Overcoming Challenges to Business and Economic Development in Indian Country. Tribal Legal Status and BD/ED in Indian Country


The legal status of tribes and Alaska Native villages affects their economies, relations with governments (federal, state, county, and local), and relations with private-sector businesses. This legal status is reflected in treaties, legislation, and administrative and judicial decisions. Collectively, these treaties, statutes, and administrative and judicial decisions are often referred to as "Indian law." Seven principles of Indian law are critical to BD/ED in Indian country, and generally apply to Alaska Native villages as well: (1) the primacy of the federal government in Indian affairs, (2) the plenary power of Congress, (3) trust relationship, (4) tribal sovereignty, (5) tribal reserved rights, (6) canons of construction of Indian law, and (7) Indian self-determination and self-governance (American Indian Research Institute 1998). Each of these sometimes contradictory principles is discussed below.

Federal Primacy in Indian Affairs. One of the first principles of Indian law is the primacy of the federal government in Indian affairs. After the establishment of the United States, relations with Indian tribes became the prerogative of the federal government.(1) Article I, section 8, clause 3 of the Constitution, known as the "Indian commerce clause," says: "Congress shall have Power . . . to regulate Commerce with foreign nations, and among the several States, and with the Indian tribes." The Indian Trade and Intercourse Act of 1790, known as the "Nonintercourse Act," brought Indian affairs under exclusive federal control by:

  • Regulating commercial trade with Indians
  • Establishing penalties for violations of the law by traders
  • Specifying provisions for crimes committed against Indians in Indian country
  • Prohibiting the sale of Indian land without federal approval

Federal primacy in Indian affairs has important implications for BD/ED in Indian country:

  • Every state regulates much of its internal commerce, but states generally cannot levy sales or other taxes on commerce occurring on Indian reservations. Avoidance of state taxes can serve as an incentive for businesses to locate on a reservation; however, to the degree that tribes levy their own taxes on businesses, the tax-avoidance incentive is mitigated.
  • American Indians residing on reservations are generally not subject to state income taxes. This can serve as an incentive for employed tribal members to maintain a residence on the reservation and can increase their net income.
  • Disputes between tribes and states, between tribal and state chartered corporations, and between state residents and tribal businesses generally cannot be adjudicated by state courts; such disputes fall under the purview of tribal or federal courts. Lack of access to state courts deters some businesses from investing in Indian country.
  • Federal primacy in Indian affairs contributes to the isolation of tribal governments from some business activities. Non-Indian businesses tend to be less familiar with the operations of tribal governments than they are with those of state, county, and local governments. Less equipped to advance and defend their interests before governmental bodies in tribal settings, some businesses refrain from activity in Indian country.

Plenary Power of Congress. Pursuant to its plenary powers, Congress may abrogate or modify any tribal right or privilege established by treaty, statute, or other document. Subject only to the Constitution, Congress can advance, limit, or control much of Indian commerce and related affairs. Indian self-determination, self-governance, and commerce are ultimately subject to the control of Congress.(2) For example, in passing the Indian Gaming Regulatory Act (Public Law 100-497), Congress required tribes to negotiate compacts with states setting parameters for gaming on tribal lands.(3) In exercising its plenary powers, Congress has granted federal recognition to some tribes and has terminated the recognition of others.

Trust Relationship. Tribes are regarded as "domestic dependent nations." The relationship of these nations to the United States "resembles that of a ward to his guardian."(4) Under this principle, the United States, often through the BIA in the Department of the Interior, serves as a trustee for each tribe. Sometimes there is tension or conflict between the roles and responsibilities of the United States as a trustee and other principles of Indian law, such as tribal sovereignty, reserved rights, and self-determination.

The trust relationship affects BD/ED in Indian country in several ways:

  • Tribes and tribal members cannot mortgage reservation land, because, while the tribe owns the land, it is also held in trust by the United States for the current and future tribal members. Without such mortgages, it is difficult to obtain loans needed to finance home construction and business development.
  • Approval from the BIA, as trustee, is generally required for major BD/ED initiatives. A tribe's management of its assets is generally subject to BIA review, and the BIA can repudiate tribal decisions, if it deems that they place tribal assets at risk. Tribal informants said that the BIA is understaffed, and its approval process sometimes takes so long that potentially lucrative business opportunities are lost.
  • Some informants said that the federal government has not always lived up to its trust responsibilities. They claim it has failed to account for tribal trust assets and income and failed to represent tribal interests. Tribal officials said that such failures contribute to the lack of investment capital available to tribes. Individual Indians have brought a class action suit against the secretaries of Interior and Treasury, claiming that their agencies have failed to account for funds held in trust by the United States (Cobell v. Norton et al.). In this case, which has been in litigation since 1966, the plaintiffs claim that more than $1 billon of Indian trust funds has been misappropriated by the Interior Department.(5) In 1993, one of the tribes in the study (Navajo Nation) sued the Secretary of Interior claiming that he colluded with the Peabody Coal Company to deprive the tribe of fair compensation for operation of a surface mine on the reservation (see United States v. Navajo Nation, No. 01-1375, March 4, 2003 [laws.findlaw.com/us/000/01-1375.html]).

One of the tribes participating in the study, Citizen Potawatomi, has taken over management of its trust funds, which include millions of dollars generated by successful land claims against the United States.(6) Tribal officials reported a 300 percent increase in its trust account revenues after taking over management of the tribe's trust funds. This increase in revenues was generated by investing the funds in money market and other low-risk instruments that pay higher interest than was earned when the funds were managed by the BIA.

Tribal Sovereignty. Tribal governments are sovereign within tribal (reservation) territory and thus are not subject to state or any other laws other than federal laws without the consent of Congress. The exercise of tribal sovereignty can have mixed effects on BD/ED in Indian country:

  • Generally individuals or businesses are precluded from suing a tribe or a tribal business in state courts and, sometimes, in federal courts. Sovereign immunity can protect the tribe and place its assets beyond the reach of any potential litigant. On the other hand, without the option of resolving disputes in federal or state courts in accordance with codified civil procedures and rules, many individuals, businesses, and organizations regard investment in Indian country as too risky.
  • Tribes can charter corporations and create their own commercial codes. These powers permit tribes to regulate businesses in accordance with their traditions, values, and goals. On the other hand, if a tribe lacks a commercial code (many do), potential investors may be deterred, if they view such a code as a prerequisite for making an investment.
  • Tribes can levy taxes on individuals and businesses residing or operating on the reservation. Revenues generated by taxes on businesses can be used to fund critical tribal programs. On the other hand, the burden of tribal taxation can serve as a strong disincentive to prospective businesses and investors.

While tribal sovereignty and federal primacy tend to insulate tribes from interference by states, Congress has limited tribal sovereignty in important areas such as gaming, as noted above, law enforcement, and issuance of tax-free bonds. In passing Public Law 83-280 in 1953, Congress gave jurisdiction of criminal offenses and civil actions involving Indians and Alaska Natives to certain states (AK, CA, MN, NE, OR, and WI).

Tribal Reserved Rights. The rights of the tribes, as prior and continuing sovereigns, to land, self-government, and other domains exist inherently rather than as grants from the United States. This principle, together with the canons of construction (discussed below), tends to help tribes exercise their sovereignty with respect to BD/ED and other areas despite resistance from governments (federal, state, county, regional, or local), businesses, and individuals.

Canons of Construction of Indian Law. In a number of decisions over time, federal courts have come to interpret written documents (such as treaties, statutes, and executive orders) as being developed to benefit tribes  to be construed broadly in determining the existence of Indian rights, but narrowly when considering the abrogation or elimination of those rights (Blurton 1999). For the most part, the canons of construction have benefited tribes in disputes with the federal and state governments pertaining to the exercise of tribal sovereignty.

Indian Self-Determination and Self-Governance. Since the 1970s, federal policy has supported Indian self-determination and self-governance, promoting a "government-to-government" relationship between the United States and tribes. Federal support of Indian self-determination and self-governance includes the enactment of statutes by Congress and the implementation of programs, regulations, and initiatives by most federal departments and agencies, all promoting Indian self-determination (U.S. Department of Health and Human Services 2003).(7)

For example, since 1975, tribes have the option of taking over operation of all or a portion of their education and, subsequently, their health programs. Under The Indian Self-Determination and Educational Assistance Act (ISDEAA), as amended, tribes have the option of taking over the operation of any program designed "for the benefit of Indians because of their status as Indians." In addition, tribes have been able to operate education, training, and employment programs, such as Job Training Partnership Act (JTPA) and Native Employment Works (NEW), funded by the Department of Labor (DOL) and DHHS, respectively. The Balanced Budget Act of 1997 gave the tribes the opportunity to take responsibility for the relatively small WtW program, and PRWORA authorized tribes to operate the relatively large TANF program.

With respect to BD/ED, Indian self-determination has meant that tribes have opportunities to control the assets and resources that affect their members and lands. As tribes have taken over the operation of federally funded programs, they have created jobs and have tended to fill these jobs with tribal members who reside on or near the reservation.(8) Many tribes have replaced federal agencies (such as the Bureau of Indian Affairs [BIA] and Indian Health Service [IHS]) as the largest employer on the reservation. The increased payroll and associated expenditures by employees residing on or near the reservation stimulates the reservation economy, and the employees gain experience that increases their capabilities and value to the tribal government and other future employers.

While taking over operation of federal programs has provided a significant economic stimulus for many tribes, some have experienced problems with obtaining full funding for such programs. When a tribe takes over the operation of a program previously operated by a federal agency, the contract or compact may include funds for both direct program operation and for contract support costs (CSCs).(9) CSCs are costs that are not included in the amount allocated for operation of the program. CSCs may be paid for: 1) start-up and pre-award costs for one-time expenditures needed to assume operation of the program, 2) indirect costs that are the pooled administrative costs of tribes, and 3) other unpaid costs directly associated with the program. (10) Tribes have argued that ISDEAA requires the federal government to pay 100 percent of CSCs, but full funding of tribal CSCs has not been appropriated by Congress. This disparity has resulted in Congressional oversight hearings and litigation between several tribal governments and the IHS and BIA.(11)

While CSCs awarded to tribes contribute to program operation and to the tribal economy, informants at several of the tribes in the study said that failure to include all the requested CSCs in federal contracts and compacts with tribes makes it difficult for a tribe to operate the program at the same level the government did. Informants reported that shortfalls resulting from less than full CSC funding sometimes have forced cuts in the level of services for health care, education, and other programs. This problem has been studied and has given rise to several lawsuits against the BIA and DHHS (see, for example, General Accounting Office 1999; Ramah Navajo Chapter v. Lujan 112 F.3d 1455, 1461 [10th Cir. 199]; and Shoshone-Bannock Tribes v. Secretary, 279 F.3d 660, 663 n.5 [9th Cir. 2002]).

All the tribes in the study have taken over the operation of programs formerly operated by the federal government. Each of the tribes operates its police force and court system, social services, and natural resource programs formerly operated by the BIA. Five of the eight tribes in the study operate hospitals or health clinics formerly operated by the IHS. Several of the tribes in the study operate all or part of their educational systems, elementary and secondary schools, or colleges. All the tribes in the study operate Head Start and adult and vocational education programs. Three of the tribes in the study operate a TANF program.

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