Feds threaten to cancel casino deal between Fond du Lac Band, city of Duluth

The city of Duluth’s efforts to reclaim a share of gambling revenue from the Fond-du-Luth Casino were further complicated by a letter Mayor Don Ness received Wednesday morning.

In that letter, the U.S. Department of the Interior threatened to cancel a lease agreement that allowed the city to collect 19 percent of gross revenue from video gambling machines as “rent” for the Fond-du-Luth Casino. The department deemed the lease unlawful in light of recent rulings by the courts and the National Indian Gaming Commission.

The city has 10 days to make a case for why the lease should not be canceled, according to a letter from Assistant Secretary of Indian Affairs Larry Echo Hawk.

Mayor Ness said the city will respond.

“The role these administrative officers are playing is inappropriate. They’re playing an advocacy role on behalf of the band, and we will be challenging that,” he said.

The Fond du Lac Band of Lake Superior Chippewa, which operates the casino, stopped making payments to Duluth in 2009 after concluding the disbursements could not be justified by the services the city provided. At the time those payments annually totaled more than $6 million.

The band’s actions led to an ongoing court battle. Behind the scenes, both sides said today that negotiations to resolve the dispute outside of court have failed.

Band Chairwoman Karen Diver said in a meeting with Mayor Ness a couple of months ago that the band offered to negotiate ongoing payments for police and fire-protection services.

“One of the criticisms of the band we’ve heard is that we’re not willing to carry our own water, in terms of paying for city services,” Diver said.

Diver said Ness was not receptive to the idea.

“The only thing that would satisfy him (Ness) was the promise of a future revenue stream from the casino,” Diver said. “And that has already been ruled unlawful by both the NIGC and the courts.”

But Ness said the band has more latitude to negotiate a settlement than Diver suggests.

“There wasn’t sufficient recognition given to the value to the band of having a casino in downtown Duluth,” he said. “She would offer a token amount for police and fire protection, but that’s only a small part of the overall benefits the casino receives.”

Ness said that in addition to providing basic infrastructure, such as streets, water and gas, the city also promotes tourism, an industry that brings more than 3 million visitors to Duluth each year. He said that by allowing a casino to go up in the middle of downtown Duluth, the city also provided the casino with ready access to its own population base.

If the two sides are unable to come to a compromise and the lease is indeed canceled, as the Department of the Interior contends it should be, the development would come as positive news to the band, Diver said. She referred to the decision as “yet another federal determination that this was an unlawful use of band funds.”

In July 2011, the National Indian Gaming Commission sided with the Fond du Lac Band in finding its payments to the city were unlawful. The commission ordered the band to cease payments, as it already had.

In November, a U.S. district court ruled that the band should make no further casino payments to the city, but Judge Susan Nelson ordered the band to make back payments through April 2011, when a 25-year revenue-sharing agreement expired. The size of this debt is estimated to be about $14 million.

Both the city and the band have appealed the decision.

Ness said it remains unclear what prompted the Department of the Interior’s latest review, but he considers it part of a disturbing pattern, with the band repeatedly enlisting the support of federal agencies to dismantle the 25-year-old agreement that led to the creation of a casino in downtown Duluth.

While Nedra Darling, director of public affairs for the Bureau of Indian Affairs, was not sure exactly how the review of the Fond-du-Luth agreement was initiated, she said: “Our gaming office works very closely with the NIGC.”

If authorities void the lease agreement, Diver said it should have no impact on the band’s ability to continue operating the casino.

“We don’t need to ask the Department of the Interior for permission to use our own land,” she said.

But Ness offered a different assessment, referring to canceling the lease as “a reckless approach.”

“It puts the whole existence of the casino at risk,” he said.

Ness said the ensuing chain of events could lead the city to take control of the casino and discontinue gambling on the premises.

Diver disputes the city has that kind of authority.

Ness said he would prefer to avoid a showdown and remains confident the city and band can find common ground.

“My goal is to find a number that is fair,” he said. “I understand that number will be less than the 19 percent we received before, and it could be significantly less if both sides were willing to compromise. We need to quit wasting money on attorneys and all these legal maneuverings.”

Diver said the band is still willing to consider a resolution that’s fair to the city and the interests of the tribe.

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