Article by Erik Smith. Published on Friday, October 07, 2011 EST.

State Gives Away Gas Taxes to Tribes, and Non-Indian Gas Stations Suffer, Says Washington Policy Center

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, Oct. 6.—A new report from the Washington Policy Center confirms what critics have been saying for years – Indian gas is cheaper. And while no one seems able to prove it, the fact that the state is handing millions of dollars of state highway-construction money to the tribes every year may have something to do with it.

           The report analyzed gas prices in markets where tribal stations are major players, and it found that some days last July Indian stations were undercutting the competition by as much as 48 cents a gallon.

            That spells big trouble for the state as tribal stations blossom and expand. Under terms negotiated by the governor’s office in 2007, the state handed out $28 million last year from the funds that are used to maintain highways, and projections indicate that the payments will just keep growing as the tribal stations snatch market share from non-Indian competitors.

            The tribes are supposed to use the money for transportation purposes. But many suspect the money is being used to drive prices down – among them, the Policy Center’s Michael Ennis, author of the report. Because the state deal keeps the records secret, no one has a clue.

            “Alarming is the word I would use,” he says. “The state is looking at perhaps having a gas-tax increase next year. If they are giving away this much money to the tribes, that’s going to alarm any gas-tax payer.”

            Not Really Refunds

            In state-government circles, agency officials like to call the payments “refunds,” a term that really is a misnomer. There is no refund because the tribes don’t pay taxes. The state collects gas taxes when fuel is sold by a refiner to a distributor, miles removed from Indian country. But once gas and diesel is sold at a tribally owned gas station, the state pays the tribes an amount equivalent to 75 percent of the gas taxes generated by sales at the pump. That’s 28 cents of the state’s 37.5 cent-a-gallon gas tax.

            The curious arrangement was the result of a federal court ruling that held the state couldn’t collect gas taxes directly from sales at Indian gas stations. By moving the collection point to the refinery, the state avoided that problem. But amid an intensely complicated policy debate in the Legislature in 2007, heavy lobbying by Indian tribes and the governor’s office convinced lawmakers that the tribes deserved a big cut. The argument was that if the state didn’t strike some sort of a deal, the tribes might get into the refining business or find some other way to evade state taxes – an argument that still strikes critics as preposterous because of the high costs involved. At the time, Republicans charged that Gov. Christine Gregoire was making a back-room deal with an interest group that had contributed heavily to her campaign.

            The result, four years later, is a booming business for Indian tribes, not all that much different from their state-sanctioned casino operations. Some 23 tribes now have some type of agreement with the state, most of them using the 75-25 split. Payments have expanded exponentially, from $5 million before the deal in 2005 to $28 million today. The number of tribal gas stations have increased from 14 to 51 since 2000, and those stations are adding pumps and getting into the high-volume diesel trucking business.

            And some say it’s illegal. The 18th Amendment to the state constitution says gas-tax money can be used only for road construction and maintenance and other highway purposes. But the deals allow the tribes to spend the money on police, transit and parks improvements, and what little information the state gets in the form of audit reports is sealed from public inspection. A gas-station trade association, the Automotive United Trades Organization, is suing the state to block tribal payouts from the gas-tax funds, and the state Supreme Court will hear arguments next year.

            Tim Hamilton, the association’s director, said the Policy Center report backs up his argument. “We’re pleased that they were willing to spend the time and effort to go in and figure out how the gasoline business works and how these compacts work, especially regarding the secrecy that has been placed over them. They broke the code.”

            Undercutting the Market

            The Policy Center report confirms with statistics what most fuel purchasers know already – the Indian stations lead the market, often undercutting non-Indian competitors by a significant margin. The Policy Center surveyed prices at 18 tribal stations in five metropolitan areas around the state – Tacoma, Olympia, Bremerton, Spokane and Yakima. In each market, the Policy Center looked at a full month of data. Results show that the tribal fuel stations consistently beat the competition, underselling the average prices in the market.

            The tribes sold at an average of 7 to 12 cents a gallon less for regular unleaded, and 15 to 26 cents a gallon less for diesel.       

Often the difference is striking. On Sept. 16, a tribal Shell station in the Puget Sound area sold regular unleaded for $3.72. That was 17 cents less than a private non-tribal Shell station a half-mile away.

            And while an occasional difference of that type might be explained by the timing of deliveries, what the survey found was that the tribal stations undercut the average of the stations in their markets throughout the survey period.

The report notes that the Spokane results don’t fit the pattern. Indian stations were higher than the regional average, by about 2 cents a gallon. But the Spokane numbers are skewed by the fact that the survey included three tribal stations, two of which – in Chewelah and Davenport – are located in rural areas far removed from metropolitan Spokane, where gas prices are considerably higher.

“The tribal fuel compacts pose significant risks to private non-tribal fuel sellers who must pay the full gas tax and charge their customers more for fuel,” the report says. Non-tribal fuel station owners are forced to operate at a competitive disadvantage because of special tax treatment given to Indian tribes, and they ultimately risk being run out of business.” 

           
           Key Information is Hidden

What the report doesn’t show is whether the state money is being used to drive down Indian gas prices. That’s one of the big problems with the policy, Ennis says. There’s no way to tell. Under the deal, the tribes must provide the state with annual audits by third-party firms demonstrating that the money is being used as intended. But the auditing requirements are loose. The Department of Licensing never sees the actual audits. Instead, it looks at summary statements provided by accounting firms hired by the tribes. If the accountants say they didn’t find problems, the state signs off. Even those letters are hidden from public inspection and may not be disclosed to the public.

“To be honest, we don’t know if the gas tax dollars are being misused,” Ennis said. “We can only guess that they are. The tribes are supposed to subject themselves to audits, but the audits are not disclosable to the public, so the public doesn’t see them, nor does DOL. It is impossible to tell whether they are actually compliant with the compacts. But the compacts do allow the tribes to spend gas-tax dollars outside of the 18^th Amendment, which I think is unconstitutional.”

Just Good Businesspeople

For their part, the tribes maintain that their prices are smoking because they are good businesspeople. There is no central trade association for Indian gas-station operators. But a spirited defense came a week ago at a meeting of the state Public Records Exemptions Accountability Committee, which is considering whether disclosure rules should be changed.

           It came from Kelly Croman, attorney for the Puyallup Tribe’s Marine View Ventures, and a key figure in the gas-tax policy debate over the last decade. Croman negotiated the original tribal settlements with the state attorney general’s office and was among those who lobbied the Legislature in 2007.

At the meeting, Croman said gas-price differences can be explained by the fact that the tribes are volume dealers, they run on tight margins, and they take advantage of marketing incentives offered by oil companies for spiffing up their properties. Those rebates alone can be worth up to 4 cents a gallon.

“If you’re crafty negotiators, and if you are a business operator, you can really end up with a substantial price advantage over a competitor down the street, even though you are paying all the same fuel excise taxes,” she said.

The Puyallups don’t price less than their own cost, she said, though nothing in state law prevents them from doing so. And it might be that the other station operators have negotiated less advantageous deals with distributors. Or maybe they’re just charging too much.

That argument may never be proven. The tribes draw the line at disclosing internal information about the way they run their operations. Non-Indian stations don’t have to open their books to public inspection, and all issues of tribal sovereignty aside, she said the tribes shouldn’t have to do it, either. One difference, though: Where the tribes are concerned, public money is involved. 
           Since the information isn’t available, Croman says there’s no way to make the argument that the tribes are using taxpayer money to beat the other guys. “I think any study that is based on a lack of this information or the allegations that are being thrown out by some of our competitors are not really worth very much,” she said.

           Where There’s Smoke

Even if it can’t be proven, there’s plenty of reason to be suspicious, Ennis said. Take a look at what’s going on with diesel sales. In Bremerton, the average price of diesel was a whopping 26 cents lower than the regional average for the entire month of July. On one day, the Longhouse Texaco and the Masi Shop both sold diesel for 48 cents lower than the average.

“A truck that carries 300 gallons pays a difference of $144 on a single refueling stop with that price difference,” he said. “In the Tacoma market, [the Puyallup tribal station] in Fife is located right at the exit to the Port of Tacoma, and they sell diesel for up to 30 cents less than the private non-tribal competitor right across the street. If you are a truck driver, saving 30 cents a gallon on a 300 gallon tank, you are most definitely going to go to the tribal stations.

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