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Tribes and Alaska Native corporations are developing ways to overcome or minimize challenges and barriers to their BD/ED efforts. Study participants identified the following critical challenges to BD/ED: (1) complex legal, administrative, and political barriers; (2) lack of access to investment capital; and (3) poor coordination of business-related activities within the tribe and with neighboring cities and counties. Tribes and Alaska Native corporations are developing promising approaches to address each of these challenges. In addition, some federal initiatives have the potential to improve access to investment capital. If these approaches prove to be successful, the tribes/Native corporations could make advances in BD/ED.
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Tribal officials said that they are committed to eliminating or minimizing legal, administrative, and political barriers that often dampen their BD/ED initiatives. Tribes are negotiating limited waivers to sovereignty on a deal-by-deal basis with non-tribal investors and businesses; insulating tribal businesses from undue political interference; and reducing administrative burdens, such as review and approval required for establishing or expanding businesses on the reservation.
Reducing Investor Risk with Limited Waiver of Tribal Sovereignty. While federal support of tribal sovereignty has been especially valuable to tribal BD/ED (see Chapter 3), tribal sovereignty can deter investment on a reservation. Investors seek to minimize risks and maximize returns, so the inability to sue or otherwise seek resolution of disputes with a tribe in state courts, or the requirement to use tribal courts, can kill and has killed business deals in Indian country. Aware of this problem, tribes and investors have sometimes entered into agreements that limit tribal sovereignty by stipulating that disputes can be brought to state courts or addressed in another fashion mutually agreeable to the tribe and the investor. Even so, because sovereignty is so valuable to tribes, and because they have fought so hard to maintain their sovereignty, they find it difficult to impose or accept such limits.
Minimizing Political Interference in BD/ED Planning and Operation. Managers of tribal businesses, and some tribal officials we interviewed, emphasized the importance of insulating BD/ED activities from direct control by tribal government. The managers said that elected tribal officials face circumstances that tend to interfere with efficient and profitable business practices. Several study informants cited the research of the Harvard Project on American Indian Economic Development as the inspiration or support of this view. In particular, the Harvard Project reported on the importance of institutionalizing successful tribal government activities so that they outlast the political term or influence of their initial proponents.(1)
There are several reasons to prohibit elected tribal officials, whether in the legislative or the executive branches, from direct involvement in the operation of a tribal business. The reasons most cited were tribal officials' lack of business experience and their vulnerability to political pressures. Study informants said that experience or expertise in business management is seldom a campaign issue or qualification for office in tribal elections. Consequently, tribal officials may lack experience or expertise needed for successful business planning and operation. Because unemployment is so high and jobs so scarce in much of Indian country, elected officials may be pressured by tribal members to create employment opportunities in tribal government or in tribally owned businesses. Conversely, changes in elective office may result in staff changes in tribal programs and businesses, with a resultant loss of "institutional memory" and continuity and concomitant constraints on business operations and development.
Because elected representatives can be easily replaced, by recall or through defeat in the next election, it can be difficult for them to decide in favor of investing the profits of tribally owned companies, or to make long-term commitments that sacrifice short-term profits or jobs. On the other hand, study informants generally acknowledged that tribally owned businesses are responsible ultimately to their stockholders or owners — tribal members — and that it is appropriate and necessary for elected tribal officials to exercise some control over tribally owned companies. Officials are challenged to strike a balance between exercising prudent oversight of tribal businesses without becoming engaged in their operations.
Tribes in the study developed several strategies to insulate BD/ED activities from direct control by elected officials. These strategies generally focused on the autonomy of the board of directors and officers of tribally owned businesses. The Colville tribe provides a good example of such a strategy. They established a tribally chartered corporation, CTEC, to be responsible for the bulk of BD/ED planning and operations. The tribal Business Committee (the tribe's legislative body) appoints the CTEC Board of Directors, and all shares of the corporation are controlled by the Business Committee, which, however, does not have the authority to make CTEC business or employment decisions. A development group consisting of members of the Business Committee, the tribal planner, and representatives of CTEC meet monthly to review business proposals in accordance with a priority list, several criteria, and a schedule established by the development group. Informants at Colville said that the establishment of CTEC greatly improved BD/ED planning and the management of tribally owned businesses.
Other tribes have adopted or are trying to adopt similar approaches to separating tribal government from day-to-day planning and operation of tribally owned businesses. At Three Affiliated Tribes, the office responsible for BD/ED - the Community Economic Development Services Office (CEDS) — is trying to stop entrepreneurs from seeking support directly from the Tribal Council. At the time of the interview, CEDS was reviewing a proposal for the development of an ethanol plant on the reservation. In the past, the applicant would have gone directly to the Tribal Council for approval of the proposed plant. Now, CEDS will review the proposal and make recommendations to the council. The Mississippi Choctaw Tribe's Business Enterprise Division falls under the executive branch of tribal government. However, each tribal enterprise has its own board of directors and chief operating officer, who manage daily operations. At Citizen Potawatomi, the Tribal Business Committee (the tribe's legislative branch) does participate actively in many aspects of BD/ED. Each tribal enterprise submits monthly statements to the Business Committee. However, most of the BD/ED planning is done by the Tribe's 477 program, and the Business Committee has little direct control in the operation of the various tribal enterprises.
While the circumstances of the two Alaska Native corporations in the study are different from those of the tribes, the corporations are also subject to pressures from stockholders and their respective Native villages — pressures that may be incompatible with good business practices. Native corporations have more constituent groups than most tribes or Native villages. A tribally owned company generally has two key groups of constituents: shareholders (tribal members) and the Tribal Council. A Native corporation's constituents include the Native villages and tribes of their shareholders, as well as the corresponding regional Alaska Native Association. For example, Bristol Bay's shareholders are members of 32 tribes and Native villages of the Bristol Bay region, and Doyon's are members of 34 tribes and Native villages in its region. While some shareholders in the regional Native corporations may advocate on a variety of issues (e.g., conservation of resources, environmental protection), payment of quarterly and/or annual dividends to shareholders tends to be among the most important concerns. Because of the high unemployment rates and low levels of annual income in some Native villages, corporate dividends are an important source of income to many shareholders. Informants suggested that some shareholders advocate payment of dividends whatever the corporation's performance. Informants said that the regional Native corporations try to counter such pressures with stockholder education campaigns explaining that capital losses can compromise the strength of the corporation and its value to future generations.
Streamlining Complicated Business Approval Processes. For some tribes, the approval process for establishing or expanding a business can be so complicated and lengthy that potential businesses are discouraged or prevented from establishing a presence on the reservation. Complications arise from land ownership and land use issues, as well as from trustee relationships with the federal government. Examples included here illustrate the difficulties and some of the ways that tribes have tried to facilitate BD/ED in spite of these barriers.
The business approval process is especially difficult at Navajo Nation. One of the biggest problems is that tribal members have grazing permits for much of the reservation land, including land surrounding towns like Window Rock, Chinle, and Tuba City. When a business selects a potential construction site, it must secure permission from the grazing permit holder. Tribal officials said that construction cannot proceed if the permit holders do not agree to give up their grazing rights to the proposed site. Navajo Nation has a right of eminent domain, but tribal officials are reluctant to use it for fear of alienating voters. Many of the grazing permit holders are tribal elders respected by tribal members, and sheep herding is a traditional Navajo activity of deep cultural significance. In 1950, the Tribal Council passed a resolution setting aside for business/economic development all land within 750 feet of the center of highways on the reservation. However, this resolution has not been enforced. Tribal officials said an example of the power of grazing permit holders is illustrated by an effort to withdraw 200 acres from grazing for development of a mall that would include Home Depot and Wal-Mart, retail stores that sell materials in demand on the reservation and that would create badly needed jobs. However, two grazing permit holders would not give up their rights, so the deal was scuttled.
In addition to approval by grazing permit holders, business permits at Navajo require approval by relevant tribal offices, the tribal attorney, and, finally, the president of Navajo Nation. Any question raised by a tribal reviewing office or official must be addressed by the applicant. After completion of the review process, which may take as long as a year, the business may have to secure approval by the BIA. The BIA, acting as trustee for the land and other tribal resources, may require that the potential business conduct an environmental impact study and/or archeological survey, either of which can cost as much as $10,000. Tribal officials said that the time and expense these review and approval processes require cause many business deals to founder. While this study was being conducted, Navajo tribal officials were trying to develop ways to expedite and facilitate business development that would be acceptable to the Tribal Council and to tribal members.
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Tribes participating in the study are using four innovative strategies to increase access to investment capital. They are (1) negotiating, with investors and companies, agreements that include a limited waiver of tribal sovereignty (discussed above); (2) persuading lenders to use leasehold improvements as collateral for business loans; (3) using federal support to issue bonds; and (4) developing CDFIs.
Using Leasehold Improvements as Collateral for Loans. The trust relationship between tribes and the United States limits the availability of investment capital in Indian country. The United States, primarily through the BIA, serves as trustee for each federally recognized Indian tribe. Most reservation land (as well as other assets) is held in trust for tribes and cannot be sold without permission of the BIA, acting as trustee. Because the land is held in trust, banks and other lenders will not accept it as collateral for a mortgage. Thus, a tribe cannot use one of its most valuable assets to leverage investment capital.
Three tribes in the study (Citizen Potawatomi, Mississippi Choctaw, and Navajo Nation) reported they were able to induce banks to make loans to them using leasehold improvements as collateral. In each case, the tribe wanted to construct a building or to renovate an existing building needed to operate a tribally owned business or tribal program. A bank was willing to accept as collateral the improvements on the land (the new or renovated building) rather than the trust land.
A leasehold improvement approach used by Navajo Nation can serve as a model for other tribes. This effort promoted entrepreneurial activities by tribal members, rehabilitated a building that had been long vacant, leveraged federal welfare reform funding, and provided facilities required to operate the federally funded program. A large building in one of the largest Navajo communities (Shiprock, New Mexico) was structurally sound but had remained abandoned for eight years after the manufacturing business using it was closed. When Navajo Nation took over operation of the TANF program, it sought to open several satellite offices throughout the reservation, including Shiprock. A construction firm owned by a tribal member negotiated a deal with Navajo Nation to rehabilitate the building in accordance with the specifications of the tribal TANF program. No TANF funds were expended to renovate the building - the TANF program signed a long-term lease with the construction company, which used the lease as collateral for a bank loan. The construction company used the loan to finance the rehabilitation needed by the TANF program. In addition, the builder was able to develop space in the renovated building for a restaurant and retail stores.
Because of the great potential for profits, some tribes found it easy to obtain financing for gaming facilities and operations. For example, a local bank and a gaming machine manufacturer lent the Gila River Tribe funds needed to purchase and install its first "video slot and poker machines." Within three months, the tribe was able to pay off the loans with profits generated by its gaming operations.
Issuing Tax Free Bonds. One of the tribes participating in the study, Mississippi Choctaw, was among the first to generate investment capital by issuing a bond. In 1969, the Choctaw issued a bond to help fund the construction of an industrial park on the reservation. This industrial park served as the foundation for the tribe's many BD/ED successes. The Indian Tribal Governmental Tax Status Act of 1982 (26 USC Sec. 7871) generally treats tribes like states in raising capital through the sale of bonds, with one restriction not applied to states — tribes can issue tax-exempt revenue bonds only for "essential government functions." Informants at several tribes said that this requirement is ambiguous: before a tribe could issue a bond, it might have to obtain a ruling from the Internal Revenue Service that the project to be funded meets the essential-government-functions requirement. Tribal officials said that this ambiguity, along with difficulty in obtaining favorable ratings from credit rating agencies such as Standard and Poor's, has deterred tribes from issuing bonds to finance BD/ED.
Federal legislation has been introduced to liberalize some of the current restrictions on the issuance of tribal tax-exempt bonds. For example, the Tribal Government Tax-Exempt Bond Fairness Act of 2003 (H.R. 1421) would allow tribes to issue bonds to finance business activities, such as golf courses and other non-governmental establishments, on Indian lands. Another bill, the Tribal Economic Enhancement Act of 2003 (S. 1542), has many provisions designed to promote economic development in Indian country, including liberalizing the tax exemption.
Creating Community Development Entities (CDEs) and Community Development Financial Institutions (CDFIs) to Provide Investment Capital. Three of the tribes/Native corporations in the study (Citizen Potawatomi, Navajo Nation, and Doyon, Ltd.) have received grants from the CDFI Fund to develop a CDFI.(2) The programs focus on increasing capital for housing or business expansion on the reservations. CDFIs provide a wide range of financial products and services, including mortgages for first-time homebuyers, financing for community facilities, commercial loans and investments to start or expand small businesses. In 1996, Navajo Nation, through a joint effort with the Neighborhood Reinvestment Corporation, developed the Navajo Partnership for Housing, Inc. This CDFI is developing a capitalization strategy, obtaining training about technical aspects of mortgage lending, and developing a curriculum to educate professionals involved in the lending process to facilitate mortgage lending on and near the Navajo reservation. When the study data were collected, the Citizen Potawatomi Tribe was in the process of obtaining certification from the Treasury Department. The Potawatomi plan to use their CDFI to support small business development.
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Despite a history of disputes and conflicts of interest, tribes have increasingly cooperated with states and counties in such areas as welfare reform and BD/ED. Many states and counties have worked closely with tribes taking over the operation of TANF programs (Hillabrant et al. 2003). Six tribes in the study (Colville, Citizen Potawatomi, Gila River, Navajo Nation, Three Affiliated Tribes, Turtle Mountain Chippewa) reported mutually beneficial coordination of BD/ED activities with states, counties, and/or regional bodies. Informants said that as tribal economies have grown, states, counties, and other organizations have shown more trust and respect for tribes, which, in turn, has facilitated cooperation in BD/ED planning and activities:
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(1) The Harvard Project, created in 1986, is housed at the John F. Kennedy School of Government at Harvard University. In collaboration with the Udall Center for Studies in Public Policy at the University of Arizona, the Harvard Project works for and with tribes and tribal organizations to research and document tribal governance and economic development. For more information, see [www.ksg.harvard.edu/hpaied].
(2) The grant for Navajo was made to a tribal enterprise, the Navajo Partnership for Housing. The grant for Doyon, Ltd. was made to its parent Native association, Tanana Chiefs Conference.
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