By stacking the deck against tribal governments when negotiating casino compacts, California Gov. Arnold Schwarzenegger was gambling that he could violate federal law with impunity. He bet he could hold the tribes hostage by our need to engage in gaming as our only means to economic development. But, it appears this is one bet he may lose.

The United States District Court has ruled that the governor’s negotiation tactics with California’s gaming tribes are illegal and constitute bad faith. The state appealed to the 9th Circuit Appeals Court and a decision is expected soon that may change the way governors throughout the nation negotiate. It may also halt the trend of holding tribes hostage to state politics and charging increasingly higher fees as a condition for signing compacts.

The lawsuit, brought by the Rincon Band of Luiseno Indians of San Diego, alleged Schwarzenegger imposed an illegal and unfair tax on gaming revenues in return for tribal state compact agreements.

The case is precedent setting because until the Rincon v. Schwarzenegger decision no federal court has ever squarely addressed the reach of federal laws against taxing tribal governments in tribal state compacts.

In six years of negotiations with the governor’s office for machine licenses promised the tribe in the 1999 compacts, along with a minimal expansion, the Rincon Band offered to pay increased revenue to the county, but we refused to turn over 79 percent of our profits to the state. Despite the tribe’s offer to earmark payments to the county for mitigation, and offset regulatory costs, the state was not willing to engage in give and take. Instead, the governor chose only to take. So Rincon sued.

U.S. Magistrate Judge William McCurine Jr. in Rincon v. Schwarzenegger found the state was negotiating in bad faith and awarded remedies provided under the federal Indian Gaming Regulatory Act which governs the compacting rules between tribes and states. Rather than work with Rincon to reach an agreement consistent with the court’s order, what did the state do? The state appealed, until the case finally landed where it currently sits – pending the decision of the 9th Circuit Court.

Bad faith on the part of states has haunted tribal negotiations since 1991, beginning with former Gov. Pete Wilson, who flaunted federal law and refused to negotiate, except on his terms.

Until this decision, the courts have not enforced bad faith remedies, nor established a benchmark for fair and legally negotiated fees versus an illegal tax on tribal gaming revenues. McCurine made it clear that federal law prevents states from using compact negotiations to impose a tax on tribal governments for gaming revenues. “Compact negotiations,” he reminded the state, “are between equal sovereigns and fees paid under the terms of a tribal compact are only to be used to mitigate impacts, protect public safety and to establish a framework of regulations with the tribes.”

He ruled that the state’s fee demands constitute an improper attempt to impose a tax on Rincon.

In 2010, California’s Indian tribes will pay nearly $400 million from tribal gaming into funds controlled by the State Legislature. This money will not be used to offset tribal gaming impacts, or to address needs of local governments near casinos.

The Rincon Band of Luiseno Indians benefits from the well-being of our neighbors and believes tribal revenue sharing should go directly to local communities for improvements to roads and infrastructure, protecting the environment, as well as fire and police protection. In fact, more than 90 percent of improved fire protection in rural areas of San Diego County has come from reservation fire departments funded by casino revenues.

Tribes negotiating any new compacts with Gov. Schwarzenegger are forced to abandon local revenue sharing, and, instead, the fees are placed in the state’s General Fund. There, these funds are lost in the black hole of budget deficits, politics and bureaucracy. At the same time, the governor is reducing and confiscating state revenues owed to local governments. This, while local governments – those entities that provide the majority of direct services to their regions – are also experiencing revenue shortages and cutting services due to the economic meltdown.

The legal and sensible option is to respect tribes are sovereign subsets of the federal government and to negotiate with tribes in good faith. Everyone walks away from the negotiation table as winners when tribal contributions are used to mitigate local impacts of casinos or improving community service levels that benefit both tribes and our neighbors.

Bo Mazzetti is chairman of the Rincon Band of Luiseño Indians.