'Caught in the middle': $130 million in education funding embroiled in tribal gaming clash

Gov. Stitt and tribal leaders verbally spar over gaming compacts Oklahoma's tribal gaming compacts historically entangled with efforts to save horse racing Document: Gov. Kevin Stitt's office files response in federal lawsuit on gaming compact Governor selects out-of-state law firm to represent Oklahoma in tribal gaming dispute

As Gov. Kevin Stitt faces a court battle with Oklahoma gaming tribes, about $130 million in education funds hang in the balance.

The governor and tribal leaders failed to reach an agreement on casino gaming compacts before Jan. 1, when Stitt contends the previous compact agreement would expire and Las Vegas-style Class III gaming would become illegal.

Tribes have sued the governor, arguing the original compact automatically renews.

The state received $148 million in tribal gaming fees in fiscal year 2019 — 88% of which was designated for Oklahoma public schools. Those funds contribute to school districts’ general operating budgets, which are used to pay teachers, buy textbooks and support school needs.

Superintendent Charles Dickinson, of Dale Public Schools, said even a temporary disruption in that revenue would deal a huge blow. Dale is a rural district east of Oklahoma City near a Citizen Potawatomi Nation casino.

“It’s scary,” Dickinson said. “If the funds and the income from the Indian gaming stopped, we’re all in big trouble. We only have enough money for two or three months in advance already. We’re all on the verge of bankruptcy all the time.

“It would be devastating to public schools if that money got held up in some form or fashion.”

Oklahoma schools experienced some of the deepest funding cuts in the nation. State funding for schools is 15% less than a decade ago when accounting for inflation, according to the Center on Budget and Policy Priorities.

A spokeswoman for Stitt previously told The Oklahoman the governor had no plans to attempt to force casinos to shut down while negotiations and court actions proceed. However, Stitt asked a federal judge to halt Class III gaming while the lawsuit is pending, court records show.

"I am committed to education,” Stitt said at a news conference Thursday. “I invested over $3 billion, the most any governor has ever invested in education. I will do everything I can to protect teachers, protect students to make sure that (a loss in revenue) doesn’t happen.”

Of the state’s $3 billion education funding formula, $130 million came from tribal exclusivity fees, which the tribes pay to operate Class III gaming devices, such as slot machines.

The legal dispute has centered on whether the state and tribes’ 15-year agreement on exclusivity fees would automatically renew. Stitt argued the gaming compact expired Jan. 1 and required renegotiation. Tribes pay 4% to 6% on Class III gaming machines, but Stitt said they should pay more.

Tribal leaders said they were open to negotiate a new rate but only with the understanding that the original agreement would have an automatic renewal.

The disagreement came to a head Dec. 31 when the Cherokee, Chickasaw and Choctaw Nations filed a federal lawsuit against the governor. Since then, the Citizen Potawatomi Nation and Muscogee (Creek) Nation have asked to join the lawsuit.

Anadarko Public Schools Superintendent Jerry McCormick said his rural southwestern district depends on support from both the state and tribal nations. Schools often get financial support from tribes outside of tax revenue.

“We’re caught in the middle. We get funding from the state and from the tribes,” McCormick said. “I just hope that it can all be resolved because at the end of the day, our students are the ones who stand to lose the most in this type of situation.”

Tribal gaming revenue combined with horse track fees to contribute more than $155 million to education in fiscal year 2019. Tribal gaming and horse track fees are the third-largest source for the Education Reform Revolving Fund, one of the largest pieces of the education funding formula.

The Education Reform Revolving Fund is often called the 1017 fund, after the legislation that created it — House Bill 1017.

If the 1017 fund comes up short, the state has no automatic mechanism to fill the deficit, said Carolyn Thompson, chief of governmental affairs at the Oklahoma State Department of Education.

The state Legislature can declare an emergency for a general revenue shortfall and tap into the Rainy Day Funds. Lawmakers can’t do the same for the 1017 fund because it’s not certified under the State Board of Equalization. The Legislature would have to free up funding somewhere else in the state budget to make up the difference.

If the fund comes up short of projected revenue, Thompson said schools are “out of luck” if the Legislature is not in session.

“A revenue failure can’t be declared in the 1017 fund,” Thompson said. “So, if 1017 doesn’t collect, schools just don’t get the money.”

State schools Superintendent Joy Hofmeister said revenue from tribal nations is “critical” in education funding.

“But the value of tribal partnerships transcends the 1017 fund,” Hofmeister said in a statement. “Such partnerships enrich every aspect of Oklahoma education. From individual tribes’ contributions to districts within their tribal jurisdictions to their collaboration on academic standards, educational programs and scholarships, our tribal nations make a tremendous positive difference for students.”

Tahlequah Public Schools receives roughly $500,000 in tribal support each year outside exclusivity fees, Superintendent Leon Ashlock said. The Cherokee Nation, headquartered in Tahlequah, provides the lion’s share of those dollars.

The Cherokee Nation donates 38% of its revenue from car tag sales to schools. Tahlequah schools received more than $300,000 in tag money, along with financial support for STEM, robotics, FFA and pre-K Head Start programs, among other initiatives.

School districts collaborate with tribal nations to obtain the Johnson O’Malley federal grant, which helps meet the needs of native students. The Tahlequah school district received $70,000 from the grant this year, Ashlock said.

“That’s a steady source of income that we can rely on, and it would be hard to make it without it,” he said. “We’re talking about a half-million dollars a year. If something were to impact the tribes’ ability to help the schools and communities, then it would hurt.”