Gambling on a Hawaiian Tribe

by Tom Yamachika, President, Tax Foundation Hawaii

Lately the news media has been buzzing about the Powerball jackpot reaching stratospheric levels. We don’t participate in it locally, but some lawmakers are considering allowing a state lottery, which could allow us to participate in Powerball. In this column we’ll explore whether there might be unintended consequences if, as some are advocating, a Native Hawaiian community is recognized with a status similar to that of an Indian tribe.

In late 1988, the U.S. Congress passed, and President Reagan signed, the Indian Gaming Regulatory Act. Interestingly, its main sponsor in the U.S. Senate, and one of its chief authors, was Senator Daniel Inouye. Because this federal law has the effect of overriding state laws that regulate or prevent gambling, the act deserves a closer look.

For the IGRA to work, there needs to be two things: an Indian tribe, and Indian lands. “Indian lands” usually means a reservation, but it could be any lands held in trust over which an Indian tribe exercises governmental power. Right now, we don’t seem to have a tribe, but that could change. And if Native Hawaiians were to achieve recognition as an Indian tribe, they might have or acquire lands such as those we now call ceded lands or Hawaiian homestead lands. Also, it may be possible for other federally recognized tribes to buy land here and add it to their tribal lands.

If we have an Indian tribe and Indian lands, the IGRA stratifies gaming into three classes.

Class I is (1) traditional Indian gaming, which may be part of tribal ceremonies and celebrations, and (2) social gaming for minimal prizes. The Indian tribe can regulate this type of gaming however it likes. In our context, if a Hawaiian tribe conducted an ‘ulumaika tournament or a canoe race and allowed people to bet on the players, then that would be allowed irrespective of what the State might think.

Class II is bingo-type gaming, including, if played in the same location as the bingo, pull tabs, punch board, tip jars, instant bingo, and other games similar to bingo. It also includes non-banked card games, that is, games that are played exclusively against other players rather than against “the house” or a player acting as a “bank.” A tribe can allow Class II gaming on Indian lands as long as the State allows any kind of gaming. At the moment, Class II can’t be permitted in Hawaii (and Utah) because we prohibit all gaming, but that would change if Hawaii allowed a state lottery.

Class III is casino gaming, video slots, and everything else not included in Classes I or II. A tribe can allow Class III gaming on Indian lands only if the State allows the same kind of gaming. A tribal ordinance permitting the gaming also needs to be approved by the National Indian Gaming Commission. Finally, either the state and the tribe need to negotiate a compact, or deal, or the Department of the Interior needs to approve regulatory procedures over the gaming. States are not allowed to levy taxes or fees on tribal gambling, unless specifically allowed in the compacts. Fees to cover some of the costs of basic regulation or law enforcement protection are common among states. In Connecticut, for example, the state receives 20 percent of gambling proceeds. Minnesota's compacts require its 11 tribal governments to pay a modest amount each year to defray the costs of regulation.

In any event, allowing a lottery in Hawaii could open the door to other things. We need to be forewarned and prepared.