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- The method used to mitigate casino impacts has changed, which has slowed the drastic decline in the distribution fund balance, but some local mitigation is still taking place.
- Two of the three benefit committees we reviewed awarded mitigation grants without ensuring compliance with state law.
- Other Areas We Reviewed
- Scope and Methodology
The Method Used to Mitigate Casino Impacts Has Changed, Which Has Slowed the Drastic Decline in the Distribution Fund Balance, but Some Local Mitigation Is Still Taking Place
- The distribution fund’s expenditures and transfers continue to outpace revenue, resulting in the distribution fund’s declining balance.
- The State has shifted to direct payments from the tribes for the mitigation of negative impacts of activities on tribal land that serve tribal gaming or operations rather than through grant funding from the distribution fund. The three counties we reviewed—Fresno, Riverside, and San Diego—have had agreements with tribes in which the tribes directly pay to mitigate negative impacts of activities on tribal land.
Distribution Fund Revenue, Expenditures, and Transfers
Expenditures and transfers from the distribution fund (expenditures) have generally outpaced revenue and transfers into the fund (revenue) since fiscal year 2008–09. Because of this, the balance of the distribution fund has continued to decline, as we also noted in our two previous Indian gaming audits. Expenditures are expected to exceed revenue by a total of nearly $61 million for fiscal years 2012–13 through 2017–18.2 This shortfall has drastically reduced the fund balance. The balance fell from $60.5 million at the beginning of fiscal year 2012–13 to an estimated $5.9 million at the end of fiscal year 2016–17, and is expected to fall to $4.2 million at the end of fiscal year 2017–18, a year in which proposed expenditures from the distribution fund are expected to exceed revenues by $1.7 million.
As shown in Figure 5, revenue for the distribution fund is expected to remain fairly constant from fiscal years 2012–13 through 2017–18, ranging from $42.9 million to $51.4 million. However, during that same time period, expenditures from the distribution fund range from $47 million to $72.9 million. The State reduced appropriations to fund mitigation grants from $30 million for fiscal year 2010–11 to $9.1 million for fiscal years 2011–12 through 2013–14, and eliminated those appropriations entirely for fiscal years 2014–15 through 2017–18.3 This change in appropriations has slowed the drastic decline of the distribution fund balance and is expected to bring the distribution fund’s total expenditures into closer alignment with the fund’s annual revenue. However, as Figure 5 shows, expenditures from the distribution fund were still estimated to exceed revenue in two of the four years since funding for the grants was eliminated.
Indian Gaming Special Distribution Fund Revenue, Expenditures, Transfers, and Fund Balance
Fiscal Years 2012–13 Through 2017–18
Sources: Governor’s budgets for fiscal years 2014–15 through 2017–18.
* State law requires the Indian Gaming Special Distribution Fund (distribution fund) to pay for the Indian gaming regulatory functions of the California Gambling Control Commission and the California Department of Justice. Expenditures for these two regulatory bodies are reported in Table 1. However, the distribution fund also pays for some functions of the State Controller’s Office, the California Department of Human Resources, and the Financial Information System for California. Expenditures categorized here as regulatory functions include expenditures for all of these functions. As a result, total expenditures reported in this category are slightly higher than those shown for regulatory functions in Table 1
† In fiscal years 2012–13 through 2014–15, the adjusted fund balance reflects prior period adjustments.
‡ Amounts for fiscal year 2016–17 are estimates, amounts for fiscal year 2017–18 are projections, and according to the 2017–18 Governor’s Budget, amounts for fiscal year 2015–16 are estimates that reflect the latest available information pending final completion of year end financial reports.
The Mechanism for Local Mitigation Has Shifted
The State has moved away from funding local mitigation through the distribution fund and toward other direct mechanisms to fund mitigation. As discussed in the Introduction, state law allows the Legislature to appropriate money from the distribution fund to pay for local mitigation grants. However, this law is scheduled to be repealed on January 1, 2021, after which the local mitigation grant program will cease to exist. The senior advisor for tribal negotiations in the Governor’s Office (senior advisor) told us that the State intends to use the distribution fund to pay for Indian gaming regulatory activities and problem‑gambling prevention programs. This is consistent with the allocations from the distribution fund in fiscal years 2014–15 through 2016–17. Specifically, the Legislature made appropriations from the distribution fund for the regulatory costs, problem‑gambling prevention programs, and transfers to the trust fund, but did not appropriate funding for mitigation grants in those years.
The senior advisor also stated that the recent compacts significantly increase payments to the trust fund, and the trust fund is expected to be fully solvent by the end of fiscal year 2017–18. This would reduce pressure on the distribution fund, which must pay enough into the trust fund to ensure that it can distribute $1.1 million annually to each tribe that does not have a compact or that operates fewer than 350 gaming devices. Based on a review of correspondence and summary revenue information from the Gambling Commission staff to its board, statewide tribal payments into the trust fund increased from fiscal years 2014–15 to 2015–16. The 2017–18 Governor’s Budget and notification by the Gambling Commission to the Legislature indicate that the trust fund’s shortfall, which is backfilled from the distribution fund, is expected to decrease from $20.8 million for fiscal year 2015–16 to $15.5 million for fiscal year 2016–17. Further, as shown in Table 2, we noted that the funding structure of all new or amended compacts ratified in fiscal years 2013–14 through 2015–16 requires tribes to pay into the distribution fund a share of the annual appropriations for the State’s Indian gaming regulatory activities and problem‑gambling prevention programs.
New and Amended Compacts
Fiscal Years 2013–14 Through 2015–16
|Tribe||Date Ratified||Funding Structure in Current Compact||Funding Structure in
|Fort Independence Indian Community of Paiute Indians of the Fort Independence Reservation||July, 11, 2013
|The tribe shall pay to the distribution fund a share of the gaming compact money appropriated in the annual Budget Act for the Indian gaming regulatory activities of state agencies and problem‑gambling prevention programs, based on the proportion of devices it operated in comparison to the devices operated by all tribes in the State.||Not applicable—new compact.|
|Ramona Band of Cahuilla||October 1, 2013
|Karuk Tribe||August 29, 2014
|Viejas (Baron Long) Group of Capitan Grande Band of Mission Indians of the Viejas Reservation||September 9, 2014
|During the first five years in which the compact is in effect, the tribe shall pay $5 million in the first and second years, $4 million in the third year, $3 million in the fourth year, and $2 million in the fifth year to the State, which shall be deposited into the distribution fund from the tribe’s revenue contributions. Additionally, the tribe shall pay to the distribution fund a share of the gaming compact money appropriated in the annual Budget Act for the Indian gaming regulatory activities of state agencies and problem‑gambling prevention programs, based on the proportion of devices it operated in comparison to the devices operated by all tribes in the State.*||The previous compact did not have any requirements for the tribe to pay into the distribution fund.|
|Jackson Band of Miwuk Indians||June 17, 2015
|The tribe shall pay to the distribution fund a share of the gaming compact money appropriated in the annual Budget Act for the Indian gaming regulatory activities of state agencies and problem‑gambling prevention programs, based on the proportion of devices it operated in comparison to the devices operated by all tribes in the State.||The previous compact required the tribe to pay between 0 percent and 13 percent of the average gaming device net win to the distribution fund, depending on the number of gaming devices operated.|
|Santa Ynez Band of Chumash Mission Indians of the Santa Ynez Reservation||October 6, 2015
|Sycuan Band of the Kumeyaay Nation||October 6, 2015
|United Auburn Indian Community of the Auburn Racheria of California||October 6, 2015
|The tribe shall pay to the distribution fund a share of the gaming compact money appropriated in the annual Budget Act for the Indian gaming regulatory activities of state agencies and problem‑gambling prevention programs, based on the proportion of devices it operated in comparison to the devices operated by all tribes in the State.||The previous compact did not have any requirements for the tribe to pay into the distribution fund.|
Sources: Indian gaming compacts and California Gambling Control Commission’s website.
* In August 2016, the Legislature ratified a compact amendment between the State and the Viejas Band that eliminates the requirement for the tribe to pay between $2 million and $5 million in the first five years the compact is in effect, and only requires the tribe to pay a share of the gaming compact money appropriated in the annual Budget Act for the Indian gaming regulatory activities of state agencies and problem gambling prevention programs.
According to the senior advisor, under the new and amended compacts, local mitigation will be funded separately pursuant to the compacts and will not be funded from the distribution fund. Provisions for separate funding have been present in the post‑1999‑model compacts. These post‑1999‑model compacts generally include mechanisms for tribes to pay directly to mitigate the negative effects of casinos. Specifically, 29 of the 32 compacts entered into or amended between fiscal years 2003–04 and 2015–16 require that, before the tribe begins a new project on tribal lands, it must offer to negotiate with the county to fund the costs to mitigate the impacts of activities on tribal land that serve tribal gaming activities or operations. If the county accepts the offer, the compacts require the tribe to negotiate and enter into a written agreement specifying provisions for timely mitigation of any significant effect on the off‑reservation environment; mitigation of any effect on public safety attributable to the project; reasonable compensation for law enforcement, fire protection, emergency medical services, and any other public services to be provided by the county to the tribe for the purposes of the tribe’s gaming operations; and reasonable compensation for programs designed to address gambling addiction. The remaining three compacts require that the tribe implement feasible mitigation measures or make good‑faith efforts to mitigate negative effects.
When compared to the allowable uses of mitigation grants from the distribution fund, which we describe in the Introduction, these agreements for direct mitigation allow for a greater variety of mitigation projects. Although state law outlines 12 specific allowable priorities for the use of mitigation grant funds from the distribution fund, such as law enforcement and fire services, the language in the compacts is less restrictive and allows direct mitigation and payments to address any significant negative effects of the tribal casinos.
Further, the senior advisor stated that the post‑2014 compacts provide incentives for tribes to provide funding to local jurisdictions for mitigation. Of the six new or amended compacts entered into during fiscal years 2014–15 and 2015–16, four include incentives for tribes to pay local jurisdictions for improved fire, law enforcement, and other services and infrastructure improvements intended to serve the needs of the county residents. These incentives allow tribes to make payments to the county or local jurisdictions in return for reductions in the tribes’ required payments into the trust fund.
Through these alternate mechanisms, some counties are receiving funds for county services and infrastructure improvements. For example, a tribe entered into an agreement with Sonoma County in October 2012 to contribute, among other things, $3.1 million annually to the county to mitigate the impacts of tribal development on law, justice, and public safety, and an additional nonrecurring payment of $1.7 million to hire and train four new deputy sheriffs, purchase two vehicles, and pay for support staff for those officers. This single mitigation agreement far exceeds the county’s allocations of roughly $64,000 from the distribution fund for fiscal years 2012–13 and 2013–14. According to the senior advisor and the deputy director of administration at the Gambling Commission, it is likely that these direct agreements for mitigation and the additional payments for county services and infrastructure improvements will exceed the historic levels of distribution fund payments for local mitigation grants under the 1999‑model compacts.Tribes in the three counties we reviewed—Fresno, Riverside, and San Diego—have entered into direct agreements with the counties to pay for mitigating impacts of activities on tribal land, and some of these agreements were made at the same time that the State was providing mitigation grants from the distribution fund. For example, in 2008, a tribe in Fresno County entered into an agreement with the county to provide environmental and design work to improve a local county road, at a cost of $3.85 million. Riverside County entered into a 2015 agreement in which a tribe agreed to pay nearly $335,000 annually for county sheriff and district attorney services to mitigate the effects of a hotel expansion on tribal land. San Diego County has also negotiated various agreements with tribes for mitigation projects. According to a summary provided by a benefit committee staff member, between 2000 and 2016 the county entered into various agreements, totaling more than $34 million, with tribes. One agreement, for example, includes a provision for a tribe to pay nearly $3.8 million for road improvements and $275,000 annually to the county sheriff’s department.
Two of the Three Benefit Committees We Reviewed Awarded Mitigation Grants Without Ensuring Compliance With State Law
- In fiscal year 2013–14, Fresno County’s benefit committee awarded a mitigation grant of $362,000 and San Diego County’s benefit committee awarded a mitigation grant of $250,000, without requiring the grant applicants to document how the requested funding represented a proportionate share of costs attributable to casino impacts, as required by state law.
- For five of six mitigation grants we reviewed, grantees provided documentation to demonstrate they spent funds for allowable purposes consistent with the activities described in the respective grant applications. One of the five grantees has spent some funds but has not spent its full grant award. For the sixth grant, the grantee has not yet spent any of the funds but expects to use them in 2017.
Benefit Committees’ Awarding of Mitigation Grants
Two of the three benefit committees we reviewed—those in Fresno and San Diego counties—did not ensure that grant applicants provided sufficient documentation demonstrating the proportion of their project costs that were attributable to casino impacts. Although the benefit committees’ operating policies and procedures, application instructions, or other written guidance require this information from grant applicants, these two benefit committees awarded grant funds without obtaining the information.
State law requires benefit committees to assess the eligibility of applications from local jurisdictions affected by tribal gaming. As part of establishing eligibility, the benefit committees must determine that the amounts awarded for applicants’ projects represent the proportionate share of costs attributable to impacts from local tribal casinos. Specifically, if a local jurisdiction approves an expenditure that mitigates impacts from a casino but also provides other benefits to the jurisdiction, the grant funds may finance only the portion of the expenditure that mitigates casino impacts. For example, a fire department may use grant funds to pay only for the proportion of emergency calls it responds to that are tied to casino activity; therefore, the benefit committee needs to obtain sufficient information from the fire department to ensure that the benefit committee awards grant funding only for the portion of the fire department’s efforts that relate to the casino. Further, in September 2012, the Governor signed legislation requiring that each grant application clearly show how the grant will mitigate the impact of the casino. Each of the benefit committees we reviewed uses a standard application form that requires the applicants to describe the impact of the casino and how the grant would mitigate that impact. For example, the application form used by San Diego County requires the applicant to provide an explanation of how the proposed project will mitigate impacts of the casino, including documentation for the benefit committee to review and make a determination of how the grant mitigates a proportional share of casino impacts.As shown in Table 3, in fiscal year 2013–14, the benefit committees for the three counties we reviewed awarded grants from the distribution fund totaling nearly $5 million. We reviewed two grants from each county, which together totaled $2.1 million, or more than 40 percent of the grant funding these three counties received in that fiscal year. Table 4 lists the grants we selected for review.
New and Amended Compacts
Fiscal Years 2013–14 Through 2015–16
Sources: Indian Gaming Special Distribution Fund annual reports and the State Controller’s authorization forms to release funds from the individual tribal casino accounts.
Review of Selected Grants Awarded by Indian Gaming Local Community Benefit Committees
Fiscal Year 2013–14
|Grant Amount||Grant Category||Description
|Grant Application Demonstrates Grant Will Mitigate Casino Impacts||Documentation Adequately Demonstrates Proportional Share of Costs Attributable to Casino Impacts||Explanation|
|Fresno||$359,000||Law enforcement||Staff funding||Yes||Yes|
|362,000||Law enforcement||Staff funding||Yes||No||Benefit committee awarded grant funds without support that all service calls described in the grant application were attributed to casino impact. Although it awarded less funding than requested, it could not demonstrate that it awarded the proportionate share of costs attributed to that impact.|
|Riverside||$306,000||Law enforcement||Law enforcement services||Yes||Yes|
|San Diego||$410,000||Roads||Road improvement/ repairs||Yes||Yes|
|250,000||Public health/ behavioral health||Senior citizen
|Yes||No||Benefit committee awarded grant funds despite the grant application’s failure to support claims made in the application that the funding requested was proportional to the effects of tribal gaming.|
Sources: Indian Gaming Special Distribution Fund annual reports, benefit committee grant applications, and supplemental application materials.
Fresno County benefit committee staff also could not explain why the benefit committee approved funds without sufficient documentation. Further, when we reviewed the audio recording of the meeting at which the benefit committee awarded the mitigation grant, we noted that the benefit committee did not ask questions about the proportion of costs to be covered by the grant before it voted to approve funding. Current benefit committee staff stated that they do not know why there was no such discussion because none of the current staff were assigned to the benefit committee at the time. They also stated that none of the previous staff members still work for the administrative office, and there is no other documentation in the files from previous staff.
For one of the two grants we reviewed for San Diego County, the benefit committee awarded $250,000 to the county Health and Human Services Agency to address financial abuse of and problem gambling by seniors.4 In its application, the grant applicant referred to statistics and data from reports to show how many seniors in the county were affected by problem gambling. However, although the application included the titles and authors for these reports, it did not include copies of those reports or documentation supporting the proportionate share of the project funding that it was requesting as required by the application. According to the benefit committee meeting notes, the grant applicant presented its application and there were no questions from the committee.
When we discussed the grant award with a benefit committee staff member in San Diego County, he indicated that when he was deciding whether the amount was proportional, he looked at the statistics as a whole to determine whether the amount requested reasonably fell within those statistics and used professional judgment to assess whether the funding was appropriate. However, we would have expected San Diego’s benefit committee to require the grant applicant to provide relevant documentation to support its request to fund the proportional share of its expenses attributable to the impact of tribal casinos.
Although the benefit committees in Fresno and San Diego counties did not award one of the two mitigation grants we reviewed in each county appropriately, we determined that for five of the six grant awards we reviewed the grantees spent the awards appropriately based on the projects they proposed in their grant applications. Specifically, our review of documentation supporting a selection of the grantees’ quarterly expenditure reports showed that the grantees spent the funds for the purposes described in their grant applications. One of the five grantees had spent only $299,000 of its award of $359,000. For the sixth grant award we reviewed, the grantee had not yet spent any of the funds but expects to use the funds in 2017.
We reviewed Riverside and San Diego counties’ benefit committees’ awarding of mitigation grants in each of our previous three audits.5 Previously, Riverside’s benefit committee awarded grants without ensuring that the grant applicants had demonstrated that the funding requested was proportional to casino impact. During the current audit, our review of two mitigation grants awarded by the benefit committee in Riverside County found that the benefit committee appropriately awarded grant funds to applicants that had properly demonstrated casino impacts and, if applicable, proportionate amounts. For example, in Riverside County, one grant application we reviewed described a road construction project to widen an existing road from two lanes to four lanes and create a bike lane, using specific rubberized asphalt to mitigate noise levels and create a safe path for bicyclists, among other things. The applicant used traffic studies that showed the high traffic volume leading to and from the casino to demonstrate that the casino had a significant impact on the road.
If the Legislature appropriates funding from the distribution fund for mitigation grants in the future, to comply with state law, the benefit committees for Fresno and San Diego counties should ensure that they obtain sufficient documentation from grant applicants to demonstrate that the requested funding represents the correct proportionate share of the costs attributable to casino impacts.
Other Areas We Reviewed
To address the audit objectives that the Joint Legislative Audit Committee (Audit Committee) approved, we reviewed the subject areas shown in Table 5. In the table, we indicate the results of our review and any associated recommendations that we do not discuss in other sections of this report.
Other Areas Reviewed as Part of This Audit
|Monitoring Whether Grantees Placed Mitigation Grant Funds in Interest‑Bearing Accounts|
|Composition of Benefit Committees|
|Geographic Proximity to Tribal Casinos|
|Allocation and Disbursement of Distribution Fund Money to Counties|
|Follow‑Up on Selected Recommendations From Our Previous Audit*|
Sources: California State Auditor’s analysis of records from the State and from benefit committees in the counties of Fresno, Riverside, and San Diego, and interviews with key staff members from the State and in those counties about the subject areas identified in the table.* Indian Gaming Special Distribution Fund: Counties’ Benefit Committees Did Not Always Comply With State Laws for Distribution Fund Grants (Report 2013‑036, March 2014).
Scope and Methodology
State law requires the California State Auditor to conduct an audit every three years regarding the allocation and use of money from the distribution fund by the grant recipients. Table 6 lists the objectives we developed to perform the audit and the methods we used to address those objectives.
|1||Review and evaluate the laws, rules, and regulations significant to the audit objectives.||Reviewed relevant laws, regulations, and other background materials applicable to the distribution fund.|
|2||Update information regarding the distribution fund:|
a. Identify new compacts, or those amended, in fiscal years 2013–14 through 2015–16.
|b. Identify revenue and expenditures for the distribution fund for fiscal years 2013–14 through 2015–16.||
Identified distribution fund revenue and expenditures for fiscal years 2013–14 through 2015–16. We also identified revenue and expenditures for one year before our audit period and estimated or projected amounts for fiscal years 2016–17 and 2017–18.
|c. Verify accuracy of Gambling Commission list of counties that submitted annual reports.||
To verify counties’ eligibility to receive distribution fund allocations in fiscal year 2013–14, the last year the Legislature appropriated funds, reviewed the Gambling Commission’s report to the State Controller’s Office (State Controller) identifying those annual reports submitted by Indian gaming local community benefit committees (benefit committee) for fiscal year 2012–13. Verified that the report was accurate and complete.
|3||Determine whether the State Controller appropriately allocated funds available to counties for the distribution fund mitigation grant program in accordance with state law.||
Determine whether the structure of selected county benefit committees is in compliance with state law.
Selected the three counties that received the largest allocation of local mitigation funds in fiscal year 2013–14 for review. For the counties we selected—Fresno, Riverside, and San Diego—we did the following:
|a. Determine the composition of the benefit committee membership for fiscal years 2013–14 through 2015–16, if mitigation grants were awarded in each year.||
|b. Assess benefit committees’ compliance with conflict‑of‑interest requirements for fiscal years 2013–14 through 2015–16, if mitigation grants were awarded in each year.||
Determine whether the benefit committees award and monitor grants appropriately.
For the three counties we reviewed:
|a. Determine whether the benefit committee awarded grants in fiscal year 2013–14 according to funding requirements.||
|b. For two mitigation grant awards in fiscal year 2013–14, assess the eligibility of those awards.||
|c. Assess benefit committees’ methods to ensure mitigation grant awards are used for allowable purposes.||
Reviewed documentation to verify whether grantees spent mitigation grant funds for stated and allowable purposes.
|d. Assess benefit committees’ methods to ensure mitigation grant awards are placed in interest‑bearing accounts.||
|6||Determine the status of implementation of our recommendations from the prior audits.||
For those recommendations from prior audits not already reviewed as part of current audit procedures:
Sources: California State Auditor’s analysis of California Government Code section 12717 and information and documentation identified in the table column titled Method.
We conducted this audit under the authority vested in the California State Auditor by Section 8543 et seq. of the California Government Code and according to generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives specified in the Scope and Methodology section of the report. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.
ELAINE M. HOWLE, CPA
Date: March 7, 2017
Tammy Lozano, CPA, CGFM, Audit Principal
Richard D. Power, MBA, MPP
Jillien Lee Davey
J. Christopher Dawson, Sr. Staff Counsel
For questions regarding the contents of this report, please contact Margarita Fernández, Chief of Public Affairs, at 916.445.0255.
2 According to the 2017–18 Governor’s Budget, amounts for fiscal year 2016–17 are estimates and amounts for 2017–18 are proposals. Additionally, the 2017–18 Governor’s Budget indicates that the amounts for fiscal year 2015–16 are still estimates that reflect the latest available information pending final completion of year end financial reports. Go back to text
3 In addition to the Legislature’s reductions in appropriations in these fiscal years, the Governor reduced appropriations for fiscal year 2013–14 by $3.9 million to $9.1 million through a line item veto. Go back to text
4 Although addressing problem gambling is one of the four priorities for the distribution fund described in law, as we describe in the Introduction, state law also describes behavioral health for local governments as an allowable use of mitigation grants. Go back to text
5 California State Auditor’s reports 2013 036 (March 2014), 2010 036 (February 2011), and 2006 036 (July 2007).Go back to text