Indiana's beleaguered casino industry faces more turbulence with the opening of the state's first tribal casino in South Bend, which could lure gamblers from other locations and have a business advantage since it won't pay state taxes.

The Pokagon Band of Potawatomi Indians is set to open the Four Winds Casino South Bend to the public on Tuesday, joining three other casinos the tribe already operates nearby in southwestern Michigan.

Indiana's 13 existing casinos are all run by private companies, regulated by state officials and paid about 27 percent in state and local taxes on their gambling profits last year. The new South Bend casino faces no state taxes or regulation as it is owned by a federally recognized Indian tribe and will pay 2 percent of its profits to the city of South Bend under a local agreement.

The Pokagon Band started the drain from Indiana's casino windfall when it opened its first casino in 2007 just across the state line in New Buffalo, Michigan. Gambling competition has since grown from all other surrounding states, leading to a one-fifth drop in Indiana casino gambling profits and the shedding of some 3,000 jobs since peaking in 2009, according to Indiana Gaming Commission reports.

John Warren, chairman of the Dowagiac, Michigan-based tribe, said the casinos benefit the some 5,000 Pokagon Band members with health care, housing and education programs, and that the new casino will provide about 1,200 jobs for the South Bend community.

Warren compares the lack of state taxation for the tribe's casino to the fact that the state of Indiana doesn't charge itself taxes for its Hoosier Lottery and maintains that the new casino's addition of 1,800 electronic gambling machines, or about 9 percent, to the state won't stifle the existing casinos.

"There's probably more competition in states surrounding us than what we bring to Indiana," he said.

The tribal casino's opening is projected to cut gambling profits at the state's existing casinos by 4 percent the first year and by 9 percent over the next five years, according to a study for the Casino Association of Indiana.

The Blue Chip Casino in Michigan City has been the hardest hit since the first Pokagon casino opened — and the new South Bend site is only about 40 miles away.

David Strow, a vice president of Blue Chip owner Boyd Gaming, said the company has continued to invest in casino amenities in order to stave off the competition.

"We have seen several new casino properties open in this region over the last 10 years, and Blue Chip has continued to compete successfully each time over that timeframe," Strow said.

The state's budget planners anticipate a 12 percent drop in casino tax revenue over the next two years.

Taxes from Indiana's 13 casinos made up nearly $680 million, or about 5.5 percent, of the state tax revenue in the 2010 budget year, according to state figures. That revenue already dropped to $442 million last year and is forecast to reach $388 million in 2019, for about 2.4 percent of state revenue.

House Ways and Means Committee Chairman Tim Brown said the state has adjusted to the decline.

"I have told people we will just deal with the activity that we can estimate and that's what we'll plug into our formula," said Brown, a Crawfordsville Republican. "We're not going to try and necessarily make it so that it can make up a certain percent of the budget."

The Pokagon Band's new casino will rival the size of its flagship casino about 40 miles away in New Buffalo, but lack the 18-story, 500-room hotel and much of the tribal village it outlined in a 2012 federal application for the site on South Bend's southwest side, near the U.S. 31/20 bypass.

The new casino will only have electronic games and slot machines, much like the two horse track casinos near Indianapolis. Federal law requires the tribe to negotiate an agreement with state officials in order to add live table games, such as blackjack and roulette.

Warren, the Pokagon chairman, said additional expansion at the South Bend site would depend on the casino's performance and that the tribe had not yet talked with the state about adding live games.

"It's never been a priority to us right now," he said. "It may never become a priority, we don't know at this point."