Budget & Tax, Economy, Good Government

Stitt’s proposal would not be first change to state gaming compacts

August 26, 2019

Ray Carter

While Gov. Kevin Stitt’s call to renegotiate Oklahoma’s gaming compacts has drawn opposition, Stitt’s proposal would not be the first alteration of those state-tribal agreements. In fact, just over a year ago, the compacts were indirectly revised. And the year-ago revisions drew opposition not from tribal governments, but from officials who felt the new agreement shortchanged state government.

In 2018, lawmakers approved House Bill 3375, which legalized dice and roulette games at Oklahoma’s tribal casinos. The legislation required participating tribes to provide 10 percent of the monthly net of dice-and-roulette games, which legislative fiscal staff estimated would equal $24 million. Based on that formula, the legislation provided casinos with well over $200 million in additional net proceeds annually.

Lawmakers who opposed the bill overwhelmingly say it was a financially flawed deal for Oklahoma government.

“I wanted it to generate more tax dollars than what the proposal had,” said former Rep. Earl Sears, a Bartlesville Republican who served as House appropriations chair during his tenure and was among those who opposed HB 3375. “I thought we should have had a better deal.”

Sears admits he is not a fan of gambling, but said he was also concerned about state finances.

“Gambling is not my forte. I’m just not a big sponsor, supporter of gambling,” Sears said. “However, it’s here, and I’ve accepted that. But what I couldn’t accept is I thought we could get more money. We could have gotten a better deal and received more monies on behalf of the taxpayers of Oklahoma.”

Others echo that viewpoint, saying any expansion of gambling should have been handled through the formal renegotiation process that Stitt is now seeking.

“I did not vote for it for the simple reason that the compacts were coming up in ’20, and that was something that the tribes really wanted,” said Rep. Tom Gann, R-Inola. “And so we left a bargaining chip. We took that off the table by awarding them that.”

“Last year, they wanted ball-and-dice, and I voted against that as well, partly because that’s leverage,” said Sen. Julie Daniels, R-Bartlesville.

Sen. Mark Allen, R-Spiro, called the ball-and-dice bill “a home run for the tribes” because it allowed them to expand casino gambling “without having to go through” a formal compacting process.

The 10-percent fee imposed on dice and roulette games is higher than the 6-percent fee currently imposed on slot machines. This year, Stitt has suggested the fee on slots should be increased. In response, officials with 29 tribal governments signed a letter saying they believe the compacts “automatically renew” on Jan. 1, 2020 and that “rates under the present Gaming Compact should not change.”

Notably, House Bill 3375 enacted a de facto amendment to state-tribal gaming compacts. Included in HB 3375 was language for a “Model Tribal Gambling Compact Supplement” that, just like the original compacts, requires signatories from state and tribal governments, approval by the Secretary of the U.S. Department of the Interior, and publication in the Federal Register.

Stephen Greetham, senior counsel of the Chickasaw Nation, said the 2018 changes provide a model for this year’s discussions

“Five weeks ago, Governor Stitt surprised tribal leaders by announcing his intent to walk away from our compact,” Greetham said. “Tribal leaders responded by insisting he recommit to the compact’s plain terms as a demonstration of good faith before other matters can be discussed. Governor Stitt has publicly reasserted his original rejection of our compact and has yet to put forward a proposal on rates.

“In contrast, the 2018 compact supplement legislation shows how matters should be done,” Greetham continued. “After years of collaborative intergovernmental engagement, the State and Tribes produced mutually beneficial additions to our compact. As do countless other examples, the 2018 legislation shows Tribal governments are ready, willing, and able to work with State government to help move Oklahoma forward.”

While tribal officials have balked at increasing the fees paid on slot machines, on the other side of the tax coin several tribal governments have supported tax breaks that would have indirectly benefited the casino industry.

In 2018, state lawmakers voted to cap income-tax deductions at $17,000 per return, aside from deductions for medical expenses and charitable donations. That increased Oklahomans’ income taxes by $94 million annually. Higher-income families are among those most likely to itemize and have exemptions that break the $17,000 threshold, but analysis showed the bill also impacted many middle-class families.

During the 2019 legislative session, lawmakers advanced House Bill 2667, which would have exempted gambling losses from the $17,000 cap on deductions while preserving the cap for other Oklahomans. Although the bill passed both chambers, it did not become law.

The fiscal impact statement for House Bill 2667 indicated it would have reduced income-tax payments from gamblers by a collective $17.8 million in the 2020 budget year and $8.9 million annually thereafter.

While individuals with major gambling losses were among the immediate beneficiaries of the legislation, state casinos would have indirectly benefited as well. The Journal Record reported that officials with the Choctaw, Chickasaw and Cherokee tribes supported the gambler tax break, with tribal officials saying patrons were otherwise expected to travel to other states to gamble.

“The biggest sales pitch that I heard was it was a tax break and that it would attract the kind of gamblers that they want,” recalled Sen. Marty Quinn, R-Claremore.

Daniels said no one lobbied her directly on the tax bill, but “it was my understanding that the tribes wanted this change, because of course it directly affects their business.”

Gann noted that constituent calls were prominently cited when the tax bill was heard on the House floor.

“They brought that bill up to try to alleviate that situation,” Gann said. “And yet I voted against it, because if we’re going to roll it back, let’s roll it back for everybody and not pick and choose just (based) on who gets all the phone calls.”

Allen was not persuaded by the arguments put forth by people with large gambling losses who were left paying higher taxes under the deduction cap.

“My opinion: If you’re going to gamble like that, you might as well be prepared to lose,” Allen said.

When asked for comment, a spokesperson referred to a column that Choctaw Nation Chief Gary Batton recently penned for the McAlester News Capital.

In that piece, Batton highlighted areas of tribal spending in health care and education, and said Oklahoma’s tribes “should be Governor Stitt’s greatest allies in making Oklahoma a Top 10 state,” but added that it is “difficult to not feel targeted” by Stitt’s stance on gaming compacts and lawmakers’ failure to pass House Bill 2667. Batton wrote that last year’s cap on income-tax deductions “increased taxes on our customers and is driving business away from Oklahoma gaming to other states.”

“I am calling on the governor to re-affirm a commitment to a united government-to-government partnership with the tribal nations of Oklahoma, a better understanding of the legalities of the existing compact, and a greater appreciation for how tribes already make substantial investments into the state for the benefit of all its citizens,” Batton wrote.

Sears said he does not dismiss the contributions that tribal governments have made.

“There’s no question that the tribes give a lot back to the state of Oklahoma due to roads, bridges, health care clinics,” Sears said. “I mean, up here in the northeast part, the Cherokees do a phenomenal job in regards to health care and helping local counties build bridges, pave roads, help schools. I mean, they do a phenomenal job. But on the same token, I think there just needs to be a discussion about Oklahoma getting some of that money to help us run the entire state of Oklahoma in the general budget.”