[Senate Hearing 108-540]
[From the U.S. Government Publishing Office]
S. Hrg. 108-540
TRIBAL CONTRACT SUPPORT COST TECHNICAL AMENDMENTS
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON INDIAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
ON
S. 2172
TO MAKE TECHNICAL AMENDMENTS TO THE PROVISIONS OF THE
INDIAN SELF-DETERMINATION AND EDUCATION ASSISTANCE ACT
RELATING TO CONTRACT SUPPORT COSTS
__________
APRIL 28, 2004
WASHINGTON, DC
U.S. GOVERNMENT PRINTING OFFICE
93-458 WASHINGTON : DC
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON INDIAN AFFAIRS
BEN NIGHTHORSE CAMPBELL, Colorado, Chairman
DANIEL K. INOUYE, Hawaii, Vice Chairman
JOHN McCAIN, Arizona, KENT CONRAD, North Dakota
PETE V. DOMENICI, New Mexico HARRY REID, Nevada
CRAIG THOMAS, Wyoming DANIEL K. AKAKA, Hawaii
ORRIN G. HATCH, Utah BYRON L. DORGAN, North Dakota
JAMES M. INHOFE, Oklahoma TIM JOHNSON, South Dakota
GORDON SMITH, Oregon MARIA CANTWELL, Washington
LISA MURKOWSKI, Alaska
Paul Moorehead, Majority Staff Director/Chief Counsel
Patricia M. Zell, Minority Staff Director/Chief Counsel
(ii)
C O N T E N T S
----------
Page
S. 2172, text of................................................. 2
Statements:
Allen, Ron, chairman, Jamestown S'Klallam Tribal Council..... 11
Black, Charles, director, Office of Tribal Programs,
Department of Health and Human Services.................... 7
Campbell. Hon. Ben Nighthorse, U.S. Senator from Colorado,
chairman, Committee on Indian Affairs...................... 1
Demeray, Ron, Director, Self-Determination Services,
Department of Health and Human Services.................... 7
Fenster, Herbert, Esq., McKenna, Long and Aldridge, LLP,
Denver, CO................................................. 20
Grim, Charles, director, Indian health Service, Department of
Health and Human Services.................................. 7
Miller, Lloyd, Sonosky, Chambers, Sachse, Miller, and Munson,
Anchorage, AK.............................................. 18
Sinclair, William A., director, Office of Self-Governance and
Self-Determination, Department of the Interior............. 9
Smith, Chadwick, principal chief, Cherokee Nation............ 13
Appendix
Prepared statements:
Allen, Ron................................................... 27
Fenster, Herbert (with attachment)........................... 36
Grim, Charles................................................ 29
Miller, Lloyd (with attachment).............................. 42
Sinclair, William A.......................................... 31
Smith, Chadwick.............................................. 33
TRIBAL CONTRACT SUPPORT COST TECHNICAL AMENDMENTS OF 2004
----------
WEDNESDAY, APRIL 28, 2004
U.S. Senate,
Committee on Indian Affairs,
Washington, DC.
The committee met, pursuant to notice, at 10 a.m. in room
485, Senate Russell Building, Hon. Ben Nighthorse Campbell
(chairman of the committee) presiding.
Present: Senators Campbell, Inouye, and Murkowski.
STATEMENT OF HON. BEN NIGHTHORSE CAMPBELL, U.S.
SENATOR FROM COLORADO, CHAIRMAN, COMMITTEE ON
INDIAN AFFAIRS
The Chairman. The committee will come to order. We meet
today to receive testimony on S. 2172, the Tribal Contract
Support Cost Technical Amendments of 2004.
[Text of S. 2172 follows:]
The Chairman. Since President Nixon's time Indian tribes
have shown that they are much better prepared than the Federal
Government at providing services and programs to tribal
members. There is no question on that point. Our policy as the
Congress is to encourage more tribes to become contracting
tribes, but frankly they will not be willing to do so if they
are not equipped with all the tools and resources they need.
We will hear today from a commercial contract expert and,
as he will testify, in all other contracts that the United
States enters there is no question that the cost to carryout
those contracts are provided to the contractor. I think that
tribal contractors should be treated the same way.
I will enter my complete statement in the record so that we
can move along, because I have a time conflict this morning
with a markup in another committee. So we will go ahead and
when Senator Inouye gets here we will make his opening
comments.
With that, we will ask our first panel to be seated. That
will be William Sinclair, the director of the Office of Self-
Governance and Self-Determination from the Department of the
Interior; and Dr. Charles Grim, director of Indian Health
Service for the Department of Health and Human Services. I
think what we will go ahead and do is start with you, Dr. Grim,
if we could. Your complete testimony, by the way, will be
included in the record. I understand Douglas Black will be here
accompanying you, is that right?
Mr. Grim. Yes, sir; and also Ron Demeray.
The Chairman. Mr. Demeray is also here accompanying you.
Okay. Why don't you go ahead and proceed. Your complete
testimony will be in the record, if you would like to
abbreviate.
STATEMENT OF CHARLES GRIM, DIRECTOR OF INDIAN HEALTH SERVICE,
DEPARTMENT OF HEALTH AND HUMAN SERVICES ACCOMPANIED BY DOUG
BLACK, DIRECTOR, OFFICE OF TRIBAL PROGRAMS, DEPARTMENT OF THE
HEALTH AND HUMAN SERVICES; AND RON DEMERAY, DIRECTOR OF SELF-
DETERMINATION SERVICES, DEPARTMENT OF HEALTH AND HUMAN SERVICES
Mr. Grim. Thank you, Senator Campbell. I will do so.
As you indicated, I also have Doug Black, our director of
the Office of Tribal Programs and Ron Demeray, our director of
the Self-Determination Services team in that same office, so
that we can be responsive to the committee's questions.
Mr. Chairman, the IHS has testified previously before this
committee on the importance of contract support costs, the
promotion of strong, stable tribal governments, and the
provision of quality health care. I come before you today in
support of your continued efforts to address CSC issues.
A little update on what the Indian Health Service is doing
in that realm. We continue to work with tribal leaders and
their representatives on a regular basis to improve the
administration and allocation of contract support costs in the
Indian Health Service.
We have had four CSC policies in the IHS since 1992. Each
policy has been an improvement on its predecessor based on our
accumulated experience and our ongoing discussions with tribes
concerning the agency's management of contract support costs.
Earlier this month, we met again with representatives of tribes
to consider several changes to our existing CSC policy that are
intended to further improve the manner in which we manage
contract support costs.
Our CSC policy contains allocation procedures that are
intended over a period of time to reduce the disparity in CSC
funding among tribes in our system, without reducing CSC
funding for tribes that are still underfunded. The allocation
procedures we use were developed once again in consultation
with tribes to address the present environment in which
available contract support cost appropriations are insufficient
to fund the total CSC need.
S. 2172 contains provisions that appear to legislate the
full funding of contract support costs. At the crux of the CSC
dilemma and controversy are provisions in the Indian Self-
Determination Act that are seemingly in conflict with one
another. The law directs the Secretary to fund the full amount
of need for such costs, while elsewhere in the act it provides
that contract funding is subject to the availability of
appropriations. As a result, the IHS continues to be involved
in litigation over contract support cost issues that are rooted
in this confusion. In November, the Supreme Court will hear
arguments concerning this conflict in statutory interpretation.
S. 2172 attempts to address and ostensibly end the
confusion over CSC by amending the act to fully fund these
costs. Although I have been a strong advocate for increased
contract support cost funding throughout my tenure as director
and throughout my career in the Indian Health Service, I am
concerned about this provision. S. 2172 does not specify the
sources of funding that will be used to fully address the CSC
need and I would be opposed to funding for CSC that comes from
existing IHS appropriations for health care programs and
services and supersedes the other critical priorities for
budget increases for all IHS-funded programs.
S. 2172 also contains a provision that reaches outside of
the IHS and BIA by allowing tribes to recover their full
indirect cost needs from awards made by other Federal agencies.
This provision would result in the diversion of limited program
funds to administration and create an inequity in treatment
between tribal and non-tribal grantees. The Department cannot
support the requirements of this provision.
In closing, I would again like to express my support for
contract support costs and the activities of this committee.
Senator Campbell, I would also like to thank you for your
efforts and achievements on behalf of Indian people as chairman
of this committee.
I would like to complete my opening comments by emphasizing
that the IHS is committed to upholding, promoting and
strengthening the principles of the Indian Self-Determination
Act, the empowerment of tribal governments, and the government-
to-government relationship that exists between Indian Nations
and this country.
Thank you for the opportunity to discuss S. 2172 and
contract support costs in the IHS. At this time, we are
available to answer any questions that you might have.
[Prepared statement of Mr. Grim appears in appendix.]
The Chairman. Thank you, Dr. Grim.
Mr. Sinclair, if you would go ahead and proceed.
STATEMENT OF WILLIAM A. SINCLAIR, DIRECTOR, OFFICE OF SELF-
GOVERNANCE AND SELF-DETERMINATION, DEPARTMENT OF THE INTERIOR
Mr. Sinclair. Yes, sir; thank you.
Good morning, Mr. Chairman. I am William Sinclair, director
of the Office of Self-Governance at the Department of the
Interior. I am pleased to be here today to impart the
Department's views on S. 2172, to amend Public Law 93-638.
The Department supports developing strong tribal
governments by having contracts and compacts with over 90
percent of all Indian tribes and by funding contract support
costs incurred by those tribes. However, we are unable to
support this bill.
As background, the original act requires that tribes who
are contracting and compacting for services, or a program,
receive full Federal funding that the Secretary would have
expended if the Secretary had provided the service directly.
In addition, the Secretary is required to provide contract
support costs to those contracting and compacting tribes to
cover overhead expenses incurred by those tribes in
implementing the contracts and compacts. For example, a tribe's
personnel or accounting operation that provides administrative
support services to more than one contract would be eligible
for contract support.
In 1988, the Act was amended requiring the Secretary to
provide contract support funding for all administrative costs
incurred by contracting and compacting tribes. However, the act
also says that the provision of the funds are subject to the
availability of appropriations, which leads us to our major
concern with the bill. Section three of the bill attempts to
make contract support costs similar to an entitlement by
eliminating all references within the Act that make payment of
funds, quote, ``subject to the availability of
appropriations,'' unquote.
Similarly, if the words ``subject to the availability of
appropriations'' are eliminated in section 105(c)(1) of the
act, then funding for all programs included in compacts and
contracts could be considered as an entitlement.
Section three of the bill also amends section 408 of the
act which authorizes appropriations of the act. The bill would
add the following language: ``Including such sums as are
necessary to pay contract support costs when not otherwise
provided for.'' As Congress has recognized, the BIA has many
competing priorities that provide necessary funding for many
important programs and services for Indian and Alaska Native
communities. We believe that this language inappropriately
singles out contract support as a high priority at the expense
of other high priorities that tribal communities have.
Beginning in 1994, Congress placed a legislative ceiling on
the amount the Department could use toward contract support
costs. The ceiling provision has continued to be included in
each annual Interior Appropriations Act. For fiscal year 2005,
the statutorily mandated ceiling that is being requested for
contract support is $133.3 million. Enactment of the ceiling is
important as it reflects the need to ensure that all Indian
Affairs-related programs have sufficient resources to carry out
their responsibilities and functions. We believe that there is
some ambiguity created between the ceiling provision contained
in congressional appropriations language and what is authorized
by section 3 of the bill.
We recognize that the full funding of contract support
costs remains a major issue for all parties involved in
contracting and compacting Federal programs and services under
the act. If S. 2172 is enacted, the Department will be forced
to reduce funding for equally important federal programs, some
of which may be for inherently Federal functions and for
programs and services directly to tribes, and for programs and
services included in contracts and compacts. The latter would
make the Department vulnerable to costly and time-consuming
litigation.
Section 2 impacts all Federal agencies including those who
are not testifying before the committee today. If enacted, this
provision would bind all Federal agencies to fully fund
indirect costs at each agency's negotiated indirect cost rate.
Implementation of this provision would most likely create some
budgetary pressures on other agencies and may discourage these
agencies from engaging in contracting and compacting with
Indian tribes in the future.
In addition, section two authorizes tribes to use indirect
cost funding for other uses not related to indirect
administrative costs. We are unclear as to the need for this
provision because it implies that full funding for all indirect
costs is unnecessary.
Finally, section 4 attempts to supersede any conflicting
provision of the law. The effects of this provision are unknown
as it appears to attempt to override all previous
appropriations and authorizing statutes and Federal regulations
governing tribal contracting and compacting of Federal services
and programs.
Mr. Chairman, funding for contract support remains a
serious issue for the Congress, the Administration, and Indian
tribes, and we would like to work with the committee and the
tribes in addressing these concerns in the future.
This concludes my statement. If you have any questions, I
would be glad to answer them.
[Prepared statement of Mr. Sinclair appears in appendix.]
The Chairman. We will. My question is, if this is not the
answer, what is, to improve contracting and compacting since
most tribes certainly agree with it and have done very well in
the attempts to manage their own affairs? Clearly, a bill
cannot become a law unless it is supported by the
Administration, so I would hope as we move along both of you
are willing to work with our staff and try and find something
that can be a vehicle for change that is going to benefit
tribes.
I have to tell you, this will be my last trip. As you know,
I am going home. But it has always been a concern of mine that
an awful lot of agencies in Washington, it seems to me, are
just scared to death of any kind of change that might benefit
tribes. They always give us this kind of doublespeak. They want
to do things to help Indian people, but when it comes right
down to supporting a bill that will help Indian people, somehow
they find a reason to oppose the damn bill. I have never quite
understood that.
If the Department of the Interior and the Indian Health
Service both are really, their mission under the legislation
that empowered them in the first place is to try to help
Indians, we are not doing a very good job of it. It is as
simple as that.
Although I will not be here to fight the battle and Senator
Inouye will not be on the committee either next year, in our
tenure, he as chairman and me also following his leadership as
chairman, that is something we faced right from the beginning,
that people continually here in Washington tell us how much
they want to help Indians, then when you propose a bill that
helps Indians, they finally want to dissect it in 17 different
ways and, what do you know, they have to come in an oppose the
darn bill.
So I would hope that you are willing to sit down with staff
and try to find some middle ground where we can in fact help
Indians help themselves more. I will submit some of my
questions in writing to you, if you would answer them when you
can.
Thank you.
We will now move to the next panel. That will be Ron Allen,
chairman of the Jamestown S'Klallam Tribal Council from
Washington; and Chadwick Smith, principal chief of the Cherokee
Nation in Tahlequah, OK.
Gentlemen, as with the first panel, your complete written
statement will be included in the record. I would appreciate it
if you would abbreviate some, and we will try to move forward.
You already heard how the Administration feels about this bill.
It is not my belief and I know it is not a lot of the tribes'
belief, but we will move along and hear you. Why don't you go
ahead and proceed.
Ron, nice to see you again here.
STATEMENT OF RON ALLEN, CHAIRMAN, JAMESTOWN S'KLALLAM TRIBAL
COUNCIL
Mr. Allen. Good to see you again, too, Mr. Chairman. It is
always an honor and a pleasure to be here before this committee
to testify on behalf of NCAI and my tribe, the Jamestown
S'Klallam Tribe up in Western Washington.
This issue is clearly an important issue to the tribes. We
could not agree with you more in terms of the commitment that
the Congress and the Administration should be making to the
tribes to help advance policies that have been 30 years old in
terms of helping the tribes become more self-determinant and
self-reliant. That is an agenda that has been clearly
articulated by this committee many, many times over the years.
We are quite frustrated with this issue. I chair the
Contract Support Task Force for NCAI and have helped champion
our collective political strategy effort to try to persuade the
Congress and the Administration to close this gap. We firmly
believe that the way that the Federal Government is dealing
with the tribes is a discriminatory policy. Nowhere else in
this Government that deals with contracting of any other
services or activities or functions with mainstream America in
any venue do they treat contractors like they do Indian tribes.
Without a doubt, it amazes us that as tribal governments,
and as Congress and Administration after Administration has
promoted that the tribes become self-reliant and do for
ourselves, take care of our own community, be able to manage
all of these affairs from public safety to natural resources
and so forth, and yet they do not completely fund the
contractual expenses. Our minds are boggled. Why?
We get GAO reports. We have conducted our own reports and
analyses of other institutions who also get Federal contract
support. And yet we still do not find any consistency on how
the Federal Government is dealing with this particular issue.
In the end, the bottomline is that tribes are having to
subsidize this activity to assure that as we are carrying out
these functions and that we are accountable showing we are
responsible, and that we are doing a good job. So the bills
come in and the Federal Government is not paying their share,
then who is? We have to do that. Otherwise, we get penalized
and get scrutinized for mismanaging Federal dollars in those
activities, as if we are the problem.
We are not the problem. We have many successes. Self-
governance and self-determination has been shown to be
unequivocally successful out there in our communities.
Unfortunately, the Federal Government is not doing its part. We
get a little frustrated how the Administration and the Congress
has played a bit of a shell game for us. We go to the
Administration and say, we want you to submit a budget where
you are going to fully fund 100 percent. They point the finger
at the Congress, and then Congress says, no, we do not want to
pay 100 percent. We go to Congress and say, what is going on?
Why can't we close this gap? There is only so much money.
Well, the Administration does not submit a budget to us
that closes the gap, so they apparently do not believe it is a
priority.
So we are going back and forth on this issue and not
finding any solution to it. NCAI and our tribes who have been
working on this issue unequivocally for a lot of years now
believe that this bill can help close the gap. It provides
clear instructions to the Administration, you need to submit a
budget to us that closes this gap and treats the tribes in
their governmental contracting relationship with the Federal
Government like all other contractors. You will submit a budget
and pay 100 percent. You will not cause the tribes of having to
go to court to try to get our remedy.
So here we are spending our own tribal money trying to get
the Federal Government to own up to its responsibilities, and
yet the Federal Government cannot seem to find a way to make
that happen.
So we believe this bill goes a long way and we would hope
that we can move it or some variation of it along to provide
that very clear unequivocal direction. We think that we are
doing a good job out there in our communities. We do not
believe the Federal Government can and ever will fully fund all
the needs of our community. We have documented to this
committee and others that there is a huge amount of unmet needs
in our communities. We do not ever believe that gap will be
closed, but at least with the existing functions and programs
that we are contracting out, at least with those you could pay
100 percent and that would be a fair relationship with the
tribes.
I will close. You have my testimony with some of the more
specifics about our suggestions with regard to this bill, and
this technical amendment bill. But the issue for us, Senator,
is how we are going to close this gap and stop this
discriminatory policy as it applies to the Indian tribes. It is
an atrocity. It is embarrassing and we are just really
frustrated that it still exists. We want a solution. Right now,
we are not finding anybody who is providing us a solution.
We appreciate your leadership and Senator Inouye's
leadership to say, look, enough is enough; let's solve this
problem and get on to other issues that are more important.
Thank you.
[Prepared statement of Mr. Allen appears in appendix.]
The Chairman. Thank you for that testimony.
Ron, I agree with you, tribes are not the problem.
Washington is the problem and some of us certainly recognize
that. You know as well as I do that discrimination against
Indian people is not exactly new around this place or in many
places in America.
Very frankly, I hope that Indian country really registers
their displeasure this November. Washington is the only game in
town for Indians anymore. You know that as well as I do. It
just seems to me what Indian people have got to do is get more
active in public policy, not less active, because very clearly
regardless of Administration, whether it is Republican or
Democrat, there are people and will continue to be people in
Washington who are more concerned about taking away what is
left in Indian country, rather than helping Indians be self-
sufficient. That is a sad commentary, I have to tell you.
Thank you for your testimony.
Mr. Smith, nice to see you here. Thanks for being here.
STATEMENT OF CHADWICK SMITH, PRINCIPAL CHIEF, CHEROKEE NATION
Mr. Smith. Good morning, Chairman Campbell. I personally
want to thank you for your service to Indian country. We value
that. You are very special to us. We are sad to see you go.
My name is Chad Smith and I am the principal chief of the
Cherokee Nation, a federally recognized Indian nation with over
244,000 citizens and 23 treaties with Great Britain and the
United States.
Before I talk about what I wanted to say, I found it very
interesting from Mr. Sinclair's position that apparently with
self-governance contracts there is are different definitions. A
self-governance contract has a different definition than other
kinds of contracts in the private sector and with other Federal
agencies, and an obligation does not have the same definition
in Indian country as it does in the rest of the contracting
world. We found that a bit peculiar. It seems like in Federal
contracting there is one uniform definition for contracting
obligation.
Let me say, I am a student of history in Federal Indian
policy. It appears that every 20 to 40 years a pendulum swings,
the pendulum of public sentiment and Federal policy. At one
extreme, this sentiment and policy is hostile to American
Indian tribes. At the other end of that swing, it allows tribes
to determine their own destiny. Each hostile Federal policy has
failed. There was extermination in the 1770's; removal in the
1830's and forced assimilation; and in the 1890's ethnocide;
and in the 1920's relocation; and termination in the 1950's.
The one policy that has been successful is self-
determination and self-governance. This is one that each of us,
Indian and non-Indian, hold precious in our own lives, where we
control and become responsible for our own futures.
The Cherokee Nation was one of the first tribes in the
United States to execute a self-determination contract with the
original 1975 Self-Determination Act. In 1990, we were also the
very first tribe to execute a self-governance agreement under
title III of the Act.
Of course, pursuant to the act, we carry out a wide realm
of services and sometimes folks ask what we do at the Cherokee
Nation. We tell them we do everything the United States does
except raise an army, from health care to social services to
education.
Unfortunately, the nation's progress has been severely
impeded by the Government's not funding the required support
costs as mandated by this act. Since the time of the first
self-governance compact in 1990, the Cherokee Nation has never
been fully funded with the contract support cost as mandated by
the Indian Self-Determination Act, which amounts to over $4.7
million a year for these fixed costs. We cannot create these
programs without the administrative tools provided by contract
support cost.
As a result of the gross underfunding of these contracts,
the nation has had to forego such substantial service to
thousands of the Indian people simply to cover the shortfall in
the government funding. This compounds an already deficit
funding level and required us to ration basic health care and
other services to our citizens. This has worked a great
hardship on our people, who must rely on these programs and
facilities for their basic health care, and that is why I am
here today.
I would like to share with you a brief story. It is a story
about a 42-year-old Cherokee man, a laborer, who has been
suffering chronic knee pain since 1995 and has been placed on
multiple medications to help reduce the pain and swelling, but
they have not been successful. His condition has continued to
deteriorate, as shown by his x-rays, which now shows bone-on-
bone. He needs a total knee replacement. This is not a service
we can provide in our outpatient clinics.
Referral was sent to a specialty care, but it was denied
due to lack of funding. This left this strong otherwise healthy
man unable to perform his job as a carpet layer. This man
quickly lost his job and his family was unable to pay its
bills. The family turned to our Human Services Department for
emergency help, which provided only limited relief. The family
was ultimately forced to move in with the wife's parents, which
added additional stress on his family. The husband became
severely depressed due to being unemployed and living in
constant pain.
A once-productive member of our community, this man now
cannot provide for his family, play with his kids, or have a
moment that he is not in pain. Rather than being able to earn a
living free of chronic pain and being a contributor in the
Cherokee community, this family must seek assistance from other
resources.
We see these cases every day and I am sure you hear about
them. This situation could have been prevented had we had the
resources to perform the knee replacement on this man, a simple
surgery, allowing him to work again. But knee replacements and
similar procedures must be deferred, many times indefinitely,
due to heart attacks, strokes, and other immediately life-
threatening conditions that demand higher priority for our
limited funds.
The Cherokee Nation has tried to resolve these issues. We
have been to the court. The Supreme Court is going to be
looking at this in the next coming months. We do not believe
this is the way to resolve these situations.
How can we be asked to satisfy the performance of these
contracts without full payment by the agencies? It is clear
that reforms are needed and we strongly support S. 2172 and we
applaud the committee for including the provisions, especially
in section three, that are key to strengthening the mandate to
fully pay contract support cost. This clause prevents us from
not knowing up front what the contract is going to be, how much
we will have to budget, how to manage those scarce resources.
Nobody in the private sector would imagine going into contract
open-ended, not knowing what the amount and scope of the
services would be, and expected to subsidize that contract with
their own funds or perform less than what the requirements
were.
It is often repeated in these hearings that the greatest
threat to the success of the Self-Determination Act is the
failure to fully fund contract support cost. On behalf of the
Cherokee Nation, I can tell you that the contract support
funding has indeed been one of our greatest problems that
impeded our progress.
Thank you, Mr. Chairman. We strongly support your bill, S.
2172. It really is not a mundane, simple issue. It undermines
the whole idea of the relationship between this government and
these tribal governments. We believe that a contract should be
a contract, an obligation should be an obligation, and these
support costs be fully provided for.
Again, thank you, Mr. Chairman.
[Prepared statement of Mr. Smith appears in appendix.]
The Chairman. Thank you for that testimony. I guess I am a
little old-fashioned, but I believe that a nation's word is
like a person's word. You give you word, you ought to keep it.
If a nation gives its word, it ought to keep it. You mentioned
the hostile policies of the past have failed. We all recognize
that. I have to tell you, from my own perspective we have too
many of our current policies that are also failing because
there are too many people still looking for end-ways around
implementing the policies. I think a lot of that, very frankly,
is driven by turf or emotion or money or something else, but we
are not doing the best we can for Indian people. That is for
sure.
Let me start with Ron, and maybe ask a couple of questions,
Ron. It seems to me that part of the reasoning for the Federal
agencies is so that the 638 contract tribes, that are bound by
congressional appropriations, can kind of stand in the shoes of
the Federal Government. I know that contracting tribes can
access the GSA, for instance, their purchasing schedules. If a
tribe purchases a computer, as an example, a computer system,
and 638 contract funds are exhausted, who is responsible for
that expense? The Federal Government or the tribes?
Mr. Allen. In our opinion, it is the Federal Government who
is responsible.
The Chairman. In your experience, what difference is there
between a private government contractor and an Indian tribal
government contractor?
Mr. Allen. There is no difference, Senator. There
absolutely is no difference.
The Chairman. So they ought to be treated alike? Is that
your position, too?
Mr. Allen. Exactly.
The Chairman. As it is mine.
Mr. Allen. We also believe that this issue is not just with
the BIA and IHS. It is with the Federal Government. This policy
should be consistent with regard to any contract that deprives
a securer from any agency or department in the Federal
Government.
The Chairman. Interior and Indian Health Service, excuse
me, the HHS claim that fulfilling the contract support cost
agreements they made will mean that they have to cut funding
for direct service tribes. Do you agree with that?
Mr. Allen. To fully fund it?
The Chairman. They will have to cut funding for direct
service tribes.
Mr. Allen. Yes; if they were to redirect moneys that they
have available to fully fund contract support, that means that
some programs, some activities somewhere will be diminished.
The Chairman. And what would be ways to make sure that
those tribes are not impacted?
Mr. Allen. We believe that legislation should make it very
clear that contract support should be fully funded for all
activities, and that on top of the program activities that are
provided to the tribes, that those moneys should be made
available.
We believe that the Congress really does need to make sure
that it needs to increase the budget that it makes available
for Interior, for Indian Affairs, or IHS; that as they identify
those activities, the contract support just accompanies it. It
should not diminish programs. The point I did not make earlier
is that the way the policy is administered right now, it means
that we have to diminish programs. For us to administer these
contracts appropriately and responsively, to do that and cover
those costs, that means that they come from the programs. The
programs have to be diminished to balance out that
administrative responsibility.
The Chairman. Maybe I have it wrong, because finance is not
my strong suit. But it just seems to me that contracting, when
the Federal Government gives direct funding through contracting
to the tribe, it is a more efficient use of taxpayer money.
Because if we filter it through all the process and then down
to the tribe, there is always some peeled off through salaries
and all kinds of things, travel, you name it.
So if we appropriate a dollar and we contract with the
tribe and give them that dollar, I know where that is going. I
know what is happening to it. But if we put it through the
system, I often wonder how much of that dollar to the tribe
actually gets to deal with the problems they are facing.
I sometimes think that is why we get opposition, regardless
of whose Administration it is, is that they do not want to
diminish what they consider is part of their turf. But from a
dollar and cents standpoint, when we talk about whether
contracting would save or cost more, I think it is in the best
interests of the taxpayer at large to direct contracting to
Indian tribes as we do with other entities.
Mr. Allen. We could not agree more. When we advanced self-
governance throughout the 1990's and said that we can manage
these programs and functions much better than the Federal
Government, the deal was that the tribes should be able to
negotiate from the Federal Government every function and
activity, every function, all the way to the Secretary's
office, so that we could take over everything we wanted to take
over.
In principle, it started that way. But slowly but surely,
they are digging in their heels and they are retracting from
it. So that is becoming more and more challenging. Our success,
both through self-governance and title I contracting, has shown
that the tribes are more efficient. I can tell you, if we said
no, we are sick and tired of not being fully funded, and
returned all the programs and activities, the Federal
Government would have one difficult time taking over those
programs. It would be a greater diminishment of those services.
The Chairman. Yes.
Mr. Smith. Senator Campbell, if I may?
The Chairman. Yes.
Mr. Smith. It is not only efficiency. It is also
effectiveness, with the flexibility of the self-governance
policy, it allows us to be responsive to our local needs. It
helps us put a priority on the most critical needs. It allows
us to do strategic planning for decades to come. So it is not
only efficient, it is effective.
The Chairman. Yes.
Chief Smith, in your case, in your testimony you noted that
the Cherokee Nation had to forego substantial services because
of the CSC shortfalls. What were some of the services that you
had to forego?
Mr. Smith. Health care, Indian child welfare, law
enforcement, anything that is under our self-governance
policies through the Bureau of Indian Affairs or IHS.
The Chairman. You also noted in your testimony that the
Cherokee Nation took over operation of the health programs in
the early to mid-1990's. During that time, you did not receive
any contract support funding for those programs? Is that true?
Mr. Smith. For that period of time, yes, sir.
The Chairman. Why would the Cherokee Nation take over those
programs if you were not going to receive the contract support
funding? And knowing that history, do you have plans to take
over more programs or not?
Mr. Smith. Anytime we look at a program, as how we can best
can provide a service; not whose turf we are on, ours or yours
or the IHS; we have taken over those programs because we
believe, and we have been able to demonstrate, that we have
done a better job, more responsive, more effective, more
efficient, created partnerships with local county governments,
State governments, Federal agencies. We have a vested interest
in making it successful.
The Chairman. I thank you for appearing and supporting this
bill. I know Senator Inouye will be also grateful for that.
With only 70 days left of this session, and so many things
backlogged, very frankly I do not know if we are going to be
able to make much progress or not, but I would hope so. Whoever
comes in to take our seats, at the next term Senator McCain
will be the chairman. As you know, Ron, he can be a real tiger
when he wants to and hopefully he will pursue this. If we
cannot get it through, he will.
When I am back in the private sector, I certainly will try
to make it a priority of mine to make sure the Indian voice is
still heard here.
Thank you for appearing today. I appreciate it.
Mr. Smith. Thank you, sir.
Mr. Allen. I would say, Mr. Chairman, Indian country is
going to be very active in the upcoming elections. We are going
to make it real clear where our priorities are and what we are
going to be seeking from presidential candidates to congressmen
with regard to where do you stand with regard to your
relationship with Indians and the Federal Government's
obligations to Indians. We will be out there. Our voters will
be out there.
The Chairman. Good. Glad to hear that.
The third panel will be Herbert Fenster, Esquire, McKenna,
Long and Aldridge of Denver; and Lloyd Miller, Sonosky,
Chambers from Anchorage, AK. Go ahead. Sit down there.
Nice to have you both here.
Why don't we go ahead and start with Mr. Miller.
STATEMENT OF LLOYD MILLER, SONOSKY, CHAMBERS, SACHSE, MILLER
AND MUNSON, ANCHORAGE, AK
Mr. Miller. Thank you, Mr. Chairman. It is an honor to be
here this morning.
The Chairman. You can also abbreviate and we will put your
full testimony in the record.
Mr. Miller. Absolutely.
As this committee is all too aware from its frequent return
to the Indian Self-Determination Act, no single issue has
plagued the success of the Indian self-determination policy
more than underfunding contract support costs. For tribes that
are running hospitals and clinics and law enforcement programs,
no other deficiency in the Federal system plagues the
successful implementation of those contracts as much as the
underfunding of contract support costs.
This committee said it in 1988. The single most serious
problem with implementation of the Indian self-determination
policy is the underfunding of contract support costs. The
committee enacted amendments to remedy that policy; that was
the primary purpose of the 1988 amendments.
The problem, however, is, as you have heard today, embedded
in the act itself. On the one hand, in 1988 Congress amended
the act to mandate that the Secretary, upon the approval of a
self-determination, shall add to the contract the full amount
of funds to which the contractor is entitled, including, quote,
``contract support costs.'' Congress even provided a remedy in
court under the Contract Disputes Act for damages if there was
insufficient payment. But Congress also provided in the act
that the agency's payment of contract amounts is subject to the
availability of appropriations, and appropriations have indeed
been capped for the BIA since 1994 and for IHS since 1999.
This has created an untenable position, where Congress
directs the agencies to award contracts for specific sums that
Congress mandates be paid in full, but at the same time a later
Congress, acting at the agencies' instigation due to
insufficient Administration requests, also limits the legal
availability of the appropriations to pay the full amount.
Contractors are caught in the middle, fully performing
their contracts to operate Federal programs, but with the
agencies now regularly requesting insufficient appropriations
to pay the very contracts it has signed. At the very time it is
signing the contracts, it is requesting insufficient funds to
pay the contracts.
Indeed, as currently implemented, the contractors are now
regularly kept in the dark about exactly how much they will be
paid in the contract year until the year is almost over and
performance is nearly complete.
I am here a little bit to talk about litigation.
Litigation, as an alternative mechanism, has not proven to be
efficacious, to say the least. On the one hand, it is true that
judgments have been awarded against the BIA largely for pre-
1994 contract claims totaling some $115 million in damages. But
other cases have dragged on for years and years. Most recently,
we now have the two Cherokee cases, one involving the Cherokee
Nation, the other the Cherokee Nation and the Shoshone-Paiute
Tribes, and the 10th Circuit and the Federal Circuit Court of
Appeals have reached different conclusions. The Supreme Court
will resolve the differences in the views of the law reached by
those two courts. This teaches us that litigation is not an
efficient means of remedying the shortfall in these contracts.
Worse yet, both for contractors and for the achievement of
Congress' goals, in the one case where the agencies'
appropriations were actually capped by an appropriations Act,
the court ruled that the tribes' contract amount, not just the
agencies' ability to pay it, but the contract amount itself,
was limited to the insufficient appropriations, even though the
appropriations came in bulk and there was no way for the tribe
to know how much it had in its contract.
Against this backdrop, S. 2172 is a welcome development and
a necessary change. The measure will overcome the agencies'
excessive reliance on the clause and conform the act to other
government contracting regimes where an insufficient agency
appropriation never stands in the way of the fulfillment of a
government promise in a contract.
At the conclusion of my written testimony, I quoted at some
length Senator Inouye's remarks in connection with the 1988
amendments. Those remarks reflected the committee's goal at the
time once and for all to place tribal contractors on the same
footing as other government contractors. Time has shown that to
achieve that goal still requires the kind of reform proposed by
S. 2172. In this way, prompt payment of the contracts will no
longer be dependent on the politics of the budget process,
competing demands within the agencies, or the fortitude of
tribal contractors like the Cherokee Nation to take on the
United States of America in litigation.
Thank you, Mr. Chairman, for the opportunity to testify.
[Prepared statement of Mr. Miller appears in appendix.]
The Chairman. Thank you, Mr. Miller. Thank you very much.
Mr. Fenster.
STATEMENT OF HERBERT FENSTER, ESQUIRE, McKENNA, LONG AND
ALDRIDGE, LLP, DENVER, CO
Mr. Fenster. Yes, Senator; Mr. Chairman, I appreciate the
opportunity to appear and speak before the committee. I want to
state right away that I have no expertise in Indian law. I
appear as an expert in government contract law in which I have
had experience over more than four decades. That expertise
includes Federal funding and cost allowability.
I think the best I can do in an oral statement to
supplement my written statement is to point out some analogies
between Indian contracting as it is seen here, and government
contracting elsewhere. For example, the Department of Defense
would never appear before a congressional committee and even
suggest that its contractors bear some of their overhead costs.
That is unthinkable. No defense contractor would agree to bear
a substantial portion of its overhead costs. Government
contracting under the Federal acquisition regulations actually
prohibits a contractor from doing so.
Similarly in civilian contracting, GSA would never go to
IBM and suggest to IBM that they provide computers partially at
their own cost by bearing their indirect expenses of
manufacturing of those computers. That is unthinkable.
Again, as my written testimony points out, it is not only
illegal, it is unconstitutional. It is unconstitutional for the
executive branch to go out and augment appropriations made by
Congress by forcing its contractors to bear some of those
expenses.
A better example yet is Iraq today. Today in Iraq, the
Department of Defense and the Department of State are
contracting out infrastructure support services.
Infrastructure, health care services, schooling services are
being contracted out to private enterprise. Why? Because it is
far more effective to do it that way and government cannot
provide those services in the first place.
However, no suggestion is ever made that the contractors
over there in Iraq are going to bear some part of the cost, for
example, the indirect costs of providing those services. I want
to tell you, Mr. Chairman, that the indirect costs of providing
those services are enormous, often amounting to two or three
times the direct costs. Yet those contractors are being fully
compensated and are earning a profit on that work, as you can
see from a lot of the very disparaging statements that are made
about them in the news media.
Unless the Chairman has questions?
[Prepared statement of Mr. Fenster appears in appendix.]
The Chairman. Yes; several. You mentioned, I believe, it is
unconstitutional to make contractors bear the over costs. Why
isn't it unconstitutional to do that when they are forcing
Indians to bear the over costs? I am not a constitutional
authority.
Mr. Fenster. In that area, Mr. Chairman, I am an authority.
It is unconstitutional because article I, section 9, clause 7
of the Constitution recites that no funds shall be drawn from
the Treasury other than by an appropriation. The General
Accounting Office [GAO] long ago held that to require a
contractor to pay for part of the costs of contracting for
government services is to augment the appropriation, in other
words to go around the congressional opportunity to provide the
funds.
The Chairman. If you cannot have the remedy through
legislation like this bill I think is part of the remedy, what
option do the tribes have? Do they just have to go to court and
sue the Federal Government?
Mr. Fenster. This may not be a popular answer, even among
the tribes, but the tribes' option is to turn the services back
to the Government to be performed. The Government is suggesting
in its testimony today that if that happened, the inference is
that it would cost less. That is not true. We know from many
experiences, including my written testimony reference to the
FAIR Act, that it is far more cost-effective to contract out
those services. So the Government would achieve no good result
by receiving the services back to be performed.
The Chairman. You made reference to what we are doing in
Iraq, and I support our efforts in Iraq as just one Senator,
but I recognize the costs, too. It is amazing that there is so
little accountability in some of these cost overruns in Iraq,
and yet every dime that potentially goes to American Indians we
have everybody and their brother around this place looking over
their shoulders to see how it is being spent.
Mr. Fenster. Mr. Chairman, I think you raise a good point,
and that is accountability. There is no suggestion in any of
the testimony today that these indirect costs are unreasonable.
As a matter of fact, the inference is that they are very
reasonable. They are providing the services more cost-
effectively than the Government could do itself.
Similarly, in Iraq just by analogy, those contracts are all
audited. They are audited by the Defense Contract Audit Agency,
by GAO. Although there are a lot of disparaging remarks being
made, there is no suggestion based on any hard facts that those
services are being provided in Iraq for some outrageous sum.
That is not the case.
The Chairman. That is right.
Let me, before I ask some questions, Senator Murkowski has
joined us. Did you have an opening statement, Senator? Or did
you just want to listen and ask some questions yourself?
Senator Murkowski. Mr. Chairman, thank you. I do not have
an opening statement. I do have just one quick question of Mr.
Miller, and that is it.
The Chairman. Why don't you go ahead, then I will ask
several of mine.
Senator Murkowski. Just very, very briefly, and I apologize
that I was not here for the previous testimony. Mr. Miller, if
you could just give me a quick summary, I guess, of the effect
that the shortfall on the contract support cost has had on the
tribal programs in Alaska.
Mr. Miller. Thank you very much, Senator Murkowski.
The effect of the contract support cost shortfall in Alaska
is devastating. We are talking about a State where we
experience third-world conditions, as the Senator knows, in
many of the villages where there is not enough safe drinking
water even to assure against communicable diseases. The
contract support cost shortfall in Alaska is the largest among
all of the regions of the country in terms of total contract
support shortfalls, which today are projected at $111 million.
The Alaska Native Tribal Health Consortium alone is short
$11 million in its hospital operations in Anchorage. That
number is duplicated for the Southeast Alaska Regional Health
Corporation, the Yukon-Kuskokwim Health Corporation, the
Bristol Bay Area Health Corporation. Virtually all of the
corporations and tribal programs operating health care in
Alaska with contracts with the Indian Health Service are
severely underfunded.
It absolutely compromises their ability. The reason I say
that is because contract support costs, being audited, they are
audited, they have to be audited by a certified public
accountant and the audit has to be furnished to the government.
Those audited costs are fixed costs. They are the costs of
insurance. They are the costs of the audit itself. They are the
costs of the financial management system the tribe has to have.
The tribe, when it fails to receive the full amount from
the agency, cannot go without incurring the costs. They have to
pay that bill. We heard this in the Cherokee Nation's
testimony. Since the costs are fixed and the tribe has to pay
it, there is no choice. It has to come out of the program.
There is simply no choice. So we have a dollar-for-dollar
reduction in programs.
Senator Murkowski. So when you say that it has to come out
of the program, then, what specifically are we seeing, for
instance, when you spoke to the effect on the Tribal Health
Consortium? If it is coming out of the program, where are we
seeing it?
Mr. Miller. They have reduced their ability to purchase
contract health care services. They have reduced the services
they can provide at the hospital itself. They have reduced
their physician contracts that they would otherwise enter into.
It can affect the entire salary scheme of a tribal organization
such that they cannot attract the same caliber of people to
work at the institution.
If the Senator would like, I can certainly provide a
profile for several of the corporations showing where the
reductions are felt and how that translates into services, if
that would assist the committee.
Senator Murkowski. Thank you. I appreciate that, Mr.
Chairman.
Mr. Miller. You are very welcome.
The Chairman. Thank you.
Thanks to both of you for your testimony. You heard Ron
Allen mention how frustrated he is. I think he voiced the
opinion of an awful lot of Indian people. You, Mr. Fenster,
said you do not have expertise in certain areas. After being
here the number of years that I have been here, I am convinced
we do not need so many people with expertise. We need more
people with a good heart who have a real commitment to
fairness. That is what we do not have. We have too many people
that get frankly totally embroiled in the legalese when they
ought be reading the good book more than the law books, it
seems to me, when we are trying to do what is right for people.
In any event, let me ask both of you, or at least Mr.
Miller, a couple of questions. As a result of the CSC
shortfalls, Indian tribes may not find it feasible to take over
certain programs or services and forego the contracting. Do you
consider that an acceptable response to the shortfall program,
just turning it back?
Mr. Miller. It is not an acceptable response, but it is a
predictable response.
The Chairman. Maybe the only one.
Mr. Miller. It is the only response. In fact, today new
contracting has stopped dead in its tracks. There is virtually
no tribe in the country that will take on the operation of a
new program with IHS or any significant program with the BIA.
Maybe that is the way the agencies want it, but that is
certainly what they have achieved.
The Chairman. I am inclined to think so.
Mr. Miller. I want to emphasize that it is the agencies
that have achieved it. We heard this morning Mr. Sinclair
testify that the BIA budget request for 2005 is $133 million.
The problem is that it is $50 million short. That is not
something to be proud about.
The Chairman. No; I have to plead a little bit guilty
myself on that because I am on the Appropriations Committee.
But if I am not mistaken, out of this 15-person committee, I
think there are three, Senator Inouye and I do not know who
else, Senator Johnson and myself that are all on
Appropriations, but I think I am maybe the only one on Interior
Appropriations, but maybe there are just one or two of us on
Interior Appropriations. Of course, most Indian money goes
through there.
When you think of 100 Senators and then 435 on the other
side, the numbers do not favor us very well when we try to add
money. Even people from both sides of the aisle that try and do
that, we are numerically such a small number that we just
cannot get everything we want. But we fight the good battle
every year, as you know. I know we do not come up with either
the expectations or what is needed to resolve some of the
problems in Indian country.
Mr. Miller. This is why I think the reform reflected in the
bill is so important. We cannot count, and it does not matter
the Administration, Democratic or Republican, we cannot count
on the agencies or OMB to submit to the Congress a funding
request that will include full funding for these contracts,
although they will always fully fund the Defense Department and
GSA contracts. We cannot.
In that environment, it has nothing to do with partisan
politics; only Congress has the answer. Only Congress can turn
their hands by enacting legislation that makes it clear that in
the absence of full appropriations, they will be sued and
successfully. By golly, under that kind of pressure, the
agencies and OMB will make a proper request that can be
considered by the Congress.
The Chairman. Congress itself is an animal that responds to
pressure, too, as you probably know. I think the unfortunate
reality is that Indian country is still very small as a voting
group. That is the pressure they have to bring to bear sooner
or later, like everybody else in the country has already
learned.
Back in 1999, the GAO noted significant inconsistencies in
applying its CSC policies at both the Bureau and the IHS. As I
understand it, the IHS revised its CSC policies in 2001, but it
is notably different from the BIA. Has that revision helped the
tribal contractors or not? What problems still remain? Are you
familiar with that, Mr. Miller?
Mr. Miller. Very much so, Mr. Chairman.
The Indian Health Service policy is designed to deal with
an underfunding situation. The Indian Health Service has
devised a variety of means of allocating the misery among the
contractors who are not being fully paid.
Having said that, the Indian Health Service is doing a
reasonable job in allocating an insufficient amount. The
problem, of course, is the insufficient amount, but putting
that aside. The Bureau of Indian Affairs has devised an
entirely different means, and the means employed by the Bureau
of Indian Affairs is such that tribal contractors never know
until the end of the year how much money they are going to have
to carry out the contract they have just completed performing.
That makes no sense.
So the BIA has been urged by tribes to develop a policy
that would closely mirror, if not replicate, the Indian Health
Service policy. The Assistant Secretary for Indian Affairs now
has under review a draft policy developed by a joint BIA-tribal
work group. We just met yesterday afternoon to go over that
policy. We have agreed to meet again in two weeks. So we are
hopeful that the BIA will improve its system so that at least
there is predictability in the current situation of
underfunding until a bill like S. 2172 becomes law.
The Chairman. I have always been one that believes that
negotiating is better than litigating if you can avoid it. I
know sometimes there is no other option. You heard me ask the
previous panel, what recourse is there? Should they just sue
the government or what, to try to resolve this impasse? Could
you tell me what options you think are open to the tribal
contractor? They have negotiated with the U.S. to carry out a
program for services and then found out that the CSC component
of the negotiations turned out not to be mandatory, but
discretionary by the Government. What options do they have if
we cannot fix it through a bill that we have before us?
Mr. Miller. I think we cannot fix it with a bill like this.
If the appropriations continue heading in the direction they
have been heading--which is not only flat, but compounding the
flat appropriations, rescissions that have actually reduced the
amount of contract support cost in the last 2 years--if we keep
heading in that direction, I think we are in jeopardy of seeing
wholesale retrocessions, the return of these contracted
programs to the Federal Government.
Then you will have the scenario, Mr. Chairman, you
described earlier, where instead of one dollar going to the
tribal community to serve the tribal community, it is one
dollar going to the BIA to serve the tribal community, out of
which we would be lucky if 20 cents actually got there. I think
that would be a terrible setback for the policy of Indian self-
determination and the Congress should not permit that to occur.
The Chairman. Yes; I have no further questions.
Senator Murkowski, did you have any further?
Senator Murkowski. I do not, Mr. Chairman.
The Chairman. I may submit some in writing, though, because
I certainly appreciate your testimony and I find it very
enlightening and certainly helpful to me.
Senator Murkowski. Thank you. I am fine.
The Chairman. You have none.
I thank all the witnesses that appeared today. With that,
the hearing is adjourned.
[Whereupon, at 10:55 a.m., the committee was adjourned, to
reconvene at the call of the Chair.]
=======================================================================
A P P E N D I X
----------
Additional Material Submitted for the Record
=======================================================================
Prepared Statement of W. Ron Allen, Chairman, Jamestown S'Klallam Tribe
Chairman Campbell, Vice Chairman Inouye, and members of the Senate
Committee on Indian Affairs, my name is W. Ron Allen and I am chairman
of the Jamestown S'Klallam Tribe in Washington State. I also serve as
Treasurer for the National Congress of American Indians and Chair of
the NCAI National Policy Work Group. on Contract Support Costs. It is
an honor to present testimony in support of S. 2172, a bill to make
technical amendments to the contract support cost provisions of the
Indian Self-Determination and Education Assistance Act.
NCAI is the oldest, largest, and most representative organization
of American Indian and Alaska Native tribal governments and was founded
in 1944 in response to Federal termination policies and hostile
legislation that proved devastating to Indian nations. To this day,
NCAI remains committed to the restoration and exercise of tribal
sovereignty and the continued viability of all tribal governments.
NCAI, representing over 250 member tribes, has been particularly active
in advancing solutions to the problems created by the chronic under
funding of contract support costs for those tribes and tribal
communities that administer Federal Government programs under the
Indian Self-Determination Act.
Introduction
For the last 30 years, the promotion of tribal autonomy and self-
governance has been the hallmark of this Nation's Federal Indian
policy, the cornerstone of which is the Indian Self-Determination and
Education Assistance Act of 1975. The act authorizes tribes to enter
into contracts or self-governance compacts to administer Federal
programs previously administered by the departments of Interior and
Health and Human Services for the benefit of tribal members. The well-
documented achievements of the self-determination policy for tribal
communities have consistently improved service delivery, increased
service levels, and strengthened tribal governments and tribal
institutions. Every Administration from Nixon to Bush has embraced this
policy and Congress has repeatedly affirmed it through extensive
strengthening amendments to the Self-Determination Act enacted in 1988
and 1994.
Long recognized by this committee, one of the greatest obstacles to
the full implementation of the policy has been the consistent failure
of the Bureau of Indian Affairs and Indian Health Service to fully fund
the contract support costs required to carryout Federal programs. A
1999 GAO study\1\ concluded with the finding that failing to fully
reimburse contract support costs effectively penalizes tribes for
exercising their self-determination rights, forces cuts to tribal
programs in order to cover the shortfall, and leads to partial
termination of the Federal Government's trust responsibility. As a
matter of Federal contracting principle, tribal contractors, like all
other government contractors, should be promptly paid in full-payments
not dependent on the politics of the budget process, the competing
agency demands in OMB, or the willingness of tribal contractors to
litigate.
---------------------------------------------------------------------------
\1\ GAO/RCED-99-150, Indian Self-Determination Act: Shortfalls in
Indian Contract Support Costs Need to be Addressed, June 1999
---------------------------------------------------------------------------
S. 2172 Contract Support Cost Technical Amendments
The NCAl Policy Workgroup on Contract Support Costs since its
inception has offered several key recommendations, some of which we are
pleased to find reflected in S. 2172 and which are supported by NCAL
The following summarizes our views.
1. Contract support costs must be fully funded.
The NCAI Policy Workgroup on Contract Support Costs issued this
position as its first and most important recommendation in its July
1999 final report, a recommendation also supported by the GAO June 1999
study. The shortfall in IHS contract support cost at year-end FY04 is
$93 million; using the estimated flat. FY05 appropriation, at year-end
FY05 the shortfall would be $111 million. For BIA, including the
estimated direct CSC required per Ramah, Oglala, Zuni v. Norton, the
shortfall in contract support costs for FY03 is $45 million; at year-
end FY04, the BIA shortfall will by $48 million; at year-end FY05, the
shortfall would be $50 million.
Contract support costs are a legal and contractual obligation of
the Federal Government. Under funding contract support treats tribes as
second-class contractors and is unacceptable. Indian tribes ask nothing
less than to be treated as other comparable government contractors.
Section 3 of the bill accomplishes this in two ways. First, the
bill eliminates ambiguous provisions in the law which have been seized
upon by the government as a justification for under funding contract
support costs. Second, section 3 exempts contract support costs from
the ``subject to availability of appropriations' provisions in the
Indian Self-Determination Act.
2. Congress should promote financial stability and efficiency in tribal
operations.
Section 2 addresses the fact that the indirect costs paid to tribes
are pooled with other Federal funds administered by a tribal
contractor, and are spent out of single account. This section of the
bill reinforces subsection 106(i) and (j) of the Indian Self-
Determination Act by assuring that tribal funds pooled within a tribe's
indirect cost pool may be spent under the same guidelines that apply to
self-determination funds. For instance, a tribal contractor can use
self-determination funds to purchase computer hardware without first
securing advance agency approval. Once the self-determination funds are
placed in a tribe's indirect cost pool, however, the Office of
Inspector General suggests that the pooled funds cannot be used for new
computer hardware because the pool also includes other Federal funds
besides Indian Self-Determination Act funds. Section 2 of S. 2172
clarifies that the self-determination rules regarding expenditure of
funds set forth in subsections (i) and (j) of the Act apply to the
tribal expenditure of all other pooled Federal indirect cost funds
administered by a tribe under any other Federal statute. NCAI applauds
this clarification that will put an end to a needlessly nonsensical
approach.
3. Federal agencies other than BIA and IHS must finally conform their
practices to the government-wide Federal indirect cost system.
The failure of other Federal agencies besides the BIA and IHS to
pay their appropriate share of indirect costs continues to place tribes
administering Federal programs in a deplorable bind. Many other
agencies refuse to adhere to the government-wide indirect cost rate set
by each tribe's Federal cognizant agency under OMB Circular A-87
(usually, the Department of the Interior's Office of Inspector
General).
Historically, the OMB indirect cost system has been the most
reliable and sound system for fairly determining each tribe's prudent
requirements for contract support. The NCAI Contract Support Workgroup
found that past efforts to replace the indirect cost system have failed
in not accounting for programmatic differences, sizes of tribes,
geographical locations, and other variations in tribes and contracts.
Under the OMB indirect cost system, requirements are fixed by the
tribe's Federal cognizant agency, the agency under which the tribe does
the most contracting. The accounting principles reflected in that
agreement should then be binding on all other Federal agencies. All
branches of the Federal Government must respect the indirect cost
requirements for the system to work for tribal governments. NCAI
supports the first provision in section 2 of S. 2172 that will remedy
this long standing accounting turmoil for tribes.
Conclusion
The National Congress of American Indians strongly supports S. 2172
as a means to affirming tribal autonomy, self-governance, as well as
tribal accountability. We commend the committee for its commitment to
Indian country, our self-determination and self-governance rights, and
to legislation that will promote tribes' ability to serve their members
for generations to come. NCAI and its member tribes firmly believe that
these proposed amendments are consistent with this Congress' and
Administration's agenda to enhance more independent and self-reliant
communities. Thank you for this opportunity to testify before your
committee and I welcome any questions you may have.
______
Prepared Statement of Charles Grim, D.D.S., M.H.S.A., Assistant Surgeon
General, Director, Indian Health Service
Mr. Chairman and members of the committee:
Good morning. I am Dr. Charles W. Grim, the director of the Indian
Health Service. Today, I am accompanied by Douglas Black, director of
the Office of Tribal Programs and Ronald Demaray, director, Self-
Determination Services. The Department of Health and Human Services
[Department] is pleased to have this opportunity to present testimony
on S. 2172, the ``Tribal Contract Support Cost Technical Amendments of
2004.'' The bill before us today, S. 2172 seeks to address some of the
more significant problems that Tribes and the Administration have
grappled with for several years--notably, the issue of contract support
costs [CSC] funding.
Our position is clear: We believe strongly that CSC funding enables
tribal governments and other tribal organizations contracting and
compacting under the Indian Self-Determination and Education Assistance
Act [ISDEAA or Act] to develop the administrative infrastructure
critical to their ability to successfully operate their health
programs.
As the principal authors of the Indian Self-Determination and
Education Assistance Act, this committee is well aware that a primary
goal of the ISDEAA is to maintain the ``. . . Federal Government's
unique and continuing relationship with, and responsibility to,
individual Indian Tribes and to the Indian people as a whole through
the establishment of a meaningful Indian self-determination policy
which will permit an orderly transition from the Federal domination of
programs for, and services to, Indians to effective and meaningful
participation by the Indian people in the planning, conduct, and
administration of those programs and services. In accordance with this
policy, the United States is committed to supporting and assisting
Indian Tribes in the development of strong and stable tribal
governments, capable of administering quality programs and developing
the economies of their respective communities.'' [Section 3(b),
ISDEAA]. One integral tool in carrying out that policy is the provision
of Tribal contract support costs. We believe the Department has
implemented this landmark legislation in a manner consistent with the
intent of the Congress when it passed this authority that reaffirms and
upholds the government-to-government relationship between federally
recognized Indian Tribes and the United States.
At present, the share of the IHS budget allocated to tribally
operated programs is in excess of 50 percent of total IHS program
funding. Approximately $1.5 billion annually is now being transferred
through self-determination agreements to tribes and tribal
organizations. Contract support cost funding represents approximately
19 percent\1\ of this amount, providing the average Tribe with
approximately 81 percent\2\ of its total negotiated CSC amount. The
assumption of programs by tribes has been accompanied by significant
downsizing at the IHS headquarters and Area Offices and the transfer of
these resources to tribes.
---------------------------------------------------------------------------
\1\ Funding awarded to tribes in fiscal year 2003 exceeded $1.5
billion while CSC funding provided was $269 million.
\2\ Total negotiated CSC estimates in fiscal year 2003 were in
excess of $350 million while funding appropriated for CSC was $269
million with an additional $16 million of tribal shares available for
CSC.
---------------------------------------------------------------------------
Contract support costs are defined under the ISDEAA as an amount
for the reasonable costs for those activities that must be carried out
by the tribal contractor to ensure compliance with the terms of the
contract and prudent management. They include costs that either the
Secretary never incurred in his direct operation of the program or are
normally provided by the Secretary in support of the program from
resources other than those under contract. It is important to
understand that, by definition, funding for CSC is not automatically
included in the program amounts contracted by Tribes. The ISDEAA
directs that funding for tribal CSC be added to the contracted program
to provide for administrative related functions necessary to support
the operation of the health program under contract or compact.
The Department has been an active participant with tribes in
furthering the Federal Government's administration of CSC by developing
a comprehensive CSC policy to implement the statutory provisions of the
ISDEAA. In fact, IHS and tribal representatives met earlier this month
to further refine that policy and to discuss current issues associated
with the funding of tribal CSC. Generally, tribes have been supportive
of the IHS and our efforts to implement the ISDEAA and to distribute
available CSC funding.
While we welcome the efforts of this committee to address these CSC
issues, the Department has serious concerns with this bill. The
amendments proposed in S. 2172 are not simply ``technical'' amendments.
These are proposed changes to current law with far-reaching
consequences for programs subject to the act and for all other Federal
programs that provide funding for Indian tribes. Because of the
legislation's potentially far-reaching implications for Federal
agencies not here today, we respectfully request that the committee
keep the hearing record open so that such agencies may submit written
statements about issues relating to the bill.
At this time, I will share our key concerns with S. 2172.
Let me begin by stating that from the perspective of the Department
and, I believe, that of the tribes, the single most significant aspect
of this legislation is section 3(a)-(e) (Amendments Clarifying Contract
Support Cost Entitlement). Provisions in titles I, IV, and V of the
ISDEAA currently provide that funding for contract support costs is
``subject to the availability of appropriations''. Section 3 strikes
this ``subject to. . . '' language and adds new language authorizing
appropriations for CSC. We assume from the section heading that the
intent of these amendments is to create an entitlement to full funding
of contract support costs. We do not believe the amendments succeed in
establishing an entitlement for this funding, though they could be read
as providing a priority for funding for contract support costs over
funding for other tribal programs. As a policy matter, we cannot
support the creation of a CSC entitlement, as it would address only one
component of health services to tribes and would benefit only those
tribes that choose to contract. We also believe the lack of clarity in
this provision would result in further debate and more litigation over
tribal CSC.
We believe that section 3, even if it were amended to clearly
accomplish its intent, would result in significant adverse budget
implications for IHS, tribes to whom IHS provides health services, and
other affected Federal programs. Contract support funding, like all IHS
funding, is categorized as domestic discretionary funding and is,
therefore, subject to annual appropriations.
This legislation would authorize the appropriation of full funding
of CSC but the level of CSC funding would appear to remain part of the
discretionary budget. We are concerned that additional dollars needed
to provide full CSC funding would have to come from existing or future
appropriated IHS funds and supersede other critical priorities for
budget increases for tribal health programs, including funding for the
provision of critical health care services and maintenance of the IHS
service delivery infrastructure.
We believe that the costs of the funding under section 3, relative
to the shifting of funding away from other critical healthcare
initiatives, would be prohibitive. For example, funding the total
negotiated CSC request in 2003 would have required an additional $65
million. When Congress authorized the ISDEAA, it wisely directed that
CSC funding, indeed the funding for all ISDEAA programs, is ``subject
to the availability of appropriations''. Striking that language from
the ISDEAA, as proposed in S. 2172 would create budgetary confusion and
place the provision of direct health care by both the tribes and the
IHS at great risk. For these reasons, the Department cannot support the
amendments made by section 3.
Section 2 of S. 2172 reaches beyond IHS within the Department of
Health and Human Services and beyond the Departments of Health and
Human Services and the Interior by proposing a new section 106A(a) to
the ISDEAA that refers to other Federal agencies' requirements to pay
indirect costs [IDC]. The intent of this section is to authorize Tribes
to recover the full funding of their indirect cost need, consistent
with their indirect cost rate agreement established with the cognizant
Federal agency. Again, we do not believe this amendment establishes
this authority. For those other Federal agencies, the intended
requirement to fully fund CSC for their programs would likely create
significant budgetary and programmatic limitations by diverting funds
to pay for administrative costs. For example, non-IHS programs within
the Department of Health and Human Services would be required to pay
tribes full CSC at a rate exceeding other non-tribal grantees, and
these increased expenditures would reduce the amounts available for key
programs such as the Head Start Program. The Department cannot support
the intent to establish these requirements under this proposed section.
We are also concerned about the potential conflict of proposed
section 106A(a)(2), which provides that additional amounts are not
authorized to be paid under this authority subject to the ``except as
otherwise provided by law. . . '' proviso in section 106A(a)(1), and
section 4(a) which provides that the provisions of this act supersede
any conflicting provision of law.
Section 106A(b) again reaches beyond IHS within the Department of
Health and Human Services and beyond the Departments of Health and
Human Services and the Interior by authorizing tribes to utilize funds
provided by other Federal agencies in accordance with section 106(j) of
the ISDEAA. We ask whether it was the Committee's intent to cite
section 106(k) as opposed to section 106(j). Section 106(j) pertains to
the authority of tribes to use funds provided under an ISDEAA award to
meet matching requirements under other Federal or non-Federal awards.
Section 106(k) authorizes tribes to use ISDEAA funding, without the
requirement of prior Secretarial approval, for any of the twelve [12]
specific costs listed. In any event, the committee may wish to consult
with the National Business Center in the Department of the Interior
concerning the necessity or appropriateness of this proposed new
section.
Section 4(a) provides that this legislation supersedes conflicting
law, which raises questions concerning its effect on annual
appropriation language and the ``[e]xcept as otherwise provided by
law'' proviso in section 2.
Section 4(b) provides an exception to section 4(a) to require that
the implementation of these amendments not be construed to alter the
ruling of the U.S. Court of Appeals for the Federal Circuit in the
Thompson v. Cherokee Nation case, notwithstanding conflicting opinions
in both the 9th and 10th U.S. Circuit Courts of Appeals. The committee
should be made aware that the Cherokee decision, in the U.S. Court of
Appeals for the Federal Circuit and a related Cherokee decision in the
10th Federal Circuit Courts of Appeals are under review by the U.S.
Supreme Court.
The IHS is committed to Indian self-determination and we believe
our record in promoting the intent and spirit of the ISDEAA speaks for
itself. We enthusiastically support tribes in their varied efforts to
assume programs under the ISDEAA. Our goal is to work together in
harmony rather than under the constant possibility of litigation.
This concludes our comments on S. 2172, the ``Tribal Contract
Support Cost Amendments of 2004.'' Thank you for this opportunity to
discuss contract support costs in the IRS. We would be happy to answer
any questions that you may have.
______
Prepared Statement of William Sinclair, Director, Office of Self-
Governance and Self-Determination, Department of the Interior
Good morning, Mr. Chairman and members of the committee. My name is
William Sinclair, and I am the director of the Office of Self-
Governance and Self-Determination at the Department of the Interior. I
am pleased to be here today to present the views of the Department of
the Interior on S. 2172, a bill to amend Public Law 93-638, the Indian
Self-Determination and Education Assistance Act of 1975 [the act].
Although the Department supports funding contract support costs to
assist federally recognized tribes in developing strong tribal
governing institutions and to enhance their capacity to administer
tribal programs, we cannot support this bill.
Over 90 percent of all federally recognized Indian tribes either
contract individual programs or compact Federal services pursuant to
the act. As you stated, Mr. Chairman, upon the introduction of the
bill, the Congress and the Executive branch have ``embraced and
expanded'' tribal compacting and contracting. The Act was amended in
1984, 1988, 1994, and again in 2000.
The original act required that the tribes receive the full amount
of Federal funds that the programs would have received had the
Secretary continued to operate them directly. This amount is often
called the ``secretarial amount.'' As the program developed, tribes
were concerned that they were not receiving amounts sufficient to cover
the full administrative costs of the programs. One of the reasons for
this deficiency apparently was that the ``secretarial amount'' required
to be paid by the original statute included only the funds that the
Secretary would have provided to operate the programs directly, and did
not include additional administrative costs that the tribes incurred in
their operation of the programs, which the Secretary would not have
directly incurred (for example, the cost of annual financial audits,
liability insurance, and other administrative requirements). These
additional administrative or other expenses related to the overhead
incurred in the operation of the programs are considered ``indirect
costs.''
Thus, Congress enacted the Indian Self-Determination Amendments of
1988 requiring that the Secretary provide funds to more accurately
reflect all administrative costs incurred by contracting and compacting
tribes. The amended statute provided, ``[t]here shall be added to the
[secretarial amount] contract support costs which shall consist of an
amount for the reasonable costs for activities which must be carried on
by a tribal organization as a contractor to ensure compliance with the
terms of the contract and prudent management.'' However, there are
exceptions to this obligation of the government to pay full contract
support costs. One of these exceptions states that the provision of
these funds is subject to the availability of appropriations. 25 U.S.C.
450j-l(b).
Another exception provides that ``the Secretary is not required to
reduce funding for programs, projects, or activities serving a tribe to
make funds available to another tribe or tribal organization.'' 25
U.S.C. 450j-l(b).
The issue raised in S. 2172 that is of most concern to the
Department is in section 3 of the bill. Section 3 attempts to make
contract support costs similar to an entitlement by eliminating all
references within the act that make payment of funds ``subject to the
availability of appropriations.'' It is also unclear if this section is
also attempting to make all contracted and compacted programs similar
to an entitlement by also removing ``subject to the availability of
appropriations'' from Section 105(c)(1) of the act. In essence, if
section 3 were enacted it would attempt to make all Federal programs
contracted or compacted, and all contract support costs associated with
administering these contracted and compacted programs non-
discretionary.
Implementation of this provision would make the Department
vulnerable to costly and time consuming litigation as we could not
fully fund all contracted and compacted programs, and their related
contract support costs without significantly affecting other equally
important Federal programs.
In addition, section 3 also amends the funding provision in section
408 of the act to read, ``In any case in which contract support costs
are not provided for, there are authorized to be appropriated such sums
as are necessary to pay those costs.'' As Congress has recognized, the
BIA has many competing priorities that provide necessary funding for
and delivery of important services for federally recognized Indian and
Alaska Native Communities. Beginning in 1994, Congress has placed a
legislative ceiling on the amount the Department could use toward
contract support costs. This ceiling provision has continued to be
included in each annual Interior Appropriations Act. In fact, for
fiscal year 2004 the statutorily mandated ceiling for contract support
costs is $135,315,000. Enactment of this ceiling is important as it
reflects the need to ensure that all Indian Affairs related programs
have sufficient resources to carry out their responsibilities and
functions.
We believe strongly that contract support cost funding enables
tribal governments to develop the administrative infrastructure
critical to their ability to successfully operate programs. However, if
S. 2172 is enacted the Department will be placed in the difficult
position of having to reduce funding for other equally important
Federal programs, most likely those that are either inherently Federal
functions or services directly offered to Indian tribes. The practical
reality is that services, such as those administered by the Office of
Federal Acknowledgement are inherently Federal and cannot be contracted
or compacted by federally recognized Indian tribes. The Department
would be forced to reallocate funding and resources away from non
fiduciary trust programs such as the Federal acknowledgment process to
fully fund indirect costs for contracting and compacting tribes.
Section 2 impacts all Federal agencies, including those who are not
testifying before the committee today. If enacted, this provision would
attempt to bind all Federal agencies to fully fund indirect contract
support costs at the level of each agency's negotiated indirect cost
rate agreement. Again, implementation of this provision would most
likely create significant budgetary pressures for other agencies, and
may discourage these agencies from engaging in contracting and
compacting with Indian tribes in the future.
In addition, section 2 authorizes tribes to use indirect cost
funding for other uses, not related to those of indirect administrative
costs. We are unclear as to the need for this provision. Section 2
implies that full funding for all indirect costs is not needed, and
that this funding is for other purposes not related to the indirect
administrative cost of a specific contract or compact. Also, the
Department agrees with the Indian Health Service and seeks
clarification as to whether section 106(k) should have been referenced
in this section.
Section 4 attempts to supersede any conflicting provision of law.
The effects of this provision are unknown as it appears to attempt to
override all previous appropriations and authorizing statutes and
Federal regulations governing tribal contracting and compacting of
Federal services and programs. Finally, S. 2172 attempts to prematurely
circumvent a case that is currently pending before the Supreme Court,
Thompson v. Cherokee Nation, 334 F.3d. 1075 (July 3, 2003). The Court
has also granted certioraris on March 22, 2004, to hear another case on
this issue from the 10th Circuit, Cherokee Nation of Oklahoma and
Shoshone-Paiute Tribes of the Duck Valley Reservation v. Thompson, et
al, 311 F.3d 1054 (10th Cir. 2002). The Court will soon hear oral
arguments on these cases and deliberate on the important contract
support cost issues raised in them.
Mr. Chairman, funding for indirect contract support costs remains a
serious issue for Congress, the Administration and Indian tribes. We
would like to continue to work with the committee and the tribes in
addressing the concerns associated with contract support costs.
This concludes my statement. I will be happy to answer any
questions you may have.
______
Prepared Statement of Chad Smith, Principal Chief, Cherokee Nation
Good morning Mr. Chairman. My name is Chad Smith and I am the
principal chief of the Cherokee Nation, a federally recognized Indian
tribe of over 244,000 citizens, nearly one-half of whom live within the
7,000 square mile Cherokee tribal jurisdictional service area in
Northeastern Oklahoma. The Cherokee Nation has approximately 1,800
tribal employees (making it one of the largest employers in Northeast
Oklahoma), nearly 45 percent of whom work in the Nation's health
services department.
The Cherokee Nation was one of the first tribes in the United
States to execute a self-determination contract under the original 1975
Indian Self-Determination Act and in 1990 was also the very first tribe
to execute a self-governance agreement under title III of that act.
Since 1994 all of our self-determination programs have been
administered under Self-Governance compacts with the Department of the
Interior and the Department of Health and Human Services.
Pursuant to our compact with the Department of the Interior, we
carryout a wide array of Federal Government programs serving Indian
people, including credit and finance programs; agricultural, forestry
and real estate services; tribal courts; social services, Indian child
welfare and housing improvement programs; a general assistance program;
Johnson O'Malley education programs; law enforcement services; the
``TEA-21'' and related roads construction, planning and maintenance
programs; Individual Indian Money services; higher education and adult
education services; and child abuse and early childhood wellness
programs.
Under our Self-Governance compact with the Department of Health and
Human Services, the Cherokee Nation operates six rural outpatient
clinics providing Indians with primary medical care, dental services,
optometry, radiology, mammography, behavioral health services, medical
laboratory services, pharmacy services, community nutrition programs,
and a public health nursing program. The Nation also operates inpatient
and outpatient ``contract health'' medical referral programs for
management of specialty care.
The Cherokee Nation has been able to make tremendous improvements
to these formerly Federal programs and services. The Self-Determination
Act has allowed the Nation to step forward, resume responsibility for
its own affairs and make these programs more responsive and accountable
to the Cherokee people. This was clearly the intent of the Indian Self-
Determination and Education Assistance Act. Unfortunately, the Nation's
progress has been severely impeded by the Government's failure to fund
required contract support costs as mandated by the Self-Determination
Act. This happened despite the Congress' efforts to prevent such
systematic underfunding of contract support costs by making several
strengthening amendments to the act in 1988 and 1994.
Since the time of our first Self-Governance compact with the
Department of the Interior in 1990, the Cherokee Nation has never been
fully funded with contract support costs as mandated by the Indian
Self-Determination Act. The BIA neglects to fund the Nation about a
quarter million dollars in indirect costs annually, and fails to pay us
any ``direct'' contract support costs at all, estimated at $300,000
annually. As for the Indian Health Service, in 1992 and 1994,
respectively, the Cherokee Nation began operating the Redbird Smith
Health Center in Sallisaw, OK, and the Wilma P. Mankiller Health Center
in Stilwell, OK. In 1995, Cherokee Nation began administering the W.W.
Hastings Indian Hospital's ``contract health'' medical referral
outpatient program, and in fiscal year 1997, the Cherokee Nation
assumed control of that facility's ``contract health'' medical referral
inpatient program. It may come as a shock to this committee that at no
time until September 1999 did the Cherokee Nation ever receive any
contract support funding for the operation of these four multi-million
dollar programs. Today, the Nation is funded at only 64 percent of its
requirement for contract support for our IHS programs, a shortage of
$4.2 million per year. In total, the Nation is not funded for $4.75
million for these fixed, contract support costs each year.
Because the Government has grossly underfunded these contracts, the
Nation has had to forego substantial services to thousands of Indian
people, simply to cover the shortfall in Government funding. This has
worked a great hardship on people who must rely on these programs and
facilities for their basic health care, and that is why I am here
today.
Eight years ago Cherokee Nation tried to informally resolve its
issues with the Indian Health Service. When those efforts failed, in
September 1996 we filed a formal claim under the Contract Disputes Act.
More than 1 year later the claim was denied in its entirety by the IHS,
covering three different annual funding agreements for 1994 through
1996. We then took an appeal to the Interior Board of Contract Appeals,
where we prevailed, and the case was upheld on appeal to the Federal
Circuit Court of Appeals.
In 1999, we brought a second claim in Federal court in tandem with
the Shoshone-Paiute Tribes of the Duck Valley Reservation, against the
IHS for underpayments in 1997. The tribes did not prevail in this suit,
nor did we prevail in our appeals to the 10th Circuit. Due to the
inconsistency with the Federal Circuit, these Cherokee cases have been
recently approved for review by the Supreme Court. Despite the Nation's
commitment of significant resources to these multi-million dollar
claims, these efforts have yet to produce any relief for the Nation.
We do not believe that litigation is an efficient way to resolve
funding problems. Although litigation may be our only option for
dealing with the past, the current situation is untenable and cries out
for attention from Congress.
The current system simply should not go on any longer. Neither the
BIA nor IHS pays full contract support costs even though all other
Government contractors receive their full administrative overhead when
they deal with the Federal Government. Although we make these
agreements and take over significant responsibilities from the Federal
Government, the Nation is consistently treated as a second-class
contractor--a situation we believe to be unacceptable. Neither agency
even requests full contract support funding from Congress, at times
because they haven't the will, and at other times because the
Department or the Office of Management and Budget stands in the way.
And, of course, there are other, competing demands on the
appropriations committees.
The contract support cost problem has caused severe financial
strains on the Cherokee Nation's programs and facilities, as it has for
many other tribes in the country. What it means in real terms is that
the Nation must reduce these critical health, education and other
programs to pay for these shortages. This compounds an already deficit
funding level, requiring us to ration basic health care and other
services to our citizens.
Given the conduct of the agencies and recent court decisions, it is
clear that reforms are needed. Congress intended that tribes would be
fully paid contract support costs if they agree to take over the
administration of these Federal programs. But that is not what has
happened, and the courts have been slow to respond, if at all. For this
reason, the Cherokee Nation strongly applauds the chairman for his
leadership in introducing S. 2172.
S. 2172 addresses the most severe problems in the current contract
support system in a thoughtful and carefully considered way, without
demolishing the entire foundation of the Indian Self-Determination Act.
This is a key point, because the basic contract support processes that
are in place today-for instance the processes for setting indirect
costs and direct costs-are functioning well. Indeed, even the General
Accounting Office has confirmed the integrity of the system. Rather, it
is the substantial impediments to executing that system that are the
focus of S. 2172.
The Cherokee Nation strongly supports the enactment of S. 2172, and
I would like to pause to comment briefly on a few of the bill's
provisions.
First, we strongly support a reform included in section 2 to
finally resolve the accounting quagmire created when the government-
wide indirect cost rate is not followed by all government agencies.
This accounting mess has led not only to an under-calculation in
indirect cost rates, but it has also severely strained the ability of
tribes to operate all their Federal programs across all agencies within
OMB's guidelines. For nearly 20 years tribes have called for reform in
this area, and finally, it appears that real reform is at hand.
We also applaud the committee for making clear in section 2 that
existing statutory flexibility in the expenditure of self-governance
funds, to best meet special or unique local needs, continues when self-
determination funds are pooled with other funds in each tribe's
``indirect cost pool.'' Obviously, funds in that pool lose their
individual identity, and we are alarmed that the Office of Inspector
General of the Department of the Interior has taken the position that
the flexibility expressed in the Indian Self-Determination Act suddenly
disappears once self-determination funds are pooled with other Federal
funds.
Most importantly, we strongly support the committee for its
inclusion of provisions in section 3 that are key to strengthening the
mandate to fully fund contract support costs. The removal of the
``availability'' clauses will reduce the argument that the Secretary
lacks the authority to fully fund contracts negotiated under the Act.
Courts have at times interpreted the ``availability'' clauses to negate
the mandate to fund contract support costs, an interpretation that
effectively downgrades our Government contracts, negotiated in good
faith, to something more akin to a discretionary grant. The reforms in
section 3 would help to remedy that problem.
4 It is often repeated in these hearings that the greatest threat
to the success of the Self-Determination Act is the failure to fully
fund contract support costs. On behalf of the Cherokee Nation I can
tell you that contract support funding has, indeed, been one of the
greatest problems that has impeded our progress. There is so much more
that we can do, and so much more that we must do, to meet the critical
health, education, economic and social needs of our citizens and all
other Indians eligible for our services. We are delighted to be able to
carryout the Federal Government's trust programs, delighted because
history shows that we have the capacity and vested interest to do a
much better job than Federal bureaucracies. But our ability to
administer these programs successfully and to maximize delivery of high
quality services to Indian people, depends on having adequate contract
support cost funding.
Thank you Mr. Chairman, for the opportunity to testify in support
of S. 2172.
[GRAPHIC] [TIFF OMITTED] T3458.001
[GRAPHIC] [TIFF OMITTED] T3458.002
[GRAPHIC] [TIFF OMITTED] T3458.003
[GRAPHIC] [TIFF OMITTED] T3458.004
[GRAPHIC] [TIFF OMITTED] T3458.005
[GRAPHIC] [TIFF OMITTED] T3458.006
[GRAPHIC] [TIFF OMITTED] T3458.007
[GRAPHIC] [TIFF OMITTED] T3458.008
[GRAPHIC] [TIFF OMITTED] T3458.009
[GRAPHIC] [TIFF OMITTED] T3458.010
[GRAPHIC] [TIFF OMITTED] T3458.011
[GRAPHIC] [TIFF OMITTED] T3458.012
[GRAPHIC] [TIFF OMITTED] T3458.013
[GRAPHIC] [TIFF OMITTED] T3458.014
[GRAPHIC] [TIFF OMITTED] T3458.015