Locke's deal with tribe too sweet?

TACOMA -- In the waning hours of Gov. Gary Locke's administration, the Puyallup Tribe cut two deals with the state that will make it millions but also have prompted accusations of preferential treatment and sparked at least one lawsuit.

One deal will end a long-simmering battle over untaxed, black-market cigarettes and the other allowed the tribe to open a new, larger casino next to Interstate 5. The tobacco deal means tribal smoke shops would continue to sell cigarettes more cheaply than competitors and the tribal government would collect about $23 million in taxes annually. The casino deal likely means millions more in gambling revenue for the tribe.

But the state and municipalities got concessions, too, in what the chief of staff for both Locke and Gov. Christine Gregoire is calling a "win-win for everyone." The state gets to keep cheap, black-market cigarettes off the market and collects about $10 million in annual taxes, too. And allowing the casino to move paved the way for construction of a major container terminal at the Port of Tacoma.

The tobacco deal, which is awaiting legislative approval, is designed to end the cat-and-mouse game between the Puyallup smoke shops and the state over the smuggling of untaxed cigarettes. Tribal smoke shops can make big money by selling black-market cigarettes at cheaper prices than non-Indian retailers if they evade the $14.25 per carton excise tax.

The state settled cigarette-tax disputes with 17 other tribes since 2001 by negotiating agreements in which tribal governments agreed to impose the same $14.25 tax paid by non-Indian retailers and keep the money for tribal health care and education.

In the Puyallup deal, announced Jan. 5 by Locke, the tribe agreed to collect a tax of only $11.75 per carton. Combining that $2.50 savings with the lack of a sales tax means tribal shops can charge $5 to $7 less per carton than stores off the reservation.

Unlike the other tribes, which keep the tax money, the Puyallups will give 30 percent of the excise tax revenue to the state, which will amount to about $20 million every two years.

"This is a win-win for the state and the Puyallups. But it's a huge loss for the retailer, who gets shortchanged again," said T. K Bentler, executive director and a lobbyist with the Washington Association of Neighborhood Stores.

Bentler maintains that Puyallup smoke shops will be able to sell cigarettes at $7.10 less than other retailers.

"This bill doesn't level the playing field," said Bentler. "This is a sweetheart deal for the Puyallups. All the other tribes are collecting 100 percent of the (excise) tax. The state is going to wink and get its $20 million and look the other way."

Kevin Yoo, executive director of the Korean American Grocers Association, agreed with Bentler, saying: "It doesn't level the playing field for Korean grocers to compete against the tribal tobacco retailers."

Tom Fitzsimmons, who was Locke's chief of staff and remains in that role for Gregoire, says the agreement is solid public policy. Forcing up the price of cigarettes will help achieve the public-health goal of reducing consumption. And black-market cigarettes are sometimes more dangerous to health than legal smokes, he said.

The deal also will likely end the long pattern of raids on black-market cigarettes, which was the state's only recourse to recover lost tax revenue from Puyallup smoke shops.

On May 20, 2003, federal agents searched Lyle's Smoke Shop in Fife and seized $512,356 in cash and more than 2.7 million black-market cigarettes worth $77,685. That store is now out of business. Even though the agreement means tribal smoke shop owners would no longer have to worry about such raids, many are opposed to the deal.

Taza Reed of Reed's Smoke Shop calls the agreement "a very bad deal." "In the treaty, we have the right to free trade," said Reed. "That means in modern terms, we have the right to sell the public something with no taxes on it. If you come to the reservation, it's like coming to another country. You shouldn't have to pay that tax."

On most other reservations, tribal governments own the smoke shops. Because they keep the tax, they can afford to charge lower prices. But Puyallup tribal members own their own shops. So owners will have to turn over any tax to the tribal government.

Puyallup attorney John Bell -- who negotiated for the tribe -- acknowledged that tribal smoke shop owners "don't like it. But something had to be done. This battle has been going on so long and they were subject to raids and seizures (of black-market cigarettes) and they're tired of that."

Fitzsimmons points out that without this agreement, non-Indian retailers would face an even bigger disadvantage since Puyallup shops don't pay any excise tax.

The tobacco deal had another, less tangible benefit, said Fitzsimmons. It created a cooperative climate between the Puyallups and the governor's office, which helped broker another deal in which the tribe moved its Emerald Queen Casino from the Blair Waterway to accommodate a major expansion of the Port of Tacoma.

The port had big plans for the area around the casino. It was building a huge, new container terminal that would require that Alexander Avenue, the main access road to the casino, be closed.

The tribe filed a legal objection to the closure of Alexander Avenue. The Puyallups could have waged a vigorous fight against the road closure at a time when Evergreen, the terminal operator, was putting pressure on the port to finish work on the site, said Bell. But negotiations led to the tribe's moving to a prime location on state Route 99 in Fife, close to Interstate 5.

Among other things, the port agreed to cover revenue losses that came from the move, put at least $5 million in a tribal fisheries project and support the tribe's application to state regulators to move the casino.

The casino move required a change in the tribe's gambling agreement with the state, and Locke had to approve that.

It turned out to be an unusual decision by Locke. He approved the tribe's request to move the casino to the Fife site on a parcel that does not have the special Indian status called trust land.

Up until then, all tribal casinos in Washington have been on this special category of Indian land that is held in trust for the tribe by the U.S. government.

Trust land is not subject to property tax or local zoning as is regular property, called fee land. Because of this special status, it can be a difficult and time-consuming process for a tribe to petition the United States to take a piece of property into trust. And very often, local governments and nearby property owners fight a trust designation. The move to Fife prompted Chip Mudarri, owner of the non-Indian casino Freddie's Club of Fife, to sue the state and Locke.

"It has put him into direct competition right next door," said Mudarri's attorney, Joan Mell. "He's losing business to the slots" because non-Indian casinos are not allowed to have the machines.

Mudarri argues that Locke couldn't expand gambling by allowing slot machines on fee land unless he had legislative approval. He didn't.

Non-Indian casinos have long coveted the tribal monopoly on slots, and Mell says the lawsuit could be settled if her client were allowed to have the machines.

In addition to the governor, the tribe also had to win over the city of Fife. As an incentive for Fife officials not to oppose the casino in their town, the tribe agreed to make an annual payment of roughly $1 million to the city from casino revenue.

Based on the testimony of officials from the port, the city of Tacoma and Pierce County, the state Gambling Commission agreed last summer to recommend to Locke that the Emerald Queen be permitted to move to Fife.

The tribe also is allowed to increase to 2,000 the number of machines at one of its two casinos from the old cap of 1,500 slots per casino. The combined number of slots at both casinos (in Fife and in Tacoma near I-5 and Portland Avenue) did not change. (Editor's Note: The original version of this story mischaracterized the agreement on slots.)

Slots are the cash cows of casino operations.

And that has paid off for the Puyallups, as it has for both the Tulalips and Muckleshoot tribes, which have also expanded the number of slot machines in their casinos.

Frank Wright, a tribal member who oversees gambling operations, said the new casino operations are performing even better than before.

He would not reveal dollar figures, saying only: "We're doing a whole lot better."

P-I reporter Paul Shukovsky can be reached at 206-448-8072 or paulshukovsky@seattlepi.com

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