Tribe has $9M Budget Shortfall

by Aug 9, 2010NEWS ka-no-he-da0 comments



Due to gaming forecasts that didn’t pan out, the Eastern Band of Cherokee Indians is experiencing a $9 million budget shortfall for the remainder of FY2010. A previous forecast of $229 million has been reduced to $211 million and following a one-half split between the Tribe’s budget and per capita distribution, tribal officials and programs are left with the $9 million shortfall.

“It’s tough to discuss, but I also think it’s healthy,” said Principal Chief Michell Hicks at a special meeting he organized between tribal officials and Harrah’s officials held on Monday, Aug. 9. “You can’t solve problems until you get them out on the table.”

Chief Hicks said communication is key. “I do think that there is significant amount of room for improvement,” he said referring to the way the flow of information from the casino to the Tribe occurred. Communications have to change. They have to get better.”

Harrah’s officials gave a power point presentation outlining various financial forecasts during Monday’s meeting.

“Many things went well, but we haven’t been happy with bad forecasts,” said Darold Londo, general manager of Harrah’s Cherokee Casino & Hotel, who related that many factors have contributed to the decline in revenue including: winter weather impacts, I-40 rock slide, 441 road closures, and the Noro Virus outbreak this January.

He remains optimistic about the casino’s profibility and stated, “Per employee, we earn more revenue that I’m aware of in the country.”

Big Cove Rep. Perry Shell stated, “It’s a tough, tough situation – cutting an additional $9 million from now until the first of October. It’s a priority that we not cut any employees…that we take care of our elders, take care of our children and medical.”

His colleguge, Big Cove Rep. Teresa McCoy, commented, “As a tribal government, we have a responsibility to fall within our means and not spend more than we make. We have some projects coming up that we really need to look at.” Rep. McCoy said that she will not vote to put the Tribe into any more debt until the current budgetary issues are resolved.

She said it also might be time to look at implementing new taxes or explore to see if any tribal services are being duplicated. “I think it’s time for the tribal government to sit down and get very creative. I don’t want to send an employee home and I don’t want to cut a service.”

According to information from Harrah’s presentation, the distribution forecast for FY2010 was initially $246.3 million. Since then, three new forecasts have been issued including: $230 million (Feb. 2), $223.8 million (May 5) and the latest of $211.4 million (Aug. 4).

The initial planned revenue through the month of July was $200.4 million and only $173.3 million has been taken in for a variance of – 13.5 percent. This sort of variance has happened before. In FY2004, an exact variance of – 13.5 percent occurred when the planned revenue was $203.7 million and the actual amount was $176.1 million.

FY2009 actually showed a positive variance of 1.5% with an actual amount exceeding the planned amount by over $3 million.

Kim Peone, EBCI Deputy Finance Officer, said that with 170 tribal programs it is “very challenging” to change budgets in midstream. “It’s really challenging for us once we get those numbers in place and we develop budgets.”

She said the Tribe will have to curtail the process known as ‘year-end spend’ by which tribal programs expend all of their budget at the end of the year to zero out. Other cost-cutting measures will be implemented including cutting travel and training expenses until the shortfall is met.

Harrah’s Cherokee began the sale of alcoholic beverages in December 2009, and so far sales have been disappointing to some. “The overall effect of alcohol has not been as great as we had anticipated,” said Londo who did say it has been an asset to the property though. “We’re doing much better with it than we would without it.”

“Pricing was and continues to be a factor. I think we may have had the price a little too high initially.”

Information from Harrah’s report states, “Not only has the property sold $1.3 million in alcohol YTD (year-to-date), but the gamers who consume alcohol are estimated to have contributed another $6.4 million.”

Peone was asked about the impact on tribal levy from alcohol sales, “The projected levy with regards to the alcohol sales was $525,000 and, as of June, we have a $261,000 shortfall.”

Bob Blankenship, TABCC (Tribal ABC Commission) chairman, said, “It was not to make a profit off the alcohol. It was to give our customers what they wanted.” He said one headache of the alcohol operation has been the fact that the TABCC is not allowed to be the distributor as was initially planned. Blankenship said he recently met with state officials to remedy the situation.

Harrah’s reported the planned distribution amount for FY2011 is $245.5 million – a number that has some tribal leaders shaking their heads and wondering if the FY2011 budget process will be affected.

“I’m really confused by the forecast,” said Peone. “Give us a forecast that’s going to be correct. What is the real number?”

Chief Hicks commented, “When we started to plan for FY11, the initial projections were $290 million and then downgraded to $250 million. This $250 million was what we projected our tribal budget on.” “Things are bouncing around,” he said. “We can’t operate within parameters that are moving so much.”