACRAMENTO, Calif. - Should tax-exempt bonds, a mainstay of cities and
other public governments for funding public projects, be issued to tribal
entities for their resort facilities? Apparently this is a question the
Internal Revenue Service is attempting to answer as it investigates the
issuance of these bonds to a tribe in California.

The tribe in question, the Cabazon Band of Mission Indians, was issued a
$145 million bond in the summer of 2003. The tribe used it to fund the most
recent building phase of its Fantasy Springs Resort near Indio, east of
Palm Springs in the Southern California desert.

The California Statewide Communities Development Authority issued the tribe
the tax-exempt bonds. The Authority, a state agency jointly sponsored by
the California State Association of Counties and the California League of
Cities, is authorized to issue bonds for government construction projects
and is one of three bond-issuing agencies.

The move comes two months after the government, through the IRS, ruled that
the Seminole Nation of Florida had to pay taxes on bonds that were
originally issued to it as tax-exempt.

According to an AP story, the central issue appears to be that some in the
government believe that issuing tax-exempt bonds should be limited only to
essential governmental services; but others believe that it should also
finance economic development projects.

Cabazon interpreted the latter definition and decided to follow the
Seminole's example of defining its casino/resort as a tribal economic
engine eligible to receive the bonds.

Nancy Conrad, who works in tribal communications at Cabazon, reports that
the tribe received a letter from the IRS last summer stating that the
agency wanted to look more closely at the tax-exempt bonds.

Cabazon Chief Executive Officer Mark Nichols said the tribe is not using
any of the money for its casino operation and has used it for other tribal
projects that he claims are now more central to the tribe than its gaming
operation. Nichols said the money is being used for a convention center, a
golf course at its resort, the hotel and a standalone spa.

Though tribes have been issued tax-exempt bonds in the past, they are
usually for health centers and tribal government buildings.

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However, Nichols points out that Cabazon is also designated a Federal
Empowerment Zone and a state of California Enterprise Zone, which Nichols
said makes the tribe eligible for the tax-exempt bonds for these projects.
He points to 500 recently added jobs at Cabazon, bringing its total number
of employees to 1,200.

In fact, despite the debate, tax-exempt bonds often used for a variety of
purposes. Many cities, including Washington, D.C., have used tax-exempt
bonds to fund hotel projects. Tax-exempt bonds have also been issued to
gaming enterprises such as the Del Mar racetrack.

Additionally, Nichols reported that a nearby golf course in Riverside
County was also issued tax-exempt bonds.

"The IRS seems to have a double standard in that if you are Indian you are
not eligible for the same bonds that other governments are," said Nichols.

The IRS did not comment.

The project manager at the Authority who worked on the Cabazon case
specifically was not available for comment. However, James Hamill, a
project manager at the Authority, said that the types of bonds issued to
Cabazon are issued to private entities and they are repaid solely by those
private entities.

An AP report cited the Cabazon project manager at the Authority, Mike
LaPierre, as saying that tribes are shying away from requesting these
bonds, potentially derailing future attempts by other tribes. Presumably,
this is because of the Seminole decision and the Cabazon investigation.

Cabazon supported legislation last year to streamline the bond process.
Nichols said Cabazon had to jump through several hoops, including city
council hearings in two nearby cities and through Riverside County, before
they could even see the state.

The bill to streamline the process sailed through the state legislature
last year before being vetoed by Gov. Arnold Schwarzenegger, who said the
bill was "premature." California state Sen. Dean Florez, D-Shafter, is
expected reintroduce the legislation in the upcoming legislative session.