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California, tribes in ‘class warfare’

Nov 23, 2004 4:24 AM

Two of California’s largest tribal casinos have defied a state demand that they remove hundreds of Class II gaming machines, which are not permitted under their compacts with the state.

California allows tribes to operate up to 2,000 Class III or Nevada-style slot machines in their casinos.

Class II machines — sometimes called bingo slots or video lottery terminals — are not authorized under California law.

The two tribes — the Pechanga band of Temecula and Morongo band of Cabazon, both in Riverside County — contend that the machines fall into a gray area not subject to limits and fees imposed by the state.

If the tribes are correct, they could operate as many of the Class II machines as they want without paying any extra taxes to the state. Existing California law imposes fees of up to 13 percent on slot machines’ gross revenue.

The tribes are betting, in part, on a U.S. Supreme Court decision rendered earlier this year. That decision refused to overturn a lower court’s ruling that Class II games were not the same as Class III slots, and therefore don’t fall under the jurisdiction of state regulators.

In its appeal to overturn the lower court’s ruling, the federal government argued that a machine qualifies as a gambling device when it "looks like a slot machine, sounds like a slot machine and plays like a slot machine."

Indeed, many Class II machines are virtually indistinguishable from Class III slots. Some even incorporate wildly popular slot themes such as Wheel of Fortune, Cleopatra and Little Green Men.

Class II slots differ from Class III slots because the outcome of the latter is determined by a random number generator, while the Class II outcome is determined by a separate electronic bingo game.

The result, theoretically, is a Class III slot can hit three times in a row, while the Class II slot’s outcome is limited.

The Pechanga and Morongo casinos have about 680 Class II machines on their casino floors, and about 3,500 additional Class II machines in warehouses waiting to be installed.

"The band’s operation of these devices constitutes a material breach of its compact with the state," the state charged in letters to the tribes. The state asked the tribes to remove the machines from their casinos and ship them back to the manufacturer, Multimedia Games, within 60 days.

If the tribes fail to comply — as they have vowed to do — the "state reserves the right to take appropriate action under the terms of the compact," an allusion to a lawsuit the state could file in federal court.

At the same time the state was demanding tribes remove the Class II machines, it sent a demand to Multimedia Games that it remove its machines from the tribal casinos or face repercussions that could limit its ability to sell gaming devices in the state of California. Multimedia executives were reportedly weighing the state’s demand.

Pechanga and Morongo operate two of the state’s biggest and most successful casinos, with the maximum allotment of 2,000 slots in each. Both are about to open major expansions and had sought more slots before pulling out of lengthy negotiations with Governor Arnold Schwarzenegger’s administration this year.

The administration has negotiated nine new compacts with other tribes that allowed more slots in exchange for state taxes of up to 25 percent of their revenue.

Morongo later become a major financial backer of a state initiative that would have given tribes the right to have unlimited gaming if they agreed to pay the state’s corporate income tax, currently at about 9 percent. That proposition was soundly defeated by voters three weeks ago.

The refusal of the tribes to remove the gambling devices likely sets up a court battle with the state.