CHARLESTOWN — The Narragansett Indian Tribe must build housing on at least part of the land the U.S. Department of the Interior plans to take into trust on the tribe’s behalf, federal housing officials say.

But what will be done with the rest of the 31 acres remains unclear, and the subject of wide speculation, following a 1st U.S. Circuit Court of Appeals ruling last Friday that the Interior Department could hold the land for the Narragansetts.

“The land’s to be used for housing and that’s what I’ve said we’d do,” Chief Sachem Matthew Thomas said yesterday.

When asked about other possible options such as gambling or a smoke shop, Thomas replied, “We’re taking it one step at a time.”

He added: “The land’s been put in trust for the benefit of the tribe. We’re always interested in what benefits our tribe.”

The U.S. Department of Housing and Urban Development awarded the tribe $4.1 million in 1988 to build 50 houses for tribal elders with low incomes. Three years later, the Narragansetts used $527,000 of the money to purchase the sloping, wooded property from a private developer.

“The HUD funding was approved with their agreement that they would build the homes,” said Donna White, a HUD spokeswoman. “Even if they put something else on the land, there must still be enough room to put that housing on the land.”

The housing project, mired by what a HUD audit called financial mismanagement, stalled when the tribe began construction without securing state and local permits. Today, the shells of a dozen derelict houses and six foundations are all that is to be seen on the site just north of Route 1 and across Kings Factory Road from the tribe’s other 1,800 acres in Charlestown.

The tribe won’t proceed with construction until the court case is resolved, said Rosilyn Brown, executive director of tribal housing. The state and the town sued the Interior Department after it agreed to take the land into trust for the tribe in 1998. Federal courts have consistently ruled in the federal government’s, and the tribe’s, favor. The state plans to appeal last week’s ruling to the U.S. Supreme Court.

Once the tribe is given the go-ahead, the 12 partially built houses will be demolished. Plans, still in the works, have been revised to include 12 small houses for the tribe’s poor elders and about 20 affordable townhouses for tribal families, Brown said.

Only 9 of the 23 elderly people who originally planned to live in the houses are still alive, Brown said. The tribe has 172 homeless families.

About $1.9 million in HUD money is available for the project, White said.

The Interior Department acts as trustee for tribal lands under a law intended to restore lands and certain services to Native Americans. Trust land falls under the tribal and federal authority, freeing it from state and local laws and property taxes.

If the decision stands, tribal zoning and criminal laws would apply on the 31 acres, though the federal government would also enforce its laws and oversee the property.

“From my perspective, it allows the Narragansett Indian Tribe to assert itself as a separate government in the state of Rhode Island,” said Richard Guest, a lawyer with the Native American Rights Fund. “Now the state has to negotiate with the tribe.”

It’s that specter that some state and local officials fear.

“If allowed to stand, this ruling could have a devastating impact on Rhode Island sovereignty,” said Jeff Neal, Governor Carcieri’s spokesman. It could pave the way not only for gambling, a smoke shop or other enterprise on the land, but also for the tribe and the Interior Department to potentially pluck other properties from state jurisdiction, he says.

Though the 31 acres originally were taken into trust for housing, Joseph S. Larisa Jr., Charlestown’s solicitor on Indian affairs, says he worries that the tribe would be free to use the land any way it chose.

Further, he said, it could clear the way for the tribe to build a casino on the land under federal Indian gambling laws. By law, Indian lands can be used for gambling if they were taken into trust before 1988, or if the property is within or contiguous to a tribe’s reservation. Gambling could also be allowed if the Interior Department finds, and the sitting governor agrees, it would be in the tribe’s best interest and not a detriment to the surrounding community.

The tribe would then enter into a compact with the state. The federal government and the courts could weigh in if the state refused to negotiate in good faith. If an agreement is reached, the tribe would be entitled to operate any type of gambling that is allowed in Rhode Island.

“Before this case came down,” Larisa said, “the door was shut.”

The late Sen. John H. Chafee made sure of that in 1996, when he sponsored a law that bars the tribe from federal Indian gambling privileges on its 1,800 acres. The Narragansetts, unlike most tribes, would have to seek state and local voter approval for any gambling on their land.

The law, known as the Chafee amendment and cowritten by Larisa, then on Gov. Lincoln Almond’s staff, outraged tribal leaders, who blasted it as discriminatory and geared toward protecting the state’s gambling interests. Chafee said the measure was intended to close a loophole and simply upheld the terms of the 1978 land claims settlement that gave the Narragansetts their 1,800 acres.

The federal appeals court, in its decision last week, challenged the state and town to seek similar congressional relief if they want the land to be held to the same conditions as the tribe’s 1,800 acres. Under the land claims settlement, the tribe agreed that state and local laws would apply on its lands.

“We’d hate to see anyone play ball like that,” Thomas said yesterday of the prospect.

The state’s congressional delegation this week was leaving the issue to the courts.

Additionally, the court ruling has raised speculation in Charlestown that 81 acres just south of the housing site could also be in play. Larry LeBlanc, that land’s owner, has proposed to build 125 condominiums on the land, which borders Route 1.

He says the town would best protect its interests by forming a committee to work with the tribe to negotiate a gambling compact. For example, he said, maybe that group could get the Narragansetts to agree not to take any more land into trust without state and local laws applying.

“It’s really given us concern about what we’re going to do,” he said. “Clearly, I’ll have a worthless piece of property for what I want to do.”

When asked if the tribe had approached him about selling the land, LeBlanc said, “the tribe has not participated in talking.” Asked if there had been discussions with any casino interests, LeBlanc said he would not comment, then said abruptly, “I have to go.”

Thomas says he has not spoken with LeBlanc and that the tribe is not currently working with a casino operator. The tribe’s contract with Harrah’s Entertainment ended last November, when voters defeated a referendum that would have allowed the tribe to build a casino in West Warwick with Harrah’s backing.

Thomas said he hopes the court ruling holds and wonders about the state’s concerns.

“We did very well prior to outside contact,” he said. “I think they need to worry about themselves instead of wasting a lot of money trying to break our spirits and our backs.”

The state has 90 days from last Friday’s decision to appeal. Whether Charlestown will join the state in an appeal remains unclear, as that Town Council spars over what its involvement should be.

kmulvane@projo.com