Suit claiming tribes underpaid state is reinstated

By: EDWARD SIFUENTES - Staff Writer | Tuesday, September 11, 2007 11:44 PM PDT ∞

A group of tribes with casinos may owe the state more than $330 million that was supposed to help local communities cope with the effects of Indian gaming, according to a lawsuit filed by a former state gambling inspector.

The money is part of a fund paid by tribes to the state, which doles it out to local communities for problem gambling programs and other costs associated with Indian casinos. San Diego and Riverside counties have the largest concentration of tribal casinos in the state.

One tribal leader said Tuesday that his tribe has paid according to the state's requirements. The attorney general's office also has argued in court that the tribes had made the required payments.

The Gambling Control Commission, the state agency in charge of collecting the money, failed to follow procedures to ensure that tribes paid the proper amount, the Fourth District Court of Appeals in San Diego said Thursday.

Candace Cates, the former gambling inspector, filed the lawsuit, claiming that the commission was allowing tribes to decide how to calculate the amount they owed the state. She filed the lawsuit as a taxpayer and cannot receive any money as a result of the suit except to cover attorneys fees, her lawyer said.

Some commission members testified in court that they believed tribes were paying what they owed, but also said they did not know how tribes were calculating their payments. That confounded the panel of three judges, who decided to reinstate the suit after a San Diego Superior Court judge dismissed the case last year.

Tribes are supposed to pay a percentage of their "net win" on slot machines to the state as defined by agreements Gov. Gray Davis signed in 1999 with 28 tribes.

The suit argues that the commission allowed tribes use their own definition of "net win," resulting in lower payments.

"We are at a loss to understand exactly how the commission can possibly ensure the mathematical accuracy of the reports when net win is a critical element in calculating the contribution amount, but the commission does not know how net win is defined," Justice James McIntyre wrote in the 3-0 decision.

Anna Carr, a spokeswoman for the commission, said she could not comment on the lawsuit. But she said that the commission has procedures on how to calculate those winnings.

The 28 tribes, including the Pechanga Band of Mission Indians near Temecula and three tribes in East County, agreed to pay the state 7 percent to 13 percent of their slot machine revenues into a state pot called the Special Distribution Fund.

In addition to paying for gambling addiction treatment programs, the money also pays for gambling regulation and is split into payments to poorer, nongambling tribes.

Pechanga Chairman Mark Macarro said his tribe, which signed a new agreement that will soon redirect its payments to the state's general fund, has "honored its commitments" to the state.

"As far as Pechanga is concerned, state regulators recently completed a thorough audit of our records and gave us a clean bill of health," Macarro said in a written statement. "These important revenues are helping to build stronger communities for nongambling tribes and local governments."

Tribes have paid about $605 million into the fund since they were required to begin paying in 2002, according to the commission.

As of last year, the state had distributed about $105 million to local governments. Riverside has received $44.7 million, far more than any other county in the state. San Diego County has received $17.5 million, according to the state controller's office.

This year, Gov. Arnold Schwarzenegger redirected $30 million from the fund to help balance the state budget.

Manuel Corrales, an attorney for Cates, said the fund should have received about $330 million more than it has because tribes left out some kinds of money from their net winnings. He said he did not know which tribes underpaid by how much each tribe underpaid.

"The only thing we know is that collectively, they have been applying their own definition of 'net win,' " Corrales said.

Corrales said Cates has filed a separate lawsuit claiming that she was transferred out of the division of gambling control in the office of the attorney general, where she served as an agent, in retaliation for her complaints about problems with the fund. She is now a Medi-Cal fraud investigator, he said.

The attorney said he relied on the estimate of I. Nelson Rose, a law professor at Whittier Law School who specializes in Indian gambling, to come up with the shortfall amount.

Rose said he estimated the amount by calculating the total number of slot machines the tribes operate and an average net win of $300 a day.

"This was my conservative estimate," Rose said.

-- Contact staff writer Edward Sifuentes at (760) 740-3511 or esifuentes@nctimes.com.

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