Jepsen sees ‘not insubstantial’ risk in casino expansion

Attorney General George Jepsen

Allowing Connecticut’s two federally recognized tribes to jointly operate a casino off tribal lands would pose legal risks that “are not insubstantial” to the more than $250 million in slots revenue annually shared with the state, Attorney General George Jepsen wrote Monday in a formal legal opinion sought by Gov. Dannel P. Malloy.

Jepsen’s new eight-page analysis is unlikely to reassure lawmakers who backed away from casino expansion in 2015 after the attorney general’s office first flagged the risks and complications of allowing the Mashantucket Pequot and Mohegan tribal nations to develop the state’s first commercial casino without an open-bid process, which already has generated a lawsuit from their competitor, MGM Resorts International.

“Attorney General Jepsen’s office has provided a thoughtful and thorough analysis on the questions put before them. It raises many important points that the legislature will need to contemplate regarding this matter,” said Kelly Donnelly, the governor’s spokeswoman.

The attorney general warned the governor that assessing whether the Bureau of Indian Affairs would invalidate the state’s existing revenue sharing agreement with the tribes if any change were made to it was difficult given the paucity of legal precedent and a new presidential administration. The pact gives the state 25 percent of gross slots revenue.

“First, clear legal guidance in this area is sparse, and the factual and historical backdrop to our analysis is unique,” Jepsen wrote in a letter addressed to Malloy. “Second, your questions call for predictions as to how a federal government agency within a new presidential administration will, as a matter of policy, choose to exercise its authority. As a result, forecasting likely legal or administrative outcomes is unusually difficult.”

MGM quickly praised the opinion, while the tribes later issued a measured statement intended to convince legislators to advance the casino expansion bill now awaiting action in committee.

“While we appreciate the attorney general’s thoughtful response, it does not address the actual legislation pending in the legislature right now,” said Andrew Doba, a spokesman for the tribes’ joint venture, MMCT. “The Senate bill makes the authorization of a casino expressly contingent upon BIA approval of the tribes’ compact amendments, which should assuage concerns about losing the tribes’ sharing of slot revenues.”

The tribes, which operate the Foxwoods and Mohegan Sun casinos on tribal land in eastern Connecticut, are trying to convince the General Assembly to pass legislation authorizing construction of a $300 million satellite casino in East Windsor to compete with the $950 million MGM gambling resort scheduled to open next year just over the state line in Springfield.

“The risks attendant to authorizing casino gaming facility operated by an entity jointly owned by the MPTN (Mashantucket Pequot Tribal Nation) and Mohegan (tribe,) while impossible to quantify with precision, are not insubstantial and cannot be mitigated with confidence,” Jepsen wrote.

The loss of slots revenue was but one concern. Another was the prospect that MGM could win a claim in court that granting the tribes exclusive rights to a commercial casino without competitive bidding would violate the equal protection and commerce clauses of the Constitution.

Jepsen’s office convinced a U.S. District Court judge to dismiss an MGM lawsuit that accused the state of violating the equal protection clause in 2015 when the legislature refused to grant the tribes’ permission to expand, but instead passed a special act allowing them to negotiate with potential host communities and then return for legislative approval.

The court agreed with Jepsen’s office that the special act conferred no advantage and that the challenge was premature. In his opinion Monday, Jepsen noted that granting the tribes permission to build the casino would leave the state unable to argue that MGM’s claims were premature.

“We do believe that there are potentially meritorious defenses that we would be able to raise against these constitutional claims, including that the special nature of of state-tribal relationships permit special legislative treatment and require judicial deference,” Jepsen wrote. “However, the relative novelty of the legal issues such claims would present makes it difficult to predict their outcomes with confidence.”

Mashantucket Pequot and Mohegan officials say the new casino is necessary to minimize the loss of revenue and business once MGM Springfield opens.

An analysis prepared for the tribes by gaming consultant Clyde Barrow estimates that the MGM facility — which is more than halfway complete and expected to open in 2018 — would cause the loss of 9,300 jobs and $702 million in revenue to Connecticut’s casinos during its first three years of operation.

Barrow’s projections are that a satellite facility would recapture 46 percent of the jobs and 53 percent of the revenue the Connecticut industry otherwise would lose. The tribes also say the new casino would create almost 4,300 new permanent jobs — either at the casino or at surrounding related businesses — and 2,300 temporary construction jobs.

But MGM officials and others argue that legalizing casino gaming within the state — currently it only is permitted on sovereign tribal land — would lead federal officials to revisit the nearly 25-year-old agreement between the tribes and the state.

Under that agreement, Connecticut suspended legal objections it had to casino operations and the use of video slots — in exchange for 25 percent of slot revenues. That compact is worth about $260 million to the state this fiscal year, though the take is projected to drop by 2019 to just below $200 million.

“Attorney General Jepsen’s legal analysis reiterates and underscores what he stated so effectively two years ago,” said Uri Clinton, MGM”s senior vice president and general counsel. “Once again, the conclusion is clear and unmistakable: Connecticut risks hundreds of millions in annual revenue if it proceeds with a commercial casino — even if that casino is to be operated jointly by the two federally recognized tribes.”

“Connecticut cannot afford to take this and the other risks identified by Attorney General Jepsen, especially in the midst of budgetary shortfalls and economic uncertainty,” Clinton added. “There is a better, no-risk option. Connecticut can generate more revenue, create more jobs, and drive greater economic development for the state as a whole by establishing a competitive bidding process.”

Doba, speaking for the tribes, said MGM was being disingenuous when it suggested that Jepsen’s opinion was a call for a competitive process.

“As far as MGM’s comments are concerned, they need to stop talking out of both sides of their mouth,” Doba said. ” The AG’s testimony made it absolutely clear that the MGM bill would immediately jeopardize slot revenue and their insistence to the contrary should call their credibility into question for any policymakers.”