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National Indian Gaming Commission ... to be, or not

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WASHINGTON - Articles criticizing Indian gaming have become the mortar for the rising stone walls being built by factions opposed to it. One of the most common protests is that Indian casinos are not properly regulated, and the National Indian Gaming Commission is ineffectual.

For example, the Los Angeles Times recently published "Who's Watching the Casinos?" The article paints California's Indian casinos as shady gambling dens, with tribes acting as greedy foxes over their chicken coops, offering slot machine payouts of 70 percent, not the 90 percent-plus given in the tightly regulated non-Indian casinos of Las Vegas and Atlantic City. Former NIGC Chairman Tony Hope and current Chairman Phil Hogen both seem to agree that NIGC doesn't have the money or the staff to watchdog the gaming houses: regulation or lack of it remains within the sovereign tribal domain.

The New Math

Congress recently gave the NIGC a break in fiscal year 2004, raising the agency's $8 million annual cap on tribal fees to $12 million. But the Commission had actually wanted something different - to replace the annual limit with a 0.1 percent fee that would allow the agency's budget to expand with the gaming tribes' assessable gross revenues. In the five-year period between 1996 and 2001, these revenues doubled to more than $12 billion dollars. A tenth of a percent of $12 billion is $12 million.

Richard Schiff, NIGC's chief of staff, says the current method of using a fee cap means the agency always has to calculate backwards from the upper limit, rather than charging the percentage specified in the federal regulation. In the rule, a gaming tribe's annual fees are 2.5 percent of the first $1.5 million, and 5 percent of amounts greater than that.

But in 2002, the Commission skipped the fee on the first $1.5 million, and assessed at a rate of .0665 percent for the second tier. Schiff says, "We're assessing way, way below what the statute assumed we'd be able to assess at. The industry is so big, when you do the math, you see that we get up to the $8 million [cap] very fast."

Puppy Love

NIGC's Hogen was at the USET Impact Week meetings in Washington a few weeks ago, trying to market the Commission's new capless fee scheme. Eric Facer, an attorney on USET's Commercial Law Committee, says the tribes fear that the NIGC is trying to expand the boundaries of its kingdom, and regulate activities over which it has no authority.

Schiff is philosophical about the tough sell. He says it's common sense, when asked if you'd rather pay more or less to the NIGC, to answer "less."

"From what I heard, they didn't throw our chairman out of the room when he mentioned it. When you are a regulator, I always say if you want to be loved, you need to get a puppy. So not being thrown out of the room is something of a success."

The National Indian Gaming Association is not so sanguine. Executive Director Mark Van Norman says the Bush Administration put a $2 million contribution from Congress in the budget, to give time for consultation with tribes before changing the fee cap. In the statute, the NIGC is funded both by Congress and by fees from the gaming tribes. But the federal funding was deleted from the final version of the agency's appropriation.

"That was pending out there for a year," says Van Norman. "And then in the final weeks of this appropriations wrap up, [the Administration] changed course, did something different, and tried to remove the fee cap entirely."

Schiff says the NIGC has not gotten any federal monies since 1997. At that time Congress equally matched the $1.5 million in tribal fees. "Just because Congress is authorized to appropriate it doesn't mean the people who do the appropriations put the money in the bucket."

No Mo' Money

The Connecticut Mohegan tribe does not support an increase in the NIGC's fee structure. The tribe's Deputy Chief of Staff, Chuck Bunnell, says, "We are opposed to raising the cap and the fees until we understand what is the intention of the NIGC." He also says that Congress should appropriate money to support the Commission.

Facer says some USET tribes, including the Mohegan tribe, want any fee changes to take into account what the tribe spends to self-regulate. "The Mohegans spend $12 million dollars a year on their gaming commission. They are saying, why am I paying the NIGC an extra couple hundred thousand dollars in fees when I already have a squeaky clean operation because I pay $12 million every year?"

Where's it all going?

The question remains, what is the Commission doing with all that money? And how does it interact with state and tribal gaming commissions?

The last time it got a funding increase, in 1997, the NIGC went from being a Washington D.C. organization to one that's based in the field, with five regional offices. Now, with the explosion of California Class III gaming, they'd like to open a new office in Southern California, and one in the Midwest. They would also like to hire more people. Right now they can only afford 63 employees total. That translates to four auditors covering the entire nation's 320 Indian gaming operations.

Schiff says, "We're just spread real thin and I'm not sure if it's reasonable to argue that going from $8 million a year to $12 million a year is somehow going to turn legions of federal regulators loose in Indian country."

Keller George, USET's president, wants to know what the NIGC is doing with the $8 million it gets now. He says the Commission never justified its spending in past hearings before the Senate Indian Affairs Committee. George doesn't like the fact that the Commission is using recent articles that describe Indian gaming less than favorably, like those in the Wall Street Journal and Time Magazine, as justifications for a larger budget.

D?ja Vu

When Richard Hill of NIGA testified before the Senate Committee on Indian Affairs in July 1997, he opposed the NIGC's proposal for a tribal fee increase. Besides doubting the Commission's need to triple its funding and its number of employees, Hill claimed that it ignores the massive amount of regulatory activity taking place at the tribal and state levels.

"Indian gaming spends $100 million per year on regulatory activities. This is more than Nevada and New Jersey combined. [T]he NIGC certainly is not the lone regulator out there and does not accomplish the substantial portion of the work being done in the area of regulation in Indian country."

Fast forward to the present and NIGA's Van Norman: "Our member tribes are paying a total of $212 million annually on regulation. So one of the things that is incumbent on the NIGC is to pursue a federal role, a background support oversight role, that interfaces with tribal and state gaming regulators in such a way that they are maximizing the effective use of resources and not duplicating services at the federal level."

Schiff is the first to agree that tribes are carrying the principal regulatory burden in Indian gaming. But the reason the Commission exists is the federal government.

"Congress has said they want a federal regulatory presence by the Indian Gaming Regulatory Act," Schiff says, "and to some extent the credibility of the federal regulatory effort depends on our ability to have a presence in Indian country."

But George questions if the NIGC even has any regulatory authority over Class III gaming.

"According to the statute, I doubt if NIGC even has an authority to pass regulations such as MICS (Minimum Internal Control Standards). We don't see any Congressional authority to regulate Class III in IGRA."

If it's a joke, why aren't you laughing?

What sort of regulatory presence might this be? When asked if the NIGC monitors slot machine payouts, Schiff answers that auditors observe payouts only to make sure that the machines are operating within set parameters, not to judge if they are paying too high or too low.

When asked if the NIGC can do anything about criminal activity at Indian casinos, Schiff says they notify law enforcement. Schiff says they do have the authority to close facilities where criminal activity is occurring, "but that's one of our problems. In a situation where you have somebody stealing or victimizing tribal members, we don't have any authority against individuals. All we can do is fine the tribe or close the gaming operation, and in so doing we punish the victim."

How about fire and other safety issues? Schiff says the AQfield investigators bring any safety problems to the attention of the casino management. The NIGC has never closed down a gaming operation for reasons of safety, although once a casino closed its doors voluntarily, on advice of the Commission, when noxious fumes were coming out of the heating ducts.

And how about those tribes pushing the envelope, running Class III machines without a state compact? Do you close them down? Schiff says the NIGC has issued closure orders, but federal judges can and have overturned them.

In summary, Schiff sees the NIGC's field investigators and auditors not as undercover sting operators so much as neighborly mentors. Less like cops; more like technical advisers.

"Our audits are a high quality detail of internal controls and we give that to the tribe and say, 'Here's where you have some vulnerabilities to loss or theft, and we'd like you to focus on getting them fixed.'"

But overall, Schiff worries about how effective the NIGC's presence is, given its pitifully few auditors, and its overextended field investigators, who also double as trainers. "It has to be more than a joke," he says.

Is NIGC a joke? "Well, we're fast becoming irrelevant," Schiff says.

Validate Me

When all is said and done, Schiff says the NIGC validates Indian gaming.

"When the gaming public goes on Indian lands to engage in gaming, they can be confident that there is regulatory involvement by the federal government. A backstop, an oversight mechanism for the tribal government's regulatory effort and the state's regulatory effort."

At least one major gaming tribe agrees, and supports the NIGC's fee restructuring. John Guevremont, Chief Operating Officer for the Mashantucket Pequot tribe, says an increase in the Commission's fees is necessary considering the increase in gaming in Indian Country. He says gaming tribes must be perceived as having a well-policed, well-enforced gaming environment.

"The NIGC gives a level of confidence that tribes are adhering to federal law. Big gaming tribes like the Mashantucket Pequot, we spend a considerable amount in regulatory enforcement. But we realize that for tribes just starting in gaming, the resources the NIGC provides to set up a regulatory structure are vital.

As for the NIGC's 2004 appropriation, which doesn't abolish the fee cap, Guevremont says it s a fair compromise, but the NIGC needs additional funds.