Tribes Take Exemptions Too Far

California’s casino-owning Indian tribes can’t have it both ways. Already granted exemption from state taxes on their lucrative casinos, they also want the right to use state tax-exempt bonds -- which are intended to pay for public improvements such as sewer systems and roads -- to expand these gambling palaces.

The Internal Revenue Service takes a dim view of tribes’ use of tax-exempt bonds for business purposes. On Tuesday, the agency rightly ruled against a tribe near Palm Springs that used $145 million in federally tax-exempt bonds to build a hotel and convention center near its casino. Investors who buy these bonds pay no tax on the interest they earn, meaning the bonds can be sold at very low interest rates. They take millions out of government coffers, which is why they are only intended for public benefit. Luxury hotels don’t fall into that category.

Unfortunately, the Legislature is more influenced by tribal money than is the IRS. Tribes that are among the biggest campaign donors in the state are backing a bill by state Sen. Dean Florez (D-Shafter) that would let the tribes use bonds exempt from state taxes. A similar bill was overwhelmingly approved last year, only to be vetoed by Gov. Arnold Schwarzenegger. If Florez’s bill passes, Schwarzenegger should slap it down in a hurry. A state looking at an $8-billion budget shortfall can hardly afford to give handouts to casino owners.

In justifying his bill, Florez argues lamely that “if a city and county can do it, I see no reason a tribe can’t do it.” It’s true that tribes enjoy a certain amount of sovereignty under federal law. That sovereignty exempts their massive casino winnings from state taxation, although tribes have granted the state limited fees in exchange for the right to operate casinos. But this is not unlimited sovereignty. And it certainly does not justify extending a tax break that local governments use to provide essential services.

The tribes now are applying their considerable political clout in lobbying for a federal law that would make resorts eligible for tax-exempt bonds, while also working to clear the path in Sacramento. State legislators have long been blindly doing the will of the casino owners. Californians should let them know that enough is enough.