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The Courage to Disapprove

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Disbelief. Frustration. Anger. These are words describing the leadership of the tiny Habematolel Pomo of Upper Lake Tribe located in northern California, which recently had its gaming compact disapproved by Assistant Secretary Larry Echo Hawk after more than a year of negotiations with the state of California.

Pursuant to the Indian Gaming Regulatory Act (IGRA), tribes are required to negotiate an agreement with the state in which they reside. These agreements, called compacts, generally set forth the terms and conditions upon which tribal gaming is conducted and regulated upon tribal trust lands within a state, and in many cases, require tribes to pay a portion of casino revenues to the state government.

More recently, states came up with an idea that during these difficult economic times there may be a way to utilize compact negotiations to increase state revenue as governors and legislators seek ways to balance enormous budget deficits. Former California Governor Arnold Schwarzenegger, whom a couple of California tribes affectionately nicknamed the “Extortionator,” took a draconian view of this strategy requiring tribes to pay up to 25 percent of casino revenue to fill state coffers.

States are actually allowed to extract fees from a tribe during compact negotiations, however, IGRA clearly circumscribes the topics suitable for compact negotiation and the type of financial assessments the state may levy against a tribe. And while states may collect fees for the regulation of gaming or for providing exclusive gaming monopolies for tribal gaming, the IGRA clearly prohibits states from imposing any tax or other similar assessment upon an Indian tribe.

When Congress wrote the IGRA, it was specifically concerned about the inequity of bargaining power in the compacting process leading to state taxation of tribes. Thus, IGRA attempted to protect tribes by requiring the Assistant Secretary for Indian Affairs of the Department of Interior to analyze revenue sharing provisions to determine whether they are permissible, and the reasonable result of just negotiations, or an impermissible demand for taxation, and consequently, made in bad faith.

In the past, if the assistant secretary found the terms of compacts to be too expensive, or not necessarily in the tribe’s best economic interest, the assistant secretary would demonstrate his distaste for such a compact by allowing the statutory time frame for approving the compact to expire, which as a practical matter, has the exact same legal effect of approving the compact outright.

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The Obama administration has made a radical departure from allowing such problematic compacts to become effective. Instead, Assistant Secretary Echo Hawk is boldly disapproving tribal-state compacts where the state is not providing “meaningful concessions” to the tribe in exchange for revenue sharing to the state, or where the economic benefit to the tribe is not prevalent.

In the last seven months alone, Assistant Secretary Echo Hawk has disapproved three tribal-state compacts, and he has provided tribes and states with meaningful guidance, which the tribe endorsed, on the inclusion of such revenue sharing provisions in the negotiating process.

Indeed, Assistant Secretary Echo Hawk in his review of compacts recognizes that not every fee demanded by a state during the compact negotiation process is impermissible. The inquiry looks to the totality of the circumstances surrounding the compacting process and on the nature of both the fees demanded and the concessions offered in return.

If the state is making a meaningful concession such as providing an exclusive gaming monopoly to tribes, and the fee percentage is reasonable allowing a valuable economic benefit to the tribe, then the compact will be presumably approved. However, the days of allowing compacts to become approved even if the state is illegally taxing the tribe are over.

As a result of the disapproval letters, tribes have been forced to revisit compact negotiations with the states. And, in many ways, the exercise of disapproving compacts has restored some level of good faith and fair dealing between tribes and states. In the tribe’s case, California has elected Jerry Brown to succeed Schwarzenegger as governor. Brown has a strong history of appreciating and understanding the relationship between California and tribal governments, and he has demonstrated the ability to effectively work with tribes while recognizing them as sovereign nations.

Hope. Optimism. Determination. These are all words that can describe the Habematolel Pomo of Upper Lake as they embark upon a new round of negotiations with the state of California.

Robert Rosette is the owner of Rosette & Associates, which is a cutting-edge law firm that specializes in exclusively representing tribal governments with nationwide offices located in Sacramento, California; Phoenix; Lansing, Michigan; and Tulsa, Oklahoma. Mr. Rosette has more than 15 years of litigation and financial transaction experience in Indian country. Mr. Rosette is an enrolled member of the Chippewa-Cree Tribe of the Rocky Boy’s Reservation, Montana.