Federal review calls into question legality of Seneca casino payments to NY

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The Biden administration has opened an inquiry into whether a casino revenue sharing deal between the Seneca Nation of Indians and New York State is legal, a potentially significant step for the tribe that has been ordered by an arbitration panel and federal judges to pay $500 million in missed casino payments to Albany.

The Senecas filed a motion last week with the U.S. District Court in Buffalo to halt enforcement of a judgment that the tribe should make the payments that have accumulated since the Senecas halted annual casino revenue sharing with the state in 2016.

The court request to U.S. District Judge William M. Skretny by the Senecas comes after two key letters were written by federal officials last week raising questions about whether the state should be able to continue getting casino revenue sharing payments from the Senecas.

Bryan Newland, assistant secretary of the U.S. Department of Interior for Indian Affairs, on Sept. 15 wrote to the National Indian Gaming Commission expressing “serious concerns” over a key dispute between the state and Senecas.

The commission is a federal office that regulates Indian casinos and monitors compliance with federal Indian gaming laws.

The Interior Department and the commission are concerned that the automatic, seven-year renewal of the casino compact between the state and Senecas – commencing in 2017 – was never reviewed by federal regulators to ensure compliance with laws such as the U.S. Indian Gaming Regulatory Act, and that the tribe is guaranteed to be the “primary” beneficiary of its casino operations.

In a separate letter last week to Seneca Nation President Matthew Pagels, Thomas Cunningham, the chief compliance officer at the commission, said his agency and Interior believe the casino revenue payments to the state “may violate” federal law that the Senecas “maintain the sole proprietary interest in its gaming operation.”

The official said the issue is now before the agency “for further investigation and potential corrective action.”

The Interior and commission correspondence are a major legal development in the long-running dispute between the Senecas and the state. Local governments, from Salamanca to Niagara Falls, have been caught in the wrangling because they, too, have been beneficiaries of a portion of the casino revenue sharing payments to the state that totaled more than $1 billion until the Senecas cut off the money flow in 2017.

The Hochul administration, which inherited the battle that began during the former Cuomo administration, on Friday evening said it is "past time for the Nation to honor its obligations under the compact and the judgment.''

"The Nation has exhausted all of its appeals, the judgment is final, and the Nation’s efforts to manufacture an extrajudicial avenue for delay should not be used to circumvent the judgment or avoid its clear obligations to the state and the communities that will benefit from the Nation making their revenue sharing payment,'' a Hochul spokesman said in a statement.

Pagels, in a statement Friday about issues raised by the Seneca and now two federal offices over an arbitration panel's ruling in the dispute, said "significant questions must be answered definitively so that the Nation and the state can move forward."

Under a 2002 compact, the Senecas agreed to eventually pay the state 25% of its slot machine revenues. In return, the tribe was granted exclusive rights to operate Las Vegas-style casinos in Western New York.

Many Senecas, though, believe the exclusivity arrangements have been watered down by racetrack video lottery terminal casinos within the zone and the placement of two, Las Vegas-style casinos just outside the zone. Further, a federal regulatory official last week wrote that the economic times have changed greatly since the 2002 deal.

The Senecas in 2017 ceased making casino payments, saying the wording of the 2002 compact was silent about any casino-sharing percentages during the final seven years of the compact.

The tribe lost its case before an arbitration panel, and two federal courts in Buffalo said the tribe needed to abide by the arbitration awards that went in the state’s favor.

But the tribe’s lawyers have been working the federal government pathway for years. In the final days of the Obama administration in 2017, the Interior Department said the casino payments to the state went against federal law. The Trump administration reversed that.

In March this year, Pagels wrote President Biden and Interior Secretary Debra Haaland urging their help to stop New York from being able to “seize” nearly $500 million the tribe has held in escrow since the 2017 dispute began.

The Seneca leader said the tribe was invoking the terms of the 1794 Treaty of Canandaigua, one of the earliest treaties between an Indian nation and the United States and signed by President George Washington. Pagels called upon Biden and the Interior secretary “to protect our interests from this attack” by New York State.

Two key, recent federal documents at play may buy the Seneca Nation more time in the dispute. It also remains possible that the federal government could say the state can receive no additional funds beyond what it got in the initial, 14-year period of the compact.

The first key letter is from Newland on Sept. 15 to E. Sequoyah Simermeyer, chairman of the National Indian Gaming Commission. In it, the Interior Department formally referred the Seneca casino revenue sharing matter to the commission to determine if the Indian Gaming Regulatory Act would be violated by any Seneca payments to New York from 2017 on.

The Interior official wrote that the arbitration panel’s ruling in favor of the state may be in violation of federal laws intended to protect the “sole proprietary interest” of the tribe to ensure that it is the “primary beneficiary of its gaming enterprise."

The detailed, four-page letter from Cunningham to the Seneca president came the next day. Cunningham wrote that the commission considers the matter “significant” and has an active review underway to determine if the nearly $500 million held in escrow since the 2017 dispute began –as well as at least another $300 million in future payments until the compact expires – is legally due the state and local governments.

Cunningham said the economics of the original compact – upon which the state received revenue sharing payments because it gave lucrative gambling exclusivity rights to the tribe – have changed.

The federal government, when asked to review the original compact in 2002, was provided an economic analysis that the Senecas expected to gross more than $5 billion in the first 14 years of the compact, with less than $1 billion going to the state and $2 billion in profits to the tribe, he wrote. The average yearly contribution to the state was expected to be about $71.4 million. But since 2017, the contributions averaged $117.5 million.

“The state appears to be receiving a revenue share that equates to a significant percentage of the Nation’s net revenues. In light of this, we are conducting an inquiry into whether the revenue share payment is consistent with the requirements of IGRA," Cunningham wrote.

In its court filing last week, and an amended one Thursday, the Seneca Nation asked the federal court in Buffalo to delay enforcement of its ruling in favor of the state while the commission review is conducted. It said the Senecas could face “extreme hardship” if it had to make the payments that could then be subject to “NIGC sanctions” against the tribe for any violations of the federal gaming law.