Overcoming Challenges to Business and Economic Development in Indian Country


American Indian tribes and Alaska Native villages have embraced the goals, objectives, and programs associated with welfare reform, but the lack of jobs limits the success of tribal programs such as Temporary Assistance for Needy Families (TANF) and Welfare-to-Work (WtW). The lack of jobs is one of the biggest problems in Indian country. Recognizing the scope and importance of this problem, the federal government has promoted business and economic development (BD/ED) in Indian country. This report describes (1) examples of BD/ED activities and the federal programs and initiatives utilized by a convenience sample of eight tribes and two Alaska Native corporations; (2) the legal, historical, and cultural context of tribal BD/ED; and (3) the challenges tribes/Native corporations face in pursuing BD/ED, as well as the promising approaches they are developing to minimize or overcome them. The report was prepared for tribal, state, and federal officials and other stakeholders in welfare reform in Indian country. It is the last of four reports on the evaluation of tribal WtW programs as mandated by the Balanced Budget Act of 1997. The evaluation was conducted by Mathematica Policy Research, Inc., working with two subcontractors, the Urban Institute and Support Services International, Inc. (SSI), an Indian-owned consulting firm.

Study Context. Business and economic development and welfare reform in Indian country take place in a unique legal, historical, and cultural context. Historical events disrupted or destroyed many traditional tribal economies, and the legacy of these events continues to reverberate. Cultural values, norms, and expectations exert a strong influence on tribal BD/ED. The legal status of tribes and Alaska Native villages affects their economies, their relations with governments (federal, state, county, and local), and their interactions with private-sector businesses. Tribal legal status is reflected in treaties, legislation, and administrative and judicial decisions that, collectively, are often referred to as "Indian law."

Congress has enacted laws designed to promote BD/ED in Indian country. In accordance with this legislation, many federal departments and agencies have BD/ED programs and initiatives which are aimed at supporting BD/ED consistent with Indian self-determination, tribal self-governance, and tribal sovereignty. Self-governance allows a tribe to take over the operation of programs and activities previously operated by federal agencies; to use federal funds more in accordance with their needs, circumstances, and goals; and to expand the number of jobs under tribal control. The expansion in the number of tribal employees can help decrease unemployment on the reservation, increase the pool of experienced and skilled managers and workers in the reservation workforce, and provide models for tribal members.

Tribal BD/ED Activities. The tribes/Native corporations in the study have developed a wide range of BD/ED activities, generally building their efforts on their natural resources and exploiting other favorable conditions, such as a location near tourism/recreation attractions (e.g., national parks and monuments, hunting, fishing, skiing). These tribes have developed businesses in the service sector (gaming, tourism, banking), manufacturing, natural resource management and development (mining, forest products), farming, and more.

Every tribe/Native corporation in the study benefited from one or more federal programs promoting BD/ED; however, no single program/initiative was especially beneficial to all tribes in the study. Which program was the most valuable depended on the unique needs, circumstances, and characteristics of the tribe/Native corporation. The programs/initiatives that were most helpful to the tribes in the study were gaming, USDA rural development programs in combination with the Empowerment Zones and Enterprise Communities (EZ/EC) program, and the SBA 8(a) and HUBZone programs.

Some tribes identified the Indian Gaming Regulatory Act of 1988 (P.L. 100-497) as the federal initiative that has had the greatest impact on their BD/ED. Gaming has transformed some tribal economies and provided a stimulus to others. Despite some significant successes, however, most tribes do not participate in gaming operations, and some tribal gaming operations have been unsuccessful or have produced only modest profits. Still, as of 2001, 201 of 561 federally recognized tribes had gaming operations. That year, total revenues for these gaming operations were $12.7 billion.

All but one of the tribes in the study operates gaming facilities (only the Navajo Nation does not; neither of the Alaska Native corporations operated gaming facilities). The scale of these gaming operations and their importance to the tribes has ranged from substantial (more than $50 million a year) to modest (less than $1 million a year). Gaming profits have transformed the economies of some tribes (Gila River, Cheyenne River Sioux); for other tribes (Citizen Potawatomi, Colville, Three Affiliated Tribes, Turtle Mountain Chippewa), gaming has produced significant profits that have boosted, but not transformed, their economies. Interestingly, because the tribe had already approached full employment and was operating many successful businesses, the Mississippi Choctaw Tribe's large and profitable gaming operations have produced less dramatic effects than otherwise would have occurred.

Key Challenges and Promising Approaches. The study participants identified four critical challenges to their BD/ED efforts:

  • Legal and administrative barriers. Investors and businesses sometimes require assurance of access to federal or state courts for dispute resolution before doing business with a tribe or tribal business. Such assurances often require a limited waiver of tribal sovereignty. The lack of a commercial code, zoning regulations, and tax policies presents administrative barriers that can deter potential investors and business partners.
  • Focus on short-term rather than long-term results. Study informants said that stakeholders and tribal members who are stockholders in tribal businesses may steer business operations in directions that are inconsistent with the long-term planning perspective and investment strategies required to make a venture successful. For example, especially in areas with high unemployment, tribal members might pressure tribal officials and managers of tribal enterprises to increase hiring regardless of the enterprise's profitability or sales. Similarly, members of native villages and stockholders in Alaska native regional corporations might pressure the corporation to pay dividends instead of investing profits.
  • Lack of investment capital. Lack of capital, either in the form of debt or equity financing, makes it difficult to start new businesses or to expand existing ones.
  • Poor coordination of business-related activities within the tribe and with neighboring cities and counties. Poor coordination of business-related activities between tribal programs and offices and between the tribe and nearby communities and counties can also interfere with BD/ED.

Tribes and Alaska Native corporations are developing ways to overcome or minimize these challenges and barriers to their BD/ED efforts. They are changing their legal and administrative structures and procedures; creating clear separations between businesses and elected officials, trying to attract investment capital; and improving coordination and cooperation with states, counties, and regional entities. The tribes in the study had developed or were refining their commercial codes, zoning policies and procedures, and tax codes with the aim of attracting investors and businesses to the reservations. They were also streamlining the process of creating or expanding businesses. Some tribes had negotiated a limited waiver of sovereign immunity with non-Indian business partners so that disputes can be mediated by a mutually agreeable third party or submitted to state or federal courts.

Most of the tribes in the study had developed, or were trying to develop, balanced ways to insulate businesses appropriately from possible pressures that might be exerted by tribal members or officials. A common approach is for the Tribal Council to appoint members of the board of directors of each tribal corporation. While each director answers ultimately to the Tribal Council, each director and corporate officer governs the corporation on a day-to-day basis without direction by the council.

Tribes participating in the study are developing strategies to eliminate or minimize barriers that block the flow of investment capital. The most promising involve persuading banks to use buildings and leases rather than trust land as collateral for loans; taking advantage of federal support and tax incentives to issue bonds; developing Community Development Financial Institutions (CDFIs); and collaborating with state, county, and regional entities in USDA rural development and other federal programs. While it is too early to determine their effects, several federal initiatives that aim to attract investment capital to Indian country have been implemented. These promising initiatives create: (1) the New Markets tax credit and the Indian reservation investment tax credit; and (2) the authority for tribes to issue tax-exempt bonds.

The situation of Alaska Native Regional Corporations such as Bristol Bay and Doyon is very different from that of Indian tribes. From their inception, Alaska Native regional corporations had the responsibility for protecting, maintaining, and growing millions of dollars in cash settlements paid them as part of the Alaska Native Claims Settlement Act (ANCSA). While many Indian tribes have received cash as part of a settlement that extinguished tribal land claims, few tribes received such large amounts (ANCSA conveyed $962.5 million to the original 12 Native regional corporations created by the Act), and corporations were not created to manage tribal assets. Bristol Bay and Doyon have prudently invested the ANCSA payments, have been able to increase the value of their holdings, and have regularly paid shareholders dividends that approach or exceed the value of the amounts awarded by ANCSA. Nevertheless, many shareholders in the Native corporations continue to reside in small villages with few opportunities for salaried employment, often in substandard housing, and depend to some degree on subsistence fishing, hunting, and gathering as well as dividends paid by the Native corporations.

Study Findings. For each of the tribes in the study, BD/ED planning has undergone significant changes in recent years. Before passage of the Indian Self-Determination and Education Assistance Act (ISDEAA) in 1975, much of the planning was managed or performed by staff of the Bureau of Indian Affairs (BIA). Since then, in accordance with a desire for self-determination and governance and with support of federal agencies, the tribes in the study gradually took over responsibility for and control of BD/ED, as they did with most other programs and initiatives. Valuable support for BD/ED planning has been provided by the Economic Development Administration (EDA) in the Commerce Department and by the Administration for Native Americans (ANA) in the U.S. Department of Health and Human Services (DHHS).

Some tribes have encountered problems in their BD/ED planning and in monitoring and assessing the success of their planning efforts. In all the tribes participating in this study, responsibility for BD/ED is spread across different tribal offices and programs, and BD/ED planning activities are sometimes poorly coordinated. This diffusion of responsibility and poor coordination reflects, in part, the fragmentation in federal funding for tribal BD/ED across different federal agencies and programs. However, some tribes find that two federal initiatives (PL 102-477 and the EZ/EC programs) help facilitate coordinated management of funds from various federal sources.

Discussions with tribal officials and reviews of available reports of tribal enterprises indicate that few tribes have integrated formal monitoring and assessment with their planning and management of tribal BD/ED. Measuring the success of individual business efforts differs from assessing progress in achieving tribal BD/ED goals and objectives, but both types of analysis are needed for continuous improvement of tribal initiatives.

Tribal efforts to take advantage of federal programs and initiatives to promote BD/ED and to exploit their own resources and opportunities have had mixed results. Two tribes in the study (Gila River and Mississippi Choctaw) have experienced significant success, transforming their economies, creating jobs, and dramatically reducing unemployment and poverty on their reservations. Another (Citizen Potawatomi Nation), in a very different context and environment, has gradually developed a diverse and strong economy and has achieved one of the lowest unemployment rates (10 percent) in Indian country. Other tribes, often using innovative and aggressive BD/ED planning and operations, have developed new businesses and industries and created jobs. Nevertheless, the number of jobs created and the wealth produced continue to be modest compared to the large numbers of tribal members who lack employment and live in poverty.

While federal programs and initiatives have been key factors in some significant successes and have made valuable contributions to BD/ED throughout Indian country, many Indian tribes and Alaska Native villages continue to experience levels of unemployment that exceed 45 percent and levels of poverty that exceed 36 percent (NCAI 2003). Informants at seven of the eight tribes and at one of the Alaska Native corporations in the sample reported unemployment rates exceeding 45 percent, the highest being 80 percent (Cheyenne River Sioux).

The combination of tribal self-governance/self-determination and federal programs that promote tribal enterprise, provide funding, and improve access to capital has created a shift in favor of tribal BD/ED, a shift that is still somewhat new. Looking back over the past 10 years, tribes in this study tried many approaches in a range of industry sectors. Success has been mixed and has taken time to materialize. Despite the difficult challenges they face, the tribes and Native corporations in this study are aware of the successes achieved, foresee continuing federal support for their efforts and, thus, find reason for optimism about their BD/ED efforts.