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[Senate Hearing 111-776]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 111-776
 
                             INDIAN GAMING 

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON INDIAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 29, 2010

                               __________

         Printed for the use of the Committee on Indian Affairs

                               ----------
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Washington, DC 20402-0001 

                      COMMITTEE ON INDIAN AFFAIRS

                BYRON L. DORGAN, North Dakota, Chairman
                 JOHN BARRASSO, Wyoming, Vice Chairman
DANIEL K. INOUYE, Hawaii             JOHN McCAIN, Arizona
KENT CONRAD, North Dakota            LISA MURKOWSKI, Alaska
DANIEL K. AKAKA, Hawaii              TOM COBURN, M.D., Oklahoma
TIM JOHNSON, South Dakota            MIKE CRAPO, Idaho
MARIA CANTWELL, Washington           MIKE JOHANNS, Nebraska
JON TESTER, Montana
TOM UDALL, New Mexico
AL FRANKEN, Minnesota
      Allison C. Binney, Majority Staff Director and Chief Counsel
     David A. Mullon Jr., Minority Staff Director and Chief Counsel

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 29, 2010....................................     1
Statement of Senator Dorgan......................................     1
Statement of Senator Franken.....................................     3
Statement of Senator McCain......................................    31
Statement of Senator Udall.......................................    27

                               Witnesses

Brnovich, Mark, Director, Arizona Department of Gaming...........    21
    Prepared statement...........................................    22
Hogen, Philip N., Former Chairman, National Indian Gaming 
  Commission.....................................................    10
    Prepared statement...........................................    11
Stevens, Jr., Ernest L., Chairman, National Indian Gaming 
  Association; accompanied by: Mark Van Norman, Executive 
  Director, and Jason Giles, Deputy General Counsel..............    15
    Prepared statement...........................................    17
Stevens, Hon. Tracie, Chairwoman, National Indian Gaming 
  Commission; accompanied by Lawrence S. Roberts, General Counsel     4
    Prepared statement...........................................     6

                                Appendix

Bullock, Hon. Carlos, Tribal Council Chairman, Alabama-Coushatta 
  Tribe of Texas, prepared statement.............................    37
Smith, Hon. Stanley ``Buck'', Chairman, Confederated Tribes of 
  the Warm Springs Reservation of Oregon, prepared statement.....    41

                             INDIAN GAMING

                              ----------                              

                        THURSDAY, JULY 29, 2010

                                       U.S. Senate,
                               Committee on Indian Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:30 a.m. in room 
628, Dirksen Senate Office Building, Hon. Byron L. Dorgan, 
Chairman of the Committee, presiding.

          OPENING STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    The Chairman. The hearing will come to order.
    This is a hearing of the Indian Affairs Committee of the 
U.S. Senate. Today we are having an oversight hearing on the 
subject of Indian gaming.
    As all of you know, we have been working very hard in this 
Congress, in this Committee, on the subject of Indian health 
care, and the passage of the Indian Health Care Improvement Act 
in this Congress this year is a very, very significant 
achievement. I am proud to say as well that this afternoon, I 
believe at 4:45 today, the President will sign the Tribal Law 
and Order Act, which has been a priority of this Committee, and 
which originated in this Committee.
    We have made substantial progress in this Congress, 
unprecedented progress, really, on some very big issues during 
this Congress. The one subject we have not held an oversight 
hearing on is the subject of Indian gaming. And it is a very 
important subject.
    It is the case that Indian gaming, since the Cabazon 
decision some long while ago now, has had a very substantial 
impact on economic development for many tribes across the 
Country. In some cases, it has been an unbelievable boon when 
tribes have existed near very large population centers and have 
opened some very large and very successful Indian gaming 
facilities.
    In other cases, tribal lands far away from population 
centers have also opened gaming facilities with less success, 
but still providing some amount of funding for other needs and 
other priorities for the tribes.
    Today we are going to hear from the Chair of the National 
Indian Gaming Commission. Although Chair Stevens has been in 
office only a very short time, we want to hear her priorities 
and hear a discussion about what she intends to do and what she 
believes the strengths and the weaknesses might be as they 
currently exist. We are also going to hear from Phil Hogen, the 
former Chair of the NIGC. Mr. Hogen, it is nice to see you 
today. We will hear from Ernie Stevens, the Chair of the 
National Indian Gaming Association, and Mark Brnovich, the 
Director of the Arizona Department of Gaming. We appreciate all 
four of you being here.
    There are about 230 tribes that operate 419 gaming 
facilities in 28 States in this Country. I mentioned that it 
has been, in my judgment, a very substantial contribution to 
the tribes that have successful gaming operations to provide a 
stream of income for housing, for education, to address the 
issue of poverty, for health issues. So I understand that this 
has been very significant.
    In my home State, we do have gaming facilities on 
reservation land. In most cases, they are not close to 
population centers, but have been quite successful. It has 
provided about 1,500 jobs on the Indian reservations in North 
Dakota, which is not an insubstantial benefit.
    Over the past decade, gaming revenues from Indian gaming 
facilities have gone from $9.8 billion to $26.5 billion. There 
was a very slight decrease in the last year because of the 
economic downturn. But the decrease was about $200 million out 
of $26.5 billion.
    It seems to me that in economic times like this, it is 
essential to make certain that tribal gaming is well-regulated. 
You can see the growth of gaming revenue to the various Indian 
tribes across the Country on these charts. If it is going to 
remain a strong economic tool for Indian tribes, then it has to 
be subject to effective regulation.
    The tribes, as primary beneficiaries of Indian gaming, have 
the greatest interest in making sure their operations are well-
run. I fully understand that.
    It is also important, I believe, and I have always 
believed, that there needs to be multi-levels of regulation in 
the gaming industry. In the case of Indian gaming, the multiple 
levels are needed because of the importance of the industry to 
the tribes, the tribal members and the local communities. We 
regulate in a way that provides, number one, a requirement of 
regulation by the tribe itself; and then number two, either a 
very substantial State regulation or Federal regulation, so 
that you have dual regulatory capabilities.
    The Indian Gaming Regulatory Act was written to make sure 
that multiple levels of regulation exist in Indian gaming. And 
as I said, the Tribal Gaming Commission at the local tribe will 
always be the first level and the most important level. But 
there needs to be a second layer. All of us understand that we 
have had things happen with respect to court decisions. The 
Colorado River decision has had a significant impact on 
limiting the effectiveness of the National Indian Gaming 
Commission with respect to Class III gaming. So we will discuss 
all of that today.
    I want to thank the witnesses for traveling here today and 
for being willing to testify. Let me call on my colleague, 
Senator Franken, for an opening statement.

                 STATEMENT OF HON. AL FRANKEN, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Franken. Thank you, Chairman Dorgan, for holding 
this hearing. I would like to thank all the witnesses for being 
here today. Ms. Stevens, it is good to see you again. I would 
like to congratulate you on your confirmation. I am looking 
forward to seeing how you manage the important work of the 
NIGC.
    Gaming plays a significant role in Minnesota, employing 
over 40,000 people across our State. Most of these jobs employ 
people living in rural areas where economic development is 
often the most challenging. All 11 of Minnesota's tribes have 
gaming as a source of revenue. We have major casinos operated 
by the Shakopee, Mille Lacs and Prairie Island Tribes. Again, 
those, as the Chairman noted, are closest to dense population 
centers.
    So my State has a deep interest in the work of NIGC and 
making sure that it is executing its regulatory duties in an 
effective, efficient manner.
    When we held Ms. Stevens' confirmation hearing back in May, 
we talked some about the role of the NIGC and where Ms. Stevens 
envisions the agency moving during her tenure. There are 
important questions to be asked about the NIGC's jurisdiction 
over different classes of gaming, its efficacy in addressing 
the needs of tribes and its coordination with the Department of 
the Interior, the States and tribal governments. I am looking 
forward to delving deeper today into these questions and 
hearing the various perspectives that we have represented on 
our panel. I want to thank you all for traveling here.
    Mr. Chairman, thank you again for holding this hearing.
    The Chairman. Senator Franken, thank you very much.
    We will hear first today from the Honorable Tracie Stevens, 
Chairman of the National Indian Gaming Commission. She is 
accompanied by Mr. Lawrence Roberts, who is the General Counsel 
of the National Indian Gaming Commission here in Washington, 
D.C.
    Ms. Stevens, normally I would have a separate panel and 
then the other panelists following you. With your permission, I 
would ask that all of the panelists join us at the table. The 
reason for that is, we have a vote in about an hour and ten 
minutes or so on the Floor. I wanted to try to, with some 
expeditious capability, get through this hearing and make sure 
everybody has the opportunity to have full testimony.
    So you are brand new, if that is a way of describing it. 
You have been on the case for a very short period of time. But 
you have had very substantial experience in these areas. So we 
are anxious to hear your testimony, your analysis of where we 
are at this point, what you see ahead, what your priorities are 
and what you see the Commission needing to do. Then we will 
hear from the other three witnesses, and then I will ask 
questions and have inquiry for all of the panelists.
    Ms. Stevens, why don't you proceed. Your entire statement 
will be made a part of the permanent record, and we will ask 
all witnesses to summarize.

         STATEMENT OF HON. TRACIE STEVENS, CHAIRWOMAN, 
 NATIONAL INDIAN GAMING COMMISSION; ACCOMPANIED BY LAWRENCE S. 
                    ROBERTS, GENERAL COUNSEL

    Ms. Stevens. Thank you, Chairman Dorgan and members of the 
Committee, for inviting me to testify today. It is an honor to 
appear before you for the first time in my capacity as the 
Chairwoman of the National Indian Gaming Commission.
    One month ago today, I was officially sworn into this 
position. I want to thank the Committee for its expeditious 
action on my nomination.
    Over the past three to four weeks, I have worked closely 
with Vice Chairman Steffani Cochran, Associate Commissioner Dan 
Little and Commission staff to begin identifying priorities, 
needs and opportunities for improvement. My first priority has 
been to fill much-needed positions. Last week, I appointed 
Larry Roberts, of the Oneida Tribe of Wisconsin, as the new 
General Counsel. And he is here with me today. I am also in the 
process of appointing a chief of staff and filling other 
vacancies.
    In addition to this internal work, I have also participated 
in government-to-government consultations with tribes, most 
recently in the Pacific Northwest. As a matter of fact, 
Commissioners Cochran and Little are unable to join us today 
because they are currently conducting consultations with tribes 
in California. These consultations are the beginning of 
fulfilling a commitment I made to this Committee and to Indian 
Country to strengthen government to government relations with 
tribes, through meaningful and collaborative consultation.
    The Indian Gaming Regulatory Act makes clear that the 
tribes, States and Federal Government each have defined and 
distinct regulatory roles to fulfill. As I stated at my 
confirmation hearing, it is one of my priorities to build a 
strong collaborative regulatory framework and relationship 
between all three regulatory bodies.
    The Federal role in implementing IGRA is shared between the 
NIGC and the Department of the Interior. Thus, the relationship 
between these Federal agencies is very important to all of 
Indian Country. It is my view that the communication and 
cooperation is imperative at all levels to promote the twin 
purposes of IGRA: to protect Indian gaming through consistent 
and thoughtful regulation and to fulfill IGRA's goals of tribal 
self-governance and economic development.
    Currently, Indian gaming is being conducted in 28 States by 
233 of the 564 federally-recognized tribes. Tribes have used 
gaming revenue both to generate jobs and to provide fundamental 
services to their communities, such as health care, housing, 
basic infrastructure, and education, to name a few. As the 
primary day to day regulators on the ground, 24 hours a day, 7 
days a week, tribes have a vested interest in safeguarding an 
industry that has greatly contributed to the invaluable 
improvements to their communities. It is a testament to tribal 
leadership and to the work of their dedicated employees that 
Indian gaming has remained protected and stable.
    In 2009, as was illustrated previously, tribal facilities 
generated $26.5 billion in gross gaming revenue and $26.7 
billion in 2008. With continued collaboration, NIGC will work 
with tribes to ensure the continued protection and success of 
the industry through diligent, professional oversight and 
enforcement.
    As I explained during my confirmation process, my goals for 
the Commission include working collaboratively with tribes to 
identify areas of improvement. I am a strong supporter of this 
Administration's commitment to Indian Country in terms of 
nation building, honoring tribal sovereignty and self-
determination, and engaging in meaningful consultation with 
tribes.
    The Commission is focused on developing a more workable and 
fulfilling government to government consultation process, in 
line with President Obama's November 5th, 2009 memorandum on 
tribal consultation. It is through meaningful government-to-
government consultation that NIGC will be able to make well-
informed, fully-considered decisions concerning regulations and 
policies.
    The Commission is also committed to renewing old 
relationships and building new ones. Given that all three 
commissioners are new to the NIGC, there is a fresh opportunity 
to work in collaboration with tribes and other regulatory 
bodies to oversee and protect Indian gaming. As part of my 
initial evaluation process, I plan to examine the regulatory 
successes in States like my own home State of Washington to 
identify best practices, determine the possibility of 
replicating positive aspects of their regulatory frameworks or 
perhaps fashion new approaches that may reach the same positive 
result.
    We will also review current regulations, examine their 
effectiveness and discuss with tribes their experiences in an 
effort to identify areas of improvement that would support 
NIGC's oversight responsibility. Of course, successful 
regulation depends upon a properly trained work force. And the 
Commissioners and I view training and technical assistance as a 
valuable component of NIGC's mission.
    As such, we are examining ways to more effectively provide 
information and training. We are asking questions such as: Are 
we meeting the training needs of tribes? Does our program 
correlate with audit findings and compliance issues? Are there 
tribes or regions that have specific needs? A good, well-
targeted technical assistance and training program can preempt 
the need for additional regulations or enforcement actions, can 
reduce compliance issues and can enhance operational 
performance and integrity.
    Finally, we will complete a top-down review of the internal 
workings of the NIGC. As you know, NIGC is funded by fees paid 
by tribes engaged in Indian gaming. Being a good steward of 
these tribal fees is a top priority of mine. I want to make 
certain that the NIGC complies with every applicable law, 
regulation, rule and executive order, so as to give this 
Committee and tribes the confidence that NIGC is as concerned 
with how it runs its own operations as we are about how the 
tribes run theirs.
    While I have only been on the job for a very short time, I 
am more committed than ever to working closely with this 
Committee and Indian Country to ensure the integrity of Indian 
gaming. Thank you again, Chairman Dorgan and members of the 
Committee, for your time and attention today. And I am happy to 
answer any questions you may have.
    [The prepared statement of Ms. Stevens follows:]

Prepared Statement of Hon. Tracie Stevens, Chairwoman, National Indian 
                           Gaming Commission
    Thank you Chairman Dorgan, Vice Chairman Barrasso, and members of 
the Committee for inviting me to testify today. It is an honor to 
appear before you for the first time in my capacity as Chairwoman of 
the National Indian Gaming Commission (NIGC or Commission). One month 
ago today on June 29, 2010, I was officially sworn into this position. 
I want to thank the Committee for its expeditious action on my 
nomination.
    Over the past four weeks, I have worked closely with Vice-
Chairwoman Steffani Cochran, Associate Commissioner Dan Little, and 
Commission staff to begin assessing and evaluating the agency to 
identify priorities, needs, and opportunities for improvement. My first 
priority has been to fill much needed key positions within the agency. 
Last week, I appointed Larry Roberts of the Oneida Tribe of Wisconsin 
as the new general counsel. I am also in the process of appointing a 
new chief of staff and filling other vacancies. In addition to the 
internal work, in the few short weeks on the job, I have also 
participated in government-to-government consultations with many 
tribes, most recently in the Pacific Northwest. As a matter of fact, 
Vice-Chairwoman Cochran and Associate Commissioner Little are unable to 
join us today because they are conducting consultations with tribes in 
California. The Commission has scheduled additional consultations this 
summer and more are anticipated in the coming year. These consultations 
are the beginning of fulfilling a commitment I made to this Committee 
and to Indian country to strengthen government-to-government relations 
with tribes through meaningful and collaborative consultation.
The National Indian Gaming Commission--Powers, Duties, and 
        Responsibilities
    The Indian Gaming Regulatory Act (IGRA) makes clear that the 
tribes, states, and the federal government (through NIGC and DOI) each 
have defined and distinct regulatory roles to fulfill. As I stated at 
my confirmation hearing, it is one of my priorities to build a strong 
collaborative regulatory framework and relationship between all three 
regulatory bodies.
    In terms of the NIGC, the powers, duties, and oversight 
responsibilities of the Chairwoman and Commission are focused and 
specific. I would like to take a few moments to walk through some of 
the primary provisions of IGRA that frame the Commission's role. I will 
also briefly discuss the relationship between the NIGC and the 
Department of the Interior (DOI) in three key areas.
    Section 2702 states the policy and purpose of IGRA. Among those is 
``to declare that the establishment of independent Federal regulatory 
authority for gaming on Indian lands, the establishment of Federal 
standards for gaming on Indian lands, and the establishment of a 
National Indian Gaming Commission are necessary to meet congressional 
concerns regarding gaming and to protect such gaming as a means of 
generating tribal revenue.''
    Section 2703 defines Chairman as ``the Chairman of the National 
Indian Gaming Commission'' and Commission as ``the National Indian 
Gaming Commission established pursuant to section 2704 of this title.''
    Section 2704 of IGRA establishes the Commission, stating in part, 
``There is established within the Department of the Interior a 
Commission to be known as the National Indian Gaming Commission.''

   The Commission is composed of three full-time members.

   The President, with the advice and consent of the Senate, 
        appoints the Chairman while the Secretary of the Interior 
        appoints the two associate commissioners.

   IGRA provides that ``not more than two members of the 
        Commission shall be of the same political party'' and ``at 
        least two members of the Commission shall be enrolled members 
        of any Indian tribe.''

   The Chairman and the associate commissioners serve three-
        year terms.

    Section 2705 of IGRA enumerates the powers of the Chairman, which 
are subject to appeal to the full Commission. The Chairman has the 
power to:

   ``issue orders of temporary closure of gaming activities as 
        provided in section 2713(b) of this title'';

   ``levy and collect civil fines as provided in section 
        2713(a) of this title'';

   ``approve tribal ordinances or resolutions regulating class 
        II gaming and class III gaming as provided in section 2710 of 
        this title'';

   ``approve management contracts for class II gaming and class 
        III gaming as provided in sections 2710(d)(9) and 2711 of this 
        title''; and

   exercise ``such other powers as may be delegated by the 
        Commission.''

    Section 2706 lists the powers of the Commission. The Chairman is 
also a voting member of the Commission. Some of the Commission's powers 
are not subject to delegation:

   ``upon the recommendation of the Chairman, to approve the 
        annual budget of the Commission as provided in section 2717 of 
        this title'';

   ``to adopt regulations for the assessment and collection of 
        civil fines as provided in section 2713(a) of this title'';

   ``by an affirmative vote of not less than 2 members, to 
        establish the rate of fees as provided in section 2717 of this 
        title'';

   ``by an affirmative vote of not less than 2 members, to 
        authorize the Chairman to issue subpoenas as provided in 
        section 2715 of this title''; and

   ``by an affirmative vote of not less than 2 members and 
        after a full hearing, to make permanent a temporary order of 
        the Chairman closing a gaming activity as provided in section 
        2713(b)(2) of this title.''

    The Commission's other powers and duties under Section 2706 are 
subject to delegation to the Chair. Those powers and duties include:

   monitoring ``class II gaming conducted on Indian lands on a 
        continuing basis'';

   inspecting and examining ``all premises located on Indian 
        lands on which class II gaming is conducted'';

   conducting ``or cause to be conducted such background 
        investigations as may be necessary'';

   ``demand[ing] access to and inspect, examine, photocopy, and 
        audit all papers, books, and records respecting gross revenues 
        of class II gaming conducted on Indian lands and any other 
        matters necessary to carry out the duties of the Commission 
        under the chapter''; and

   ``promulgating such regulations and guidelines as it deems 
        appropriate to implement the provisions of this chapter.''

    The federal role in implementing IGRA is shared between the NIGC 
and the DOI. As a necessity, for a few years directly following the 
passage of IGRA and before the Commission began to function, the DOI 
regulated gaming under IGRA. This changed with the appointment of the 
first Commission in the early 1990s, when the NIGC fully assumed its 
share of powers, duties, and responsibilities.
    The IGRA reserves three key areas to the DOI, which maintains the 
sole authority to:

   take land into trust;

   review and approve Class III gaming compacts; and

   review and approve Revenue Allocation Plans.

    The relationship between the NIGC and the DOI is very important to 
all of Indian country. It is my view that communication and cooperation 
is imperative at all levels to promote the twin purposes of IGRA: to 
protect Indian gaming through consistent and thoughtful regulation and 
to fulfill IGRA's goals of tribal self-governance and economic 
development.
    It is evident that the role of the NIGC and the Chairwoman is 
complex and embodies important oversight responsibilities. I view my 
job as Chairwoman to lead the NIGC as we fulfill our duties, to live up 
to our responsibilities, and to exercise our powers with integrity and 
diligence. I must also provide leadership and a voice within Indian 
gaming that is meaningful and has substance as the industry continues 
to provide vital resources for Indian people.
The State of the Industry
    Currently, Indian gaming is being conducted in 28 states by 233 of 
the 564, federally recognized tribes. Tribes have used gaming revenue 
both to generate jobs and to provide fundamental services to their 
communities, such as health care, housing, basic infrastructure and 
education, to name a few. While tribal gaming generates modest to 
considerable revenues for individual tribes, tribal gaming facilities 
in some regions simply provide jobs in areas otherwise suffering from 
high unemployment.
    As the primary day-to-day regulators on the ground 24 hours a day, 
7 days a week, tribal governments and their regulatory bodies have a 
vested interest in safeguarding an industry that has greatly 
contributed to invaluable improvements to their communities. It is a 
testament to the leadership of tribal governments and the work of their 
dedicated employees that the Indian gaming industry has remained 
protected and stable. In 2009, tribal facilities generated $26.5 
billion in gross gaming revenue as compared to $26.7 billion in 2008. 
With continued collaboration, the NIGC will work with tribal 
governments and their employees to ensure the continued protection and 
success of the industry through diligent, professional oversight and 
enforcement. Accordingly, while collaborative results are desirable, I 
commit to upholding the statutory authority and responsibilities of my 
position to oversee the regulation of Indian gaming, and where 
appropriate, take enforcement action.
Vision for the Agency
    A fundamental policy of IGRA is ``to provide a statutory basis for 
the operation of gaming by Indian tribes as a means of promoting tribal 
economic development, self- sufficiency, and strong tribal 
governments,'' to ensure the regulatory and statutory compliance of all 
tribal gaming facilities, and to safeguard tribal gaming operations 
from organized crime and corrupting influences. As I explained during 
my confirmation process, my goals for the Commission include working 
collaboratively with tribes to identify areas of improvement in 
carrying out this policy. Some of these goals include examining ways to 
improve the consultation process and the manner in which the Commission 
provides technical assistance. Another component includes taking a 
fresh look at the current regulations and whether there exists a need 
for changes that may be appropriate to the industry today. We are also 
focused on ensuring strong working relationships with tribal 
governments to further facilitate statutory and regulatory compliance. 
Finally, our work includes focusing on the internal operations of the 
Commission to ensure that the agency is in compliance with all relevant 
laws, regulations, rules, and executive orders such that our work is 
appropriately transparent.
    My goals are to work collaboratively with Tribes to identify areas 
of improvement for the agency. I have identified the following 
priorities:

    1. Consultation and Building Relationships

    I am a strong supporter of this Administration's commitment to 
Indian country in terms of nation building, honoring tribal sovereignty 
and self-determination, and engaging in meaningful consultation with 
tribes. The Commission is focused on developing a more workable and 
fulfilling government-to-government consultation process in line with 
President Obama's November 5, 2009 Memorandum on Tribal Consultation, 
which directs federal agencies to comply with Executive Order 13175, 
``Consultation and Coordination with Tribal Governments.''
    The NIGC will be greatly benefited by complying with this Executive 
Order and is beginning a renewed outreach to tribes based on this 
Administration's commitments. The NIGC will renew its government-to-
government relationship with tribes and will work together with tribes 
to define and achieve the regulatory and policy goals of the agency. It 
is through meaningful government-to-government consultation that the 
NIGC will be able to make well informed, fully considered decisions 
concerning regulations and policies.
    The Commission is also committed to renewing old relationships and 
building new ones. Given that all three Commissioners are new to the 
NIGC, there is an opportunity to work in collaboration with tribes and 
other regulatory bodies to oversee and protect Indian gaming. One 
regulatory agency alone cannot do this. It must be a collective effort. 
In addition to working with tribes, we also will work with other 
regulatory bodies to promote the integrity of Indian gaming. As part of 
my initial evaluation process, I plan to examine the regulatory 
successes in states like my own home state of Washington to identify 
best practices, determine the possibility of replicating positive 
aspects of their regulatory frameworks, or perhaps fashion new 
approaches that may reach the same positive result. By doing this, I 
hope to renew these relationships in order to strengthen both the 
agency and the tribes' ability to protect this viable and successful 
economic development tool that has made a difference in so many lives 
of Indian people. Rebuilding relationships will also greatly aid in 
meeting another of my priorities, a review of NIGC's regulatory 
activity.

    2. Review of Past Regulations and Assess Regulatory Needs

    It is my view that in previous years the NIGC could have benefitted 
from additional consultation with tribes in the promulgation of 
regulations. This would have enhanced tribal relationships and shifted 
the focus to practical problem solving through such mechanisms as 
technical assistance. Over the coming months, we will review current 
regulations, examine their effectiveness, and discuss with tribes their 
experiences in an effort to identify areas of improvement and any 
needed changes.
    Currently, we are holding regional consultations on outstanding 
policies, specifically the NIGC NEPA manual, records retention policy, 
and consultation processes. Before moving forward with any new 
regulatory initiatives, we will consult with tribes to examine the need 
for new regulations and identify areas of greatest priority that would 
support NIGC's oversight responsibility for safeguarding and protecting 
the industry.

    3. Technical Assistance

    Of course, successful regulation depends upon a properly trained 
workforce, and the Commissioners and I view training and technical 
assistance as a valuable component of the NIGC's mission. Further, the 
Commission is statutorily required to provide technical assistance to 
tribes. As such, we are examining ways to more effectively provide 
information and training. I believe that an emphasis on training and 
technical assistance will continue to provide a foundation that will 
help to maintain the integrity and success of Indian gaming.
    We are reviewing the NIGC's current technical assistance and 
training program by asking questions such as:

   Are we meeting the training needs of tribes?

   Does our program correlate with audit findings and 
        compliance issues?

   Are there tribes or regions that have specific needs?

    Our review could indicate additional opportunities and approaches 
for training. Rather than take the exceptions and make rules, the goal 
is to provide assistance to exceptions in order to bring them into 
compliance. A good, well-targeted, technical assistance and training 
program can preempt the need for additional regulations or for 
enforcement actions, can reduce compliance issues, and can enhance 
operational performance and integrity.

    4. Ensuring Agency Compliance

    This goal will require a top-down review of the internal workings 
of NIGC. As you know, the NIGC is funded by fees paid by the tribes 
engaged in Indian gaming. Being a good steward of the fees paid by the 
tribes is a top priority of mine. I want to make certain that the NIGC 
complies with every applicable law, regulation, rule and executive 
order so as to give this Committee and the tribes confidence that the 
NIGC is as concerned with how it runs its own operations as we are 
about how the tribes run their operations. As such, the Commission 
intends to undertake a comprehensive review of its budget and spending 
priorities. A guiding principle of our review and budgeting decisions 
will be that the NIGC has a responsibility to use tribal resources 
wisely. As such, our agency expenditures need to be both fiscally 
responsible and transparent. We will strive, consistent with applicable 
law, to be transparent with regard to the expenditures of tribal fees 
for the accomplishment of the NIGC's statutory responsibilities. The 
Commission is working to ensure that the agency is operating in a 
manner that uses these tribal resources most efficiently and 
effectively.
    IGRA requires that NIGC comply with the Government Performance 
Results Act. I will initially review past budgets as well as review the 
five-year strategic plan (2009-2014). This review will be an agency-
wide endeavor that will require the development of an action plan with 
appropriate timelines. We will consult with tribes as we move forward 
in this review.
Conclusion
    While I have been on the job for only a very short time, I am more 
committed than ever to working closely with this Committee and Indian 
country to ensure the integrity of Indian gaming. Thank you again, 
Chairman Dorgan, Vice Chairman Barrasso and members of the Committee 
for your time and attention today. I am happy to answer any questions 
that you may have for me.

    The Chairman. Chairwoman Stevens, thank you very much for 
your testimony. We appreciate that.
    Next we will hear from Mr. Phil Hogen. Mr. Philip Hogen was 
previously the Chairman of the National Indian Gaming 
Commission. He is now of counsel with Jacobson, Buffalo, 
Magnuson, Anderson & Hogen, in St. Paul, Minnesota. Mr. Hogen, 
you may proceed.

STATEMENT OF PHILIP N. HOGEN, FORMER CHAIRMAN, NATIONAL INDIAN 
                       GAMING COMMISSION

    Mr. Hogen. Good morning, Mr. Chairman. I am Phil Hogen, 
Oglala Sioux from South Dakota. And I need to clarify at the 
outset I am here on my own. That is, I don't represent my law 
firm, I don't represent any tribes. I am here on my own nickel, 
drove in, like they say out in our country, Mr. Chairman, this 
cowboy came a long way to ride in this rodeo.
    I am very privileged to be here with the new Chair of the 
National Indian Gaming Commission. I wish Chair Stevens and the 
other new commissioners the very best in leading the NIGC. They 
have very important work to do. They have a good, strong, 
honorable, talented staff there. If they can show strong 
leadership there and work with that team, I am confident that 
things will continue to go in a very good direction.
    In my written testimony I made nine points that are kind of 
all over the map, and they are not necessarily in any priority. 
But I do want to mention those areas where I think some action 
could be taken, either administratively or legislatively to 
make Indian gaming stronger, safer; a better economic 
development tool.
    One of the problems we had with respect to doing our role 
in the background investigation process for those folks that 
work in and serve Indian gaming is that we couldn't send 
vendors, folks that sell gaming supplies and so forth, to 
tribes, their fingerprints through the FBI fingerprint process. 
Now, the Indian Law and Order Act may address that. But this 
would be a very useful tool if tribes could background those 
folks as thoroughly as they background those that get the 
regular licenses for gaming.
    The NIGC, of course, has a statutory role under IGRA to 
review and approve management contracts when tribes enter into 
an arrangement with an outside developer to run the gaming. 
There are other arrangements that don't measure up to a 
management contract, but nevertheless critically affect the way 
the relationship between the gaming operation and somebody they 
are doing business with works. And NIGC doesn't have the 
jurisdiction to look at those.
    Under legislation that this Committee did consider here in 
recent sessions, that would have been changed to expand that 
scope. From my position at the NIGC, seven years as Chair, we 
saw instances where, for example, arrangements of some smaller, 
particularly rural tribes with gaming machine vendors really 
didn't look fair to us. It looked like the vendor was getting a 
bigger share of the pie than might be appropriate. But NIGC 
didn't have any authority to inquire. I don't think NIGC should 
be a bottleneck, slow down all gaming contracts. Nevertheless, 
that might be useful to take a look at that.
    In terms of the background investigations, when a 
management contract comes in, if it is just for Class III 
gaming, casino gaming, NIGC doesn't have the authority to do 
that thorough background investigation on those Class III 
management contractors. There is really no reason that they do 
it for Class II and shouldn't for Class III. I think that is 
something that could be easily and should be changed.
    We developed in the late 1990s Minimum Internal Control 
Standards that are kind of the rule book on how you make sure 
transactions are documented, observed and so forth. Those have 
to be continually updated because of the quick changes in the 
technology and so forth in the industry. There are some 
proposed regulations that I hope soon get adopted and enacted, 
or revised and then enacted. The industry is changing; they 
need those tools to keep it safe and secure, and to make it 
work.
    With respect to NIGC's role over Class III gaming, as you 
observed, Mr. Chairman, the CRIT, Colorado River Indian Tribe 
decision kind of booted NIGC out of part of that arena. And I 
think there are instances where the industry would be better 
served if NIGC had that authority. Not that it is not working 
well in lots of places, but there are places where there could 
be greater scrutiny, and NIGC could fulfill that.
    The economic downturn necessarily is going to mean people 
are going to have to tighten their belt. It is important that 
tribes don't take shortcuts in the regulatory area, even though 
those aren't viewed as revenue centers in many instances. It is 
important that they fund regulation fully, even though the 
dollars are shorter.
    And they can't take the money out of the operation and 
leave a negative cash flow in the business. You have to have 
enough working capital in the businesses.
    NIGC has looked at some recent instances of mis-use, abuse 
of tribal gaming revenue, often by tribal leaders. Money was 
not appropriately sent their way, and those are important 
cases. The victims of those cases are the tribal members: the 
children, the elderly, those folks that aren't running the 
show. And I urge NIGC to take strong and proper action in those 
instances.
    I think the Department of the Interior recently attempted 
to sort out who is calling the shots with respect to what are 
Indian lands, where can Indian gaming occur. It is good that 
there is some clarification there. But as that relationship 
between DOI and the NIGC continues, NIGC was intended to have 
independence, and it is important that they assert that as the 
statute was written.
    Finally, just for what it is worth, I think salaries are 
too low for the commissioners. If you are going to attract good 
people, and I don't mean a commentary on those that are there, 
if you are going to do million dollar deals, regulate and 
supervise them, you have to attract people used to dealing in 
those areas. If a former Chairman doesn't say it, I don't know 
who will, but you need to raise those salaries so that you 
always get good, qualified people to serve in those positions.
    I will be happy to try to respond to any questions that 
might arise.
    [The prepared statement of Mr. Hogen follows:]

Prepared Statement of Philip N. Hogen, Former Chairman, National Indian 
                           Gaming Commission
    Good morning Chairman Dorgan and Vice Chairman Barrasso. I am Phil 
Hogen, an Oglala Sioux from the Black Hills of South Dakota, and 
recently chaired the National Indian Gaming Commission (NIGC.) Thank 
you for the invitation to share some of my insights about Indian 
gaming, which I've picked up along the way, during my tenure as an 
Indian Country United States Attorney, and a member, and then Chairman 
of the National Indian Gaming Commission, over the past 20-plus years.
    It's a privilege to appear on the same panel as newly appointed 
NIGC Chair, Tracie Stevens. While I served on the Commission, Tracie 
was a careful observer of challenges to the Indian gaming industry and 
the critical role of its regulators at the Tribal, State and national 
levels, and often contributed to the dialogue we held with Indian 
leadership. She will bring a strong and refreshing point of view to the 
NIGC, and I wish her, and Commissioners Cochran and Little the very 
best as they undertake the challenge of federal oversight of the 
economic engine of so many Indian nations throughout the country. I 
expect that if this strong new team has not already learned, they soon 
will, that while you always try to do your best, and try do what you 
think would most enhance the economic development gaming offers to 
Indian country, there will be times when the strictures of the Indian 
Gaming Regulatory Act will limit and define some of those 
opportunities, and that fidelity to that law is of critical importance 
to the real and perceived integrity of the Indian gaming industry. And 
as they encounter such limitations, I encourage them, as the 
Commissioners I served with and I did, to offer suggestions for 
improvement to this Committee. It is sometimes said in tribal circles 
that we ``mustn't open IGRA.'' But during my tenure, it was amended 
twice, primarily with regard to NIGC's funding, and disaster did not 
befall us, and I think the industry is stronger for that. Any 
consideration of IGRA amendments, of course, should be done in 
consultation with the tribes that are served by it, and I know that 
even now, NIGC is working to strengthen its consultation policy and 
practice.
    My comments today will be rather wide ranging, but I do want to 
mention several areas where I think changes in law, policy and practice 
might result in a stronger Indian gaming industry. There will be no 
particular order or priority to my list, but I think they are worthy of 
consideration.
Assistance with Criminal Background Checks
    As recently interpreted, the laws and regulations relating to how 
NIGC provides FBI criminal history information to tribes regarding 
applicants for tribal gaming licenses has not permitted the submission 
of fingerprint cards for those who are vendors of gaming supplies and 
services to tribal gaming operations. This limits tribes' ability to 
fully investigate the suitability of a critical sector of their 
business, and makes them vulnerable to those who may have unsavory 
backgrounds and connections, and exposes the tribes and their gaming 
revenues and assets to unnecessary risks. If this can be changed, by 
way of FBI, NIGC or other regulations, or legislation if necessary, 
this gap could be closed, and the industry would be safer. I don't 
think the law should say the NIGC must be involved in the backgrounding 
of gaming vendors, but if asked by tribes for access to the FBI 
database for this purpose, it should be permissible. It might also be 
useful to design an optional ``standardized'' vendor application that 
NIGC could administer, so that vendors might avoid confronting dozens 
of individual and different application forms and processes, resulting 
in savings to tribes and vendors.
Review of Contracts other than Management Contracts
    Along the lines of NIGC's review of arrangements for services to 
Indian gaming operations, IGRA, of course, dictates that management 
contracts be reviewed and approved to valid. This Committee not long 
ago considered an expansion of that authority to extend to all gaming 
contracts. Valid concerns were raised that NIGC could become a 
bottleneck that would slow down the industry, and those measures were 
not enacted. While tribes most often look after themselves quite well, 
while serving on the Commission I observed a number of arrangements, 
often with tribes with smaller facilities, where contracts for gaming 
machines extracted what appeared to be unduly high rates for what they 
received, and there was no mechanism for NIGC to, as they do with 
management contracts, examine those rates or apply standards, as 
Congress has set forth with management contracts. A device to permit 
review or examination of those arrangements when appropriate might be a 
useful service, particular to smaller tribes.
Background Investigations of Outside Managers of Class III Casinos
    With respect to NIGC's review of management contracts, the law 
presently limits the background investigations NIGC conducts for such 
contracts when they only relate to Class III, or casino gaming. NIGC 
must, and it does, conduct thorough background investigations for 
management contractors providing Class II or bingo-type service, but 
not for those that relate exclusively to casino gaming. This 
distinction doesn't seem to make any sense, and it would be very useful 
to the Commission and gaming tribes if the thorough background 
investigation requirement for management contractors were the same, 
regardless of the type of gaming to be conducted.
Minimum Internal Control Standards
    During my ten years on the Commission, I concluded that the best 
tool that we developed and utilized to strengthen the Indian gaming 
industry and its integrity, were the Minimum Internal Control Standards 
(MICS), which, with the assistance of a tribal advisory committee, were 
put together in the late 1990's.
    MICS are rules that say things like the same guy who takes the 
money out of the slot machine won't be the guy who counts it and takes 
it to the vault--and that someone will be watching while that's done 
(Documentation, separation of functions, etc.).
    It was my opinion, and that of some of the NIGC staff, that before 
the MICS were adopted and compliance was required, about two thirds of 
the industry faced serious risks and losses, on account of gaps in 
their control systems. After the MICS were implemented and accepted, 
that share of the industry was dramatically reduced. It's not perfect 
out there now, but it's much improved. The industry was young and 
growing rapidly, of course, and the requirement of the MICS brought 
most of it to maturity much faster than otherwise would have been the 
case. If the National Association of Fraud Examiners estimates are to 
be believed, I would estimate that tribal compliance with the NIGC MICS 
has saved tribes well over $1 billion since their implementation. This 
is not to say, of course, that tribes would not have taken these 
important safety and security measures without the NIGC MICS, but it is 
true that before the MICS many had not, and having a standard rulebook 
to adhere to made this process easier and more thorough.
    Given the dynamic nature of the gaming industry, with its heavy 
reliance on rapidly evolving electronic technology, these standards are 
always trying to keep up, and likely will always be somewhat obsolete. 
Nevertheless, it is imperative that there be a continual effort to 
update them and to keep pace with developments in the industry. On the 
NIGC website are a set of MICS updates that were thoroughly vetted by 
the NIGC staff and its tribal advisory committee, and if implemented 
would bring greater clarity to the MICS system and increased security 
to tribal gaming operations. With two types of commercial gaming in 
Indian country--Class II and Class III--each somewhat unique in their 
nature, but also sharing many common processes, it is important to 
address each in a set of standards. The most recent effort would bring 
clarity to these distinctions, and address newer technologies that 
earlier drafts had not addressed. I expect they are not perfect, and 
likely even now are dated in some respects, but if they need 
improvement, that can occur in a subsequent review. I would urge prompt 
implementation of those revised standards.
NIGC Regulation of Class III Gaming
    As stated, the MICS address both Classes of gaming. IGRA clearly 
directs NIGC to have a direct regulatory role in Class II (bingo, etc.) 
regulation, and standards in this area are imperative. While the 
original MICS were mandatorily applied to all Indian gaming--II and 
III--the court in Colorado River Indian Tribes v. NIGC held that NIGC 
could not require compliance in the Class III area, as under IGRA, that 
was to be left to the tribes and the states in their Class III 
compacts. So, since that decision several years ago, NIGC has stepped 
back in many instances. Nevertheless, many Tribal-State compacts 
reference the NIGC MICS and dictate compliance. Class III regulation by 
NIGC for tribal operations have been required under Secretarial 
Procedures in the absence of a compact, and a number of tribes, notably 
in California, have acted to adopt and recognize the NIGC MICS in their 
tribal ordinances, even though it is not Federally required. Thus, 
there must be an on-going effort to update and keep current the Class 
III MICS, in spite of the holding in the CRIT case. I continue to 
believe that the IGRA amendment which this committee considered 
following the CRIT case which would have clarified that NIGC had 
authority in this area would have been useful, and that as in the past, 
that NIGC would not be too intrusive under such an arrangement, but 
would continue, in a cooperative way, to help protect tribal gaming 
revenues and assets. In the pre-CRIT era, no NIGC enforcement actions 
were taken for MICS violations, yet many problems were addressed to 
bring tribal operations in compliance with the safe, secure processes 
required by the NIGC MICS in the Class III area.
    I believe that since CRIT, NIGC's auditors have been as busy as 
they always were, but I'm not sure they have been able to focus their 
efforts where they were most needed. With the pre-CRIT responsibility 
and perspective, NIGC attempted to prioritize its work where the most 
tribal dollars appeared to be at risk. Now audits of the tribal casino 
gaming--Class III--where most of the money is, is by invitation only, 
and sometimes those requests come in only after losses have been 
discovered.
Impacts of the Economic Downturn
    In this recent era of economic downturn, tribal gaming operations 
have not been immune. While tribal gaming perhaps has weathered this 
storm better than other sectors of the gaming industry, in many places 
Indian gaming revenues are down. At such times, gaming operations have 
to make choices as where to make cuts, or where not to fill vacancies. 
Too often the regulatory sector--viewed by some as not being revenue 
centers--get neglected or under funded. If a decision has to be made to 
buy a new neon sign, or fill an open internal auditor position for the 
tribal gaming operation, it can be tempting to short-cut the regulatory 
area, but tribes do so at their peril. When times are tough, perhaps, 
is when tribes need to be most watchful to assure that their dollars 
don't walk out the back door.
    Also, in terms of economic downturn observations, while we see some 
declines in revenues, we do not always see declines in the amounts 
tribes are taking from their gaming operations to fund their programs. 
This can result in seriously low working capital in tribal gaming 
operations that put those operations on fragile footing. It is easy to 
understand that tribes will want to meet the needs of their tribal 
members and tribal programs when times are tough, but they must 
safeguard their economic base in the process.
Strong Oversight Regard Misuse of Tribal Gaming Revenues
    Along the lines of NIGC economic oversight, we are seeing a number 
of cases where the Commission has investigated instances of abuse of 
the use of tribal gaming revenues--often by members of tribal 
leadership. These instances seem to be seen where accountability at the 
tribal level is most lax. IGRA specifically identifies the purposes for 
which tribal gaming may be used, including the requirement for Revenue 
Allocation Plans for per capita payments. These are very important 
cases, as those who suffer and lose in these instances are the tribal 
members--children, elders, those infirm--who rely on integrity at their 
governmental level to assure fair dealing, but sometimes don't get it. 
This was one of the important reasons IGRA created the NIGC, and it is 
important that emphasis continue in this area, and that nothing gets 
swept under the rug. Tribal memberships are counting on NIGC to do its 
job in this area. Tribal leaders work hard to make their tribal gaming 
operations successful, and they should be adequately compensated for 
those efforts. But the process must be properly authorized and 
transparent, and comply with tribal processes, and when it isn't NIGC 
has an important role to play to bring things into account.
Indian Lands Issues and NIGC Independence
    An important project which was underway during my tenure as NIGC 
Chair was the building of a data base of Indian lands for which tribes 
use, or may use for gaming. Where gaming is permissible under IGRA can 
raise some very complicated and technical issues, and to the extent 
that clarity and agreement can be fostered by a solid, reliable source 
of records and information in this regard, distractions and 
disagreements can be minimized, and I am hopeful that this effort will 
continue.
    In terms of the determinations of which lands constitute those 
Indian lands which IGRA deemed eligible for gaming, during my tenure, 
there were a number of instances when NIGC's office of general counsel 
and the Department of the Interior's Solicitor did not agree, and those 
were regrettable. To the extent that clarity has come, or can be 
brought to this area, that will be useful. NIGC needs to always 
appreciate that a ruling which may apply to a gaming instance may be 
extended to all of Indian country, and that consistency and fidelity to 
settled law and Federal Indian policy is essential. The Solicitor's 
office needs to be aware of the urgency which often attends 
determination of such Indian lands questions, and having served as the 
Associate Solicitor for Indian Affairs, I know how over-taxed that 
division is. To the extent that adequate resources can be provided to 
serve these needs, I would urge this Committee to address this concern.
    And while the determination of Indian Lands may be on its way to 
settlement, the NIGC and the Department of the Interior need to be 
mindful of the independence for the Commission which IGRA's authors 
intended. NIGC is not a partisan operation--it's bi-partisan by 
statute--and it's dominated by Indian leadership. Gambling is a risky 
business, financially and socially, and that's why it's always been 
heavily regulated where legalized. And it's a sophisticated and 
specialized area. The Federal Family's role in the regulation of Indian 
gaming needs to rest with the NIGC, and to the extent that there are 
temptations in the Department to reach into that area, those ought to 
be resisted, and NIGC needs to defend the independence which was 
intended for it and which this Committee has recognized. Indian gaming 
will be stronger for this, and the Department will have plenty of other 
things to do anyway.
Commisioner Salaries
    Among those things in IGRA which may be appropriate for review 
would be the salary levels for the Commission. I know it will be easy 
for this comment to be misinterpreted, and I think Indian gaming has 
been very fortunate in most of the choices that have been made for 
these important posts. But when responsibility for the oversight of a 
$27 billion+ industry at stake, the country and the tribes ought not 
risk that some of those best qualified to serve in that role, decline 
to consider it because of compensation. When dealing with multi-
national corporations and arrangements dealing with millions of 
dollars--often the tribes' dollars--it will be important to have in 
positions of authority those to whom such amounts are not unfamiliar. 
In the long run, the government will get what it pays for, and the 
Indian gaming industry cannot afford to be regulated on the cheap.
Conclusion
    Finally, I would say to the new Commission don't lose perspective 
as you do your important jobs. There is a good, strong, honorable staff 
at the NIGC, show them strong leadership, and rely on their hard work 
and advice. Work closely with tribal leaders, as well as those 
organizations formed to advance their cause. But keep an appropriate 
distance, and never forget that you are sworn regulators, not 
cheerleaders, and that tribal communities throughout the country, as 
well as those patrons who spend their dollars to make the industry work 
are depending on you.
    Good luck.
    I stand ready to respond to any questions the Committee may have 
for me, Mr. Chairman. I thank you for this opportunity.

    The Chairman. Mr. Hogen, thank you very much.
    Next we will hear from Mr. Ernest Stevens, Chairman of the 
National Indian Gaming Association. Mr. Stevens, you may 
proceed.

        STATEMENT OF ERNEST L. STEVENS, JR., CHAIRMAN, 
 NATIONAL INDIAN GAMING ASSOCIATION; ACCOMPANIED BY: MARK VAN 
  NORMAN, EXECUTIVE DIRECTOR, AND JASON GILES, DEPUTY GENERAL 
                            COUNSEL

    Mr. Stevens. Good morning, Mr. Chairman and members of the 
Committee. My name is Ernie Stevens, Jr., and I am a member of 
the Oneida Nation of Wisconsin. I have the honor of serving as 
the Chairman of the National Indian Gaming Association.
    I am accompanied today by our Executive Director, Mr. Mark 
Van Norman, and our Deputy General Counsel, Jason Giles. Thank 
you for inviting me to testify today.
    Let me begin by saying, Indian gaming regulation is strong 
and tribes are proud of the regulatory track record in the 
Indian gaming industry. In 2009, gaming generated more than 
628,000 direct and indirect jobs, and $26.2 billion in gross 
revenue. These revenues fund tribal government services, such 
as police and fire departments, health and education services, 
as well as other essential government services for our tribal 
citizens.
    The benefit of Indian gaming doesn't stop at the 
reservation border. Indian gaming generated over $9 billion for 
Federal, State and local government treasuries through sales 
and payroll taxes. Tribal governments understand that none of 
these benefits will be possible without solid regulation. 
Tribes across the Nation have committed significant resources 
to protect our customers and the integrity of our operations.
    Tribal gaming operations are regulated at three distinct 
levels. Tribes, States and the Federal Government all employ 
more than 3,400 expert regulators and staff to protect Indian 
gaming. Tribal governments directly employ approximately 2,800 
tribal gaming commissioners and regulators. State regulatory 
agencies employ 500 gaming personnel and law enforcement 
officers that have a role in the regulation of Indian gaming. 
The NIGC employs over 100 employees that help regulate tribal 
gaming.
    As a result of this three-tier system, Indian gaming is 
subject to more oversight by more people than any other 
jurisdiction that has gaming in the United States. At a time 
when many tribal gaming operations across the Country have 
experienced a decrease in revenues, money spent on Indian 
gaming regulation continues to be a priority.
    In 2009, tribal governments spent a total of almost $350 
million to regulate their gaming operations. That number breaks 
down as follows. Tribal governments spent approximately $250 
million in direct regulatory costs to fund the tribal gaming 
commissions. Tribal governments also paid over $80 million to 
State regulatory agencies. In addition, tribal governments paid 
$16 million in regulatory fees to fund the National Indian 
Gaming Commission.
    Indian Country is working to promote a positive 
relationship between tribes and the NIGC as we move forward. 
NIGA's member tribes look forward to working with the new 
commissioners at the NIGC and have made it a priority to build 
a cooperative relationship with the emphasis on government-to-
government consultation.
    Against the backdrop of comprehensive regulation, Indian 
gaming has developed a strong security and regulatory record. 
Tribal gaming commissions and the agencies employ highly 
qualified individuals from tribal, State and Federal law 
enforcement agencies, and after 25 years in the Indian gaming 
industry, we are now a source of our own experienced and well-
trained regulators.
    As IGRA intended, tribal, State and Federal governments all 
play a role in regulation of Indian gaming. Under IGRA, 
Congress intended for the three sovereigns to work in 
cooperation on the regulation of Indian gaming. Each regulatory 
body has a distinct and supporting role for three different 
classes of Indian gaming. The idea was to avoid duplication, 
but to provide complete oversight. The system is costly, it is 
comprehensive, and our experience in Indian Country shows that 
it is working.
    In conclusion, Mr. Chairman, I want to reiterate that the 
tribes spend almost $350 million on regulation each year. 
Tribes realize that regulation is the cost of a successful 
operation and it is needed to protect our resources and our 
customers.
    Indian gaming's success in regulation is the result of hard 
work by tribal governments and tribal leaders who recognized 
the need for solid regulation and have made it their priority. 
Indian gaming is working. It is rebuilding tribal economies and 
providing hope for future generations of Indian people. It is 
benefitting non-Indian communities by providing jobs and 
promoting economic activity outside the reservation. Tribes are 
proud of this record and are working hard to ensure that tribal 
gaming regulation remains strong in the future.
    On behalf of the leadership in Indian Country as well as 
the very hard working regulators, I want to again thank you for 
this opportunity to testify. That concludes my remarks, and I 
have submitted a written testimony to you also, Mr. Chairman.
    [The prepared statement of Mr. Stevens follows:]

Prepared Statement of Ernest L. Stevens, Jr., Chairman, National Indian 
                           Gaming Association
Introduction
    Good morning Chairman Dorgan, Vice Chairman Barrasso, and Members 
of the Committee. My name is Ernest Stevens, Jr., Chairman of the 
National Indian Gaming Association and a member of the Oneida Nation of 
Wisconsin.
    The National Indian Gaming Association (NIGA) is an intertribal 
association of 184 federally recognized Indian Tribes united behind the 
mission of protecting and preserving tribal sovereignty and the ability 
of Tribes to attain economic self-sufficiency through gaming and other 
economic endeavors.
    I want to thank the Committee for this opportunity to provide our 
views on the state of Indian gaming and its regulatory systems.
Indian Tribes as Governments
    To place Indian gaming in proper context, I'd like to first discuss 
background of the status of Indian Tribes in the United States Federal 
system of government.
    Before contact with European Nations, Indian tribes were 
independent self-governing entities vested with full authority and 
control over their lands, citizens, and those visitors to Indian lands. 
The Nations of England, France, and Spain all acknowledged Tribes as 
sovereigns and entered into treaties with various Tribes to establish 
commerce and trade agreements, form wartime alliances, and preserve the 
peace.
    When the United States was established, it too recognized the 
sovereign status of Tribes through treaties for these same reasons. The 
United States Constitution specifically acknowledges the importance of 
trade with tribal governments in the Commerce Clause, which states that 
``Congress shall have power to . . . regulate commerce with foreign 
nations, and among the several states, and with the Indian tribes.'' 
U.S. Const., Art. I, Sec. 8, cl. 3.
    Tribal citizens are referred to in the Apportionment Clause 
(``Indians not taxed'') and excluded from enumeration for congressional 
representation. The 14th Amendment repeats the original reference to 
``Indians not taxed'' and acknowledges that tribal citizens were not 
originally thought to be ``subject to the jurisdiction of the United 
States''. This is important because, by its very text, the Constitution 
establishes the framework for Federal government-to-government 
relations with Indian tribes and affirmed 100 years of treaty-making. 
These treaties guarantee Indian Tribes a right to self-government.
    For these reasons, the United States policy on Indian affairs in 
the formative years of the new Republic was one of respect and 
recognition that tribal governments were necessary allies to protecting 
the Union both politically and economically.
    As we sadly know, the United States policies on Indian affairs 
throughout the 1800s abrogated these promises and in the 19th and 20th 
Centuries, the United States destroyed traditional American Indian 
economies through warfare, genocide, dispossession and theft of lands. 
In an article entitled, ``Exiles in Their Own Land (2004),'' U.S. News 
and World Report explained that:

         The vast primeval forests that once blanketed the eastern 
        United States were once home to millions of Indians. But 
        starting in the 17th century, shiploads of European settlers 
        arrived in superior numbers, bearing superior weapons. By 1830, 
        war, genocide, and pestilence (diseases such as smallpox and 
        measles to which the Indians had no immunity) had conspired to 
        kill most Eastern Indians.

    Throughout most of the 19th and 20th Century, our people endured 
poverty and social dislocation because of the destruction of 
traditional tribal economies. In California v. Cabazon Band of Mission 
Indians and Morongo Band of Mission Indians (1987), the Supreme Court 
acknowledged that Indian tribes in California were removed from their 
lush agricultural lands and seaside dwellings to rocky outcroppings at 
the edge of the desert. As the Court explained it, California Indians 
were left with reservations that ``contain no natural resources which 
can be exploited.''
    Yet through these hardships, many generations of our grandmothers 
and grandfathers maintained our original, inherent right to tribal 
self-government. The Federal Government had a number of programs to 
promote economic development on Indian lands but few worked because of 
a lack of infrastructure, natural resources, and capital and remoteness 
from markets.
Tribal Self-Determination and Indian Gaming
    In the 1960s, Presidents Kennedy and Johnson included Indian Tribes 
in federal community development programs, in the War on Poverty, and 
in Civil Right legislation to strengthen tribal self-governance. In 
1970, President Nixon formally announced the federal policy supporting 
Indian Self-Determination, and repudiated the Termination Policy. At 
the heart of the new policy was the federal government's commitment to 
foster reservation economic development and helping tribal governments 
to attain economic self-sufficiency. The federal government began to 
make available to tribal governments a number of the programs that were 
used to help state and local governments. These programs provide Tribes 
with the ability to rebuild their communities, and have created new 
economic opportunities throughout Indian country.
    In addition, in the late 1960s, Tribes began to look for a steady 
stream of tribal governmental revenue--separate from federal program or 
appropriation funds. At the time, the recent rise in State government 
lottery systems caused a number of Tribes to consider gaming as the 
answer for their budgetary concerns.
    State governments and commercial gaming operations challenged the 
rights of Tribes to conduct gaming on their lands. These challenges 
culminated in the Supreme Court case of California v. Cabazon Band of 
Mission Indians, 480 U.S. 202 (1987). The Court in Cabazon upheld the 
right of Tribes, as governments, to conduct gaming on their lands free 
from State control or interference. The Court reasoned that Indian 
gaming is crucial to tribal self-determination and self-governance 
because it provides tribal governments with a means to generate 
governmental revenue for essential services and functions.
    In 1988, one year after the Cabazon decision, Congress enacted the 
Indian Gaming Regulatory Act (IGRA) to promote ``tribal economic 
development, tribal self-sufficiency and strong tribal government.'' 25 
U.S.C. Sec. 2702. IGRA established three classes of Indian gaming with 
a comprehensive framework of regulation for each class of gaming. The 
Act also established the National Indian Gaming Commission (NIGC). 
While there are dozens of forms of gaming in America, the NIGC is the 
only Federal Commission that currently exists to regulate gaming in the 
United States.
    The Indian Gaming Regulatory Act is an important part of the more 
than forty-year Federal policy supporting Indian Self-Determination 
that acknowledges Indian Tribes as sovereign governments with authority 
over their lands, members, and those who enter into consensual 
relationships with their governments. In the year 2000, President 
Clinton issued Presidential Executive Order 13175 on Consultation and 
Coordination with Indian Tribal Governments, which provides:

         Our Nation, under the law of the United States . . . has 
        recognized the right of Indian tribes to self-government. As 
        domestic dependent nations, Indian tribes exercise inherent 
        sovereign powers over their members and their territory. The 
        United States . . . work[s] with Indian tribes on a government-
        to-government basis concerning Indian tribal self-government, 
        tribal trust resources, and Indian tribal treaty and other 
        rights.

    On September 23, 2004, President Bush issued an Executive 
Memorandum affirming Executive Order 13175. The memorandum was 
addressed to the Executive Departments and Agencies on the Government-
to-Government Relationship with Tribal Governments, which explains:

         My Administration is committed to continuing to work with 
        federally recognized tribal governments on a government-to-
        government basis and strongly supports and respect tribal 
        sovereignty and self-determination for tribal governments in 
        the United States.

    On November 5, 2009, President Obama issued an Executive Memorandum 
directing each federal agency to submit to the Director of the Office 
of Management and Budget (OMB), a detailed plan to implement the 
policies and directives of Executive Order 13175. This plan was to be 
developed after consultation by the agency with Indian tribes and 
tribal officials as defined in Executive Order 13175. Agency heads were 
also directed to submit to the OMB, within 270 days of the Memorandum 
and annually thereafter, a progress report on the status of each action 
included in its plan together with any proposed updates to its plan.
    It is clear from the actions of the past three Presidents that 
consultation between sovereigns remains the cornerstone of the Federal-
Tribal government-to-government relationship.
    State of Indian Gaming
    In approximately 35 years (22 years under IGRA), Indian gaming has 
proven to be the most successful tool for economic development for many 
Indian Tribes. Today, approximately 233 federally recognized Indian 
Tribes in the lower 48 states (65 percent) have chosen to use gaming to 
aid their communities. Indian gaming has helped many Tribes begin to 
rebuild communities that were all but forgotten. Because of Indian 
gaming, our Tribal governments are stronger, our people are healthier 
and our economies are beginning to grow.
    In 2009, Indian gaming is responsible for 628,000 direct and 
indirect jobs nationwide and generated $26.2 billion in gross tribal 
government revenues (net tribal gaming revenues are much smaller when 
accounting for payroll, operating costs, overhead, and debt service). 
Indian gaming is funding essential tribal government services, 
including schools, health clinics, police and fire protection, water 
and sewer services, and child and elderly care. Gaming revenues also 
enable Tribes to diversify their economies beyond gaming. Because of 
gaming, Tribes have invested in renewable energy projects, 
manufacturing, and other entrepreneurial ventures.
    Indian gaming also benefits Federal, State, and local governments. 
In 2009, Indian gaming generated over $9 billion in added revenue for 
the Federal, State and local governments. Despite the fact that Indian 
Tribes are governments, not subject to direct taxation, individual 
Indians pay federal income taxes, the people who work at casinos pay 
taxes, and those who do business with casinos pay taxes. As employers, 
Tribes also pay employment taxes to fund social security and 
participate as governments in the federal unemployment system.
    Indian Tribes also made over $100 million in significant charitable 
contributions to other Tribes and their non-Indian neighbors. In short, 
Indian gaming is not only helping rebuild Indian communities, but it is 
also revitalizing nearby communities and has become a vital piece of 
the national economy.
    As this Committee has highlighted over the past several years, 
Indian country still has a long way to go. Too many of our people 
continue to live with disease and poverty. Indian health care is 
substandard, violent crime is multiple times the national average, and 
unemployment on Indian reservations nationwide averages 50 percent. 
However, Indian gaming has proven to be one of the best available tools 
for Tribal economic development, and tribal governments are committed 
to protecting and preserving the industry through a strong system of 
regulation and oversight.
Regulation and Responsible Gaming
    As noted above, Congress, through the Indian Gaming Regulatory Act, 
established three classes of gaming, the National Indian Gaming 
Commission, and a comprehensive regulatory system to oversee each form 
of Indian gaming.
    Class I games are social or traditional and cultural forms of 
Indian gaming, conducted for minimal prizes or in connection with 
ceremonies or celebrations, and is solely regulated by the tribes.
    Class II Indian gaming is defined as bingo and related games played 
as well as non-banking card games, if those games are otherwise lawful 
within the states where tribes conduct those activities. Class II 
gaming is regulated by the National Indian Gaming Commission and Tribal 
Gaming Commissions (TGC) established and operated by tribal 
governments.
    Class III Indian gaming is defined as all forms of gaming that are 
neither class I nor class II. Class III games are commonly referred to 
as casino or ``Las Vegas'' style gaming. Class III games regulated 
according to the terms of compacts negotiated between tribal and state 
governments.
    As you can see, it takes coordination and cooperation of three 
sovereigns to make this comprehensive regulatory system work. The 
tribal, state, and the federal governments must all work hand-in-hand 
to ensure the effective regulation of Indian gaming.
    Tribal governments have dedicated tremendous resources to the 
regulation of Indian gaming. Tribes spent over $345 million last year 
nationwide on tribal, state, and Federal regulation:

   $250 million to fund tribal government gaming regulatory 
        agencies;

   $80 million to reimburse states for state regulatory work 
        under the Tribal-State Compact process; and

   $16 million for the NIGC's budget.

    At the tribal, state, and Federal level, more than 3,400 expert 
regulators and staff protect Indian gaming:

   Tribal governments employ former FBI agents, BIA, tribal and 
        state police, New Jersey, Nevada, and other state regulators, 
        military officers, accountants, auditors, attorneys and bank 
        surveillance officers;

   Tribal governments employ more than 2,800 gaming regulators 
        and staff;

   State regulatory agencies assist tribal governments with 
        regulation, including California and North Dakota Attorney 
        Generals, the Arizona Department of Gaming and the New York 
        Racing and Wagering Commission;

   State governments employ more than 500 state gaming 
        regulators, staff and law enforcement officers to help tribes 
        regulate Indian gaming;

   At the Federal level, the NIGC employs more than 100 
        regulators and staff.

    Tribal governments also employ state-of-the-art surveillance and 
security equipment. For example, the Mashantucket Pequot Tribal Nation 
uses the most technologically advanced facial recognition, high 
resolution digital cameras and picture enhancing technology. The 
Pequot's digital storage for the system has more capacity than the IRS 
or the Library of Congress computer storage system. In fact, the Nation 
helped Rhode Island state police after the tragic nightclub fire by 
enhancing a videotape of the occurrence, so state police could study 
the events in great detail.
    Indian gaming is also protected by the oversight of the FBI and the 
U.S. Attorneys. The FBI and the U.S. Justice Department have authority 
to prosecute anyone who would cheat, embezzle, or defraud an Indian 
gaming facility--this applies to management, employees, and patrons. 18 
U.S.C. 1163. Tribal governments work with the Department of Treasury 
Financial Crimes Enforcement Network to prevent money laundering, the 
IRS to ensure Federal tax compliance, and the Secret Service to prevent 
counterfeiting. Tribal governments have stringent regulatory systems in 
place that compare favorably with Federal and state regulatory systems.
    No one has a greater interest in protecting the integrity of Indian 
gaming than tribes. As noted above, Indian gaming provides the best 
opportunity for tribal communities to attain economic self-reliance in 
generations. Under IGRA, Tribal Gaming Commissions are the day-to-day 
front line regulators of Indian gaming.
    The National Indian Gaming Commission (NIGC) plays a leading role 
in monitoring the regulation of Indian gaming at the Federal level. The 
Commission is comprised of a Chairman and two Commissioners, each of 
whom serve on a full-time basis for a three-year term. The Chairman is 
appointed by the President and must be confirmed by the Senate. The 
Secretary of the Interior appoints the other two Commissioners.
    The NIGC has authority to approve tribal ordinances or resolutions 
regulating class II gaming and class III gaming as provided in section 
2710 of IGRA. The NIGC also is vested with authority to approve 
management contracts for class II gaming and class III gaming. In 
addition, the NIGC adopts regulations for the assessment and collection 
of civil fines for regulatory violations.
    With regards to Class II gaming, the NIGC has direct authority to 
monitor class II gaming on Indian lands on a continuing basis and has 
full authority to inspect and examine all premises on which class II 
gaming is being conducted.
    However, in support of the regulatory framework established by the 
Tribal-State Compact process under IGRA, the NIGC has a background role 
in overseeing Class III gaming. When a Tribe and State have a valid 
compact:

   NIGC reviews and approves Class III tribal gaming regulatory 
        laws;

   NIGC reviews Class III tribal background checks and gaming 
        licenses;

   NIGC receives independent annual audits of tribal gaming 
        facilities, including Class III gaming and all contracts for 
        supplies and services over $25,000 annually are subject to 
        those audits;

   NIGC approves management contracts; and

   NIGC works with tribal gaming regulatory agencies to ensure 
        proper implementation of tribal gaming regulatory ordinances.

Conclusion
    The Indian Gaming Regulatory Act has worked well to promote 
``tribal economic development, self-sufficiency, and strong tribal 
governments,'' as Congress intended, and as discussed above, Indian 
gaming is a Native American success story--and indeed, a true American 
success story for the Nation as a whole, as many Native Americans begin 
to see the promise of the American dream of a job and economic self-
sufficiency.
    In short, Indian Country is proud of its gaming regulatory history 
and we are working hard to ensure that tribal gaming regulation remains 
strong into the future.

    The Chairman. Mr. Stevens, thank you very much.
    Finally, we will hear from Mark Brnovich, the Director of 
the Arizona Department of Gaming in Phoenix, Arizona. Mr. 
Brnovich?

  STATEMENT OF MARK BRNOVICH, DIRECTOR, ARIZONA DEPARTMENT OF 
                             GAMING

    Mr. Brnovich. Thank you very much, Chairman Dorgan, members 
of the Committee. Thank you for providing me this opportunity 
to discuss the regulation of gaming in Indian Country.
    I was appointed the Director of the Arizona Department of 
Gaming in April of 2009. I am fortunate to have inherited an 
agency where my predecessors have placed a great emphasis on 
cooperating on a daily basis with our tribal partners to ensure 
the integrity of gaming in Arizona.
    Prior to my appointment, I served as an Assistant United 
States Attorney for the District of Arizona. I have a lot of 
familiarity with prosecuting crimes in Indian Country, 
especially those involving gaming enterprises. Accordingly, I 
believe I provide a unique perspective on the current 
regulatory environment.
    Although in Arizona we had to overcome many initial 
hurdles, tribal governments in the State of Arizona entered 
gaming compacts in the early 1990s. At that time, neither the 
State nor the tribes had much experience in regulating gaming. 
The voter initiative process in 2002 in Arizona led to our 
current gaming compact and current regulatory structure. Each 
of these compacts have 10-year terms with an automatic 10-year 
renewal period when there is substantial compliance. In 
Arizona, the compacts define the scope, the nature and the size 
of tribal gaming.
    For example, there are restrictions on the types of games, 
wagering limitations, allocations of devices and the location 
of facilities. They also create responsibilities for tribal and 
State regulators, including the licensing and certification of 
employees and vendors, as well as the inspection of Class III 
devices.
    Currently, there are 14,511 Class III gaming devices in 
Arizona's 22 tribal gaming facilities. There are 219 poker 
tables, 274 blackjack tables and 6 facilities providing live 
Keno games. This amounts to a $2 billion a year industry in 
Arizona alone. To ensure the integrity and viability of such 
enterprises, it is essential that operations are well-
regulated. Based upon my experience, I would submit the 
following needs to be incorporated in any effective regulatory 
system.
    First, a recognition of each respective tribe in the State 
that gaming is a unique industry, it is in the best interest of 
all parties that it is well-controlled. Gaming is a cash-
intensive industry where there is not an exchange of goods or 
services between a vendor and a purchaser, but instead, cash is 
the commodity.
    Historically, the nature of the business attracted criminal 
elements, including organized crime, crimes of opportunity and 
other corrupting influences. For example, in my experience as 
an AUSA, I have prosecuted casino-related crimes involving 
thefts ranging from $5,000 to more than $600,000, to more than 
half a million dollars. I was co-counsel in the successful 
prosecution of four individuals who attempted to rob an armored 
van that was refilling ATM machines at tribal casinos.
    While no amount of controls can stop every crime, I believe 
a recognition that such events can occur in the gaming 
environment is an important step in ensuring successful 
investigations and prosecutions.
    Second, it is vital for tribal and State regulators to 
develop a working relationship that fosters a spirit of 
cooperation. This requires regular interaction with the tribal 
gaming offices and the gaming enterprise. For example, tribal 
gaming agents have a constant presence in the gaming operation 
and State gaming agents visit the tribal facilities on a 
regular basis, sometimes daily for the urban facilities.
    This occurs even if there are no major incidents or issues. 
But I believe this frequent interaction allows both tribal and 
State gaming agents to foster a good working relationship. In 
other words, the State and the tribes shouldn't be having 
discussions or exchanging information only when necessary, but 
they should do so without need.
    I also believe it is very important for the Department that 
employees be cognizant of their compact requirements and to be 
respectful of the tribal gaming environment. Additionally, I 
believe it is important to share best practices. Information 
sharing is especially important because cheats or criminals 
frequently move from one facility or even one State to another. 
So therefore, it is important to gather and disseminate 
intelligence information between the tribal communities as well 
as between States.
    One method in Arizona that we share information by is via 
the Indian Gaming Working Group. The Indian Gaming Working 
Group was created by the Department of Justice to address 
tribal gaming issues. Our working group meets on a regular 
basis and includes members of the FBI, IRS and NIGC and the 
Department of the Interior.
    Furthermore, the Department works very closely with the 
Arizona Tribal Gaming Regulators Association to conduct 
training on a regular basis. And the Department co-sponsors a 
training academy for all new tribal agents.
    Third, the necessary resources must be committed to 
ensuring the integrity of gaming. This includes a checks and 
balances approach that has served us well. For example, the 
tribal gaming operation is independently audited on an annual 
basis to ensure Class III net win is correctly reported. The 
State has access to this information and the ability to 
communicate with the auditors. Furthermore, the Department has 
its own audit unit with ten employees, including two CPAs. They 
conduct both financial and compliance audits on a regular 
basis. Our machine compliance unit inspects every machine 
before those go into play on the gaming floor.
    In summary, I believe this approach, a recognition, a 
communication and cooperation between the tribes and the 
States, and a commitment to committing necessary resources will 
ensure the integrity of tribal gaming and ensure the continued 
public support for such operations. Thank you and I am 
available to address any questions.
    [The prepared statement of Mr. Brnovich follows:]

 Prepared Statement of Mark Brnovich, Director, Arizona Department of 
                                 Gaming
    Chairman Dorgan, Vice-Chairman Barrasso, and members of the 
Committee, thank you for providing me the opportunity to discuss the 
regulation of gaming in Indian Country. I was appointed the Director of 
the Arizona Department of Gaming in April, 2009, and I'm fortunate to 
inherent an agency where my predecessors had placed on emphasis on 
working together with our tribal partners to ensure the integrity of 
gaming in Arizona. Prior to my appointment, I served as an Assistant 
United States Attorney for the District of Arizona, where I prosecuted 
casino related crimes. Accordingly, I believe I can share a unique 
perspective on the current regulatory environment.
    Although we had to overcome some initial hurdles, the tribal 
governments and the state of Arizona began entering gaming compacts in 
the early 1990's. At that time, neither the state nor the respective 
tribal governments had much experience in regulating gaming. The voter 
initiative process in 2002 enacted our current regulatory structure and 
the state began entering gaming compacts with each respective tribe in 
2003. While each compact holds a term of 10 years, there is an 
automatic 10 year renewal provided substantial compliance.
    In Arizona, the gaming compacts define provisions regarding the 
scope, nature, and size of tribal gaming. For example, there are 
restrictions on the types of games, wagering limitations, allocation of 
devices, and the location of facilities. They also create 
responsibilities for tribal and state regulators, including the 
licensing and certification of employees and vendors, as well as the 
inspection of class III gaming devices.
    Currently, there are 14,511 class III gaming devices in Arizona's 
22 tribal gaming facilities. There are 219 poker tables, 274 blackjack 
tables and 6 facilities providing live keno games. This amounts to a $2 
billion a year industry in Arizona.
    To ensure the integrity and viability of such enterprises, it is 
essential that gaming operations are well regulated. Based upon my 
experience, I would submit that any system needs to incorporate the 
following:
    First, a recognition by each respective tribe and the state that 
gaming is a unique industry and it is in the best interest of all 
parties that it is well controlled. Gaming is a cash intensive industry 
where there is not an exchange of a good or service between a vendor 
and purchaser, but instead cash is the commodity. Historically the 
nature of the business has attracted criminal elements, including 
organized crime, crimes of opportunity, and other corrupting 
influences.
    For example, in my experience as an AUSA, I have prosecuted casino 
related cases involving employee thefts ranging from $5,000 to over 
half a million dollars. I was also co-counsel in the successful 
prosecution of 4 individuals who attempted to rob an armored van that 
was refilling ATM machines at a tribal casino. While no amount of 
controls can stop every crime, I believe a recognition that such events 
can occur in a gaming environment is an important step in ensuring 
successful investigations and prosecutions that will serve as a 
deterrent to further criminal activity.
    Second, it is vital for tribal and state regulators to develop a 
working relationship that fosters a spirit of cooperation. This 
requires regular interaction with the tribal gaming offices and the 
gaming enterprise. For example, tribal gaming agents have a constant 
presence at the gaming operation and state agents visit on a regular 
basis, sometimes daily for urban facilities. Even if there are no major 
incidences or issues to discuss, this frequent interaction allows both 
tribal and state gaming agents to foster a better working relationship. 
In other words, the state and tribe shouldn't be having discussions or 
exchanging information only when necessary, but should do so without 
any need. I also believe that it is very important for Department of 
Gaming employees to be cognizant of their compact requirements and 
duties and to be respectful of the tribal gaming environment. For 
example, every department employee notifies the tribal gaming office 
when they enter a facility and our machine technicians try to minimize 
the disruption to gaming operations by conducting inspections during 
slow times of the day.
    Additionally, it is important to share information and best 
practices. Information sharing is especially important because cheats 
frequently move from one facility to another. By attempting to gather 
and disseminate intelligence information throughout the state, it 
confirms that we all have an interest in ensuring the integrity of 
gaming. Another method by which information can be shared is via an 
Indian Gaming Working Group. Created by the Department of Justice to 
address tribal gaming issues, our working group meets on a quarterly 
basis and includes members of the FBI, IRS, NIGC, and the Department of 
the Interior. Additionally, we work closely with the Arizona Tribal 
Gaming Regulators Association and co-sponsor a training academy for new 
agents.
    Third, the necessary resources must be committed to ensuring the 
integrity of gaming. This includes a ``checks and balances'' approach 
that has served us well. For example, the tribal operation is 
independently audited on an annual basis to ensure Class III net win is 
correctly reported. The state has access to this information as well as 
the ability to communicate with the auditors. Furthermore, the 
Department's audit unit is comprised of 10 employees, including 2 CPAs. 
They conduct both financial and compliance audits on a regular basis. 
We also have a machine compliance unit that inspects every machine 
before it enters play at the facility as well as conducting random 
machine inspections.
    I believe that this approach--recognition, communication and 
cooperation, and committing the necessary resources, will ensure the 
integrity of tribal gaming and ensure the continued public support for 
such operations. Thank you for your time and consideration.

    The Chairman. Mr. Brnovich, thank you very much. We 
appreciate your testimony.
    Ms. Stevens, let me ask some questions of you to try to 
understand what you intend to do with the NIGC, what 
directions, what plans and so on. First of all, let me ask 
about Class III gaming in the Colorado River decision. What is 
your sense of the impact these decisions have on the oversight 
or regulatory capability of the NIGC to believe there is 
effective regulation? Is there a need for legislation? Is there 
a need for other actions to address the Colorado River 
decision, in your judgment?
    Ms. Stevens. Thank you, Chairman Dorgan, for that question. 
What I will say is that I recognize the Colorado River Indian 
Tribe decision did clarify the authority of the NIGC when it 
comes to Class III MICS enforcement. I understand that there 
are areas where there is strong tribal-State regulatory, Class 
III regulatory authority. My personal experience is from 
Washington, but I was happy to hear Mr. Brnovich's testimony, 
because it is very, very familiar to the State of Washington.
    But I also understand that there are areas where there are 
gaps. We are, as I mentioned in my confirmation process, and I 
will tell you today, and it was submitted in my testimony, I am 
undertaking a comprehensive review of not just the regulations 
and how the NIGC is working, but of this particular issue, 
because I know it is of concern to you and members of this 
Committee.
    I have begun that process and have tasked the NIGC staff to 
begin to look into and assess, review and examine the status of 
Class III regulatory oversight. Until I have more information 
and facts in front of me, I really wouldn't be able to say what 
needs to happen, whether it is legislation or what we can do at 
the NIGC.
    The Chairman. The jurisdiction here is very important. So I 
will be anxious to receive the results of your review. Some 
feel very strongly that there is a void as a result of the 
Colorado River decision and there should be legislative actions 
to respond. Others feel differently.
    How many auditors does the NIGC have? In the matter of the 
jurisdiction, how many auditors does the NIGC have to audit the 
419 tribal gaming operations?
    Ms. Stevens. I don't know the exact answer to that right 
now.
    The Chairman. Is there staff with you that would know?
    Ms. Stevens. Let me check with my staff here.
    Approximately 20, but we can get you an exact answer later.
    The Chairman. I guess that raises the question in my mind 
of, what kind of audit capability is necessary for the NIGC? 
Mr. Brnovich says that for the State of Arizona alone, he has 
10 people in an audit unit to audit 22 gaming facilities, is 
that correct?
    Mr. Brnovich. Chairman Dorgan, that is correct.
    The Chairman. Does that audit unit include the folks you 
discussed toward the end of your testimony that were looking at 
the more complex financial transactions?
    Mr. Brnovich. Chairman Dorgan, the way that the Department 
of Gaming is organized in Arizona is we have several units. One 
of them is an audit unit that does conduct regular audits of 
financial records within the tribal casino, as well as 
conducting an annual compact compliance review audit as well, 
to make sure the compact is being complied with. So those are 
their primary focus and responsibilities, separate from our 
machine unit, which conducts machine random inspections and 
everything else.
    The Chairman. Give me the gross number, not just audit, but 
the folks that are going out checking machines and so forth. 
How many people do you have?
    Mr. Brnovich. Chairman Dorgan, there are approximately 110 
employees at the Arizona Department of Gaming. Of those 110, 35 
of them are sworn peace officers. Many of them are retired 
Phoenix and Department of Public Safety personnel. So we have 
an investigation unit. Those folks regularly go out to 
facilities, usually in teams, forge those one on one 
relationships at the tribal gaming offices. We have a machine 
compliance unit with approximately 10 individuals. They are the 
folks that do the regular machine inspections. Then we also 
have an audit unit.
    The Chairman. So you have a pretty robust group of people. 
Coming back to Ms. Stevens, at the National Indian Gaming 
Commission we have roughly 400 tribal gaming operations. I 
think you said roughly 20 auditors.
    At a prior Committee hearing, we were told that the NIGC 
was carrying a $10 million reserve fund. And actually, I don't 
know what it is now, if your staff would know, the funding for 
the NIGC is through fees assessed by the tribal gaming 
facility, or to the tribal gaming facility. So one would expect 
that the NIGC might have some carry-over funds. But a $10 
million balance seemed excessive to me.
    What is the status of the reserve fund, do you know?
    Ms. Stevens. Thank you for that question, and I have 
actually heard the same thing from tribes. I recall that it was 
a question that has come up previously during my confirmation 
process, at which time I committed I would look into that. I am 
in the process of doing that right now. I have had one budget 
meeting with our comptroller to try to identify those funds and 
find the source of those funds and evaluate that going forward.
    Certainly as I find out information I will be happy to work 
with you and members of this Committee to further understand 
those funds.
    The Chairman. Report to this Committee on that.
    I am going to ask two additional questions, then I will 
call on my colleagues.
    Mr. Stevens, Mr. Brnovich describes what we have already 
known to be a robust State regulatory approach, which means you 
have a dual approach in Arizona. You have the tribal approach, 
they are very serious as well, and as I understand it, Mr. 
Brnovich, the tribes are doing well. Then you have an 
aggressive State approach.
    It is the case, however, that in a number of States, they 
have a part-time person, perhaps at the Attorney General's 
office, or maybe one person designated to take a look at what 
the compact provides and what the gaming facilities are doing. 
So that to me doesn't really represent the kind of capability 
you have in Arizona. You have only the tribal regulatory 
authorities and then kind of an after-thought by some States.
    Do you think in those cases, where the State doesn't have 
what I am told Arizona and California and some others have, do 
you think there needs to then be more authority for the NIGC to 
be involved in that separate regulatory oversight? If you want 
to chat about that just for a second, I will ask Mr. Hogen the 
other question. Why don't you go ahead and I will ask Mr. Hogen 
the other question.
    Mr. Hogen, you were Chair of the NIGC for how long?
    Mr. Hogen. Seven years.
    The Chairman. You heard the question I asked Ms. Stevens 
about the number of auditors available, number one, and number 
two, the regulatory authority, particularly with respect to 
post-CRIT decisions on Class III gaming. Do you feel there is a 
legislative requirement here to address the CRIT decision? And 
is there a need to further boost the strength of auditors, 
number of auditors and investigators at the NIGC?
    Mr. Hogen. I think there is a need for a legislative CRIT 
fix. I know how appropriately and jealously tribes guard their 
sovereignty. And this undoubtedly would be an infringement.
    But the way this happened was, when IGRA was passed, 
Congress decided, well, casino gaming is complicated, and the 
only people that know how to do that are the States. They were 
thinking, I think, for there were only a couple of States to do 
that, Nevada, and New Jersey had just started.
    Well, it turned out more States than they thought actually 
permitted casino gaming. So that is where Indian gaming went. 
And those States didn't have experience like Nevada did to do 
that regulation. Arizona is the shining example of how a State 
regulatory body can look over and work with tribes.
    But North Dakota, South Dakota, Minnesota, are places where 
there just really isn't a State presence. There are other 
States where there is kind of a presence. But mainly what they 
are worried about is, are they getting their share of the 
revenue, under the revenue-sharing arrangements. They really 
don't regulate the gaming.
    When NIGC had the authority, which they exercised before 
the court decision, it was working beautifully, I think. We 
weren't infringing, we weren't intrusive. We never closed 
anybody for not following our MICS and so forth.
    But there was the principle of the thing. And that is what 
the case was decided upon. If I were going to say what the 
priorities are, I would clarify that NIGC needs and has that 
authority. And where States are there, NIGC should back off.
    In terms of the numbers of auditors, NIGC has good, strong 
auditors. They could always use more, I expect. They are 
staying busy now, but they are not staying busy where they 
really need to be. If they can go where the identified revenue, 
and it is in Class III, 90 percent of the gaming is Class III, 
that is where they should be. They are busy, but I don't think 
focusing on the appropriate priorities.
    The Chairman. Mr. Stevens, I am going to ask you to hold 
your answer, because I have gone way over my time. I want to 
make sure that my colleagues have adequate time. So I will come 
back and ask you that question.
    Senator Udall?

                 STATEMENT OF HON. TOM UDALL, 
                  U.S. SENATOR FROM NEW MEXICO

    Senator Udall. Chairman Stevens, you just heard the 
discussion with Mr. Hogen. Could you comment on that? What he 
was saying, is what your priorities are going to be? He talked 
about having those auditors focus in particular areas. What are 
your thoughts on what he just said?
    Ms. Stevens. Thank you, Senator Udall. One of the things I 
do want to clarify is that tribes have duplicative auditing 
reviews. Many tribes have auditors within their own operation. 
Their regulatory bodies may have auditors. And then on top of 
it, the NIGC requires an outside audit, and many States require 
an independent audit on top of that.
    I think if we talk about duplication of services, as 
Chairman Hogen had mentioned earlier in his testimony, we want 
to stay away from that, again being mindful of how we use the 
tribal resources.
    What I will say is that my priorities are to review this 
particular situation and have an informed considered decision 
about how to address Class III regulatory oversight and if 
there are any innovative ways that we can draw from States like 
Arizona and Washington and others, certainly to take that on. 
But before I make any decisions or take any actions in that 
direction, I want to gather information.
    Senator Udall. You had a great deal of experience in 
working with casinos before you came into the job you are in 
now. Based on that experience, are there any immediate changes 
that you made or you would like to see? You probably dealt with 
the National Indian Gaming Commission on a number of occasions. 
Have you already made changes as a result of what you saw 
dealing with them on the outside?
    Ms. Stevens. Thank you again for that question. I am in 
that review process, both externally and when I say externally, 
I mean dealing with tribes and regulations and what our primary 
statutory responsibilities are. That is going to be a 
comprehensive review.
    But internally, there are a number of issues that I am 
still in the process of assessing. One of them is the budget 
and fee systems. Having come from an environment in management, 
I want to gather these facts before I make decisions, although 
it is a priority of mine to make sure that we are using these 
fees properly and that we are meeting our statutory 
responsibilities.
    Senator Udall. Thank you.
    Mr. Hogen, in your testimony you speak quite a bit about 
background checks and background investigations of outside 
managers and other individuals. In your experience, what has 
been the extent of the problems that have emerged as a result 
of the limitations in the ability of tribes to access criminal 
records and the limitations on NIGC's ability to conduct 
background investigations? What is the extent of opportunities 
for bad actors to work their way into tribal gaming facilities?
    Mr. Hogen. To their credit, tribes do a very good job of 
licensing the folks that are going to work on the floor and so 
forth. But they also do business with the vendors, people 
selling Pepsi-Cola, Coca-Cola, paper towels and gaming 
supplies, machines and equipment. When those folks aren't 
licensed but are just a vendor, then they can't do the same 
thorough investigation of those backgrounds.
    And so occasionally, there were instances where they found 
out they were doing business with crooks. And there were other 
instances where they said, well, we are not going to do 
business with these folks because we can't do the investigation 
and maybe they missed a good deal with an honest vendor. So I 
think you could broaden that opportunity to do a more thorough 
background investigation. You would make the industry more 
secure.
    I think the vendors would go for it. If they know somebody 
is going to look at their background, they are not going to 
come in with a dirty record, probably. They will stay away. And 
that would be good for the industry.
    Senator Udall. Thank you very much.
    Thank you, Chairman Dorgan. I appreciate it.
    The Chairman. Thank you very much.
    Mr. Stevens, the question I asked was generally about the 
different levels of enforcement, the multi-layers of 
enforcement that most of us believe are necessary and what 
exists, for example, in Arizona, but perhaps would not exist in 
some of the smaller States. And therefore, the NIGC would be 
required to have more enforcement authority there. Your 
assessment of that?
    Mr. Stevens. I can't really speak about how that State 
angle works. But we talk about Arizona being the shining 
example. And I agree with that 100 percent. But I think Indian 
Country's regulators are a shining example also. They work with 
local and municipal law enforcement agencies, with the State 
Attorney General's office to make sure that all laws are 
adhered to.
    In my State of Wisconsin, as a result of our work in 
gaming, we have a multi-jurisdictional conference that we 
worked, brought tribes together with law enforcement from 
throughout the State. That has even become a national 
conference.
    So I think that again, tribes are the shining example here. 
They work hard, and they work cooperatively with the States. I 
think they are doing a good job and I really can't speak to 
where there might be shortcomings on the State side. I think 
that tribes are working with the States, and I think that they 
are the shining example in this regulatory situation.
    The Chairman. Yes, the question is not meant to disparage 
tribal enforcement at all.
    Mr. Stevens. No, I don't think that.
    The Chairman. I think most tribes understand that without 
effective enforcement, you run a very substantial risk of 
ruining the very opportunity that is available through Indian 
gaming. That opportunity didn't exist for a long, long, long 
time, until the Cabazon decision. At that point, it opened up 
this new opportunity.
    So I am well aware of the effective efforts of many tribes 
across the Country to regulate.
    As you know, gaming is not available in the States unless 
there is a compact with the State. So the States have the 
ability to determine, first of all, whether gaming will exist, 
and then second, they have a requirement, once they decide it 
will exist, to provide some oversight. But it is the case I 
think in a number of States that that oversight is kind of an 
afterthought, and in other States it is not at all. It is a 
very significant priority.
    Let me also ask about Mr. Hogen's notion of contractors. 
Ms. Stevens, Mr. Hogen's contention kind of runs into this area 
of tribal sovereignty and decision-making and so on. He is 
raising questions about when should the NIGC be able to take a 
look at contracts and contractors. Mr. Hogen mentioned that 
when you go in and you see a contractor with gaming equipment 
itself that is taking too large a portion, and the NIGC has the 
capability to get that and see it, and then take action, should 
the NIGC have that capability?
    Mr. Hogen, I think you are saying it does not now have the 
capability. Should the NIGC have that capability and if so, how 
extensive should it be? He is raising a whole series of 
questions about the ability of the NIGC to review contracts. 
Pushback by tribes that say, wait a second, that is our 
business, not the NIGC's business. Do you have an assessment of 
that at this point? Are you looking at that?
    Ms. Stevens. There are management contract regulations in 
place, and I will be looking at those as part of the 
comprehensive review. But I will say that the NIGC does have 
authority to approve or disapprove management contracts. There 
are detailed definitions about what management provisions are, 
not necessarily that they are labeled management contracts, but 
provisions. Those provisions may not necessarily always exist 
in what we would deem as management contracts.
    We have seen in recent incidents lately that if there are 
provisions in lending agreements, the NIGC does need to approve 
or disapprove those. Tribes are, and in response, and maybe 
since Phil's departure, the NIGC has been responding to tribes 
submitting various types of contracts to us for management 
provisions.
    The concern is if there are management provisions in any 
contract, whatever vehicle or label they might have, there is a 
possibility that those might not be valid. So what we are doing 
is in response to tribes requesting review of lending 
agreements, other types of contracts for management provisions, 
we have been providing, the general counsel's office will 
provide opinions about provisions in those types of contracts 
or agreements.
    So we are being proactive in response to incidents that 
have happened of late. It doesn't have to necessarily be 
labeled a management contract for us to review it for 
management provisions or approve or disapprove.
    The Chairman. Mr. Brnovich, you said you are a former U.S. 
Attorney?
    Mr. Brnovich. Yes, that is correct.
    The Chairman. From your perspective now, as a State 
regulator, give me your assessment of the Federal law that 
establishes and provides the jurisdiction for the NIGC. Are 
there areas where you believe there are shortcomings? If so, 
what are they?
    Mr. Brnovich. Chairman Dorgan, once again, I believe the 
folks at NIGC would probably be in the best position, and I 
know that former Chairman Hogen was a United States Attorney. 
So he probably has a very good perspective on this as well.
    I do believe that the mechanism, the gaming compact we have 
in place in Arizona addresses many of the issues or the 
concerns that folks generally start talking about when they 
talk about any form of gaming, whether it is Indian or other 
commercial establishments. And that is the need to have a 
vigorous structure in place that fosters that communication, 
that fosters those background investigations, certifications.
    In Arizona, our compacts provide that any provider of 
vendors and gaming devices, manufacturers, have to be 
certified. Gaming services over a certain threshold, they have 
to be certified. So there are a lot of those checks that are 
meant to prevent this from coming in.
    But I do know, based on my experiences as a former Federal 
prosecutor, that no matter what system you have in place, in 
any cash-intensive industry, folks are going to be tempted. 
They are going to try to, whether it is through the front door, 
trying to rob, make a theft from an armored car, or whether it 
is employee thefts, crimes of opportunity where people maybe 
manipulate gaming tickets, voucher tickets, there are going to 
be those opportunities and people will try to take advantage of 
them.
    I do know of one case that I had where an employee had 
stolen hundreds of thousands of dollars from a tribal gaming 
facility. He was ultimately caught because there was MICS, 
there was minimum internal control standards, in place via our 
State compact that required dual signatures. And he was 
creating falsified jackpot slips. And he was falsifying and 
signing them with one signature. Someone at the cage said, wait 
a minute, aren't there supposed to be two signatures on this? 
Told the supervisor and that ultimately led to the unraveling 
of him, for a year and a half period, of having submitted false 
jackpot slips. And it was done because someone at the cage, 
someone who was fairly new, who was just trained, said, wait a 
minute, there are supposed to be two signatures on this, why 
isn't there?
    So I do think it is important to have controls and 
standards in place in order to not only prevent things from 
happening, but once they are happening, once they happen, to 
ensure that those crimes are not only detected but successfully 
prosecuted. That serves as a deterrent.
    The Chairman. And those minimum internal control standards 
are standards that Mr. Hogen, you testified about previously, 
before this Committee on Indian gaming, particularly with 
respect to Class III gaming, I believe, did you not?
    Mr. Hogen. Yes. Under the CRIT decision, the Class III MICS 
are basically advisory only, although a number of States 
incorporate or adopt the NIGC MICS. And in a couple of cases, 
secretarial procedures have been implemented where compacts 
couldn't be obtained. And NIGC has been tasked to do some Class 
III regulation. You need Class III MICS for that. And 
particularly in California, a number of tribes, to try and push 
the State back a little bit, have invited the NIGC in, adopted 
the NIGC MICS. For that reason, they need to be kept current. I 
think it works best when those are the rules.
    The Chairman. This is a really important set of issues. Mr. 
Brnovich said it appropriately, that when you have a cash-
intensive industry, in this case $25 billion, $26 billion 
dollars, there are a lot of interests that want to find their 
way and put their fingers into that industry.
    Senator McCain, welcome. I said at the start of this 
hearing, we have really focused in this Congress on the Indian 
Health Care Improvement Act, which is now law, the Tribal Law 
and Order Act, which will be signed at the White House this 
afternoon. We have had great success on a couple of really big 
issues. But we have not focused on Indian gaming. I wanted to 
have an oversight hearing today, at least to begin a process of 
this discussion.
    Mr. Hogen, who left as Chair of the NIGC, counseled an 
agenda during Senator McCain's chairmanship in which we had a 
number of hearings on these issues, on the CRIT fix issues and 
others. I appreciate, Senator McCain, your being able to come 
by. Let me now call on Senator McCain for inquiry.

                STATEMENT OF HON. JOHN McCAIN, 
                   U.S. SENATOR FROM ARIZONA

    Senator McCain. Thank you, Mr. Chairman, and thank you for 
your stewardship of this Committee and the many successes and 
accomplishments under your chairmanship. It has been a great 
honor and privilege for me to have had the opportunity to serve 
with you on addressing a number of important issues to Indian 
Country and the Nation.
    Chairman Hogen, maybe you could just give the Committee, 
for the record, an assessment of what you think, in your view, 
the record of the Indian Gaming Commission's original charter, 
as you understood it, and intervening events to how effective 
do you think that the Indian Gaming Commission can be today?
    Mr. Hogen. They were writing on a blank slate when they 
started back in, they actually got going, I think, in 1992. And 
it was a real challenge and a real adventure. But they 
undertook it with dispatch and put together an effective 
regulatory organization that has good relationships with tribes 
for the most part, and States, and have fostered the dramatic 
growth of the Indian gaming industry. That doesn't mean it is 
perfect.
    I think the most effective thing that happened in the 
relatively early days was the adoption and development of 
Minimum Internal Control Standards, a handbook that casinos and 
bingo halls could follow to say who takes the money out of the 
slot machine and who takes it to the vault and who counts it, 
that sort of thing. That brought all of Indian gaming up to a 
more professional level and saved a lot of dollars from going 
out the back door. That was a dramatic development and an 
improvement.
    At the time they were adopted, there was the argument, 
well, do you really have the authority to do this for the 
casino gaming for Class III, isn't that supposed to be left to 
the States and the tribes under the compacts? NIGC said, no, we 
have that authority. But the court agreed with the tribes. So 
we were kind of unceremoniously booted out of the oversight of 
much of the Class III gaming.
    Senator McCain. Which has had what effect?
    Mr. Hogen. Well, in places like Arizona, it had little 
effect, because Arizona has a good, strong, effective State 
regulatory group, pursuant to their compact, that is they are 
there all day, every day. In many other States, there isn't any 
State presence, primarily because they don't have any 
experience in regulating casino gaming, because they don't 
otherwise do it.
    So I think tribal gaming regulators do a better job if 
somebody is looking over their shoulder. I know I sure do when 
I am doing something.
    Senator McCain. Is there sufficient authority for the 
Indian Gaming Commission to do that?
    Mr. Hogen. Under the CRIT decision, not with casino or 
Class III gaming, 90 percent of the gaming.
    Senator McCain. Does that concern you?
    Mr. Hogen. Yes, it does. Yes. Not to say that it is bad out 
there every place. Absolutely not. Most places it is great. But 
there are soft spots, and they can't and won't be effectively 
addressed, I think, unless or until that authority is restored 
or clarified.
    Senator McCain. So it is your view that Congress should act 
legislatively to clarify that situation?
    Mr. Hogen. That was my view when the Congress had that 
legislation before it, and that is still my view, yes, Senator.
    Senator McCain. And is that view shared by Indian Country?
    Mr. Hogen. Well, some in Indian Country. It is not 
universally held, no. They jealously guard sovereignty, as they 
should. And they view that as an incursion. But you need to 
protect that resource, and I think this is the best way to do 
it in this complex environment.
    Senator McCain. So does that open it to problems such as 
the situation that happened with Mr. Ivy Ong and the Seminole 
Nation?
    Mr. Hogen. Well, that was back in the days when NIGC still 
could do Class III gaming.
    Senator McCain. I guess my question is, because of the CRIT 
decision, has this made it more or less likely that corruption 
can creep into Indian gaming?
    Mr. Hogen. I am afraid more likely. One of our auditors was 
telling me shortly before I left about when he was at a 
training conference. A tribal auditor came up to him and said, 
we have found that we have variances between what the meters 
say that machine takes in and what the actual count is. Our 
manager says, just rely on the actual count. Don't worry about 
that. Should we be concerned?
    Well, of course they should be concerned, because that is 
the basic tool you use to verify is the equipment working, is 
somebody stealing the money. But NIGC didn't have the 
authority, because it was Class III. Those kinds of things are 
unfortunate but they happen. If NIGC had that Class III 
authority, they could go there when asked or when they observed 
it.
    Senator McCain. Are you concerned that many tribes, that 
there is no separation between the Gaming Commission and the 
tribal authorities?
    Mr. Hogen. There needs to be independence of regulation. 
That is not always true.
    Senator McCain. Mr. Chairman, I have been worried ever 
since the Colorado River decision. I don't believe that it is 
an infringement on tribal sovereignty when the majority of the 
patrons of Indian gaming operations are non-Indians. If it were 
strictly an Indian operation, I would be less inclined to try 
to repair this loophole that has been created by the CRIT 
decision. I appreciate your having this hearing.
    I think we need to stay on top of this, because there are 
many experts on gaming that believe that there will be some 
scandals because of the kind of oversight and regulation that 
exists in the State of Nevada. I have always used that as an 
example of how we can prevent corruption from creeping into 
gaming operations. And even in Nevada, it is a day to day 
operation.
    So as a strong supporter of the Cabazon decision and one 
who believes in Indian sovereignty, I remain deeply concerned. 
I thank you for holding this hearing, Mr. Chairman.
    The Chairman. Senator McCain, you used the word scandal. I 
was just thinking, you and I know a fair amount about that, 
having chaired the hearings. You chaired, and I was the Ranking 
Member of the hearings on the Abramoff issue that related to 
the theft from Indian tribes. That was an important body of 
work by this Committee, and I appreciated your leadership 
there.
    I said when you came in that when you were Chairman, you 
held a number of hearings on the gaming issue. I just described 
to Mr. Stevens, there is no notion by me that tribal 
authorities don't take seriously their responsibility for 
oversight and regulation. I do think there needs to be 
effective dual oversight capability. Arizona is an awfully good 
example of that; a serious, thoughtful, sizeable agency that 
pays a lot of attention to it.
    There are some Sates where there is a half-time person in 
the Attorney General's office that is tasked with doing it. 
That is not effective.
    What we wanted to do was put on the record today a 
discussion about this. Mr. Hogen, you said you drove here. Is 
that really true?
    Mr. Hogen. Yes, it is.
    The Chairman. From St. Paul, Minnesota?
    Mr. Hogen. I drove in from the Black Hills of South Dakota. 
I stopped to see my grandson, my three-month old grandson in 
Minnesota and wrote my testimony in a Denny's in Indiana.
    [Laughter.]
    The Chairman. We appreciate your accepting the invitation 
as a former Chair to come to this hearing. You know there are 
airplanes that are available.
    [Laughter.]
    Mr. Hogen. Thank you.
    The Chairman. But it is nice to see the Country as you go 
along. I appreciate very much your willingness to be here.
    We have a vote starting in about five minutes. Senator 
McCain, do you have anything?
    Senator McCain. Mr. Chairman, could I just ask Chairwoman 
Stevens, what does she think of this exchange that Mr. Hogen 
and I just had? Do you share those same concerns that he has?
    Ms. Stevens. Thank you, Senator McCain. I am actually 
really glad that we are having this hearing early on, so I can 
hear your concerns. I really appreciate former Chair Hogen's 
assessment and his concerns, something that I certainly can 
learn from. The aftermath of the CRIT decision is of concern to 
me. I was mentioning to the Committee earlier that the top 
priority is to review this situation so I can get a better 
understanding.
    Senator McCain. Do you have any understanding so far?
    Ms. Stevens. I am in the process of working through this 
regulatory review.
    Senator McCain. Do you have any understanding so far?
    Ms. Stevens. I do in areas like Washington State, that has 
something equivalent to the State of Arizona. And I know that 
they do work in some areas. I know that as you have mentioned, 
and Chairman Dorgan has mentioned, there are areas that need 
improvement. I want to know what those are.
    It is complicated, because there are 28 States with 
different, varying compacts. And I want, as much as you do, an 
assessment of the post-CRIT world in Indian Country.
    Senator McCain. I hope you will give us some 
recommendations when you reach some conclusions.
    Mr. Stevens, you probably disagree with some of my 
assertions there.
    Mr. Stevens. Mr. Chairman, we are happy to convene the 
leadership of Indian Country. In the past discussions around 
this matter, we convened probably 16 national tribal leaders in 
conjunction with working with the National Congress of American 
Indians. We continue to assert, and I said earlier in my 
testimony, it is in my submitted testimony, $350 million to 
regulate this industry. That is the kind of money that is paid 
through our industry. Our people, our leaders and our 
regulators have made it our top priority.
    And we are doing, I believe, more. We talked about the 
MICS. Ninety-five percent of that exists in Indian Country at 
that level if not stronger. And as far as looking over our 
shoulder, Phil talks about looking over our shoulder, we have 
our tribal constituents looking over our shoulder. We have the 
State. We have local law enforcement looking over our shoulder.
    And we answer to the leadership in our tribes. Our tribes 
are very efficient at this level. After 25 years, we believe we 
are doing a good job. At the same time, with no disrespect to 
your feelings, we would be happy to convene the NIGA-NCAI task 
force to reevaluate this issue. But again, we are concerned 
about the strength of tribal sovereignty as we move forward.
    Senator McCain. Thank you. But I am not comforted by the 
knowledge that local authorities are looking over your 
shoulder. Because as you just asserted, tribal sovereignty does 
not allow local authorities to oversight.
    Mr. Brnovich, what have you learned?
    Mr. Brnovich. Chairman Dorgan, Senator McCain, thank you. 
We are fortunate in Arizona that our gaming compacts 
specifically provide that the Minimum Internal Control 
Standards must be incorporated and must be followed by the 
tribes. So we are in a little bit of a different situation than 
some other folks in Indian Country, because we have those 
Minimum Internal Control Standards, and we have a vigorous 
compact that provides for various layers of protection, 
everything from certification of vendors, employees, 
surveillance requirements.
    So we are in a different situation. I feel uncomfortable 
commenting generally on the MICS. I just know that they work in 
Arizona. And I think that because gaming is such a cash-
intensive industry, you do have to have that regulation and 
oversight, because there are going to be constant attempts at 
penetration by either organized or even unorganized criminal 
elements.
    Senator McCain. Mr. Stevens, I suggest that you and the 
NCAI and NIGA have a look at what we have achieved in Arizona 
by virtue of agreements that were freely entered into, which I 
think has been of significant beneficial effect and provides, I 
think, some confidence on the part of all of us that there are 
significant safeguards against corruption. And Mr. Stevens, the 
fact is that wherever money is exchanged in the way that it is 
in gambling, it is open to corruption. It is just one of the 
realities of life. The more oversight and cooperation we can 
have between State and local government and tribal authorities, 
the better off we are, and the more success, I think, will 
accrue to Indian gaming.
    I thank you, Mr. Chairman.
    The Chairman. Senator McCain, thank you very much.
    Let me just finally say, Ms. Stevens has been in office 
only one month. I recognized when I invited her that we were 
not going to be able to have someone here that would give us a 
full complement of new policies she has developed.
    But I also wanted her to be here to give us her 
impressions. I invited Mr. Hogen for a very specific purpose. 
He has been in this position for seven years, has seen the 
substantial growth of Indian gaming. And I appreciate very much 
not the fact that you wrote your testimony at a Denny's, but I 
appreciate very much your driving here from the Black Hills of 
South Dakota and giving us, once again, the benefit of your 
experience.
    Mr. Stevens, thank you very much, and Mr. Brnovich, thank 
you very much for coming. Chairwoman Stevens, thank you very 
much for your work.
    This hearing is adjourned.
    [Whereupon, at 10:43 a.m., the Committee was adjourned.]
                            A P P E N D I X

  Prepared Statement of Hon. Carlos Bullock, Tribal Council Chairman, 
                    Alabama-Coushatta Tribe of Texas
Introduction
    Mr. Chairman and members of the Committee, thank you for the 
opportunity to provide testimony. My name is Carlos Bullock and I am 
the Tribal Council Chairman of the Alabama Coushatta Tribe of Texas. 
Today, we request that you correct a drafting error in our Restoration 
Act such that, consistent with Congressional intent, we are to be 
treated the same as other federally-recognized Indian tribes with 
respect to gaming on our reservation. It is unfortunate that we have to 
make such a request; but, the courts have told us that, regardless of 
how sympathetic they may be to our position, we must ask Congress to 
correct the problem.
Brief History
    Our Tribe is known to be traditional and religious. We still speak 
our native language and practice our traditional ways. Our reservation, 
once vast, is now about 7,000 acres of largely forest area. We are 
excellent stewards of our resources and have won awards for our 
forestry conservation program.
    We also have a long, rich history in Texas. The Alabama and 
Coushatta were originally separate tribes, both of whom migrated from 
Louisiana to east Texas in the early 1800s. Both participated in the 
Mexican War of Independence from Spain. The Coushatta Tribe, in 
particular, rendered valuable service to Sam Houston during the Texas 
War for Independence. They served as guides for Houston's army on its 
way to victory at San Jacinto and slaughtered their cattle to feed 
starving women and children fleeing Santa Anna's army.
    Because of this service, within less than a year after Texas won 
its independence at San Jacinto in April 1830, the Republic of Texas 
enacted its first Indian bill. An Indian agent for the Coushatta and 
Alabama Tribes was established and appropriation was made to cover the 
cost. In 1840, the Fourth Congress of the Republic of Texas authorized 
President Lamar to set aside land located in rural east Texas for each 
of the Coushatta and Alabama Tribes.
Establishment as a Federally Recognized Tribe
    By 1928, the United States authorized the Secretary of the Interior 
to purchase land for the benefit of both the Alabama and Coushatta 
Tribes in Polk County, Texas, resulting in the initial federal 
recognition of the Alabama and Coushatta Tribes. Because the land was 
deeded to both the Alabama and Coushatta Tribes, the name ``Alabama and 
Coushatta Tribes of Texas'' was used to describe the Tribes and the 
name was, thereafter, used for federal recognition purposes.
    In 1934, Congress passed the Indian Reorganization Act, also known 
as the Wheeler-Howard Act. The Act authorized tribes to organize for 
their welfare and to exercise local self-governance. Pursuant to the 
Act, the Alabama and Coushatta Tribes organized as one tribe under a 
constitution and bylaws approved in 1938. However, as described below, 
our government to government relationship with the Federal Government 
was cut short as a result of federal policies designed to assimilate 
and terminate tribes, such as ours.
Termination of Federal Status and Transfer of Trust Responsibility to 
        State of Texas
    As a result of the federal termination policies of the 1950s, our 
Tribe's status as a federally-recognized Indian tribe was terminated in 
1957. Unlike most termination actions in the 1950s, rather than simply 
terminating the federal government's trust responsibilities, Congress 
transferred that responsibility to the State of Texas. In 1953, Texas 
Governor Allan Shivers wrote a letter to the Assistant Secretary of the 
Interior, Orme Lewis, stating that both the Alabama and Coushatta 
Tribes of Texas wanted trust responsibility for their lands transferred 
to the State of Texas and that the Texas Legislature had agreed to 
accept the trust responsibility. In fact, in 1954, President Eisenhower 
signed Public Law 627, 83d Cong.(68 Stat. 768), terminating the trust 
relationship between the Tribe and the United States and transferring 
all trust responsibility for the Tribe to Texas.
    From 1954 through 1983, Tribal affairs were administered by the 
Texas Board for Texas State Hospitals and Special Schools. Although 
monies appropriated for the benefit of the Tribe were subject to 
fluctuation, we were able to survive and we continued to live on our 
lands in east Texas.
    The trust relationship with Texas lasted only until 1983 when the 
Texas Attorney General, Jim Mattox, issued an opinion that the trust 
relationship violated the Texas Constitution. The fallout from that 
opinion was swift and devastating. The State Comptroller of Public 
Accounts, Bob Bullock, began imposing State severance taxes on Tribal 
oil and gas royalties. The Appraisal Districts of Polk County issued 
notices of appraised value on reservation trust lands. Later, the Texas 
Legislature cut off appropriation of all State funds to our Tribe.
    As State Comptroller Bob Bullock described the resulting situation 
in Texas, ``These Indian chiefs better get over to the A.G.'s office 
and light up their peace pipe if they want to keep getting this wampum, 
because Mattox is holding the tomahawk now.''
The Restoration Act
    Fortunately, in 1984, Congressmen Charlie Wilson and Ronald Coleman 
introduced legislation to restore the Tribe to federal recognition. 
Congressman Wilson stated that ``the principal purpose of this 
legislation is to give the Alabama-Coushatta the same status as other 
Indian tribes in the United States.'' It took several years, but 
finally, in 1987, when our Tribe was on the brink of losing all its 
assets to the State of Texas, Congress restored our status as a 
federally-recognized Indian tribe. The passage of the Yselta Del Sur 
Pueblo and Alabama Coushatta Indian Tribes of Texas Restoration Act, 
Pub. Law No. 100-89, August 18, 1987 (the ``Restoration Act'') was 
seemingly a huge victory for our Tribe.
    It was not until later that we would see that, due to a drafting 
error in the Restoration Act which was compounded by mistaken court 
decisions by the Fifth Circuit Court of Appeals interpreting our 
Restoration Act, we would not be able to enjoy the same rights and 
privileges as other federally-recognized Indian tribes with respect to 
gaming.
    This result is particularly disturbing as the record demonstrates 
that it was intended that when Congress restored our federal status 
that we would achieve full status as a federally-recognized tribe. 
Indeed, Congress intended to provide us with the authority to govern 
gaming on our lands consistent with the landmark Supreme Court 
decision, California v. Cabazon Band of Mission Indians, 480 U.S. 202 
(1987), which was issued just months before the language of the bill 
was being finalized. Yet under the precedent created by erroneous court 
decisions issued by the Fifth Circuit, we are now somehow less of a 
tribe--similar to a second-class citizen.
    Today, the situation on the reservation is one of desperation. The 
average median household income for tribal members is about $10,000 per 
year. Only one in three people are gainfully employed and only one out 
of every 100 members has been able to pursue and attain a college 
degree. Diabetes is rampant, affecting more than 50 percent of our 
Tribe and access to health care is extremely limited. Every summer, our 
I.H.S. funding runs out. This July, we went on ``priority one'' status, 
meaning that our tribal members can only see a doctor if their illness 
or injury is potentially fatal. We urgently need to improve our 
situation and provide a better quality of life for our members. We know 
we can do so by offering gaming on our tribal lands.
    Further, despite its claims to the contrary, the State of Texas is 
a gaming state. The State itself operates one of the largest and most 
progressive state lotteries. There is commercial bingo, horse racing, 
dog racing, cruises to nowhere and carnival nights. Also, the Kickapoo 
Tribe of Texas conducts gaming in Texas. Yet, due to a quirk in federal 
law, the Alabama Coushatta may not engage in the same activities as the 
State or the Kickapoo Tribe. With this Texas stands alone where 
federally-recognized tribes within the same state are treated 
differently for gaming.
    Notably, we are not seeking additional rights or more advantageous 
rights to game. We are not attempting to conduct off-reservation 
gaming. We are simply asking for the same rights and privileges as any 
other federally-recognized tribe under the Indian Gaming Regulatory 
Act. We believe it is the fair thing to do given the facts of our 
situation. Moreover, we recognize that our gaming will be regulated 
under the Act and we accept that regulation.
    It should also be noted that our Tribe's attempts to seek 
restoration were initiated long before the arrival of Indian gaming and 
occurred in direct response to the State's oppressive policies that 
sought to destroy our way of life. In fact, when the initial bill, H.R. 
6391, seeking to restore the Alabama-Coushatta Tribe (and another tribe 
in Texas, the Ysleta del Sur Pueblo), was introduced in 1984, it made 
no mention of our right to conduct gaming activities.
    In 1985, Congressmen Ronald Coleman and Charlie Wilson reintroduced 
the Restoration Act as H.R. 1344 and again, there was no mention of 
gaming. Indeed, Congressman Wilson stated that ``the principal purpose 
of the legislation is to give the Alabama-Coushatta Tribe the same 
status as the other Indian tribes in the United States.'' During this 
period, most tribes were not engaged in any gaming activities other 
than a few tribes that had bingo operations, and our Tribe was not 
engaged in any gaming activities.
    However, in late 1985, State Comptroller Bullock, whose office 
regulated charitable bingo in Texas, became concerned that our Tribe 
might, in the future, operate unregulated bingo and demanded changes to 
the bill. He employed scare tactics, stating, ``If this bill passes 
like it's written, we might as well get the highway department to put 
up a sign at the state line that says `Gangsters Welcome.' ''
    In 1986, faced with deteriorating financial conditions and 
increasingly desperate to pass the Restoration Act, we provided a 
Tribal resolution to Congress not to operate gaming. Again, at that 
time, the Supreme Court had not decided the Cabazon case, detailed 
below, so the only thing we thought we may be giving up was bingo.
    In February of 1987, the Supreme Court decided the case of 
California v. Cabazon Band of Mission Indians, holding that tribes have 
a federal right to govern gaming activities on a tribe's Indian lands, 
consistent with State public policy. Thus, under Cabazon, the Alabama-
Coushatta would be allowed to engage in gaming activities because Texas 
allowed bingo at that time, and now allows horse racing, dog racing and 
a state lottery.
    After the Cabazon decision, the Restoration Act (then H.R. 318) was 
significantly amended to codify the rationale and holding of Cabazon; 
see Testimony of Alex Skibine, 133 Cong. Rec. H6972-75. The House 
concurred with the Senate's amendments to H.R. 318.
    Significantly, at all times during the consideration of the 
Restoration legislation (H.R. 318), Congressman Morris K. Udall was the 
Chairman of the Committee on Interior and Insular Affairs of the U.S. 
House of Representatives, which had general jurisdiction over Indian 
legislation and affairs and had exclusive jurisdiction over H.R. 318 
and all Indian gaming legislation. All Committee reports on bills, 
including those on H.R. 318, were prepared under the supervision of, 
and approved by, Chairman Udall; and as I am sure the members of this 
Committee are aware, he was very well-respected and highly regarded and 
his remarks should have carried great weight.
    When Congressman Udall asked for and received unanimous consent for 
House concurrence with the Senate's amendments, he confirmed that our 
Tribe, like all other tribes, would have the benefit of the ruling in 
the recent Cabazon decision:

         The Senate amendment makes changes to Sections 107 and 207 of 
        the Bill. These sections deal with the regulations of gaming on 
        the respective reservations of the two tribes. It is my 
        understanding that the Senate amendments to these sections are 
        in line with the rationale of the recent Supreme Court decision 
        in the case of Cabazon Band of Mission Indians v. California. 
        This amendment, in effect, would codify for these tribes the 
        holding and rationale adopted in the Court's opinion in the 
        case.

        133 Cong. Rec. H6975.

    The pertinent language from the Restoration Act is as follows:

        Section 207. GAMING ACTIVITIES.

        (a) IN GENERAL.--All gaming activities which are prohibited by 
        the laws of the State of Texas are hereby prohibited on the 
        reservation and on lands of the tribe. Any violation of the 
        prohibition provided in this subsection shall be subject to the 
        same civil and criminal penalties that are provided by the laws 
        of the State of Texas. The provisions of this subsection are 
        enacted in accordance with the tribe's request in tribal 
        resolution No. T.C. 86-07 which was approved and certified on 
        March 10, 1986.

        (b) NO STATE REGULATORY JURISDICTION.--Nothing in this section 
        shall be construed as a grant of civil or criminal regulatory 
        jurisdiction to the State of Texas.

        (c) JURISDICTION OVER ENFORCEMENT AGAINST MEMBERS.--
        Notwithstanding section 736(f) of this title, the courts of the 
        United States shall have exclusive jurisdiction over any 
        offense in violation of subsection (a) of this section that is 
        committed by the tribe, or by any member of the tribe, on the 
        reservation or on lands of the tribe. However, nothing in this 
        section shall be construed as precluding the State of Texas 
        from bringing an action in the courts of the United States to 
        enjoin violations of the provisions of this section.

        Indian Gaming Regulatory Act, 25 U.S.C. Sec. 737.

    Though the intent of Congress was to allow the Tribe the same 
rights as other tribes to operate gaming, ambiguity exists in the 
Restoration Act because the 1986 Tribal resolution not to operate 
gaming was mistakenly retained within the Act, which otherwise codified 
Cabazon. Professor Alex Skibine, then the principal Indian Affairs 
Committee staff member who was assigned to the bill and who is now a 
professor of federal Indian law at the S.J. Quinney College of Law at 
the University of Utah, has testified that the Tribe's resolution was 
mistakenly left in the final draft and should have been omitted.
    Because of this mistake, the Fifth Circuit Court of Appeals has 
held that our Tribe is not covered by the 1988 Indian Gaming Regulatory 
Act, but, rather, gaming for the Tribe is governed by the Restoration 
Act and that gaming on our lands is illegal. The Court relied largely 
on the 1986 pre-Cabazon tribal resolution to overcome the more general 
Cabazon language and barred the Tribe from gaming. In other words, the 
Court ignored the intent of Congress.
    Because of the failure of the Court to follow the law, the Court's 
opinion has been criticized by legal scholars and those with personal 
knowledge of the facts surrounding the passage of the Restoration Act:

         It would seem to be a clear case of judicial activism in which 
        the courts have effectively undermined the intent of Congress 
        and even the authority of Congress under the Commerce Clause to 
        determine Indian law and policy. Only the Congress can correct 
        the court's errors.

        Testimony of Virginia W. Boylan before the Senate Committee on 
        Indian Affairs, June 18, 2002.

    Most egregious in the Fifth Circuit opinion is the concept that a 
court can somehow alter the rights granted by Congress to tribes and 
create different classes of Indian tribes. The Court, in this case, 
undermined the intent of Congress and severely impacted the rights that 
we would otherwise enjoy as a federally-recognized Indian tribe, 
resulting in a severe injustice that should not be left uncorrected.
Conclusion
    We request that language be added to Section 207 of the Restoration 
Act clarifying that it was not the intent of Congress to treat the 
Alabama-Coushatta differently, and that the Tribe should have the same 
rights, and be regulated in the same manner, as other federally 
recognized tribes under the Indian Gaming Regulatory Act.
    Accordingly, in the interests of fairness, we ask for your help in 
correcting this injustice and allowing us the opportunity, as Congress 
intended, to be restored fully to federal recognition and to have the 
same status, rights and obligations as do all federally-recognized 
Indian tribes, as it pertains to gaming and all other forms of economic 
development.
    Thank you for your time.
                                 ______
                                 
     Prepared Statement of Hon. Stanley ``Buck'' Smith, Chairman, 
     Confederated Tribes of the Warm Springs Reservation of Oregon

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