Introduction
This study provides an overview of the current state of tribal
economic activities in Riverside County and the economic impact
of these activities on local communities, Riverside County,
Southern California, California and the United States. The
majority of the economic impact of the tribal governments
comes from tribal gaming but the tribal governments also operate
a variety of other economic enterprises and continue to diversify
their economic activities. Even the tribal gaming activities
are being diversified away from pure casinos to more diversified
gaming resort and entertainment complexes.
In the case of tribal gaming, there is ample
evidence that tribal gaming encourages residents to spend
dollars in California that would otherwise be spent in Nevada.
In the aggregate sense, a dollar spent on gaming in California
instead of a dollar spent on gaming in Nevada creates no additional
wealth but from California’s perspective it keeps the
activity in California and the local communities.
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- Direct employment of 10,170, $464 million
in wages and benefits
- Indirect employment of 44,506, $821 million
in wages and benefits
- Total combined direct and indirect impact
of 54,677 jobs, $1.3 billion in wages and benefits
- $1.1 billion in purchases, including $333
million in direct and $774 million in indirect purchases
- $125 million in purchases from suppliers
in Orange, Los Angeles, San Bernardino and San Diego
- More than $95 million from Riverside County
service providers
- $124 million in federal and state income
and payroll taxes directly
- $220 million in payroll and income taxes
from indirect economic activity
- Payments of more than $50 million to the
state of California for revenue sharing provisions
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Employment
At the individual tribal government level, there are four
separate tribes employing more than 1,000 workers in Riverside
County. According to the California Employment Development
Department, there were only 26 employers in the county with
more than 1,000 employees for the latest period for which
firm level data is available. In a list of Major Employers
in Riverside County compiled by infoUSA for the Employment
Development Department, the Pechanga Band of Luiseno Indians
is included among the list of 15 major employers. It is clear
that the tribal governments located in Riverside County are
a major economic force in Riverside County and the rest of
California.
The tribes’ activities have a major economic
impact on local governments as well. Figure 1 shows the total
direct employment in selected cities in Riverside County,
Southern California and California. The cities of Hemet, Temecula,
Palm Springs, Indio, San Jacinto, Cathedral City, Murrieta,
Coachella and Palm Desert all have a large number of residents
that are employed by tribal governments and their operations.
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Purchases
Tribal governments and the tribes’ economic operations
make purchases from vendors in many local cities. Figure 2 shows
purchases by area for Southern California communities. The tribes’
activities benefit a number of cities including Riverside, Temecula,
Palm Desert and Palm Springs. In addition to Riverside County,
suppliers in the surrounding counties of San Bernardino, Orange,
San Diego and Los Angeles receive considerable business from
the tribal operations.
Table 1 provides our estimates of the direct,
indirect and total combined direct and indirect economic impact
of Riverside County tribes’ economic activities. As noted
above, the tribes and their operations employed 10,170 individuals,
made payments to individuals of $463,783,236 and purchased
$332,562,668 worth of goods and services. The tribes’
activities indirectly resulted in the employment of 44,506
individuals with wages and benefits totaling $821,406,489
in 2002. The tribes’ activities indirectly led to the
purchase of $773,806,815 worth of goods and services.
The total economic impact of the activities
and operations of tribal governments in Riverside County resulted
in the employments of 54,677 individuals and payments to individuals
totaling $1,285,189,725. The tribal operations also were responsible
for the combined direct and indirect purchase of goods and
services in the amount of $1,106,369,483.
The indirect impact of tribal activities presented
here suggests that there are many benefits that spill over
to the state and local communities as a result of tribal economic
operations. As with all estimates, these numbers are necessarily
imprecise. However, their primary importance is in recognizing
that tribal activities create benefits in the form of increased
employment and increased economic activity in surrounding
communities.
Understanding these benefits is important because
much of the criticism of tribal economic activities and tribal
gaming in particular is that it produces negative spillovers
on surrounding communities. Increased traffic, increased crime
and other spillovers are likely to be the by-product of tribal
enterprises just as they are for a new Wal-Mart, Home Depot,
shopping mall, sports stadium or other economic enterprises.
Tribal gaming, like other economic activities, brings both
positive and negative spillovers.
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Taxes
Tribal governments have a sovereign status and like governments
at other levels, they can not be taxed by other governments.
However, this leads to a common misconception that tribal activities
do not create tax revenues. Employees of tribal governments
and tribal casinos are required to pay state and federal income
and payroll taxes. Tribal members are required to pay state
and federal income taxes on any per capita distributions made
by tribal governments. The only exception is that tribal members
living on tribal lands are not required to pay state income
taxes on income earned on tribal lands.
Based on the total payments to individual estimates
and payroll tax data provided by the tribes, we estimate that
the economic activities of tribal governments in Riverside
County produced an additional $124 million in income and payroll
taxes across all jurisdictions.
We estimate that $12,843,247 in additional
state income taxes are directly created by tribal government
operations in Riverside County. In addition, the indirect
impact created another $821,406,489 in payments to individuals.
This would suggest that another $220,136,939 in total payroll
taxes and $22,746,674 in additional state income taxes from
the indirect impact of the tribes’ activities. Table
2 provides an overview of the fiscal effects.
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State
Corporate Income Taxes
Our estimates indicate that Riverside County tribal gaming
operations resulted in just over $1.3 billion in indirect
wages and purchases in California. While tribal operations
are not subject to corporate income taxes, the firms that
benefit from these purchases are. We conservatively estimate
that 4% of the indirect output effects represent corporate
profits.[1] At California’s 8.84% corporate profits tax
rate, this would result in $4.67 million in additional corporate
income taxes that result from tribal operations.
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Local Use and Sales
Tax
The state and local governments also captures tax revenues from
any increased taxable retail transactions that occur as a result
of tribal operations. California operations produce almost $552
million in indirect purchases but only the final output sold
to its ultimate consumer is taxable. We assume that 20% of the
total induced output is subject to sales and use taxes at an
average rate of 7.5%. This results in $8.28 million in sales
and use taxes resulting from tribal operations.
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Other
Taxes and Payments in lieu of Taxes
Tribal economic operations may cause individuals to travel
to tribal properties and complete overnight stays. As a result,
the tribes’ activities would result in increased hotel
occupancy taxes and gasoline taxes. In some cases, tribes
are required to pay property taxes, possessory user taxes,
or make other payments to local governments in lieu of taxes.
The data provided by tribal governments indicate that the
tribal governments in Riverside County currently provide well
over $1 million per year in such payments.
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Revenue Sharing Requirements
The Tribal-State Compact calls for gaming tribes to contribute
to two separate gaming funds: The Revenue Sharing Trust Fund,
which provides funds for non-gaming tribes in California, and
the Special Distribution Fund. Contributions to the Special
Distribution Fund are based on the number of VLTs in operation
on September 1, 1999. Riverside County tribes operated 35% total
of the VLTs in the state at that point. However, the percentage
payments are graduated so that additional machines are taxed
at a higher rate. The tribes in Riverside County tended to operate
larger facilities at that point and therefore had higher average
tax rates.
Contributions to the Revenue
Sharing Trust Fund are based on the number of additional machines
that a tribe operates after September 1, 1999. We estimate
that 12.9% of the additional terminals are operated by tribes
in Riverside County. Again, these payments are also graduated
with additional terminals being taxed at a higher rate. As
a result, we estimate that 18% or $8.28 million of the $46
million per year paid into the Revenue Sharing Trust Fund
comes from tribes in Riverside County.
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[1] For comparison purposes, Analysis Group Economics (1988)
estimated that approximately 8% of this additional output
was taxable as corporate profits. The 4% used here is a
conservative lower bound estimate.
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