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Ronald Reagan Presidential Library
Digital Library Collections
This is a PDF of a folder from our textual collections.
Collection: Blackwell, Morton: Files
Folder Title: Indian Economic Development
(4 of 7)
Box: 29
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WRITTEN TESTIMONY
on
INDIAN ECONOMIC DEVELOPMENT
Submitted to:
THE SENATE SELECT COMMITTEE
ON INDIAN AFFAIRS
by:
JOE DE LA CRUZ, PRESIDENT
NATIONAL CONGRESS OF AMERICAN INDIANS
202 E Street, N.E.
Washington, D.C. 20002
April 29, 1982
Mr. Chairman and distinguished members of the Senate Select Committee
on Indian Affairs:
On behalf of over 400 federally and non-federally recognized tribes who
constitute the National Congress of American Indians, NCAI, I praise
the Committee for your foresight in holding these important hearings on
economic development issues crucial to the future of all tribal
communities.
Accompanying me todav are three technical witnesses who assisted NCAI
in the development of our testimony:
Mr. Ted Bryant, a Choctaw-Cherokee who is the national
Director of Native American Programs for Deloitte,
Haskins and Sells, an international accounting firm.
Mr. Joe Baca, a Pueblo, who is the Chairman of NCAI's
Economics Committee and who represents the American
Indian Development Corporation of Albuquerque, NM, and
Mr. Bob McLaughlin, the Special Assistant to the Tribal
Chairman for Economic Development of the Standing Rock
Sioux Tribe.
The National Congress of American Indians will focus this mornings
testimony on those issues which are critical to an economic develop-
ment strategy over the long run. Although we have limited our comments
to generally one factor of production - capital - we are aware of the
importance of other factors of production such as land, labor,
materials and markets to the development and investment process.
However, the existing constraints we face in accessing sufficient
capital for development clearly points to capital scarcity as the most
important factor limiting productive investment throughout Indian
country.
1
We believe that such a scarcity is the result of certain structural
conditions that prevent effective investment from occurring. Like
small business in general, new Indian business is restricted from
gaining open access to the nation's structure of financial institutions
and markets. A recent Department of Commerce report, "Small Business
and Capital Markets," showed that existing financial markets do not
reach small business with capital because the markets are:
1) risk-averters;
2) they avoid conditions where there exists high
information and transactions costs;
3) there exists increasing market and asset
concentration throughout the financial market
structure;
4) conscious and unconscious prejudice for small
business in general, and
5) government regulation places a higher cost burden
on small businesses than large scale enterprise.
Investment in Indian country is further restricted and constrained by a
unique and extraordinary condition. I refer to the absolute non-
existence of any Indian community based financial institutions
operating to encourage indigenous savings or acting as a link between
tribal communities and regional and national financial institutions.
This lack of local Indian financial intermediation has prevented Indian
savings thereby fostering the need to have federal agencies fill the
primarv role of financial intermediation for investment. we call such
intermediation "non-bank federal intermediation" and its track record,
as you are aware, has been inefficient and ineffective. This form OF
federal financial assistance, as questionable as its record is, has
been almost completely eliminated by the Administration and Congress.
2
Because of the above conditions, the NCAI now believes it is timely
to recommend to this Committee a strategy which will began to establish
the foundations for real financial intermediation throughout Indian
country. Without a mechanism whereby investment capital can flow to
venture and development projects it is unlikely that economic develop-
ment will be self-perpetuating. We believe there is a justifiable need
for an independent finance institution which can overcome the barriers
to capital which I outlined above. By mobilizing capital and technical
assistance for Indian business development, such a financial institu-
tion would increase the rate of Indian capital formation and produc-
tivity while lying an important cornerstone in the building of
financial market structure in Indian country. I would like to add also
that President Reagan in his Program for Economic Recovery provided
that financial assistance would remain available to those communities
"that truly lack access to financial markets" (p. 21).
The NCAI Economic Committee working with the American Indian Develop-
ment- Corporation, AIDC, after two years of intensive study, has
developed a blueprint for the creation of an independent financial
institution to serve American Indian communities. They recommend the
Institution have the following characteristics:
1) be a mixed ownership federally chartered corporation.
2) have regional branches to serve the widelv dispersed
Indian population.
3) be able to extend long term equity capital to Indian
businesses, and tribes.
4) be able to raise its own equitv and debt funds through
the sale of tax exempt bonds.
5) be able to invest surplus to generate income.
3
5) be able to invest surplus to generate income.
6) be able to charge rates of interest sufficient to
defray costs, and earn a reasonable rate of return.
The Institution, to be successful, must have the capacity to provide
and coordinate the use of long-term capital, working capital, technical
assistance and training for Indian businesses. It must be an indep-
endent institution where investment decisions are based on objective
financial and market criteria. The Institution at the onset will
require financial support from federal sources, Indian tribes, private
business and the financial community.
Equity capital for the Institution would be generated form the sale of
common stock to the federal government, Indian tribes and the private
sector. The Institution would seek long term, low interest federal
financing. Capital would also be generated from porfolio sales and
earnings. The Institution would raise capital through debt instruments
such as bonds and notes. To enhance the marketability of Institution
debt, bondholder's interest earnings should be exempt from taxation.
Federally chartered commercial banks should be authorized to purchase
debt instruments and federal law should authorize the use of Institu-
tion debt instruments by banking institutions to satisfy federal
reserve requirements.
On the investment policy side, long-term venture capital would be
provided to Indian businesses in the form of. equity, with Institution
retaining the option to sit on the Board of Directors of the enterprise
to insure proper management practice. The Institution would establish
upper limits on the size of its equity position in any one enterprise;
4
the share of the Institutions equity and loans in a project's total
cost; and on the proportion of the Institution's total funds invested
or loaned to any one enterprise. Investment policy would be to
diversify its investments among different projects such as natural
resources, agriculture, light manufacturing and commerce. Eligible
borrowers would be tribal government, tribal enterprise, Indian coop-
eratives, partnerships, corporations and individuals.
To complement its direct loan and equity investments, the Institution
should be able to provide loan quarantees and to engage in `co-financing
with existing financial institutions. The Institution will assist its
borrowers with brokering and underwriting services. In summary, the
Institution should serve as the financier, investor, lender, loan
packager, quarantor, underwriter, and borker for Indian enterprises.
My final observation today is that we believe the Institution will
foster private sector participation. This is critical as the private
sector can bring important infusions of technical expertise and
technology to venture projects. The Institution can become the vehicle
which can reduce the uncertainties of reservation. investments in the
mind of the private sector. The Institution will stimulate the growth
of sound business management practice within tribal communities by
generating clear messages that investments will only be made after
rigorous financial investment criteria have met on a project by project
basis. Such objective criteria will encourage tribes to develop tribal
business codes which protect all business ventures and commercial
enterprise as well as tribal integrity during the transformation of
tribal communities towards economic self-sufficiency.
5
The National Congress of American Indians and the American Indian
Development Corporation and Indian country asks your assistance in
creating the American Indian Development Finance Corporation.
Thank you.
6
NCAI
ECONOMIC DEVELOPMENT COMMITTEE
POSITION PAPER
FOR
THE SENATE SELECT COMMITTEE
ON INDIAN AFFAIRS
PRIVATE SECTOR INVOLVEMENT
BY
TED BRYANT
Many American Indian Tribes and Native Corporations have
resources, natural and otherwise, to develop. - However,
they lack the expertise and the capital. With the
declining appropriations to federal agencies, the Tribes
and Native Corporations are turning to the private sector.
MIXED EMOTIONS FROM THE PRIVATE SECTOR
greets these new
opportunities from Tribes with guarded enthusiasm.
Representatives of energy companies and other types of
corporations view the Reservations from a position of a
lack of information. They perceive problems that do not
exist and do not anticipate some that are prevalent.
Solution: An educational program needs to be conducted
which will make available to interested companies, the
opportunities and the difficulties in doing business there.
Information should be made available concerning the
availability of energy resources , timber, agriculture,
fisheries, tourism, and industrial opportunities.
Also, information should be made available concerning the
peculiar situations that may affect business dealings on a
Reservation. Examples of things to be included are: the
sovereignty of the Reservations, the trust relationship
between the Tribes and the U.S. government and the role of
the BIA.
2
RELUCTANCE ON THE PART OF TRIBES TO GET
INVOLVED WITH THE PRIVATE SECTOR
Problem: Tribes and Alaskan Natives have been placed in
the dependency role for years and there has been no need
or opportunity to become involved in for-profit ventures.
This lack of experience leads to a lack of trust for
private corporations. Tribes also tend to have a lack of
understanding of the need by stockholders for a good rate
of return on their investment.
Solution: A series of workshops should be conducted,
bringing together members of Tribal Councils, Tribal
Administrative staff members, and representatives of the
corporate world. These workshops would allow for
interchanges to bring about a better understanding by both
parties.
THE CORPORATE WORLD NEEDS INDUCEMENTS
TO LOCATE ON RESERVATIONS
Problem: Local governmental entities and state
governments are often in a position to offer various
inducements to companies to locate in their areas. Tribes
to offer in order to
attract the private sector.
Solution: Senate Bill 1088 and the Enterprise Zone bills
are of great importance to give Tribes a competitive
position. in attracting businesses.
Tribal Councils and Tribal economic development personnel
need training in what kind of things can be done in order
to make their Reservation more attractive to the business
world.
They also need training in methods of packaging what they
have to offer and inducing companies to compete for the
right to locate on their Reservation.
TRIBAL MANAGEMENT IS OFTEN PART OF THE PROBLEM
Problem: Several aspects of Tribal government present a
problem in conducting business with the private sector:
the lack of separation between the legislative, executive
and judicial branches; the lack of continuity within the
elected and the administrative branches; and the lack of
acceptable management systems.
3
Solution: Tribes need assistance in separating the three
branches of Tribal government so as to make each branch
independent and functional.
Tribes need assistance in establishing terms of office
that will provide for continuity among the elected council
members.
Tribes need assistance in establishing personnel systems
that will provide protection for Tribal employees from the
political process.
Tribes need assistance in developing Tribal management
systems including: administrative policies and
procedures, accounting systems, personnel systems, and
purchasing systems. The Tribes need assisting in
establishing the systems, training staff in use of systems
and then Lands-on assistance for an extended period of
time.
THE PRIVATE SECTOR FINDS A LACK OF DEFINITIVE RULES AND
REGULATIONS ON RESERVATIONS REGARDING BUSINESS OPERATIONS
Problem: There are at least three forms of government on
REservations with the majority being IRA Tribes.
Generally there is no body of law that regulates business
operations.
Solution: Tribes interested in doing business with the
private sector need to adopt a Commercial Credit Code
which covers such things as: eminent domain, sovereign
immunity, commercial law, etc.
Assistance should be provided to Tribes to aid them in the
development of a Commercial Credit Code.
EXHIBIT I
4/28/82
Representative Loans of American Indian National Bank
To American Indian Tribes, Enterprises, and Other
Minority and Community Based Organizations
I.
Indian Education
A.
American Indian Higher Education Consortium - An operating
line of credit was provided to a consortium that provides
funding and other services to 17 Indian community colleges
throughout the United States.
B.
American Indian Scholarships, Inc. - An operating line of
credit to cover shortfalls of federal funding was provided
to an organization that provides graduate school scholar-
ships for Indian students.
C.
Coalition of Indian Controlled Schoolboards - An operating
line of credit was provided for an association of over 200
member organizations consisting of tribally controlled pri-
mary and secondary schools located on Indian reservations.
D.
Little Wound School Board - Long term financing for faculty
housing for a school located on an Indian reservation that
has a total of 580 students in preschool through the 12th
grade.
E.
Navajo Community College - Financing of a parabolic dish an-
tenna and cable TV distribution system on a term loan basis
for an Indian community college which has an enrollment of
over 2,000 Indian students.
II. Tribal Loans
A.
Warm Springs Forest Products Industries - A seasonal line of
credit to help finance timber inventory of a tribally owned
forest products enterprise.
B.
Navajo Tribal Utility Authority - The Bank provided the equip-
ment financing, to its legal lending limit, for this tribally
owned utility company.
C.
Colville Confederated Tribes - Ten year financing in an amount
exceeding $200,000.00 for the purchase of high pressure water
well drilling equipment. This was a newly formed Indian enter-
prise to provide water well drilling service for residential
housing.
D.
Kickapoo Farm and Ranch Enterprise - Interim funding in excess
of $100,000.00 to a tribally owned farm and ranch enterprise
to assist in the construction of a cultural center on the res-
ervation.
American Indian National Bank
Page two
Representative Loans
E.
Yakima Indian Nation Heavy Construction Enterprise - An
operating line of credit approximating $50,000.00 to a
tribally owned construction enterprise located in Washing-
ton state.
F.
Seminole Tribe of Florida - Long term financing and start-up
capital for an aquaculture project.
G. Comanche Tribe of Oklahoma - Financing for the installation
and implementation of a telephone system at the tribal com-
plex.
III. Other Indian Related Loans
A.
Michael Nelson & Associates - Long term financing of equipment,
fixtures, and the purchase of inventory for an Indian owned
western wear and convenience grocery store.
B.
North-Hop, Inc. - Ten year term loan for the purchase of a
livestock auction.
C. Council of Energy Resource Tribes - Long term financing for the
purchase of computer and word processing equipment. "CERT"
assists Indian tribes in the management of energy resources.
D. Indian Pueblo Cultural Center - Term loan financing for an
American Indian owned and operated non-profit corporation rep-
resenting 19 Indian Pueblos in the southwest. The organization
operates a cultural center providing economic and cultural bene-
fits to the entire Indian community.
IV. Loans to Other Minorities and Non-profit Organizations
A. DLH Industries, Inc. - The Bank provided start-up financing
for the purchase of a minority owned commercial bakery in Wash-
ington, D.C.
B. Common Cause - The Bank provided long term financing to the
extent of its legal lending limit to a Washington, D.C. based
non-profit organization for the purchase of computer equipment.
This organization monitors and supports social welfare issues
through citizen action and political reform.
C. Taylor, Washington & Associates - The Bank provided start-up
capital for a minority owned accounting firm in Washington, D.C.
D. National Council of La Raza - A line of credit facility and
long term equipment financing for a nationally recognized His-
panic non-profit organization headquartered in Washington, D.C.
INTRODUCTION
The Council of Energy Resource Tribes (CERT) is pleased to testify at this most
important hearing on economic development problems facing American Indian tribes.
The economic conditions of Indian tribes and their federal domestic policies have always
been at the "edge of the cutting board" of federal domestic policies, and recent policies,
particularly the cuts of the past year in the budgets of federal assistance to tribes, have
had a direct and major deteriorating impact on tribal economies. We commend this
Committee for recognizing the urgency of examining the economic problems in Indian
country and for holding these hearings at such a critical time. We hope that the national
focus being brought by these hearings to the tremendous problems facing Indian tribes
will provide for the development of new national Indian economic development policies
that will truly recognize the magnitude, as well as the uniqueness, of these problems.
The three American Indian organizations here today have agreed among ourselves to talk
about certain aspects of these problems, and we believe that if all of the
recommendations presented are considered together they should form basis of these
much-needed new policies.
CERT, a coalition of 34 Indian tribes with substantial energy resources, is keenly
aware of the failure of many past federal policies to foster the development of stable
and sound reservation economies. We are in agreement with the conclusion of the Task
Force on Reservation Development and Resource Protection in its 1976 report to the
American Indian Policy Review Commission that the three necessary conditions for true
long-term economic development are:
(1) tribal control of reservation resources;
(2) access to capital, and
(3) effective tribal management of economic affairs.
Policies which do not serve to provide sound structural change and which do not address
all three of these conditions simultaneously --- control, capital and management -- are
doomed to the failures of the past. This principle applies to all Indian reservations, not
just those which have an endowment of energy resources.
We would like to begin our presentation by discussing three major obstacles to
tribal economic development that could be reduced with passage of legislation currently
pending before this Congress: the need to strengthen tribal governments, as addressed in
S.1088; the need for equitable tax treatment of tribal governments as embodied in the
Indian Tribal Governmental Tax Status Act, and the need to authorize the approval of
minerals agreements negotiated by tribes, provided in S.1894. We will then turn briefly
to certain administrative steps that could be initiated in a relatively straightforward
manner by the federal government to meet tribal economic development needs, including
regulatory reform in natural resource management and development, assistance to tribes
in marketing their resources and improving the current techniques for evaluating the
conditions of tribal economies. Finally, we would like to briefly discuss the applicability
of the enterprise zone concept to Indian reservations.
NEED TO STRENGTHEN TRIBAL GOVERNMENTS
Tribal experience has shown us that the cornerstone of true economic development
on Indian reservations is through the establishment of stable tribal governments with the
management and structural capacities to carry out their responsibilities effectively. The
importance of strong and effective tribal governments associated to long-term economic
advancement cannot be over-emphasized. In fact, we believe that without federal
support to help tribal governments build strong foundations, all other policies attempting
to foster economic development will be destined to fail.
2
Why is such great emphasis placed on tribal government? The answer is that a
stable, strong and effective government is one of the important foundations for both
successful economic enterprises and a supportive social and economic infrastructure.
Appropriate federal policies are critical to help break down the numerous obstacles to
the enhancement of tribal economies. Yet by their very nature such policies cannot be
applied rigidly to all reservation situations. The tribes themselves must have the
capabilities to establish their economic development objectives appropriate to their
individual cultures, socioeconomic conditions, natural resource endowments and the
myriad other factors that cannot possibly be evaluated from Washington. And they must
have the management tools to effectively govern consistent with these objectives.
For these reasons, CERT has worked extensively with the Administration for
Native Americans (ANA) in carrying out its tribal government capacity-building
programs. With the assistance of ANA, tribal governments are gaining the tools they
need to effectively manage their own affairs, consistent with their own objectives.
We believe that the capacity-building programs of ANA have proven to be among
the most cost-effective tribal economic development activities ever attempted by the
federal government. Capacity-building expenditures for this program should be viewed
as a cost-effective investment, and not as simply another discretionary federal program
ripe for budget cutting. This is particularly true given the relatively small budget of the
agency. Yet, ANA's budget was cut by 17 percent last year, and is targeted for an
additional 17 percent in the President's proposed budget for FY'83. These cuts must be
viewed against the fact that from FY76 through FY'81 ANA had been funded at a static
level of 33.8 million dollars. Thus, with inflation taken into account, the real budget of
ANA has been cut about 50% during this period.
We firmly believe that the small budget savings realized by these cuts do not come
close to the negative impact that a reduced ANA program will have toward the objective
of long-term tribal economic self-sufficiency.
3
Last year this Committee reported a bill re-authorizing ANA, S.1088, which
included a provision designed specifically to enhance the agency's abilities to assist tribes
in strengthening their governments. Simply stated, this provision, included as Section 7
of S.1088, would authorize and direct the Secretary of Health and Human Services,
through ANA, to provide financial assistance through grants to tribal governments for
the employment of tribal government employees and for programs to increase the skills
and qualifications of these employees, which would enable tribal governments to more
effectively assume local responsibility for the economic and social well-being of their
members.
There are three very important points in regard to Section 7. First, there is no
discretion involved; the Secretary of Health and Human Services must make this
assistance available provided an acceptable plan is submitted. Second, there is explicit
provision for funding tribal government staff, without ties to social or welfare programs
or any other federal grant program. Third, it requires tribal government to plan for the
improvement of tribal social and economic self-sufficiency in its own terms.
We believe that the mechanism provided by Section 7 is an important means of
transferring responsibilities and authorities to tribal governments. It heralds a turn-away
from the paternalism and dependency of the past by establishing a means of staffing and
supporting tribal governments so that tribes can become economically self-sufficient.
We strongly support S.1088 and believe that its passage by Congress this year is
essential. S.1088 must be viewed as an integral and vital component of a tribal economic
development policy which, unlike so many failures of the past, places primary emphasis
on the role of strong and stable tribal governments.
We are deeply concerned that there has been no forward movement of this bill
since it was favorably reported by this Committee last May. It has not been brought to
the Senate floor for consideration, and has yet to be introduced in the House. There is
4
now a very real danger that this critical legislation will not receive a fair hearing on the
Senate floor or in the House unless steps are taken now to get it back on track. This bill
is far too important to simply die without being brought up for vote, and we urge all
members of this Committee to provide their active support to help assure that this does
not happen.
NEED FOR EQUITABLE TAX TREATMENT OF TRIBAL GOVERNMENTS
A major obstacle confronting tribal governments attempting to generate revenues
is that they do not currently have a number of federal tax advantages enjoyed by every
other government in the United States, including state, county and municipal
governments. We therefore strongly support the Indian Tribal Governmental Tax Status
Act, currently pending in both Houses of Congress (S.1298; H.R.3760), which would
remedy this inequitable situation. We support the bill, first, as a matter of equity;
second, because the bill would strengthen tribal economic self-sufficiency by
strengthening the abilities of tribal governments to provide public goods and services for
their people; and third, because the bill recognizes the appropriate role of tribal
governments.
The bill would remedy the effects of a series of Internal Revenue Service rulings
issued during the late 1960's and early 1970's which held that, as Indian tribes are neither
states nor political subdivisions of states, they are not eligible for certain benefits given
states and their political subdivisions under the Internal Revenue Code. As a result,
revenue raising and saving mechanisms available to and commonly used by other
governments are foreclosed to Indian tribal governments. This discriminatory treatment
is unfortunate inasmuch as tribal governments are faced with the task of bringing their
people, among the poorest in the nation, into economic prosperity. This task is made
more difficult, at least in part, because tribal governments are not given the same
benefits as other governments in the Internal Revenue Code.
5
The Act would:
allow deductions from federal income taxes for charitable contributions to
Indian tribes;
allow deductions from federal income taxes for taxes paid to tribal
governments;
exempt from federal income taxes interest paid on certain bonds issued by
tribal governments;
allow deductions from federal income taxes for contributions to tribal political
campaigns;
exempt tribal governments from certain excise taxes including those on special
fuels, manufacturers excise taxes, highway use taxes and communications
excise tax, and
allow tribal governments to offer tax-exempt annuities to certain employees.
It should be noted that although the immediate revenue impact of the bill would be
negative the total effect on the federal budget could be positive. In 1978, a House Ways
and Means Committee report estimated and the Treasury agreed that the bill would
reduce federal tax revenues by less than $5 million. This in itself is an extremely small
amount. But more significant is the savings that could accrue to the federal Treasury if
this bill is passed. Public projects that now are subsidized to a great extent by direct
federal assistance would be opéned to private financing on the same basis as state,
county and municipal projects.
6
We are greatly concerned that since the Tax Status Act was introduced in Congress
last year, there has been no movement of the bill in either chamber. There is now a real
danger that it will die in Congress this year, as it has over the past three congressional
sessions. This would be a tremendous setback to tribes in their attempts to achieve
economic self-sufficiency if allowed to happen and we respectfully urge all Select
Committee members to actively support this bill.
NEED FOR DOI AUTHORITY TO APPROVE
ALTERNATIVE MINERALS AGREEMENTS
Given the vast wealth of mineral resourceson Indian lands, it would appear that
those tribes with such minerals could become economically self-sufficient by using the
development of their minerals as a base for developing sound, stable economies. Sadly,
this has not been the case. Although energy production has taken place on Indian
reservations for many years, and has been particularly significant over the past three
decades, it has resulted in very little economic return or monetary benefit to the
producing reservations. These tribes, lacking the in-house management capability and
the financial resources to obtain their own expertise to evaluate, plan and negotiate their
own agreements with minerals companies, have had to rely upon the Bureau of Indian
Affairs (BIA) as their trustee to negotiate on their behalf. All too often, the BIA-
negotiated agreements have turned out to be very detrimental to the economic and other
interests of the respective tribes.
The benefits from minerals production on Indian reservations have therefore flowed
off the reservations. The royalties that the tribes have received have not been adequate
to meet the needs of tribal governments, and the tribes continue to remain among the
poorest of America's poor. Unemployment rates, even among the energy resource tribes,
are several times above the national average.
7
Realizing that they were not receiving long-term benefits from development of
their depletable mineral resources, a number of tribes during the 1970's decided to take
matters into their own hands, and go directly to the bargaining table themselves to
engage in active negotiation with minerals companies. Instead of the traditional BIA
approach of selling leases with cash bonus and fixed royalty rates, tribes have begun to
explore innovative approaches, such as participation in joint ventures, production sharing
and service contracts enabling them to maintain full or partial ownership and to have a
role in management decisions. Since 1975 at least a half dozen such agreements have
been negotiated by the tribes. Yet, in 1980 the Department of Interior (DOI) itself raised
questions about its authority to approve such agreements, particularly for oil and gas
agreements that were not sold under public auction.
The inability of the DOI to approve alternative minerals agreements negotiated by
the tribes is a major obstacle to tribal economic development. There is currently a bill
pending before this Committee, S.1894, which would remove any questions about the
Department's authority in this area. Simply stated, it would provide the Secretary the
authority to approve minerals agreements, whether they are leases, joint venture
arrangements, or any other forms of agreements provided that he does not make a
finding that such agreements are not in the best interests of the respective tribe.
During hearings held on S.1894 by this Committee, a number of tribal leaders
expressed concerns over specific parts of the bill, and recommended changes to address
these concerns. We urge you to take these recommendations into account, and to
favorably report a bill responsive to them. We believe that a unanimous vote by this
Committee is important to enhancing the bill's prospects before the full Senate.
This must be done in the very near future, since time is running out for
consideration by the 97th Congress. For the same reason, we are most anxious for a
companion bill to be introduced as soon as possible in the House.
8
NEED FOR REGULATORY REFORM IN NATURAL
RESOURCE MANAGEMENT AND DEVELOPMENT
In conjunction with our discussion on the Department of Interior's lack of authority
to approve alternative minerals agreements we would like to briefly address the
regulatory framework under which DOI manages tribal natural resources. Regulatory
reform is needed throughout the federal government to correct the deficiencies in the
treatment of Indian tribes. Very few rules currently on the books provide the proper
mechanism for tribal consultation and concurrence in federal programs. In the case of
BIA regulations, steps should be taken to put the tribal government in the lead role, with
the BIA providing technical support and trust protections.
The unfortunate fact is that federal policies designed to provide tribal governments
with more say in their own affairs have been undermined by bureaucratic inertia, poor
administration and controversy. For example, even the Indian Self-Determination Act,
which was intended to turn the control and administration of Indian programs over to
tribal governments, is administered by over 100 pages of BIA regulations. These rules
maintain heavy federal involvement and a perpetuated perception of tribal dependency.
Unfortunately, our experience has shown that reform of BIA's regulatory
framework is a very long and cumbersome process. In 1977, the Bureau proposed revising
its Indian mineral development regulations but they never were promulgated. In 1980,
over three years later, the regulations were re-proposed but again were not
promulgated. When and if the Bureau does promulgate new regulations, we believe that
they must include provisions for tribal participation and control in minerals development
and management, provided that the individual tribes desire and have the capabilities to
assume these responsibilities. The challenge for BIA is to develop a regulatory
framework that promotes tribal involvement in the process without the Bureau losing the
9
regulatory capability to fulfill its trust responsibility to assure that the tribes truly
benefit from minerals development.
To meet this challenge -- to assure that the Bureau fully protects the interests of
those tribes which have not fully developed their own minerals management capabilities
while at the same time not unduly burdening those tribes which have these capabilities -
the Bureau must develop a regulatory framework that incorporates the following two
philosophies.
First, if a tribe demonstrates that it has performed a given task or tasks required
by BIA regulations, the Bureau should substitute the tribe's efforts for its own. This
would apply, for example, in such areas as pre-sale, economic and environmental
assessments, development of environmental and production stipulations, as well as lease
site production management which is now being carried out by the Department's Minerals
Management Service.
Secondly, the respective tribe should be offered a consultation and concurrence
role in major decisions made by the Bureau under its regulations. If the tribe does not
have the capability to exercise an option to concur, it should be offered the option to
waive the concurrence requirement. However, in all cases the BIA should consult with
the tribes prior to making substantive decisions under its regulations.
The CERT tribes have not at this time examined the full range of federal
regulations affecting Indian lands, but we feel that the philosophies we have expressed
here need to be incorporated generally in regulations which affect tribal affairs. The key
here is true recognition of tribal governments in federal programs and regulations, and
the opportunity for real participation by tribal governments.
10
THE NEED FOR TRIBAL RESOURCE MARKETING ASSISTANCE
The member tribes of CERT have a substantial amount of energy resources which
potentially could provide a base for the development of stable reservation economies.
We have found, however, that while many of the tribes are interested in developing their
resources they are often unsure of how to proceed.
At the same time, there is not an established and convenient method for potential
resource customers to become familiar with the resources of Indian tribes.
We strongly believe that support is needed to assist tribes in obtaining information
that they need regarding the potential marketability of their resources, to help them
come into contact with appropriate potential markets and to provide a clearinghouse of
information regarding agreements which have been made among buyers and sellers of
comparable resources. We believe that assistance in the development of such marketing
services would be a valuable tool to enable the tribes to effectively participate in the
private sector.
NEED FOR AN IMPROVED SYSTEM OF ASSESSING
ECONOMIC CONDITIONS OF RESERVATIONS
It is extremely difficult at this time to measure the impacts of economic
development policies due to the lack of a systematic means to measure the economic
conditions on individual reservations. For this reason, in recent years some development
specialists have proposed that it would be useful to have leading economic indicators for
Indian reservations analogous to the national accounts of the United States. In place of
Gross National Product, for instance, one could have Gross Reservation Product (GRP).
11
Such a system of economic indicators would also allow us to record progress in
achieving economic self-sufficiency. Baseline data is needed so that both tribal
governments and the federal government can measure changes in reservation economies.
We believe that the development of such data and indicators can serve to provide a
framework against which the effects of economic development policies can be assessed
where they really count -- at the reservation level.
THE ROLE OF ENTERPRISE ZONES IN INDIAN
ECONOMIC DEVELOPMENT
We would like to briefly discuss the enterprise zone concept which has received so
much interest over the last two years. The basic premise of the enterprise zone concept
is that with appropriate economic incentives and reduction of regulatory impediments in
specifically targetted economically depressed areas, a climate will be created in these
areas which will induce private sector investment. Legislation implementing this
concept was introduced in Congress in 1980 and 1981, and the Administration last month
introduced its version of this concept.
The Administration's proposal, as embodied in S.2298 now before the Congress,
provides for the Secretary of Housing and Urban Development to designate up to 25
targetted areas per year over the next three years as enterprise zones. Such designation
would entitle businesses locating in these zones to special federal tax incentives,
including certain tax credits and elimination of federal capital gains taxes. In addition,
federal regulatory bodies would be given discretionary authority to relax or eliminate
certain non-statutory regulatory requirements within enterprise zones, upon the request
of the respective local governing bodies.
12
We are pleased that Indian reservations are recognized in S.2298 to be eligible for
enterprise zone designations. The incentives provided by such designation may well
induce certain industries to locate on reservations, and thus to contribute to long-term
economic advancement.
At the same time we must caution against any notion that enterprise zones can by
themselves be viewed as a major solution to the economic problems on reservations. To
begin with, since only 75 areas will be designated over the next three areas, the
competition for designation among states, municipalities and tribes will be very intense,
and it is highly likely that no more than a small handful of reservations will win out in
the competition. But beyond this problem, there are more fundamental obstacles to
tribal economic development than cannot be remedied with enterprise zone designation
alone.
The enterprise zone concept does not address the need for physical infrastructure
on reservations as a precondition to private sector investment. The sad fact of economic
life on the reservations is that there is an almost total lack of infrastructure to support
economic enterprises, including adequate roads, sewers and public utilities. On Indian
reservations, however, enterprise zone incentives are not likely to attract major
investment unless the tribes can demonstrate that an adequate infrastructure is in place
or that they are taking steps to build the needed infrastructure. For this reason we
believe that it would be a major mistake to believe that private sector incentives by
themselves will solve the problem of establishing lasting stable economies on Indian
reservations.
We believe that enterprise zones can work on certain reservations, provided that
the other necessary factors for economic development are in place. However, the
enterprise zone concept must be viewed as only a part of a total tribal economic
development policy and cannot work in a vacuum without such policies.
13
In conclusion, we are supportive of the enterprise zone concept, and are pleased
that Indian reservations are to be included. At the same time the limited capabilities of
this concept must be recognized, and other forms of federal economic development
assistance must be provided to the tribes. The next witnesses at this hearing will discuss
certain of these additional needs, including the key need for assistance to put an
adequate physical infrastructure in place on the reservations.
We believe that the national discussion over enterprise zones serves to highlight the
need for special measures needed to stimulate private sector investment in particularly
economically depressed areas. We hope that the dialogue that has begun will expand and
focus on the underdevelopment of reservation economies, and will culminate in the
establishment of a comprehensive national policy to support Indian economic
development.
14
WRITTEN TESTIMONY
on
INDIAN ECONOMIC DEVELOPMENT
Submitted to:
THE SENATE SELECT COMMITTEE
ON INDIAN AFFAIRS
by:
PHILLIP MARTIN, PRESIDENT
NATIONAL TRIBAL CHAIRMAN'S ASSOCIATION
and
CHIEF, MISSISSIPPI BAND OF CHOCTAW INDIANS
Suite 910
1010 Vermont Avenue, N.W.
Washington, D.C. 20005
April 29, 1982
My name is Phillip Martin, and I am the elected chief of the Mississippi
Band of Choctaw Indians and President of the National Tribal Chairmen's
Association. With me are Ernest Tiger and Charles Trimble who will lend
technical support should you have any questions.
I would like to commend the preceeding witnesses from the National
Congress of American Indians and the Council of Energy Resource Tribes,
and add my wholehearted endorsement of their statements.
Mr. Chairman and distinguished members of the Senate Select Committee
on Indian Affairs: On behalf of the elected principal executives of the
more than 150 federally-recognized Tribes that comprise the National Tribal
Chairmen's Association, I commend you for holding these hearings on Indian
Economic Development which is a critical issue in these times of immense
challenge to Indian country and to all America.
The National Tribal Chairmen's Association would like to discuss
with you the economic issues of most immediate impact on our tribes,
namely:
Infrastructural development on our reservations;
Greater access of our Indian industries to defense contracting
and procurement opportunities to stimulate reservation develop-
ment; and
The proposed Economic Development Strategy of the Bureau of
Indian Affairs for Fiscal Year 1983 and beyond.
We are constantly reminded by our federal trustee that we must seek
financial investment and industrial relocation for reservation development
from the private sector, because of the present national policy of federal
budget cutbacks and the shift of responsibility from the federal level to
2.
local governments. Indeed, the proposed enterprise zone concept --
the Administration's sole initiative to offer relief to the economically-
distressed areas -- is designed precisely to attract private sector
investment and involvement to hard-hit areas, including Indian reser-
vations. Yet, a recent study on the applicability of enterprise zones
to Indian country revealed that any incentives offered by tax or
regulatory relief are largely negated by the limited infrastructural
attributes on most Indian reservations.
Many ideas have surfaced within recent months concerning relation-
ships between Indian tribes and the private sector. While the concept is
good, some attention must be focused on the reality of bringing Indian
tribes and private industry together for mutual benefit. If tribal
leadership were surveyed today, forty-nine out of fifty tribal leaders
would not know a chief executive officer of a major corporation. Indian
country needs very desperately to be joined in a beneficial relationship
with the private sector, but this will not happen without some means of
commicating with the private sector. This will not happen if tribal
governments do not possess the financial resources by which to enter into
economic development ventures with private industry. Technical assistance,
loans, and loan. guarantees are needed if tribal governments are to develop
economic projects on a self-sustaining basis. Bridging the gap between
Indian tribes and the private sector cannot occur through the proposed
enterprise zone legislation when only three or four tribes might possibly
benefit from that concept.
3.
Application for enterprise zone status challenges local govern-
ments to offer infrastructural commitments for municipal services and
physical improvements within the distressed area. Impacted as our tribal
governments are by the loss of federal assistance, few tribes could even
provide a guarantee against deterioration of local municipal services,
let alone the improvement of them. This is why the NTCA so strongly
supports the provisions of S,1088. That legislation, including the
Section 7 provision for an additional $50,000,000 for maintenance and
improvement of tribal governmental services, is essential to any hope
of tribal self-sufficiency in the future.
Infrastructural development assistance is needed, and we ask that
you view such assistance as an investment in the future of Indian tribes
as self-sufficient entities in the American future.
Indian tribal governments do not have a tax base from which to
obtain revenues to support and maintain their social and economic structures;
and few tribes currently have sufficient enterprise development from which
to support essential tribal governmental functions and services. An exam-
ination of the methods by which states, counties, and municipalities support
governmental services, physical development, maintenance, and capital
improvement reveals a wide range of revenue sources. Without a tax base,
Indian tribes do not have these options. Tribes are unable to take
advantage of general obligation bonding because of IRS rulings. Consequently,
we have few resources from which to support the development and maintenance
4.
of reservation infrastructure. This situation again points up the need
for the American Indian Tribal Government Tax Status Act embodied in
S.1298, and that is why the National Tribal Chairmen's Association
supports that legislation.
There are few remaining federal assistance programs on which we
can depend to assist us in our efforts toward economic self-sufficiency;
and those programs and strategies are clearly biased toward natural
resource development. We do not decry that assistance to those tribes
with natural resources. However, the tribes that do not possess significant
natural resources feel at a great disadvantage to develop their industrial
and business potential. Even tribes with significant extractive resources
of energy and minerals desire to expand their employment opportunities
and to retain their earnings on the reservation through industrial
diversification.
Through the 1960's and 1970's, in the era of relative affluence
in federal economic development assistance, the opportunities for industrial
development was largely lost to Indian country; and the bureaucracy
administering those federal assistance programs must bear much of the
blame. The private sector and the tribes themselves are not without
blame in the general failure of the reservation industrial development.
But we are now in different times, and industrial development for Indian
tribes warrants a fresh review.
5.
We do not mean to say that the federal programs for economic
development were a complete waste. The much ridiculed EDA-financed
industrial parks on reservations are now providing many tribes their
only hope for development. Many of these industrial parks are now
taking off now that tribes are gaining experience at marketing them
in the private sector. The loss of this type of federal assistance
for infrastructural development on reservations is seen by many tribal
leaders as among the most devastating.
Tribal governments need assistance to overcome the impediments
of isolation and underdevelopment in order to attract industry and
private sector investment. With the loss and the unlikely restoration
of significant funding assistance programs, federal assistance to tribes
in their economic development efforts could come from a policy of
preferred access for tribal industry in federal procurement and contracting.
One such opportunity is in the challenge faced by the American defense
industry to meet the Administration's defense build-up requirements over
the next several years.
Between now and 1987, the Administration proposes to spend more
than 1.5 trillion dollars in defense. Some economists project major
problems in the ability of the U.S. defense industry to meet America's
needs defined in the arms build-up proposals. The squeeze on domestic
suppliers, it is projected, will send more defense procurement overseas,
making the U.S. more dependent on foreign sources and more vulnerable.
6.
There is also concern in the Congress over the U.S. industry's
capability to meet the country's defense build-up requirements. This
past February, Rep. James Blanchard of the House Committee on Banking,
Finance and Urban Affairs, introduced the Defense Industrial Base
Revitalization Act (H.R.5540). That bill calls for a number of measures,
several of which could directly apply to Indian economic development
needs. First of all, that bill calls for federal assistance in the form
of loans, loan guarantees for small and medium sized businesses. That
type of assistance could greatly enhance the capability of Indian industry
to compete in the defense contracting arena.
Secondly, the Blanchard proposal offers provisions for training
and retraining workers for a quality defense industrial work force.
The need for quality skilled labor on the reservations is essential to
the development of Indian-owned business and for the attraction of outside
industry to the reservations.
Thirdly, the Blanchard proposal calls for greater domestic
capability to produce critical and strategic materials, significant
reserves of which are to be found on Indian reservations. The tribes
with these resources could rightfully demand a greater opportunity for
participation in the extraction and processing of such critical and
strategic materials.
We hope that this type of legislation gains Congressional support,
and that Indians are given special inclusion in the bills. Any initiative
to secure equitable or preferred access for Indian industry to defense
contracting, however, must not be looked upon as a movement to convert
7.
the national defense budget to social/welfare programs -- to convert
"guns to butter," as it were. Reservation industries have shown that
they can deliver high quality goods on time and at budgeted costs.
There are successful defense and non-defense contracts in reservation-
based industies now; but all too few of them.
The idea of promoting greater Indian industrial participation
in defense procurement is relatively new. In the FY-1982 Department
of Defense Appropriations Act, Sen. Peter Domenici included a provision
for Indian preference in defense procurement. The Defense Department
is in a quandary over how to apply Indian preference and is currently
studying the matter. However, given their lack of experience and
knowledge in Indian affairs, it is not likely that a creative policy
will be forthcoming.
We urge the Administration to study this matter creatively, and
we request the Congress to take necessary measures to assure equitable
or preferred access of Indian industry to defense contracting and pro-
curement.
It is our understanding that Sen. Mark Andrews of this Committee
is working to exempt Indian defense contractors from certain time restrictions
inherent in the Small Business Administration's 8(a) provisions. We
commend the Senator, for this is the type of assistance needed to advance
our industrial capacity on the reservations.
8.
We would also like to focus this Committee's attention on other
issues related to the Small Business Administration. SBA administers
a number of programs to assist small and, in particular, minority
business firms. The program administered by this agency are for the
most part unavailable to Indian tribes, because Indian tribes operate
under the jurisdiction of tribal Constitutions and bylaws, and are not
chartered through state chartering processes, and SBA cites ownership
and control as a major problem in providing assistance to tribal enter-
prises. The SBA's Small Business Set-aside Program (8(a)), Small
Business Investment Company Program, and local development company
program could provide many short-range benefits of a private sector
nature to Indian tribal governments. However, tribal governments will
not benefit through the SBA programs, unless there is Congressional
involvement to amend regulations of the Small Business Act of 1958.
Finally, Mr. Chairman, we would like to comment on the Bureau
of Indian Affairs' Economic Development Strategy which is proposed for
FY-1983 and beyond. This strategy was devised over the past year to
finally meet the long-standing demand of the House Appropriations
Committee. We commend this Administration for finally giving some
direction to their economic development assistance efforts; but we
must note that the funding levels to implement the strategy are inade-
quate and the time is late.
The BIA Strategy requests appropriation of $10,000,000 to provide
conditional grants to tribal projects for the development of natural
resources, the encouragement of private sector involvement and investment,
9.
and the promotion of sound business principles.
Restricting the proposed economic development grant program
to natural resource development projects eliminates a great majority
of tribes and does not address the need for multifaceted economic
development efforts desired by most tribes -- even those tribes with
abundant natural resources. According to the Assistant Secretary, the
objectives of the program will be accomplished through the extension
of "seed grants" from the $10,000,000, reducing internal bureaucratic
obstacles and barriers, taking the lead across the federal structure
in coordinating economic development assistance, and searching out
and stimulating opportunities for tribes.
Mr. Chairman, we are aware that the BIA strategy totally reflects
the Administration's policy of fiscal austerity. We are aware that the
Assistant Secretary's hands are strapped in this matter; for he knows,
as we do, that $10,000,000 is totally inadequate to provide the assist-
ance our tribes need to pursue their goals of economic self-sufficiency.
The burden of dependency is staggering and shrinks that amount to an
ineffective level. An amount more significant, effectively administered,
would mean a true investment in the future of Indian country, and in
the nation as a whole.
We therefore request an additional appropriation of $5,000,000 to
provide "small tribes" a baseline of governmental support; presumably to
enhance their efforts to attract industry. The Bureau also proposes
to seek from Congress new authorization for the Indian Business Develop-
ment Fund and loan-guarantee program embodied in 25 U.S.C. 451 - The
Indian Financing Act of 1974.
We commend the Bureau's plan to seek reauthorization and re-
infusion of the Indian Financing Act, but there is massive evidence to
10.
suggest that the BIA or other federal agencies are not efficient
lending entities. By their very nature, they do not function in a
banking relationship, and they tend to subsidize inefficiencies. As
such, a great many federal programs which are dependent upon the
appropriations process for funding, suffer themselves from inconsisten-
cies which affect their ability to promote, administer, and monitor
a portfolio of loans and loan-guarantees. The Small Business Administra-
tion has recently extended its guarantee and authority to commercial
banks because it could not efficiently make sound lending decisions.
Thus, the Indian comunity cannot assess the impact of the proposed
reauthorization legislation at this time to ascertain their assurances
to make the Bureau's program efficient and functional.
The Indian Financing Act was enacted in recognition of the
private capital markets' inaccessibility to reservation enterprises.
That situation still exists, and we direly need the Indian Financing
Act -- there must be no question about that. But the BIA must be
made to put into place an effective mechanism to administer that program.
Thank you for this opportunity to present this statement. With
your permission, we would like to submit additional information for the
record, at a later date.
AMERICAN INDIAN NATIONAL BANK
1701 PENNSYLVANIA AVENUE, NORTHWEST
WASHINGTON, D. C. 20006
(202) 965-4460
TESTIMONY OF R. CONLEY RICKER, JR., CHIEF EXECUTIVE OFFICER OF THE
AMERICAN INDIAN NATIONAL BANK BEFORE THE SENATE SELECT COMMITTTE ON
INDIAN AFFAIRS, UNITED STATES SENATE
April 29, 1982
Mr. Chairman, members of the panel and guests. On behalf of our Board
of Directors, Stockholders, friends and customers of the American Indian
National Bank, I want to take this opportunity to thank you for the
invitation to appear before you this morning. It is with great pleasure
that we present to you our testimony with regard to the efforts of the
American Indian tribes and people within the country's private sector to
help themselves through the formation and capitalization of an Indian
owned financial institution. My remarks this morning will cover the
history of the Bank including early operations, the Bank's ownership
and financial recovery program, representative loans that the Bank has
made toward helping Indian economic development, the seminar we sponsored
on Indian economic development and future plans of the Bank and our
overall recommendat:ions as to what might be done to encourage economic
development on Indian reservations.
L. Anly when , I .
4/27/82
AMERICAN INDIAN NATIONAL BANK
CONCEPT AND BACKGROUND
The concept of a national Indian financial structure, wholly owned by
American Indian organizations and individuals, that would assist Indian
communities to establish and develop a strong economic base, has been
discussed over the course of many years. Government officials and
Indian leaders have exchanged views, which gradually coalesced into a
workable idea.
The foundation and first step in this effort was the establishment of
the American Indian National Bank. Its creation in 1973 was considered
a primary necessity in the view of advocates of Indian economic development.
These included: William W. Keeler (Cherokee) ; Peter MacDonald (Navajo);
Marvin L. Franklin (Iowa) ; Robert Bennett (Oneida); Robert Jim (Yakima);
Earl Old Person (Blackfeet); and John Borbridge (Tlingit). General
George Olmsted, Chairman and President of the Washington-based financial
services International Bank, supported the project by providing a
specific concept, the assistance of experienced financial experts, and
financial support.
The application for a charter was, unique for several reasons. In 1970,
the Commissioner of Indian Affairs had appointed an Indian Banking
Committee to examine the need for and evaluate the problems involved in
establishing an Indian-controlled financial structure.
The findings of this task force portrayed the Indian community as an
-2-
economic "island" within the American free enterprise system: Tribes,
reservations, communities and similar groups had no Indian-oriented
financial structure to assist them in the protection, development and
control of Indian resources. No vehicle existed to help Indians expand
their own capabilities through improved access to the financial segment
of the United States economy.
The study revealed that although there was outstanding Indian talent
across the nation, it was not sufficiently conversant with financial and
banking functions to launch unilaterally a financial services venture by
Indians themselves.
Federal funds were obtained to conduct a training program in banking
operations for Indians. International Bank of Washington was engaged as
the management consultant to the American Indian National Bank to initiate
banking operations and to provide continuing assistance over a five-year
period. The founders envisioned expansion of the financial structure
into commercial lending for Indian tribes and enterprises.
Additionally, International Bank advanced a million dollars for use as
initial capital so that banking operations could begin simultaneously
with invitations to tribes and individuals to invest in the new bank.
This initial capital was administered by a separate American Indian
Trust which existed for one year.
Chartered as a national bank by the Comptroller of the Currency, AINB
officially began operations in Washington, D. C., November 15, 1973.
The Bank was established under Federal banking laws and is a member of
-3-
the Federal Reserve System. It is subject to normal regulatory require-
ments of the Comptroller of the Currency and fully accredited and
insured by the Federal Deposit Insurance Corporation (FDIC.)
The Bank is located on the third floor of an office building in down-
town Washington, D. C. at 1701 Pennsylvania Avenue, NW.
OWNERSHIP
Of the Bank's initial capitalization, the Confederated Tribes and Bands
of the Yakima Indian Nation invested $1 million in the Bank's common
stock and the Ute Tribe of the Uintah & Ouray Reservation invested
$500,000. In 1980, the Colville Confederated Tribes invested $300,000
through the purchase of common stock. Current ownership by the three
largest shareholders is as follows: Yakima, 51%; Ute, 22%; and Colville,
13%.
Under the Bank's Articles of Association as authorized by the Office of
the Comptroller of the Currency of the United States, Article V limits
the issurance and sale of the Bank's common stock to 1) a tribe of
Indians which has conducted a treaty with the United States of America
or 2) an enrolled member or person of an Indian tribe which has obtained
general recognition by the Bureau of Indian Affairs. As of year end,
the Bank had 378 shareholders with the majority of the common stock held
by the following tribes and native corporations:
-4-
NAME
LOCATION
Confederated Tribes & Bands of the
Toppenish, Washington
Yakima Indian Nation
Ute Tribe of the Uintah & Ouray
Fort Duchesne, Utah
Reservation
Colville Confederated Tribes
Nespelem, Washington
Arctic Slope Regional Corporation
Barrow, Alaska
Koniag, Inc.
Kodiak, Alaska
Colorado River Indian Tribes
Parker, Arizona
Seminole Tribe of Florida
Hollywood, Florida
Afognak Native Corporation
Kodiak, Alaska
Crow Tribe
Crow Agency, Montana
Miccosukee Tribe of Indians of Florida
Miami, Florida
St. Croix Tribal Council
Webster, Wisconsin
Shoshone & Bannock Tribes
Fort Hall, Idaho
Tule River Tribal Council
Porterville, California
EARLY OPERATIONS
After the Bank opened for operations in November of 1973, officers and
directors toured the country and Alaska in search of deposit relationships
and lending opportunities. By the end of calendar 1974, deposits totalled
approximately $10,800,000 and loans amounted to $2,653,000. During 1974
the Indian Finance Act of 1974 was passed by Congress and signed by the
President and became law. Under this law, Indian enterprises and individuals
were eligible to secure loans from banking institutions which were
guaranteed 90% by the Bureau of Indian Affairs of the Department of
Interior. During the early years the Bank began to book a substantial
-5-
number of loans that were 90% guaranteed by the BIA which enabled the
Bank to invest deposits in loans to Indian tribes, enterprises and to
Indian individuals. In 1978, the Bank had BIA guaranteed loans outstanding
amounting to $3,728,117 with a loss exposure to the Bank of $377,565.
The Bank had several unique characteristics to overcome in the early
years. The Bank not only was located 2000 miles to 3000 miles away from
its primary community of Indian tribes and reservations located in the
western United States, but also it was located on the third floor of an
office building in downtown Washington. The initial strategy was to
concentrate on tribes and tribal enterprises as opposed to commerical
and retail banking business in the immediate Washington area.
The limited capital structure of approximately $1,500,000 and the vast
geographical distance at which the Bank was located from its Indian
community were difficult obstacles to overcome in the early years.
Through 1978 the Bank tried unsuccessfully to find the proper combination
of lending policies and loan servicing management to handle a loan
portfolio located at such a vast geographical distance from the main
office. The efforts were unsuccessful in that in 1977 and 1978 the
Bank basically lost its initial capitalization through charge offs of
of uncollectible loans.
In July of 1978, the Board of Directors reorganized the management of
the Bank and invited the undersigned to become the Bank's Chief Executive
Officer with the responsibility of developing a financial recovery and
rebuilding program. With the assistance of the Board of Directors, new
-6-
lending policies were established which essentially substituted liquid
collateral for distance. New capital was raised in the amount of $610,000
and an extensive program was undertaken to collect and collateralize loans
that were in serious difficulty.
In 1978, it was the strategy of the management of the Bank and the Board
of Directors to start over and capitalize on what had been learned in
the past and to build the Bank's foundation for growth and future
expansion.
FINANCIAL REBUILDING PROGRAM
After strengthening the Bank's lending policies and implementing a
collateralization and recovery program on loans outstanding, new capital
was raised through the offering of 150,000 of the Bank's common stock
at $10 per share under a private placement offering. Of this new issue
26,000 shares were purchased by the Yakima Indian Nation for an investment
of $260,000; 30,000 shares were purchased by the Colville Confederated
Tribes for an investment of $300,000 and 5,000 shares were purchased by
Arctic Slope Regional Corporation for an investment of $50,000.
While the loan reorganization and restructuring was in process and
capital was being raised, the management of the Bank oriented the officers
and the directors toward broadening the Bank's overall desposit base.
Specialized services were offered to Indian tribes including the utilization
of the Bank as a depository for letters of credit and loans at advantageous
interest rates provided the loans were well secured or otherwise covered
by adequate financial statements and earnings history. In addition,
-7-
a Metropolitan Division was formed to broaden the Bank's earnings and
deposit base in the Washington Metropolitan Area. A strategy evolved to
concentrate in the non-profit sector in Washington which included those
organizations that are providing a social service and are funded basically
by the Federal Government. The Bank expanded its approach toward other
minority groups including Blacks, Hispanics, Asian Americans and others
who were under served in the metropolitan area.
RESULTS OF THE RECOVERY PROGRAM
In calendar 1979, the Bank posted its first year of earnings in its
history by recording earnings for the year of $421,541. Through the
generation of these earnings and through the capital stock sold, net
worth was increased to $1,037,585 at the December 31, 1979 from $52,044
at the low point on December 31, 1978.
In 1980, the Bank continued its efforts to strengthen the loan portfolio
to raise additional capital and to provide specialized services for
Indian tribes and organizations. Deposits increased to $20,680,225 on
December 31, 1980 from $14,867,141 on December 31,1979. Earnings for
the year amounted to $457,957 and net worth improved to $1,547,542.
During 1980, efforts to begin broadening the Bank's loan base were
undertaken and continued in 1981. Attached is Exhibit I which outlines
representative loans that the Bank has made in the area of financing
tribal economic development and tribal enterprises.
-8-
In 1981, progress continued on the Bank's deposits, capital earnings and
quality of its loan portfolio. Attached as Exhibit II is a copy of both
the 1980 and 1981 annual reports. For 1981, deposits grew to $26,496,481
and earnings amounted to $630,539. Net worth improved to $2,178,081
also in 1981 the Bank closed its subordinated capital note from Minbanc
Capital Corporation which marked the first time that an outside investor
invested debt capital in AINB. The subordinating note is a ten year
note at 10.5% for $250,000.
INNOVATIONS IN LENDING
In order to extend the Bank's services to Indian tribes, reservations
and enterprises, it was necessary to develop specialized techniques in
lending which heretofor have been unavailable generally from commercial
banks located near Indian reservations. Of particular difficulty is the
mortgaging of reservation land which is held in trust by the United
States Government and generally unavailable to pledge to secure mortgage
loans for housing, shopping center development and other commercial
development. Therefore, it was necessary to develop specialized techniques.
Several of these techniques are listed in the attached Exhibit III and
are entitled, "Assignment of Investment Income, Assignment of Grazing
Fees, Rentals and Tribal Taxes and Assignment of Lease Rental Income."
Also included with the exhibit are various procedures necessary to
assist the tribes in obtaining the proper approvals for the pledging of
assets to obtain loans for economic development and sample resolution
and other legal documents.
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We also bring to the Committee's attention, the fact that the Bureau of
Indian Affairs administers on behalf of the nation's Indian tribes a sum
of $1,500,000,000 in liquid assets mostly Certificates of Deposit in
various banks and savings and loans associations around the country.
These funds are held in trust by the government for Indian tribes and in
general are not available for tribal use for economic development. The
interest income on the funds, however, is sometimes utilized by tribes
to cover operations and also may be utilized as we have discovered to
secure loans for economic development.
INDIAN ECONOMIC DEVELOPMENT SEMINAR
On March 30 and 31, 1982, the Bank sponsored a seminar in Denver, Colorado
on Indian economic development and assembled for a two day period a
group of successful Indian enterprises, companies that have successful
joint venture operations with Indian tribes, commercial bankers that
have financed Indian tribal development and experts in both managing and
financing agricultural enterprises on Indian reservations. The seminar
was conducted in conjunction with the Bank's Ninth Annual Meeting of
Shareholders. Attached is a brochure annoucing the economic development
seminar and a press release on the results.
The Indian Economic Development Seminar was an overwhelming success in
that there were a total of 360 persons attending including the Bank's
staff and guests. The Seminar was particularly helpful in demonstrating
the initiative and innovation of some Indian tribes to develop enterprise
with the express purpose of creating jobs on and around the Indian
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reservation. For example, the Mississippi Band of Choctaw Indians with
Chief Phillip Martin were present at the Seminar to review how the tribe
created between 400 and 500 jobs within the past five years with very
little federal assistance by attracting both a General Motors wire
harness assembly plant and a large plant for American Greetings Corporation.
The American Greetings Corporation plant was financed through the first
tax exempt industrial revenue bond the proceeds of which were used to
finance a plant on an Indian reservation. The bond was issued by the
City of Philadelphia and was underwritten by the George K. Baum &
Associates, Inc. of Kansas City, Kansas. The important factor in this
particular innovation is that not only that it was the first tax exempt
industrial revenue bond the proceeds of which benefited an Indian reservation
but that the tribe worked diligently to convince. the authorities in
Philadelphia, Mississippi that the tribal economy could be integrated
with the economy of Philadelphia, Mississippi and that the entire area
would benefit from the issurance of the tax exempt industrial revenue
bond.
ALBUQUERQUE LOAN REPRESENTATIVE OFFICE
In 1977, the Bank established a Loan Production Office or Representative
Office in Albuquerque, New Mexico in the Indian Pueblo Cultural Center
at 2401 12th Street, Albuquerque, New Mexico. The purpose of the Loan
Production Office is to have a facility available and a staff available
to handle the processing of loan applications and to deliver the Bank's
lending and other financing services to Indian tribes in the southwest.
Through the financial recovery and rebuilding process, the Albuquerque
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Office was maintained at a status quo until such time as the Bank
had sufficient resources to expand its pentration in the area. The
plans are now to continue the expansion of the Loan Production Office to
offer to the tribes and enterprises in the four state area - Arizona,
New Mexico, Colorado and Utah - the Bank's lending services in order to
help the Bank fulfill its mission in the southwest.
REQUIREMENTS TO FULFILL THE BANK'S MISSION
The Bank has three basic requirements that are needed to help fulfill
its basic mission. These are listed as follows:
1. Assistance by the Federal Government in reinstituting and funding
the Indian Finance Act of 1974.
2. Additional capital.
3. The formation of a holding company and permission to establish a
new bank owned by a holding company across state lines on an Indian
Reservation.
Because of adverse loan experience and a high claim ratio under the
Indian Finance Act, the funding for further commitments under the Act
sharply was curtailed in 1979, 1980 and 1981. We believe, therefore,
that to assist Indian tribes in the transition from dependency on the
Federal Government to enterprise development and job creation assistance
in the transition is needed in the form of Federal guarantees for loans
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under the program. Perhaps, what is needed is a division of SBA combined
with the Bureau of Indian Affairs to reinstitute a guaranteed loan
program. Now that the Bureau of Indian Affairs and the commerical
banking system including American Indian National Bank have extensive
experience in guaranteed Indian loans, its seems that a resource has been
wasted if this experience is not utilized in a continuation or funding
of this program. The program is off balance sheet financing in that
the program would request that funds be made available only in the event
that claims are submitted under the guarantees. Because commercial
bankers and personnel at the Bureau of Indian Affairs now have experience
with the Indian Finance Act and with guaranteed loans to Indian tribes
on reservations, it seems that now is an advantageous time to capitalize
on this experience and to reinstitute funding for the Indian Finance
Act.
Other initiatives that may be helpful are listed on Exhibit IV attached.
The Bank's captial acquisition program is essential to continued success.
We realize that this revolves solely around the private sector and our
ability to convince tribes and investors that an investment in AINB is
a sound investment. At the present time we are working on raising an
additional $1 to $2 million in capital stock and negotiations are under
way with certain Indian tribes.
The loan range plan of the Bank is to develop a multi-tribal banking
system through the formation of a holding company. The holding company
will need to be sufficiently capitalized in order to charter a bank on
an Indian reservation somewhere in the northwest or the southwest. In
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order to obtain the proper legislation to enble the Bank to offer
depository services across state lines through a holding company, special
legislation will be necessary and it is our plan to approach the Congress
and the various state banking authorities as such time as the Bank is
sufficiently capitalized and has sufficient earnings and management to
expand into the western United States. Attached is Exhibit V which
outlines a long range plan for development of a multi-tribal banking
system.
CONCLUSION
The American Indian National Bank is the first effort by the American Indian
people in the history of our country to charter a financial institution
for the benefit of Indian tribes and people toward the goal of consolidating
financial resources and redeploying those resources for economic benefits.
The overall objective is to achieve parity with other citizens, businesses
and organizations in the United States in the area of obtaining credit
to finance economic activity.
Although we are a small, growing and successful minority owned Bank, we
have achieved sustained earnings, capital and deposit growth for three
consecutive years and we have been able to become effective through the
utilization of our limited resources towards helping Indian tribes and
people. Because of the enormous challenges ahead to utilize Indian
resources for the common goals of less dependency and economic development,
assistance from the United States Government is still needed. In our
opinion this assistance should take the form of providing transitional
financing in the form of the Indian Finance Act of 1974, the support of
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the American Indian Development Finance Corporation legislation, the
passing of the Indian Tribal Tax Status Act and the providing of funding
to the Department of Interior and the Bureau of Indian Affairs for their
economic development programs. In coming years, assistance will be
needed to permit banks to provide depository banking services across
state lines especially with banking facilities that are located on
Indian reservations. This enabling legislation will permit the American
Indian National Bank, for example, to extend its services to provide
credit for further economic development.
We are convinced that with the assistance of the United States Government
in the form of funding for the transition to less dependency that the
American Indian people will achieve parity with other Americans in our
nation's economy.