LOS ANGELES -- It's been three years since tribal-state agreements ushered in casino-style gambling in California, and since then Indian casinos have become an industry generating $5 billion a year.
With key portions of the agreements up for renegotiation, tribes and state officials are gearing up for high-stakes bargaining that could determine the shape of one of the state's fastest-growing and richest industries for years to come.
Some tribes are eager to increase the allowed number of slot machines, the cash cows that bring in as much as 95 percent of a casino's revenue. State officials, meanwhile, are desperate for money to close a budget deficit estimated at $34.6 billion, and Gov. Gray Davis is looking to tribes for help.
With each side hoping for something from the other, some experts believe both can gain.
"I think that the governor's budget proposal represents a significant shift from an attitude of holding the line on Indian gaming to a recognition that Indian gaming can be part of the solution to a larger problem, which is the state's deficit," said Howard Dickstein, an attorney who represents tribes.
The tribal-state agreements, known as compacts, were mandated by the 1988 federal law that legalized Las Vegas-style gambling on Indian land. California's compacts were signed in haste in September 1999 with the Legislature poised to adjourn and federal officials threatening to seize existing slot machines unless an agreement was reached.
The compacts are widely regarded as flawed. Some of their major provisions are in dispute, including how many total slot machines they allow in the state (there currently are about 47,000).
Of California's 109 federally recognized tribes, 61 have compacts allowing them to run Vegas-style gambling but not all do so; there are 50 Indian casinos in the state.
Renegotiating the agreements promises to be complicated. Unlike in 1999, when an identical compact was signed with every tribe, tribes plan to bargain individually, or in small groups -- and some likely won't renegotiate at all. There's no requirement that they do so.
More than two dozen tribes that don't have compacts want to try to get them. Various issues, such as casinos' environmental impacts, will be on the table, and various players want a role, including county governments seeking more stringent environmental regulations.
But by most accounts, key issues will be the number of slot machines each tribe is allowed and the governor's "revenue-sharing proposal" to get money from the tribes. The current compacts provide for discussing those issues starting in March, but informal talks already have begun.
Tribes are limited to a maximum of 2,000 slot machines each, and more than a dozen are at or near the cap. With a single machine bringing in anywhere from $35,000 a year to more than triple that, some tribes are chafing at the limit.
"We could use more machines," said Robert Smith, chairman of the Pala Band of Mission Indians, which has a casino with 2,000 slots in northern San Diego County and is building a hotel. "We do have the market. We could use probably an additional 500 machines, possibly up to 3,000."
Davis, meanwhile, proposed in his budget plan this month that tribes contribute $1.5 billion in revenue to the state.
The Democratic governor said in a speech to the Sacramento Press Club last week that he would be open to lifting the limit on slot machines in exchange for increased revenue, as long as certain conditions were met, including evidence of demand and local approval.
Some tribes responded positively.
"It's in their best interest that the tribes help where we can and how we can, and I think the best way to do that ... is to open the door to release the caps on the machines and let the free enterprise system roll," said Anthony Pico, chairman of the Viejas Band of Kumeyaay Indians near San Diego.
Other tribal officials, however, rejected the idea. Deron Marquez, chairman of the San Manuel Band of Mission Indians, said the tribes should not be asked to solve a budget deficit not of their making.
"The state of California is in its position because of its leadership," Marquez said.
Even some Indian gambling experts who look favorably on Davis' proposal are skeptical about the $1.5 billion figure. State officials extrapolated it from tribes' estimated annual revenue of $5 billion, based on agreements in Connecticut and New York where tribes pay as much as 25 percent to the state.
As sovereign governments, tribes cannot be taxed but they can agree to share revenue. California tribes do not give money directly to state operations, but they do pay into two funds, one for tribes without gambling operations and the other to address gambling impacts such as addiction and increased law enforcement costs.
Tribes are expected to pay an estimated $130 million annually into the two funds combined -- a far cry from $1.5 billion. But tribal and state officials may take that figure as a starting point as they negotiate Indian gambling's next chapter in California.
"My hope is that these negotiations will correct ambiguities in the existing compacts ... and ensure that Indian gaming helps California meet some of the burdens it's currently facing," Davis said. "We have to live with one another."