California cities brace for revenue hit from new cardroom regulations

Cities across California are preparing for potential revenue losses and job cuts following new cardroom regulations that restrict popular table games, prompting legal challenges from the industry and warnings of fiscal strain in some municipalities.

Attorney General Rob Bonta announced the rules in February amid calls from tribal gaming groups, which argue that cardrooms have long operated games that violate state law. Under Proposition 1A, approved by voters in 2000, tribal casinos hold exclusive rights to offer banked games such as blackjack and baccarat.

Cardrooms have historically used third-party proposition players (TPPPs) to simulate those games, a workaround the new regulations seek to curb by limiting blackjack-style play and restricting the role of TPPPs. The changes are expected to force operators to rethink some of their most profitable offerings.

Industry representatives have warned of significant economic fallout. The state’s own assessment projects the loss of hundreds of millions of dollars in city revenue and hundreds of jobs, in a sector estimated to have generated $5.6 billion in annual economic impact in 2019.

“Attorney General Bonta’s regulations threaten to eliminate more than half of California’s cardroom jobs,” said Kyle Kirkland, president of the California Gaming Association, said last month. “We are asking the court to stop these unlawful regulations before they wipe out thousands of jobs and put many local economies into fiscal distress across California.”

The association and several cardrooms have filed lawsuits challenging the rules and are seeking injunctions to block their implementation. The regulations took effect on April 1, with operators required to submit compliance plans by May 31. Tribal groups have moved to intervene in the cases, arguing that cardrooms have long operated illegal banked games.

Some cities that rely heavily on cardroom revenue have already taken action. Commerce and Bell Gardens have declared fiscal emergencies and proposed sales tax increases to offset expected shortfalls.

Officials in San Jose warned the impact could be severe. “If enacted, these regulations will inflict a direct and devastating financial blow to the City of San José – an estimated $32 million annual hit to our General Fund,” wrote Mayor Matt Mahan and four city councilmembers in a letter, adding that revenues could fall by as much as 85% if customers do not shift to other games.

Other municipalities are less certain about the effects. Finance officials in Napa and Gilroy said they do not expect budget impacts, while cities such as Rancho Cordova, Livermore, and Lodi are monitoring the situation.

In Hawaiian Gardens, where cardroom revenue accounts for about 65% of the general fund, officials are taking a wait-and-see approach, supported by reserve funds but wary of potential losses.

Local leaders and industry advocates say the stakes are high for communities that depend on cardroom activity.

“The impact it would have on the community is just devastating,” said Juan Garza, executive director of California Cities for Self-Reliance.

State officials, however, have defended the regulations as lawful. “DOJ adopted these regulations in accordance with the Administrative Procedure Act (APA),” a Department of Justice official said.

Tribal representatives have backed the changes, saying they are needed to enforce existing gaming laws. “Cardroom casinos are not above the law,” an attorney for intervening tribes said, adding the rules are a positive step towards ensuring that cardrooms operate within legal limits.