[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
CONTRACT SUPPORT COSTS WITHIN THE INDIAN HEALTH SERVICE AND THE BUREAU
OF INDIAN AFFAIRS (PART II)
=======================================================================
HEARING
before the
COMMITTEE ON RESOURCES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
AUGUST 3, 1999, WASHINGTON, DC
__________
Serial No. 106-52
__________
Printed for the use of the Committee on Resources
Available via the World Wide Web: http://www.access.gpo.gov/congress/house
or
Committee address: http://www.house.gov/resources
______
U.S. GOVERNMENT PRINTING OFFICE
60-802 WASHINGTON : 1999
------------------------------------------------------------------------------
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON RESOURCES
DON YOUNG, Alaska, Chairman
W.J. (BILLY) TAUZIN, Louisiana GEORGE MILLER, California
JAMES V. HANSEN, Utah NICK J. RAHALL II, West Virginia
JIM SAXTON, New Jersey BRUCE F. VENTO, Minnesota
ELTON GALLEGLY, California DALE E. KILDEE, Michigan
JOHN J. DUNCAN, Jr., Tennessee PETER A. DeFAZIO, Oregon
JOEL HEFLEY, Colorado ENI F.H. FALEOMAVAEGA, American
JOHN T. DOOLITTLE, California Samoa
WAYNE T. GILCHREST, Maryland NEIL ABERCROMBIE, Hawaii
KEN CALVERT, California SOLOMON P. ORTIZ, Texas
RICHARD W. POMBO, California OWEN B. PICKETT, Virginia
BARBARA CUBIN, Wyoming FRANK PALLONE, Jr., New Jersey
HELEN CHENOWETH, Idaho CALVIN M. DOOLEY, California
GEORGE P. RADANOVICH, California CARLOS A. ROMERO-BARCELO, Puerto
WALTER B. JONES, Jr., North Rico
Carolina ROBERT A. UNDERWOOD, Guam
WILLIAM M. (MAC) THORNBERRY, Texas PATRICK J. KENNEDY, Rhode Island
CHRIS CANNON, Utah ADAM SMITH, Washington
KEVIN BRADY, Texas CHRIS JOHN, Louisiana
JOHN PETERSON, Pennsylvania DONNA MC CHRISTENSEN, Virgin
RICK HILL, Montana Islands
BOB SCHAFFER, Colorado RON KIND, Wisconsin
JIM GIBBONS, Nevada JAY INSLEE, Washington
MARK E. SOUDER, Indiana GRACE F. NAPOLITANO, California
GREG WALDEN, Oregon TOM UDALL, New Mexico
DON SHERWOOD, Pennsylvania MARK UDALL, Colorado
ROBIN HAYES, North Carolina JOSEPH CROWLEY, New York
MIKE SIMPSON, Idaho RUSH D. HOLT, New Jersey
THOMAS G. TANCREDO, Colorado
Lloyd A. Jones, Chief of Staff
Elizabeth Megginson, Chief Counsel
Christine Kennedy, Chief Clerk/Administrator
John Lawrence, Democratic Staff Director
C O N T E N T S
----------
Page
Hearing held August 3, 1999...................................... 1
Statement of Members:
Miller, Hon. George, a Representative in Congress from the
State of California, prepared statement of................. 3
Young, Hon. Don, a Representative in Congress from the State
of Alaska.................................................. 1
Prepared statement of.................................... 2
Statement of Witnesses:
Allen, W. Ron, President, National Congress of American
Indians, Washington, DC.................................... 22
Prepared statement of.................................... 25
Gover, Hon. Kevin, Assistant Secretary of Indian Affairs,
U.S. Department of the Interior, Washington, DC............ 5
Prepared statement of.................................... 7
Manumik, Paul, Chairman, YKHC................................ 55
Prepared statement of.................................... 55
Miller, Lloyd Benton, Attorney............................... 57
Prepared statement of.................................... 58
Sullivan, Richard G., Senior Negotiator, Division of Cost
Allocation, U.S. Department of Health and Human Services,
Washington, DC............................................. 8
Prepared statement of.................................... 9
Thomas, Hon. Mary V., Governor, Gila River Indian Community,
Sacaton, Arizona........................................... 28
Prepared statement of.................................... 30
Additional statement by.................................. 107
Trujillo, Michael H., Director, Indian Health Service,
Rockville, Maryland; accompanied by Michael E. Lincoln,
Deputy Director, IHS; Carl Fitzpatrick, Division of
Financial Management; Douglas Black, Office of Tribal
Programs; and Ron Demaray, Director, Self Determination
Services................................................... 10
Prepared statement of.................................... 11
Additional material submitted for the record by.......... 86
Williams, Orie, Executive Vice President, Yukon-Kuskokwim
Health Corporation, Bethel, Alaska......................... 37
Prepared statement of.................................... 41
Wells, Jim, Director, Energy, Resources and Science Issues,
Resources, Community and Economic Development Division,
General Accounting Office, Washington, DC; accompanied by
Jeffery D. Malcolm, Senior Evaluator....................... 67
Prepared statement of.................................... 69
Additional material submitted for the record by.......... 83
Additional material supplied:
Cypress, Billy, Chairman, Miccosukee Tribe of Indians........ 97
Regula, Hon. Ralph, Chairman, Appropriations Subcommittee on
Interior, letter from Hon. J.D. Hayworth, Hon. Don
Young,and Hon. Dale E. Kildee.............................. 117
Tarplin, Richard J., Dept. of Health and Human Resources..... 104
Trujillo, Dr. Michael, Director, Indian Health Service,
letter from Hon. J.D. Hayworth............................. 118
CONTRACT SUPPORT COSTS WITHIN THE INDIAN HEALTH SERVICE AND THE BUREAU
OF INDIAN AFFAIRS (PART II)
---------- *
TUESDAY, AUGUST 3, 1999
House of Representatives,
Committee on Resources,
Washington, DC.
The Committee met, pursuant to call, at 11:09 a.m. in Room
1324, Longworth House Office Building, Hon. Don Young [chairman
of the Committee] presiding.
The Chairman. The meeting will come to order.
STATEMENT OF HON. DON YOUNG, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF ALASKA
The Committee is meeting today to hear testimony on
contract support costs within the Indian Health Service and
Bureau of Indian Affairs.
Under rule 4(b) of the Committee rules, any oral opening
statements at hearings are limited to the Chairman and the
Ranking Minority Member. This will allow us to hear from
witnesses sooner and help members keep up with their schedules.
If other members have statements, they can be included in the
hearing record, under unanimous consent.
I would especially like to extend my welcome to all of my
Alaskan constituents.
I would especially like to thank everyone for their help
and support during the debate on the Interior appropriations
bill on the House floor three weeks ago. With your help, we
were able to strike out the pro-rata language in the Interior
appropriations bill for fiscal year 2000.
We held our first hearing on contract support costs on
February 24, 1999, accepting testimony from the tribes and the
administration. This Committee sent additional questions to the
administration and directed the tribes to meet with the
administration and to come up with permanent solutions for
contract support costs.
Additionally, the Interior Appropriations Subcommittee
requested a report from the General Accounting Office regarding
contract support costs to provide Congress alternatives to
existing problems.
Today, we will hear the administration's recommendations
with regard to contract support costs. We will also hear from
NCAI and their work with the National Policy Work Group on
Contract Support Costs and their recommendation. Lastly, we
will hear from the GAO and their final report to Congress and
what alternatives they recommend with regard to contract
support shortfalls.
Once we have reviewed the recommendations, the Committee
will make a final decision on how to proceed with the permanent
solution with shortfalls and contract support costs.
I would offer my many thanks to the tribes for all of their
input and patience in this important manner.
I would also like to suggest one thing. The argument that
we have had with the Appropriations Committee, no one has ever
addressed the concept of health care. It has always been what
to do with the money. I believe that our goal should be to
provide the fine health care that has been done in the past and
hopefully in the present and will be in the future.
[The prepared statement of Mr. Young follows:]
Statement of Hon. Don Young, a Representative in Congress from the
State of Alaska
I would like to extend my welcome to all--particularly my
Alaskan constituents. I would especially like to thank everyone
for their help and support during the debate of the Interior
Appropriations bill on the House floor three weeks ago. With
your help, we were able to strike out the pro-rata language in
the Interior Appropriations bill for FY 2000.
We held our first hearing on contract support costs on
February 24, 1999 accepting testimony from tribes and the
Administration. This Committee sent additional questions to the
Administration and directed the tribes to meet with the
Administration to come up with a permanent solution for
contract support costs.
Additionally, the Interior Appropriations Subcommittee
requested a report from the General Accounting Office regarding
contract support costs and to provide Congress with
alternatives to the existing problem.
Today, we will hear the Administrations' recommendations
regarding contract support costs. We will also hear from the
NCAI and their work with the National Policy Work Group on
contract support costs and their recommendations. Lastly, we
will hear from the GAO on their final report to Congress and
what alternatives that they recommend with regard to contract
support costs shortfalls.
Once we have reviewed the recommendations, the Committee
will make a final decision on how to proceed with a permanent
solution to the problem of shortfalls with contract support
cost.
My many thanks to the tribes for all their input and
patience on this important issue.
Contract Support Costs Hearing
Briefing Paper
August 3, 1999
Under Section 106(a)(2) of Public Law 93-638, the Indian
Self Determination Act, American Indian and Alaska Native
tribes are authorized to enter into contracts or compacts with
the Indian Health Service(IHS) and the Bureau of Indian Affairs
(BIA) to directly administer health care and Bureau of Indian
Affairs programs previously administered by the two agencies.
Congress strongly advocated this change to allow tribes to
provide direct and improved services to their members. Contract
support costs is directly associated with administering of
these programs and is based on three cost categories: start up
costs, indirect costs and direct costs.
Start-up Costs: One-time costs incurred in planning and
assuming management of the programs. Examples include buying
computers and training staff.
Indirect Costs: On going overhead expenses, which are often
divided into three groups--management and administration,
facilities and equipment, and general services and expenses.
Management and administration includes financial and personnel
management, procurement, property and records management, data
processing, and office services. Facility and equipment
includes building, utilities, housekeeping, repair and
maintenance, and equipment. General services include insurance
and legal services, audit, general expenses, interest and
depreciation.
Direct costs: This category covers such costs as unemployment
taxes and workers compensation insurance for direct program
salaries.
However, the consistent failure of Federal agencies (IHS and BIA)
to fully fund contract support costs has resulted in financial
management problems for tribes as they struggle to pay for federally
mandated annual single-agency audits, liability insurance, financial
management systems, personnel salaries, property management and other
administrative costs. Congress must remember that tribes are operating
Federal programs and are carrying out Federal responsibilities when
they operate self-determination contracts. Tribes, in some instances,
have had to resort to using their own financial resources to subsidize
contract support costs. It is the Committees' belief, and the House and
Senate Interior Appropriations Committees' belief that tribes should
not be forced to use their own financial resources to subsidize Federal
contract support costs.
At the request of the House and Senate Interior Appropriations
Committees' and Committee on Resources, the Indian Health Service
increased their contract support costs for FY 2000 by $35 million. This
will bring the funding level of all tribes to 70 percent of negotiated
contract support costs. The Congress must remember that in the FY 1999
Interior Appropriations bill, Congress directed the IHS and BIA to put
a one year moratorium on new contracts or compacts. This increase of
$35 million reflects the existing, compacts/contracts plus $15 million
for new and expanded contract supports costs projected in FY 2000 at a
70 percent level.
The Bureau of Indian Affairs pro-rates their indirect costs,
however, the funding for contract support costs does not include direct
costs to tribes. For instance, in FY 1999, the BIA plans to continue
not paying any direct contract support costs associated with programs
transferred to tribal operation. These direct costs are primarily
composed of personnel associated costs including retirement, ESC and
Workmen's Compensation etc. Tribes believe that the direct costs paid
by the IHS were in fact legitimate and should also be paid by the BIA
as well. It is also the belief of the appropriations committees that
the BIA and IHS should remain consistent and utilize similar if not,
identical systems to pay contract support costs.
Secondly, the progress toward Congressional intent has not been met
by the Administration. More than twenty years ago when Congress enacted
the Indian Self-Determination Act the express intent was that as tribes
and tribal groups contracted for Indian Health Service and Bureau of
Indian Affairs programs, there would be a parallel reduction in the
Federal bureaucracy and more tribal determination of services options
based on local needs and priorities. Tribal administration of these
programs has often resulted in substantial additions to available
health care services and for more efficient operation of programs. But
the parallel reduction in Federal bureaucracy does not appear to have
been achieved.
The General Accounting Office (GAO) was asked to submit a report to
Congress on the shortfalls of Contract Support Costs needs to be
addressed. The GAO recently completed its report to Congress and made
the following recommendations (1) The Secretaries of Interior and
Health and Humans Services should work together to (a) develop a
standard policy on funding contract support costs; and (b) ensure that
the BIA and IHS correctly adjust funding when tribes use provisional-
final rates.
Additionally, the GAO provided four alternatives for Congress to
consider (1) Fully fund contract support costs each year; (2) Amend the
Act to eliminate the provision requiring that contract support costs be
fully funded at 100 percent of the allowable costs identified by BIA
and IHS (3) Amend the Act to limit indirect costs by imposing either a
flat rate or a capped rate; and (4) Amend the Act to eliminate the
provision for funding contract support costs over and above the program
base and provide a consolidated contract amount. A representative from
the GAO will provide testimony at the hearing and answer Members
questions.
Lastly, the National Congress of American Indians National Policy
Work Group on Contract Supports Cost is also submitting its report and
recommendations to Congress. The Committee directed the tribal
leadership to work with the Administration to submit recommendations to
resolve the shortfalls in contract support costs.
The Committee conducted its first hearing on February 24, 1999 to
accept testimony from the Administration and tribes and plan to provide
proposed resolution to the problems associated with contract support
costs to the House and Senate Interior Appropriations committees.
Staff contact: Cynthia A. Ahwinona
The Chairman. With that, I would like to bring up the first
panel: The Honorable Kevin Gover, Assistant Secretary of Indian
affairs, U.S. Department of Interior, Washington, DC; Mr.
Richard G. Sullivan, Senior Negotiator, Division of Cost
Allocation, U.S. Department of Health and Human Services,
Washington, DC; Dr. Michael H. Trujillo, Director, Indian
Health Service, Rockville, Maryland, accompanied by Mr. Michael
Lincoln, Mr. Carl Fitzpatrick, Mr. Douglas Black, and Mr. Ron
Demaray.
Would you please take your chairs?
Without objection, I would submit for the record Mr.
Miller, the Ranking Minority Member, his opening comments.
Without objection, so ordered.
[The prepared statement of Mr. George Miller follows:]
Statement of Hon. George Miller, a Representative in Congress from the
State of California
Mr. Chairman. This is the second hearing we have held this
year on the issue of contract support cost under funding. While
the hearing in February focused on the breadth of the problem,
today's hearing will focus on solutions.
In 1975 I supported enactment of the Indian Self-
Determination and Education Assistance Act which authorized,
for the first time, Indian tribes to contract with the
Secretaries of Interior and Health and Human Services to
administer programs and services previously administered by
those Departments. I have strongly supported each expansion of
that first Act and expect to have my bill, H.R. 1167--the so
called ``Title V'' bill--which would make compacting under the
IHS a permanent program, passed by the full House in September.
Last year my legislation was bottled up in the Senate based in
most part to the issue of how to pay for additional contract
support costs. Chairman Young and I have promised that this
Committee would look into various solutions and this series of
hearings is part of that process.
The current situation where many tribes are only partially
funded or not funded at all for these costs is intolerable. The
costs do not disappear if funding is not provided but instead
tribes are forced to take funds directly from programs and
services to their members. The simplest solution is to have
Congress appropriate sufficient funding each year to cover all
direct and indirect costs related to tribal management of
services. Both the House and Senate Appropriations committees,
however, have made it clear that they will not appropriate full
funding and indeed, have foisted unfair moratorium against new
contracts and tried to write legislative language to force the
IHS to immediately distribute funding on the pro-rata basis.
I believe the most workable solutions will come from Indian
Country as those most directly affected by the shortfalls. I
commend the National Congress of American Indians for its work
group on contract support costs and look forward to hearing
from its president, Ron Allen, as to their findings and
recommendations. The NCAI report addresses a multitude of
related issues and suggests numerous changes to alter the
existing programs. Additionally, the GAO will testify and offer
alternatives to the current situation it released through a
report in June.
I also want to welcome the rest of the witnesses and
especially my old friend Governor Mary Thomas of Gila River.
Thank you all for coming today and I look forward to hearing
your testimony.
The Chairman. I believe all of you recognize what that is.
I do apologize. This is the most frustrating thing, to try to
conduct a hearing. I will go back and return as rapidly as
possible. If Mr. J.D. comes back, you have him take it over.
[Recess.]
Mr. Hayworth. [presiding.] The Committee will now come to
order, pending a unanimous consent request from my good friend
from Washington State.
The chair would recognize my friend from Washington State.
Mr. Inslee. In the spirit of great comity for which this
Committee is renowned, I am going to ask for unanimous consent
that Congressman Hayworth be permitted to sit on the dais and
participate in the hearing and to chair the hearing.
Mr. Hayworth. Is there objection?
Hearing none, we will continue.
I would thank my friend from Washington State and would
point out for the record he is spelling C-O-M-I-T-Y rather than
C-O-M-E-D-Y, as we are often accused of here in the Nation's
capitol.
We have a very serious topic this morning. Our purpose this
morning is to conduct this hearing on contract support costs
within the Indian Health Service and the Bureau of Indian
Affairs. Again, I thank my colleagues, my good friend from
Washington State, and the fine gentleman from New Jersey who
joins us here this morning.
We have with us Panel I, which includes the Honorable Kevin
Gover, the Assistant Secretary of Indian affairs, U.S.
Department of the Interior; Mr. Richard Sullivan, the Senior
Negotiator, Division of Cost Allocation of the U.S. Department
of Health and Human Services in Washington, DC; and we are
pleased to welcome Dr. Michael Trujillo, the Director of the
Indian Health Service in Rockville, Maryland. He is accompanied
by Messrs. Lincoln, Fitzpatrick, Black, and Demaray.
I would like to remind the witnesses that, under our
Committee rules, they must limit their oral statements to 5
minutes, but their entire statement will appear in the record.
We will also allow the entire panel to testify before
questioning the witnesses.
Before we move to this juncture, let me just simply check
with my colleagues and see if anyone here has an opening
statement that they would like to make. If there are statements
at a later time, we will have them introduced into the record.
At this point I would ask Mr. Kevin Gover to offer his
testimony.
Good morning and welcome to the Committee.
STATEMENT OF HON. KEVIN GOVER, ASSISTANT SECRETARY OF INDIAN
AFFAIRS, U.S. DEPARTMENT OF THE INTERIOR, WASHINGTON, DC
Mr. Gover. Thank you, Mr. Chairman. Good morning.
Mr. Chairman, I am pleased to be here today to discuss this
issue again.
Since the hearing in February, GAO, BIA, our BIA Tribal
Work Group on Contract Support Costs, and the national Congress
of American Indians have all published recommendations
concerning this issue. While GAO offers four alternatives for
consideration, it does not recommend one of the approaches over
the other. The BIA Tribal Work Group and NCAI both recommend
increased appropriations to fully fund contract support
requirements and both advocate additional studies or
benchmarking of tribal needs for contract support.
In the meantime, the Federal Government is a defendant in a
half-dozen lawsuits over contract support; and as part of the
fiscal year 2000 budget, the Appropriations Committees have
continued both the funding cap on contract support and, in the
case of the Senate, the moratorium on additional self-
determination contracting.
Notwithstanding the appropriations limitations, we have
various decisions from courts and administrative appeals boards
indicating that the language in the appropriations Act does not
repeal the mandate in the Indian self-determination Act for
full payment of support costs. Additionally, some courts and
the administrative appeals boards have found the United States
liable for breach of contract, requiring payment of 100 percent
of contract support costs, notwithstanding any limitations in
our appropriations Act.
Finally, the constitutionality of some of the appropriation
language has been called into question. Now, recent
appropriations report language for the fiscal year 2000 budget
indicate that the House and Senate Appropriations Committees
are not supportive of this commission. Finally, the positions
appear to be hardening to the extent that some tribal attorneys
have seriously proposed that I be prohibited from speaking with
some tribes about contract support problems in the past or any
proposals for the future. So it is not an exaggeration to say
that the status quo is intolerable.
Mr. Chairman, we have tried to identify some basic
objectives for resolution of this issue.
The first is quite important to us. It is that the Interior
Department should not be responsible for funding indirect costs
associated with grants made by other Federal agencies.
Second, the current and future costs of contract support
should be accurately estimated.
Third, the BIA should fully fund contract support for our
self-determination awards.
Fourth, we should put to rest questions tried to be raised
about the commitment of both the Congress and the
administration to self-determination contracting.
And, fifth, perhaps the most important, is the
Appropriations Committees have to consider the solution
reasonable.
One of the primary problems in this entire issue is there
is no consistency. The administration has not put forward a
consistent position among all of its agencies. And I am not
talking about the BIA and IHS but about the dozen or so other
departments that do a substantial amount of business with the
tribes. Congress seems to find no agreement between the
appropriators and the authorizing committees on what the
government's commitment ought to be, and that puts it in a very
difficult position.
Let me just highlight a proposal that we have under
consideration and that we have put out for tribal comment.
First, we would recommend, and I should emphasize, Mr.
Chairman, that I am speaking for myself and not necessarily for
the entire administration. It seems obvious that we have got to
require the other departments and agencies who do business with
the tribes to pay their indirect costs associated with those
ventures. It doesn't make any sense for the BIA or the IHS to
be held responsible by law for paying the indirect costs
associated with grants administered by the Departments of
Justice Department, Housing and Urban Development, Labor or any
of the others; yet that seems to be the current state of the
law.
Second, within the BIA we are proposing to separate grant
assistance from contracts. The intent of the Indian Self-
Determination Act was to encourage tribes to take over the
programs that were administered by the BIA. That is proceeding,
and we should pay the indirect costs associated with that
because we always received funds for the associated costs. When
it comes to grants, though, we had no extra money. Those
programs would not have taken place if the tribe chose not to
operate them or contract them, so there were no BIA costs
associated with those. However, in order to avoid reducing
commitments that we have already made to try to receive grants,
we would also propose that they be allowed to retain what now
is contract support on these grant payments.
Mr. Chairman, we have some technical recommendations
associated with that, but the bottom line is that we have got
to do something. The self-determination moratorium is
unacceptable. It flies in the face of 25 years of congressional
and administration policy. It is no solution to the contract
support dilemma to simply say make no more contracts.
Mr. Chairman, my time is up. I appreciate the opportunity
to testify.
The Chairman. I thank you, Mr. Gover.
[The prepared statement of Mr. Gover follows:]
Statement of Hon. Kevin Gover, Assistant Secretary--Indian Affairs,
Department of the Interior
Mr. Chairman and members of the Committee, I am pleased to
appear before you today to continue our discussion of the
issues surrounding the payment of contract support to Indian
tribes and tribal organizations.
Update
Since the Committee's hearing of last February, the General
Accounting Office has submitted its report on contract
support;\1\ the Bureau of Indian Affairs (BIA)/Tribal Work
Group on Contract Support Costs completed its review;\2\ and
the National Congress of American Indians published its
recommendations.\3\ GAO offers four alternatives for
Congressional consideration, but does not recommend one
approach over the others. The Work Group and NCAI recommend
increased appropriations to fully fund contract support
requirements and both advocate additional studies or ``bench
marking'' of tribal needs for contract support.
---------------------------------------------------------------------------
\1\ ``Indian Self-Determination Act: Shortfalls in Indian Contract
Support Costs Need to be Addressed,'' (GAO/RCED-99-150), June 1999.
\2\ ``A Study of Contract Support Costs in the Bureau of Indian
Affairs and Recommendations for Reform,'' June 1999.
\3\ ``Final Report of the National Policy Work Group on Contract
Support Costs,'' July 1999.
---------------------------------------------------------------------------
In the meantime, the Federal Government is a defendant in a
half-a-dozen law suits over contract support, and as part of
the FY 2000 budget, the Senate Appropriations Committee would
continue the moratorium on additional Self-Determination
contracting. Based on broad interpretation of the Indian Self-
Determination Act, a court found the United States liable for
breach of contract, and required the Department to pay indirect
costs for Interior and other Federal agencies contracting under
the Act.
Mr. Chairman, while I recognize the reluctance of the
Committee to amend the Indian Self-Determination Act, I have
come to the conclusion that the authorizing committees,
appropriations committees and the Administration must jointly
seek a resolution of the contract support dilemma.
Objectives in Resolving Contract Support Funding
My objective is to reach agreement in the following areas:
We need to develop a reliable mechanism to ensure
funding for indirect costs associated with grants made by other
Federal agencies;
The current and future costs of contract support
should be accurately estimated;
The BIA should fully fund contract support for our
self-determination awards within existing resources; and
We should put to rest the questions Tribes are raising
about the commitment of both Congress and the Administration to
self-determination contracting.
BIA's Option
Mr. Chairman, with these goals in mind, and considering court
decisions as well as the recommendations contained in the other reports
and studies on contract support, we are developing an option that could
be implemented to resolve the contract support problems that have
bedeviled us for two decades.
I will briefly summarize the key elements of the option proposed:
A mechanism must be devised to ensure fair
compensation for the indirect costs incurred by Indian Tribes
in administering grants awarded by Federal agencies.
Within the BIA, separately identify ``grant
assistance'' from Self-Determination awards. The goal of the
Self-Determination Act was to turn federally operated programs
over to Tribes. There are a number of programs that the BIA
funds that were never operated by BIA employees and would not
be operated by BIA employees if a Tribe declined an award. In
our implementation of Self-Determination, however, we have
acted as if every award were a Self-Determination contract, and
thus eligible for contract support payments.
For those programs identified as grants, grandfather
into the programs the amount of contract support currently
obligated for those programs.
For the remaining activities that are actual or
potential Self-Determination contracts or Self-Governance
compacts, estimate the total cost of contract support if all
tribes contracted for all programs and use this information to
structure budget requests.
Evaluate tribal requests for payment of certain direct
costs.
Conclusion
Mr. Chairman, working together, I believe that we can fashion a
contract support proposal that keeps faith with Tribes so that they are
not penalized for assuming program operations that would otherwise be
run by BIA employees, while recognizing that not all funds that flow
through the BIA should be accorded the special status of Self-
Determination awards.
I would be pleased to answer any questions you may have.
The Chairman. [presiding.] Mr. Sullivan, you are up next to
testify. We ask questions after everybody is done.
I apologize. I just got back in the room. Has anybody else
testified?
Mr. Sullivan, you are next. Pull that mike up to you.
STATEMENT OF RICHARD G. SULLIVAN, SENIOR NEGOTIATOR, DIVISION
OF COST ALLOCATION, U.S. DEPARTMENT OF HEALTH AND HUMAN
SERVICES, WASHINGTON, DC
Mr. Sullivan. Good morning Mr. Chairman. It is a pleasure
to come before the House Resources Committee this morning to
represent the Division of Cost Allocation, Program Support
Center of the Department of Health and Human Resources.
My name is Richard Sullivan. I am a branch chief of the DCA
Washington field office and am here to represent Mr. Charles J.
Seed, Director of the Division of Cost Allocation.
The Chairman. Move the mike a little closer, please. I can
hardly hear you.
Mr. Sullivan. The DCA is part of the Program Support
Center, an operating division of HHS, which was established in
1995 to provide centralized support services for HHS and other
government agencies.
The DCA is responsible for negotiating indirect costs
between the Federal Government and approximately 3,000
organizations. The negotiations involve more than $12 billion a
year in Federal program charges from State and local
governments, universities and colleges, hospitals, and other
nonprofit organizations. Many negotiations include reviews of
complex specialized service facilities such as computer
facilities, libraries, pension funds and labs.
The DCA is also responsible for resolving audit findings on
cost allocation plans and indirect cost rates; providing advice
on accounting matters affecting grant programs; and assisting
in activities related to improving grantee accounting systems
and developing government-wide and department-wide accounting
policies, procedures, and regulations. The indirect cost rates
HHS and other Federal agencies issue are accumulated centrally
and distributed to about 35 Federal government activities.
DCA operates through four field offices in New York,
Washington, Dallas and San Francisco. Our offices have
established rates with 14 Indian entities. Seven of these
entities are subject to OMB Cost Principles for State and local
governments. They include the Kenaitze Indian Tribe, Mount
Sanford Tribal Consortium, Ninilchik Village Tribal Council,
Seldovia Village Tribe, Tanana IRA Native Council, Native
Village of the Eyak Tribal Council, the Red Lake Band of
Chippewa Indians in Minnesota.
There are also seven organizations that are subject to OMB
Cost Principles for nonprofit organizations. These include the
Eastern Allution Tribes, Valdez Native Tribe, Eight Northern
Pueblos Council, Five Sandoval Indian Pueblos, the Inter-Tribal
Council, American Indian Community House, and North American
Indian Center of Boston.
A recent GAO reports states that there are 382 tribes and
related tribal organizations with negotiated rates. Nearly all
rate setting is performed by the Department of the Interior.
DCA currently establishes rates for only 14 of these tribal
entities and therefore plays only a minor role in this area.
I would be pleased to respond to any questions that the
members may have.
The Chairman. Thank you, Mr. Sullivan.
[The prepared statement of Mr. Sullivan follows:]
Statement of Richard G. Sullivan, Branch Chief, Cost Allocation
Division, Department of Health & Human Services
Good morning Mr. Chairman:
It is a pleasure to come before the House Resources
Committee this morning to represent the Division of Cost
Allocation (DCA), Program Support Center, Department of Health
and Human Services.
My name is Richard Sullivan. I am a branch chief in the DCA
Washington Field office and am here to represent Mr. Charles J.
Seed, Director of the Cost Allocation Division.
The DCA is part of the Program Support Center, an operating
division of HHS, which was established in 1995 to provide
centralized support services for HHS and other government
agencies.
The DCA is responsible for negotiating indirect costs
between the Federal Government and approximately 3,000
organizations. The negotiations involve more than $12 billion a
year in Federal program charges from State/local governments,
universities and colleges, hospitals, and other nonprofit
organizations. Many negotiations include reviews of complex
specialized services such as computer facilities, libraries,
pension funds, and labs. The DCA also is responsible for
resolving audit findings on cost allocation plans and indirect
cost rates; providing advice on accounting matters affecting
grant programs; and assisting in activities related to
improving grantee accounting systems and developing Government-
wide and Department-wide accounting policies, procedures, and
regulations. The indirect cost rates HHS and other Federal
agencies issue are accumulated centrally and distributed to 35
Federal government activities.
DCA operates through 4 field offices in New York,
Washington, Dallas, and San Francisco. Our offices have
established rates with fourteen Indian entities. Seven of these
entities are subject to OMB Cost Principles for State and local
governments. They include the:
Kenaitze Indian Tribe
Mount Sanford Tribal Consortium
Ninilchik Village Tribal Council
Seldovia Village Tribe
Tanana IRA Native Council
Native Village of Eyak Tribal Council
Red Lake Band of Chippewa Indians (Minnesota)
There also are seven organizations that are subject to OMB Cost
Principles for nonprofit organizations. These include the:
Eastern Allution Tribes, Inc.
Valdez Native Tribe
Eight Northern Pueblos Council
Five Sandoval Indian Pueblos, Inc.
Inter-Tribal Council, Inc.
American Indian Community House
North American Indian Center of Boston
A recent GAO report states that there are 382 tribes and related
tribal organizations with negotiated rates. Nearly all rate setting is
performed by the Department of the Interior. DCA currently establishes
rates for only 14 of these tribal entities and therefore plays only a
minor role in this area.
I would be pleased to respond to any questions the members may
have.
The Chairman. Mr. Trujillo.
STATEMENT OF MICHAEL H. TRUJILLO, DIRECTOR, INDIAN HEALTH
SERVICE, ROCKVILLE, MARYLAND; ACCOMPANIED BY MICHAEL E.
LINCOLN, DEPUTY DIRECTOR, IHS; CARL FITZPATRICK, DIVISION OF
FINANCIAL MANAGEMENT; DOUGLAS BLACK, OFFICE OF TRIBAL PROGRAMS;
AND RON DEMARAY, DIRECTOR, SELF DETERMINATION SERVICES
Dr. Trujillo. Yes, good morning, Mr. Chairman. It is a
pleasure to be here before this Committee.
We do have a written statement for the record which was
submitted, and these are my opening comments.
Over 40 percent of the Indian Health Service's budget, or
$1 billion, is allocated to tribal operated programs under the
authority of the Indian Self-Determination Act. Approximately
20 percent of this amount, or $240 million, represents contract
support costs. I believe the contract support costs are
critical to the promotion of strong, stable tribal governments
and critical to the provision of quality health care.
Contract support costs have been certainly the subject of
much discussion and debate over this last year. In the 1999
appropriations, the Congress appropriated an increase of $35
million for a contract support cost to the Indian Health
Service. The Congress directed that the increases be allocated
in a manner to reduce the inequity in the distribution of the
contract support cost in the Indian Health Service and
instructed the Indian Health Service to continue to work with
the tribes to develop a long-term solution to this inequity.
We, the tribes and the Indian Health Service have continued
to a spend considerable amount of time and effort to carry out
and strengthen the congressional instructions. Consultation
with tribes have resulted in the agency adopting the
distribution methodology agreed to by tribes, and that has
raised the average of the contract support cost funding level
in the agency to 80 percent. No tribe is funded below 70
percent of its contract support cost need.
We are presently working with the tribes in Alaska to
determine an appropriate amount of contract support cost
associated with the tribal takeover of the Alaskan Native
Medical Center, the largest single assumption of an Indian
Health Service program to date. We anticipate an allocation to
Alaska and the distribution of the entire $35 million by the
end of this month. I believe we have the appropriately
responded to the direction of Congress, but the allocation has
certainly not been without difficulty.
Shortly after our consultation with the tribes was
complete, we were advised by legal counsel, that is the Office
of General Counsel and the Department of Justice, that a new
vision in our congressional appropriation Act prohibited the
agency from using 1999 appropriations to pay non-recurring
costs incurred prior to 1999, contrary to what the agency and I
had intended to do. I have examined and continue to examine
every possible way to pay these costs, including continuing
discussion with tribal leadership, which amounts to
approximately $1.8 million, but it appears that I may be
prohibited by law--that is congressional language--from doing
so. I will make a decision on this this coming week.
As a result of the numerous consultation sessions with
tribal leaders and representatives of the Indian Health
Service, they have adopted a revised policy to allocate the
contract support costs into fiscal year 2000. The policy
distributes contract support cost increases by a pro-rata
system designed to further reduce the contract support cost
funding disparities among tribes within the Indian Health
Service system. A key element to this joint tribal Indian
Health Service policy, the tribe's support cost funding will
not be reduced when that tribe is already underfunded in the
first place. We also feel our efforts in this regard respond to
the wishes of Congress.
Finally, I would like to commend both NCAI and the GAO on
their recently completed studies of the contract support costs.
We believe these studies accurately describe the importance of
contract support costs to tribal governments and this country's
policy of Indian self-determination. These studies have drawn
many of the same conclusions that we in the Indian Health
Service have arrived at.
In summary, I would to like to emphasize that the Indian
Health Service and I am committed to uphold, promote, and
strengthen the principles of Indian self-determination, the
empowerment of tribal governments, and the government to
government relationship that exists between Indian nations and
this country. We continue to be committed to work closely and
collaboratively with Indian tribal governments, national Indian
organizations, and the Congress with regard to contract support
cost issues and to advocate and to assure more appropriate and
adequate funding to all tribes who contract or compact health
care services from the Indian Health Service.
Thank you.
The Chairman. I thank you, Doctor, for your testimony.
[The prepared statement of Dr. Trujillo follows:]
Statement of Dr. Michael Trujillo, Director, Indian Health Service
Mr. Chairman and Members of the Committee
Good morning. I am Dr. Michael Trujillo, the Director of
the Indian Health Service (IHS). Today, I am accompanied by Mr.
Michel E. Lincoln, Deputy Director, Indian Health Service; Mr.
Douglas Black, Director, Office of Tribal Programs; Mr. Ron
Demaray, Director, Self Determination Services; and Mr. Carl
Fitzpatrick, Director, Division of Financial Management. We
again welcome the opportunity to testify on the issue of
contract support costs in the Indian Health Service. As we
indicated in our testimony presented to the Committee on
February 24, we believe that contract support cost funding is
critical to the provision of quality health care by Indian
tribal governments and other tribal organizations contracting
and compacting under the Indian Self-Determination and
Education Assistance Act, Public Law 93-638 (ISDEA, P.L. 93-
638). Since the February 24, 1999 testimony on contract support
cost, we have continued to work with the authorizing and
appropriations committees and Tribes to address the ever-
growing contract support cost funding challenge, discussed
later in this testimony. In addressing this challenge, we will
collectively ensure that funding for contract support cost will
not adversely affect funding for other IHS programs, including
critical services delivered to non-contracting and non-
compacting Tribes.
Congress appropriated an increase of $35 million for
contract support costs in the Fiscal Year 1999 Interior
Appropriations with accompanying committee report language
instructing the IHS that the increase should be ``used to
address the inequity in the distribution of contract support
cost funding in fiscal year 1999.'' Further, the Congress
directed the IHS, in cooperation with the tribes, to develop a
solution to the contract support cost distribution inequity
without the large infusion of additional funding for contract
support costs. We believe we are close to accomplishing both
objectives.
Allocation of $35 million
Based on the Congressional guidance and results of
extensive agency consultation with Indian tribal governments,
the Indian Health Service has adopted an allocation methodology
for the current distribution of the $35 million in the most
equitable manner given the total amount of the final negotiated
CSC requests and availability of new funds. For example, the
new allocation method addresses all those CSC requests
submitted by tribes that have entered into Pubic Law 93-638
contract or compacts despite not receiving any contract support
cost funding for those assumptions. Under the new method, those
tribes that have the greatest overall contract support cost
need for all programs administered through self-determination
contracts and compacts will receive the greatest proportion of
new CSC funding. We believe that this allocation methodology is
responsive to concerns expressed by the Congress that the
Agency address the inequity in contract support funding levels
of tribes in the IHS system. To date, we have allocated over
half of the $35 million increase and we are able to fund, on
average, 80 percent of the total contract support cost need
associated with IHS contracts and compacts. No tribe is being
funded at less than 70 percent of their overall contract
support cost need.
At present, the IHS is engaged in negotiations with
representatives of the Alaska Tribal Consortium and the
Southcentral Foundation over the amount of contract support
costs that will be allocated to these two organizations for
their assumption of the Alaska Native Medical Center (ANMC),
which is the largest single takeover of an IHS program in
history. Any additional funding from the $35 million increase
not allocated for the assumption of the ANMC will be
distributed in a manner that further reduces the disparity in
contract support costs funding levels.
Revision of IHS Contract Support Cost Policy
Since 1992 the IHS has had an established, written contract
support cost (CSC) policy that was developed and implemented,
in consultation with tribes and tribal organizations. This
policy addresses many of the issues surrounding the
determination of CSC needs authorized under the ISDEA and the
allocation of CSC funds appropriated by the Congress. The first
policy adopted in 1992 was subsequently revised in response to
the 1994 amendments to the ISDEA.
As a part of the 1999 appropriations process the Congress
expressed their concerns over the inequity caused by existing
IHS CSC distribution methodologies and directed the Agency to
propose a permanent acceptable solution to the CSC distribution
inequity as a part of the FY 2000 budget process. Within days
of receiving this instruction from the Congress, the IHS began
the process to develop solutions to these CSC challenges. The
fact that the tribes, Congress and other stakeholders have
differing views as to what constitutes ``equity'' was
immediately apparent at the start of our work. Consequently,
the tribal and Agency representatives devoted significant time,
energy, and resources toward addressing the fundamental issues
of equity and developing solutions within the context of the
different perspectives of all the key stakeholders. With a
strong commitment to be as responsive as possible to the
concerns expressed by tribes, the courts, and the Congress, the
IHS incorporated the results of the tribal-Federal work into a
major third revision of the current CSC policy. As an example,
the new allocation method being utilized to distribute the new
FY 1999 CSC funds is reflected in the Agency's proposed new
draft CSC policy.
The IHS continues to consult and work closely with tribes,
tribal organizations, and their representatives in the further
refinement of the proposed revised CSC policy. This is
consistent with the Administration and Congressional policy to
support Indian self determination through active consultation
to ensure that all major policies, like the IHS CSC policy, are
based on the corner stone of the Indian Self-Determination Act.
The IHS and the Department are both firmly committed to
providing meaningful consultation on this issue. For example,
we have made strides with Tribes to include authorizing
language in the Tribal Self Determination Amendments to the
Indian Self Determination and Education Assistance Act (P.L.
93-638) to explicitly state that contract support funding is
subject to appropriations and that funds are not to be reduced
to other IHS programs and activities.
The IHS has now nearly completed the development of a
revised CSC policy that we believe addresses the expectation of
Congress as stated in the fiscal year 1999 appropriation
committee report. The proposed policy abandons the historic
approach to the Indian Self-Determination (ISD) Fund and the
maintenance of a queue system in favor of a pro-rata system
whereby each eligible tribe with an ISD request receives a
share of any additional CSC funding proportionate to its
overall CSC needs. Those with the greatest unfunded CSC needs
will receive largest share of any increase in available CSC
funding. Basic to this policy however, is the premise that a
tribe's CSC funding will not be reduced when that tribe is
already receiving less than its identified CSC need. This is
consistent with the statutory provisions of Section 106 (b) of
the ISDEA. We are also committed to address contract support
cost administratively, through the revision of out agency CSC
policy, which includes a provision to better reflect and reduce
duplications in contract support cost and tribal shares.
The new policy is much more comprehensive in addressing
many of the more subtle facets of CSC than prior policy
issuances. This can be seen in our approach to improved
projections of CSC needs, a specific concern of the Congress;
the tracking of CSC shortfalls; and the integration of this
information into the IHS budget formulation process. We firmly
believe that the proposed CSC policy takes advantage of all of
the tools available under the ISDEA to manage CSC in a
responsible manner. The policy has been drafted in such a way
as to avoid any future litigation over CSC but this cannot be
guaranteed. This policy has not been adopted and codified as a
Departmental regulation in the Federal Register because both
the IHS and BIA currently may not issue new CSC regulations.
However, Tribes have from time to time raised the possibility
of developing joint BIA/IHS regulations for CSC. The Agency
needs to give serious consideration to whether it is time to
pursue congressional authorization of a negotiated rulemaking
process to adopt a final rule concerning CSC. The IHS would
welcome the opportunity to join with tribes, the BIA, and the
OIG in such a process, if authorized by the Congress.
Other Contract Support Cost Efforts.
Recently, the General Accounting Office (GAO) and the
National Congress of American Indians (NCAI) each completed an
extensive study of CSC that have been forwarded to the
Congress. The IHS cooperated fully in the completion of both of
these studies which we believe accurately describe the
importance of CSC to tribal governments. These independent
studies have drawn many of the same conclusions that have been
reached by the IHS in the course of implementing the ISDEA
provisions governing CSC. We believe that both of these studies
provide thoughtful insight into CSC issues. In our view, the
revised IHS CSC policy is consistent with most of the findings
and recommendations contained in these reports and we welcome
the opportunity to work with tribes, the BIA, and the Congress
in reaching greater agreement amongst all of the varied
concerns and views.
Thank you once again for the opportunity to discuss
contract support costs in the IHS. We are now pleased to answer
any questions that you may have.
The Chairman. I understand that Mr. Fitzpatrick, Mr. Black
and Mr. Demaray are accompanying you to help answer any
questions that we may ask?
Dr. Trujillo. That is correct.
The Chairman. I am a little bit concerned. I listened to
all three of you, and in my opening statement I made the
comment that this seems to be a battle about financing and not
about health care. Financing doesn't guarantee health care.
I have a unique problem in Alaska, as you are well aware,
Doctor, that we have--because of your great BIA--declared about
227 tribes in the State of Alaska. If 227 tribes were to apply
for a pro-rata funding for health care, what type of health
care do you think there would be for my Alaskan aid people in
Alaska?
Dr. Trujillo. In regards to the numbers of tribes, you also
have to take into consideration the remote geographic problems
in regard to the villages and the programs that are there; and
the cost of that health care and access to health care is
extremely difficult as well as increasing day by day, as you
well know. The costs and the population certainly increases. I
had hoped that as the tribes and the consortiums worked
together with the corporations that we would be able to have
increasing access to health care with the tribes and the
corporations.
The Chairman. Again, with SEARHC in southeast and, of
course, with the Bethel Corporation, they are providing
excellent health care now. If their base was diluted, what
would be the result for the health care for the people?
Dr. Trujillo. If funding were to be decreased to any
particular program, not only to Alaska but those in the lower
48, there would be difficulty to access.
The Chairman. So if we had the funding as it is today for
those two larger--with the hospital in Anchorage, SEARHC in
southeast and the Bethel hospital, if that retained its present
status of funding, then it would mean that we need to have more
money if other tribes would apply for the health care
capability. Is that correct?
Dr. Trujillo. The areas for Indian Health Service has
always been a difficulty of insufficient allocation of fiscal
resources. I believe the tribes who have managed to administer
and contract for their programs and now administer direct and
preventive programs have done an excellent quality job. The
difficulty has come with insufficient funding not only for the
program aspects but also for the direct and indirect costs
which would enable them to do a better job than they are doing
right now. That is one of the aspects that I hope that we can
come to some sort of conclusion or direction as to how we will
cover this increasingly important area of cost for those tribes
who wish to undertake the management----
The Chairman. In your testimony, you say IHS has made
strides with tribes--it sort of rhymes--to implicitly state the
contract support funding was subject to appropriations. But
isn't it true, Doctor, that tribes do not agree with that
position, that they view full contract support funding as a
legal obligation and that the courts have consistently agreed
with the tribes?
Dr. Trujillo. It is my understanding that we would
certainly--I certainly agree that contract support costs should
and other costs should be fully funded at 100 percent. The
difficulty has been now that those costs can be covered by
appropriate resources that are dedicated for those particular
areas. Taking program funds from other tribes to pay contract
support costs from other tribes only dilutes and compounds the
problems for all American Indians, Alaskan natives throughout
the Nation, including Alaska.
The Chairman. Mr. Gover, the one thing in your testimony,
you state there are a number of programs that BIA funds with
contract support costs that are, in effect, not self-
determination contract programs which are, therefore,
ineligible for such costs. You then ask the Committee to amend
the Indian Self-Determination Act to discontinue this practice.
If the Bureau wishes to discontinue paying contract support
costs beyond the requirements of the statute, why doesn't the
Bureau simply take the appropriate action after thoroughly
reviewing the matter of the Indian country?
Mr. Gover. That is a good question, Mr. Chairman. We well
may do that. I think that we would prefer to proceed with some
congressional sanction of the approach, but if I have the
authority to do that, then I certainly will consider that,
doing that unilaterally.
The Chairman. My concern is, very frankly, to reopen this
Indian Self-Determination Act today would not be a very, I
believe, healthy thing to do, especially with outside forces
concentrating on the success of certain activities of Indian
tribes. I think it would probably open them up for some very
strict scrutiny which would not necessarily be good for the
tribes and probably be wrong.
I can't control all of that. I am very reluctant as
chairman of this Committee to open that Self-Determination Act.
So I think maybe you and I ought to talk to see what we can do
without having to open that Act.
I have other questions I would like to ask, but my time is
up. The gentleman from--Mr. Udall.
Mr. Udall of New Mexico. Thank you, Mr. Chairman.
I guess this question is for Assistant Secretary Gover, but
others if they have comments on it. Much has been said about
the inconsistency of agencies to pay contract support costs.
Who is responsible for coordinating agency policy within the
administration?
Mr. Gover. Ideally, Congressman Udall, that would be the
Office of Management and Budget that coordinates the executive
branch policy on these issues. To this point, however, we have
received no guidance from OMB that would tell us, again, not
only how to resolve the differences on how BIA and IHS
administer these costs but, equally importantly, how all of the
other Federal agencies and departments who do business with the
tribes pay those costs. The fact is, most of them don't pay the
costs right now, and they should.
These lawsuits look to the BIA and the IHS to pay the costs
in times when, as the chairman points out, IHS doesn't have the
money to do what we ought to be doing in health care, and BIA
certainly doesn't have the money to do the many things that it
is being charged to do.
Mr. Udall of New Mexico. So OMB hasn't really done anything
in terms of trying to ensure that all agencies pay contract
support costs?
Mr. Gover. Well, they reviewed our testimony.
Mr. Tom Udall. I am sure they did.
Mr. Gover. They have not yet taken any aggressive steps in
that regard.
I will say that I spoke with Elgie Holstein just last week
about this issue, and he has offered to coordinate a meeting
among all of the agencies. That meeting is going to go like
this. BIA says, you agencies ought to pay your own indirect
costs; and they are going to say, no, we don't want to; and
that will be the meeting. Somebody has got to make a decision,
and I am afraid that happens above my pay grade.
Mr. Udall of New Mexico. Thank you.
Let me also just thank you, Assistant Secretary Gover, for
your service.
Mr. Chairman, you should know he is a New Mexican, and he
gave up a good-paying job to come back here and serve the
public, and I think he is doing a very good job at it.
Dr. Trujillo, when can the Committee expect to see your new
IHS proposed contract support cost policy that you referred to
in your testimony?
Dr. Trujillo. Yes. In regards to the policy that has been
put in the Federal Register, we are awaiting final comments
from the public and tribes and even leadership on the policy.
We will then have another concluding meeting with tribes and
tribal leadership on those recommendations and statements that
have come from the public. We hope to publish the tribal and
Indian Health Service work on policy by the beginning of the
fiscal year 2000.
Mr. Udall of New Mexico. Thank you.
I yield back, Mr. Chairman.
The Chairman. I thank the gentleman.
The gentleman from Arizona, the biggest western union
Congressman we have.
Mr. Hayworth. Well, I thank you. From the chairman of this
Committee and the Congressman for all Alaska, that is high
praise indeed. It is good to see my neighbor from New Mexico
here and my other neighbor from New Mexico, who has come back
to help us with the BIA.
I would like to thank all of the witnesses, but let me turn
to Dr. Trujillo.
Dr. Trujillo, we are especially pleased that you could join
us today. It is my understanding that you made a policy
decision this year not to pay any start-up costs incurred by
tribes in prior years, costs that were incurred with the full
knowledge and approval of the IHS in which tribes were assured
they would be placed on the IHS priority list and would be
paid. The question is fairly obvious. Why are you violating the
ISDA, the tribal contract commitments, in your own internal
circulars by now refusing to use the fiscal year 1999 funds
appropriated by Congress for this purpose?
Dr. Trujillo. That is an excellent question.
In my opening statement I refer to that dilemma that we
have come across in regards to what I had intended to do and
looked at. Also, the agency, in its discussions with tribes and
tribal leadership, said that we were intending to pay prior
years' start-up costs. However, we were advised at the last
minute prior to our allocating the money within the agency to
tribes by the Office of General Counsel, the Department of
Justice, that this decision was prohibited by congressional
language and that we could not pay nonrecurring start-up costs
that had occurred prior to 1999.
We have continued our discussion with tribal leadership,
General Counsel, the Department of Justice, staffers from the
Appropriations Committee who had written that language; and
they all advised us that that was not the intent of the
language, to pay prior start-up costs. So now I am caught up in
the dilemma of wishing to have done this, but the
interpretation of the Office of General Counsel and the
Department of Justice and the staff from the Appropriations
Committee was not to do that.
The Chairman. If the gentleman would yield, I am concerned.
What the hell does the staff of the Appropriations Committee
have to do with this? You are operating in authorization
language.
Now, I would suggest--I have had this fight with the
Appropriations Committee before. I heard Mr. Gover say it, too.
I want the names of those people that instigated this, and we
will have what we will call a come to Jesus meeting with the
appropriations committee. They are not running this damn
Congress. So I want those names. If they instigated this--
because we did appropriate the money. They are going beyond the
role of any one committee--they are not authorizers. So you
will give me those names, will you not?
Dr. Trujillo. We will forward our discussions with also the
interpretation from the Office of General Counsel and
Department of Justice.
The Chairman. I want the whole transcript of how they
arrived at this decision. I am not beating you on the head. I
am beating them on the head.
Mr. Hayworth. I thank the chairman.
I would reiterate, Dr. Trujillo, we would appreciate your
cooperation. If you don't have the information today, again
just to state for the record, it is very important to this
Committee that those answers be supplied in writing as quickly
as possible because, as the chairman outlines, we have some
very serious policy questions confronting not only this
Congress but the several Indian tribes. And so we would
appreciate that.
Dr. Trujillo. Before concluding, what we had intended to do
in our discussion with tribal leadership and also the
interpretation from General Counsel and the Department of
Justice----
Mr. Hayworth. How quickly can we expect that response from
you, Dr. Trujillo?
Dr. Trujillo. I would imagine by the end of this week.
Mr. Hayworth. So we can expect this on Friday? Would that
be fine with the chairman?
Dr. Trujillo. I am sure there will be other questions, but
in this particular issue we can get that to you.
Mr. Hayworth. Whomever's interpretation of section 314 of
last year's appropriations Act, you have gone through that.
Again, for the record, let me ask you your interpretation.
Isn't it true that section 314 simply instructs the agency on
what it can and cannot do with its older appropriations
accounts?
Dr. Trujillo. The reading when we had first reviewed the
language was simply that, and it also would have allowed us to
possibly pay those prior start-up costs. That was our intent,
certainly my intent. Further interpretations and discussions
and we were then informed of that information, as I had related
to you earlier, that we were prohibited for not paying prior
start-up costs.
Mr. Hayworth. Isn't that what the Interior Board of
Contract Appeals in the Federal court in Oregon just determined
in separate rulings this past month?
Dr. Trujillo. Those are some particular issues surrounding
some of the contract support cost issues. In this particular--
of course, 314 were not part of that discussion.
Mr. Hayworth. Dr. Trujillo, isn't it true that by not
reimbursing any start-up costs you will be severely damaging
three tribes in particular, notably the Gila River, Fort
McDowell and Potawatomi tribes?
Dr. Trujillo. Their amounts for these particular start-up
costs are significant. We had entered into discussions with
them and also continued discussions with Gila River as to some
other alternatives if this particular issue was not resolved.
Mr. Hayworth. Doctor, I thank you.
I thank you, Mr. Chairman. I see the red light.
The Chairman. We can always come back.
The gentlelady, do you have questions?
Mrs. Napolitano. Thank you, Mr. Chairman.
I am sorry I was late. I didn't get to hear your
introduction. But I am going to be a little concerned about the
1995 suit to IHS and the Court ruling that the Secretary should
try to allocate as much funding as possible from lump sum
appropriations each year and found that the legislative history
show the intent to go up pro rata reduction in contract
funding. How is that working out? This is 1995. Have you
instituted that pro rata funding?
Dr. Trujillo. As I had mentioned earlier in my statement
and the Congressman from New Mexico was talking about, the new
policy that has been developed along with the tribes and tribal
leadership that will be getting final comment on and hopefully
publishing at the beginning of this coming fiscal year involves
the allocation of contract support costs on a pro rata basis on
new or incoming funding so that no tribes would have be having
a detrimental impact upon their programs.
Mrs. Napolitano. So, in other words, there will be less for
the funds that are applying but nobody will be left out?
Dr. Trujillo. Correct. We will bring up, hopefully, all of
the tribes who do need the money more in the particular policy
level.
Mrs. Napolitano. Okay. I am not quite sure what the answer
is. Can you maybe elaborate on whether it is the funding that
has not been there, the decrease in the funding? What is going
to help reach the levels of adequate service?
Dr. Trujillo. You put a statement in your answer that I
would like to just concur with. One is the insufficient funding
in this particular category on direct and indirect costs. The
other is the insufficient funding for program costs which we
manage and administer ongoing programs, not only with the
Indian Health Service but also the tribes, in urban programs.
The tribes and urban leadership presented to the Department of
Health and Human Services about two and a half months ago a
needs-based budget of $15 billion. At the present time, the
Indian Health Service is requesting in its preliminary
discussions with the Department and, of course, within the
administration $3.2 billion for its annual appropriations for
the year 2001. The gap between $3.2 and $15 billion are indeed
tremendous. In this overall cost also comes the cost within the
direct and indirect cost to administer and manage programs.
Mrs. Napolitano. Why the difference? Why the disparity?
Dr. Trujillo. Great disparity in funding and health care.
Mrs. Napolitano. Have you asked why the disparity?
Dr. Trujillo. It has been funding over a period of time in
regards to Indian programs.
Mrs. Napolitano. You mean reduction of funding?
Dr. Trujillo. There has been reduction of funding, but
there has been insufficient funding in some of the mandatory
areas such as pay costs, inflation, population growth, that
affect all of our programs nationwide, tribes and Indian Health
Service.
Mrs. Napolitano. But, legally, aren't those required?
Dr. Trujillo. They are not. This is a discretionary funding
program.
Mrs. Napolitano. What would your suggestion be then? I am
sorry, I stopped you in the middle of your telling----
Dr. Trujillo. I hope that we would be able to--those of us,
yourself included, this Committee and certainly appropriations
in the Senate could fully discuss the appropriate needs across
Indian country, not only in health care but economic
development, housing and other areas that are in critical need
in Indian country, Alaska included and the lower 48.
Mrs. Napolitano. Thank you.
Thank you, Mr. Chairman.
The Chairman. Before I recognize the gentleman from Nevada,
one of the things that I have listened to here, Mr. Gover and
Dr. Trujillo have insufficient funds, but what were the amounts
asked by the administration in this most recent budget?
Dr. Trujillo. In regards to the Indian Health Service, we
were hoping for an increase of around about $170 million over
last year's appropriations. So far, with both the Senate and
the House, we are seeing lesser amounts.
The Chairman. Lesser amounts. How much did that--that $170
million, how much is that short of accomplishing your goals?
Dr. Trujillo. We had hoped that we would probably get at
least to close to $200 million.
The Chairman. You should ask for $300 million. I know how
this game is played.
Mr. Gover, how about the BIA?
Mr. Gover. Basically the same story. We asked for an
increase of about $140 million, including the Office of the
Special Trustee. The committees, each of them have offered
less. In order to actually meet our programmatic objectives,
according to both the study of tribal priority allocations that
we just completed with the tribal work group and according to
the National Academy of Public Administrators, we would need to
triple our budget in order to actually meet the programmatic
objectives that have been established for us by the Congress.
The Chairman. That is interesting to me because I am always
a little concerned. We take the hit, you take the hit. But
sometimes I think that you ought to come down with the numbers
that you really need and forget what everybody else says and
then let's figure it out. Because if you come down with a
figure, you know they are saying you asked for too much. I
think there is some real strong evidence here of what the needs
are. I think that ought to be brought out so the public can
talk about it.
Mr. Gibbons.
Mr. Gibbons. Thank you, Mr. Chairman.
I just wanted to direct perhaps a production request to Mr.
Sullivan, if I could. I have looked at your testimony here, and
I have noticed some glaring absences, and I am reminded by the
chairman that much of your testimony fails to recognize--either
that or you are unaware that your division, your own agency
negotiates either direct--I mean, indirect rates for some of
the largest tribal organizations, including my colleague from
Alaska's Yukon-Kuskokwim--however he says it--Health
Corporation, the Aleutian Pribilof Islands, Southeast Alaska
Regional Health Corporation, and Tanana Chief's Conference in
Alaska, just to name a few. Would you be willing and would you
make a commitment to this Committee today to provide a list of
all tribal organizations and nonprofit organizations for whom
you negotiate indirect rates by the end of the week?
Mr. Sullivan. I was under the impression that the listing
that I furnished today, the seven nonprofits and the seven
organizations subject to A-87 of the State and local Cost
Principles, was the listing of the organizations that the DCA
does set rates with.
Mr. Gibbons. Would you go back to your agency and go back
through the records and then provide for us a complete listing,
as I have requested, of all of the tribal organizations and
nonprofits organizations for whom you negotiate indirect rates
and provide that list for us by the end of the week?
Mr. Sullivan. Yes, sir.
Mr. Gibbons. Mr. Fitzpatrick, you are sitting there
quietly. Perhaps I should direct a question to you. It would be
only fair.
In this setting, when a tribe proposes a certain amount of
contractual support costs and the parties ultimately end up
negotiating and eventually the IHS, Indian Health Service, will
make a decision on that cost, I would think that IHS would
actually make a decision in writing and explain how or why it
disagreed with the tribe and came up with a different number. I
should think that IHS would provide also an appeal process in
that regard. In fact, I thought this was also required by the
Act.
So my question to you, Mr. Fitzpatrick, is if you agree
that that would be a fair and right and legally required
process, why has the IHS this year not furnished tribes with
these simple pieces of information? Tribes have repeatedly said
they have no idea why or where they stand and if they request,
their requests have been knocked down and, if so, on what
basis. What they have is nothing from which they can make an
appeal, obviously.
So I would like you to address that issue and whether or
not you feel that there is an obligation to a tribe to be
straightforward, having a letter in writing or something,
saying that why or what you paid to them and why you paid to
them was fair, why it wasn't fair or why you paid them nothing.
So you if you could address those issues and talk about the
fairness aspect, I would appreciate that.
Mr. Fitzpatrick. Yes, sir. I think I can address--well, I
will address.
First, we went through 225 applications. We went through
them. We actually wrote down item by item what we approved or
disproved, sent them to the area offices, from which they
actually came from the 12 area offices. We sent it back to them
for them to actually take it down to the tribes to tell them
what happened. So, yes, a document did go from my offices to
the area directors explaining what was accepted, what wasn't
accepted, what was needed, provided they weren't in agreement.
Mr. Gibbons. Mr. Fitzpatrick, isn't it true that many of
the tribes never received even the limited summary information
that you provided them to the Office of Tribal Programs that
was sent to area offices explaining your first round of
payments from that $35 million account because the areas were
not instructed to advise the tribes or all of the tribes?
Mr. Fitzpatrick. No. I did not instruct them not to advise
them. I passed it down hoping they would advise them. It gave
them a detailed, itemized----
Mr. Gibbons. But you didn't give them any direct
instructions to advise all of the tribes on the rationale of
your decision?
Mr. Fitzpatrick. I can't remember how the letter actually
went, but I could submit the letter for the record that went to
each area office.
Now, there is an appeal process in the 9604 that the tribes
should be--if they appeal, there is a process for them to
appeal.
Mr. Gibbons. On page 11, subparagraph 4 of the IHS circular
9604, it states that, at the end of the second paragraph, once
a tribe and its local area complete their contract support
negotiations, only items remaining, quote, in dispute, end
quote, go to your office for resolution.
Why this year has your office violated this policy by
rejecting items that had been agreed at the area and tribal
level and requiring tribes to renegotiate agreed contract
support requirements?
Mr. Fitzpatrick. In reviews those ISD requests, many of
them came in that showed actual duplication of costs,
unallowable costs, so they went back to them to be explained
why.
Mr. Gibbons. Why has the Office of Financial Management
been discriminatory against programs on IHSQ by applying them
to a different rule regarding direct contract support costs
than has been applied to all other programs?
Mr. Fitzpatrick. We just--we have actually followed 9604
and made sure that all tribes were treated equally in our
reviews.
Mr. Gibbons. Well, 9604 remains in place and it hasn't
changed, has it?
Mr. Fitzpatrick. It is in place, yes, sir.
Mr. Gibbons. So it should be applied as, according to that
circular, consistently to all contracted programs, is that not
true?
Mr. Fitzpatrick. Yes, sir.
Mr. Gibbons. Mr. Chairman, I will wait for a second round.
The Chairman. The gentleman from Arizona, do you have any
other questions?
I am going to--we have another hearing coming up in this
room, and I do apologize, and I want to be able to listen to
the next two panels. But we are going to forward to the
administration additional questions with a deadline set for
compliance. I say this because last time the Committee
submitted questions to the administration they were 2 months
late. And since this is our first hearing, I will allow that
additional time. Should the administration not submit your
answers in time, I will take formal action to ensure that you
comply with our time limit.
We need to forward the contract support costs. We need to
move forward on this. And this Congress, very frankly, I,
especially, do not appreciate delays that results in the
administration not responding to the questions that we will
submit, because we do plan on solving this problem. The
deadline for answering the questions I will submit to you is on
September 3 of 1999, which gives you approximately one month.
So I do appreciate that, if you would do so.
I thank the panel, and my door is open. My phone is
available.
I would suggest to Mr. Gover, especially to Mr. Trujillo,
that if there is a problem that we can't solve, let me know and
I am going to communicate and see if we can't solve it. If I
find that you are not adding to the solution to the problems,
then I am going to be not too happy.
I do appreciate your work and support. My ultimate goal is
to make sure that all American Indians have good health care.
This is not about money. It is not about the administration. It
is about health care.
I do believe that we are doing a good job in Alaska. We can
do better if it's not meddled with, I believe. So I do thank
this panel.
Mr. Gibbons, do you have any other questions?
I do thank this panel, and you are excused.
And I do call up the second panel.
The second panel is Mr. W. Ron Allen, President, National
Congress of American Indians, Washington, DC; the Honorable
Mary V. Thomas, Governor of the Gila River Indian Community in
Sacaton, Arizona; Mr. Orie Williams, Executive Vice President,
Yukon-Kuskokwim Health Corporation, Bethel, Alaska, an
outstanding Alaskan constituent. They actually made me chief
when we were in Bethel, so I am very lenient towards Mr.
Williams. He will be accompanied by Mr. Paul Manumik, Chairman
of the YKHC, and Mr. Lloyd Benton Miller, Attorney.
We always have to have these attorneys available. I realize
that.
We will have Mr. Ron Allen be the first one up. Ron.
STATEMENT OF W. RON ALLEN, PRESIDENT, NATIONAL CONGRESS OF
AMERICAN INDIANS, WASHINGTON, DC
Mr. Allen. Thank you, Mr. Chairman. It is always a pleasure
to be able to come and testify before this Committee and
address issues that affect the Indian nations across America.
Contract support, as you well know, is an issue that we
have been wrestling with for the past 20 years. It is not a new
issue, not a new struggle. This is an old matter that we have
been trying to correct and cause the Congress and the
administration to get on the same page with regard to what to
do.
The Indian Self-Determination Act in 1975 had a very simple
objective. That objective was--with regard to Federal programs
that administers Indian programs--was to reduce those programs
and transfer those functions out to the Indian people. It was
intended to put Indian programs in the hands of Indian people.
It also, interestingly enough, 20 years ago was about
devolution. It was about empowerment of tribal governments and
to cause them to be able to have greater capacity to serve
their communities.
The National Congress of American Indians has been working
with the tribal leadership across the United States in a
contract support costs task force that we put together a little
over a year ago. Over the last 13 months we had 11 national
meetings and countless smaller work sessions and gathered what
we believe is the experts of the experts with regard to a
subject matter that most people don't like. It is not a simple
subject matter. It is not easy to understand. But its concept
is very straightforward, in our opinion. It is a concept that
is well accepted by the Federal Government. It is accepted by
State governments. It is accepted by the private sector.
Contract support administrative overhead costs is something
that is very common with regard to how you administer programs
and services for a particular purpose. We have put a lot of
hard work into correcting a whole lot of myths and
misunderstandings that we believe has been advanced with regard
to contract support.
One of the questions is, does the Congress and the
administration want to pay for the implementation of the goals
set out in an Act that was intended in 1975? Did they know what
they were trying to achieve? And now that the price tag has
come in, and to achieve that, to raise the welfare of our
communities up to the same level of mainstream America, are
they willing to make that payment?
We tried to work with everybody. We have brought in
Interior, the Indian Health Service. We have tried to get the
DHHS, the Division of Cost Allocation, but they refused to come
into our sessions to work with us. We tried to get OMB. They
did not participate a great deal with us. So, interestingly
enough, quite a few of the folks in the Federal administration
system worked with us, but many did not which was a little bit
on the disappointing side.
In the findings of our report that we are submitting to you
and the other Members of the Congress and to the administration
with regard to our observations and findings and
recommendations, we have come up with a number of them. One is
the notion of contract support rate is out of control. It is
not the rate. Rate has nothing to do with the issue that we are
dealing with right now. The average rate that both IHS and BIA
in their analysis and our analysis is averaging around 25
percent. That is half of what the Federal agencies charge each
other with regard to the same kinds of costs. It is half of
what a university pays. Universities used to be up in the 100
percent range.
It really is not the rate, and we have shown over the years
that the rate nationally is very stable. That is not the
problem whatsoever in that the system of negotiating the rate
is very flexible and is consistent with the uniquenesses of the
tribes.
Tribes across America, from Alaska to Florida, are not the
same. The fact is, you do get some adjustment relative to their
size and conditions and so forth. We believe that it has been
very effective and very efficient in advancing that agenda.
We also believe that the actual cost that we are asking
Congress to bear is not an overwhelming cost. You asked
questions of the previous panel about what is it that is
actually needed. Right now, on the IHS side, we think that we
are about 100 to 110 million short in the filling of the full
needs for providing full contract support for all of the
contracts that are out there right now, whether they are in 638
contracts or the self-governance compact. On the BIA side, it
is only about 65 million.
When Indian country listens to all of the stuff that goes
on in the Congress, dealing with the veterans and dealing with
airport needs and dealing with the current issue with the
farmers, the problems that they have, and they see literally
billions of dollars being pumped out of here and we hear the
debate over the surplus moneys and so forth, we look at the
numbers that we are asking for, and we say, where does the
priority of Indians fit against that priority of the resources
that America has, the most impoverished communities in America?
And is there willingness by the Congress to make a committment
to our communities?
We believe that it is very reasonable. We think when we get
down to our recommendations that--let me back up. We also
believe that once we fully fund it, it becomes fairly stable.
We have made our own projections about what the actual cost
would be annually as you continue to transfer these functions
and services out to Indian country from BIA and IHS. It is
fairly stable, it is very consistent, and it is not an
overwhelming number that baffles anyone or should be a big
problem for the Appropriations Committees.
We believe that when we get right down to it there is only
three choices. We have the first choice where Congress can
fully fund it. Second, if the Congress doesn't fully fund it,
you can underfund us, and we would be left to go to the courts
and try to get the Courts to instruct the Congress to fully
fund it based on the law, the legal right that we have. Three,
the third option is an arraignment case. This is an
entitlement, that Congress owes the tribes for these funds, and
they shouldn't be subsidizing the Federal Government for these
functions or it shouldn't be undermining existing programs.
So the issue is, should it be part of an entitlement?
Should the whole contract support with all of these contracts
and compacts be moved over to an entitlement section? It is not
an overwhelming number relative to those functions that are in
the entitlement section. We urge you to take a serious look at
that.
We also suggest that you look at instructing OMB to
establish a separate circular dealing with tribes. If you look
at the circular as OMB establishes, they regularly try to make
the governments all the same, State governments, local
governments and tribal governments. We argue that we are all
governments, but we can tell you that the resources of the
State and local governments are not the same as tribal
government. The resources available for tribal governments are
very limited. It is as a general option. There are only a few
anomalies sitting out there, and we believe that an OMB
circular should recognize that uniqueness of the tribal
governments.
Third, we believe that there should be some more work with
regard to benchmarking to create some consistencies with regard
to how you are going to negotiate these rates with regard to
the indirect cost rates, the direct contract support costs, and
the start-up costs. There is some consistency. There is a
little bit of inconsistency that some people create as
problematic, and we believe that can be addressed.
Four, we believe that there is a whole lot of stability in
the tribes right now. Over the last 5 or 10 years a great deal
of stability has been moving forward. We have been advancing
the concept that you can take these resources and move them
into the base budgets of tribes and tribes will move forward
with that if they are fully funded and leave it to their
ingenuity and creativity to become more efficient with those
resources, a concept that we believe has a great deal of merit.
Five, we believe that BIA should be instructed to deal with
direct contract support, just like IHS does, and recognize
those two costs so there a consistency.
The sixth issue is similar to the previous one in that
there needs to be consistency on the policies and principles of
contract support with regard to BIA and IHS.
And, finally, we add into the other Federal agencies that
was discussed in the earlier panel. We point out that there are
some serious problems, but we believe that they can be
addressed. We believe that if we enter into the next millennium
we can solve this problem if we work together in this matter.
We do have answers, and it really is not that great a price
tag.
Thank you.
The Chairman. Thank you, Mr. Allen. I want to suggest that
I am pleased with what you are saying and the recommendations
that you have because we are going to try, in conjunction with
the Senators and other Congressmen, try to solve some of these
problems through legislation, so we welcome your suggestions.
[The prepared statement of Mr. Allen follows:]
Statement of W. Ron Allen, President, National Congress of American
Indians
Good morning Chairman Young and distinguished members of
the House Resources Committee. My name is W. Ron Allen. I am
President of the National Congress of American Indians (NCAI)
and Chairman of the Jamestown S'KlallamTribe located in
Washington State. On behalf of NCAI, the oldest, largest and
most representative Indian organization in the nation, I would
like to thank you for the opportunity to testify this morning
on contract support costs. NCAI was organized in 1944 in
response to termination and assimilation policies and
legislation promulgated by the Federal Government which proved
to be devastating to Indian Nations and Indian people
throughout the country. NCAI remains dedicated to the exercise
of tribal sovereignty and the continued viability of tribal
governments. NCAI also remains committed to advocating
aggressively on behalf of the interests of our 250 member
tribes on a myriad of issues including the development of
contract support costs solutions and funding options in the
Bureau of Indian Affairs and the Indian Health Service.
I. INTRODUCTION
The Indian Self-Determination and Education Assistance Act
(ISDEAA) authorizes tribes to contract to operate Bureau of
Indian Affairs (BIA) and Indian Health Services (IHS)
government programs serving the Indian recipients of those
programs. The point, as you well know, is multi-faceted: (1) to
reduce the Federal bureaucracy; (2) to place Indian programs in
the hands of the Indian people being served; and (3) to enhance
and empower local tribal governments and institutions.
However, the shortfall in contract support costs due under
the Act has impeded the achievement of those goals, and has, in
fact, penalized our tribal people--the real and ultimate
victims of the shortfall. Given the severity of those
shortfalls, the impact on the programs themselves, and the
growing drumbeat of litigation, last year NCAI took the
initiative to form a National Policy Workgroup on Contract
Support Costs.
II. NCAI NATIONAL WORKGROUP ON CONTRACT SUPPORT COSTS FINAL
REPORT
The purpose of our workgroup was to come to a thorough
understanding of the contract support cost system as it has
evolved over the years, to identify the problems that have
developed and to explore solutions. After thirteen months of
work, eleven national meetings, countless smaller working
sessions and thousands of hours of volunteered time, we are
proud to present to you our Workgroup's Final Report. It is
important to underscore the fact that our Report and
recommendations is the result of a great deal of hard work and
diligence on the part of Tribal leaders, and technical and
legal representatives who are experts in this specialized
topic.
In preparing this Final Report, it was our intent and
desire to be as inclusive as possible. All relevant agencies
were invited to participate, including the BIA, IHS, the Office
of inspector General of the Department of the Interior, the
Department of Health and Human Services Division of Cost
Allocation, and the Office of Management and Budget. Indeed, we
even had hopes early on that our report would be a joint
tribal-Federal report, although eventually that was not
possible. While Federal representatives actively participated
in our Workgroup meetings and discussions, this effort and
final report was initiated by the tribes.
Our work went forward both energetically and productively,
though not without disappointment. For instance, early on the
DHHS Division of Cost Allocation simply refused to show up, and
they refused to share their historic data either directly or
through IHS. Then, one month ago, the BIA released a separate
contract support cost policy which was developed without our
knowledge or involvement. Despite these problems and
disappointments, our work went forward, resulting in 31 key
findings, 8 guiding principles and 16 major recommendations,
some of which I will mention here.
III. NCAI FINAL REPORT--FINDINGS
In the findings section, our work confirmed the integrity
of the indirect cost negotiation system as carried out by the
Department of the Interior Office of Inspector General. We
found it to be free of collusion, over-reaching or abuse, a
finding echoed in the General Accounting Office report.
Second, we found that this indirect cost negotiation system
has proven to be appropriately flexible to differing tribal
conditions. Tribes, like states, counties and cities, are all
different. They not only use different accounting systems,
practices and materials, but they face vastly different
circumstances. Workers' compensation systems may in one part of
Indian Country cost many times what the cost is somewhere else.
Salaries vary--just as do utilities, rent and the like. Climate
alone can play a large role, as can the extent of isolation,
and we found the indirect-cost system to be uniquely sensitive
to all these factors.
Many in the Administration and Congress have been led by
the perception that indirect cost rates have been out of
control leading to radically escalating contract support costs.
Interestingly, just like the BIA and IHS, we found that
indirect rates had in the aggregate remained surprisingly
stable--even flat--at under twenty-five percent. This finding
directly answered the concern by some that indirect costs were
out of control and abused by tribes who saw the sky as the
limit on indirect costs. That myth is now firmly dispelled.
Our report reveals that the increase in contract support
costs is directly related to the success of the implementation
of the ISDEAA. Tribal contracting and compacting activities
accelerated to their peak in the mid-1990s in response to the
1994 ISDEAA Amendments and extension of the self-governance
initiative to IHS. The trend in the transfer of Federal Indian
programs to tribal operation under the ISDEAA has leveled off
from the peak experienced in the mid-1990s, and with a few
notable exceptions should remain constant in the years ahead.
We also found that this static, aggregate, twenty-five-
percent rate was less than one-half the indirect rate of DHHS
itself, as well as various other Federal agencies,
universities, state agency service providers and most private
foundations.
oWe found that the contract support cost shortfall is
projected to be relatively small in fiscal year 2000 compared
to the overall agency budgets and the magnitude of tribal
contracting and compacting. At IHS, it is about $100 million,
including a small inflation factor (estimated at 3.5 percent).
At BIA, it is approximately $65 million, including adjustment
for inflation and factors related to the Ramah case (estimated
at $21 million). These numbers are actually smaller than what
we expected to find.
Finally, we found that contract support costs are for the
most part expected to rise slowly in the years ahead. For the
BIA, whose total estimated contract support costs requirements
are roughly $180 million (which includes adjustment related to
the Ramah case), the expected annual increase is less than $12
million a year, or about 7 percent. For the IHS, whose total
estimated contract support cost requirements are roughly $310
million, the expected long-range increase is $10 million a
year, or about 3 percent. These are modest increases indeed.
IV. NCAI FINAL REPORT--RECOMMENDATIONS
In light of these and other findings, we made several
recommendations, including the following:
First, we concluded that contract support costs can and must be
fully funded. They are an obligation of the Federal Government, both
legally and contractually. This payment is also morally right--
consistent with the devolution movement and local empowerment, tribal
governments should not be required to permanently reduce funding for
their programs and services. Although not specifically addressed in our
report, there are really only three choices to address contract support
cost funding issues:
The appropriations committees can appropriate the full
amount required--which under today's caps is difficult, at
best;
The appropriations committees can appropriate less,
and leave tribes to sue to recover the rest; or
Appropriate measures can be enacted to make contract
support costs a true entitlement in terms of its funding
mechanism in Congress.
Given the genuine pressures facing the appropriators, I suggest
this Committee give this third option very serious consideration. Cost-
wise, the impact is infinitesimal relative to the non-discretionary
Federal budget. In terms of American Indian and Alaska Native
governmental, social and health care programs, however, the impact
would be clear, immediate and substantial.
Second, we recommend that the OMB issue a new cost circular
specifically devoted to tribes and the unique laws that affect tribes.
OMB continues to aggregate tribes in circulars with state and local
governments, although Congress regularly recognizes that tribal
governments do not have the same available resources to accommodate
such circular conditions. Such a proposal was included in the 1994
amendments to the ISDEAA, but was deleted at the last moment at OMB's
request. Particularly since Congress, in the ISDEAA has enacted special
cost accounting principles applicable only to tribes, an OMB circular
specific to tribes will eliminate the current confusion that exists
between those statutory provisions and the existing general circular.
Third, we recommend that Congress authorize one to two years for
the development and field testing of a potential ``bench-marking'' idea
that would help bring greater consistency among similarly situated
tribes. The idea here is to develop ways of bench-marking particular
contract support cost components, so that tribes and government
negotiators would have signposts to guide their negotiations, without
actually dictating the outcome. If successful, such a proposal could
help even out the highs and lows among tribes, thus achieving greater
equity between all. Unfortunately, coming up with the precise
benchmarks is a fairly technical undertaking that was beyond what we
could do in the first year of our work.
Fourth, we believe IHS and BIA should be encouraged to work jointly
together in the development of a contract support cost ``base budget''
approach such as is already under development, and as also described in
alternative four to the General Accounting Office report. The agencies
should be asked to inform Congress whether any further authorization is
necessary to proceed with this efficiency innovation.
Fifth, we recommend that the BIA immediately come into compliance
with the law and with the applicable regulations by recognizing and
paying direct contract support costs such as workers' compensation and
unemployment insurance. Not only must the BIA come into conformity with
the law, but it must aggressively go forward and inform each and every
tribal contractor that the Bureau will now begin complying with the
ISDEAA in this critical respect.
Sixth, we recommend that BIA payment policies more closely mirror
IHS policies by promoting first, and foremost, financial stability. As
judges have held, neither tribes nor the ultimate Indian beneficiaries
are well-served by a system under which the BIA holds back substantial
contract support funding until the end of the fiscal year. Rather (and
unless overpayments would result) tribes should receive at least the
same amount of funding they received in the prior year, and such funds
should be paid at the beginning of the fiscal year, not at the end.
Finally, we recommend that the so-called ``other Federal agency''
finally be tackled head-on by Congress. Currently, we operate under a
system where a government-wide OMB circular establishes the rules for
determining tribal indirect-cost needs, but not all Federal agencies
feel bound by the circular. As a result, tribes are once again squeezed
in the middle. As a first step here, we recommend that Congress call
upon the GAO to study the source of each Federal agency's restriction
on the recovery of indirect costs. Once the source of those
restrictions is known, Congress can consider appropriate legislation to
overcome the barriers that currently pose such difficult problems for
tribes.
V. CONCLUSION
In closing, we strongly recommend that all members of the Committee
take the time to review our executive summary. I would like to close my
remarks by quoting two short paragraphs from our report which I believe
put the issue well:
No single policy in the history of American Indian affairs has
more forcefully and effectively permitted tribes to empower
their tribal institutions and their people. No single policy
has more effectively served to break the cycle of dependency
and paternalism. No single policy has better served the
philosophy of devolution--moving Federal resources and decision
making to that level of local government that is closest to the
people. And, no single initiative has contributed more to the
improvement in the conditions facing American Indian people.
As the Nation enters the new millennium, it is essential that
the American people recommit fully and keep faith with the
Self-Determination Policy and empowerment of tribal governments
consistent with the devolution movement. Only through the
continuation of that policy can America both respect the
fundamental government-to-government relationship that exists
between tribes and the United States, and fulfill the Federal
Government's trust responsibility to protect the interests of
Native American tribes.
Thank you, Mr. Chairman, for the honor to testify today on this
most critical issue. NCAI, Tribal leaders as well as our legal and
technical representatives, look forward to continuing to work with you
on the development of contract support costs solutions and funding
options.
The Chairman. Governor Mary Thomas.
STATEMENT OF HON. MARY V. THOMAS, GOVERNOR, GILA RIVER INDIAN
COMMUNITY, SACATON, ARIZONA
Governor Thomas. Thank you and good morning, Mr. Chairman
and members of the Committee, and especially to my
representative, Congressman J. D. Hayworth. It is a pleasure to
be here.
My name is Mary Thomas, Governor of the Gila River Indian
Community. I am here to present the Community's views on the
proposed solution for funding contract support costs for health
care and community service programs in Indian country.
On Gila River, we have 372,000 acres located in central
Arizona. We have 19,000 members, and 13,000 actually live
within the boundaries of the reservation. We have a very young
and growing population with a lot of needs. Our Community
provides our own health and primary care services through the
Department of Public Health and the Gila River Health Care
Corporation.
Since 1995, the Community has been operating almost all of
its health service programs under the ISDEA contracts with IHS.
Our contracts are model illustrations for what is good and what
is bad about self-determination contracts for health care
services. Our experience helps us to advance our health care
services to those people who really need it. But we also face a
serious risk that exists that is due to underfunding of
contract support costs that limits us.
According to national statistics and our own experience,
contract support costs comprise about 25 percent of our total
program costs. The Health Care Corporation, which is in its
fourth year of operation, very young, has received only 56
percent of 1 year's contract support costs and no payment at
all for its contract support costs during the first 3 years of
operation. We would have been funded at 100 percent of our
contract support costs in fiscal year 1999 if they didn't
change the rules on us. We were up there in the Queque list,
right near the top, and that was wiped out when the Queque
rules were changed.
Because of this temporary legislative solution last year,
our Community expects to receive about 70 percent of its
contract support costs for fiscal year 1999, but this still
leaves the corporation with unreimbursed contract support costs
for fiscal year 1996 to 1998 of over $10 million. We know that
$35 million was appropriated, and it was made clear that the
committee believed that the Queque system was inequitable and
tried to find a sustainable solution for addressing the
contract support cost needs of all tribes.
But there are some main points that I want to highlight.
There are seven of them.
First, the contract support costs--and everybody probably
says the same thing--is to fund at 100 percent level. When that
is not done, in my particular case, in order to enhance
services like 24-hour emergency service coverage with further
cuts or not more funding in contract support costs, we may have
to shut down and limit it to 8 hours a day, which was the case
before, but our people really objected because there was a
need. We are in a remote area.
Also, we established a podiatry clinic because, as you
know, we have high instances of diabetes on my reservation.
Over 51 percent of our adult population has or will become
diabetics. It is estimated that it will go to 80 percent for
males in the future and over 90 percent for our females in our
future. We have people as young as under 18 who are diagnosed
with diabetes as we currently speak.
Secondly, Congressman Hayworth has alluded to the
bureaucratic misinterpretation of congressional intent. That
was addressed before, so I will not go into that.
But by reducing fiscal year 1999 contract support costs, we
expect that we will only receive $790,000. We don't accept that
premise in the proposed revised circular that contract support
costs would continue to be underfunded in future years. I think
that is wrong.
We believe that $35 million in new contract support costs
in fiscal year 1999 and 2000 is a good step forward, and we
thank Congress for the increased funding and should take the
necessary steps to fully fund IHS-approved contract support
costs.
We support the GAO reports and recommend options 1 and 4.
Full funding is one, and the other one is to incorporate the
cost to contract program budgets.
Sixth, we understand there is a discussion in Congress
concerning the possibility of establishing a pilot program. As
I said before, we know both the good and bad of trying to run
our health programs under contracts. So we would be interested.
If it is coming to fruition, we would like to take part.
Finally, about the GAO report, there must be a single and
consistent Federal policy dealing with contract support costs
that applies to any and all self-determination/self-governance
contracting by tribes, whether within the BIA or IHS.
In conclusion, I brought something with me that I would
like to share with you.
I have been a diabetic for 37 years. This is my life right
in this box. It is my syringes that I use for inoculating
myself morning and night with my insulin. These are the pills
that I must take every day in regard to associated problems
with it--high blood pressure, infections, and controlling the
sugar content within my body. This is why I have lasted for 37
years. It is because I have followed this regimen very close
and tried to take care of myself as best as possible.
The average cost for a diabetic on Gila River is about
$5,000 per year and we have 26,000 out of 35,000 registered. So
you figure that out on a yearly basis it costs about $13
million to pay for our diabetics necessary care. That does not
include everything, though. Just part.
I have had laser surgery on my eyes. I have had operations.
I have had kidney infections, urinary tract infections.
Luckily, I have not had to go through any amputations. It takes
long for me to heal out of surgery, and my teeth are affected
as well. I hope that you will take this into some thought, that
it does take a lot of money to run our programs, but we are
trying our best at the local levels.
Thank you.
The Chairman. Thank you, Mary.
And, just for your information, this is one of my projects,
is diabetes. It is not only in your area. It is one of the more
rapidly rising diseases, most disabling diseases that we have,
especially amongst the young. Contrary to what many people--we
had two young people in my office the other day. One was 8 and
one was 7. Like you said, it is a very expensive thing. We are
trying to get enough money into research so that our future
generations don't have to go through what you are going
through. We are doing everything we possibly can.
[The prepared statement of Governor Thomas follows:]
Statement of Hon. Mary V. Thomas, Governor, Gila River Indian Community
INTRODUCTION
Good morning, Mr. Chairman and Members of the Committee. My
name is Mary Thomas and I am the Governor of the Gila River
Indian Community. I am honored to have the opportunity to
represent the Gila River Indian Community before the Committee
today to discuss Federal funding for contract support costs
associated with health care and other community service
programs in Indian Country (``Contract Support Costs'').
The Gila River Indian Community (the ``Community'') is
located on 372,000 acres in south central Arizona. Our
Community is composed of approximately 19,000 tribal members,
13,000 of whom live within the boundaries of the Reservation.
The Community provides preventive health and primary care
services through its Department of Public Health (``DPH'') and
the Gila River Health Care Corporation (``GRHCC'' or
``Corporation''). With minimal exceptions, the Community has
operated all health service programs on the Reservation under
Indian Self-Determination contracts with the Indian Health
Service (``IHS'') since fiscal year 1996. We also provide law
enforcement, social services, irrigation system construction
and rehabilitation, and other community services under self-
determination contracts and self-governance agreements with the
Bureau of Indian Affairs (``BIA'') and the Bureau of
Reclamation (``BOR'').
We strive to operate well-managed and effective community
service programs responsive to our Community's specific needs.
With respect to health status, we have a relatively young and
rapidly growing population, which suffers tremendously
disproportionate rates of debilitating chronic diseases such as
diabetes and alcoholism. In fact, the World Health Organization
has found that our population has the highest incidence of type
2 diabetes mellititus in the world. It will take working
through at least one generation to move from the IHS model of
treating acute health conditions to a Tribally-based health
prevention and maintenance model. We believe this change can
only be made through the continued efforts of our Community-
managed Department of Public Health and Health Care Corporation
under adequately funded self-determination contracts with the
IHS. With respect to our BIA and BOR programs, we similarly
believe meaningful improvements can best be made by continuing
to operate these programs ourselves through our contracts and
compacts with the BIA and BOR.
It is appropriate that the Committee has asked the
Community to testify today concerning contract support funding.
According to national statistics and our own experience, our
Contract Support Costs can be expected to comprise
approximately 25 percent of our total program costs (see
accompanying graph). In the area of health care, however, as of
today, our Health Care Corporation, In its fourth year of
operation, has received 56 percent of one year's Contract
Support Costs, and no payment for its Contract Support Costs
for its first three years. With respect to the Community's
ongoing self-determination and self-governance agreements with
BIA, we receive less than 100 percent funding for indirect
costs and far less in Contract Support Cost funding. The
Community's experience speaks for itself in illustrating the
shortcomings in the past Federal Contract Support Cost policy
implementation and the unfortunate consequences of being in
exactly the wrong place at the wrong time as that policy
changed at the IHS. We focus today on our experience with
contracting with the IHS as it illustrates the best and the
worst of self-determination policy.
The DPH has operated community service programs such as
Public Health Nursing and the Community Health Representatives
program since as far back as 1985. In June of 1995, as the
Community was preparing to contract with IHS to assume
operation and management of the Community's Hospital and
associated program and administrative functions, we submitted
to IHS a contract support request of $4 million. Because of the
IHS practice of utilizing its first-come first-served waiting
list or ``queue'' for new and expanded unfunded self-
determination Contract Support Cost requests, our request was
placed on the queue and we waited for funding. Under this
system, the Corporation operated for three years with no
contract support funding--waiting to reach the top of the
queue. If the system had continued without change and Congress
appropriated $7.5 million in FY99 as it had in recent years,
the Corporation would have received 100 percent of its FY99
contract support need plus reimbursement for pre-award and
start-up costs incurred in prior years. We estimate the
Corporation's cumulative unreimbursed Contract Support Costs
for FY96-98 at over $10 million. Each year we did not receive
funding, we continued to track our Contract Support Costs and
refine our Contract Support Cost request. Eventually our
request made it close to the top of the IHS's queue and we
would have been funded at 100 percent in Fiscal Year 1999 if
the queue system had continued as it was operated in the past.
However, due to an estimated backlog of requests totaling
approximately $60 million and litigation over contract support
shortfalls, the contract support funding situation reached
crisis proportions last year. The House Appropriations
Committee vigorously supported allocating limited contract
support appropriations on a pro rata basis among all tribes
nationwide without regard to its effect on the underlying
programs. Language attempting to retroactively impose a ``cap''
on the amount of funds available for Contract Support Costs for
previous years was enacted as an appropriations rider, and a
moratorium was imposed on any new contracting. After a massive
effort by tribal leaders and supporters in Congress, $35
million in new funding was included in the FY99 IHS
appropriation to begin to address the shortfall. The language
requiring pro rata distribution was eliminated but the cap,
moratorium, and limitation on past contract support payments
remained in place. The Committee Report which accompanied the
appropriation made clear that the Committee believed the
``queue'' system was inequitable and directed the IHS to work
with tribes to find a sustainable solution for addressing the
perceived inequity and the contract support needs of all tribes
contracting with IHS.
At the same time, the General Accounting Office (``GAO'')
and National Congress of American Indians (``NCAI'') initiated
independent efforts to examine the shortfalls in contract
support funding at the IHS and BIA, and to propose
recommendations or alternatives to the current funding systems.
Distribution of IHS Contract Support Funding in FY99
Immediately following final action on the IHS's FY99
appropriation, the IHS and NCAI convened meetings to consult
with tribes concerning how the contract support funding for
FY99 should be distributed, and to discuss policy changes for
the future. This process required the IHS to finalize all
contract support requests on the queue, and in general to
determine the status of all tribes' contract support
shortfalls. We commend the Office of Tribal Activities at the
IHS, and negotiators from the Office of Finance, for their
efforts in gathering and substantiating a tremendous amount of
information in very short time frames. Further, this
consultation process required all participants to really think
through the short and long-term effects of proposed changes in
the contract support system. We were impressed at the level of
expertise brought to this issue by those working in this area
throughout Indian country.
For FY99, it is our understanding that the IHS has or will
distribute FY99 contract support funding so as to bring all
tribes' contract support funding up to a ``floor'' of
approximately 71 percent of their total contract support need.
Ongoing programs are funded based on the amount they have
historically received out of a pool of funds identified for
recurring contract support needs. Any shortfall is noted and
may be paid out of a separate pool of funds made available by
Congress or IHS for such recurring shortfall. The $35 million
increase is being used to fund contract support requests on the
queue to the extent a tribe's total contract support need--
taking into consideration ongoing contract support need and
payments and new or expanded contract support need--is below
the ``floor'' of approximately 71 percent.
The Corporation's Contract Support Cost request for FY99
was approved by the IHS at approximately $3.7 million. Of this
amount, $790,000 is for previously incurred preaward and
startup costs. The balance, approximately $2.8 million,
represents direct costs (including indirect-type costs) which
will be recognized by the IHS on a recurring basis so long as
the Corporation continues to incur these costs each year. Under
the IHS' distribution methodology for FY99, the Corporation
expected to receive approximately 70 percent of its approved
request, or approximately $2.52 million.
In March of 1999, however, we learned that the IHS was
considering legal recommendations from its Office of General
Counsel (``OGC'') that it not pay preaward and startup costs
incurred in prior fiscal years. The OGC opinion on this issue
concludes that Section 314 of the FY99 Omnibus Appropriations
Act prohibits use of any part of the $35 million increase for
prior years' preaward and startup costs. If the Corporation's
preaward and startup costs are not reimbursed, the Corporation
will lose an additional $790,000. This is in addition to the
$1.2 million the Corporation will not receive in FY99 under
IHS's new distribution system. It is important to keep in mind
that the funds we are not receiving are funds we would only use
to operate a Federal program serving Federal beneficiaries. It
is only right that the Federal Government pay the reasonable
and prudent costs of running Federal programs as the law
requires. The history of our program funding, unfunded contract
support need and contract support funding received is shown on
the attached graph.
These preaward and startup costs were included in the
shortfall amounts communicated to the Committees during the
FY99 appropriations debates and in the calculations upon which
the NCAI and IHS recommendations were based. It was clearly our
(and other tribal representatives) expectation that 70 percent
of all approved Contract Support Costs--including preaward and
startup--would be paid in FY99. Congressman Hayworth sent a
letter to IHS Director Dr. Trujillo clarifying that it was
congressional intent to pay prior year preaward and startup
costs included in the queue. And IHS reports that it did pay
one prior year's startup costs--FY98--but is reluctant to pay
other prior year costs. Despite correspondence and repeated
inquiries, we have been unable to get IHS to make a decision or
provide a written response on this issue. IHS's inaction on
this issue is unacceptable and we seek the Committee's help in
remedying this inequity.
In addition to the preaward and startup costs, IHS is
refusing to reimburse to us our unreimbursed Contract Support
Costs from FY96 through FY99 that total over $10 million. While
not directly involved, we are closely following the recently
filed class action under which we may be able to recover these
costs.
Proposed Distribution of IHS's FY2000 Contract Support Funds
After working on distribution of the $35 million increase
in FY99 contract support funds, the IHS Contract Support
Workgroup began consideration of policy changes in response to
the events of the FY99 appropriations debate and directives
concerning contract support. The workgroup deliberations have
resulted in a proposed revised circular. At the outset it is
important to note that the proposed new circular accepts less
than full funding and then proceeds to explain how the agency
will distribute limited funds. It is not acceptable to us that
the agency presumes these costs will be permanently
underfunded.
The circular divides contract support funding into three
pools: (1) an ISD pool for new or expanded contracts (``Pool
1''); (2) a pool for the Contract Support Cost needs of ongoing
programs (``Pool 2''); and (3) a pool comprised of any
additional funds available for shortfall (``Pool 3''). Perhaps
the most significant aspect of the proposed change in policy is
that the IHS will now look at a tribe's total contract support
need and funding whereas in the past the IHS has considered
only the tribe's contract support need associated with its new
or expanded contract. The ISD fund will be used to pay contract
support needs associated with new or expanded contracts at a
rate as close to full funding as possible. A tribe's ongoing
shortfall will not be paid from ISD funds however. This method
in essence seeks to bring tribes from the bottom up to as close
to full funding as appropriations permit.
Other than IHS's refusal to pay our preaward and startup
costs and with the threshold caveat that IHS can only do so
much with less than full funding, we have not objected to most
of IHS's proposed new contract support policy. Of the options
discussed, and if one accepts contract support will not be
fully funded, the new policy goes the farthest toward funding
all tribes' Contract Support Cost needs and moving towards
total equity while minimizing disruption to existing programs.
We want to be assured, however, that once funded, our level of
funding will not be reduced unless Congress fails to
appropriate a recurring level of funds. Another absolutely
critical aspect will be timely information gathering and
inclusion of tribes' true future needs in IHS's budget
requests. We do, however, object to annual redistribution
within IHS Areas as we believe this favors some areas over
others and would like to see IHS return to timely national
redistribution of contract support funds.
The success of the new policy will be largely dependent on
adequate annual appropriations to fund tribes' true contract
support needs. Most fundamentally, we reject the underlying
premise of the IHS circular--that it is acceptable to have a
regime where a tribe contracts to operate Federal programs for
the Federal Government serving Federal beneficiaries without
the minimally necessary funding to administer those Federal
programs. This point is especially important when compared to
direct services provided by IHS that have full ``Contract
Support Cost'' funding.
NCAI and GAO Reports
Community representatives provided information to the GAO
for its consideration in its report and followed closely the
work of the NCAI Contract Support Workgroup. We believe each
report makes a significant contribution to the ongoing debate
and solution of contract support issues.
NCAI Report. The NCAI Report provides a very thorough and
well-written documentation of the history and development of
the current state of Federal Indian Self-Determination and
contract support funding policy. We concur with its findings
and wish to emphasize our support for the following points.
The report emphasizes in several places the need for full
funding of tribes' Contract Support Costs. The report documents
past failures on the part of the BIA to implement
``grandfathering'' or flat rates in large part because such
changes were not accompanied by initial full funding. The
report also recognizes that in projecting future need, annual
inflationary increases must be added to the recurring amounts
and that contract support requirements should be included with
all program increases and new initiatives. NCAI's
recommendation that the agencies continue to report fully to
Congress tribes' contract support needs is crucial to obtaining
and maintaining full funding.
The report confirms that the indirect cost rate negotiation
system has proved the most workable in light of providing some
uniformity for determining diverse tribal needs. The report
further confirms the increases in contract support need are due
to increased contracting and the associated increase in
contract support needs. We urge that the Administration and
Congress further acknowledge that these increases are
legitimate and necessary costs of the Federal policy of tribal
self-determination. And it has been our experience that the
benefits--in terms of increased access, improved services and
improved health status that come with the devolution of Federal
authority to local tribal governments--more than compensate for
any marginal increase in total program cost. This fact should
be recognized to put in context the House Appropriations
Committee's concern that increases in contract support are at
the expense of program increases. To the contrary, it is the
underfunding of Contract Support Costs that comes at the
expense of programs, as tribes are compelled to divert program
resources to cover the government's contract support debt. As
noted in the NCAI report, we believe that further development
of the idea of ``benchmarking'' should be made and that through
such benchmarking, we may be able to achieve greater
consistency while preserving sufficient discretion to allow for
tribes' diverse needs and accounting systems.
GAO Report. We believe the ultimate value in the GAO report
is that it confirms that the contract support dilemma for
tribes is real, that is, the failure to fully fund Contract
Support Costs adversely affects our local programs and our
ability to efficiently administer them. The report recognizes
that this is a result the authorizing Committees have
repeatedly sought to avoid and eliminate in amendments to the
Indian Self-Determination Act, and is absolutely counter to
successful implementation of self-determination policy. Also,
importantly, the report validates the longstanding tribal
position that increases in Contract Support Costs are
attributable to increased contracting rather than
uncontrollable increases in indirect cost pools and rates. In
fact, the report concludes tribes' rates have remained
relatively stable over the last ten years at approximately 25
percent. The report also clarifies some of the common
misperceptions about differing rates among tribes--an important
point in dispelling the notion that some tribes manipulate
their rates or operate inefficiently.
Contrary to the GAO report's reluctance to make predictions
about future Contract Support Cost needs, however, we believe
the stability in rates coupled with the agencies' hopefully
improved data concerning tribes' contract support needs should
enable the agencies to fairly accurately predict new contracts
coming on line. In fact, we view it as a function of the
agencies to know and guide tribes through the initial
contracting processes--this should include working with tribes
to include their future contract support needs in IHS's budget
requests.
The GAO report further confirms the effect of shortfalls on
tribal programs. The documentation in the report mirrors our
experience. Our Health Care Corporation's transition from
Federal to Tribal operation required extensive development of
administrative--personnel, procurement, finance, information--
systems and training. To function effectively and efficiently,
change is still underway and more is necessary to upgrade
antiquated medical records and information gathering systems
which are absolutely critical in accessing information
concerning the number of patient visits, reasons for patient
visits, and the number of visits per diagnosis. The law
requires and we were promised reimbursement for these items.
After three, almost four, years of operating with from none to
just over 50 percent of our IHS approved contract support need,
the lack of contract support funding threatens the
Corporation's financial stability. We are faced with options
such as reductions in services and limitations on our ability
to expand into other areas of health care delivery. The GAO
report is useful in confirming the effects of shortfalls on
tribes. This information now needs to be taken seriously and
used to support the need for full funding to avoid these
detrimental effects on our programs, and to recognize that some
initial investment in our infrastructure is necessary to
realize increased administrative efficiencies such as more
effective patient referrals and maximizing billing of third
party resources.
And last, the GAO offers four alternatives for funding
tribes' contract support needs. Of these alternatives, we favor
options one and four. The first option is to fully fund
Contract Support Costs. We believe this option, coupled with
several of the recommendations in the NCAI report, would meet
both tribal and Federal interests on this issue. For instance,
with the development of benchmarking and revisions to OMB
circulars recognizing cost and audit issues unique to tribal
operations, we believe a greater degree of consistency can be
achieved so far as the allowable items included in tribes'
indirect cost pools for operating similar programs. Intertribal
collaboration, such as our arrangement with the nearby Ak-Chin
Indian Community, should also be explored where feasible to
reduce administrative costs and maximize economies of scale.
Accompanying these tribal efforts toward consistency and
economy, the Federal Government must recognize tribes' true
costs of operating Federal programs. Toward this end, we
encourage the BIA to revise policies that ignore or dilute its
responsibility for known costs, such as BIA's failure to pay
direct Contract Support Costs and dilution of its
responsibilities for indirect costs attributable to BIA
programs as in the Ramah case.
We also support further development of option 4, which is
to incorporate contract support into tribes' program budgets--
essentially consolidating, ``grandfathering,'' or ``base
budgeting'' contract support and program funding. We strongly
believe, however, for this option to be successful, the amount
of contract support consolidated in the first year must be full
funding of contract support need. There also must be provision
for annual increases in the consolidated amount tied to a
nationally recognized inflationary index, and some provision
for administrative increases tied to significant program
increases. With these provisions, we believe option 4 offers
considerable potential toward meeting tribal and Federal
concerns. Our Health Care Corporation is an ideal candidate to
demonstrate the potential success of Option 4, and we would be
pleased to continue to work with the Committee on such a
demonstration.
SUMMARY
In summary, the following are the beliefs and
recommendations of the Gila River Indian Community:
Contract Support Costs for IHS and BIA programs need to be
funded at the 100 percent level.
Inadequate funding of Contract Support Costs results in
funds being shifted from direct service provision to support.
Past attempts by IHS and BIA to equitably distribute
partial Contract Support Costs have not worked and have in fact caused
harm to the Gila River Indian Community contracted programs.
Current attempts by IHS and BIA to develop new, ``fairer''
policies for distributing less than full funding for Contract Support
Costs are built on the wrong premise and represent just a band-aid
solution; they do not solve the underlying problem.
0The GAO report on Contract Support Costs was an objective
report with supportable recommendations. We support recommendations 1
and 4 full funding for Contract Support Costs, and incorporating these
costs into contract program budgets.
We would be willing to participate in a pilot program that
implements a combination of GAO recommendations 1 and 4.
There must be a single, consistent Federal policy dealing
with Contract Support Costs that applies to any and all self-
determination/self-governance contracting by tribes.
CONCLUSION
In conclusion, the Gila River Indian Community believes strongly
that full Contract Support Cost funding is necessary to continue paving
the road to self-determination that the Congress outlined and that we
have been traveling for almost 25 years now. In our health programs, we
have directed the maximum amount of resources into direct patient care
and specifically toward the worst health problems facing our Community.
With our BOR program, we have made more progress toward a functioning
water delivery system in the four years we have operated under a self-
governance agreement than under past Federal operation. In law
enforcement, we have a more stable and reliable police department than
when we relied upon the BIA to operate it. We ask that you help us
preserve and continue the success of our self-governance by committing
to contract support policies that first acknowledge our contract
support needs as legitimate and necessary and then fully fund these
needs.
As our experience with the IHS shows, the past contract support
policy has served to penalize us for contracting. We contracted with
the hope of reversing the reductions in services we experienced in the
early 1990s when the IHS budget failed to keep pace with inflation and
other cost factors. After four years of minimal Federal Contract
Support Costs, however, we are facing the harsh reality of imposing
service reductions ourselves to cover necessary but unfunded
administrative costs and infrastructure improvements. Full funding of
Contract Support Costs will help Congress achieve its stated goal of
``supporting and assisting Indian tribes in the development of strong
and stable tribal governments,'' able to operate programs at a par with
other Federal agencies. Tribes have repeatedly proven that the self-
determination framework created by Congress can build tribal
administrative capacity, reduce Federal bureaucracy, and, most
importantly, improve the quality of life of tribal members.
As both the GAO and NCAI reports confirm, the current contract
support system is sound in that the costs incurred are reasonable and
legitimate, and necessary to prudently administer Federal programs at
the local level. Now it is time to make the funding part of the system
work by doing whatever is necessary in the appropriations system to
assure these Federal obligations are fully paid each year. We can
refine the system through benchmarking and other efforts aimed at
consistency and economy.
Our contracted programs have suffered from years of less-than-100
percent funding for the necessary Contract Support Costs. Gila River
has been patient, hoping that with appropriate funding and guidance
from the Congress and consistency of application by BIA and IHS, that
the Contract Support Costs crisis could be resolved. As you are aware,
other tribes, whose patience has run out, are moving beyond Congress
and into the courts to seek remedies to this problem. If there is not a
timely solution by Congress and the Administration in the area of
Contract Support Costs, we may likewise be forced to seek judicial
help.
In these times of significant budget surplus, we encourage the
Federal Government, in fulfillment of its legal responsibility, to
commit to fully funding and supporting Contract Support Costs.
Mr. Chairman and members of the Committee, thank you for the
opportunity and honor of testifying today on this issue on which basic
support for our community service programs depends. We thank you for
your past support and look forward to continuing to work with the
Committee as it deliberates over a sustainable solution to contract
support issues.
[GRAPHIC] [TIFF OMITTED] T0802.001
The Chairman. Mr. Williams. Orie, you are up.
STATEMENT OF ORIE WILLIAMS, EXECUTIVE VICE PRESIDENT, YUKON-
KUSKOKWIM HEALTH CORPORATION, BETHEL, ALASKA
Mr. Williams. Good morning, Mr. Chairman, committee
members, and Congressional staff.
Before I go on, Mr. Chairman, I would certainly like to
thank you and Congressman Hayworth for allowing their staff to
join the Indian Health Care Improvement Act. We were working
out the differences and listening to the tribal concerns last
week in health care improvement. Your staff did an excellent
job, and I wanted to say that publicly before I start.
Mr. Chairman, thank you for the opportunity to testify once
again before your Committee on what Congress in 1987 called
``the single most serious problem with implementation of the
Indian self-determination policy,'' namely the failure to fully
fund contract support costs.
For the record, my name is Orie Williams, and I am the
Executive Vice President of the Yukon-Kuskokwim Health
Corporation. I am here this morning with our legal counsel and
expert in this field, Lloyd Miller, who is well-known to this
Committee. I am also happy to introduce to you Mr. Paul
Manumik, on my left, the tribal elected member of the Yukon-
Kuskokwim Health Corporation board of directors and the
chairman of the hospital governing board. Mr. Manumik lives in
his home in Sheldon's Point, Alaska, and has served his Yupik
Eskimo tribal members for 15 years.
Our health care organization was created by and is
controlled by 58 federally recognized Alaskan Native tribal
governments, their members, and their village communities. In
financial terms, we are the second largest privately operated
Indian Health Service program in America, operating $40.2
million in IHS government programs alone.
In my testimony last February, I reminded the Committee of
the daunting conditions that we face in carrying out the task
of delivering Indian Health Service government programs to the
beneficiaries of those programs. Recall that we serve: a
roadless area the size of South Dakota; 23,000 people scattered
in 58 villages; a population where 54 percent are Medicaid
eligible, including 90 percent of all pregnant women and
children, and where 44 percent are unemployed--in some villages
unemployment is over 80 percent; villages most of whose primary
sewer system consists of one six-gallon bucket in each home;
post neonatal mortality is more than double the average U.S.
Rate, death by suicide is four times the national rate, fetal
alcohol syndrome and fetal alcohol effect are rampant, and the
lack of adequate sewer and water systems has left our
communities victim to every known infectious disease and higher
rates of tuberculosis, even as we enter the 21st century.
Rather than go further, I respectfully refer the Committee
to my testimony submitted February 23, 1999, which I am
submitting again today.
The point is that we are operating the government's
programs, including a large government hospital, for the
benefit of the Federal beneficiaries of those government
programs. If independent Department of Health and Human
Services Division of Cost Allocation says it takes $14.9
million to administer that program, then that is what is we
should be paid.
And yet, this year we are once again underfunded by $2.3
million. Once again we cannot fill positions in our accounting
department and in our administrations department and in support
of our hospital. This is not just a crisis in 1999. It has been
ongoing since 1992.
The GAO June, 1999, report is most welcome because it
confirms what we have been saying all along. First, that
contract support costs are legitimate and necessary and fairly
determined; and, second, that without full payment of these
costs our people are actually being penalized by the transfer
of Federal health care programs down to the local level.
Mr. Chairman, we are trying to do our part to reduce the
Federal bureaucracy and enhance local empowerment and economic
development, but why, I ask, should this require such a heavy
price in the reduction of direct services to our people?
Our tribal organization has remained intimately involved
this past year both in the work of the National Congress of
American Indians and the General Accounting Office study. Based
upon that involvement, our experience over the years, and the
analyses undertaken by our financial and legal advisors, we
offer these following recommendations for addressing the many
issues that involve the contract support system:
First, it is time for the appropriations process to finally
catch up with the legal framework established by Congress 25
years ago. Since we are talking here about government contracts
and legally binding obligations, and since the Indian Self-
Determination Act already specifies that tribes are, quote,
``entitled'' to receive contract support to carry out these
programs, the law should be changed as necessary to also make
the payment of contract support an entitlement in the
appropriations sense of that word. Once those amounts are set,
whether it be by the Department of Health and Human Services
Division of Cost Allocation or the Department of the Interior
Office of Inspector General, the tribe as a contractor would
know that it will be fully paid for performing that contract,
no ifs, ands or buts about it.
The cost of doing this would be negligible in the national
arena, although it would be critical to us--not just for tribes
but to protect government program beneficiaries--over 1 million
American Indian and Alaska Native people--from getting the
short end of the stick as we dismantle the Federal Government
and bring it down to the local level.
Second, if for whatever reason funding at the national
level is insufficient, the first priority should be stability
as recognized in the Indian Health Service system. Tribal
organizations should at least receive the same amount they
received the preceding year, and they should not be the victim
of the peculiar BIA option that pays you an unknown amount in
the 11th or 12th month of the year when all of your expenses
have already been incurred. The BIA system is destabilizing,
and therefore I especially praise your leadership, as well as
Congressman Regula's regular sensitivity, to the fact that the
simplified pro rata system in the end is not sensible. If a
health care system needs nothing else, it needs stability and
predictability.
Third, we unequivocally oppose GAO's alternatives 2 and 3.
Alternative 2 would gut the Act by making contract support
entirely dependent on the highly political budget and
appropriations process. And alternative 3 would ignore the
enormous differences among tribal programs. Obviously, we are
not all the same, and operating a 51-bed hospital and 47
clinics in a roadless area the size of South Dakota demands
different administrative costs than operating a small community
health program near major metropolitan areas.
Fourth, we recommend that the Committee consider
authorizing a short demonstration project to see if the GAO's
fourth recommendation for a stable, combined funding amount can
work. Yes, there are details to be worked out, such as
inflation adjustments and the like, but we agree that it holds
real promise for accomplishing an unimpeachable goal: to
encourage greater efficiencies in health care administration by
actually rewarding those efficiencies.
Fifth, we agree with the NCAI that some standardization may
be possible among some elements of contract support. It is true
that all tribal organizations are different; and, like States
and local governments, all have a right to design their systems
to meet their unique needs. Even still, some standardization
efforts that are sensitive to our differences could help
moderate the highs and lows and reassure Congress that all
tribes in the end are treated fairly, neither receiving less or
more than necessary to prudently administer these government
programs under local conditions. NCAI has proposed the so-
called benchmarking idea, and we would like to see that idea
funded, developed, and field tested over the next year or two
by the two departments working jointly.
Finally, let me note that we obviously oppose any
suggestion that Indian Health Service or BIA be delegated any
legislative authority whatsoever in this area to write
regulations, whether it is through negotiated rulemaking or
otherwise. If the last 25 years have shown us anything,
including all of the litigation over the past 5 years, it is
that Congress wisely decided in 1994 to remove any agency
discretion or authority in this very delicate area.
May I continue, Mr. Chairman?
The Chairman. Yes.
Mr. Williams. Yes, these agencies are committed to tribal
self-determination, but there are also bureaucracies who have
had time to seek to perpetuate their own existence. Granting
these agencies broad regulatory authority over funding issues
will, in our opinion, only serve to retard the process of
downsizing and self-determination, and we therefore firmly
oppose it.
On a related note before closing, I would like to add if
the goal here is to improve Indian health care, then one
additional means outside the technical contract support arena
is to enact the many technical and mechanical improvements that
are contained in the permanent self-government legislation that
was recently marked up by this Committee, namely H.R. 1167.
Although we do believe that the marked-up bill can be improved
upon even further, and we would be pleased to share our
recommendations with the chairman, we also believe this is a
measure whose time has come. We therefore respectfully ask that
it about brought to the floor at the earliest opportunity.
Thank you, Mr. Chairman, for the honor of testifying today.
While I am here, I would also like to acknowledge and thank the
efforts of the chairman and Committee members who worked so
hard over the years who helped alleviate many of the deplorable
conditions facing our communities.
I would like to especially once again recognize Cynthia
Ahwinona of Congressman Young's staff and Ms. Elizabeth Connell
of Senator Stevens's staff for their assistance.
Mr. Chairman, if you would permit, I would like our
hospital chairman, Mr. Manumik to add a comment or two, and
then allow Mr. Miller to comment on one aspect of this
proposal.
The Chairman. Without objection.
[The prepared statement of Mr. Williams follows:]
[GRAPHIC] [TIFF OMITTED] T0802.002
[GRAPHIC] [TIFF OMITTED] T0802.003
[GRAPHIC] [TIFF OMITTED] T0802.004
[GRAPHIC] [TIFF OMITTED] T0802.005
[GRAPHIC] [TIFF OMITTED] T0802.006
[GRAPHIC] [TIFF OMITTED] T0802.007
[GRAPHIC] [TIFF OMITTED] T0802.008
[GRAPHIC] [TIFF OMITTED] T0802.009
[GRAPHIC] [TIFF OMITTED] T0802.010
[GRAPHIC] [TIFF OMITTED] T0802.011
[GRAPHIC] [TIFF OMITTED] T0802.012
[GRAPHIC] [TIFF OMITTED] T0802.013
[GRAPHIC] [TIFF OMITTED] T0802.014
[GRAPHIC] [TIFF OMITTED] T0802.015
The Chairman. Go ahead.
STATEMENT OF PAUL MANUMIK, CHAIRMAN, YKHC
Mr. Manumik. Thank you, Mr. Chairman, and good morning and
Quyana. My name is Paul Manumik, chairman of the Yukon-
Kuskokwim Delta Regional Hospital, Bethel. I would like to say
a few words in Yupik.
The Chairman. Without objection, although the reporter may
have a difficult time of putting them down. So do it real slow
and go ahead.
Mr. Manumik. Thank you, Mr. Chairman.
This will be given to the transcriber so that he can write
the proper words in the proper translation.
[Speaking in Yupik.]
Language, bills, laws, this is where it all begins, right
here in your hands.
Then we, the Native American Indian, Alaskan Natives, take
it from your hands, revise it and amend the language to meet
our needs and graciously hand it back to you for your greatly
needed blessing so that we can administer the right health care
services to our Native American Indian, Alaska Natives.
Quyana.
[End of translation.]
I would like to remind the Committee that the contract
support cost crisis comes on top of a severe shortfall in our
programs. According to the Indian Health Service Work Group on
Level of Need Funded, the average funding for Native American
people is a staggering 54 percent of what is in fact necessary
to meet our people's needs.
Nationally, average Americans receive $2,098 per capita.
For veterans, including many in my own family, the average
Federal expenditure for health care is higher. And, at that,
many in Congress today are still calling for emergency spending
increases to meet our veteran's needs. But in Indian country,
Federal spending per capita is a mere $1,310.
Mr. Chairman, this is a terrible situation, one that is far
more severe in our villages, that cries out for attention.
Helping us address the contract support shortfall will
certainly help. But, as these statistics show, we still have a
long way to go in meeting the Nation's commitment to the first
Americans.
Thank you for your patience, and once again we invite the
full Committee's and your spouses to come see firsthand our
beautiful country, our wonderful people, and the severe
challenges that we face today. Next April, we will mark 30
years of tribally administered health care in our region, and
we invite you to join us for a celebration and tour of our
villages.
Thank you.
The Chairman. Thank you very much.
[The prepared statement of Mr. Manumik follows:]
Statement of Paul Manumik, Chairman of the Yukon-Kuskokwim Delta
Regional Hospital
Good morning, Mr. Chairman and Quyana. My name is Paul
Manumik, Chairman of the Yukon-Kuskokwim Delta Regional
Hospital.
[GRAPHIC] [TIFF OMITTED] T0802.016
I would just like to remind the Committee that the contract
support cost crisis comes on top of a severe shortfall in our
programs. According to the Indian Health Service Work Group on
Level of Need Funded, average funding for Native American
people is a staggering 54 percent of what is in fact necessary
to meet our peoples needs.
Nationally, average Americans receive $2,980 per capita.
For veterans, including many in my own family, the average
Federal expenditure for health care is higher--and at that,
many in Congress today still call for emergency spending
increases to meet our veterans needs. But, in Indian Country,
Federal spending per capita is a mere $1,310.
Mr. Chairman, this terrible situation--one that is far more
severe in our home villages--cries out for attention. Helping
us address the contract support shortfall will certainly help,
but as these statistics show, we still have a long way to go in
meeting the Nation's commitment to the First Americans.
Thank you for your patience, and we once again invite the
full Committee and your spouses to come see first hand our
beautiful country, our wonderful people, and the severe
challenges we face. Next April we will mark 30 years of
tribally administered health care in our region, and we invite
you to join us for our celebration and a tour of our villages.
The Chairman. Mr. Miller.
STATEMENT OF LLOYD BENTON MILLER, ATTORNEY
Mr. Lloyd Miller. Thank you, Mr. Chairman, Congressman
Hayworth.
For the record, my name is Lloyd Miller. I am a lawyer with
the law firm of Sonosky, Chambers, Sachse, Miller and Munson.
Today you have heard some calls for adjustments in the
system so that the self-determination funding process is
finally brought into conformity with the government's legal
obligations to tribal contractors under the Indian Self-
Determination Act. I have been asked to make a few remarks on
this one legal issue.
In 1988, the Indian Self-Determination Act was massively
overhauled precisely because the BIA and the Indian Health
Service were not paying contract support costs required for
tribal contractors to carry out these Federal programs. In an
entire chapter, the Senate reported, devoted to this one issue,
and no issue received greater attention in the Senate or House
committee than this one issue. As the Senate committee noted,
no other problem was more on Congress' mind than, quote, the
consistent failure to fully fund tribal indirect costs.
Now, in the course of deliberations in 1988, I was
reviewing these recently, and I came across a statement by the
former chairman of that Committee, Senator Inouye, which I
thought would be helpful to repeat here briefly. Senator Inouye
said this in a 1988 hearing:
``a final word about contracts: I am a member of the
Appropriations Committee, and there we deal with
contracts all the time. Whenever the Department of
Defense gets into a contract with General Electric or
Boeing or any one of the other great organizations,
that contract is carried out, even if it means
supplemental appropriations. But strangely in this
trust relationship with Indians they come to you maybe
half way or three quarters through the fiscal year and
say, quote, sorry, boys, we don't have the cash, so
we're going to stop right here, after you put up all
the money. At the same time you don't have the
resources to sue the government. Obviously, equity is
not on your side. We're going to change that, also.''
That is what Senator Inouye said, and that is what he did.
Congress did change the Act, by extensive amendments to the
funding amendments of section 106, amendments to the shortfall
reporting and supplemental appropriation reporting provisions
of 106, the model contract in 108 that again guarantees
funding, and the legal remedies in section 110.
Now, today the world is different. Although the agencies'
shortcomings in the appropriations have not changed, thanks to
these amendments the Courts have stepped in and come in to fill
the void. They have consistently awarded damages against the
agencies, just as Congress intended. So it is at the Interior
Board of Contract Appeals, as the Congressman mentioned, that
has expertise in this area, and that board has ruled under
simple contract law, and this is a quote from the decision,
that ``the government's obligation to fund these indirect costs
in accordance with the contract remains intact, despite the
dollar ceiling in the applicable appropriations Act.''
And a recent Federal court on July 22nd had this to say:
``regardless of agency appropriations, nothing in the Act
limits the agencies' obligation to fully fund self-
determination contracts.''
The Courts and the board have awarded damages, and
additional damages may be assessed in additional litigation
still pending against the IHS and the BIA.
This is the legal framework in which the tribal witnesses
today come before this distinguished Committee and respectfully
urge that perhaps the funding mechanism for contract support
costs in Congress ought to be changed. After all, these are not
discretionary activities. They are contracted Federal
Government programs being carried out on behalf of the United
States for the Federal beneficiaries of those Federal programs.
If tribal contractors are to accomplish that Federal
mission, the least Congress can do is to assure payment
promptly. Prompt payment should not be dependent on the
politics of the budget process, the competing demands within
the agencies and within OMB, or the fortitude of a few tribal
contractors to take on the United States in litigation.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Lloyd Miller follows:]
Statement of Lloyd Benton Miller, Sonosky, Chambers, Sachse, Miller &
Munson
Thank you Mr. Chairman. For the record, my name is Lloyd
Miller and I am a partner with the law firm of Sonosky,
Chambers, Sachse, Miller & Munson.
Today you have heard a call for adjustments so that the
self- determination funding process is finally brought into
conformity with the government's legal obligations to tribal
contractors under the Indian Self-Determination Act. I have
been asked to speak briefly to this particular legal issue.
In 1988 the Indian Self-Determination Act was massively
overhauled--precisely because the BIA and IHS were not paying
the contract support costs required for tribal contractors to
carry out these Federal programs. As the Senate Committee
noted, no other problem was more on Congress' mind than ``the
consistent failure to fully fund tribal indirect costs.'' S.
Rep. No. 100-274 at 8.
In winding up his remarks at the hearings on the 1988
amendments, then Chairman Inouye of the Senate Indian Affairs
Committee put the problem well:
A final word about contracts: I am a member of the
Appropriations Committee, and there we deal with contracts all
the time. Whenever the Department of Defense gets into a
contract with General Electric or Boeing or any one of the
other great organizations, that contract is carried out, even
if it means supplemental apporpriations. But strangely in this
trust relationship with Indians they come to you maybe halfway
or three quarters through the fiscal year and say, ``Sorry,
boys, we don't have the cash, so we're going to stop right
here'' after you've put up all the money. At the same time you
don't have the resources to sue the Government. Obviously,
equity is not on your side. We're going to change that also.
Hearing on S. 1703 Before the Senate Select Committee on Indian
Affairs, 100th Cong., 1st Sess. 55 (Sept. 21, 1987).
And, Congress did change that, by extensive amendments in 1988 and
1994 to the funding provisions of section 106 of the Act, the shortfall
and supplemental appropriations reporting provisions of section 106,
the model contract provisions of section 108, and the critical court
remedies of section 110.
Today, the world is different. Although the agencies' shortcomings
in the appropriations process have not changed, thanks to these
amendments the courts have come in to fill the void. They have
consistently awarded damages against the agencies, just as Congress
intended. And so it is that the Interior Board of Contract Appeals
(which has recognized expertise in this area) has ruled, under simple
contract law, that ``the Government's obligation to fund these indirect
costs in accordance with the [self-determination] contract remains
intact, despite the dollar ceiling in the applicable appropriations
act.'' Appeals of Alamo Navajo School Board and Miccosukee Corp., 1997
WL 759411 Dec. 4, 1997) (slip op. at 45). Similarly, the Federal courts
have ruled that ``regardless of agency appropriations, [nothing in the
Act] limit[sl [the agencies] obligation to fully fund self-
determination contracts.'' Shoshone-Bannock Tribes v. Shalala, No.CV
96-459-ST ---- F. Supp. ----, 1999 WL ---- (July 22, 1999) (slip op. at
7). The courts and the Board have awarded damages, and additional
damages are still awaiting assessment in class action suits now pending
against both agencies.
This is the legal framework in which the tribal witnesses today
come before this distinguished Committee and respectfully urge that the
funding mechanism for contract support costs be changed. After all,
these are not discretionary activities; they are Federal Government
programs, being carried out on behalf of the United States for the
Indian beneficiaries of those programs.
If tribal contractors are to accomplish that Federal mission, the
least Congress can do is assure that payment for services rendered will
be forthcoming. Prompt payment must not be dependent on the politics of
the budget process, competing demands within the agencies and within
OMB, or the fortitude of tribal contractors to take on the government
in litigation.
Thank you Mr. Chairman. I am available to answer the Committee's
questions.
The Chairman. I want to thank the panel on your very good
testimony. I can assure the panel that we are going to be
working closely with Senator Stevens and Senator Inouye and
myself, J. D. Hayworth, et cetera, to try to see if we can't
revive the 1988 Act and make it work. Sometimes we don't go as
far as we should.
Orie, last year we had a year short--what this year in
contract support--what would it cost? It has been estimated $5
million for contract support?
Mr. Williams. For the Yukon-Kuskokwim Health Corporation,
we are short $2.3 million of what we have negotiated with the
office of cost allocation.
The Chairman. What I am suggesting is, if you weren't
operating this Yukon-Kuskokwim health association, the Federal
Government by law has a responsibility, if they would actually
have the $5 million, to operate it; is that correct? That is
what the estimated cost is, the contract costs, correct? What I
am leading up to--you are supposed to answer this correctly.
They are actually shortchanging you. You are contracted with
them, but if they were doing it, it would cost them about $5
million.
Mr. Williams. I am afraid it would cost them more than
that. They wouldn't have the system, number one. It would cost
them at least that much.
The Chairman. There have been statements about the pro-rata
formula. If that had been put in place last year, what would
have it cost Yukon-Kuskokwim Health Corporation as far as money
and jobs?
Mr. Williams. Money would have cost $2.3 million at a
minimum. Up to $4.6 million depending on what appropriation or
lack of appropriation would have happened. It would have cost a
minimum of 80 jobs, most of those jobs being welfare to work
mothers singly supporting their children without spouses.
The Chairman. What would be the effect on the health care
itself?
Mr. Williams. We have suffered tremendously. It would be
like going into battle and sending your people in the front
line to provide health care and have no support. It would be
like the Congressman and Congresslady sitting on this Committee
without any staff support whatsoever.
The Chairman. Sometimes that might be a blessing, but I
would not always say that.
How long has the Yukon-Kuskokwim health care been suffering
with insufficient contract support? You have been in which is
how long now?
Mr. Williams. We have been in contracting for 8 years
September 30. We contracted the hospital in 1991 and took it
over October 1, 1992. We have had claims in for start-up costs
of about $7.6 million since 1992.
The Chairman. We will revamp the Act. So you are short
about $7.5 million.
Mr. Williams. Plus the $2.3 that would bring us to 100
percent of negotiations yet.
The Chairman. You filed a claim for Yukon-Kuskokwim
contract costs. What happened to those claims?
Mr. Williams. They are still pending. We had several
teleconferences on it, and they are still pending out in the
contracts division of the----
The Chairman. When you file in court--Mr. Miller, has this
gone to court?
Mr. Lloyd Miller. No. The Yukon-Kuskokwim Corporation's
claim, they haven't heard anything over a year. It was 3 years
since it was filed. The law requires----
The Chairman. What is the delay in that? You will
eventually have to take them to court?
Mr. Lloyd Miller. The only way to recover the damages if
they don't grant the claims is to take it to court.
The Chairman. Who is handling the claims? IHS?
Mr. Lloyd Miller. Division of grants and contracts of the
Indian Health Service, yes.
The Chairman. How do we expedite that?
Mr. Lloyd Miller. I am not sure this Committee can. The
Committee may want to direct some questions to the director of
the Indian Health Service regarding the process for assessing
those claims. By law, they are deemed denied by now, and YKC
could go forward and file suit against the agency if they chose
to. But litigation is expensive, a distraction, and they are
hoping the claim would be granted.
The Chairman. You mean you wouldn't have the a little pro
bono there, Mr. Miller?
Mr. Lloyd Miller. I am sure that we can work something out.
The Chairman. I think we have to go back to the statement.
Mr. Kildee made the same statement in the last hearing that we
had about duplicating what Mr. Inouye said. This is one reason
that we are having these hearings.
Dr. Trujillo and Mr. Gover, we can't reach what Congress is
directed to do. Maybe we have to go to a different formula as
far as the total funding. I happen to be one of those people
that there is a contract, there is an obligation, there is an
entitlement. Maybe we do have to make this a different way
because it is a small amount of money.
Mr. Allen, you said that very well. It is one cruise
missile. Think about that. We shot 200 cruise missiles in
Bosnia, 200 in Kosovo. Just think about that money. It is going
to cost us about--now estimated cost over $200 billion if we
get involved in the reconstruction. I think you hit the point
when we talk about subsidy, which--I love my farmers and this
and that and everything else, but, just think, what we spent in
that conflict would solve this problem. And it is a legal right
that should be taken care of.
My time is up.
Mr. Udall. Mr. Inslee. Who was here first? Mr. Udall.
Mr. Udall of New Mexico. Thank you, Mr. Chairman.
I want to extend my appreciation to the panel as well for
your testimony. I have learned a lot listening to you this
morning.
It is nice to find that I am agreeing with the chairman
today. I like to find ways to agree with my chairman.
I want to extend a question to Mr. Allen. One of the
recommendations of the NCAI contract support cost working group
is for the Congress to study similar tribes to come up with
ways of benchmarking some of these components that we could
then use in these future negotiations. What would you envision
such a study would entail and who do you think ought to conduct
it?
Mr. Allen. I think what we need to do is get the
negotiators for the Department of the Interior and Department
of HHS together with the tribal leaders and our experts to go
over the principles that we use to negotiate the indirect cost
rates and the direct contract support funds or functions and
the start-up cost so there is a consistency.
Some have a perception there is an inconsistency about how
they negotiate it. So the issue is that provides a little more
certainty in terms of how they are going to negotiate those
numbers. It makes it easier to project the actual expected cost
in future years, and we think that a team of that kind of
effort with the administration to work closely with the tribes
would be good. We do believe firmly that tribes and our efforts
need to be in the middle of this because we feel that we are
the best experts on this matter to come up with those kinds of
principles.
Mr. Udall of New Mexico. I think you have already made a
very good case along those lines. You all are working on this.
Mr. Williams speaks to it very well, and it makes very good
sense.
Mr. Allen. I would also point out something that I forgot
to mention in my testimony.
Mr. Gover raised an issue with a proposal they had
submitted just in the last month. It was something that sort of
came out of left field on us, and we had not had any notion
that it was even being developed. We absolutely object to this
idea. In our opinion, it basically takes the Self-Determination
Act and the transfer of those functions out to the tribe and it
creates two different kinds of categories. That is not the
direction of what the Self-Determination Act is all about. That
is not a legitimate proposal.
Mr. Udall of New Mexico. Governor Thomas or Mr. Williams,
would either one of you care to comment on this proposal as
well?
Mr. Williams. I am not prepared to comment at this time on
it. I would be happy to submit comments on it.
Mr. Udall of New Mexico. Mr. Allen, I will come back to you
with another question.
You talked about the need for financial stability with
tribes that are supplying these programs and relating this to
when tribes receive these payments from the BIA and I think you
also implied from the Indian Health Service. Please talk again
about the benefits to the tribe when your fundings are received
at the beginning of the fiscal year rather than, say, the end.
Is this just merely a cash flow problem or are there other
issues tied to this funding stream?
Mr. Allen. The problem is, if the departments or agencies
hold the contract support funds until the end of the year, the
tribes have to cover those costs. Those costs come from
somewhere. So, as a general rule, the costs for the programs
are being covered, but the costs for the contract support are
not being covered, so the tribes simply have to use their own
resources. They have to use whatever means they have, their own
cash flows. Their hard cash flows are used for other purposes
or they would have to go out and borrow money in order to cover
those costs for them to be reimbursed at the end of the year.
So, essentially, they are banking the Federal Government's
responsibilities for the Federal Government.
Mr. Udall of New Mexico. Mr. Williams, would you confirm
that observation? Do you have anything to add to that?
Mr. Williams. Mr. Allen is 100 percent accurate. That has
historically been the way that the tribes have funded their
programs, out of program dollars that are supposed to provide
health care to the people. They have had to always augment the
contract support and admin costs out of programs.
Mr. Udall of New Mexico. It would seem to strike me that,
additionally, you find yourself getting further and further
behind the curve. The best kinds of organizations, whether they
are government, nonprofit, or for-profit, have some proactive
component. You are planning for the next year. You are planning
2 or 3 years out. You know that you have got resources and you
can invest those funds. It sounds like your hands are tied in
many cases, and in the end you are also cost shifting and not
providing the kind of care that the people ought to have and
that they have been guaranteed.
Mr. Allen. If I might add one more point, Congressman, on
the BIA side, because we don't know what the actual number is.
Are they going to pass the 83 percent of the rate, of what is
due to the tribe? Is it 85? Is it 79? It is a guessing game for
the tribe. We have to make our best guess at what are shooting
for and what they are going to deliver to us at the end of
September or the end of the fiscal year.
Mr. Udall of New Mexico. I see the light has changed. If I
could just make one last comment.
It just seems like an immense waste to me that then we end
up in litigation with lawsuits against all of these various
governmental organizations and then additional money runs out
the door for lawsuits instead of solving the problem that you
presented to us today.
Thank you, Mr. Chairman.
Mr. Hayworth [presiding] I thank the gentleman from
Colorado. I won't quote Shakespeare in his reference to juris
doctors, although the J. D. comes after your name, and I have
it before my name. I didn't go to law school, and I think that
is an asset. But I do appreciate my friends from the legal
profession who are here today. I appreciate the comments of all
of the panelists, whether they are juris doctors or not,
because they are on the front lines of this challenge that we
face.
I will exercise both the prerogative of the chair and
congressional prerogatives to address comments and questions to
my dear friend from the Gila River Indian community, Governor
Thomas. Governor Thomas, I want to thank you for offering what
I will call the human equation. Because so often in our
endeavors here we end up looking at a balance sheet and we talk
about percentages of this and that and we quote different
bureaucratic shorthand for different statutes that the Congress
either follows or sadly chooses not to follow, thus the advent
of the court cases that my friend from Colorado alluded to
earlier. But you brought to us the evidence this morning that
is not unique to your situation, that sadly for members of the
Gila River Indian Community, more than any other place in the
United States, according to those experts in public health,
although we have seen the first Americans dealing with the
challenges of diabetes and the concerns that grow out of that
disease.
While we welcome the efforts of the Speaker and Chairman of
the Republican Conference and the Minority Whip who, within a
half hour's time, will talk about outreach on diabetes and we
welcome that from across the aisle, you bring us physical
evidence of just how dire the needs are in the Gila River
Community, not only to you personally but to so many others as
you offered those chilling and compelling numbers.
Governor Thomas, you also in your testimony observed that
your Community is still awaiting disbursement of preaward and
start-up costs incurred in connection with its takeover of
hospital and clinic operations in 1995 which were appropriated
with $35 million in new contract support cost in the fiscal
year 1999 omnibus appropriations bill. How much, Governor, is
the Community still awaiting and what has been the explanation
of the IHS for this delay?
Governor Thomas. Thank you, Congressman Hayworth, my dear
friend.
The Community hasn't been paid $790,000 in pre-awarded
start-up costs in March of 1999. Granted, IHS delay was based
on IHS's consideration of legal recommendations. I guess
lawyers have to make their money, so sometimes the pay-in can
really hinder us, and it takes a long time to climb out of that
situation. The legal opinion was that none of the $35 million
should be used for prior preaward or start-up costs. We are in
that dilemma right now.
Mr. Hayworth. And again we offer other apologies to our
good friend, Mr. Miller, and others. We observe what goes on
with the legal profession.
The overview, Governor Thomas, what in your opinion is the
fundamental problem with contract support costs?
Governor Thomas. The fundamental problem is the full
funding, 100 percent. I don't know if you are going to have
other hearings for the States, for universities and for others
to come and say we are short-funded contract support costs. I
don't know which committee hears those. But I am sure this is
not as drastic as it is for the Indian people across this
country.
We are patient. We do not bemoan anybody for that, but we
are still waiting and we will wait until--we encourage you to
take actions and also our people who are advocates for us, the
BIA and IHS, to come forward and, as was stated earlier, to say
how much it would actually cost and stick with it and not make
them compromise because it affects all of us in Indian country,
our health.
We talked about diabetes. Did you know, on Gila River,
diabetes is only 50 years old, somewhere in that neighborhood?
It occurred because of the change in our environment. When the
settlers came out west we adopted their lifestyles, and it
occurred at such a rapid pace and now diabetes is in epidemic
proportions. Not only on Gila River, but I talked to my friend
here from Alaska and he said the same thing, it is growing. So
it is because of the change in our environment. It is traumatic
for us, and that is what we are discovering.
Mr. Hayworth. Governor, I thank for sharing your personal
story and what you have seen firsthand in your role leading the
Gila River Indian Community. Although we have been joking about
the role of attorneys, that I would be remiss if I did not
state in all sincerity to Mr. Miller, thank you, sir, for your
points in going back to the record and pointing out the words
of Senator Inouye. And again, this is an issue that transcends
partisan lines. We are all very concerned, and we thank all of
you.
Let me turn now to my good friend from Washington State for
any comments or questions that he might have.
Mr. Inslee. Thank you, Mr. Chairman.
Mr. Miller, what is the current status on claims? Is there
attorneys fees provision in the law if, for instance, the
Nations prevail in this regard?
Mr. Lloyd Miller. Yes.
With regard to the first--the status of the claims, there
are several claims pending in the Interior Board of Contract
Appeals, claims pending in Federal district court in Oregon, a
class action again the Indian Health Service pending in the
Oklahoma Federal court, a class action against the Bureau of
Indian affairs pending in Albuquerque, and two appeals, one
pending in the Ninth Circuit and one pending in the Federal
circuit here in Washington.
There is an attorney fee provision that was inserted by
Congress in 1988 at the behest of Senator Inouye's committee at
the time. Fees are awarded under the Equal Access to Justice
Act if a court finds that the government's position was not
substantially justified. And in the Shoshone-Bannock
litigation, the court awarded full attorneys fees, which is
unusual, at the full rate--at an enhanced rate, excuse me,
against the Indian Health Service because the court found that
their defense in that case was not even substantially
justified.
Mr. Inslee. Are there things we could do procedurally,
attorney fees or timing of claims or anything that we ought to
be doing to impose a greater cost on the government if in fact
it does not comply with its legal obligations?
Mr. Lloyd Miller. Right now, the only penalty over and
above the amount of the contract amount not paid would be
interest. The Committee could look at the rate of interest and
make its own judgment whether it thinks that the interest
amount is sufficiently high. The Committee could look at
penalties if the Committee feels that is an appropriate use of
the taxpayers funds to further encourage the agencies to
comply.
Right now, the agencies really don't have an incentive,
surprisingly to me, to settle cases. I do a fair amount of
litigation, much more than that appearing in this great
committee room. When you litigate against a private party
everybody understands that there are risks all the way around.
We assess our cases and try to find some accommodations.
Sometimes you can't, but usually you do. Or you get to a range.
But I have found consistently over 20 years of practicing
that the litigation against the Department is entirely
different. They don't have a sense of the cost of litigation.
That is handled by the Department of Justice. They don't have a
sense of cost and the distraction of the agency, and they will
take you to the moon to resist paying that claim.
We have claims where, as I say, where the Justice
Department position was found not even to be sufficiently
justified. That is bordering on frivolous. Yet the Department
is going forward, taking appeals. We offered to settle those
cases even though we want 100 cents on the dollar. The
Department has not even graced that with a counteroffer.
Mr. Inslee. We are going to do what we can to expedite
these. I am going to work with the chair to see if there are
ways to do that.
Chairman Allen, I notice in your testimony that as far as
direct costs of Workers' Compensation and unemployment
insurance, there is a suggestion that that be paid and that BIA
recognized a responsibility. What has BIA said, and I am sorry
if I missed part of the testimony, why they would not honor
that commitment?
Mr. Allen. It is a cost that they have not acknowledged
historically. They have currently been reviewing it and
discussing it with IHS, who have paid it historically. IHS has
always recognized that those costs associated with those kinds
of expenses and they are separate from the indirect cost rate.
Whether or not they are seriously considered or not is still in
question. Their current proposal, in my opinion, doesn't
reflect that in a meaningful way.
But even if they would leave it in it, the proposal is
taking programs and creating different kinds of programs out of
the different operations and cutting our base in half. And
saying, well, the half that we think is appropriate we will pay
you 100 percent and the half that we don't think is
appropriate, you are not getting any more contract support for
those types of functions and activities. So they say in that
category where you pay 100 percent we would also address
contract support, is misrepresenting a base that the tribes are
working on or working towards.
It is an issue where they have need to move forward. We
believe they need to adopt the practice that IHS has adopted
and also move forward with the full funding request. We believe
that the price tag is very reasonable.
It is very irritating for us to get back comments from OMB
or the administration or from the appropriation committees that
it is an unacceptable cost when we know that it is a very
reasonable cost to fully fund these costs.
The Ramah factor, if I might add to this, with regard to
the other Federal agency, at this point in time is not an
overwhelming number. We calculated it to be right around the 20
to 25 million dollar range. That is not an overwhelming number
relative to this other Federal agency.
Mr. Gover is correct. Fix it and address those OMB and
those committees, those departments to pay that full funding,
but it is not a cost that is going to break anybody's back. So
it is very frustrating for us to hear that they can't afford to
address the needs of the most impoverished communities in
America.
Mr. Inslee. This is very frustrating for many of us here,
and we will be working with the chair and others to try to move
ahead in this regard. We appreciate your help.
Mr. Hayworth. I thank my colleague from the State of
Washington.
In closing, I want to thank the panel. Also just to say to
President Allen, Mr. President, we will have a couple of
questions. I listened with interest to your comment about the
BIA proposals that in your words came out of left field. We
have a couple of questions, and if you could respond in writing
to those questions because we want to pursue that line of
inquiry. But, given time limitations today, we won't go into it
with a full airing here, but we would appreciate that response.
With that, thanks to all of our panel members here and
especially my dear friend, Governor Thomas, and we thank you
for that.
And we will welcome our third panel. And our last panel of
witnesses includes Mr. Jim Wells, Director of Resources,
Community and Economic Development Division of the GAO. That,
for anybody in our audience that might not know the
nomenclature or the acronym, stands for the General Accounting
Office here in Washington, DC. And he is accompanied by Mr.
Jeffrey D. Malcolm, Senior Evaluator from here in Washington,
DC.
So, with that, we will make the necessary changes in
choreography and circumstances and logistics and welcome you
front and center, Mr. Wells, for your statement. Once you get
situated, we will be happy to recognize you and hear what it is
that you have to say. It goes without saying, although we will
reiterate, that we will be happy to take your complete
testimony for the record and we know that you offer that,
without objection. And so now, in the time that we have, we
would be happy to let you orally state the highlights of said
testimony. Mr. Wells.
STATEMENT OF JIM WELLS, DIRECTOR, ENERGY, RESOURCES AND SCIENCE
ISSUES, RESOURCES, COMMUNITY AND ECONOMIC DEVELOPMENT DIVISION,
GENERAL ACCOUNTING OFFICE, WASHINGTON, DC; ACCOMPANIED BY
JEFFERY D. MALCOLM, SENIOR EVALUATOR
Mr. Wells. Before I begin, I would just want to again
introduce my colleague. With me is Mr. Jeff Malcolm, who is
responsible for leading all of our Indian work here on the
Indian contract support cost.
My comments this afternoon will focus on the reasons for
increasing the contract support shortfalls and the alternatives
for funding them. Our June, 1999, report goes into a lot of
detail about the calculation of contract support costs and the
effects of the shortfalls on the tribes, which you have heard
firsthand today. Shortfalls in contract support costs have been
increasing each and every year in the last 5 years. Fiscal year
1998 the combined BIA and IHS shortfall was $95 million.
At your earlier hearing this year, much was made of the
uncertainty of what actually was the shortfall. In my 32 years
of experience, getting what should be a quick answer is never
easy. Our staff worked closely with the staff of the two
agencies involved, and we are happy for small victories in that
we have found some situations where we were able to communicate
and help eliminate some of the inconsistencies with the way
that the two agencies were operating and determining costs.
Contract support costs have increased mostly because of the
tribes becoming more active and contracting more but also
because the cost of administering these contracts has
increased. The more you contract, the more it costs.
As we learned, about half of the BIA and IHS programs are
currently now under contract, about $2 billion of the $4
billion program money that is out there. The contract tribe
support costs are up to $375 million. Shortfalls clearly have
increased because appropriations have not kept pace with the
tribe's costs.
Having sat through the two earlier panels and listening to
your questions, it is clear that there is a great deal of
frustration over this contract support cost issue and the self-
determination obligations. Shortfalls, particularly in the last
year 5 years, are occurring each year. While the exact amount
of the future contract support cost is difficult to predict
today but given the continuing success of the tribes wanting to
contract more, we conclude that costs can go up.
Our report covers the facts, the figures, and the numbers
because, quite frankly, that is what the General Accounting
Office does best, as well covering and giving you information
on the litigation issues and the moratoriums that the agencies
have and what the tribes are dealing with. While we do not want
to make recommendations on which alternatives are best, we do
want to assist you, the Congress, in your deliberations on how
to resolve this impasse.
In light of the continuing shortfalls, I would like to
discuss four alternatives for funding contract support costs.
These alternatives are presented in no particular order.
The first alternative is to fully fund contract support
costs. The second alternative is to eliminate the full funding
provisions currently in the Act and continue funding at the
current level. The third alternative is to impose a limit or
cap on tribal indirect costs. The fourth alternative is to
consolidate program funding and contract support funding and
allow the tribes to fully recover their indirect cost from this
total amount.
Mr. Chairman, if the desired outcome is to reimburse all
tribes for all of their contract support costs, then clearly
alternative one, full funding, or alternative number four,
consolidated amount, would work. If the desired outcome is to
deal with limited appropriations, then alternatives two, three,
and four could work. A disadvantage is the alternatives two,
three, and four would require amending the Act.
I will stop here and just say that this program clearly has
a legislative intent. It has estimated needs, but it does not
have enough appropriated money. The challenge facing the
Congress, and we in the General Accounting Office are trying to
assist in your deliberations of this policy decision, is to
find some common ground. I will stop there.
Mr. Hayworth. Mr. Wells, we thank you for your testimony.
We look forward to utilizing the resources of the General
Accounting Office, and we will have questions for you that we
will submit in writing, and in turn we would ask for your
responses in writing.
Mr. Wells. Be glad to.
[The prepared statement of Mr. Wells follows:]
[GRAPHIC] [TIFF OMITTED] T0802.050
[GRAPHIC] [TIFF OMITTED] T0802.051
[GRAPHIC] [TIFF OMITTED] T0802.052
[GRAPHIC] [TIFF OMITTED] T0802.053
[GRAPHIC] [TIFF OMITTED] T0802.054
[GRAPHIC] [TIFF OMITTED] T0802.055
[GRAPHIC] [TIFF OMITTED] T0802.056
[GRAPHIC] [TIFF OMITTED] T0802.057
[GRAPHIC] [TIFF OMITTED] T0802.058
[GRAPHIC] [TIFF OMITTED] T0802.059
[GRAPHIC] [TIFF OMITTED] T0802.060
[GRAPHIC] [TIFF OMITTED] T0802.061
[GRAPHIC] [TIFF OMITTED] T0802.062
Mr. Hayworth. Again, I want to thank everyone who has
joined us here today. We would note for the record that while
we welcome so many who have stayed for the duration, we
especially welcome Dr. Trujillo and thank him for staying to
hear what has been said. We thank him for his testimony.
Let me reiterate something that Chairman Young said
earlier. Since the Committee is scheduled to hold another
hearing at 2 p.m. which will be televised, we will forward the
Committee's additional questions to the administration again
with a deadline set for compliance.
Last time this Committee submitted questions to the
administration those representing the administration were 2
months late in replying. However, since it was the first
hearing, our chairman generally allowed the additional time.
This time, Chairman Young asked me to reiterate should the
administration not submit its answers on time, Chairman Young
solemnly promises that he will take formal action to ensure
that everyone complies with the time limit.
We need to move forward with contract support costs. This
Congress does not appreciate the administration's continued
delays with responses to our concerns. Officially, the deadline
for submitting the administration's answers to our questions
will be September three, 1999.
I would note, both for my time in the chair and the
questions I addressed to Dr. Trujillo, to the extent that
answers can be submitted by the end of this business week by
Friday, they will be greatly appreciated.
With that, thanks again to all who joined us.
The Committee is adjourned.
[Whereupon, at 1:17 p.m., the Committee was adjourned.]
[Additional material submitted for the record follows.]
Response by Jim Wells to questions from the Committee
United States General Accounting Office
Washington, DC 20548
September 2, 1999
The Honorable Don Young
Chairman,
Committee on Resources,
U.S. House of Representatives.
Dear Chairman Young:
Following your August 3 hearing on Indian contract support costs,
at which we testified on our recently issued report Indian Self-
Determination Act Increases in Indian Contract Support Costs Need to Be
Addressed (GAO/RCED-99-150), we received additional questions from the
Committee and were asked to provide our responses for the record.
Those questions, and our responses, are enclosed. Please contact
Chet Janik at (202) 512-6508 or Jeff Malcolm at (303) 572-7374, if
there is any other information on contract support costs that we might
be able to provide.
Sincerely yours,
Jim Wells,
Director, Energy, Resources
and Science Issues
GAO's Responses to Committee Questions on Indian Self-Determination
Contract Support Costs
1. Your report shows that the growth in new contracting activities
with the Bureau of Indian Affairs (BIA) has held steady at less than $5
million per year. The Indian Health Service (IHS) projects long-term
growth of about $10 million for new contracting. Based on this
experience and agency assessment, isn't it true that Congress can
generally expect only a modest growth in contract support costs, and
not the doubling hinted at in your report?
On the basis of the growth of contract support costs over the last
10 years, there should be modest growth each year in the future.
However, in any given year, a decision by a tribe such as the Navajo or
the Cherokee to contract a large program would have a substantial
impact on contract support costs. Furthermore, even without large
contracts, years of modest growth accumulate over time to substantial
growth. In our report, we did not project an amount of growth in
contract support costs for each year. The point we make is that only
half of all programs are currently being contracted and if the other
half are eventually contracted, costs will double if indirect rates
stay the same.
2. Tribes have experienced severe problems when other Federal
agencies ignore the Office of Management and Budget (OMB) Circular-
dictated indirect rate set by the Department of the Interior Office of
Inspector General. Would the GAO be willing to investigate the legal
basis upon which these other agencies can ignore a rate that is set
under a government-wide OMB circular, and recommend corrective action?
The requirements of the Indian Self-Determination Act with respect
to the reimbursement of contract support costs apply only to Self-
Determination Act contracts, which are administered by the BIA and the
IHS. Other agencies administer their grants and contracts under other
statutory authority, and the funding for these programs is based on the
individual program's statutory authorization. For example, the Job
Training Partnership Act limits the amount of funds that can be spent
on administrative functions to 20 percent and the Head Start program
limits the amount of funds that can be spent on administrative
functions to 15 percent.
The cost principles in OMB Circular A-87 are intended to set
standards for cost allocation, not for determining how programs will be
financed. Specifically, Circular A-87 states that the principles in the
circular are ``for the purpose of cost determination and are not
intended to identify the circumstances or dictate the extent of Federal
or governmental unit participation in the financing of a particular
program or project.'' Each indirect rate agreement also contains a
specific limitation: ``Use of the rates contained in this agreement is
subject to any applicable statutory limitations.''
For these reasons, we believe there is no need for an investigation
of this matter. Tribes consider this a longstanding problem, and the
BIA and the National Congress of American Indians have recommended that
other agencies should be required to allow tribes to fully recover
their indirect costs.
3. Why did you not study the issue of how IHS' calculation of
direct contract support costs meets the intent of the law? Could you
furnish a supplemental report after reviewing the matter with IHS and
tribal financial experts?
As part of our study, we did review IHS' policy for payment of
direct contract support costs. The term appears to be derived from two
provisions of the legislation authorizing contract support costs. It
refers to (1) the reasonable costs of tribal contractor activities to
assure contract compliance and management, which are not carried on by
the respective Secretary in his direct operation of the program; and
(2) direct program expenses for the operation of the contracted Federal
program (25 U.S.C. 450j-1 (a) (2) (A) and (3) (A) (i)). In both cases,
the burden falls on the agencies to determine what these costs entail.
The statute does not specify how direct contract support costs should
be determined. IHS is currently redrafting its policy, and from our
work, we believe that IHS, which has responsibility for implementing
these provisions under the statute, is appropriate in refining its
system of paying direct contract support costs to tribes. For this
reason, and because the policy is still in draft form, we do not
believe further review or a supplemental report is necessary at this
time.
4. Your report suggests the appearance of a conflict of interest in
the setting of tribal indirect cost needs by the same agency within the
Interior Department that also audits how tribes spend their Federal
funds. Without going into that particular issue, would you agree that
there is a similar appearance of conflict within IHS when direct
contract support cost needs are set by the same office (Division of
Financial Management) that is also responsible for managing IHS' money?
If so, would it be better for tribal contract support cost needs to be
handled by a different branch of IHS or by the Area Offices? Is this a
matter you could look into further?
No, the Division of Financial Management does not appear to have
the same type of conflict of interest that Interior's Office of
Inspector General (OIG) appears to have for two reasons. First, the OIG
was established as an independent audit agency and the Division was
not. As a result, the OIG has to follow audit standards and guidelines,
such as maintaining its independence, and the Division does not.
Second, direct contract support costs are direct costs and under the
Self-Determination Act, the BIA and IHS are responsible for managing
and distributing direct program funds.
Currently, several offices within the IHS establish direct contract
support cost needs. The Area Offices assist tribes in developing their
contract proposals and developing their contract support cost needs;
these proposals are developed under the policy guidance and assistance
of the Office of Tribal Programs, Self-Determination Services. The
Division of Financial Management and the Office of Tribal Programs
staff work together to review the cost proposals developed by the
tribes for the purposes of passing out funding. The division is also
responsible for maintaining data on the funding allocations and
shortfalls for each of the tribes and is involved in the estimation of
funding available to transfer from the agency to the tribes.
Because we do not see a conflict of interest in the role of the
Office of Financial Management in determining tribes' contract support
cost needs, we do not believe there is a need for us to review this
matter further.
5. If future costs are predictable and modest, and if the proper
incentives and controls are already in place to promote efficiency, why
isn't Option #1 the preferred alternative?
We express no opinion on which alternative, or combination of
alternatives, should be implemented. That is a policy question that is
up to the Congress as a whole to decide. Our main purpose in presenting
various alternatives is to provide the Congress with some insights on
the advantages, disadvantages, and cost implications of the various
alternatives for funding contract support costs as the Congress
deliberates on a permanent solution for funding these costs.
6. Under Option #4, how do you suggest we deal with (a) inflation;
(b) new contracts; and (c) ongoing contracts?
(a) Spending for Indian programs is classified as discretionary
spending. The level of spending for these programs is determined
annually by the Congress and does not include mandatory adjustments for
inflation. Under our fourth alternative, which would amend the Indian
Self-Determination Act to eliminate the current funding mechanism and
would replace it with a consolidated contract amount, contract support
funding would continue to be classified as discretionary spending and
issues such as inflationary increases would be handled annually through
the appropriations process.
(b) Under our fourth alternative, new and expanded contracts would
be handled exactly as they are now for the first year. After the first
year or some other agreed upon time frame when stability in the tribe's
costs has been achieved, the program funding and contract support
funding would be combined into a consolidated amount. For example, a
tribe wishing to contract a program with a direct base of $100,000 and
an indirect cost rate of 25 percent would receive an additional $25,000
(over and above their program base of $100,000) to cover their indirect
costs for the first year or some agreed upon time. Tribes contracting
new programs in the future would be treated the same as tribes that are
already contracting.
(c) With ongoing contracts, if Congress increased the funding for a
program, the fourth alternative would limit the increase in funding to
the amount provided--no additional contract support costs would be
provided, as they are now. The increase in funding would be split into
direct and indirect costs. To continue the example above, assume a
number of years have passed and the tribe's indirect cost rate has
stabilized with a direct program base of $100,000 combined with the
indirect costs of $25,000 to form a consolidated funding amount of
$125,000. Next, assume that the program receives a $25,000 funding
increase. Under the fourth alternative, this increase would be added to
the existing $125,000 to form a new consolidated funding amount of
$150,000. Of that total amount, 25 percent or $30,000, would be the
tribe's indirect cost and the remaining $120,000 would be available for
direct program costs.
In comparison, again assume that there is a tribe with $100,000 in
direct program base funds with an indirect cost rate of 25 percent, and
therefore the tribe receives $25,000 for indirect costs. Under the
existing funding mechanism required by the Indian Self-Determination
Act, if that tribe receives a direct program increase of $25,000, then
the tribe's base would increase to $125,000 and its indirect costs
would increase to $31,250. The total funding under the current system
would be $156,250 compared to $150,000 under Alternative #4.
7. Would you agree that the current shortfall system ends up
penalizing tribal self-determination by forcing curtailments that would
obviously never occur if IHS and BIA continued to operate the programs
themselves?
While it would be easy to say yes, the issue is more complex than
that. Tribes have experienced shortfalls. They stated that they have
had to either cut back on their administrative costs or provided funds
to pay for these shortfalls. However, BIA's and IHS' funding for
administrative functions are also subject to annual appropriations just
as the funding for contract support costs are. While we did not examine
what steps BIA or IHS may take in the event that their annual
appropriations were insufficient to fund their administrative
functions, the agencies have to handle any shortfalls in their budgets.
8. Why didn't you examine the Division of Cost Allocation's (DCA)
indirect cost data and processes? Do you have any sense of the
proportion that the DCA negotiated indirect costs bear to all indirect
cost requirements associated with all IHS and BIA contracts and
compacts?
We did examine the DCA's rate negotiation process--this is
discussed in appendix H of our report. DCA reviews cost proposals from
about 50 rates with tribal organizations and a few tribes. The
negotiators determine the allowability and reasonableness of the
proposed indirect and direct costs and negotiate differences with the
tribal organization or tribe. After a rate is negotiated, the DCA
issues a rate notice to the tribe. This is the rate that is applied by
the BIA and IHS to the tribe's self-determination contracts.
We also examined the DCA's cost data, but did not include this
information in the data in Chapter 2 because we did not combine the DCA
data with data from the Department of the Interior's OIG. The effect of
excluding this data from the data in chapter 2 is minimal because the
DCA only negotiates about 50 rates, mostly with tribal organizations,
and the aggregate indirect cost rate is about the same percent as the
rates negotiated by the OIG--25 percent. The main difference between
the rates negotiated by DCA and the OIG is that all the rates
negotiated by DCA are provisional-final type rates while the rates
negotiated by the OIG are predominantly fixed-with-carryforward rates.
9. Can you tell us what the impact would be if Congress required
all tribes to use the same method for determining their direct-cost
base, and if all tribes used the fixed-with-carryforward method for
calculating their rates? Is there any reason why this would not be fair
and reasonable?
The impact on tribes' costs would be zero if the same method was
used to calculate indirect cost rates because tribes are reimbursed
according to their costs, and it doesn't matter how these costs are
expressed. Regardless of whether a fixed-with-carryforward rate or a
provisional-final rate is used, a tribe should receive a rate that will
allow it to recover their full costs. While mandating a single method
would have no effect on cost, it prohibits tribes from choosing the
rate most appropriate for their circumstances and accounting systems.
[GRAPHIC] [TIFF OMITTED] T0802.017
[GRAPHIC] [TIFF OMITTED] T0802.018
[GRAPHIC] [TIFF OMITTED] T0802.019
[GRAPHIC] [TIFF OMITTED] T0802.020
[GRAPHIC] [TIFF OMITTED] T0802.021
[GRAPHIC] [TIFF OMITTED] T0802.022
[GRAPHIC] [TIFF OMITTED] T0802.023
[GRAPHIC] [TIFF OMITTED] T0802.024
[GRAPHIC] [TIFF OMITTED] T0802.025
[GRAPHIC] [TIFF OMITTED] T0802.026
[GRAPHIC] [TIFF OMITTED] T0802.027
[GRAPHIC] [TIFF OMITTED] T0802.028
[GRAPHIC] [TIFF OMITTED] T0802.029
[GRAPHIC] [TIFF OMITTED] T0802.030
[GRAPHIC] [TIFF OMITTED] T0802.031
[GRAPHIC] [TIFF OMITTED] T0802.032
[GRAPHIC] [TIFF OMITTED] T0802.033
[GRAPHIC] [TIFF OMITTED] T0802.034
[GRAPHIC] [TIFF OMITTED] T0802.035
[GRAPHIC] [TIFF OMITTED] T0802.036
[GRAPHIC] [TIFF OMITTED] T0802.037
[GRAPHIC] [TIFF OMITTED] T0802.038
[GRAPHIC] [TIFF OMITTED] T0802.039
[GRAPHIC] [TIFF OMITTED] T0802.040
[GRAPHIC] [TIFF OMITTED] T0802.041
[GRAPHIC] [TIFF OMITTED] T0802.042
[GRAPHIC] [TIFF OMITTED] T0802.043
[GRAPHIC] [TIFF OMITTED] T0802.044
[GRAPHIC] [TIFF OMITTED] T0802.045
[GRAPHIC] [TIFF OMITTED] T0802.046
[GRAPHIC] [TIFF OMITTED] T0802.047
[GRAPHIC] [TIFF OMITTED] T0802.048
[GRAPHIC] [TIFF OMITTED] T0802.049