[Senate Hearing 112-407]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-407

 
OPPORTUNITIES AND CHALLENGES FOR ECONOMIC DEVELOPMENT IN INDIAN COUNTRY

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                                   ON

            EXAMINING ECONOMIC DEVELOPMENT IN INDIAN COUNTRY

                               __________

                           NOVEMBER 10, 2011

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York         MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii              JIM DeMINT, South Carolina
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin                 PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia             MARK KIRK, Illinois
JEFF MERKLEY, Oregon                 JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado          ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina

                     Dwight Fettig, Staff Director

              William D. Duhnke, Republican Staff Director

                       Charles Yi, Chief Counsel

                 Adam Healy, Professional Staff Member

                 Andrew Olmem, Republican Chief Counsel

                   Michelle Adams, Republican Counsel

          Shannon Hines, Republican Professional Staff Member

                       Dawn Ratliff, Chief Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)




                            C O N T E N T S

                              ----------                              

                      THURSDAY, NOVEMBER 10, 2011

                                                                   Page

Opening statement of Chairman Johnson............................     1
    Prepared statement...........................................    26

Opening statements, comments, or prepared statements of:
    Senator Shelby...............................................     2
    Senator Tester...............................................     3
    Senator Merkley..............................................     4

                               WITNESSES

Mark A. Tilsen, President, Native American Natural Foods.........     5
    Prepared statement...........................................    26
Martin M. Olsson, President, Eagle Bank..........................     7
    Prepared statement...........................................    32
Tanya Fiddler, Executive Director, Four Bands Community Fund.....     8
    Prepared statement...........................................    37
Dante Desiderio, Executive Director, Native American Finance 
  Officers
  Association....................................................    10
    Prepared statement...........................................    47
Susan M. Woodrow, Community Development Advisor, Federal Reserve 
  Bank of Minneapolis............................................    12
    Prepared statement...........................................    50

              Additional Material Supplied for the Record

Statement submitted by the National Center for American Indian 
  Enterprise Development.........................................    57
Statement submitted by Kent Paul, Chief Executive Officer, 
  Amerind Risk Management Corporation............................    78
Statement submitted by Buford Rolin, Chairman, Poarch Band of 
  Creek
  Indians........................................................   100

                                 (iii)


OPPORTUNITIES AND CHALLENGES FOR ECONOMIC DEVELOPMENT IN INDIAN COUNTRY

                              ----------                              


                      THURSDAY, NOVEMBER 10, 2011

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:03 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Tim Johnson, Chairman of the 
Committee, presiding.

           OPENING STATEMENT OF CHAIRMAN TIM JOHNSON

    Chairman Johnson. Good morning. I would like to call this 
hearing to order.
    During my time in Congress, I have enjoyed a strong working 
relationship with American Indian tribes in South Dakota and 
around the country and have advocated for policies to help 
improve the quality of life for American Indians.
    While progress has been made, many Native communities 
continue to face significant challenges, including staggering 
unemployment rates, inadequate health care, crowded and unsafe 
housing conditions, high crime rates, and educational 
inequalities. This is unacceptable.
    Fostering small business growth is a vital step toward 
increasing employment opportunities and improving local 
economies throughout the country during these difficult 
economic times. Small business growth in Indian Country is no 
exception. Encouraging the startup and growth of Native 
American-owned businesses is an important priority to me as 
Chairman, and that is why I have called this important hearing 
and invited all of you to testify here today.
    For many years I have worked to ensure Native communities 
in South Dakota and across the country have adequate 
infrastructure in place to foster an environment where economic 
development can take place, from being an original cosponsor of 
the legislation that created the NAHASDA block grant for 
housing to helping fund the Mni Wiconi rural water system to 
supporting tribal bus transit programs.
    Today, the Committee will examine what challenges continue 
to hinder economic growth in Indian Country, including the lack 
of access to capital, small business lending, financial 
education, and support for startup businesses. With 
unemployment rates reaching an astonishing 80 percent in some 
areas of Indian Country, we must do better to address the 
problems that cause this persistent cycle of unemployment.
    While it is sometimes easy to become discouraged when 
considering all the obstacles that face Native communities, we 
will also hear about the great work so many are doing to help 
address these persistent problems.
    In South Dakota, and in other States, there are many small 
business owners, community development institutions, community 
banks and credit unions, and dedicated public servants working 
every day to improve the economic climate on tribal lands. Just 
this past August, I had the honor of visiting Eagle Butte on 
the Cheyenne River Indian Reservation in South Dakota where I 
was able to hear directly from small business owners about the 
challenges they face and the important assistance they received 
from the Four Bands Community Fund. The leaders of these small 
businesses--ranging from Lakota Archery to Bonnie's Quilting 
Boutique--really demonstrated for me the strength of the Native 
entrepreneurial spirit and how important CDFI programs are to 
small business growth in Indian Country.
    I am very pleased we are joined by such a great panel of 
witnesses here today, and I thank them for being here.
    I also want to acknowledge and thank Senator Akaka. We are 
all fortunate for his service on this Committee and as the 
Chairman of the Indian Affairs Committee. I am proud to serve 
on the Indian Affairs Committee under his leadership where we 
have considered many of these important issues.
    I will now turn to Ranking Member Shelby for his statement.

             STATEMENT OF SENATOR RICHARD C. SHELBY

    Senator Shelby. Thank you, Mr. Chairman. Thank you for 
calling this hearing.
    Economic development is a challenging endeavor even in 
prosperous times. In Indian Country, however, the problems are 
more acute and persistent and have been made worse by our 
current economic situation.
    The statistics reveal the severity of this problem. The 
average income of an Indian living on a reservation in 2009 was 
$8,000 compared with $14,000 for Indians living off 
reservations and $21,000 for the average U.S. citizen at that 
time. To compound the difficulties, the average poverty rate 
for Indians on reservations is 28 percent compared to 15 
percent for other Americans.
    Despite some well-known successful gaming operations and 
other business ventures pursued by tribes, a majority of those 
living in Indian Country are still struggling. The economic 
development successes experienced by some tribal governments 
have not delivered improved living standards to all who live on 
the reservations. Unemployment remains high and access to 
capital for business formation is virtually nonexistent.
    Much of the research and work that our panelists have 
focused on over the years highlights the inherent difficulty of 
doing business on reservations. Due to the unique relationship 
between American Indians and the U.S. Government, the Bureau of 
Indian Affairs is the trustee of Native lands. Such an 
arrangement requires that the Bureau approves each development 
effort a tribe seeks to undertake. Businesses seeking to locate 
on a reservation must navigate murky regulatory waters in 
dealing with both the tribal government and the Bureau of 
Indian Affairs.
    Additionally, each reservation is governed by a unique set 
of laws and courts. The patchwork of legal rules and 
regulations has discouraged business activity on reservations, 
especially by financial institutions. The problem is only made 
worse by what some have described as a casual approach to the 
rule of law. Banks lending on some reservations find that they 
have no recourse when someone defaults on a loan because their 
tribal courts are unwilling to enforce the contract. These 
legal and regulatory obstacles have long hampered economic 
development.
    I hope that we learn today what steps can be taken to 
alleviate these problems which have impeded economic 
development in Indian Country for far too long.
    Thank you, Mr. Chairman.
    Chairman Johnson. Thank you, Senator Shelby.
    Are there any other Members who wish to make a brief 
opening statement?
    Senator Tester. Mr. Chairman, if I might.
    Chairman Johnson. Senator Tester.

                STATEMENT OF SENATOR JON TESTER

    Senator Tester. Well, thank you, Mr. Chairman, thank you, 
Ranking Member Shelby, for calling this hearing together. I 
want to welcome the whole panel. To the two people from 
Montana, Martin Olsson and Sue Woodrow, thank you very much for 
being here today and for your testimony.
    I also want to thank you, Mark Tilsen. I believe you are 
probably responsible for these, and I do not know if Adam Healy 
was the one that got you to come or not, but I have not eaten 
these yet, and I have not heard your testimony, but you can 
come back anytime.
    [Laughter.]
    Senator Tester. I want to thank you all. Like many in this 
body, economic development and job creation are my top 
priority, and they are important in every American community, 
and Indian Country is no exception. Like many places, Indian 
Country has its haves and it has its have-nots. A handful of 
tribes located in more populated areas have become wealthy with 
casinos.
    On the positive side, they have used Federal incentives to 
do exactly what Congress intended, and that has allowed them to 
make up gaps in services left by inadequate Federal budgets.
    On the negative side, too many people think gaming tribes 
are the norm in Indian Country, and they are not. The rates of 
unemployment and poverty in the vast majority of Indian Country 
are dramatically higher than the rest of the Nation. In some 
communities, many in Montana, we see unemployment rates as high 
as 70 percent, and the lack of private investment is absolutely 
crippling in getting those numbers down.
    Unfortunately, the tough economic conditions in this 
country is--Indian Country has been living through it. 
Challenges stem from many sources: rural isolation, lack of 
institutional investment, poor health care, inadequate 
educational institutions, and in some cases tribes were just 
cheated out of their opportunities which resulted in what some 
experts have described as ``a cycle of poverty.'' Rather than 
each new generation building on the past, the vicious cycle 
repeats itself over and over again and prevents American 
Indians from achieving their full potential, and this cruel 
cycle affects almost every aspect of American Indian life.
    So tribal members have told me that they do not have much 
to lose, so there is not much hope, and hopelessness and 
despair affect kids and adults struggling against feelings of 
suicide and it causes public safety issues and a whole lot 
more.
    Where there are challenges there are opportunities, and 
Indian Country is full of opportunities. They hold great 
potential for traditional and renewable energy. They have a 
potential for agriculture, agricultural tourism, tourism, 
Government contracting, and small businesses. In many cases 
they need off-reservation private investment to capitalize on 
those opportunities, and it is not there. So we need to figure 
out ways we can make that happen.
    Tribes need to adopt a Uniform Commercial Code, predictable 
probate laws, and reliable lien filing systems that will give 
outside investors the confidence they need. They need also 
consistency in Government if they are going to be able to 
succeed in the world today and create jobs and move that 
unemployment rate down.
    I look forward to hearing from the witnesses today and 
talking to them about potential solutions to making inroads 
into investment in Indian Country.
    Thank you all for being here.
    Chairman Johnson. Senator Merkley.

               STATEMENT OF SENATOR JEFF MERKLEY

    Senator Merkley. Thank you, Mr. Chair.
    For the tribes in the Northwest and certainly in Oregon, 
economic development has long been tied to timber, fishing 
industry, and other natural resource areas, but only a few 
tribes still have a timber land base, and for them they are 
working on diversification, and for other groups that do not 
have that base, they are looking at any form of tribal business 
that can provide jobs and economic development in the 
community.
    One bright spot for our State has been the Oregon Native 
American Business and Entrepreneurial Network. The graduates of 
that program have established a number of small businesses in 
partnership with a fair number of banking partners from 
Seafirst Bank, Key Bank, U.S. and National Bank, but we do not 
have enough bright spots in the economy of our Native American 
communities, and I look forward to learning about the 
experiences that you are bringing here today.
    Thank you so much for coming to D.C. to address the 
Committee as we wrestle with this.
    Chairman Johnson. Thank you all.
    I would like to remind my colleagues that the record will 
be open for the next 7 days for opening statements and any 
other materials you would like to submit.
    Now I would like to briefly introduce the witnesses that 
are here with us today. I am proud that we have two witnesses 
from my home State of South Dakota here today. Our first 
witness is Mr. Mark Tilsen, the cofounder and president of 
Native American Natural Foods, located in Kyle, South Dakota, 
on the Pine Ridge Indian Reservation. Founded in 2006, Native 
American Natural Foods makes the popular Tanka Bar, a protein 
bar made of buffalo meat and cranberries. They also make other 
buffalo food products.
    Mark, thanks for being here today. I must say I have 
enjoyed a few Tanka Bars over the years.
    I am pleased that my good friend Senator Tester suggested 
Mr. Martin Olsson as a witness. Mr. Olsson is the president of 
Eagle Bank located on the Flathead Reservation in Montana. 
Eagle Bank was chartered by the Confederated Salish and 
Kootenai tribes and is one of only a handful of Native- owned 
or controlled banks in the country.
    I am delighted Ms. Tanya Fiddler, executive director of the 
Four Bands Community Fund, a Native CDFI on the Cheyenne River 
Indian Reservation in South Dakota, is here with us today. Four 
Bands was created in 2000 and has become the leading 
organization on the reservation in the areas of small business 
training and lending and financial education. Tanya, thank you 
for offering your insights.
    Mr. Dante Desiderio is executive director of the Native 
American Finance Officers Association. The association works to 
improve the quality of financial and business management of 
tribal governments and their business entities and supports the 
development of Native American financial professions.
    And Ms. Sue Woodrow, community development advisor at the 
Helena, Montana, branch of the Federal Reserve Bank of 
Minneapolis. Ms. Woodrow has worked at the Fed since 1990 where 
she has focused on community development with a focus on Indian 
Country legal issues.
    We welcome all of you here today and thank you all for your 
time, especially those of you who have traveled great 
distances.
    Mr. Tilsen, you may proceed.

STATEMENT OF MARK A. TILSEN, PRESIDENT, NATIVE AMERICAN NATURAL 
                             FOODS

    Mr. Tilsen. Thank you, Chairman Johnson, Senator Shelby, 
and Members of the Committee. I am impressed by your 
understanding of the challenges we face already just from your 
opening statements.
    Native American Natural Foods is located in Kyle in the 
middle of the Pine Ridge Indian Reservation. We are sort of a 
new approach to economic development, and I want to say that we 
grew out of the CDFI movement. You know, Kyle is the location 
of the Lakota Fund, which was the first reservation-based CDFI 
formed in 1985. When it was created in Kyle, there were two 
Native American businesses, and now there are literally 
hundreds of Native American businesses. We have a reservation-
based Chamber of Commerce with several hundred members that 
have all grown out of the CDFI movement.
    The CDFI movement provides the essential first rung for 
first-generation entrepreneurs both in terms of financial 
literacy, and in most of the large land-based tribes, it is the 
only commercial lender of any kind. And your support of the 
American Indian CDFI programs is essential and their growth is 
essential for the future of economic development.
    We are also excited here on Pine Ridge that we have a new 
tribal transportation program that this Committee supported, 
and it is new and growing and it is helping. It is becoming 
another central part of the infrastructure to have a public 
transportation system on a reservation that is extremely large. 
And your ongoing support is really critical for that, and I 
would like to thank you for your support of our tribal 
transportation program.
    I am going to defer to Ms. Fiddler on the particulars of 
the CDFI and talk a little bit about what we are trying to do 
with Native American Natural Foods. My cofounder and myself, 
Karlene Hunter, who has been National Indian Business Woman of 
the Year--she wanted to be here, but she is at another 
conference--have been involved in both community development 
and economic development projects on the Pine Ridge Reservation 
since the early 1970s and 1980s. We were involved in creating 
the first radio station on the reservation and helping build 
the first tribal college. The reason I tell you that is I want 
you to know that we are experienced entrepreneurs who have 
worked very, very hard to build economic development in the 
community.
    What we have learned with Native American Natural Foods, 
the product you have on your desk there is called the Tanka Bar 
based on wasna, that traditional food. That product is an 
example of Indian entrepreneurship. It was created by some 
grandma probably several thousand years ago who understood that 
you could preserve meat naturally. That product is now the 
number one selling dried meat snack in the natural food 
category in America. All across the country, it is in thousands 
of stores, and it is sold both in health food stores, it is 
sold on 275 Indian reservations, and it is sold through the 
Internet.
    What is significant here is that we have one of the most 
economically and geographically isolated places in the country, 
and we have built a national brand. This year we will gross 
close to $2 million.
    The challenges that that faces for us is that as we try 
to--we built this whole brand, but we are not able to create 
any equity to keep up with growth. We have had a challenge 
trying to match the--we are unable to qualify for a BIA loan. 
Well, we did have a BIA loan that started the company in terms 
of doing exponential growth because we cannot meet the 20-
percent equity requirement, and there is no provision to allow 
that to be raised. We used a lot of--working on an isolated 
reservation, we use a lot of Federal programs, so one of our 
investors is the Empowerment Zone which manages EZ funds in the 
reservation tribal charter. So what happens there is that they 
are forced into a position as a nonprofit to guarantee the loan 
to qualify for SBA. So, again, the dots do not connect. You 
cannot use the SBA program.
    So when we try to bring in outside equity from the social 
investment community, we are told, well, you cannot use tribal 
investment or social investors because they are not making a 
pure financial decision even though they are the only ones with 
the courage, dedication, and commitment to invest in these poor 
communities and create opportunities for the youth.
    So there are a lot of dots that do not connect here even 
though there are resources in the system. As you all know, 
there is something close to $30 billion in the job act for 
small business, but every small business will tell you that 
there is not any lending going on. And the dots are not 
connecting in that aspect.
    On the CDFI side, there is no guarantee for people who 
invest into the CDFIs. There are many people who want to invest 
in there, but we need to create an opportunity to increase that 
investment.
    You know, the CDFIs are really essentially important on 
that first ring, but we need them to have more resources and 
more power to help us as we try to grow these companies to be 
exponentially successful, to be large enough to have a real 
impact on the unemployment and economic needs of the community.
    I am sorry for running over my time.
    Chairman Johnson. Thank you, Mr. Tilsen.
    Mr. Olsson, you may proceed.

      STATEMENT OF MARTIN M. OLSSON, PRESIDENT, EAGLE BANK

    Mr. Olsson. Chairman Johnson, Ranking Member Shelby, and 
Members of the Committee, thank you for inviting me to 
participate in this important hearing on economic development 
in Indian Country. My name is Martin Olsson. I am the president 
of Eagle Bank in Polson, Montana.
    The Confederated Salish and Kootenai tribes recognized the 
need to support credit available for their membership. Over 40 
years ago the Tribal Credit Program was created with a modest 
investment to assist tribal members with small balance short-
term credit needs not adequately addressed by banks, and over 
the years net revenues were retained to grow the fund. This 
program has grown into a $45 million fund providing short-term 
unsecured, educational, home ownership, and commercial loans, 
and as reserves have grown, the program has been able to return 
dividends to the tribes.
    The tribes also have a smaller fund for small-dollar loans 
and a grant program patterned after the Montana Department of 
Commerce Indian Equity Fund. The tribes are dedicated to 
providing credit opportunities and grants to tribal members and 
their small and startup businesses that may not have other 
access to capital.
    After nearly two decades of research and discussion, the 
tribes organized Salish and Kootenai Bancorporation and 
chartered Eagle Bank in 2006. The bank is charged with 
providing the traditional financial services for all residents 
and businesses within the Flathead Reservation and to provide 
services for the underserved such as small-dollar loan and 
deposit accounts and check cashing that many banks no longer 
provide.
    Eagle Bank also works with tribal and other funding 
programs to leverage credit for small and startup businesses 
and serves as an advisor and grant reviewer for the Montana 
Department of Commerce Indian Equity Fund, the tribes grant 
program, and the tribes economic development committee.
    Eagle Bank has worked with programs offered by the FDIC 
during the crises. The temporary unlimited FDIC coverage on 
non-interest-bearing accounts has provided significant relief 
in maintaining deposit accounts for the tribes, and I hope this 
temporary coverage will be made permanent not only for Eagle 
Bank's somewhat unique requirements, but also for all smaller 
community banks' ability to compete with too-big-to-fail 
institutions.
    I also hope the FDIC would consider unlimited coverage on 
interest-bearing balances on a fee basis for those willing to 
participate.
    Lacking improved FDIC coverage or the return of excess 
deposit bond coverage, the majority of a tribally owned bank's 
earning assets may be required to be invested in securities, 
restricting funds available for lending.
    Access to capital on reservations has been an ongoing 
problem with three primary challenges limiting that access: 
uncertainty created by tribal governments' willingness to 
support access to capital, uncertainty created by lack of 
consistency in secured transactions, and financial literacy.
    A major impediment to access to capital is the uncertainty 
in lending within the jurisdiction of a sovereign entity. Some 
tribes are very proactive in developing statues that support 
lending and have consistent enforcement through their tribal 
courts, and other tribes continue to maintain a more protective 
environment for their membership.
    Tribal governments need to understand that in order for 
capital to be available, lenders must be assured there is a 
clear, consistent recourse in the case of a default through an 
independent and unbiased tribal court system. Recipients of the 
benefit of the capital must also be accountable for repaying 
their debts.
    Tribal governments also need to develop and adopt 
uniformity in regulating transactions secured by real and 
personal property as they exercise their inherent sovereignty.
    Financial literacy is very important on reservations. With 
no established bank relationships and low credit scores, many 
people fall prey to predatory lenders and check cashers.
    In conclusion, I believe there are opportunities for 
economic development in Indian Country, but significant 
challenges remain. The Confederates Salish and Kootenai Tribes 
approach, including chartering Eagle Bank, is making a 
difference on the Flathead Reservation, but chartering or 
purchasing a bank may not be appropriate for many tribes.
    Thank you. I look forward to your questions.
    Chairman Johnson. Thank you, Mr. Olsson.
    Ms. Fiddler, you may proceed.

  STATEMENT OF TANYA FIDDLER, EXECUTIVE DIRECTOR, FOUR BANDS 
                         COMMUNITY FUND

    Ms. Fiddler. Hi hanne was`te. Good morning to Chairman 
Johnson, Ranking Member Shelby, and the other Members of the 
Senate. As Senator Johnson said, I am the executive director of 
Four Bands Community Fund, a nationally recognized Native CDFI 
that serves the Cheyenne River Reservation in north-central 
South Dakota. I also wanted to note that I am the Chair of the 
South Dakota Indian Business Alliance and Cochair of the Native 
CDFI Network.
    Let me begin by saying Pilamaya ye, thank you, for the 
opportunity to appear before you on behalf of the people and 
organizations that are working to create Native private sector 
economies throughout the State of South Dakota and on 
reservations nationwide.
    I prepared a written testimony to address the opportunities 
and challenges for economic development from the perspective of 
the Native CDFIs. This was quite an undertaking because of the 
complex landscapes we work within. As important as providing 
access to financial products and services and development 
services is for a CDFI, we also have to factor in the economic 
conditions and infrastructure limitations that exist on our 
reservations and throughout many rural communities. Our purpose 
is to strategically and entrepreneurially respond to those 
factors, meeting people where they are at and providing a path 
for them to reach for their dreams. In the time allotted, I 
wanted to at least say three things of all my testimony that I 
think are important for the Committee to understand.
    First, the mission of Four Bands is to create economic 
opportunity by helping people build strong and sustainable 
businesses and increase their financial capability to create 
assets and wealth. We do this by taking an integrated asset-
building approach to entrepreneurship development in an area of 
high poverty, low incomes, and remote access. Cheyenne River 
encompasses Dewey and Ziebach counties, two of the poorest 
counties in the Nation. Sixty-two percent of the residents in 
Ziebach live below the poverty level. People often travel 50 to 
100 miles on poorly maintained roads to access basic goods and 
services.
    Since our inception we have provided over $3 million in 
credit building, micro enterprise, and small business loans to 
help create and expand over 100 businesses on the reservation. 
Over 300 people have completed our business training classes, 
and hundreds more have attended our Talking Circle workshops to 
develop skills and the capacity for personal and business 
development.
    Because of the lack of equity and ownership on the 
reservation, we also have an IDA program that has invested 
$300,000 in our customers, both adult and youth, who have 
invested in themselves by creating savings and completed 
trainings to attain assets like home ownership, business, and 
higher education.
    Four Bands has become the go-to organization on the 
reservation when it comes to creating a private sector economy. 
We also incubate the Cheyenne River Chamber of Commerce and 
conduct a lot of market analyses of the reservation economic 
opportunities for sound planning to help our businesses and our 
loan fund identify the correct sectors, products, and services 
that are needed locally and that can be provided by a local 
entrepreneur. We cannot afford to speculate on the potential 
market opportunities since people's livelihoods are at stake.
    This is the community development side of CDFI that builds 
community capacity and human capital. The financial institution 
side leads me to my next point, and I want to say ``wulpy la 
tanka'' to the CDFI fund that means with great thanks--to the 
Treasury Native Initiatives Program. If it were not for this, 
none of us could be doing this work and have the successes that 
we have. Many of us in America believe that entrepreneurship 
grows and sustains a healthy economy, but in many cases banks 
cannot lend in remote areas, and sometimes they do not even 
exist in real Native communities, as we heard earlier. My 
number is 86 percent of reservation lands do not have financial 
institutions within their borders. We are fortunate on Cheyenne 
River. We have three banks serving our community, but none of 
them report the credit history on their clients. That makes it 
even more challenging for a business to startup and secure 
affordable capital.
    As a Native CDFI, we invest in what appears on paper to be 
very high risk, low-profit target market, but to date we have 
only written off 2.8 percent, about $100,000 of over $3 million 
in lending to the poorest of the poor in the country, which I 
think is very wonderful for us.
    We see the strengths and assets in our people and have 
developed internal systems and external relationships that 
mitigate risk and have helped us support the creation of 400 
jobs. I think this is important. If banks cannot but we can, we 
are even more vital to a diversified economic development 
strategy in reservation communities.
    Our tribe agrees and supports our work for reservation-wide 
financial literacy and entrepreneurship development in our 
homes, in our schools, and in our business community. The tribe 
is the major economic developer, and our work complements and 
feeds their efforts for workforce and private sector 
development.
    Finally, I think it is important to know that we are seeing 
results. I am going to run out of time, but I will tell you 
briefly the economic momentum on our reservations in South 
Dakota that have Native CDFIs is two to three times that of the 
State of South Dakota in this time of recession. We are playing 
catch-up, though. Our median household incomes are still less 
than half of the national average, but we have had a 55-percent 
increase in median household income in our reservation 
communities.
    I will end there.
    Chairman Johnson. Thank you, Ms. Fiddler.
    Mr. Desiderio, you may proceed.

   STATEMENT OF DANTE DESIDERIO, EXECUTIVE DIRECTOR, NATIVE 
             AMERICAN FINANCE OFFICERS ASSOCIATION

    Mr. Desiderio. Thank you, Chairman Johnson and Senator 
Shelby and Members of the Banking Committee for hosting this 
hearing. I know how important Indian issues are to the 
Committee and we appreciate you addressing the economic 
challenges and opportunities in Indian Country.
    My name is Dante Desiderio and I am a member of the Sappony 
and Executive Director of NAFOA, and NAFOA has had the 
privilege of helping Tribal communities grow their local 
economies for the past 29 years and we do that by bridging the 
gap between the banking community and the investment community 
and Indian tribes. We also do that by building capacity, and we 
do it by working directly with tribes to develop effective 
economic policy.
    And I want to use my time today to address three specific 
low-cost or no-cost policy recommendations. The first two are 
designed to get rid of uncertainty and bring capital into 
Indian Country, and the last recommendation is the design to 
look at some of these barriers and challenges that are getting 
in the way of Tribal Governments being able to grow and develop 
economically.
    Over the past three decades that we have been helping 
tribes, we have seen industries grow and mature. We have seen 
Tribal communities prosper, and we have seen Native Americans 
having the opportunity to move home to find jobs and, more 
importantly, move home to professional careers on the 
reservation. But we still have a long way to go. We all know 
the statistics. The American Indians have the highest 
unemployment rate. We are still at the lowest end of just about 
every social and economic indicator, including having the 
highest suicide rate, and that is a true sign of lack of 
opportunity.
    And as a Nation, we all struggle with the sustained 
economic downturn and the effects of a stalled economy and we 
are now living in the age of austerity, with Congress having 
the challenge of trying to cut another $1.5 trillion from the 
Federal debt.
    This all makes finding solutions even more challenging and 
urgent. So three immediate solutions come to mind. The first 
solution is for Congress to remove the uncertainty created by 
imposing an essential government function test when Tribal 
Governments want to raise capital through the tax-exempt debt 
market. Every other government uses this tool effectively, but 
when Congress authorized Tribal Governments to use tax-exempt 
debt to raise capital, they put in an essential government 
function test and they did not adequately define the term. 
Because the language is unclear and because the regulatory 
agency interpreted Congress's intent too strictly, the capital 
markets now steer clear of Tribal debt, equating uncertainty 
with higher risk and higher cost.
    The second fix, or the second solution is providing 
clarification on how tribes are included as governments when it 
comes to qualifying as accredited investors. It is important 
that Indian tribes specifically are listed as governments in 
the Securities and Exchange Commission definition of government 
body used in Regulation D. The current definition is extremely 
broad, and because tribes are not specifically referenced in 
the definitions, we see the financial markets are hesitant to 
extend us the benefit of the doubt and the regulatory agency is 
not willing to interpret tribes as fully included. Fixing this 
oversight is simple and will help tribes raise capital in the 
same manner as every other government, without added 
administrative costs and legal burdens. This helps tribes to 
help themselves.
    And finally, I want to discuss implementing the existing 
Indian Tribal Regulatory Reform and Business Development Act. 
This Act provides that the Secretary of Commerce convene an 
authority to perform a comprehensive review of the laws, 
including regulations, that stand in the way of investment and 
development on Indian lands. The authority terminates when the 
report of recommendations is submitted to Congress, meaning 
there is no added bureaucracy. This type of report could 
significantly impact development on Tribal lands. It could 
address things like probate, leasing, appraisals, and some of 
the structural impediments that Senator Shelby mentioned in his 
opening statements.
    We all recognize these are difficult and challenging times, 
but we also recognize this is not a time to throw up our hands 
and do nothing. It is frustrating enough for Native people and 
all Americans to deal with the impact of an economic downturn, 
but as we have seen in the past, it is even more frustrating to 
see the rest of America recover without Indian tribes.
    We need to support programs that work and clarify language 
and laws and regulations that do not. It is clear when tribes 
succeed economically, so do local and State governments. And we 
are grateful for the Committee for dedicating the time and 
attention to this matter and we would be happy to help as the 
Committee moves forward to implement any of these 
recommendations.
    Chairman Johnson. Thank you, Mr. Desiderio.
    Ms. Woodrow, you may proceed.

 STATEMENT OF SUSAN M. WOODROW, COMMUNITY DEVELOPMENT ADVISOR, 
              FEDERAL RESERVE BANK OF MINNEAPOLIS

    Ms. Woodrow. Chairman Johnson, Ranking Member Shelby, and 
Members of the Committee, thank you for this opportunity this 
morning. My remarks will focus on the efforts of the Federal 
Reserve Bank of Minneapolis to promote Tribal legal 
infrastructure development that will support private sector 
business growth in Native communities. I want to emphasize that 
these remarks reflect my views and not necessarily those of 
others in the Federal Reserve System.
    Let me explain why the Federal Reserve is involved in this 
work. The mission of the Community Development or Community 
Affairs Program is to support the Federal Reserve System's 
economic growth objectives by promoting fair, impartial access 
to credit and financial services, including in low and moderate 
income communities.
    The Minneapolis Federal Reserve Bank's district includes 
more than 40 Indian reservations. Accordingly, for the past two 
decades, we have sought to assist Native communities to 
overcome the significant barriers they face accessing credit 
and financial services. As Mr. Olsson noted in his testimony, 
one significant barrier is the lack of or inadequate Tribal 
laws governing secured lending. By secured lending, I mean 
extensions of credit collateralized by a borrower's personal 
property, which includes anything that is not land or affixed 
to land. These types of transactions in all State jurisdictions 
are governed by Article 9 of the Uniform Commercial Code. State 
law generally does not apply within Tribal jurisdictions, 
however, and we have found that across Indian Country, with a 
handful of exceptions, secured transactions law is largely 
incomplete, outdated, or nonexistent.
    The result is that lenders face very uncertain rules and, 
thus, higher risk, actual or perceived, doing business in 
Native communities. Consequently, loans and other business 
deals are frequently made at higher costs or not made at all.
    To address this, the Federal Reserve Bank of Minneapolis 
has provided substantial assistance to tribes across the 
country that choose to adopt the Uniform Law Commission's Model 
Tribal Secured Transactions Act, a comprehensive template law 
substantially similar to State law but specifically tailored 
for Tribal environments. We have also helped facilitate several 
State-Tribal compacts that enable tribes that have adopted the 
Model Act to utilize these States' UCC filing systems for the 
filing of liens under Tribal law. These arrangements complete 
the tribes' secured transaction systems in a manner that offers 
certainty and reliability for lenders and for borrowers while 
at the same time preserving Tribal sovereignty and Tribal 
jurisdiction.
    We are also involved in working with the Uniform Law 
Commission to launch an initiative to draft a Model Tribal 
Probate Code to help ameliorate the significant problem of 
fractionated interests in Indian-owned allotted lands. This has 
the potential to eventually free up untold land value for use 
as collateral or for development while again maintaining Tribal 
sovereignty and Tribal jurisdiction. To move forward, however, 
this initiative needs funding to ensure it has broad 
participation from tribes and Native legal organizations.
    The Minneapolis Federal Reserve also works closely with 
many Indian Country partners and others to provide Native 
entrepreneurs a voice through broad cross-sector coalitions, 
including the Montana, South Dakota, Minnesota, and soon, North 
Dakota Indian Business Alliances. These Alliances collectively 
have significantly helped elevate the dialog about the 
importance of supporting Native entrepreneurship and private 
sector development in Indian Country, regionally and 
nationally.
    Because these initiatives are still recent or pending and 
because good data on Tribal business environments and outcomes 
are lacking, we cannot thoroughly assess their efficacy at this 
time. However, we are monitoring progress and in time will 
provide feedback on which approaches are associated with 
improved economic performance and small business development in 
Indian Country.
    In closing, many tribes, Native organizations, and Indian 
entrepreneurs have been working diligently to meet these 
challenges, but much remains to be done. With continuing 
support for Native grassroots leadership and appropriate 
outside assistance, however, I see many more opportunities for 
tribes and their citizens to further develop the legal and 
civic institutions that will support small business growth in 
Indian Country. Thank you.
    Chairman Johnson. Thank you, Ms. Woodrow. Thank you for 
your testimony.
    As we begin questions, I will ask the Clerk to put 5 
minutes on the clock for each Member.
    Ms. Fiddler, your written testimony points to the 
impressive economic data showing an increased number of 
employed individuals in median income on the Cheyenne River and 
other reservations in South Dakota over the past decade. How 
does Four Bands plan to sustain this growth and leverage it for 
more private capital investment?
    Ms. Fiddler. Well, as the capacity of the community has 
been coming up and people have been getting introduced into 
banking, savings, and changing their financial behaviors, folks 
are starting to, like with the IDA program, invest in 
themselves, but also their first introduction to microloans, 
start to get the equipment that could be collateralized on 
larger and larger loans.
    The other trick to this, it is kind of a different way of 
thinking about it, but this financial literacy and 
entrepreneurship development work, we have integrated into our 
K through 12 school system and we are replicating it on the 
Pine Ridge and Crow Creek Reservations. So that is kind of a 
funny answer. When we think of sustainability, we are talking 
about a deep investment to raise the skill level of every kid 
on our reservation, and we impact 2,000 children a year, with 
financial literacy and entrepreneur in their core subject area 
so it does not push up against No Child Left Behind or the 
other requirements in education. We made sure that our 
curriculum meets the education standards.
    So we are kind of hoping we work ourselves out of a job 
there eventually, that the skill levels have come up and that 
people start to change behaviors, we have these ABCs of 
financial literacy and entrepreneurship begin to change 
behaviors and realize that they contribute to the economy, the 
buying local, the research that we have uncovered with the 
business-to-business market, our institutional market plays 
with Tribal Governments, and the school systems, where are they 
spending their money, trying to get people to bring the money 
back home. As the tax revenue increases for the tribe, all of a 
sudden, the economy gets more and more functional and our role 
would be able to back out.
    People will have credit histories, because we also 
warehouse through a nonprofit collaboration with the Credit 
Builders Alliance here in D.C. to report credit histories on 
our clients. So now they are actually doing some credit as an 
asset, building a credit identity that is going to help them 
access affordable products.
    So there are a number of different ways that we look at 
this, but I think most strategically identifying the 
opportunities for entrepreneurs to fill local gaps, next steps 
out are connecting them regionally and hoping that the State of 
South Dakota sees our reservations as contributors to economic 
development strategies, not just these isolated places, but 
that there is more engagement.
    And on the part of rural, as well, sustainability for us on 
Cheyenne River means that the national dialog on job creation 
includes rural places as much as the urban centers, where most 
of our jobs occur. But we have to look at the assets in rural 
and see what we are contributing. There is infrastructure 
development with energy, highways, and things like that that 
are going to impact us locally because we do have those assets, 
wind assets and those kinds of things.
    Chairman Johnson. Mr. Tilsen, you have recently encountered 
difficulty finding a lender willing to loan Native American 
Natural Foods money to increase the company's capacity due to 
increase product demand. How critical was the loan you received 
from a CDFI to your business being able to meet increased 
consumer demand?
    Mr. Tilsen. The truth of the matter is, if it was not for 
our local CDFI, we would have never been able to originally 
launch the company, and if it was not for the CDFI 
clearinghouse out of Los Angeles in cooperation with the 
Minnewaukan Sioux Tribe and the American Indian Land Tenured 
Stewardship Foundation, we would have had to probably close 
down last May because we did not have any way to access the 
money because of the problem of not being able to use a Federal 
guarantee on the SBI side or the BIA side. So the dots did not 
connect.
    So we created a complicated transaction in which the tribe 
made a donor-designated grant to the American Indian Land 
Tenured Stewardship Foundation, which is one of our equity 
investors. They pledged that $250,000 to the CDFI clearinghouse 
clearinghouse CDFI in Los Angeles, and that gave us a million 
dollars' worth of lending.
    But you have got to understand, this is a very complicated 
transaction that we had to do in order to save the company, and 
that is what I am talking about in terms of a lot of these 
programs do not connect.
    I will give you another example. A lot of our reservation-
based businesses, we used to work with the American Indian 
Employment Tax Credit. But because we have marginally 
profitable businesses, that tax credit, we cannot fully use it 
and it is not transferable to our minority investors, who are 
often much more successful and profitable than us. So just by 
making that credit transferable to the minority investor, you 
would create an opportunity to increase investment and equity 
in the small business.
    And there are a series of things like that where we see 
opportunity where we just do not--we spend a lot of our 
creative energy trying to get these dots to connect to grow 
these businesses.
    And our situation is not unique. I can tell you about a 
hotel on the reservation, a current entrepreneur is trying to 
open a movie theater. Everybody is having the exact same 
problem as the--first-generation entrepreneurs are reinvesting 
back into the community, trying to make it grow into this 
second-level tier, and equity is our big challenge.
    Chairman Johnson. Mr. Olsson, your written testimony makes 
it clear that chartering a bank may not make sense for every 
tribe. Can you expand upon what other tribes might learn from 
your experiences on the Flathead Reservation in determining 
whether or not it makes sense to charter a bank, and is a 
credit union easier to charter?
    Mr. Olsson. Senator, in the case of the Confederated Salish 
and Kootenai Tribes, the reservation was open to homesteading 
in 1910 and a significant part of the developable real estate 
is owned by non-Native Americans. You have less than 25 percent 
of the residents on that reservation have claimed Native 
American status as heritage in the 2010 Census. This provides a 
broad basis that a bank can utilize for gathering deposits and 
make loans.
    Banks, as you well know, are somewhat regulated, and that 
may be a topic for discussions down the road. But in those 
cases, you have severe limitations on what you can do in 
banking in transactions with affiliates. If you are on a 
reservation that is not as diverse as the Confederated Salish 
and Kootenai Tribes, you may not have a sustainable base to 
support a bank and be able to have adequate lending to generate 
revenues.
    I commented in my written testimony that perhaps a credit 
union may be a more viable opportunity in some of these 
instances, because you are dealing with individuals, small 
loans, those kinds of things, but you are not in a spot that 
you need to provide a profit for the bank and the shareholder 
and your regulatory requirements for assisting members in a 
credit union appear to be at least somewhat less stringent than 
banks.
    Chairman Johnson. Senator Shelby.
    Senator Shelby. Thank you, Mr. Chairman. I will help move 
this on. Thank you.
    Chairman Johnson. Senator Tester.
    Senator Tester. Thank you, Mr. Chairman, and I want to, 
once again, thank all the witnesses for their testimony.
    I am going to start with Martin Olsson. In your testimony, 
you address technical assistance for entrepreneurs in Tribal 
communities. You point out some room for improvement, to say 
the least. One of the deficiencies that you point out is some 
of the folks responsible for technical assistance may not have 
any business experience themselves, which I find unfortunate, 
and that may be an understatement, too.
    Can you give me an idea of who these folks work for? Do 
they work for government agencies? Are they private technical 
assistance folks, or----
    Mr. Olsson. We have, in our area, at least, we do have some 
contract providers of technical assistance and we also have 
some Tribal employees who are providing technical assistance 
under some of the Tribal business entities.
    Please do not misunderstand me. The people that I know and 
work with are highly dedicated. They work hard. They are really 
trying to do what they are charged to do. But unfortunately, at 
least on the area I am familiar with, you have a lot of small 
businesses that what you really need to do is mentor them in 
understanding how to manage a checkbook to keep track of 
records for a small business. You do not need to be developing 
a business plan or a chart of accounts or a QuickBooks 
accounting system because the individuals have not grown in 
their financial literacy to that level.
    I tend to be a little crossways sometimes with our TA 
providers because I have told them repeatedly, if they are 
bringing in a grant application that I am charged with 
reviewing or a loan application, if the information provided is 
not a business plan that the potential recipient has 
participated in preparing and understands and is able to use 
that to mark guideposts for his business, then it is absolutely 
worthless.
    Senator Tester. Right.
    Mr. Olsson. So mentoring may be a better way to go if we 
can put something like that together. I am not sure how 
something like that could be organized or funded.
    Senator Tester. Well, you answered my second question 
already, and that was if you had any ideas on how we could put 
a greater focus on mentorship, and maybe some other folks on 
the panel have the same experience that Martin Olsson has. Mark 
Tilsen.
    Mr. Tilsen. I wanted to add, on the other side of the 
situation, we are a company that is investigating look at the 
New Market Tax Credit, but in terms of technical assistance, 
that means we need expertise in integrated supply chain, just-
in-time supply chain management in order to make that next 
goal, and within the current structure, there are not any 
resources to pay for those consultants. So if the CDFI funds 
could have money to contract experts to help with exponential 
growth, I think it would allow us to better utilize tools like 
the New Market Tax Credit.
    Senator Tester. OK. Tanya, did you have a comment?
    Ms. Fiddler. Real quick, that Four Bands, our model is a 
little bit different. We have a business coaching model. We 
connect people with mentors on a case-by-case basis, bigger 
businesses when we have bigger loans. We are able to do that. 
So we would be happy to advise or have people in. We actually 
have anywhere from five to six Native Nations that come visit 
us on Cheyenne River a year to learn how we do things, because 
my coaches are the loan originators, but all of the business 
planning is driven by the client. We do not do for anybody 
because it is important for them to have the skills. And then 
coming out the other side of it, we offer workshops that are 
specific. We have check-ins, and we are trying to get better at 
doing our job with folks.
    Senator Tester. Yes. I think the point that I found 
somewhat distressing is the fact that if we are going to have 
folks that are going to be able to be successful in the end, 
which is what we are about, creating jobs and successful 
business interests, those technical assistance folks, no matter 
how well-meaning they might be and how hard they work, they 
have to have the business experience that can relate to the 
level of business they are working with, whether it is startups 
or whether it is expansions like you are talking about. So if 
there are ways we can help in that, that would be good.
    I want to talk about trust property real quick, because my 
time is running out. Trust property is something that is pretty 
unique to Indian reservations and it is something that I know, 
Martin, you have worked with. I know, Sue, you are an expert on 
it. But there are many financial institutions that, quite 
honestly, do not have a clue about what it is about, and we 
have had experience through you, Martin, with one of them, and 
we got to the bottom of it, but it takes a while.
    The question is, and this is for both Martin and Sue, is--
and you can go first, Sue--is there a role for regulators like 
the Fed and FDIC and NCUA for credit unions in helping 
financial institutions understand the issues unique to Tribal 
communities as it relates to trust lands?
    Ms. Woodrow. Thank you for the question, Senator, and 
certainly, there is always room on the education front to help 
financial institutions understand these things.
    The one thing that I would like to point out, and I am 
going to circle back to the Uniform Law Commission's proposed 
Model Tribal Probate Code Initiative, is that we need to begin 
tackling the trust land issues. Vast areas of land in Indian 
Country are tied up and unable to be used as collateral to 
access credit----
    Senator Tester. That is right.
    Ms. Woodrow. ----or for development purposes. This 
particular initiative will begin to tackle just one small 
piece, and that is to tackle the problem of fractionated 
interests in allotted lands. This initiative needs funding to 
move forward. The intent, as reflected in our preliminary 
stakeholder meetings is to include a broad representation not 
only of Federal agencies that are involved in this, but also 
key stakeholders from tribes, Native legal organizations, and 
others to come together and really work on tackling this issue.
    So I encourage support for this initiative to get off the 
ground. I think it is a critical one.
    Senator Tester. OK. Martin, from your perspective as a 
banker, can the regulators have an impact on knowledge about 
trust lands?
    Mr. Olsson. There is a definite need for education, both on 
behalf of banks who do not participate in trust financing as 
well as a lot of Tribal Governments where trust property 
financing is not currently being utilized. The role and scope 
of that education is something that, I think, needs to be 
addressed. I am not sure who is the best to take that lead, but 
you know me, Senator Tester. I am always reluctant to suggest a 
regulatory agency provide additional guidance.
    Senator Tester. Got you. Point well taken. Thanks, and I 
ate one of the bars and they are great. Keep business going.
    [Laughter.]
    Chairman Johnson. Senator Akaka.
    Senator Akaka. Thank you. Thank you very much, Mr. 
Chairman, for your leadership in holding this important 
hearing.
    Chairman Johnson, Senator Tester, and I also serve together 
on Indian Affairs, where we have been examining economic 
development and job creation opportunities and challenges in 
Native communities. Sustainable economic development provides a 
key to self-determination for Indian tribes. Even though some 
Native communities have seen improvements in economic 
development opportunities, most Tribal economies continue to 
suffer high unemployment. It is important for us to look at 
where tribes have been successful and support those efforts, 
because when tribes succeed economically, it does not just 
benefit their members. It also contributes to creating jobs and 
boosting economies of local communities and States, as well. So 
when we invest in Indian Country, we are making investments 
that impact all of us, investments that will help us navigate 
the road to American economic recovery.
    It is also important to talk about the limitations of 
restrictions in Federal law or policy that hinder economic 
prosperity and self-sufficiency in Indian Country and to 
examine what we in Congress need to do to remove those 
barriers. I look forward to address the economic development 
needs in Indian Country and surrounding communities.
    I would like to ask Ms. Sue Woodrow, the Federal Reserve 
Bank of Minneapolis has been proactive in identifying the needs 
in Indian Country to encourage economic development in Native 
communities. Mr. Olsson has testified that one of the big 
problems with access to capital for independent businesses is 
lack of financial literacy. In your view, how can we continue 
to improve our efforts to empower Native communities to make 
informed financial decisions?
    Ms. Woodrow. Thank you for your question, Senator. I would 
agree with Ms. Fiddler that the need to support financial 
education efforts is imperative in Indian Country, and I know 
that there are a few ways that this can be done. One way is by 
supporting the development of culturally and economically 
relevant curricula for schools.
    Continued support for community development financial 
institutions is imperative. Currently, CDFIs are among the 
primary providers of financial education in Native communities. 
Support of small business sector growth in Native communities 
is also important. Where we have areas of high unemployment, 
small business growth will provide jobs, provide opportunities 
for people to actually work and have an income and, therefore, 
have something to financially manage. It is very difficult to 
learn financial management when you have no money to manage.
    And last is to encourage Tribal Government policies that 
require financial education in their schools.
    Senator Akaka. Thank you very much.
    Dr. Desiderio, your Association testified at a recent 
hearing of the Indian Affairs Committee on the impacts the 
Carcieri decision has had on economic development in Indian 
Country. Can you describe those impacts for this Committee?
    Mr. Desiderio. Sure, Senator Akaka. First, I want to make a 
comment based on what Ms. Woodrow had talked about in building 
capacity, and I think we do focus a lot of efforts on building 
the capacity on the Tribal side, and our organization certainly 
does that. But there is also building the capacity on the other 
side of this, which is the banking community, investment 
community, and I think that is part of our job in NAFOA, is to 
bring those two together. And I think when we do that, we bring 
more competition and we bring better rates, more affordable 
capital.
    One of those--it is difficult enough to do financial 
transaction on its own, and like we have heard today, it is 
more difficult in Indian Country. You do have trust land issues 
to deal with. You also have sovereignty issues to deal with. 
And that gets to your question of this added uncertainty that 
the capital markets need to deal with when they want to do 
business with Indian Country.
    As it was in my testimony today, we have that uncertainty 
when we deal with trying to raise money for tax-exempt bonds 
using the bond market for that. Our administrative costs are 
higher and our capital costs are usually higher because of that 
uncertainty. We also have uncertainty when we want to invest 
and partner with other tribes, and we pay more each year for 
those administrative costs.
    And the Carcieri decision, Carcieri v. Salazar, basically 
adds another layer of uncertainty, another layer of legal costs 
to our financial transactions, and I think, besides turning 75 
years of Federal policy on its head, there is now this idea 
that you need to have this Carcieri test for financial firms to 
do business in Indian Country, and the problem with that is 
that nobody has really come out with a firm idea of what the 
decision--what tribes are going to be impacted on the decision. 
So it absolutely adds an additional layer of uncertainty and 
cost for tribes to transact business.
    Senator Akaka. Well, thank you very much as you relate that 
to the Carcieri decision. Uncertainty has really plagued the 
Indian communities. Thank you very much for your response.
    Mr. Chairman, my time has expired, but I have other 
questions here that I would like to ask.
    Chairman Johnson. I will go to a second round.
    Senator Akaka. All right.
    Chairman Johnson. Mr. Desiderio, what barriers do you see 
that limit access to capital in Indian Country and what role 
does your organization and your individual members play in 
helping to eliminate these barriers?
    Mr. Desiderio. Well, I think as some of the panelists have 
suggested, it is difficult to set up businesses and access 
capital on reservations, and you have another layer of issues 
to deal with. There was a study that was conducted and funded 
by the Casey Foundation a few years ago which set out to 
examine banking in Indian Country, and it is obvious that 
Indian Country is some of the most unbanked or underbanked 
parts of the country. And I think until we get our Native 
consumers and businesses and tribal enterprises in a position 
where they have competition, where they have different choices 
for short-term loans, home loans, business loans, and 
enterprise loans that tribes are going to be in a position of 
paying more for capital or struggling to make these businesses 
and enterprises work.
    Our organization plays a role in trying to bridge that gap 
and trying to educate the banking community into coming into 
Indian Country, and I think one of the tools that we have is 
the Community Reinvestment Act, which tribes are eligible but 
for some reason the Indian community is not considered a lot of 
times when banks are making the decisions to invest outside of 
the specific communities where they bank, so this is a which-
comes-first situation. We need banks in Indian Country, we need 
community reinvestment funds in Indian Country, and we need to 
continue to educate both on building the capacity side for the 
investment and banking community and the tribal community. And, 
you know, also on the building capacity side, one of our 
missions, which we take a lot of pride in, is to build the next 
generation of financial and economic leaders, and we do have 
programs where we do send--you know, we do give scholarships, 
and we do send our kids to the Lead Program which builds 
business skills and leadership skills. And we also are working 
with Wall Street to give Native kids that opportunity to go and 
learn how things work in different investment communities. So 
it all helps to build that capacity.
    Chairman Johnson. Ms. Fiddler, do you see the CDFIs 
competing with the banking industry and with the credit union 
industry or complementing those entities?
    Ms. Fiddler. On both the Cheyenne River and Pine Ridge 
reservations, we have a credit union, the Community First 
Credit Union on Cheyenne River, and Lakota Funds is sponsoring 
to start a credit union on Pine Ridge, and we are looking 
forward to it for the opportunity to complement each other's 
work.
    The one thing that we do not do as a revolving loan fund is 
take deposits. You know, the credit union model and getting 
them up and running, we will have helpers when it comes to this 
financial education that we are trying to provide reservation-
wide and carry that. The credit unions that are working in our 
communities are taking some of that on. They have a different 
dialog when they work with a consumer, and we need places where 
folks can be depositors. And like I said earlier, hopefully 
their creditworthiness reported out. We gave testimony last 
year on behalf of Native communities on the CRA re-look that 
they were doing, and I would like to send that to the Committee 
after the fact here because there were a lot of 
recommendations. It is not about regulation and creating more 
complex systems, but including some innovations that help 
people get credit. The banks in my community get credit for 
their work in distressed communities, you know, more tagging 
like that, you know, possible investment, that could take place 
that they would get credit for, because my local banks do not 
know they can do that.
    So I do not see us competing, but I see us being ahead and 
competing in a positive way when we have a better product and 
service in a low-profit, low-margin area. I think that has to 
be considered. So it gets all of us performing to the needs of 
the consumer and looking at them, that that is driving it, not 
necessarily our ideals or a top-down philosophy. You really 
have to engage and realize what your local community can 
support and is willing to support to have conscience in what we 
do in these places, because there are too many opportunities 
for payday lenders. We have got them downtown on Main Street, 
you know, that kind of thing now. And as much as we do in the 
financial education side, folks are free to make those choices. 
But if there are not alternatives for them to develop real 
banking relationships--and we do that with our youth. We are 
walking them in, introducing them to banks, opening up savings 
accounts so they can begin to develop that relationship.
    Coming out of poverty, I was not comfortable going into a 
bank until I was in my mid-thirties. I was terrified just 
because of the unknown. So we try to do that to complement the 
relationship of the bank in the community with what we are 
doing with our clients.
    Chairman Johnson. Mr. Tilsen, what role does trust land 
circumstances play in developing resources?
    Mr. Tilsen. Karlene Hunter and I are also the owners of 
Lakota Express, and we have a 6,000-square-foot paid-off 
building that sits on 5 acres of tribal trust land that we 
cannot leverage to grow our business with. We can leverage the 
building, but we cannot leverage the complete asset that we 
have invested and paid off over the last 10 years. That is just 
one example.
    When we are dealing with trying--you know, the buffalo 
industry is growing at a tremendous rate right now, but the 
average age of the Native buffalo producers is over 60, and a 
lot of young people are interested in getting into that, but 
they cannot access capital even if they own their own land. And 
so they do not have the 20-percent equity requirement to be 
able to access that.
    I think there may be some models to look at, like the 874 
loan program that has opened up mortgages for houses, that 
maybe there could be a model similar to that that would allow 
some kind of leverage to help people get over that barrier. I 
am not exactly sure. Or looking at creating an equity bank that 
people could then use some of that equity.
    But I also really want to emphasize here that doing 
economic development on the Indian reservation where all the 
power exists outside the reservation and the historical model 
of subsidizing businesses, their capital and labor to move on 
to the reservation has never worked at wealth creation. Now 
that we have a pool of growing entrepreneurs in Indian Country 
and a growing population in Indian Country, we really have to 
recognize that the leadership, the creativity, and the courage 
is in the Indian community, and we have to figure out how to 
make sure that the minority investor can take the tax 
advantage, but the power, direction, and authority, both 
because of sovereignty and because those are the people who are 
creating the wealth, have to be the ones that hold the power. 
But we have to have a way to incentivize these minority 
investors, whether it is in the new market tax credit, whether 
it is creating some insurances inside the CDFI program, 
whether, you know, it is structurally within the American 
Indian employment tax credit. It is essential to me that the 
leadership be allowed to lead, people like Tanya, people like 
Mr. Olsson who are right there on the front lines, because we 
are often dictated to by all these Federal agencies, and you 
cannot get the lines to dot. There needs to be from the Federal 
level a little bit more risk taking to allow some flexibility 
and allow the leadership.
    I want to use as an example, if you would just indulge me 
for a second, the Partnership for Sustainable Communities, 
which our reservation is one of those. It is a unique 
opportunity that gets the tribe, State, Federal, county 
programs to all work together to come out with a sustainable 
plan, and there has been--you know, it is a great project, and 
people are very excited about it on Pine Ridge. Currently the 
hearings going on on the House side are going to eliminate--
they are going to make it--the new proposal is that Federal 
agencies will not be able to talk to each other in trying to 
find solutions to sustainable development and cooperation in 
that, which is the language that is on the House side today. 
That is the opposite direction that we need to go. If we are 
going to solve economic development, we need to create more 
flexibility on the ground level, and the leadership has to come 
from the people who are actually doing it and reverse this 
model if we are going to go from dependency to independence.
    I have seen this time and time again, and I am a big 
believer in this, both in terms of sovereignty but in effective 
use of Federal, State, tribal, and entrepreneurial dollars.
    Chairman Johnson. Mr. Olsson, how do you deal with the 
collateral you have? Do you go to tribal court or State court 
when enforcing your rights?
    Mr. Olsson. Senator, where we have a large population that 
is not Native American within the reservation, it makes a 
bigger challenge for banks who are dealing in collection areas. 
Obviously, we are prohibited from inquiring to any nationality 
or if you are a tribal member at the time a loan is originated. 
Unfortunately, at the time you end up looking at a collection 
issue, what we typically do then is to, number one, verify 
whether or not the individual is an enrolled member of the 
tribe before we proceed with a collection action. If they are 
an enrolled member with the tribe, then we do go ahead and 
utilize a tribal court system for all collection actions.
    If we are dealing with a trust property issue, that is a 
piece where you know up front that the individual is a Native 
American within the reservation. You have to go through a 
fairly detailed application process and approval by the BIA or 
their delegated authority before you can perfect a mortgage on 
trust property.
    Fortunately, we have not had to look at any collection 
actions on trust property or any real estate at this point, so 
we feel fairly good about that. But if we do come into a point 
that we have to look at a collection action on trust property, 
that will go through the tribal court system.
    Chairman Johnson. Senator Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman.
    Mr. Olsson, thank you for the work that your bank has done 
in the community to assist tribal members whose needs were not 
being met by traditional institutions. In addition to the 
programs that Eagle Bank runs, you also observed that the 
programs that are available for the first-time home buyers and 
students can be effective. So my question to you is: How could 
you expand your coaching services into a more formal program of 
financial literacy? And what would the benefits be?
    Mr. Olsson. Senator, one of the premises when Eagle Bank 
was chartered was to develop financial literacy and work 
closely with the underbanked within our market, whether they 
are tribal members or not. Unfortunately, in the current 
economic environment, our resources are extremely limited, as 
is our staff time.
    What we would hope to be able to do is either through 
increased revenues and retained income or perhaps if there may 
be some type of grant program available, we would like to be 
able to offer dedicated staff to the financial literacy and 
training. We just are not able to do that at the moment. So if 
you have got some good ideas on how we can increase staff, why, 
that would be greatly appreciated.
    Senator Akaka. Well, thank you very much for that. We 
certainly want to tell you to try to work on it.
    Mr. Olsson. Thank you.
    Senator Akaka. Ms. Fiddler, can you describe for us the 
Four Bands youth and entrepreneur internship program and the 
benefits you have found by bringing students into this program?
    Ms. Fiddler. Thank you for the question, Senator. Back in 
the day--it was about 2005, 2006--when these match savings 
programs were coming about, our tribe, one of our tribal 
programs for poverty alleviation, wanted to invest in youth 
individual development accounts. But the problem is that the 
kids need to earn the money somewhere in order for them to be 
eligible for match monies. Meanwhile, our business community, 
being a low-profit area, cannot afford the employees and kinds 
of things that they need, and the wonderful thing about our 
Native business community is that they are always giving back, 
whether they can or not. They are just a generous place. So we 
matched up businesses with these young people that were needing 
to earn some money, for higher education for the most part. 
They do 100 hours of internship with a local business. We pay 
them a stipend. They save half of that stipend, and many of 
these kids are saving all of their stipend to go on to college. 
And then there are the teachable moments. That includes 
financial education as part of their internship that they have 
to do. They have to complete asset training, so if it is higher 
education, we do have some young single mothers that are 
looking to get into home ownership through our Habitat for 
Humanity office. So they are completing home buyer training. So 
whatever the asset that they identify in the internship, they 
save for, we match, and the businesses are getting the benefit. 
Many of the businesses, because they are--you know, not knowing 
what the workforce looks like, many of our local businesses 
have actually picked the kids up after. So we have gotten 
nearly 100 kids that have completed the program. Most of them 
made their goals, are on to college. Now we are studying out to 
see if they are completing, and the majority of the kids are 
still working on their higher education. Our young lady is 
still working on getting a home for her and her new baby, that 
kind of thing.
    So it was an innovative way to address all the shortcomings 
that we had with lack of jobs, you know, lack of experience, 
and our business has not been able to afford to take on the 
employees that they need. So they jump up and volunteer to help 
us out in that way. So that in a nutshell is the youth 
entrepreneurship.
    Senator Akaka. Thank you very much.
    Mr. Tilsen, your success in creating food products that 
promote a Native American way of wellness that feeds mind, 
body, and spirit is impressive and inspiring. But the 
difficulties that you have had in securing support to keep your 
company alive and growing is sobering. The number of agencies 
and banks you have had to visit is daunting. If you were to 
give advice to a Native American entrepreneur who is interested 
in starting a business in Indian Country, what are the 
important lessons you could provide based on your experiences?
    Mr. Tilsen. Focus and flexibility. You know, we started out 
with the model of--we launched a natural food company in the 
middle of a food desert on an isolated Indian reservation 
because we wanted to figure out how we could create a product 
that would impact our growing rate of diabetes in the 
community. Our original business model thought we could 
distribute it nationally and make enough money to subsidize it 
and make it available at an affordable rate within our school 
system. That business model has not succeeded at that goal. We 
still have this--we have got a lot of young people involved, 
and a lot of young people love the Tanka brand. We faced the 
reality of not making it affordable.
    So we have to be flexible in that, and we have to try to 
hunt out each agency. There is a lot of talk about food deserts 
right now and a lot of talk about diabetes, but, again, trying 
to connect those dots and making those resources available to 
get the product into the schools, you know, we are all over the 
country, but we are not in the high school across the street 
from my office except for maybe on a special occasion.
    So that is a real challenge, and I guess that is why it 
takes a lot of focus and a huge amount of networking, and you 
have to stay focused on your mission and your goal. And we go 
back to our mission every day with every decision, and it is 
the support of the entire network within the CDFI community, 
within the social venture network community, within the local 
community where so many people want you to succeed. You know, 
right now there are 50,000 people that interact with the Tanka 
brand that are listening on the Internet right now, people all 
over the country and all over the reservation through with Web 
broadcast, and that is the encouraging part. But how do you 
connect those dots to make it work? That is the challenge. And 
I think it takes a lot of focus, and it takes the flexibility 
to try to connect these dots all the time. That is why it is 
such a great honor to be here because we are able to tell this 
story.
    Senator Akaka. Well, thank you very much. I want to thank 
our witnesses very much for your responses.
    Thank you, Mr. Chairman.
    Chairman Johnson. Thank you all for your testimony and for 
being here with us today. I am grateful to all of you for the 
important work you do to make economic development a reality in 
Indian Country. As Chairman of this Committee, I will continue 
to work to improve the lives of all American Indians, and we 
need to continue supporting your efforts.
    This hearing is adjourned.
    [Whereupon, at 11:29 a.m., the hearing was adjourned.]
    [Prepared statements and additional material supplied for 
the record follow:]

               PREPARED STATEMENT OF CHAIRMAN TIM JOHNSON

    During my time in Congress, I have enjoyed a strong working 
relationship with American Indian tribes in South Dakota and around the 
country and have advocated for policies to help improve the quality of 
life for American Indians. While progress has been made, many Native 
communities continue to face significant challenges, including 
staggering unemployment rates, inadequate health care, crowded and 
unsafe housing conditions, high crime rates, and educational 
inequalities. This is unacceptable.
    Fostering small business growth is a vital step toward increasing 
employment opportunities and improving local economies throughout the 
country during these difficult economic times. Small business growth in 
Indian Country is no exception. Encouraging the startup and growth of 
Native American-owned businesses is an important priority to me as 
Chairman, and that is why I have called this important hearing and 
invited all of you to testify here today.
    For many years, I have worked to ensure Native communities in South 
Dakota, and across the country, have adequate infrastructure in place 
to foster an environment where economic development can take place--
from being an original cosponsor of the legislation that created the 
NAHASDA block grant for housing to helping fund the Mni Wiconi rural 
water system to supporting tribal bus transit programs.
    Today, the Committee will examine what challenges continue to 
hinder economic growth in Indian Country, including the lack of access 
to capital, small business lending, financial education, and support 
for start-up businesses. With unemployment rates reaching an 
astonishing 80 percent in some areas of Indian Country, we must do 
better to address the problems that cause this persistent cycle of 
unemployment.
    While it's sometimes easy to become discouraged when considering 
all the obstacles that face Native communities, we will also hear about 
the great work so many are doing to help address these persistent 
problems. In South Dakota, and in other States, there are many small 
business owners, community development institutions, community banks, 
and credit unions, and dedicated public servants working every day to 
improve the economic climate on tribal lands.
    Just this past August, I had the honor of visiting Eagle Butte on 
the Cheyenne River Indian Reservation in South Dakota, where I was able 
to hear directly from small business owners about the challenges they 
face and the important assistance they received from the Four Bands 
Community Fund. The leaders of these small businesses--ranging from 
Lakota Archery to Bonnie's Quilting Boutique--really demonstrated for 
me the strength of the Native entrepreneurial spirit and how important 
CDFI programs are to small business growth in Indian Country.
    I'm very pleased we are joined by such a great panel of witnesses 
today, and I thank them for being here. I also want to acknowledge and 
thank Senator Akaka. We are all fortunate for his service on this 
Committee and as the Chairman of the Indian Affairs Committee. I'm 
proud to serve on the Indian Affairs Committee under his leadership, 
where we've considered many of these important issues.
                                 ______
                                 
                  PREPARED STATEMENT OF MARK A. TILSEN
                President, Native American Natural Foods
                           November 10, 2011

    Thank you, Chairmen Johnson and Senator Shelby, for this time to 
share the story of Native American Natural Foods as well as the 
challenges and opportunities facing entrepreneurs in Indian country, in 
our case the Pine Ridge Indian Reservation, home of the Oglala Sioux 
Tribe.
    I would also like to thank Senator Johnson and Members of the 
Committee for your support of the tribal transportation program. It is 
a great asset to our growing business community to finally have a new 
and growing public transportation system.
    I also want to acknowledge and thank you for your ongoing support 
of the Native American CDFI programs. Lakota Funds was the first Native 
CDFI when it was started in 1985. At that time, there were only two 
Native American businesses on the Pine Ridge Reservation. Today there 
are hundreds. Many of them are members of the Pine Ridge Area Chamber 
of Commerce, which I am also proud to represent here today. Lakota 
Funds and other Native CDFIs provide the necessary ``first rung'' on 
the economic ladder for most first-generation entrepreneurs on many 
reservations. The CDFIs are the primary source for learning financial 
literacy. On many reservations, they are the only commercial lenders of 
any kind.
    Your work has had a positive impact on the lives of many. I hope my 
input here today will help you to find more ways of helping the Oglala 
Lakota people make the transition from dependence to a self-sufficient, 
sustainable economy.
    Native American Natural Foods (NANF) was founded by my long-term 
business partner, Karlene Hunter (Oglala) and South Dakota's 2004 
Native American Business Woman of the Year, and myself Mark A. Tilsen. 
Ms. Hunter and I have been involved in economic and community 
development projects on the Pine Ridge Indian Reservation since the 
1970s. Ms. Hunter was the first registrar of Oglala Lakota College and 
one of its first graduates to earn a master's degree. I served as the 
first development staff person for Lakota Communication, Inc., from 
1979 to 1986, and coordinated the development and launch of KILI 90.1 
FM, the first 100,000-watt Native American community-controlled radio 
station in America.
    Karlene Hunter and I started Lakota Express, Inc., a successful 
marketing and management company, 17 years ago. The company was 
launched in Ms. Hunter's basement in Kyle, SD, in the center of the 
Pine Ridge Reservation. We have run the company at a profit from its 
beginning. Focused on direct marketing and fund-raising, Lakota Express 
has raised more than $30 million in net revenue for its reservation-
based clients. While we are proud to have helped build the first 
library on the Pine Ridge Indian Reservation, helped cofound the Pine 
Ridge Area Chamber of Commerce, trained more than 100 staff people, and 
helped to strengthen many important organizations on the reservation, 
we also know it is not enough.
    Working with our local CDFI, the Lakota Funds, we began to study 
distance-neutral business opportunities that had the potential to be 
large enough to have a positive impact on the health and economy of the 
Oglala Lakota Oyate (people). It was during this period that we began 
to learn about brand value and modern brand strategy, and that many of 
the newest, most successful companies in the country were based on the 
value of their brands.
    In 2006, we reinvested our profits back into the community and 
applied our experience in marketing to a new strategy by founding 
Native American Natural Foods, LLC. We decided to enter the natural 
food market by creating a brand based on modernized versions of 
naturally healthy Native American foods.
    With the help of the Northwest Area Foundation, the Lakota Funds 
(CDFI) became our first equity partner as a model of community 
ownership.
    We started out wanting to create healthy alternative snacks for 
Native youth in an effort to help slow down the out-of-control juvenile 
obesity and diabetes rates affecting the youth in reservation 
communities and to bring the healthy impact of buffalo back into their 
diets.
    We created Tanka Bar based on a centuries-old traditional recipe 
called ``Wasna,'' which was made of dried fruit and smoked buffalo 
meat. Wasna was carried by Lakota hunters and warriors for hundreds of 
years, so I like to call it America's true first fast food.
    In October 2007, we launched our first product at the Black Hills 
Powwow as an Internet-only product, but the story was picked by the 
Associated Press. Only 10 days after our launch, we were on the cover 
of the ``Dining In'' section of the New York Times. The response was 
great, but it overwhelmed our production with requests for product 
literally coming from all over the world.
    Working with our long-term banking partners at the First National 
Bank of Gordon, NE, and the Bureau of Indian Affairs, we obtained a 
$916,000 loan with a 90 percent guarantee and interest rate subsidy. 
This loan enabled us to contract with a large co-packer and to launch 
the Tanka Bar nationally.
    It is important to note that this loan was only possible because of 
the personal guarantee signed by Ms. Hunter and myself and the equity 
in Lakota Express, Inc. In March 2008, we launched Tanka Bar nationally 
at the Natural Products Expo West in Anaheim, CA, to a great response 
from retailers and national distributors.
    For the first 6 months, we doubled our sales every month until 
August 2008, when orders stopped. The markets froze, retailers were no 
longer adding new products, distributors were cutting back or canceling 
orders, Internet orders slid by more than 50 percent and our operating 
losses began to grow.
    In order to keep Native American Natural Foods alive and growing, 
we sold shares to the Oglala Oyate Woitancan Empowerment Zone (EZ) a 
tribally chartered development agency that managed USDA funds under the 
EZ Program. With the help of a PRI from the Northwest Area Foundation 
to the American Indian Land Tenure foundation, we were able to raise a 
total of $750,000 in equity.
    As Native American Natural Foods continued to grow at more than 200 
percent per year along with the increased price for buffalo, in the 
winter of 2010, we hit a cash crises and began to seek help to 
refinance. But because we were running with a negative equity balance 
sheet and no way to fully capitalize our assets that are on trust lands 
or add the value of the brand we are building to our balance sheet, we 
did not meet the required 20 percent equity to qualify for a guaranteed 
loan under the BIA loan guarantee programs.
    We presented our case to every major bank in western South Dakota. 
While many of them were impressed with our growth opportunities, they 
did not feel the loan would pass the equity requirement of the 
auditors, even if we were able to secure a Government guarantee.
    During this process, we had the help of Brian L. Brandt, President, 
Center for Business and Economics of the Northern Plains. Mr. Brandt 
said:

        My experience (and the experience of many of our colleagues and 
        clients) is that most of the lending officers at community and 
        regional banks that serve the Midwest (and in particular, in 
        Indian Country) lack the financial sophistication required to 
        understand the business models followed by most successful 
        emerging businesses--low collateral and low inventory levels, 
        and financing operating capital out of projected growth. 
        Virtually none of the high tech companies we now use as 
        models--from Apple to Microsoft to Google (which over time have 
        created 125,000 high paying jobs) would have ever qualified for 
        any kind of bank loan from any community bank in the U.S.

        On numerous occasions with Native American Natural Foods (among 
        others) after laying out a growth plan (that included testimony 
        from retailers and distributors alike that backed up the 
        conservative financial forecasts)--forecasts that would have 
        easily allowed both debt service and repayment out of 
        verifiable growth--we'd still get the question, ``Yes, but 
        where's the collateral?''

        The $30 billion of the Small Business Lending Fund (from the 
        Small Business Jobs Act of 2010) that many in Congress thought 
        would provide a solution was poured into community banks and 
        went primarily to their balance sheets. Very little of it has 
        found its way into community small businesses.

    We then decided to seek a loan with the First National Bank of 
Gordon, NE, asking SBA to provide a guarantee under the SBA 7a Program. 
We were turned down this time because of the Empowerment Zone, which is 
a tribally chartered organization. The SBA mistakenly believed it 
needed the tribe to waive sovereign immunity. After our attorneys at 
Patton Boggs here in Washington, DC, solved that problem, the SBA then 
wanted the Empowerment Zone to sign the guarantee because it owned 20 
percent of the company. But, because the Empowerment Zone is a 
nonprofit tribal development agency established to administer USDA 
funds set up through its program, its board was not willing to approve 
the guarantee.
    By the spring of 2010, Ms. Hunter and I had over-extended our 
resources to the point that we were seriously looking at shutting down 
operations. But first, we decided to reach out nationally to any tribe 
or lender who was willing to help.
    The Clearinghouse CDFI Fund of Los Angeles, whom we had met during 
a tour of the reservation organized by Oweesta Corp., a national Native 
American CDFI that supports Native economic development throughout 
Indian Country, decided that it would be willing to make its first-ever 
loan to a reservation-based business if we could get the BIA to approve 
the loan. We were not able to get the approval. The Clearinghouse CDFI 
then said that if we could find a guarantor to put up 250,000 in 
equity, it would approve a $500,000 loan with a second $500,000 if we 
could meet specific performance and equity goals.
    The Shakopee Mdewakanton Sioux Tribe made a donor directed 
recoverable grant to the American Indian Land Tenure Foundation, which 
was used to put up a CD in the American Indian National Bank. And the 
Clearinghouse CDFI completed the initial $500,000 transaction and kept 
Native American Natural Foods alive and growing.
    In the coming weeks, we expect to complete the second $500,000 loan 
from the Clearinghouse CDFI. But we still have not found the necessary 
equity capital to build Native American Natural Foods into the large, 
high-performance company needed to real have the economic and social 
impacts that Indian country requires. We are currently studying the use 
of New Market Tax Credits to access the equity and capital to 
facilitate this growth.
    I share this example with you to show the extremes that we had to 
go through just to survive. And even with the help of the top-rated 
attorneys at Patton Boggs, we were unable to utilize the Federal loan 
programs that were intended to help businesses in our situation. This 
causes great concern for Native American businesses that do not have 
our national reach or the highly experienced and committed help we 
received from Patton Boggs. Do they really have a chance to grow?
    There is no doubt that being a cash-constrained business increases 
our risk and our operating costs and limits our growth.
Native American Natural Foods: A Success Story Striving to Happen
    As we celebrate the fourth anniversary of Native American Natural 
Foods, let's look at what we have accomplished:

    We now have nine products--six ready-to-eat shelf-stable 
        products and three heart healthy frozen buffalo hot dogs.

    We have created 16 full-time jobs on the reservation and 
        the equivalent of four part-time jobs. For most of our 
        employees, this is their first private-sector job.

    Our products are distributed nationally by United Natural 
        Foods (UNFI), KeHE/Tree of Life, and Nature's Best.

    They are also sold by the case through our customer care 
        center (800-416-7212) and directly to the consumers on 
        Tankabar.com.

    Tanka products are sold in more than 4,000 locations in all 
        50 States and more than 275 Native American reservations.

    While Tanka products are a popular item at Mount Rushmore, they are 
not sold in the U.S. Senate cafeteria or any Government building in 
Washington, DC, with the exception of the National Museum of the 
American Indian.
    Syndicated industry sales data by Spins for August 2012 shows the 
Tanka Bar has grown by more than 202 percent in sales, representing 
more than 50 percent of the growth in the category. And four of our 
products are now in the top 16 nationally. This data is based on actual 
cash register scans at the store level and proves customer acceptance 
of the product.
    Tanka Bar Spicy Pepper Blend was recognized in 2010 by Backpacker 
Magazine as one of the best new products of the year. In May 2011, Golf 
Digest Magazine named Tanka Bar as a bar that every golfer should have 
in the bag.
    Tanka products are the official snack of the Oglala Sioux Tribe; 
certified as Native American Made by the Intertribal Agricultural 
Council; USDA-approved; certified by the Gluten Intolerance Group 
(GIG); and certified as a sustainable product by Green America. We have 
won numerous awards for both entrepreneurship and our products. Most 
recently, we were given the 2011 Innovation Award by the Social Venture 
Network.
    We have built this brand through the innovative use of social 
media. Every staff person has been trained and is expected to use 
social media every day to build brand awareness. By building a cross-
publishing platform, we have built a Web experience that attracts more 
than 50,000 visitors per month and empowers our staff to interact with 
consumers and retailers nationally, effectively breaking the economic 
isolation of the reservation.
    Social media has enabled us to build the Tanka brand without having 
to buy any advertising other than what is required by some national 
retailers. Just last month, we were approved to start selling our 
product into Whole Foods, the largest natural food retailer in the 
United States.
Looking to the Future
    The future of Native American Natural Foods is one of hope and 
opportunity that is limited by our access to affordable capital and 
business-based on-the-job training opportunities for Native American 
youth.
    Anyone who watched ABC's powerful news magazine 20/20 presentation, 
``Hidden America: Children of the Plains,'' cannot help but see the 
challenges we face and that the needs are great. I view the show as a 
challenge to all of us who profess to want to improve the conditions of 
Indian people, to do more, to think bigger, to reach across the fence, 
the reservation boundaries, or political barriers to find solutions. 
This type of stagnant historical poverty has become the norm on South 
Dakota's Indian reservations. We find this unexcitable. It is time for 
change.
    Here are a few solution-based ideas that we see on the ground 
level--or the front lines, you may say--that would help:

    We need to recognize that the solution to economic 
        development in Indian country is within the creativity, 
        courage, and commitment of Indian people.

    We need to look at the population growth on South Dakota 
        Indian reservations as opportunity, not as a problem. Work with 
        these young people to give them the opportunities so they can 
        see a future of hope and promise and become the entrepreneurs 
        of tomorrow!

    We can no longer subsidize off-reservation businesses with 
        capital and subsidize labor and expect it to grow the economy. 
        We need to find ways to incentivize larger, more profitable 
        companies to support Native-controlled business from minority 
        ownership positions.

    Renew the American Indian Employment tax credit for job 
        creation. But this credit has to be transferable to the 
        minority shareholder at 100 percent value to encourage larger, 
        more profitable companies to partner with reservation-based 
        businesses.

    Create a 4-year Tax Holiday for all profits made from 
        investments on reservations where the unemployment rate is more 
        than 30 percent.

    Make exceptions to the 20 percent equity requirement. 
        Within the authorizing legislation of the BIA Loan program, 
        there is a provision to allow for exceptions to the 20 percent 
        equity requirement, but it is seldom or ever used. There needs 
        to be a requirement to waive this for growing businesses within 
        impoverished areas. And exceptions made for that business that 
        lost equity, but was able to survive the economic downturn of 
        2008.

    Support equity from Indian country's CDFIs, CDCs. Also, in 
        cases like ours in Indian Country where CDFIs, CDCs and other 
        nonprofits--whether they are chartered by a State or a tribe 
        that holds minority ownership as the result of managing 
        Federal, State or foundation funds in the project--should not 
        be required to provide a guarantee for a business in which they 
        do not hold any decision-making authority.

    CDFIs: Please continue to grow the Native American CDFI 
        program; expand its capacity to provide technical assistance 
        contracting to larger growing businesses to help plan and 
        execute expansion.

    Support New Markets Tax Credits for reservation-based 
        business. Native American Natural Foods has had preliminary 
        discussions regarding a New Markets Tax Credit transaction that 
        may assist us in obtaining equity for our corporation. Equity 
        is extremely difficult for small businesses, yet vital for 
        obtaining debt capital and continued growth. I understand this 
        program has helped many small businesses and has created 
        thousands of jobs across the country. This is an extremely 
        important initiative at this time.

    Healthy Foods Initiative: The recent emphasis on ``healthy 
        foods'' in this country is a concept we certainly support. As 
        the creators of a healthy snack food, we recognize the 
        important role nutrition plays in health care, education, and 
        worker productivity. However, we are concerned that the current 
        policy emphasis for ``Healthy Foods'' is seemingly focused 
        solely on creating grocery stores in ``food deserts.'' We 
        encourage those involved in this initiative to strongly 
        consider supporting those businesses that are actually creating 
        ``healthy foods''; such as companies like Native American 
        Natural Foods. Grants and loan dollars earmarked for those 
        creating and promoting healthy foods will provide a much better 
        return than what is projected from additional grocery stores 
        and markets.

    Agricultural: I understand U.S. Senator Casey from 
        Pennsylvania is planning to introduce a new bill, which through 
        USDA, will create a new loan fund, backed by a partial Federal 
        guarantee similar to the SBA 7A program, for helping support a 
        new generation of local farmer entrepreneurs to provide fresh 
        local food to meet the rapidly growing demand across the 
        country for locally grown foods. It includes some funds for 
        technical assistance to help ensure the success rate of these 
        new farm entrepreneurs. This is a much-needed program and needs 
        to include a Native American set-aside for the larger land-
        based Tribal areas. We would also like to see the bill increase 
        to create lending opportunity for Native Americans who wish to 
        become buffalo producers.

    Return the buffalo to the economy and diets of Indian 
        people. We also would like to see a tax-incentive to encourage 
        investments with Native American buffalo producers. While the 
        buffalo industry is growing fast and doing well, there is 
        little opportunity for Native American buffalo producers to 
        enter the industry. In 2010, we were only able to purchase 
        about 22 percent of the buffalo needed for the Tanka Bar from 
        Native producers. The historical record supports an argument 
        that the last time the Lakota People had a healthy sustainable 
        economy it was based on the buffalo. This record also shows 
        that the Buffalo were destroyed as an act of war to subjugate 
        Indian people. It is clear that many Native peoples and tribes 
        would like to return to a partial buffalo-based economy. And 
        the Federal Government has a responsibility to support these 
        efforts every way possible. We have a collective vision of 
        returning buffalo to 1,000,0000 acres of Native lands in the 
        next 10 years and have launched the Tanka Fund to make this 
        dream a reality.

    Investor protection. In order to attract more investments 
        on to reservation-based CDFIs, their needs to be some deposit 
        insurance and some tax incentives to help CFDIs provide higher 
        levels of funding as a business grows.

    The BIA Loan Guarantee Program. Needs to be expanded to 
        tribes who invest in private businesses outside of their own. 
        Currently, the largest tribal lender in Indian country is the 
        Mdewakanton Sioux Tribe. They only lend to tribal enterprises. 
        But in order to incentivize more tribes to lend or invest in 
        small businesses there needs to some protection on investments.

    Transportation: We would like to see you continue to grow 
        the much-needed public transportation programs in Indian 
        country. You have started a great and much-needed program that 
        needs to be supported to grow.

      We would also like to make you aware of the challenges in 
        shipping and receiving. When shipping LTL; trucks only come to 
        the reservation two times per week, even UPS who markets itself 
        as logistic does not acutely guarantee overnight shipping from 
        the reservation.

    U.S./Mail: It is a business necessity to have daily mail 
        delivery on the reservation. Any cut back in mail service will 
        increase the economic isolation of the reservation.

    State/Tribal Gaming Compacts: The Federal Government needs 
        to use its influence with States to make sure that investments 
        that are made by tribes are allowed to grow to their full 
        potential. For example, the Mdewakanton Sioux community made 
        one of the largest business loans ever on the Pine Ridge 
        Reservation to the Oglala Sioux Tribe to build a new casino and 
        hotel. But, the State refuses to allow them to put in all the 
        machines they could because of the States protectionist policy 
        toward off reservation private casinos. This interferes with 
        the growth of commerce on the reservation. It is also true that 
        protectionist policy limits competition that reduces value of 
        the protected industry over all.

    Business evaluations: How business value is evaluated in 
        Indian country is a large and complicated issue since many 
        businesses are on trust land and not easy transferable. It is 
        also true that successful businesses; owe our success to our 
        relationships with our vender/distributors and, most 
        importantly, our customers.

      Brand Value: What bankers often refer to as blue sky, but 
        currently there is no method to establish Brand Value without 
        selling the company. But if your goal is like ours to build a 
        sustainable economy on the reservation, you do not want to 
        sell. But even when we sell equity to a tribe's nonprofit or 
        social investors who see the value in our triple bottom line 
        approach of money, people and lands, we are told that these 
        investors do not count as real investors because they are not 
        making a financial decision that can be used to establish 
        value. As if the lender or Government bureaucrat has some right 
        to decide what an investors motivation is. It also ignores the 
        reality that only a courageous investor with deep belief in 
        helping to give people opportunity's that have been denied it 
        throughout all of history would make such a investment. Last, 
        it ignores the fact that social and sustainable investing is 
        growing and needs to grow as a result of limited Government 
        recourses to fund market based solutions to the problems of 
        poverty and changes in our environment. It is estimated that 
        socially motivated investing is now over $60 billion and 
        growing.

      Facilitate the use of Confirmed Market Forecast as 
        collateral for Small Business--Some mechanism has to be created 
        (if it does not already exist in the form of the CDFI) to 
        provide operating capital to growing businesses based on a 
        high-degree of due diligence and verification of the growth 
        potential of that business. The lending model simply has to be 
        decoupled from the requirement for hard-asset collateral and 
        coupled to verification of the growth potential and cash-flow 
        analysis for businesses, as is the practice for most of the new 
        and emerging business models.

    Support small sustainable business growth by making lending 
        to small businesses a banking requirement. It is common 
        knowledge and most experts agree that small business is the key 
        to job creation. But every small business owner I know will 
        tell you that the Banks are not lending to small business. 
        While the banks have received the $30 billion of the Small 
        Business Lending Fund (from the Small Business Jobs Act of 
        2010. According to both CNN and The Huffington Post, (among 
        many others,) 87 percent of the community banks that 
        potentially qualified didn't apply. Out of the ones that did 
        apply, 40 percent of those ultimately didn't qualify. Of those 
        that did qualify, many, like M&T Bank and MB Financial are 
        holding onto their cash and cynically using the money to 
        acquire other banks and buy investments for their portfolios. 
        Dozens more like Security Business Bank of San Diego are simply 
        swapping their Federal rescue money for potentially cheaper 
        financing from the same source: the Government.

    Mark Wilson, a former bank examiner for the Federal Reserve 
        characterizes the program this way: ``This is a below-the-radar 
        bailout for community banks. What we lack here is oversight and 
        true accountability.''

    Existing Federal programs aimed at making critical operating 
        capital available to emerging and growing businesses have 
        failed to have any significant impact on job creation and the 
        only impact Indian country is to create false hope as we waste 
        precious time chasing funds from a system that does not work. 
        The result is forcing many small businesses into using credit 
        cards to pay for operating supplies. I have had to do it times. 
        Often costing them 12 percent-16 percent or even more than 20 
        percent interest. In effect, the banks can increase profit by 
        not approving loans. Worst yet are the predatory lenders that 
        victimize our small business and our employees.

    Create regulation that grades banks and their access to 
        capital on how well they serve smaller independent businesses 
        as well as sustainable business models.

    While we in small business are often required to use our creative 
        energy's to navigate the Federal, State, and banking 
        bureaucracy in order to survive, we are not the ones lobbying 
        for less regulation or oversight. We want clean air, clear 
        water, safe food, better schools and affordable college 
        education. But we also want and need a level-paying field. 
        Ninety-nine percent of the American people support small 
        independent businesses. Indian people are at the bottom of the 
        99 percent percentile in America and are hungry for 
        opportunity. The Oglala Lakota people are people in transition 
        from poverty to sustainable healthy communities. There are more 
        Indian business owners than any time in history. There are more 
        Indian people in college than ever before. The coming 
        generations is asking for our help. We need to open the doors 
        of opportunity by doubling and tripling our efforts to give 
        access to markets and capital. Native American Natural Foods is 
        proud to be part of this transformational movement and look 
        forward to working with all of you to find solutions to the 
        many problems we face.

    I would like to thank Chairman Johnson and Members of this 
Committee for allowing me to share my thoughts here today. Your tenure 
in the Senate is at a pivotal time in American history. The streets, 
coffee shops, Web sites and social networks of America are filled with 
frustration as the poverty and neglect that has besieged Indian 
reservations is now spreading across America.
    I challenge each of you to please listen to the American people who 
want and need change. America has the courage, talent and resources to 
build a healthy, sustainable, fair and just economy. You have the 
power, use it wisely. Inaction is not an option.
                                 ______
                                 
                 PREPARED STATEMENT OF MARTIN M. OLSSON
                         President, Eagle Bank
                           November 10, 2011

    Chairman Johnson, Ranking Member Shelby, and Members of the 
Committee, thank you for inviting me to participate in this discussion 
of Opportunities and Challenges for Economic Development in Indian 
Country. You have asked that I comment on several topics regarding 
Eagle Bank's role in encouraging economic development and challenges 
and opportunities. \1\
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     \1\ This statement reflects my views and not necessarily those of 
the Board of Directors of Eagle Bank or the Confederated Salish and 
Kootenai Tribes of the Flathead Nation.
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Economic Development and the Organization of Eagle Bank
    The Confederated Salish and Kootenai Tribes of the Flathead Nation 
(Tribes) have been proactive in economic development for many years, 
investing in tribal enterprises with the intent of promoting tribal 
employment and generating net revenues. Tribal businesses include 
resort and gaming operations, electronic and component manufacturing, 
information technology development, energy development, and 
environmental restoration. The Tribes have recognized the need for 
developing alternative sources of revenues to support their 
governmental and economic development needs, and the tribal enterprises 
are generating welcome dividends.
    The Tribes also recognized the need to support credit availability 
for their membership. Over 40 years ago the Tribal Credit Program was 
created with a modest investment to assist tribal members with small 
balance short-term credit needs that were not adequately addressed by 
traditional financial institutions, and over the years net revenues 
were retained to grow the fund. This program has grown into a $45 
million fund providing short-term unsecured loans, educational loans, 
home ownership loans and commercial loans, and as reserves have grown, 
the program has been able to return dividends to the Tribes.
    The Tribes also have a smaller fund for small dollar loans 
supporting tribal member economic development--Sovereign Leasing and 
Financing--and have instituted a grant program patterned after the 
Montana Department of Commerce Montana Indian Equity Fund. \2\ The 
Tribes are dedicated to providing credit opportunities and grants to 
tribal members and their small and start-up business that may not have 
access to capital from traditional financial institutions.
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     \2\ The Montana Department of Commerce Indian Equity Fund provides 
for two $7,000 grants to Native American owned business on each 
reservation in Montana and one $7,000 at large grant.
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    The Tribes' desire to expand into banking was a natural extension 
of their economic development goals and their desire to provide 
financial services for under-served members. After nearly two decades 
of research and discussion, the Tribes organized Salish and Kootenai 
Bancorporation \3\ and chartered Eagle Bank in 2006. The bank is 
charged with providing the traditional financial services for all 
residents and businesses within the Flathead Reservation, and to 
provide services for the under-served population such as small dollar 
loan and deposit accounts and check cashing that many financial 
institutions no longer provide.
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     \3\ Salish and Kootenai Bancorporation is the only bank holding 
company organized under Section 17 of the Indian Reorganization Act of 
1934.
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The Role of Eagle Bank
    The Flathead Reservation was established by the Hellgate Treaty of 
1855 and encompasses approximately 1.3 million acres of some of the 
most scenic agricultural and recreational areas of Western Montana. The 
Reservation overlays the majority of Lake County and portions of 
Flathead, Missoula and Sanders Counties and was settled by several 
bands of the Salish, Kootenai, and Pend d'Oreilles Tribes.
    During the early part of the 1910s the unallocated portions of the 
Reservation were opened to homesteading and, as a result, the majority 
of the residents within the exterior boundaries of the Reservation are 
not tribal members. The 2010 Census reports only 24.7 percent of the 
residents claimed American Indian/Alaska Native for their ancestry, 
making the Tribes the minority within their own reservation.
    Land ownership also reflects the population status with the 
majority of the Ag and developable real estate held in fee status, 
rather than Trust, and the Tribes are working to reacquire real estate 
holdings as they become available and budgets allow.
    The influx of people following the homesteading days led to 
significant economic development on fee land, and banking and commerce 
evolved over the past century in a manner more reflective of off-
reservation development. Unfortunately, trust property issues and 
lending to Native Americans were not addressed appropriately in the 
past, and the Tribes have worked hard to improve the understanding that 
banking and commerce need to be more inclusive and responsive to their 
inherent Sovereignty.
    Eagle Bank is one of five banks domiciled within the Flathead 
Indian Reservation and the market is also served by branches of two 
larger out of market banks and a branch of a large out of market credit 
union. This is an unusually high concentration of financial 
institutions located within an Indian reservation, and is the direct 
result of the opening of the Flathead Reservation to homesteading.
    Eagle Bank is charged with serving the general market with 
traditional banking services, but is also charged with providing 
financial services to the under-served. These services include (1) 
small dollar consumer loans, both secured and unsecured, (2) small 
dollar deposit accounts with access to debit and ATM cards, (3) check 
cashing for noncustomers who reside within the Reservation, (4) trust 
property loans, and (5) providing ``coaching'' on deposit accounts and 
access to credit. Eagle Bank would like to expand its ``coaching'' to a 
more formal program of financial literacy, and will do so when limited 
staff and resources permit.
    Eagle Bank also works with Tribal and other funding programs to 
leverage credit for small and start-up businesses, and serves as an 
advisor/grant reviewer for the Montana Department of Commerce Montana 
Indian Equity Fund, the Tribes grant program and the Tribes economic 
development committee.

Eagle Bank Model
    Eagle Bank opened at arguably the worst time, and continues to 
struggle with profitability during the most severe economic conditions 
since the Great Depression. The historic low interest rates are a major 
detriment to profitability because volatile tribal deposits \4\ require 
maintenance of excessive short-term/overnight funds that provide no 
margin. In a more ``normal'' interest rate environment, the bank would 
be able to realize positive margins on liquidity and an improved 
profitability.
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     \4\ Overnight funds average in excess of 25 percent of assets, and 
deposit swings in excess of 40 percent of assets have occurred.
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    The tribally owned bank model may have limited usefulness on many 
reservations because of the regulatory limitations on banks and their 
dealings with affiliates and operational limitations. In the case of 
Eagle Bank, the Flathead Reservation market offers a broad range of 
customers, tribal and nontribal, to support both deposits and loans, 
but the potential customer base on other reservations may not be broad 
enough to support a commercial bank.
    Regulatory limitations on dealings with affiliates have evolved 
over the years to address insider abuses of the past, but do not 
reflect the unique relationship between a tribe and a tribally owned 
bank. The tribe is the dominate economic driver on most reservations, 
and for the tribe and its bank to be successful, the bank needs the 
ability to work with the tribe and the affiliated entities on a scale 
that is not allowed under current regulations.
    The primary operational limitation is the dependence upon tribal 
deposit accounts and the manner in which they can be held. Many tribes 
compact for services with the BIA and under the terms of many of those 
compacts, the deposits associated with the services must be both 
interest bearing and secured. Temporary FDIC coverage of interest 
bearing transaction accounts (with restrictions on rate paid) during 
2010 provided relief, but the elimination of that coverage has 
increased the difficulty of providing tribal accounts.
    If the majority of the deposits are tribal and volatile, it is very 
difficult to provide adequate coverage by pledging securities and 
maintain adequate levels of liquidity. Additionally, current yields on 
securities have been too low to cover FDIC assessments and fixed costs 
to maintain the deposits.
    The temporary unlimited FDIC coverage on noninterest bearing 
transaction accounts has provided significant relief in maintaining 
deposit accounts for the Tribes, and I hope this temporary coverage 
will be made permanent, not only for Eagle Bank's somewhat unique 
requirements, but also for all smaller community bank's ability to 
compete with the perceived too-big-to-fail institutions.
    I would also hope the FDIC would consider unlimited coverage on 
interest bearing deposits on a fee basis for those willing to 
participate. The elimination of privately offered excess deposit bond 
coverage during the economic crises has placed additional burdens on 
community banks in general and Eagle Bank in particular.
    Lacking improved FDIC coverage or the return of excess deposit bond 
coverage, the majority of a tribally owned bank's earning assets may be 
required to be invested in securities to secure those deposits, 
restricting funds available for lending. There are a couple of third 
party providers working on multibank sweep accounts designed to 
increase FDIC coverage for excess deposits and it will be interesting 
to see how successful these products will be.
     If the potential deposit mix of a reservation is not broad enough 
to allow a tribally owned bank to have a diversified deposit base, it 
may be more appropriate for a tribe to partner with an existing bank to 
provide services on the reservation or to sponsor a credit union to 
promote access to financial services for its membership. Partnering may 
provide some return on a tribal investment, but there would be no 
return on sponsoring a credit union, and there would be additional 
regulatory restrictions on what services a credit union could provide 
the tribe and its business affiliates.

Challenges to Access to Capital
    Access to capital on reservations has been an ongoing problem for 
Native Americans, and I have observed three primary challenges limiting 
access (1) uncertainty created by tribal governments' willingness to 
support access to capital, (2) uncertainty created by lack of 
consistency in secured transactions, and (3) financial literacy.
    Tribal government uncertainty--One major impediment to accessing 
credit from financial institutions is the uncertainty in lending within 
the jurisdiction of a Sovereign entity. Each federally recognized tribe 
is a sovereign government and is responsible for developing its own 
governing laws, statues and court systems. Some tribes are very 
proactive in developing statues that support lending and have 
consistent enforcement through their tribal courts, and other tribes 
continue to maintain a more protective environment for their 
membership.
    Banks are reluctant to lend in an environment that is not governed 
by a strong, consistent court system that will allow collection of 
debt, and bank regulators have been increasing critical of loan 
administration not based upon solid, well documented credit 
administration and collection practices.
    This creates a difficult environment for banks--there is a 
perception banks are discriminating against Native Americans by not 
lending on reservations, but if secured credit is extended on some 
reservations, there is the very real potential that the bank will have 
no recourse in the case of default. Within the past year, Eagle Bank 
was not successful in civil actions in 2 of the 3 courts approached--a 
Washington tribal court refused to schedule a hearing, and a Montana 
tribal court scheduled a hearing, but when Eagle Bank appeared as 
scheduled, no one else appeared, not even the judge.
    I believe this to be more of an educational issue rather than a 
jurisdictional issue between sovereign tribal governments and financial 
institutions organized under either State of Federal charters. The 
Confederated Salish and Kootenai tribal court is an example of an 
unbiased court that is consistent in its treatment of collection 
actions. Creditors can be confident that a collection action filed with 
this court will receive a fair hearing, and the court will rule on the 
merits of the case.
    Tribal governments need to understand that for capital to be made 
available within reservations, those receiving the benefit of the 
capital must be accountable for repaying their debts and the tribal 
governments must take responsibility to assure lenders have a clear, 
consistent recourse in the case of a default through an independent and 
unbiased tribal court system.
    Lack of consistency in regulating secured transactions--In addition 
to a consistent and unbiased court system, it is necessary to develop 
and adopt uniformity in regulating transaction secured by real and 
personal property. Trust property issues vary from reservation to 
reservation, and even though there are established procedures in place 
for perfecting mortgages on individually owned trust property and 
assignment of leasehold interests in tribal trust property, the ability 
to sell foreclosed real estate is often limited on some reservations. 
Credit underwriting must take into consideration the ability to sell 
foreclosed real estate, and this may have an adverse impact on the 
ability of a Native American to borrow.
    The inability to adequately record and search liens on nontitled 
personal property creates nearly as much uncertainty in lending as an 
unresponsive or inconsistent court system. Susan Woodrow's testimony 
today will address the ongoing efforts to develop a uniform tribal 
secured transaction code and I strongly support this effort.
    Financial literacy and technical assistance--Financial literacy 
continues to be a challenge accessing capital and is not limited to 
Indian Country. There is a significant population that does not have 
the basic financial understanding and/or training to successfully 
manage deposit accounts, complete loan applications or understand the 
importance of credit ratings. Many banks have taken the approach, and 
perhaps rightfully so from a profitability and litigation point of 
view, that if a potential borrower does not have the ability to 
complete a loan application and does not have a predetermined credit 
score, the application will be rejected.
    Many Native Americans do not understand the significance of credit 
scores and the impact low scores have on their ability to not only 
borrow money but their cost of insurance and other credit dependent 
services. A primary negative factor for many Native American's credit 
score is medical collections. Many tribal members assume the IHS or the 
tribal health services are responsible for their health care, but often 
medical payments are not processed timely and the bills are not paid in 
their entirety. Medical providers routinely submit these unpaid bills 
to collection agencies, and because the tribal member assumes they are 
not responsible for payment, they to not respond to the collection 
activities. I routinely see credit scores in 500 range with medical 
collections the primary derogatory items.
    With no established banking relationship and low credit scores, 
many people fall prey to predatory lenders and check cashers. Once this 
pattern of borrowing and check cashing is established, it is very 
difficult for the individual to break free of a very expensive credit 
environment.
    There are numerous programs available for education of first time 
home buyers, out-reach through the school systems and technical 
assistance for small businesses. The first time home buyers programs 
appear to have value and the out-reach programs through the schools 
appear to be of benefit for those students that are reached. 
Unfortunately many students who need the basic financial education do 
not take the elective courses or who do not advance far enough in the 
school systems to participate in the out-reach.
    I am disappointed with some of the technical assistance programs I 
have observed. These are generally presented through a grant funded 
program and the TA providers are minimally paid individuals with little 
or no successful business experience. I am not suggesting that the 
providers are not very motivated and work hard to assist their clients, 
I am only suggesting that without personal successful business 
experience, it is hard to provide the financial training necessary to 
build a solid basis for someone attempting to start or expand a small 
business.
    Most TA providers follow a set pattern of developing a business 
plan (generally from a canned program) including at least three years 
projections and setting up basic accounting systems with balance 
sheets, income statements, cash flows and break even analysis. This may 
be an appropriate approach for those small business owners who have a 
general understanding of business and bookkeeping, but for those folks 
who do not have a good understanding of managing a check book, this 
approach is not appropriate.
    An example--I participate in reviewing grant applications for small 
Native American businesses, and recently I reviewed an application for 
a woodcutter. His business is to cut firewood and supply the wood to 
needy folks under a tribal program. He needs to understand what his 
fuel costs are to go to the woods, cut the firewood, and deliver it, 
what his costs are to maintain his equipment are make his loan 
payments. Anything in excess of those costs will provide for his 
personal living expenses. If he understands these costs, he could keep 
track of them by maintaining receipts in an envelope and basic notes of 
loads hauled, income and expenses on the back of that same envelope. He 
does not need a QuickBooks accounting system providing balance sheet, 
income statement and cash flow information when he will most likely not 
even use a checking account.
    His grant application included a ``text book'' business plan, 
including forecasts and cash flows, all prepared by a TA provider, and 
the TA provider commented that the applicant had difficulty 
understanding the cash flow analysis.
    Unfortunately the level of technical assistance training is not 
well matched to the needs of the small business owner, and for the most 
part, the technical assistance is only given in an attempt to apply for 
a grant or a loan. I feel strongly that all technical assistance should 
be directed to the understanding and management of the business, not to 
apply for a loan or grant, and should be provided by trainers with 
successful business experience and in a manner consistent with the 
level of sophistication of the business they are advising. Perhaps a 
partnership with a minority financial institution that would assist 
with funding financial literacy in local communities would be an 
option. As noted above, Eagle Bank is charged with providing financial 
literacy, but limited resources and staffing have prevented development 
of a more formal program.

Opportunities
    There are many opportunities for banks to assist with credit needs 
in Indian Country, and as Federal funding becomes more difficult, 
commercial lending can, and should, step up to fill the gap. Housing is 
a prime example.
    Many reservations have limited individual home ownership and the 
tribal housing authority owns and rents most units. The HUD 184 loan 
program offers an alternative to rental units, can increase the amount 
of housing available, and free limited tribal resources for other 
pressing needs. Robert Gauthier \5\ is a strong advocate for the HUD 
184 loan program, and it his opinion that freeing tribal housing 
resources by increasing home ownership must begin with educating tribal 
governments of the value of home ownership before attempting to educate 
the potential homeowners and the financial institutions that could 
serve those homeowners.
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     \5\ Robert Gauthier is the Chairman of Eagle Bank and was 
instrumental in the development of the HUD 184 guaranteed loan program. 
He has been involved in Native American housing issues for nearly 30 
years and consults on Native American housing and infrastructure 
issues.
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    This is an educational issue that does not appear to be addressed 
in the current technical assistance programs. Perhaps some level of 
support could be directed to this specific need, recognizing that 
educating tribal governments is a very unique challenge and may not be 
adequately addressed by conventional contract providers. Without 
educating tribal governments, expansion of individual home ownership or 
small business development on many reservations will continue to be 
very slow.
    In conclusion, I believe there are opportunities for economic 
development in Indian Country, but significant challenges remain. The 
Confederates Salish and Kootenai Tribes approach, including chartering 
Eagle Bank, is making a difference on the Flathead Reservation, but 
chartering or purchasing a bank may not be appropriate for many tribes.
    The primary challenges limiting access to capital have not changed 
significantly during the nearly 30 years I have worked on the Flathead 
Reservation, but I am optimistic progress is being made.
    I thank you for the opportunity to provide my comments this 
morning. I look forward to answering any questions that you may have.
                                 ______
                                 
                  PREPARED STATEMENT OF TANYA FIDDLER
             Executive Director, Four Bands Community Fund
                           November 10, 2011

    Pilamaya ye, thank you!
    Chairman Johnson, Ranking Member Shelby, and distinguished Members 
of the Senate Committee on Banking, Housing, and Urban Affairs--
Mitakuyapi, Tuktel He Najin Oyate Wiyankapi Win Lakota emaciyapi na 
Tanya Fiddler English emaciyapi, k'sto. To all of you, my Lakota name 
is ``She Stands Where the People Watch Her Woman'' and my English name 
is Tanya Fiddler. I am an enrolled member of the Cheyenne River Sioux 
Tribe. I am the Executive Director of Four Bands Community Fund, a 
nationally recognized Native CDFI that serves the Cheyenne River Sioux 
Reservation in north central South Dakota. I am also the Chair of the 
South Dakota Indian Business Alliance (SDIBA) and Cochair of the Native 
CDFI Network (NCN). Let me begin by saying Pilamaya ye, thank you, for 
the opportunity to appear before you on behalf of the people and 
organizations that are working to create Native private sector 
economies throughout the State of South Dakota and on reservations 
nationwide.

Introduction
    The mission of Four Bands Community Fund is to create economic 
opportunity by helping people build strong and sustainable small 
businesses and increase their financial capability to create assets and 
wealth. This is no easy feat on the Cheyenne River Sioux Reservation. 
Similar to other rural reservation communities we experience 
substantially higher rates of poverty and unemployment than mainstream 
America and face a unique set of challenges to economic growth. Lack of 
physical, legal and telecommunications infrastructure, access to 
affordable financial products and services, and limited workforce 
development strategies are common challenges that our growing Native 
business owners face and must overcome in order to be successful in our 
economy.
    The Cheyenne River Reservation encompasses Dewey and Ziebach 
Counties, two of the poorest counties in the Nation. Sixty-two percent 
of the residents in Ziebach County live below the poverty level. People 
often travel 50 to 100 miles on poorly maintained roads to access basic 
goods and services. The median household income is $27,000, nearly half 
of the United States average. The Bureau of Indian Affairs estimates 
that we have an 88 percent unemployment rate.
    Most residents of Cheyenne River have little expertise with banks, 
savings accounts, or effective use of credit. The Bank On Initiative 
estimates 21 percent of households are unbanked and 26 percent are 
underbanked in Dewey and Ziebach counties. The majority of Native 
communities, 86 percent, lack a single financial institution within 
their borders to access affordable financial products and services. We 
are fortunate to have three banks on the Cheyenne River Reservation but 
none of them report credit histories for their customers, adding to our 
challenges when it comes to small business lending. In other places 
without a local bank, like the Pine Ridge Reservation, the Native CDFI 
is developing a Native-owned Credit Union to responsibly meet the needs 
of their population.
    Despite these economic conditions, there is evidence to show that 
the work of Four Bands and other dedicated community and economic 
development organizations is beginning to pay off. According to data 
from the South Dakota Department of Labor, U.S. Census Bureau 2000, and 
U.S. Census Bureau 2005-2009 American Community Survey 5-Year Estimate, 
South Dakota's reservation counties with operating Native CDFIs have 
experienced significant growth over the last decade and have an 
economic momentum index that exceeds the State of South Dakota's index. 
From 2000 to 2009, the median household income on the Cheyenne River 
Indian Reservation increased 51 percent--surpassing the State's average 
by 24 percent. During that same timeframe, our reservation saw a 20 
percent increase in employment--nearly triple the State's average of 7 
percent. The neighboring Pine Ridge Reservation where Lakota Funds has 
been operating for 20-plus years saw similar results. From this data, 
we can determine that Native CDFIs are a proven solution to 
revitalizing reservation communities. More importantly in the world of 
business development, our reservation communities are demonstrating 
that we have the economic momentum for strategic investment that is 
critical for economic development. Yet, we have the huge task of 
securing partners at the State and local level for private investment 
and inclusive economic development strategies that will help us 
overcome the poverty and unemployment we experience. This is where the 
U.S. Treasury CDFI Fund program comes in!

Growing the Private Sector on Cheyenne River
    Four Bands has developed and implemented a number of strategies 
that contribute to the successful development of our local economy. A 
CDFIs greatest investment is in human capital--the community 
development financial institution model provides financial products in 
combination with development services, such as business and financial 
education, training and technical assistance, that increase 
entrepreneurial skills and financial capability for our tribal members. 
We realize that reversing multigenerational poverty requires a 
comprehensive approach to several issues at once, therefore, our core 
program areas include: (a) Business & Entrepreneur Development--
offering loan products and customized services aimed at creating 
businesses and developing entrepreneurial skills; (b) Mazaska K'sapa 
Nitawa (Your Money Wisdom)--helping develop sound financial management 
practices and asset building skills for adult individuals and families; 
and (c) Wicoicage Sakowin kin un Wicakagapi (Building for the Seventh 
Generation)--building long-term employment and life skills of our 
youth.
    Since Four Bands began lending in 2002, our community impact has 
been steadily climbing as our programs experience significant growth. 
In 2002, we provided services to 84 clients and disbursed 19 loans. By 
2010, those numbers progressed and we served 576 clients and disbursed 
105 loans. On average, 80 percent of our loans are used to finance 
start-ups. We recently reached the $3,000,000 mark in lending, and as a 
direct result have created over 100 Native-owned businesses and nearly 
400 jobs since our inception.
    A unique challenge in our area is the creditworthiness of our 
client base. Over 55 percent of our clients have no credit file and of 
the 45 percent who do have credit histories we've seen their average 
score 100 points lower than the national average. With this in mind, we 
have created a Credit Builder Loan program that has made 62 loans, 
totaling $130,500, to help individuals create and repair credit 
histories, resulting in improved credit scores for nearly 90 percent of 
these clients within the first 6 months of participating in the 
program.
    We also run an Individual Development Account (IDA) program, or 
matched savings program, that was launched in 2005 to help create 
owner's equity in assets like home ownership, business start up and 
higher education. Overall, $300,000 in savings match has been committed 
in our IDA savings program for 52 adults and 95 youth to achieve their 
goals and move beyond poverty. The Federal program that supports IDA 
programs, Assets for Independence under the Office of Community 
Service, is currently being recommended for a 63 percent cut in funding 
in the House version of the 2012 budget. This program is one of the few 
resources available to invest in community asset building efforts.
    In 2008 Four Bands launched a comprehensive public education 
campaign called Making Waves as part of the Wicoicage Sakowin kin un 
Wicakagapi (Building for the Seventh Generation) program in order to 
replace poverty and unemployment with financial literacy and 
entrepreneurship on the Cheyenne River Reservation. This program 
promotes the ABCs of Financial Literacy and 
Entrepreneurship'--key behaviors that people can incorporate 
into their lives. Through the implementation of the Making Waves 
Teacher Toolkits and Trainings, over 2,000 Cheyenne River Youth in 60-
plus classrooms on our five reservation schools have been exposed to 
concepts of financial literacy and entrepreneurship. The Making Waves 
program had the support of tribal government, the school system and 
business community implementing the ``Make Money Matter'' and ``Shop 
Cheyenne River'' strategies that encouraged wise management of 
financial resources and local shopping habits. The Making Waves 
strategy has spread to the Pine Ridge and Crow Creek Reservations where 
they are implementing the ABCs of Financial Literacy and 
Entrepreneurship' as well.
    Because of limited data and limited resources, we have also 
conducted in-depth market analyses in order to identify prime sectors 
for development and to keep dollars in the local economy. Our report, 
``Business Opportunities in the Cheyenne River Reservation Market,'' 
released in September 2008, has been used by local entrepreneurs to 
identify customers, competition, successful marketing strategies, 
effective business operations, and potential business opportunities. As 
our economy has matured, we found the need to analyze the business-to-
business market and are currently working on the final version of a 
similar report to help boost our economy to another level.
    As demands for our products and services continue to grow, Four 
Bands has developed into the ``go-to'' place for:

    Adult entrepreneurs with limited access to capital, 
        business training, and coaching that assist in building 
        sustainable businesses;

    Adults and families committed to financial independence and 
        wealth creation; and

    K-12 youth interested in learning about entrepreneurship 
        and planning for a sound financial future.

    We understand the complex challenges of business development in our 
local environment and are able to assist businesses that are dealing 
with local, Tribal, State, and Federal jurisdictional issues.
Identifying and Overcoming Barriers
    In our State, we are fortunate to have the South Dakota Indian 
Business Alliance working to enhance Indian business development by 
leveraging partnerships and resources of diverse institutions and 
organizations. SDIBA's policy agenda addresses four sectors of economic 
development in Indian Country: Governance, Infrastructure, Finance, and 
Resources. More detail on SDIBA's policy recommendations can be found 
in Appendix A of this document. Through the work of SDIBA, our State's 
Tribes have celebrated two recent victories in influencing policies 
that support Indian business development. In March 2011, our Governor 
appointed the first-ever Secretary of Tribal Relations for South Dakota 
to emphasize the importance of Native American economic development and 
foster a better relationship between the State and South Dakota's nine 
tribes. Also, Tribal identification cards are now accepted as a 
legitimate form of identification and facilitate Tribal members in 
doing business throughout South Dakota.
    In the near future, SDIBA will be releasing a report titled, 
``Native American Entrepreneurship in South Dakota's Nine 
Reservations,'' which is a result of an in-depth market analysis of the 
small business development environment on South Dakota's nine Indian 
reservations. Native entrepreneurs in reservation communities face many 
of the same challenges that non-Native, rural entrepreneurs face when 
trying to start or grow a business: isolated geographical locations, 
lack of access to small business capital, and lack of access to peer 
networks. The ``Native American Entrepreneurship in South Dakota's Nine 
Reservations'' report identified the challenges that Native 
entrepreneurs on South Dakota's other reservations face and include:

    Difficulty in securing collateral because of the trust 
        status of Tribal lands

    Lack of affordable financial products and services

    Lack of entrepreneurship training and support services

    Lack of equity investment in Native-owned enterprises

    Inadequate telecommunications and transportation 
        infrastructure

    Some of the barriers identified in the report are similar to those 
identified in the Native American Lending Study conducted 10 years ago 
by the Department Treasury's CDFI Fund. Native CDFIs are the key 
organizations that have been working to create innovative solutions to 
overcome these barriers. Additionally, the CDFI Fund's research found 
that there exists a significant difference in the amount of capital 
investment in Indian Lands and Hawaiian Home Lands compared to the rest 
of the United States. The CDFI Fund's Equity Research Report estimated 
that the investment gap between Native American and Native Hawaiian 
economies and the United States overall totaled $44 billion.
    This March, the U.S. Census Bureau released 2007 Statistics for 
American Indian- and Alaska Native-Owned Businesses in the United 
States. This data showed the fruits of labor by Native economic 
development practitioners across the Nation. In 2007, there were about 
237,000 American Indian- and Alaskan Native-owned firms generating 
$34.4 billion in gross receipts and employing 184,000 paid workers. 
Between 2002 and 2007, American Indian- and Alaskan Native-owned firms 
outpaced the growth of nonminority firms with a 28 percent increase in 
gross receipts and an 18 percent increase in number of firms.
    However, according to the U.S. Department of Commerce Minority 
Business Development Agency, there is still an entrepreneurial parity 
gap between American Indian and Alaskan Native firms. If American 
Indian and Alaska Native firms' gross receipts reflected the 2007 adult 
American Indian and Alaska Native population share, receipts would have 
amounted to more than $160 billion--about $126 billion more than the 
actual figure. Paid employment would have totaled nearly 829,000--about 
4.5 times the actual employment. The number of American Indian and 
Alaska Native firms would have been over 383,000 firms--nearly 147,000 
additional firms.
    This entrepreneurial parity gap is the focus and opportunity for 
Native CDFIs throughout Indian Country. With investments from and 
partnerships with the Department of Treasury and other agencies, we 
continue to create innovative economic development strategies that are 
addressing these disparities. The Native CDFI Network, a member network 
formed in 2009, works to unite Native CDFIs in these efforts and to 
serve as a national advocate for Native communities throughout the 
Nation. Their policy agenda, included in Appendix B, outlines several 
key recommendations to overcome the unique financial and economic 
barriers that exist in Indian Country. For example, NCN supports 
establishing a supportive financial infrastructure that promotes 
economic stability in Native communities. In order to achieve this 
policy priority, NCN strongly recommends giving the Native Initiatives 
permanent language in the CDFI Fund's authorizing statute to secure 
future investment for Native Americans. We also work to demonstrate our 
impact in order to build private investment throughout Indian Country. 
One of the most significant tools for this is the New Markets Tax 
Credit program under Treasury that has been successful in attracting 
outside investment to leverage local efforts for the development of 
business, housing and community facilities that are needed for 
sustainable economic development.

Conclusion
    Numbering 69 today, Native CDFIs are making a difference, have 
created economic development momentum within the communities they 
serve, and are still the main source of capital access and resources 
for Native business development. These unique financial institutions 
are helping to develop local businesses, create jobs, expand affordable 
housing, and build the skills of Native people throughout the Nation. 
More importantly, Four Bands' investment in our reservation youth is 
creating a new culture of entrepreneurship and financial capability, 
giving us all hope for a strong economic future.













                 PREPARED STATEMENT OF DANTE DESIDARIO
    Executive Director, Native American Finance Officers Association
                           November 10, 2011

    The Native American Finance Officers Association (NAFOA) has been a 
resource for tribal leaders and finance professionals for 29 years. 
NAFOA has focused its efforts on building capacity, developing 
effective tribal economic policy, and building relationships with the 
investment and banking community in an effort to promote tribal 
economic growth. In our years of service to tribes, we recognize there 
is a clear role for Congress in creating laws that keep tribes from 
continuing to occupy the bottom of the socioeconomic statistics. To 
that end, we are grateful the Senate Committee on Banking, Housing and 
Urban Affairs has focused an entire hearing on the economic challenges 
and opportunities of Indian Country. And, we are hopeful this hearing 
is the first step to addressing our concerns.

Indian Country Economic Background
    Over our nearly three decades of service, NAFOA has witnessed 
exceptional economic growth for a number of Indian tribes. Over the 
same period of time, the overall economic growth for Indian Country in 
general has improved substantially as well. An analysis of 
socioeconomic change between 1990 and 2000 showed that Indian Country 
economies grew at a faster pace than the economy as a whole. In fact, 
over the last 30 years the inflation adjusted per capita income of 
Indians on reservations grew by 83 percent compared to 64 percent for 
the U.S. population as a whole. While these gains are remarkable, our 
per capita income remains one-third of the U.S. average. If incomes 
were to continue to grow at their 1990s rate, the gap would not close 
for another 55 years.
    Most Americans are familiar with the success of a relatively small 
percentage of gaming tribes that are located near metropolitan centers 
or Alaska Native Corporations that have successfully entered the 
mainstream economy through Government contracting. However, the 
economic potential of too many tribes remains unfulfilled. Many tribal 
governments lack the ability to provide the basic infrastructure that 
most U.S. citizens take for granted, such as passable roadways, 
affordable housing, plumbing, electricity, and telephone service.
    Economic development in Indian Country lags behind the rest of the 
Nation and impacts nearly every aspect of reservation life and tribal 
governance. For generations our communities have faced economic 
conditions that are even more pronounced than those of the current 
economic crisis. Eight of the ten poorest counties in America are home 
to Indian reservations. While economists worry as the national 
unemployment rate settles closer to 9 percent, data shows that 
unemployment among Native people was 15 percent in 2003 and has not 
dropped below 10 percent for generations. To compare directly to the 
Great Depression, the 2000 Census recorded unemployment for American 
Indians on reservations at 22 percent compared to the unemployment rate 
during the Great Depression of 25 percent.
    The 2000 Census reported the per capita income for American Indians 
and Alaska Natives living on reservations at $7,942, merely one-third 
the U.S. average for all races, which was $21,587. Low average income, 
coupled with high unemployment, means the poverty rate for Indian 
families on reservations is 36 percent, which is two-and-half-times the 
national average.
    Homes in Indian Country reflect the pronounced challenges of 
persistent poverty. Eleven percent of Native households lack kitchen 
facilities, 17 percent lack telephone service and 12 percent lack 
complete plumbing, while less than 1 percent of the U.S. population 
lack any of these facilities. Only half of reservation homes are 
connected to public sewer lines and our homes are almost three times 
more likely to be overcrowded than the national average. In addition, 
there is a tribal average of 3 in 10 households without basic means of 
communication.
    These substandard economic and quality of life indicators have a 
social toll as well. Health disparities are prevalent and suicide rates 
(a symptom of lack of opportunity) are high with over 60 percent more 
incidents than the average in America. Alcoholism on reservations and 
diseases like Tuberculosis are both over 500 percent higher among 
Indians.

What Works?
    Despite the challenging social and economic conditions on 
reservations, there are a number of recent economic successes resulting 
from tribes exercising their sovereignty and utilizing available 
Federal tools to grow their local economies and provide their citizens 
with a better quality of life--the goal of every government. For 
example, a few tribes located near major metropolitan centers have seen 
startling success by creating destination gaming enterprises. Some 
tribes further from population centers operate economic enterprises 
that serve to create reservation jobs and provide revenue for 
Government program support.
    For example, in the 1960s, rural Neshoba County in Mississippi was 
once one of the country's most economically depressed areas. Neshoba 
County is home to the Mississippi Band of Choctaw Indians who lived 
under depressed economic and health conditions. Nearly all houses on 
the reservation were considered substandard: 90 percent had no indoor 
plumbing; one-third had no electricity.
    In the 1980s, the Tribe worked hard to turn conditions around by 
building the infrastructure necessary to draw industrial jobs to the 
reservation. After completing an industrial park, the tribe convinced a 
division of General Motors and the American Greetings company to locate 
on the remote reservation. Soon after, the tribe diversified its 
economy by creating service sector enterprises. Today, the tribe is the 
State of Mississippi's second largest employer with over 8,000 
employees on its payrolls. After generations of living in the worst 
economic conditions, the tribe has become a regional economic leader in 
the south.
    Tribal governments, when given the right tools, can effectively 
lift their communities out of poverty and fully participate in the 
American economy. Not only can tribes raise their economic profile, but 
they have proven time and again that investing in tribes is an 
investment in rural America. Surrounding communities, and sometimes 
entire regions, are also beneficiaries when tribes succeed 
economically.
    The researchers at the Harvard Project on American Indian Economic 
Development and others have found time and time again that creating an 
environment which supports tribal self-determination and tribally 
driven economic development is the most effective strategy for 
confronting the persistent poverty in many Indian communities. This 
same conclusion was drawn in a report prepared for the Department of 
Health and Human Services in 2004. The report concluded that of the 
more than 100 Federal programs available to assist tribes or tribal 
members with economic development, none stands out as the most 
beneficial for every tribe. Rather, the researchers concluded, ``the 
Federal Government's ongoing commitment to Indian self-determination, 
tribal self-governance, and tribal sovereignty has had a positive 
impact on [business and economic development] in Indian country.'' In 
acknowledging this reality, it is vitally important that Federal policy 
makers give tribal governments the tools necessary to create vibrant 
economies on reservations that empower tribal leaders to govern 
effectively.

Tools for Empowerment and Growth
    The Community Development Financial Institutions (CDFI) program at 
the Department of Treasury has seen success in Indian Country for a few 
compelling reasons. First, the program is designed to not only meet 
locally identified needs but be implemented locally as well. This fully 
supports the principal that self-determination and tribally driven 
programs cited as keys to success. The CDFI program has also been 
successful because of the way that tribes were included in in the 
program. A portion of the program was set-aside for Native 
participation and it included technical assistance. Congress should 
continue to support this successful program and look to expand the 
participation beyond the grass roots level to include broad tribal 
economic needs using the same formula that has seen success.
    While CDFI's represent programs that work in Indian Country, the 
tax-exempt debt available to tribal governments represents a financing 
tool that has not worked. Tax-exempt bonding authority for tribal 
governments has not realized its potential because language related to 
its allowable use was unclear, the regulatory agency interpreted 
Congress' intent too strictly, and capital markets have steered clear--
equating uncertainty with risk.
    Congress first authorized tribes to issue tax-exempt bonds in 1982. 
At that time, it limited tribes to issuing tax-exempt bonds for 
``essential governmental purposes,'' but did not define the term. In 
1984, the Treasury Department issued Regulations that defined an 
essential governmental function very broadly for tribal purposes. Among 
other things, this included matters treated as essential governmental 
purposes for States and local governments under Section 115 of the 
Internal Revenue Code, in addition to the many commercial and 
industrial activities eligible for funding under the Snyder Act and the 
Indian Self-Determination Act.
    In 1987, Congress modified the broad regulatory definition of an 
essential governmental function by amending the law so that it did 
``not include any function which is not customarily performed by State 
and local governments with general taxing powers.'' The 1987 amendment 
does not affirmatively define an essential governmental function, but 
simply excludes certain types of facilities from the eligibility list.
    Congress' intent was simply to limit tribes to the same essential 
governmental functions that apply to State and local governments. 
However, conflicting views as to what Congress intended are paralyzing 
the ability of tribes to access the low-cost benefits of tax-exempt 
financing--the very benefit that was intended for tribes by the 1982 
Act.
    Even tribes that have sought financing projects that would appear 
by any other measure to be essential have been denied mostly because 
there is a commercial component that would also utilize the service. 
For example a tribe attempted to secure financing for a water 
distribution system and reservoir only to be disallowed because it 
would also serve the tribe's commercial enterprise. The same held true 
for a tribe trying to establish a parking garage. Other State and local 
governments typically provide roads, water, parking to attract 
businesses with no challenges to their bond offerings. State and local 
governments routinely finance golf courses, marinas, and convention 
centers. Even the new stadiums are built with the proposed use tax-
exempt financing although some are finally questioning the public 
benefit.
    Included in the American Recovery and Reinvestment Act (ARRA) was 
an allotment of $2 billion in tax-exempt bonding authority for economic 
development purposes. The bonding authority allocations were divided 
into two $1 billion tranches to be utilized by interested tribes at two 
separate intervals. Both tranches were heavily subscribed by tribes, 
however; over 90 percent of the allocations went unused. Tribes were 
not able to secure credit in this difficult banking environment and the 
tax-exempt market has simply overlooked tribes because of past 
uncertainty and difficulties of their own in managing the strained debt 
of distressed State and local governments.
    As part of the ARRA, the Department of Treasury is required to 
submit a report on the viability of the use of the essential government 
function test for tribal governments. The current law, with its focus 
on the essential governmental function test, tends to hamstring 
intergovernmental efforts, as well as, public-private partnerships. 
Uncertainty and risk are two formidable roadblocks to raising capital. 
Congress should act to provide clear guidance and do away with the 
essential government function test for the tribal use of tax-exempt 
financing. Tribes need access to one of the most effective government 
financing tools to meet basic citizen infrastructure needs and develop 
a revenue stream for local tribal government programs.
    There is similar confusion and uncertainty when it comes to tribes 
having the ability to raise capital as governments or invest in other 
tribal governments. To achieve parity with other Government entities, 
it is important that Indian tribes be included and specifically listed 
as governments in the Securities and Exchange Commission (SEC) 
definition of ``government body'' used in Regulation D. The current 
definition of governmental body as proposed is extremely broad and 
already implicitly includes Indian tribes as it includes any 
``jurisdiction of any nature'' and any ``body exercising, or entitled 
to exercise, any administrative, executive, judicial, legislative, 
police, regulatory or taxing authority or power of any nature.'' Indian 
tribal governments regularly exercise all of these forms of 
governmental powers, however, because they are not specifically listed 
as such, the financial markets are hesitant to extend the definition to 
tribal governments and regulatory bodies do not afford tribes the 
benefit of inclusion.
    Congress should remove the barrier imposed on tribes by this lack 
of clarity. It only serves to increase administrative costs, deter 
investment, and serve as a barrier for economic growth.
    The need for consistent laws and regulations would greatly help 
Native American communities. In 2000, Congress recognized this need and 
enacted the Indian Tribal Regulatory Reform and Business Development 
Act. This Act provided for regulatory reform in order to encourage 
investment, business, and economic development with respect to 
activities conducted on Indian lands. In short, Congress asked for a 
comprehensive review of the laws (including regulations) that affect 
investment and business decisions concerning activities conducted on 
Indian lands. The law also set out to determine the extent to which 
those laws unnecessarily or inappropriately impair investment and 
business development on Indian lands and determine the financial 
stability and management efficiency of Indian tribal governments. An 
authority was to be established in the Secretary of Commerce called the 
Regulatory Reform and Business Development on Indian Lands Authority 
that was to report its findings to the President and Congress. However, 
the Act was never implemented and many constricting laws and 
regulations remain.
    Congress has agreed that tribal governments need the tools to 
access and attract capital and investment, but has not authorized their 
full use. Because of built-in uncertainty, added cost and risks, tribes 
have not been given the full opportunity to succeed. In addition, 
Congress has also recognized the need to identify and remove existing 
barriers, but no action has been taken.
    To be successful, Congress should give tribes full use of 
Government financing authority, include tribes as accredited investors 
with the SEC, and, in its oversight role, encourage the responsible 
agencies to identify and remove barriers to growth.
    We know what works and look forward to working with the Committee 
to ensure these barriers are removed and programs are supported that 
promote self-determination and local control. These actions hold the 
promise of creating quality jobs on the reservation and in surrounding 
communities.
                                 ______
                                 
                 PREPARED STATEMENT OF SUSAN M. WOODROW
   Community Development Advisor, Federal Reserve Bank of Minneapolis
                           November 10, 2011

    Chairman Johnson, Ranking Member Shelby, and Members of the 
Committee, thank you for this opportunity to discuss economic 
development in Indian Country. \1\ This is a very broad topic, and I 
will mainly discuss one aspect of it--promoting the growth of a vibrant 
private business sector in Indian Country. In particular, I will 
emphasize that, despite many challenges, tribes have promising 
opportunities to strengthen the legal and civic institutions that 
support private enterprise in Indian Country. My primary point is that 
tribes can overcome the challenges and seize these opportunities, and 
that they can do so with appropriate outside assistance. The remainder 
of my remarks will address how tribes can develop a legal and civic 
framework to promote business development.
---------------------------------------------------------------------------
     \1\ These remarks reflect my views and not necessarily those of 
the Federal Reserve Bank of Minneapolis or the Federal Reserve System.
---------------------------------------------------------------------------
    Let me briefly explain why the Community Development department of 
the Federal Reserve Bank of Minneapolis is involved in helping to 
strengthen the institutional foundations of the Indian Country business 
sector. The mission of the Federal Reserve's Community Development, or 
Community Affairs, program is to support the Federal Reserve System's 
economic growth objectives by promoting fair, impartial access to 
credit and financial services. In pursuing that mission, Community 
Development staff members serve as conduits for information to 
facilitate relationships between bankers and community organizations 
and to help them develop new insights and approaches to meeting local 
credit needs. Toward this end, Federal Reserve Banks may specialize on 
issues that are relevant within their respective geographic districts. 
The Federal Reserve Bank of Minneapolis covers the Federal Reserve's 
Ninth District, which stretches from the Upper Peninsula of Michigan to 
Montana and includes more than 40 Indian reservations. Accordingly, for 
the past 20 years or more, the Community Development department of the 
Federal Reserve Bank of Minneapolis has sought to assist tribes and 
their members in overcoming the significant barriers they often face in 
accessing credit and financial services for consumer and business 
purposes.
    From early on, we learned that actual or perceived differences in 
legal institutions between reservation and off-reservation areas are 
one of the barriers to financial services access in Indian Country, and 
much of the outreach and technical assistance we have targeted to 
tribes has been related to developing their commercial and business 
laws. We also realized that the lack or inadequacy of these laws 
especially impacts independent small businesses in Indian Country, 
which typically do not have the resources, powers, and privileges that 
tribal governments have to arrange financing for larger deals. With 
that in mind, the Federal Reserve Bank of Minneapolis has supported 
numerous initiatives aimed at enhancing the private sector business 
environment in Indian Country. (Additional information on our 
initiatives and those of our partners is available on our Indian 
Country Currents Web page at www.minneapolisfed.org/indiancountry.)
    As an attorney, I have been encouraged to play a lead role in these 
efforts over the last decade. Based on that experience, I see 
significant opportunities to boost small business development in Indian 
Country by fully and effectively implementing the Uniform Law 
Commission's Model Tribal Secured Transactions Act for collateralized 
lending. Other important efforts include working with the Uniform Law 
Commission to develop a Model Tribal Probate Code that will free up 
land value and facilitate its use as collateral by helping to 
ameliorate the significant problem of fractionated interests in Indian-
owned allotted lands, and to provide Indian entrepreneurs a civic voice 
through voluntary, cross-sector coalitions like the Montana, South 
Dakota, Minnesota, and North Dakota Indian Business Alliances.
    Because these initiatives are still recent or pending, and because 
good data on tribal business environments and outcomes are lacking, we 
cannot provide a thorough assessment of their efficacy at this time. 
However, the Federal Reserve Bank of Minneapolis will monitor progress 
and, over time, provide feedback on which approaches are associated 
with improved economic performance and small business development in 
Indian Country.

The Opportunity for Private Sector Development in Indian Country
    In our outreach work, we see many signs that the private business 
sector in Indian Country is underdeveloped. Documenting these 
impressions with hard data at the local level is not always easy 
because, as noted by leading scholars, \2\ data on the private sector 
in Indian Country are generally scarce. However, some revealing data 
are available in South Dakota, which is unusual in that it has several 
counties lying entirely within reservations (or nearly so) and 
bordering similarly remote and rural counties that are entirely outside 
of Indian Country. This uncommon political geography means that data 
from the U.S. Census Bureau's County Business Patterns can be used to 
compare the number of nonagricultural private sector establishments, 
employees, and payrolls for these adjacent reservation and 
nonreservation counties. \3\
---------------------------------------------------------------------------
     \2\ The State of the Native Nations, Harvard Project on American 
Indian Economic Development, Oxford University Press, 2008, p. xxi.
     \3\ Most government establishments are excluded from the County 
Business Patterns data. Exceptions include Government-sponsored 
wholesale liquor establishments, retail liquor stores, book publishers, 
federally chartered savings institutions, federally chartered credit 
unions, and hospitals.
---------------------------------------------------------------------------
    For example, Ziebach and Dewey counties in north-central South 
Dakota lie mostly on the Cheyenne River Reservation, with only a bit of 
Dewey County included in the Standing Rock Reservation. Bordering them 
to the south are the nonreservation counties of Haakon and Stanley. 
According to the 2009 County Business Patterns data, Ziebach and Dewey 
counties together hosted 8,100 residents and 122 nonagricultural 
private sector establishments with 764 employees receiving just over 
$22 million in annual pay. Despite a significantly smaller combined 
population (4,900), Haakon and Stanley counties together were home to 
considerably more nonagricultural private sector establishments (186), 
employees (1,580), and pay (over $41 million).
    Similar patterns are common for other pairs of reservation and 
nonreservation counties in South Dakota. These gaps partly reflect the 
generally lagging State of economic development on reservations. From 
another perspective, however, they also reveal the potential 
opportunities to boost reservation economies by expanding their private 
business sectors, including retail and professional services as well as 
manufacturing.

Institutional Challenges
    The underdeveloped State of the private business sector in Indian 
Country is not an accident. It reflects the difficult history of 
dislocation and dependence that tribal societies experienced well into 
the twentieth century. These experiences directly stripped tribal 
societies of their traditional sources of wealth and disrupted the 
formation of new enterprises. They also sapped traditional tribal 
governing institutions and inhibited the bottom-up development of new 
institutions adapted to the modern economy. By the 1970s, when tribes 
finally gained a robust degree of self-governing autonomy within the 
United States, reservations had a weak private sector and lacked the 
types of legal infrastructure and civic institutions that help the off-
reservation business sector grow.
    Let me illustrate the challenges involved by discussing the impact 
that inadequate commercial law has on entrepreneurs in Indian Country. 
In particular, I will focus on the lack of clear laws and institutions 
to support the use of personal property as collateral to secure loans 
and other extensions of credit. By personal property, I mean tangible 
and intangible property, such as machinery and accounts receivable, 
that is not land or affixed to land. These types of transactions 
outside of Indian Country are governed by Article 9 (titled Secured 
Transactions) of the Uniform Commercial Code (UCC), which has been 
uniformly adopted by all 50 States as well as the U.S. territories. 
Within Indian Country, however, the State of secured transactions law 
is largely incomplete, outdated, or nonexistent, and highly nonuniform.
    Federal Reserve Bank of Minneapolis President Narayana Kocherlakota 
captured the essence of the problem in a speech he gave in Helena, 
Mont., earlier this year: \4\
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     \4\ Economic Development in Indian Country, April 14, 2011. 
Available at www.minneapolisfed.org/news_events/pres/
speech_display.cfm?id=4650.

        In the United States, the bulk of our practical, everyday 
        business law is State, not Federal, law. But tribes are 
        sovereign, to varying but significant degrees, with respect to 
        State law. That is, State laws and State legal procedures and 
        institutions often do not apply, or do not clearly apply, to 
        business disputes on reservations. Unless appropriate tribal 
        laws and institutions are in place, the result can be a vacuum, 
        a real or perceived lack of business law and related 
        institutions on reservations. Not surprisingly, this has a 
---------------------------------------------------------------------------
        chilling effect on business and economic development.

    The lack of fully developed laws to support collateralized lending 
that President Kocherlakota referred to is a widespread impediment to 
economic development, and especially private sector business 
development, in Indian Country. While tribal governments may be able to 
negotiate loan terms for large-dollar initiatives, small businesses 
located within tribal jurisdictions do not have such negotiating power. 
The lack of laws that establish the rules for these kinds of 
transactions creates a high-risk environment for lenders and other 
creditors. The result is either no deals or high-cost deals to 
compensate for the risk.
    Of course, some tribes and lenders are aware of this problem and 
have implemented a number of remedies. Some tribes have simply adopted 
by resolution the secured transactions law of an adjacent State. Others 
have hired attorneys or engaged law school students to draft unique 
tribal secured transactions laws or, more often, discrete components of 
such laws, such as provisions governing the processes for repossessing 
collateral upon default. Some tribes have accommodated the needs of 
lenders by entering into contracts with special provisions that 
incorporate by reference the provisions of Article 9 as enacted by a 
particular State for discrete financing deals. Most tribes, however, 
have no laws governing secured lending. In these tribal jurisdictions, 
the law of various State jurisdictions is typically left to fill the 
vacuum on a transaction-by-transaction, and very uncertain, basis.
    Although these varied approaches have accommodated a degree of 
lending and economic development on reservations, most have significant 
defects. Tribes that have simply adopted State secured transactions 
laws often find them culturally inappropriate (for example, because 
they do not prohibit using, and thereby placing at risk, sacred or 
historically significant objects as collateral) or inadequate (for 
example, because State secured transactions laws incorporate by 
reference other State laws that the tribe has not adopted). High legal 
costs have prohibited many tribes from engaging legal counsel to draft 
customized tribal secured transactions laws, and those that have 
engaged counsel to do so often fail to keep their statutes up to date 
as the related laws in surrounding States have evolved. For example, 
UCC Article 9 was significantly revised in the late 1990s, and by the 
early 2000s the revisions had been adopted by all of the States. Many 
tribes that had based their laws on State Article 9 versions prior to 
the revisions have not similarly updated their laws and, as a result, 
many provisions in the tribal laws have been rendered essentially 
unworkable in the current secured lending environment.
    Another significant issue with tribal secured transactions laws is 
the lack or inadequacy of mechanisms for publicly filing liens in 
collateral. Secured transactions laws necessarily rely on public lien-
filing systems to perfect security interests in collateral for purposes 
of determining priority of those interests vis-a-vis other creditors or 
parties of interest such as trustees in bankruptcy. States generally 
administer their UCC filing systems in a central location, typically 
within the office of their Secretary of State or banking division. 
Without a sound, credible UCC lien-filing system that readily allows 
electronic public filings as well as searches of debtors and liens 
against collateral, a secured transactions law is incomplete and thus 
ineffective. In my experience in reviewing the laws and processes of 
dozens of tribes, a sufficient, reliable, and easily accessible tribal-
based lien-filing system does not exist. This is not surprising. Filing 
systems are complex and costly to implement and maintain. \5\ Some 
tribes' secured transactions laws identify the office of the clerk of 
the tribal court or tribal secretary as the location to file a security 
interest. However, in my experience, the actual mechanisms for filing 
financing statements as well as continuations, amendments, and 
terminations, often do not exist. Discussions with staff in the 
appointed offices generally reveal no filings and no staff awareness of 
actual processes to file financing statements or conduct lien searches 
pursuant to public requests. Other tribes defer unofficially to a State 
filing system for lien filings under tribal law. The result, often, is 
that lenders and others face confusing and uncertain rules, and thus 
risky legal environments, that either deter them from doing business in 
Indian Country or raise the costs of doing business in tribal 
jurisdictions.
---------------------------------------------------------------------------
     \5\ In a recent conversation with the business manager of a State 
UCC-filing office, it was noted that its soon-to-be implemented updated 
UCC-filing system is costing approximately $500,000. This cost is for 
the programming alone, and does not include staffing costs or 
maintenance.
---------------------------------------------------------------------------
Seizing the Opportunity To Improve the Institutions of Business Law in 
        Indian Country
    The development challenges resulting from the lack of satisfactory 
institutions for collateralized lending in Indian Country are 
formidable. Nonetheless, with some assistance, tribes are meeting the 
challenges and seizing the opportunities for developing institutions 
that support private sector business development in Indian Country. I 
will illustrate this by summarizing the drafting, adoption, and 
implementation of a Model Tribal Secured Transactions Act (MTSTA). \6\
---------------------------------------------------------------------------
     \6\ Further information on the development of the MTSTA is 
available on our Indian Country Currents Web page at 
www.minneapolisfed.org/indiancountry and in the articles cited there.
---------------------------------------------------------------------------
    In response to tribal leaders' concerns about the lack of 
affordable credit for business development and consumers in their 
communities, a special committee of attorneys attacked the issue with 
an approach pioneered by State Governments. Like tribal governments, 
State governments face the dilemma of exercising their sovereign 
independence while ensuring that their laws are sufficiently similar to 
other States' laws to encourage commercial activity, including cross-
border business. To address this need, States often base their laws on 
model statutes drafted by the Uniform Law Commission (ULC)--a group of 
lawyers, judges, legislators, legislative staff, and law professors 
appointed by State governments ``to research, draft and promote 
enactment of uniform State laws in areas of State law where uniformity 
is desirable and practical.'' \7\ In 2001, the ULC formed a special 
committee to extend this approach to tribes, by drafting a Model Tribal 
Secured Transactions Act (MTSTA). The idea was to develop model 
legislation that tribes could adapt to local cultural and business 
needs while still providing a solid, stand-alone law sufficiently 
similar to State law so as to encourage cross-border commerce (e.g., a 
secured loan from an off-reservation lender to a business located on 
the reservation). The MTSTA was to be available at no cost to tribes.
---------------------------------------------------------------------------
     \7\ ``About the ULC'', ULC Web site, www.nccusl.org/
Narrative.aspx?title=About%20the%20ULC.
---------------------------------------------------------------------------
    Along with more than a dozen ULC commercial law experts, I served 
as an advisor to the MTSTA drafting committee from its inception. To 
ensure that tribal concerns were identified and appropriately 
addressed, we were advised by legal counsel for several California 
rancherias and representatives from 10 Indian tribes, including Crow 
Nation, Sac and Fox Nation, Navajo Nation, Chitimacha Tribe of 
Louisiana, Oneida Indian Nation of New York, Cherokee Nation, 
Confederated Tribes of the Warm Springs Reservation, Chickasaw Nation, 
and Little Traverse Bay Bands of Odawa Indians. Their active 
participation was critical to the project.
    With the completion and publication of the MTSTA in August 2005, I 
and other members of the drafting committee made ourselves available to 
explain the model act to interested tribal governments. We published a 
comprehensive accompanying guide on how tribes could adapt and 
implement the law, and over the last 5 years have made dozens of 
presentations to tribal representatives, community development 
specialists, bankers, and other important stakeholders around the 
country.
    In 2006, Crow Nation, situated in southeastern Montana, became the 
first tribe to adopt the MTSTA. Their experience illustrates some of 
the challenges of implementing it effectively. Explaining the 100-page 
act to tribal legislators required a strong commitment from individual 
leaders within the tribe. Official tribal business is conducted in the 
Crow language, so additional effort was required to translate key legal 
concepts into Crow.
    Passage of an adapted version of the MTSTA by the Crow Legislature 
did not end the implementation challenges. The tribe recognized the 
need (discussed earlier) for a reliable public lien-filing system to 
complete their secured transactions system. I worked with the Montana 
Secretary of State's Office and the tribe to facilitate discussions 
about utilizing the State UCC lien-filing system as the tribe's 
official filing system. The result of negotiations was a Joint 
Sovereign Filing System Compact that officially recognizes Montana's 
UCC filing system as the location for filing financing statements 
pursuant to the Crow Nation's Secured Transactions Act. The arrangement 
does not infringe on tribal sovereignty or tribal jurisdiction. The 
State of Montana simply provides a ministerial function on behalf of 
and at no cost to the tribe. Because these filing systems are complex 
and costly to implement and administer, the arrangement offers the 
tribe a reliable and recognized public filing system that lenders and 
other creditors know and trust. The arrangement is a win-win for the 
State and the tribe.
    The official compact signing ceremony was held in February, 2007, 
in the Mansfield Room of the U.S. Capitol and was attended by a large 
number of Crow dignitaries; the Montana Secretary of State and other 
State officials; Montana's three U.S. Congressional delegates--Senators 
Tester and Baucus, and Representative Rehberg; and representatives of 
the ULC and the Federal Reserve, as well as several other Federal 
agencies and Native organizations.
    The Crow-Montana compact set a precedent. The following year, the 
Oglala Sioux Tribe on the Pine Ridge Reservation in southwestern South 
Dakota, having also enacted the MTSTA, entered into a similar UCC-
filing arrangement with the South Dakota Secretary of State; and just 
last month, the Leech Lake Band of Ojibwe signed a joint powers 
agreement with the Minnesota Secretary of State to do the same. 
Statewide initiatives are now under way in Montana and South Dakota to 
encourage the remaining tribes in those States to enact the MTSTA and 
consider entering into similar filing system compacts with their 
respective States. The hope is to establish a reasonably uniform and 
reliable lending environment throughout Indian Country across the 
region.
    The Federal Reserve Bank of Minneapolis recognized that enactment 
of the law and establishment of a credible filing system arrangement 
were not all that was needed to create a sound legal environment for 
secured lending in tribal jurisdictions. Together with the ULC, the 
Federal Reserve Bank of Minneapolis has hosted two multiple-day 
training sessions for tribal judges and attorneys on the MTSTA, and I 
have provided several shorter training sessions for tribal judges on 
the model act. In addition, we have hosted workshops for those tribes 
that have enacted the law to ensure that local lenders have an 
opportunity to learn about the new legal environment for lending in 
these tribal jurisdictions. We will continue to provide such support to 
tribes in our District that adopt the law and establish appropriate 
filing system arrangements. To date, and to the best of our knowledge, 
more than 25 tribes have either adopted or are in some stage of 
reviewing the MTSTA for enactment. Demand for our technical assistance 
in these matters is significant, which is promising in that more and 
more tribes seem to be taking an interest in enacting the model law.

Further Challenges and Opportunities
    ULC Model Tribal Probate Code Initiative. The need for additional 
model tribal laws addressing a variety of issues that impact business 
development is great. One initiative being considered by the ULC is a 
model tribal probate code that would provide tribes with a 
comprehensive legal framework to address the significant problem of 
land fractionation moving forward, and that would be consistent with 
and further supplement the American Indian Probate Reform Act of 2004 
(AIPRA). \8\ Pursuant to Federal policy of the times, fractionation of 
lands allotted to individual Native Americans in the early part of the 
twentieth century has rendered vast areas of Native American-held land 
useless for development purposes or as collateral for loans, because 
land parcels are held in joint ownership, often by dozens or even 
hundreds of owners. The effect has been to tie up untold land value 
that could otherwise serve as collateral or contribute to development. 
Comprehensive and thoughtful probate laws are needed to help address 
some of the issues that land fractionation has caused. The ULC has 
hosted several preliminary meetings with key stakeholders from across 
the country who heartily support the effort. A modest amount of 
funding, however, is needed to enable the ULC to proceed in a way that 
ensures Native attorneys and other experts are able to fully 
participate as advisors to the drafting process.
---------------------------------------------------------------------------
     \8\ 15 U.S.C. 2201 et seq., Public Law 108-374, October 27, 2004; 
118 Stat. 1173.
---------------------------------------------------------------------------
    Indian Business Alliances. Concurrent with our work assisting 
tribes with commercial law development, the Federal Reserve Bank of 
Minneapolis has provided technical and organizational assistance to 
establish coalitions of diverse institutions and organizations with the 
mission of supporting Native private business development. The Montana 
Indian Business Alliance (MIBA), South Dakota Indian Business Alliance 
(SDIBA), and Minnesota Indian Business Alliance (MNIBA), established in 
2006, 2007, and 2008, respectively, share a common mission and 
strategic approach to developing and supporting Native entrepreneurs. 
These alliances are made up of representatives of tribal, State, and 
Federal governments and their respective agencies; tribal colleges and 
other educational institutions; community development organizations; 
foundations; financial institutions; corporations; nonprofits; and 
Native small businesses.
    By working together, IBA members have helped to elevate the 
dialogue, regionally and nationally, about the importance of 
incorporating Native entrepreneur development into strategic 
discussions regarding Indian Country economic development. The IBAs 
focus their work in four strategic areas: governance, infrastructure, 
finance, and resources.
    Governance includes such things as development of tribal policies 
that are favorable to private business, comprehensive ethics codes and 
systems, and constitutional reform to institute independent courts and 
other dispute resolution mechanisms. Infrastructure includes the 
development of legal and regulatory infrastructure; physical 
infrastructure such as telecommunications networks, zoned industrial 
sectors, and road enhancements; and workforce development. Finance 
incorporates all sources of business funding, including commercial 
lenders, community development financial institutions, equity funds, 
microloan funds, and other gap financing sources. And resources include 
such things as technical assistance and education for business owners, 
financial education, credit counseling and repair programs, and 
business mentoring.
    The IBAs tackle their objectives through conferences, workshops, 
policy forums, webinars, and research initiatives; and each hosts a 
comprehensive Web site featuring, among other things, resources for 
tribal governments and small business owners. Notable initiatives and 
accomplishments of the IBAs include: (1) significant work on capital 
access issues, including a survey of nonbank and commercial bank 
lenders in Montana and their lending to Native businesses, and related 
analyses of the capital access environment for Indian entrepreneurs; 
(2) support for input into the development of the Montana Department of 
Commerce's Indian Equity Fund which provides small equity grants to 
Native small businesses; (3) an in-depth research initiative examining 
the business environments on all of South Dakota's reservations; (4) 
advocacy for tribes' adoption of the MTSTA and filing system 
arrangements with their respective States; (5) Statewide policy forums; 
and (6) Indian business directories.
    Together, the IBAs have provided a significant voice for Native 
entrepreneurs in our Northern Plains and Rocky Mountain regions. We are 
also pleased to announce that, according to North Dakota Indian Affairs 
Commissioner Scott Davis, North Dakota has begun the process of forming 
a North Dakota Indian Business Alliance aligned with the common mission 
of the MIBA, SDIBA, and MNIBA.

The Challenge of Assessing Results
    The efforts and opportunities I have described for strengthening 
the institutional foundation of the private sector in Indian Country 
are new, and some have not yet taken shape. Their newness makes it 
nearly impossible to assess their effectiveness at this time. However, 
the passage of time alone will not fully solve the assessment 
challenge, for--as indicated above--data on the business environment 
and business outcomes on reservations are very limited.
    Over time, the Federal Reserve Bank of Minneapolis intends to 
contribute on this front, too, because we are committed to a fact-
based, realistic approach to economic development in Indian Country. In 
the near future, we expect to gather at least anecdotal information 
from bankers and other lenders regarding their perceptions of and 
experiences with new tribal business laws. We are gathering information 
about business laws and other business environmental factors on a 
number of reservations in order to statistically assess how these 
factors relate to the best measures we have of economic outcomes and 
well-being on reservations. I am hopeful that we will be able to make 
at least some preliminary findings available next year.

Additional Initiatives
    I have focused on the Federal Reserve Bank of Minneapolis' 
institution-focused program for promoting private sector development in 
Indian Country. Although this has long been our primary program related 
to access to financial services in Indian Country, we recognize that 
financial services access and economic growth in general depend on a 
wide array of factors. Accordingly, we and our Community Development 
colleagues from around the Federal Reserve System engage in many other 
Indian Country initiatives, including efforts aimed at enhancing 
personal financial education and credit counseling, access to housing 
finance, reservation employment and transportation opportunities, and 
tribal usage of Federal financial programs. \9\
---------------------------------------------------------------------------
     \9\ For further information on Indian Country initiatives at all 
of the Reserve Banks, see, the Community Development links at 
www.federalreserve.gov/communityaffairs/national/reservebanks.htm.
---------------------------------------------------------------------------
    This year, Community Development staff from the Board of Governors 
of the Federal Reserve System and multiple Reserve Banks collaborated 
to host tribal leaders and officials from nine Federal agencies at 
daylong ``Growing Economies in Indian Country'' dialogues in Phoenix; 
San Diego; Portland, Ore.; Billings, Mont.; Bangor, Maine; and Lac du 
Flambeau, Wis. \10\ The workshop series engaged nearly 600 tribal 
leaders, community organizations, and financial institutions in a 
dialogue about the short-term and long-term opportunities for growing 
economies in Indian Country. The results of these conversations are 
being summarized and compared in order to identify follow-up steps for 
the Reserve Banks and others. In addition, and as a continuation of 
this work, the Federal Reserve is planning to organize a national 
summit as a way to gather key stakeholders. This forum will be designed 
to provide an opportunity to share thinking on where additional 
research and data collection may be useful, to identify promising 
practices observed in the field, and to make policy recommendations 
that will address economic development strategies and solutions.
---------------------------------------------------------------------------
     \10\ For further information on these conferences, see, 
www.frbsf.org/community/resources/2011/0601-Growing-Economies-in-
Indian-Country/index.html.
---------------------------------------------------------------------------
Conclusion
    The challenges to economic growth in Indian Country are numerous, 
but over the past decade we have seen many tribal governments and 
individuals meet those challenges and create new opportunities. Mr. 
Chairman, in your letter inviting this testimony you stated that 
``Fostering small business growth is a vital step toward increasing 
employment opportunities and improving local economies in Indian 
Country.'' We wholeheartedly agree. We are well aware of the legacy of 
barriers and gaps that history has placed in front of Native American 
entrepreneurs, including barriers to accessing capital and financial 
services. Speaking personally, I can say that the legacy of weak legal 
and civic organizations important to small business growth and 
financial access is a particularly challenging barrier that I have 
witnessed on reservations across the United States. I am pleased to 
say, however, that our efforts at the Federal Reserve Bank of 
Minneapolis, such as the initiatives on model tribal codes, IBAs, and 
Indian Country economic research that I have described, allow us to 
work with tribal leaders and other Native and non-Native partners to 
remove these barriers. I have seen much progress in institution 
building in Indian Country over the past decade. With the right 
combination of grassroots leadership and appropriate outside 
assistance, I see many more opportunities for tribal citizens and their 
leaders to further develop sound legal and civic institutions to 
support a vibrant small business sector in Indian Country.
              Additional Material Supplied for the Record

    STATEMENT SUBMITTED BY THE NATIONAL CENTER FOR AMERICAN INDIAN 
                         ENTERPRISE DEVELOPMENT





















Attachment I













Attachment II







Attachment III





STATEMENT SUBMITTED BY KENT PAUL, CHIEF EXECUTIVE OFFICER, AMERIND RISK 
                         MANAGEMENT CORPORATION



































Attachment I





Attachment II







  STATEMENT SUBMITTED BY BUFORD ROLIN, CHAIRMAN, POARCH BAND OF CREEK 
                                INDIANS







