Tribes Using State Gas-Tax Money to Stomp Competition, Charges Lawsuit

Article by Erik Smith. Published on Sunday, May 16, 2010 EST.

Amounts to Gift of Gas-Tax Funds, Service Station Owners Say – Truck-Stop Business, Highway Dollars at Stake


Tribal station on Chehalis Reservation near Rochester.

UPDATED May 17 with response from the state Department of Licensing.

By Erik Smith

Staff writer/ Washington State Wire


OLYMPIA, May 16.—On your way into Spokane on Highway 2, on the western edge of the town of Airway Heights, the first thing you see is a convenience store and filling station. And you might wonder if there’s something magic about the gas.

            There are a couple dozen pumps at the Spokane Tribe’s Spoko station. But there’s always a line. Most times of the day, two or three cars wait at every island, and you have to idle a while before you get a turn at the nozzle.

            There’s a reason for that. It’s the cheapest gas in town.

            Last Wednesday, Spoko was selling regular unleaded for $3.01. The average in the market was $3.11, and there wasn’t a station in the Spokane area that came close.

            It’s always that way, not just at Spoko but at 41 other tribal gas stations around the state. A new lawsuit filed by an organization of service station owners says state money is the reason.

            The suit says the tribes are flouting an agreement they reached with Gov. Christine Gregoire three years ago. It allows them to keep 75 percent of the state gas-tax money from tribal stations, as long as they spend it on reservation roads and highways. But the service-station owners say the Indians are plowing it back into their stores, using the state money to undercut their non-Indian competition by about five cents a gallon wherever they operate.

            Now the tribes are making plans to enter the truck-stop and commercial-fueling business in a big way, and it’s time somebody drew the line, argues Tim Hamilton, director of Automotive Trades United Organization, an organization of 300 service-station owners statewide. It’s not just that his members will lose the business. It’s also that the state stands to lose more than $100 million a year in gas-tax revenue that now goes toward the upkeep of state roads and highways.

            Already tribal fuel sales have more than doubled since the agreement was reached. Nearby non-Indian station owners are being “clobbered beyond belief right now,” Hamilton said. “They’re literally hanging on by their toenails. It is not equitable, not fair, to charge a non-Indian gas station 28 cents more a gallon just because he is not a member of a tribe. We think that’s deplorable.”


            Tribal Spending is Hidden From Public


The lawsuit, filed late Friday afternoon in Grays Harbor County against Gregoire and the Department of Licensing, calls attention to the curious deal the governor negotiated with the tribes in 2007. It imposes no limits on sales, and it allows tribes to build stations anywhere they can convert property into tribal trust land. It gives the tribes a chunk of the state’s gas-tax money, but it doesn’t allow the public to examine how the tribes are spending it.

And while state officials maintained in 2007 that they were compelled to negotiate with the tribes in order to settle a federal lawsuit, there are many who say the state never had to make a deal. The arrangement is really a sweetheart deal for the tribes, complains Rep. Doug Ericksen, R-Ferndale, and a giveaway of state funds to a constituency whose political contributions have turned them into a major force in state politics.

Ericksen battled the deal every step of the way in the Legislature. He said he’s glad someone has finally challenged it in court. “I think it’s important, when the Legislature falls prey to certain special interest groups, that the impacted individuals have recourse to the state’s courts.”

The Department of Licensing said Monday it is reviewing the lawsuit with help from the state attorney general’s office.


            Tribes Got $23 Million Last Year


            Under the state’s arrangement with the tribes, they are allowed to strike deals with the governor that give them a 75 percent share of gas tax revenue generated at their stations. Fifteen tribes have taken the state up on the arrangement since 2007, either by striking deals with the governor or by court order. Last year the state paid them $23 million.

            The 2007 legislation authorizing the deal says that the tribes are supposed to spend the money for highway purposes. But there aren’t many checks and balances. The Department of Licensing has the right to ask tribes how they are spending the money, but its ability to inspect is limited. And the law says that the state’s financial reviews are not a matter of public record, so the public is not allowed to look over its shoulder.

            Although the state has not raised any public objections to the way the tribes are spending the money, Hamilton says some spending doesn’t pass the smell test. The tribes allowed the release of some gas-tax spending data in a 2009 report issued by the Department of Licensing. Among other things, the tribes were spending money on renovations of tribal offices, enhancements of fish-bearing streams and improvements to cemeteries. That doesn’t sound like highway spending, Hamilton said.

            But more important, Hamilton’s group argues that some of the state gas-tax money must be flowing back to the stations. Some financial data is publicly available – gas-station purchase and construction costs, wholesale gasoline prices – and it doesn’t seem to adds up. Take the Spoko station, for instance. On Wednesday Chevron was charging a wholesale price of $2.99 for regular unleaded. If you add the fees that credit-card processors charge, Hamilton said it appears that the station is selling gasoline below cost.


            Could Violate Constitution


            Is state gas-tax money finding its way back to the stores in some fashion?

            If it is, it’s more than just a violation of the deals between the tribes and the state. The suit maintains it is a violation of the state constitution.

            Gas-tax revenue is the best-protected source of revenue in Washington state. The 18th Amendment to the Washington state constitution, passed by voters and the Legislature in 1943, says that fuel taxes have to be deposited in the state’s motor vehicle fund, and can only be spent for public highway purposes. Over the years that has become the guiding principle for the state’s transportation lobby – it makes fuel taxes a “user fee” that pays for road upkeep and construction, for highway policing, and for the state ferry system, which is considered part of the state highway system. And it prevents the Legislature from raiding the money for other purposes, as it did last year when it empted virtually every other dedicated account to bail out the state general fund.

            The lawsuit says the constitution bars the state from making grants to tribes from the motor vehicle fund.

            “Our goal is simple,” Hamilton said. “We want to stop state government from sending checks to the tribes out of the motor vehicle fund, in violation of the 18th Amendment. Now, if the Legislature wants to send payments of $100 million a year to the tribes out of the state general fund, that’s their business. It would be up to the public to discipline them for that stupidity.”

            The suit also charges that the policy is a matter of inequitable taxation. Non-Indians, it says, shouldn’t have to pay more.


            Truck Stops Dead Ahead


            The $23 million the state paid the tribes last year is really a drop in the oil bucket. Last year the state collected $1.2 billion in gas-tax revenue. And if the issue was limited to a handful of stations on scattered Indian reservations, Hamilton’s group might not be so concerned. But Gregoire’s deal imposed no limits on the numbers of tribal stations or the markets in which they operate. Tribes can purchase property, convert it to trust land, and build in urban markets. It’s the same reason so many tribal casinos seem to be popping up near freeway exits, far from reservations. The Spoko station in Airway Heights is a good 40 miles from the Spokane reservation.

            What worries Hamilton’s group is that the tribes are poised to enter the commercial market in a big way. Right now their stations are not set up for the interstate trucking trade. But the rules don’t prevent them from entering the lucrative trucking business, and already the state is considering a tribal proposal for a mobile fueling operation serving truckers in Pierce County.

            Once the tribes get into the business, non-Indians will find it difficult to compete, Hamilton said.

            He admits the argument puts him in a difficult position. Whenever anyone challenges the deals the state makes with Indian tribes, their advocates charge racism. But he said the impact on the highway fund makes an enormous dollars-and-cents argument. Department of Licensing figures indicate that the state got $219 million in tax revenue from “special motor fuels” between July 1, 2008 and June 30, 2009. The bulk of that is diesel consumed by 18-wheelers.

            If 75 percent of that goes away, that’s huge. “It will literally take many tens of millions out of the highway fund,” Hamilton said. “We’ll be paying for a huge charitable donation to the tribes.”