Duluth loses casino appeal

  • Article by: DAN BROWNING , Star Tribune
  • Updated: January 14, 2013 - 10:51 PM

Mayor says the fight to enforce $6 million yearly revenue-sharing pact with the Fond du Lac Band will continue.

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Players at the penny slot machines in Fond du Luth Casino in Duluth.

Photo: David Joles, Star Tribune

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Fond-du-Luth -- the first urban tribal casino in the nation -- will not have to honor an agreement to pay rent to the city of Duluth, the 8th U.S. Circuit Court of Appeals ruled in an opinion issued Monday.

"From our standpoint, this is devastating news to the residents and taxpayers of the city of Duluth," said Mayor Don Ness. The city, with a general fund budget of about $75 million a year, was counting on about $6 million a year from the casino, he said. "That's the primary source of revenue to do our street reconstruction."

A panel of three judges upheld an earlier ruling by U.S. District Judge Susan Richard Nelson of St. Paul, who voided certain aspects of a 1994 consent decree worked out in arbitration between Duluth and the Fond du Lac Band of Lake Superior Chippewa, which owns the casino. The panel agreed with Nelson that the National Indian Gaming Commission (NIGC) had the proper legal authority when it determined that the agreement between the city and band was incompatible with federal law.

Ness said the city would appeal to the full court.

Karen Diver, the Fond du Lac band's chairwoman, said the city has received about $80 million from the tribe since they joined forces in 1986 to establish the casino. The appellate ruling "just means that Indian gaming will do what it was intended to do," she said, "and that's to provide for the benefit of tribes."

Fond-du-Luth was built for $3 million at a time when tribal casinos were unregulated. The band, with the city's enthusiastic support, persuaded the federal government in 1986 to convert city land into an Indian reservation for a casino. The city approved the arrangement as part of a deal that initially gave it and the band each a quarter of the revenues. The rest funded a joint economic development program.

The deal was cut two years before Congress passed the Indian Gaming Regulatory Act in 1988, which requires tribes to have "sole proprietary interest" and responsibility for tribal casinos. In 1990, the band asked U.S. District Judge Paul Magnuson in St. Paul to block enforcement of the contract, arguing that it violated the new law. Magnuson referred the matter to the gaming commission, which ruled on the issue in 1993.

The commission found that the agreement did violate federal law, but it gave the parties a chance to make a new, valid contract. The parties agreed in 1994 that although the band was the casino's owner, it would pay 19 percent of its revenues to Duluth for 25 years, and an unspecified rate for the succeeding 25 years.

The band made payments until 2009, when it calculated that it had been paying more than it should have because certain expenses were not factored in. The city sued. As the dispute wended through federal court and arbitration, the band asked the NIGC to review the 1994 consent agreement. The commission found that even though it had been approved by the court, it violated the law. The commission threatened to shut the casino if the band continued making payments.

Nelson ruled that the gaming commission had the authority from Congress to interpret the law, and she voided the agreement going forward. But she ruled against the band's request that it be allowed to keep about 18 months of payments it had withheld since 1999, reasoning that the law didn't allow a retroactive remedy.

Both the city and the band appealed.

The appellate panel agreed with Nelson on the commission's authority. But it found she was wrong about whether the law allowed "retrospective relief." It sent the case back for her to consider whether the tribe should turn over $10 million to $12 million in suspended payments and interest.

"We're just trying to keep our heads down," Diver said as the band waits for yet another court date.

She said the dispute has overshadowed the effect of millions of dollars the Fond du Lac Band pumps into the regional economy. Last week, the band released a study it commissioned through the University of Minnesota Duluth that showed more than $300 million in annual revenue generated through tourism, construction and other activities on and around the reservation.

"No one needs to incent us to invest in this region because it's our homeland," Diver said.

She said the band tried to negotiate payments to the city for such services as police and fire protection, but the city demanded a share of the revenue stream.

Ness said the city wants to find a compromise, "but what they have put on the table is just not adequate."

Ness said the 8th Circuit's ruling should concern more than 200 other local governments in the country that have similar contracts with tribes.

"What is to stop any other band in the country from ... saying, 'We're simply not going to make payments from this day forward?'" Ness asked. "Every unit of government who believes that they have a binding contract related to a casino in their region should be very concerned about this ruling."

Dan Browning • 612-673-4493

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