California city to help finance tribal casino

Chris T. Nguyen

Friday, July 30, 2004 | 9:08 a.m.

LOS ANGELES -- A Southern California city plans to issue a $145 million bond to pay for a tribe's new casino and hotel, a practice under scrutiny by the Internal Revenue Service in at least one state.

The city of Banning in Riverside County intends to float a bond in August for the Morongo Band of Mission Indians, which will use the money for its resort under construction about 80 miles east of Los Angeles.

Under the deal, the tribe will pay off the debt in 15 years and Banning will receive an estimated $1 million in proceeds.

The IRS, however, has shunned the practice of communities issuing bonds for lucrative purposes.

Charles Anderson, national tax-exempt bonds manager for the IRS, said Wednesday municipal bonds can only pay for "essential government" projects, including roads and schools.

"If it's for infrastructure, tribes can do it themselves. Why would they need to go to someone else?" he said.

Anderson did not comment on Banning's bond but said the IRS has been conducting ongoing audits nationwide.

In May, for example, the IRS challenged a $345 million bond issued by Gulf Breeze, a small community in northwest Florida near the Alabama line. The money benefited the Seminole Tribe's casino project.

IRS auditors wanted millions of dollars in proceeds Gulf Breeze earned from the deal returned to the federal government, saying federal law was violated because the money was used for a private -- not public -- purpose.

Morongo consultant Waltona Manion said the tribe would avoid paying fees and obtain a lower interest rate by having someone else issue the bond.

"Tribes are unable to compete for bond funds that municipalities are," she said, adding the tribe stands to save an estimated $20 million.

In California, the Cabazon Band of Mission Indians obtained $181 million in tax-exempt bonds for a resort-casino project through a state agency, saving the tribe an estimated $25 million over the life of the loan.

Morongo is building a new hotel resort and casino set to open in December. The tribe has spent $100 million of its own money on the project.

The $145 million bond will pay for construction of the hotel, a sewage treatment plant, a parking structure and a power generator.