[Senate Hearing 114-97]
[From the U.S. Government Publishing Office]
S. Hrg. 114-97
ACCESSING CAPITAL IN INDIAN COUNTRY
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HEARING
before the
COMMITTEE ON INDIAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
JUNE 17, 2015
__________
Printed for the use of the Committee on Indian Affairs
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COMMITTEE ON INDIAN AFFAIRS
JOHN BARRASSO, Wyoming, Chairman
JON TESTER, Montana, Vice Chairman
JOHN McCAIN, Arizona MARIA CANTWELL, Washington
LISA MURKOWSKI, Alaska TOM UDALL, New Mexico
JOHN HOEVEN, North Dakota AL FRANKEN, Minnesota
JAMES LANKFORD, Oklahoma BRIAN SCHATZ, Hawaii
STEVE DAINES, Montana HEIDI HEITKAMP, North Dakota
MIKE CRAPO, Idaho
JERRY MORAN, Kansas
T. Michael Andrews, Majority Staff Director and Chief Counsel
Anthony Walters, Minority Staff Director and Chief Counsel
C O N T E N T S
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Page
Hearing held on June 17, 2015.................................... 1
Statement of Senator Barrasso.................................... 1
Statement of Senator Crapo....................................... 2
Statement of Senator Franken..................................... 38
Statement of Senator Hoeven...................................... 36
Statement of Senator Tester...................................... 40
Witnesses
Castillo, Alejandra, National Director, Minority Business
Development Agency, U.S. Department of Commerce................ 3
Prepared statement........................................... 4
Desiderio, Dante, Executive Director, Native American Finance
Officers Association (NAFOA)................................... 28
Prepared statement........................................... 30
Hill, Ross A., Founder/President/CEO, Bank2...................... 17
Prepared statement........................................... 19
Watchman, Derrick, Chairman, Board of Directors, National Center
for American Indian Enterprise Development..................... 7
Prepared statement........................................... 9
Appendix
National Congress of American Indians, prepared statement........ 47
Tribal D, Inc. (Tribal D), prepared statement.................... 50
Vizenor, Hon. Erma J., Chairwoman, White Earth Nation, prepared
statement...................................................... 51
ACCESSING CAPITAL IN INDIAN COUNTRY
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WEDNESDAY, JUNE 17, 2015
U.S. Senate,
Committee on Indian Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 2:30 p.m. in room
628, Dirksen Senate Office Building, Hon. John Barrasso,
Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. JOHN BARRASSO,
U.S. SENATOR FROM WYOMING
The Chairman. Good afternoon. I call this hearing on
Accessing Capital in Indian Country to order.
Today, we will hear our witness' perspectives on how to
improve access to capital and their experiences working with
Federal partners. As Chairman, I have made it a priority to
focus on issues that will help Indian communities to prosper
and to enjoy healthier lives.
Fundamental to these goals is the need to build sustainable
tribal economies and create jobs in Indian communities.
Economic development and the capital necessary for that
development are significant needs in Indian communities.
Between 2006 and 2010, when the U.S. unemployment rate was
just under eight percent, the average unemployment rate in
Indian Country was nearly 15 percent. Also, the Wyoming
American Indian unemployment rate from 2009 to 2011 was 67
percent.
That development relies on capital to start, support, and
maintain businesses of all sizes. Indian and tribally-owned
businesses face unique challenges beyond those that non-Indian
businesses in general, face. For example, many tribes are
located in remote areas, far away from transportation,
distribution, or communication systems suitable for sustainable
commerce.
Individual Indians do not have as many small business
owners when compared to other groups. For the most part, they
also do not receive business or financial assistance from
tribes. These businesses, however, tend to employ more people
than other small business owners.
In general, business capital is typically secured in the
private sector, through banks, credit unions, and other
individual groups. The Federal Government's role has expanded
to provide access to capital programs through various agencies
in the form of loans, loan guarantees, and financial education.
To attract investors, that role also includes promotion and
marketing assistance and tax incentives.
This Committee has received testimony in prior hearings
relating to economic development that accessing capital is
still quite problematic for Indian and tribal businesses. I am
looking forward to today's hearing and hearing solutions to
improve access to capital from our witnesses.
Before we turn to the witnesses, I would ask other members
if they have a statement. Senator Crapo?
STATEMENT OF HON. MIKE CRAPO,
U.S. SENATOR FROM IDAHO
Senator Crapo. Thank you very much, Mr. Chairman. I
appreciate your holding this hearing today on access to capital
for Indian Country. Regardless of location, access to capital
is one of the most important fundamentals of business and
economic development.
I had the pleasure yesterday of addressing some folks from
the National Center for American Indian Enterprise Development.
I see some of them here today, Mr. Watchman and others. We
appreciate the efforts you are undertaking as well.
We know the challenges Indian Country faces in accessing
essential business resources are significant. In fact, some of
our witnesses today have noted in their testimonies that Native
people are most underserved demographic in terms of access to
capital.
In addition to available financing resources, other
challenges arise for tribal businesses including
infrastructure, transportation, proximity to markets and the
availability of a skilled workforce.
I have further remarks, Mr. Chairman, but I would submit
the rest of my remarks for the record.
I appreciate your holding this hearing. I am going to be
pulled out and back a bit today, so I apologize in advance to
our witnesses and others.
Thank you again, Mr. Chairman, for holding this hearing and
for the attention of all of you here to this critical issue.
The Chairman. Thank you very much, Senator Crapo.
Today, we will hear from the following witnesses: Ms.
Alejandra Castillo, National Director, Minority Business
Development Agency, U.S. Department of Commerce; Mr. Derrick
Watchman, Chairman, Board of Directors, National Center for
American Indian Enterprise Development from Mesa, Arizona; Mr.
Ross Hill, President and Chief Executive Officer, Bank2,
Oklahoma City, Oklahoma; and Mr. Dante Desiderio, Executive
Director, Native American Finance Officers Association in
Washington, D.C. Thank you all for being here.
I want to remind the witnesses your full testimony will be
made a part of the official hearing record, so please try to
keep your statements to five minutes so we may have time for
questions.
I look forward to hearing your testimony, beginning with
Ms. Castillo.
STATEMENT OF ALEJANDRA CASTILLO, NATIONAL DIRECTOR, MINORITY
BUSINESS DEVELOPMENT AGENCY, U.S.
DEPARTMENT OF COMMERCE
Ms. Castillo. Good afternoon Chairman Barrasso, Vice
Chairman Tester, and members of the Committee.
My name is Alejandra Castillo. I serve as the National
Director of the Minority Business Development Agency, also
known as MBDA, at the U.S. Department of Commerce. I am pleased
to be here today to discuss the important topic of Accessing
Capital in Indian Country.
While there are many programs within the department that
benefit Native stakeholders, most of the department's work to
improve access to capital for Native-owned firms and other
minority business enterprises is done by MBDA.
Through our nationwide network of 44 business centers, we
help MBEs to reach their full entrepreneurial potential by
serving as a strategic partner for business growth and
development through the delivery of technical assistance,
access to public and private contracting opportunities, access
to markets as well as by providing advocacy, research and
education to the benefit of over 5.8 million minority firms
across the Country.
Native business owners, especially tribal government and
Native entrepreneurs living in Indian Country face many
obstacles when starting and growing a business. Access to
capital continues to be the number one impediment for Native
businesses and other minority businesses.
By any socioeconomic indicator, Native Americans are the
most underserved population in the Country. This means that
financial literacy, credit history and access to lending
institutions on or near Native lands may be lower than in other
areas of the Country. Many Indian reservations need improved
infrastructure and are geographically isolated which makes it
even more difficult for a business to thrive on Indian lands.
Despite these indicators, many tribes have succeeded in
creating thriving economies. Many Native people have
successfully launched businesses. These success stories are
often driven by relationship building.
When it comes to access to capital, MBDA can help
communities to build these relationships. We are focusing our
efforts at helping firms access a broad spectrum of capital and
financing.
MBDA has a long history of partnering with Native American
entities such as the National Center for American Indian
Enterprise Development, the American Indian Chamber of Commerce
of New Mexico, the United Tribes Technical College, and the
Indian Pueblo Cultural Center, to name a few.
We understand that while Native-owned businesses might be
classified as MBEs, the United States owes a unique trust
responsibility to the various Indian tribes and Native
Americans.
We believe the best way for tribes to effectively self-
govern is to empower tribes and Native people to create jobs
and opportunities on and off reservations, thus ensuring that a
strong economic multiplier effect is created. What better way
to do that than through the creation and growth of Native-owned
firms.
That is why Native-owned businesses are welcome to avail
themselves of the assistance of any of our 44 centers, 6 of
which are strategically located nearly major Native population
centers such as Anchorage, Alaska; Fresno, California; Santa
Fe, New Mexico; Bismarck, North Dakota; Tulsa, Oklahoma; and
Bridgeport, Connecticut.
When a Native-owned firm comes to MBDA seeking assistance,
our business centers are ready to provide individual, tailored
consulting services designed to help them develop viable and
sustainable business development strategies, identify capital
for their growth, target potential private and public sector
contracting opportunities and assist them in becoming export
ready.
Our technical assistance is designed to ensure that Native
firms and MBEs are able to grow in size, scale and capacity.
Additionally, MBDA advocates for MBEs including Native-owned
firms in the traditional banking space through relationships
with national banks and countless community banks.
We also work closely with other Federal agencies outside
the Department of Commerce such as the Small Business
Administration and Treasury to leverage existing programs that
increase capital opportunities for MBEs through micro lending,
community development, financial institutions and other loan
guarantee programs.
Through these partnerships, MBDA has served thousands of
Native American businesses. This year, to date, our network
center has served 1,100 American Indian and Alaskan Native
firms. Further, over the past six fiscal years, FY 2009 through
FY 2014, MBDA has assisted Native American clients in accessing
over $1.8 billion in capital.
However, we do not limit ourselves to the work with
traditional sources of capital. MBDA is pursing alternative
sources of capital for minority businesses. We created a new
access to capital team whose work has been twofold, (1) to
educate clients and firms about the type of alternative capital
and (2) to advocate on their behalf with the kind of financial
resource partners that minority-owned firms have a difficult
time accessing.
Finally, MBDA is expanding access to alternative financing
with a large portfolio of alternative capital providers
including marketplace lenders, angel investors, mergers and
acquisition firms in the middle market space and others.
MBDA makes these relationships available to Native
businesses through its national network of MBDA centers.
Fostering the success of Native-owned firms is something MBDA
takes seriously.
Chairman Barrasso and Vice Chairman Tester, thank you for
the opportunity to speak to you today. I am happy to take any
questions.
[The prepared statement of Ms. Castillo follows:]
Prepared Statement of Alejandra Castillo, National Director, Minority
Business Development Agency, U.S. Department of Commerce
Introduction
Good Afternoon Chairman Barrasso, Vice Chairman Tester, and members
of the Committee. I am Alejandra Castillo, and I serve as the National
Director of the Minority Business Development Agency, also known as
MBDA, at the U.S. Department of Commerce. I am pleased to be here today
to discuss the topic of ``Accessing Capital in Indian Country.''
There are many programs within the Department that benefit tribes,
including programs that offer grants to tribal governments for the
purpose of economic and infrastructure development, programs that help
tribal businesses export their goods overseas, and tourism projects
that help attract more revenue to tribal lands. We are here today to
discuss access to capital, but accessing capital is one prong of the
business development strategy. The Department has many programs which
can help Native-owned businesses thrive.
My testimony today will outline MBDA's mission and vision in
assisting the Nation's 5.8 million minority-owned businesses, which
also include businesses owned by American Indians and Alaska Natives.
For the purpose of this hearing, I will highlight MBDA's research
findings on access to capital and steps MBDA is taking to create a more
robust and sustainable ecosystem to help minority businesses obtain
more capital for their current and future needs. Finally, I would like
to share some specific examples of American Indian and Alaska Native
firms that have grown as a result of working with MBDA.
The Minority Business Development Agency: Overview
For over forty-five years, MBDA has been working aggressively to
expand the economic footprint of minority business enterprises (MBEs).
MBDA serves as the only federal agency tasked to help MBEs realize
their full economic potential through technical assistance, public and
private contracting opportunities, advocacy, research, education, and
by serving as a strategic partner for growth and development. The bulk
of this work is accomplished through our nationwide network of MBDA
Business Centers. Each Center provides services that assist businesses
in accessing capital, contracts, and new markets, as well as helping
them to grow in size and scale.
Research Findings: Disparities in Access to Capital
In 2010, MBDA released a report entitled, ``Disparities in Capital
Access.'' Some of the key findings included:
Minority-owned firms receive lower loan amounts than non-
minority firms. While the average loan amount for all high-
sales minority firms was $149,000, non-minority firms received
an average of $310,000 or more than twice the amount;
Minority-owned firms are more likely to be denied loans.
Among firms with gross receipts under $500,000, loan denial
rates for minority firms were about three times higher compared
to those of non-minority-owned firms. For high sales firms, the
rate of loan denial was almost twice as high for minority firms
as for non-minority firms; and
Minority-owned firms receive lower loan and equity
investment amounts. Minority firms averaged $29,879 in external
debt compared with $36,777 for non-minority firms. Minority
firms had the most trouble obtaining external equity with
$2,984 on average compared with $7,607 on average for non-
minority firms.
Native business owners, especially tribal governments and Native
entrepreneurs living in Indian Country, face many obstacles when trying
to access capital. By any socioeconomic indicator, American Indians,
Alaska Natives, and Native Hawaiians are the most underserved
population in the country. This means that financial literacy, credit
history, and access to lending institutions on or near Native lands may
be lower than in other areas of the country. Many Indian reservations
lack sufficient infrastructure such as adequate sewers, water, roads,
and broadband. Many tribes are geographically isolated and therefore
struggle to attract skilled workforces, teachers, and health
professionals--which in turn, makes it more difficult for businesses to
thrive on Indian lands. But despite these grim statistics, many tribes
have succeeded in creating thriving economies and many Native peoples
have successfully launched businesses. All things being equal, access
to capital is really a relationship business and that's where MBDA
shines.
Minority Business Development Agency: Working with Native Communities
MBDA has a long history of partnering with our tribal and Native
American colleagues, such as the National Center for American Indian
Enterprise Development, the American Indian Chamber of Commerce of New
Mexico, the United Tribes Technical College, and the Indian Pueblo
Cultural Center. We embrace the rich culture of Native American tribes
and we understand that while native-owned businesses might be
classified as MBEs, the United States owes a unique trust
responsibility to the various Indian tribes and Native Americans. We
believe that the best way for tribes to effectively self-govern is to
empower tribes and Native peoples to create jobs and opportunities on-
and off-reservation. That is why six MBDA Business Centers are located
in geographical areas with large American Indian and Alaska Native
populations: Anchorage, Alaska; Fresno, California; Santa Fe, New
Mexico; Bismarck, North Dakota, Tulsa, Oklahoma; and Bridgeport,
Connecticut.
When a Native-owned firm comes to MBDA seeking assistance with
access to capital, our Business Centers provide individually tailored
consulting services to them. These services include helping them
identify their immediate and long-term business needs; establishing
projected growth tracks; implementing targeted plans of action for
increasing the firm's size, scale, and capacity; and providing
strategic support to promote the achievement of the firm's desired
outcomes.
Additionally, MBDA advocates for MBEs, including Native-owned
firms, in the traditional banking space through relationships with
national level banks and countless community banks through MBDA's
national Business Center network. We also work closely with another
federal agency outside the Department of Commerce, the Small Business
Administration, on increasing opportunities for MBEs to pursue micro-
lending opportunities. Through these partnerships and our steadfast
commitment to the American Indian and Alaska Native community, MBDA has
served thousands of Native American businesses. This year, to date, our
entire network of centers has worked with nearly 1,100 American Indian
and Alaska Native firms. Further, over the past six fiscal years, FY
2009-FY 2014, MBDA has assisted American Indian and Alaska Native
clients with accessing nearly $1.87 billion in capital.
New Strategies to Improve Access to Capital for Minority-owned
Businesses
In addition to providing access to traditional sources for capital,
MBDA is pursuing alternative sources of capital for minority-owned
firms. We created a new Access to Capital Team whose work has been two-
fold: to educate clients and firms about the types of alternative
financing available, and to advocate on their behalf with the kind of
resource partners that minority-owned firms have a difficult time
accessing. Minority firms lack adequate access to venture capitalists,
angel investors, mergers and acquisitions firms, firms with Internet-
based platforms, and the many other firms that act as ever more
important alternative sources of capital. As I mentioned earlier in my
testimony, access to financial institutions by Native-owned businesses,
particularly those in rural areas, is exacerbated by geography.
While putting experienced staff to work on the issue is important,
it would be nothing without top-level engagement. That is why last
October I spoke at the Minority Finance Forum, hosted in partnership
with the Association for Corporate Growth in Chicago. I addressed over
800 investment bankers, private equity groups, bank fund managers,
family offices, merger and acquisition companies, and banks. While
there, I highlighted the need for minority-owned firms to play a role
in the middle market and break the barrier in accessing capital. This
message was well-received by the attendees. MBDA will continue to
engage firms like these to help expand access for minority-owned firms.
Since we understand that many Native business owners might not
attend minority business conferences in favor of those focused on
Native enterprises, MBDA and other bureaus within the Department have
been actively engaging Native business stakeholders. This past March,
for instance, I spoke at the 29th Annual Reservation Economic Summit
(RES), the leading American Indian enterprise development summit where
Native American businesses gather with CEO's, policy makers, and
elected leaders to shape the future of economic development in Indian
Country. MBDA has also assisted The National Center with coordinating
an ``access to capital'' workshop for the RES conference held this past
March r in Las Vegas. Additionally, the Department of Commerce, through
the Secretary's Office, the Census Bureau, and SelectUSA, a program
within the International Trade Administration, has contributed to this
week's RES-DC Conference to make it a success.
Finally, MBDA is also engaged in the use of alternative finance
through partnerships with a large portfolio of alternative capital
providers including Internet based lenders, angel investor networks,
micro lenders, Community Development Financial Institutions, and other
investors in the middle-market space. Through our Business Center
Network, these resources are available to MBEs including Native-owned
firms.
MBDA Native American Client Success Stories
MBDA has been successful in assisting Native-owned businesses
access capital. I would like to highlight two examples of our work.
Given Oklahoma's high Native American population, it is no surprise
that 85 percent of the Tulsa MBDA Business Center clients are Native
American, including tribally-owned and individual Native-owned firms.
One such client is Cherokee CRC, an award winning environmental,
construction, and professional services company with Tribal 8(a) and
HUBZone certifications. In Fiscal year 2014, the Tulsa MBDA Business
Center helped the firm secure $68 million in contracts and $15 million
in financing. The company is tribally-owned so all profits from these
endeavors are returned to the Cherokee Nation. The tribe is currently
constructing four new health clinics and a hospital with profits from
Cherokee CRC and other tribally-owned businesses.
Another example is Terra Firma II, a construction management
company located in Seattle, Washington founded in 2002 by Michael
Giomi, a tribal member from the Walker River Paiute tribe of Schurz,
Nevada. Terra Firma II was significantly impacted by the economic
downturn in 2007/08 and faced difficulties procuring any type of
funding for new development based on its past debt with an
institutional lender. Prior to working with the Seattle MBDA Business
Center, Terra Firma II's growth was extremely limited.
After Terra Firma II, became an MBDA client, the Seattle staff
provided the company a detailed, four-step growth plan. The plan was
set in motion in June 2012 and one year later, Terra Firma II secured a
$400,000 loan with Cobalt Mortgage, thereby ensuring it had assets and
equity. The fourth step, which is still in process, is to assist the
client in securing a new business line of credit so that it can have
working capital for private, public, and Native American developments,
thereby creating even more jobs.
Conclusion
Chairman Barrasso and Vice Chairman Tester, I want to thank you and
this Committee for the opportunity to speak with you today. Fostering
the success of American Indian and Alaska Native-owned firms is
paramount to upholding our Nation's commitment to fostering economic
prosperity in Indian Country. As we move forward, the Committee can be
assured that MBDA will continue to do everything it can to improve
access to capital for Native American firms and to promote the
diversity of businesses in Indian Country to public and private sector
procurement officers. We know much still needs to be done and we
welcome your support of our work. I am happy to answer any questions
you may have.
The Chairman. Thank you very much for your comments and
your testimony.
Next, Mr. Watchman.
STATEMENT OF DERRICK WATCHMAN, CHAIRMAN, BOARD OF DIRECTORS,
NATIONAL CENTER FOR AMERICAN INDIAN
ENTERPRISE DEVELOPMENT
Mr. Watchman. Good afternoon. Thank you, Chairman Barrasso,
Vice Chairman Tester and members of the Committee.
I am Derrick Watchman, a member of the Navajo Nation, and I
appreciate your invitation to share my views based on my
experience in banking and business in Indian Country.
Over the years, I have worked with my tribe and have led
the Native American Banking Group at Chase Bank. I also worked
at Wells Fargo Bank. I started my banking career at Prudential
Capital Corporation.
I chair one of the Navajo CDFI boards and also serve as a
board member to the Native American Bank. As chairman of the
National Center, I thank the Committee for keeping economic and
energy development on your front burner.
And at yesterday's BIA loan guarantee listening session and
Buy Indian Act, we felt, that was very effective. These and
other topics that were discussed yesterday are being discussed
right now in our training sessions at our RES D.C. conference
at the Omni Shoreham Hotel. In our conference, we are also
talking about access to capital where we are bringing together
banks and potential borrowers.
This hearing is also being streamed at our conference
today. I want to say hello to all our conference participants
at RES D.C.
I was asked to discuss how tribal governments, the banks
and the Federal Government can facilitate access to capital in
Indian Country. First, for tribes, I believe there are some
fundamentals that are needed. We need to have a business-
friendly governance and government environment.
We also need to have reasonableness in exercising sovereign
immunity and resolving disputes. We also need to establish a
better understanding of the different types of financial
assistance and programs related to debt obligations.
To achieve these goals, it is very helpful for tribal
governments to establish a uniform commercial code system, a
commercial system that resolves dispute resolutions in a fair
and equitable manner in tribal courts.
A financial management system needs to have expert
financial managers who understand the capital markets,
financing, the need for business plans, feasibility studies and
also to understand the credit soundness of projects.
Finally, I believe tribes need to understand and really
look at credit enhancement and how to minimize what is called
sovereign risk by the many credit rating agencies. Credit
worthiness can be a big hurdle, especially when major banks
pull out of some deals where a tribe has declared a default.
Generally, tribes can access capital through conventional
means if they are flexible in exercising their sovereign
immunity, but many businesses with high margins and low risk
can be financed. Lower margin projects and start-ups are always
challenging to finance.
Infrastructure projects, which are badly needed in Indian
Country, are very hard to finance, especially if there is
limited Federal funding or because tribes have little tax base,
it is hard to do bonds based on limited tax bases. Tribes
themselves, however, are increasing access to capital through
self financing of their business and economic development
projects. Tribes have also established conventional banks, for
example, the Native American Bank and Bank2. They have also
created credit unions, Native CDFIs and revolving loan funds.
Some tribes operate online investing or online lending
facilities primarily to generate revenue for their tribes. All
of these tribes are exercising their sovereign right to develop
and their sovereign right to create jobs.
Yesterday at RES D.C., many speakers remarked how the
appetite for financing is increasing and surging. Banks
attending our RES conference are listening to our potential
borrowers and they are willing to finance projects, but we need
help.
I have some suggestions as to how the Federal Government,
primarily through Congress, can assist in accessing to capital.
For the Department of the Interior, we believe that we need to
increase the BIA loan guarantee program and the staff for this
fiscal year and fiscal years to come.
In my written statement, I identified how this BIA loan
guarantee program can be expanded. Did you know that for every
dollar put into the BIA loan guarantee program, it leverages
that dollar by 15 times? That is a great program.
That is why the National Congress of American Indians and
NAFOA have repeatedly urged Congress to improve and increase
the allocations to the BIA loan guarantee program. Right now it
is set at $7 million. We urge you to double that program to
about $15 million which would generate over $250 million in
private activity loans.
In 2006, Congress increased the authorized level for this
program to $1.5 billion. Unfortunately, with only $8 million in
authorization, it has only created about $100 million in annual
conventional loans. We believe the BIA loan guarantee program
needs to be expanded. This program is not a handout or a grant
program. It is a highly effective leveraging tool and this tool
works.
I have some recommendations also for the Department of
Treasury through their CDFI program. We recommend that we
appropriate at least $16 million to the Native CDFI Assistance
Program. I think the House Appropriations Committee did that.
We also recommend increased funding to the New Markets Tax
Credit Program for Indian Country. This program is very
beneficial and allows for tribes to focus their dollars to
private activity loans.
We also recommend full deployment of the TED bond
allocations to finance projects in Indian Country and again, a
broader use of the Community Reinvestment Act Program which
requires banks to provide more in capital and services to
tribes, tribal CDFIs, and Native businesses.
For the Department of Treasury, we recognize MBDA, but we
also request that we address and want to hear from the
Secretary of Commerce on how and when they are going to fund
and implement the Office of Native American Affairs.
There is a statute which does create the program but many
of the Indian activities have been channeled through the MBDA
program. We recognize Ms. Castillo for her help but we really
want to have a separate program through the Department of
Commerce. We think that is very effective.
In closing, I want to thank the Committee. We are willing
to work and look at ways of increasing capital to Indian
Country. Thank you.
[The prepared statement of Mr. Watchman follows:]
Prepared Statement of Derrick Watchman, Chairman, Board of Directors,
National Center for American Indian Enterprise Development
Good afternoon, Chairman Barrasso, Vice Chairman Tester and members
of the Committee. I am Derrick Watchman, a Navajo Nation tribal member,
and appreciate your invitation to share my views on access to capital
based on my experience in banking and business in Indian Country.
For many years as JP Morgan Chase Bank's Vice President and Senior
Relationship Manager of the Native American Banking Group, I provided
tribal financial and banking services, including structuring over $500
million in tribal credit transactions and treasury services. As a 90
percent guarantee, it can greatly lower the bank's exposure and suit
tribal or Indian borrower preference for tribal court jurisdiction for
dispute resolution. Earlier I worked at Wells Fargo Bank handling
Native American banking and financing, and at Prudential Capital
Corporation as a private placement banker. I also have overseen
operations of some mid-sized and smaller financial institutions lending
in Indian Country as Board Chair of a Navajo Community Development
Financial Institution (CDFI), and long-time Board member of the Native
American Bancorporation Co., holding company for Native American Bank,
N.A. (NAB), with 33 shareholders, mostly tribes and Alaska Native
Corporations. The NAB is one of the largest users of what is commonly
called the BIA Loan Guarantee Program that provides a federal guarantee
for 90 percent of the value of a commercial loan and can be subject to
tribal court jurisdiction. I've dealt with regulatory challenges to
tribal energy and infrastructure development as a former federal energy
official and now as CEO of one of my tribe's most successful
enterprises. And I've served on Boards of tribal financial and business
development organizations, including the Native American Finance
Officers Association (NAFOA) and the National Center for American
Indian Enterprise Development (NCAIED), and now chair NCAIED's Board of
Directors.
Let me first take a moment to thank this Committee for keeping
economic and energy development in Indian Country on the front burner
so that decision-makers remain focused on solving the vexing challenges
we face. In testimony last June 25, 2014, at your Oversight Hearing on
``Economic Development: Encouraging Investment in Indian Country,''
NCAIED President and CEO Gary Davis urged the Committee to continue
holding hearings, listening sessions and briefings to promote action on
key issues. The Committee has been extremely responsive, especially
this week, by conducting this hearing, meeting on the BIA Loan
Guarantee Program, and facilitating yesterday's Listening Session on
the Buy Indian Act and the CDFI Fund Programs.
These topics and other business related issues are among the many
training sessions at NCAIED's Reservation Economic Summit and Trade
Show in Washington, D.C. (RES D.C.) going on this week at the Omni
Shoreham Hotel. RES D.C., like all of our RES conferences, offers
business and procurement assistance to Indian tribes, tribal
enterprises, and individual American Indian and Alaska Native business
owners (for example, see RES D.C. offerings at www.res.ncaied.org/
resdc-2015-agenda/). In addition to trainings and business matchmaking,
we've initiated the RES Access to Capital Fair for potential borrowers
to meet with bankers and other financing entities. Right now, this
hearing is being streamed into RES D.C. for hundreds of the
conference's participants to witness this important discussion on
Access to Capital in Indian Country.
Essential Elements for Facilitating Access to Capital in Indian Country
When invited to testify, I was asked to discuss the elements that
are essential for facilitating access to capital in Indian Country, and
to build on testimony previously presented on this general topic. Most
witnesses will point to the need for more federal funding, and rightly
so based on the federal trust responsibility stemming from the U.S.
Constitution, U.S. treaties and statutes. Yet, the federal funding
provided has always been inadequate to meet Indian Country needs, and
often it has been dispensed through grants and mischaracterized as
``hand outs'' on which tribes and tribal members can become dependent.
Funding shortfalls certainly exist in federal programs intended to
facilitate access to capital through bond, loan and loan guarantee
programs. Perhaps federal decision-makers justify cuts as limiting the
Federal Government's financial exposure. Yet the result is frustrated
tribal and other native borrowers, and bankers and other financing
entities trying to assist them, because program funding (supply) serves
too few applicants (demand). A prime example is the perennial
underfunding of the BIA Loan Guarantee Program. Yearly requests to
increase funding for this important program are ignored! NCAIED, NAFOA,
the National Congress of American Indians (NCAI), and other Indian
Country interests have repeatedly urged Congress to appropriate $15
million for the program's credit subsidy, but the House Interior
Appropriations bill for FY 2016 includes only $7.7 million and a cap of
$100.4 million on the aggregate value of loans that can be guaranteed.
That's the level provided last year, and it's already been exhausted,
with four months still to go before FY 2016 begins. Unless the Senate
Interior Appropriations Subcommittee is more responsive and adds more
funding, Indian Country will be denied--again--the best tool available
to access capital from the private banking sector!
This kind of outcome has got to change. This loan guarantee program
is not a ``hand out'' to anyone. It's not a grant program. It's a
leveraging tool to incentivize private lenders to finance tribal
projects, tribal enterprises, and businesses owned by American Indians
and Alaska Natives. The tool works, and it could infuse hundreds of
million more dollars into Indian Country, as I will explain later in my
testimony. So, before continuing, I urge this Committee's members to
call your colleagues on Appropriations today to approve funding closer
to $15 million for FY 2016.
Next, I want to address what I think are the essential elements for
facilitating access to capital in Indian Country, and what are some of
the roles that the Federal Government, tribal governments, and bankers
can play to accomplish this essential goal.
Federal Facilitation of Tribal Self-Determination
As context for my remarks, I harken back to the National Native
American Economic Summit that convened in Phoenix, Arizona in 2007,
with assistance from NCAIED and other national tribal organizations and
the Department of Interior's Office of Indian Energy and Economic
Development (OIEED). A preparatory white paper outlined some
considerations for federal and tribal policy makers \1\--listed below
because of their relevance to this hearing's topic:
---------------------------------------------------------------------------
\1\ ``The Nature and Components of Economic Development in Indian
Country,'' Stephen Cornell and Miriam Jorgensen, 17-18 (May
2007)(commissioned for the National Congress of American Indians Policy
Research Center for the purpose of stimulating discussion at the
National Native American Economic Summit).
---------------------------------------------------------------------------
For Federal Policymakers
Shift maximal decisionmaking power into indigenous hands;
Invest in institutional capacity-building, the kind that
enhances the capacity of Native nations to govern in effective
ways of their own choosing and that backs up economic
development activity in their communities;
Tolerate diversity in governmental forms and development
strategies;
Make available the financial resources that are necessary if
Indian nations are to develop financial resources of their own;
and
Support and grow government-to-government relationships that
treat development not as paternalism but as partnership.
For Tribal Policymakers
A clear distribution of roles among the various arms of
government and adequate separations of powers;
Effective and non-political dispute resolution mechanisms;
Secured transactions codes and other legal provisions that
guide commercial activity and that are enforced for everyone;
Effective and transparent financial management;
Strategic clarity (with strategies that are aligned with
community ideals and backed with community support);
And, depending on the nation's plans and goals, specific
supports for economic development activity such as small
business services, zoning arrangements, clean and efficient
land title and leasing processes, business regulations, and so
on.
As the above considerations for tribal policymakers suggest, self-
determination not only is key but it affords the freedom to determine
the tribes' own futures and ``the right to make the decisions--from
development strategy to government form to systems of laws to the
exercise of jurisdiction over lands and people--that will bring those
futures to life.'' \2\
---------------------------------------------------------------------------
\2\ Id. at 18. The authors pointedly distinguished the terms
``self-determination'' and ``selfgovernance'' from those terms' usage
in the context of self-determination contracting and selfgovernance
compacting.
---------------------------------------------------------------------------
The 2007 Summit's National Native American Economic Policy Report
\3\ made many recommendations on strengthening governance (e.g., law
reform, community planning, financial management skill development,
financial jurisdiction) as a way to facilitate access to capital.
---------------------------------------------------------------------------
\3\ Native American Economic Policy Report--Developing Tribal
Economies to Create Healthy, Sustainable, and Culturally Vibrant
Communities, produced by the National Congress of American Indians and
the Department of Interior, Office of Indian Energy and Economic
Development (2007).
---------------------------------------------------------------------------
Tribal Governance Development and Tools to Access Capital
Fast forward to this Committee's June 2014 oversight hearing, and
the testimony of Key Bank Executive Vice President William M. Lettig
that focused on access to capital and noted important elements that
must be addressed in order for a tribe, tribal enterprise and often
even an individual Indian borrower to access and obtain desired
capital. I rephrased them below:
A tribe must duly authorize proposed relationship with
private lenders or investors;
A tribe, tribal enterprise, or other Indian borrower and the
private capital entity need clear and enforceable business and
credit agreements; and
A tribe and its tribal enterprise(s) must develop dispute
resolution processes, including acceptable arrangements on
sovereign immunity and choice of law, and doing so in
collaboration with private sector capital players will help
lead to more mutually acceptable outcomes and consummated
deals.
In my experience, the fundamentals for tribal access to capital
are: business friendly governance; reasonableness in exercising
sovereign immunity and resolving disputes; and understanding of various
types of financial assistance and related obligations (e.g., the
difference between grants and loans). Very helpful are: tribal uniform
commercial codes or similar ordinances; a good tribal court system with
commercial dispute resolution mechanisms and adjudicators with some
business law experience; and sophisticated financial management by
people who understand the capital markets, financing, the need for
business plans and feasibility studies, credit soundness of projects
(will they make money to pay a debt burden), the risks and rewards of
tribal taxes, and credit worthiness and the ``sovereign risk'' aspect
of credit ratings.
As to tools for accessing capital, tribes have a variety of
choices. Commercial loans, equity investments and sometimes even bond
issuances can be relatively easy to pursue and close, if the tribal
project will have a high profit margin or good, steady returns. Other
projects are harder or more expensive to finance due to lower margins
and longer lead times to profitability (e.g., manufacturing and
government contracting). Infrastructure projects, so key to
facilitating further development, are the most challenging, because
federal funding is limited and sporadic, and financing is nearly
impossible if the infrastructure generates no revenue stream to cover
debt repayment. Unlike state and local governments, tribes have limited
or no ability to impose or increase taxes to repay lenders or
bondholders. Federal loan guarantees help if they can enable lenders to
finance larger projects, minimize lenders' exposure to risk, and are
enforceable in tribal courts. The BIA Loan Guarantee Program offers
those benefits.
Tribes themselves are doing more now than ever before to increase
access to capital for their tribal members, for other tribes, and for
other private sector borrowers. Many tribes self-finance their business
and economic development projects, choosing to reinvest proceeds from
gaming or government contracting--rather than incur debt--to expand
existing operations or diversify into new ventures. Many tribes have
established financing entities, whether they are conventional banks,
credit unions, Native CDFIs, revolving loan funds, or on-line lending
or investing facilities.
While the field of tribal on-line lending has become controversial,
it is essential to respect tribes' rights as sovereign governments and
their economic responsibilities to provide for their tribal members and
communities. Pursuant to U.S. treaties and statutes, the Federal
Government has recognized the inherent sovereign right of tribal
governments to engage in self-sustaining economic activities as a means
to govern effectively and provide for their people, and to create
appropriate regulatory authority to govern how tribal enterprises may
operate on the reservation. For economic development, preservation of
the right of tribal self-determination is paramount, and essential to
foster financial empowerment among tribes, tribal enterprises and
American Indian entrepreneurs. Currently, the Consumer Financial
Protection Bureau (CFPB) has taken actions and floated proposals on
short-term lending that concern tribal governments engaged in on-line
lending. As tribes stressed to the CFPB earlier this week as a tribal
consultation meeting, the CFPB must engage in government-to-government
discussions and hear what the tribes have to explain about the rigors
of their own tribal laws and regulatory schemes, rather than presenting
proposals to which tribes are expected to respond. In the spirit of the
CFPB's Tribal Consultation Policy, CFPB must realize and acknowledge
the impact of its actions may have had and can have on tribal
economies, including tribal bank accounts, and engage in more dialogue
and formal consultations with tribes before taking any formal action on
proposals that may affect tribal government rights and interests,
including self-determination of their activities pursued to achieve
economic self-sufficiency.
So many tribal communities are located in remote, impoverished
areas and have struggled to establish business enterprises that
generate sizable revenues and employment. The Internet has offered new
horizons for these tribes, as well as most other communities, as this
Committee recognized when it held its oversight hearing several years
ago about access to the Internet in Indian Country. The tribes engaged
in short-term, online lending may have no other viable form of
sustainable economic development available. Thus, any rules
contemplated for short term lending that could affect tribes must be
considered only in the context of tribal consultation.
Furthermore, any federal actions that could limit Internet use, or
cause a chilling effect on economic activity over the Internet, must be
scrutinized carefully to avoid curtailing or even abrogating tribal
rights to self-determination and self-sufficiency.
As a former banker, my interest is in greater penetration of
traditional banking institutions providing access to capital in Indian
Country. It's exciting to me that there are at least two dozen native-
owned banks (whether wholly, majority or partially owned by tribes)
operating across the country. Chickasaw Nation's wholly owned Bank2,
represented here by CEO Ross Hill, is a very successful one. Unique
among the native-owned banks is the Native American Bank, with 33
shareholders, including over two dozen tribes and ANCs, investing
together to extend financing to tribal and commercial projects that
otherwise would have remained unbankable and undoable.
Increasing numbers of tribes and other native applicants have
applied to the Community Development Financial Institutions (CDFI) Fund
to establish and expand CDFIs to provide their communities greater
access to capital. Last June, the Committee heard testimony from Gerald
Sherman, Vice Chairman of the Native CDFI Network, who reported 68
certified Native CDFIs located in 21 states, and about 60 emerging
Native CDFIs preparing for certification. Through this Native CDFI
network, more borrowers' needs for small and micro loans are being met,
and more financial literacy training has helped native clientele
improve access to conventional financial services, such as consumer
loans, mortgages, tax preparation services, and small business credit.
Tribal and native business organizations also play important roles
in expanding access to capital in Indian Country through the policy,
business development and training conferences they conduct throughout
the year. For example, for over 45 years, NCAIED has been assisting
tribes and Native American businesses with how to conduct market
studies and business planning, how to interface with banks and
negotiate financing, and how to prepare proposals, negotiate contracts,
and secure bonding. Most recently, NCAIED has launched a remarkable
web-based business development assistance tool through its Native Edge
web portal, proactively utilizing technology and the Internet to
provide economic opportunities, trainings, business development
services, and much more, to tribes and Native businesses anywhere,
anytime. Pertinent to this hearing, NCAIED has future plans to add a
new component of the Native Edge that will facilitate ``Access to
Capital'' by enabling tribes, tribal enterprises and other Native-owned
businesses to search for, identify and communicate with lenders and
investors interested in, willing to and experience in doing business in
Indian Country.
Greater Flexibility of Banks and Bank Regulators
Traditional banks have approached Indian Country borrowers with
starts and fits. While eager to finance lucrative large ventures, many
major banks have been reticent to engage in smaller tribal and
individual native business lending. Of course the Great Recession made
matters much worse, as federal regulators tightened lending
requirements, conventional lending dried up, and federal efforts to
spur community bank lending ended up benefitting the banks more than
potential borrowers. Near default on a few tribal financing packages
also chilled interest in Indian Country lending. Bank regulators got
extra tough on bank balance sheet reviews and further limited the
amounts banks could lend. With few loans being made, and the one-time
increase for the BIA Loan Guarantee Program in the Recovery Act went
mostly unused.
As the U.S. economy continues to improve, banks should refocus
attention on Indian Country's needs for capital and bank regulators
should ease up somewhat. Banks should be attending tribal and native
business conferences geared toward business and economic development.
Lenders should listen to native borrowers' needs and challenges, and
learn to be more creative and flexible. Rather than insist on hard-
asset collateral for a business loan, perhaps a bank could consider
verification of the business' growth potential and cash flow analysis
as collateral, as recommended by Native American Natural Foods
President Mark Tilsen in Senate testimony last year. Certainly major
banks should entertain offers from tribal and other native banks to
participate in projects needing more financing than the smaller banks'
balance sheets can support. That kind of partnering is beneficial for
all involved. Furthermore, conventional banks of all sizes should
consider mentoring Native CDFIs, and offer to partner with them in ways
that can enhance Native CDFIs' lending activities and assist in their
growth.
Greater Federal Support as Leverage to Increase Tribal Access to
Private Capital
Based on my experience in energy policy and development, major
project financing and micro lending, and tribal enterprise financing
and management, I offer the following general recommendations for
prompt federal action, primarily by Congress, to:
Restore parity among tribes striving to protect and enhance
their original land base, or to reacquire some of the lands
they lost, by confirming the Secretary of Interior's authority
to acquire land in trust for any federally recognized tribe;
Streamline or reduce regulatory review and approval of
leasing, rights-of-way and other actions that impede
development and appetite for private sector investment;
Extend or make permanent existing Internal Revenue Code
provisions for Accelerated Depreciation, Employment Tax Credits
and other tax credits that pertain to Indian lands;
Enact tax reform provisions that promote fairness and
economic growth for tribes by treating them as sovereign
governments with taxing authority, and fashioning ways for them
to: access tools utilized by other governments, such as issuing
tax exempt debt, collecting excise taxes, remote sales taxes,
and other taxes; and afford tax credits or possibly even tax
holidays to private investors providing capital for projects on
reservations with high rates of poverty and unemployment; and
Facilitate access to capital by expanding existing programs
that leverage federal funds in various ways to target, or
otherwise incentivize use of, the federal allocation to Indian
Country projects and other financing needs--such as the BIA
Loan Guarantee Program, Low Income Housing Tax Credits and loan
guarantee programs that facilitate mortgage lending, and the
CDFI Fund's Native American CDFI Assistance and New Market Tax
Credits set aside for Community Development Entities (CDEs)
focusing exclusively or primarily on Indian Country.
Within the last bullet on expanding access to capital, I would like
to emphasize the following recommendations for programs of the
Departments of the Interior, Treasury and Commerce. I will leave it to
others to address access to capital issues and very worthwhile programs
of the Departments of Agriculture and Housing and Urban Development
that promote rural housing and community development in Indian Country.
Specific Recommendations to Leverage Federal Support
1. Department of the Interior
Increase Funding for the BIA Loan Guarantee Program's Credit
Subsidy and Staff Support: The Senate must respond immediately to
Indian Country requests to increase the credit subsidy for the Indian
Loan Guarantee Program to $15 million for FY 2016 to keep pace with the
burgeoning demand for business and economic development capital in
Indian Country. Overseen by OIEED, the loan guarantee and loan subsidy
programs have incredible potential to leverage a small federal
investment to facilitate substantial conventional lending for business
and economic development. BIA-certified lenders lend to Tribes and
Indian businesses on reservations and submit to tribal court
jurisdiction. OIEED also operates a revolving credit facility that
assists Indian borrowers with lines of credit for working capital,
payrolls for hiring new employees, and assurances sufficient for
sureties to provide performance bonds to tribaland other Native-owned
contractors. Below are some examples of projects that became realities
because lenders were able to use BIA guarantees:
Construction of new hotel on a Montana reservation that
leads to a glorious national park, creating new tourism, retail
and government traffic and 25 additional jobs, financed with a
$5.5 million loan;
Five guaranteed loans totaling $15 million helped build the
Indian Pueblo Cultural Center, owned by 19 Pueblos in New
Mexico, and launch successful, revenue generating operations
and create about 200 jobs, many held by Native Americans;
A $12 million guaranteed loan enabled the Alaska Native
village of Huna Totem Corporation, Inc. to complete renovation
of the old Point Sofia Cannery site to develop a successful
tourist destination for visiting cruise ship guests, creating
about 130 yearround and summer jobs;
Seldovia Native Association, Inc., used an $8.3 million
guaranteed financing to construct the Dimond Center Hotel,
creating about 40 full and part time jobs;
Tuba City Partners, LLC deployed a $5.8 million guaranteed
loan to build a commercial office building in the community of
Tuba City on the Navajo reservation, creating over 50 jobs
during construction, and generating revenues from space leased
for public and private offices and tourist related shops; and
$10 million guaranteed as part of a $13 million tribal
economic development authority's project in Nevada.
These projects are just some of the worthwhile uses of BIA loan
guarantees in recent years. As I stressed earlier, tribes and native
organizations have long advocated for substantially expanding the
funding and the authority for use of BIA guarantees. For example, in
January 2009, NCAIED, the Native American Contractors Association
(NACA) and National Congress of American Indians (NCAI) promoted
``Native American Business Provisions'' in the American Economic
Recovery and Reinvestment Act that proposed $148 million for a BIA
Guaranteed Loan and Surety Bonding Program to (1) expand commercial
lending, (2) implement unused authority for issuing supplemental surety
bond guarantees to facilitate award and performance of stimulus
infrastructure and other construction-related projects, and (3) use the
guarantees to help ensure tribal participation in renewable and other
energy development projects. Unfortunately, however, this higher level
of funding never materialized. The guarantee program has been woefully
underfunded for years and unable to satisfy the increasing demand for
its guarantees. The Small Business Administration (SBA) loan and loan
guarantee programs are far larger, but they require dispute resolution
in federal court, among other challenging requirements less amenable to
tribal borrowers.
Recognizing the need to expand the program, in 2006 Congress
authorized a major increase in the aggregate limit on guaranteed loans
from $500 million to $1.5 billion. However, in the last several years,
Congress has not appropriated anywhere near enough funds for the
program to allow lending to increase towards that authorized level. The
current total of aggregate loans is only about $600 million. So if
Congress had approved $15 million last year, as Indian Country urged,
about $250 million in loans could have been approved. Instead, Congress
approved only $7.7 million for the program and capped the total loan
principal at only $100 million. Already, that entire funding allocation
has been used up--with four months remaining in this fiscal year--and a
backlog of pending loan applications approaching another $100 million!
Congress must right-size the credit subsidy with at least $15 million
for FY 2016.
In parallel with doubling the loan guarantee program's credit
subsidy, Congress should increase funding for the OIEED to strengthen
its lending staff by adding personnel with more banking experience. Not
only must the staff review and process the increasing volume of loan
guarantee applications more quickly, but OIEED also should have the
capability to consider new, innovative ways to leverage even further
the value of its loan guarantees, such as proposals to: (1) waive the
20 percent equity requirement more often; (2) consult with fellow
agencies to explore whether and how their respective loan guarantee
programs can somehow be used to supplement and satisfy the unmet needs
of Indian Country borrowers; (3) enable creation of a secondary market
for segments of loans that carry the BIA guarantee; and (4) establish
some kind of ``Preferred Lender'' designation for lenders with strong
track records of originating and servicing guaranteed loans. The latter
two proposals are discussed further below.
2. Department of the Treasury
a. Community Development Financial Institutions Fund
As the Committee has received testimony on many aspects of this
important program already, let me reiterate briefly just two key
recommendations:
i. $16 Million for Native CDFI Assistance: For this account, the
House Appropriations Committee has agreed to the requests of Indian
Country, recognizing the benefits of the CDFI Fund's Native American
CDFI Assistance initiative in expanding access to small and micro loans
for individuals and small businesses. The program's assistance also
facilitates financial literacy and entrepreneurial development training
in Native communities across the country. This program is another great
example of how a modest federal investment catalyzes greater capital
access in Indian communities.
ii. Increase New Market Tax Credit Allocations For Indian Country:
The House Appropriations bill includes $23.1 million for the CDFI
Fund's New Market Tax Credits (NMTC) Program, about $1.8 million less
than the President's budget request for FY 2016. We hope the Senate
approves the higher figure, with a directive to set aside some of the
allocations' use in Indian Country. Through this program, the CDFI Fund
makes NMTC allocations to Community Development Entities (CDEs) to help
finance projects in low-income urban neighborhoods and rural
communities lacking access to capital needed to support and grow
businesses, create jobs and sustain healthy local economies. In the
past, NMTC allocations have helped finance projects in Indian Country,
but none of the last two rounds of allocations went to the CDEs that
primarily or exclusively serve Indian Country. Lack of NMTCs has
reduced urgently needed financing for business and community
development projects in native communities across the country. Either
the CDFI Fund can determine, or Congress can mandate, that a certain
percentage of NMTCs be allocated to qualified CDEs whose primary
mission is to invest in native communities and who possess the required
cultural competency and understanding of relevant legal and financial
complexities involved. Since the CDFI Fund is open to making some
adjustments, we urge this Committee to press for allocation of a
greater percentage of the NMTCs to CDEs that focus on community,
housing, economic and business developments in Indian Country. Congress
also should act to make NMTC authority permanent and to set aside a
percentage of any future NMTC allocations for qualified CDEs whose
primary mission is to serve Indian Country, if the CDFI Fund opts not
to do so administratively.
b. Other Recommendations
First, another attempt should be made to distribute TED bond
allocations to finance projects in Indian Country. The first round of
allocations took a kind of pro rata approach; the second round focused
more on the readiness of a tribe's project for TED Bond financing.
Since a substantial amount of the allocation remains undistributed,
there should be a renewed effort to determine a better approach to
achieve full deployment of this valuable economic development
financing.
Second, there should be broader, more effective use of the
Community Reinvestment Act (CRA) to encourage more banks to invest in
native communities and in Native CDFIs that serve such communities.
Federal bank regulators should work to ensure that the CRA regulations
explicitly recognize lending, services, and investments in Indian
Country. Greater CRA attention should be paid to, and more value should
be place on, mortgage lending activity on tribal trust lands. This
approach could attract to Indian Country numerous lenders who
previously have met their Native American goals by lending to tribal
members living in urban areas or other non-trust lands.
3. Department of Commerce
At this Committee's January 28, 2015 Oversight Hearing on Indian
Country Priorities for the 114th Congress, NCAIED recounted its efforts
along with a dozen other national and regional organizations to urge
the elevation and enhancement of the Office of Native American Affairs
within the Department of Commerce and within the SBA. NCAIED
recommended that the Committee hold an oversight hearing on the efforts
of Commerce to address Indian Country's economic and business
priorities and implement two laws that Congress passed for that
purpose:
The Indian Tribal Regulatory Reform and Business Development
Act (Public Law 106-447), directing the Commerce Secretary to
establish a Regulatory Reform and Business Development on
Indian Lands Authority to identify and remove obstacles to
investment, business development, and wealth creation in Native
communities;
The Native American Business Development, Trade Promotion
and Tourism Act (Public Law 106-464), codifying an existing
office with a new name, the Office of Native American Business
Development. The Act prescribes duties for the Office Director
to fulfill, including to: (1) ensure intra- and inter-agency
coordination of federal programs assisting business and
economic development, and expansion of trade; (2) carry out a
Native American export and trade promotion program; (3) conduct
a Native American tourism program; and (4) report annually to
the Senate Committee on Indian Affairs and House Committee on
Natural Resources on the operation of the Office and any
recommendations for legislation deemed necessary.
Our goal has long been a stand-alone Office of Native American
Affairs, with a staff and its own budget, to carry out the duties
prescribed by Congress, and make more accessible to Indian Country all
of the various agencies and programs under Commerce's vast reach. Since
the Minority Business Development Agency (MBDA) has done more than any
other division within Commerce to try to fulfill some of the above-
reference statutory duties, we appreciate MBDA National Director
Alejandra Castillo's willingness to participate in this hearing today.
We also believe it is essential to hear from the Secretary of Commerce
how and when she plans to fund and expand the staff of a stand-alone
Office of Native American Affairs that reports directly to her, as
Congress intended.
As noted in previous testimony, NCAIED has extensive experience
working with MBDA, having launched the first Native American Business
Enterprise Center (NABEC) funded partially by an MBDA cooperative
assistance agreement and operated as many as four NABECs for many
years. When MBDA decided a few years ago to support only Minority
Business Centers, NCAIED opted to move beyond stationary centers and
expand access to capital and business development assistance through
our RES conferences and new Native Edge business portal. We have
maintained a good relationship with MBDA and are open to exploring new
ways to work together to serve tribes, tribal enterprises and other
Native businesses and entrepreneurs, whether the assistance is to: find
jobs or qualified talent to fill jobs; find contract opportunities or
sources qualified to fulfill partnering or procurement needs; find
lenders willing to finance business expansion or project development;
or learn from myriad training videos and online tutorials about how to
write a business plan, market products and services, set up business
accounting systems, and so on. NCAIED's new web portal, Native Edge,
can provide access to these and other types of assistance virtually, at
any time of the day or night.
The Department of Commerce operates so many agencies and programs
that could benefit our Native communities, and link them with
opportunities domestically and globally. It is essential that the
Department embrace that challenge by increasing the authority and
funding of its Office of Native American Affairs. NCAIED and other
native business and tribal organizations will be delighted to work with
the Secretary and her staff to develop strategies and plans to fulfill
the intent of Congress articulated in the Native American Business
Development, Trade Promotion and Tourism Act of 2000.
In closing, I want to thank you, Mr. Chairman and the Committee,
for the opportunity to present these views and reiterate our requests
to increase support for the existing programs that invest federal
dollars as leverage to multiply exponentially the amount of private
capital invested in Indian Country. I realize that some of the
legislative recommendations are appropriations issues, and some are
beyond this Committee's jurisdiction. So, on behalf of NCAIED, I offer
our commitment to work with you and your staff on legislation to amend
the Indian Finance Act or develop other approaches to expand access to
capital in Indian Country.
The Chairman. Thank you very much, Mr. Watchman.
Mr. Hill.
STATEMENT OF ROSS A. HILL, FOUNDER/PRESIDENT/CEO, BANK2
Mr. Hill. Good afternoon, Chairman Barrasso, Vice Chairman
Tester and members of the Committee. Thank you for allowing me
to be here today.
I am the founder, President and CEO of Bank2 in Oklahoma
City. Bank2 is a small community bank with approximate assets
of $118 million. Bank2 is owned 100 percent by the Chickasaw
Nation.
Bank2's mission is to build better lives with a direct
focus on the Chickasaw Nation individual members and Native
Americans all across America. We have Native American
customers, loan and deposit customers in all 50 States.
Bank2 has provided capital for commercial purposes, to
individual Native Americans, Native American businesses, tribes
and tribal housing authorities since our inception. We have
utilized the HUD-184 Home Loan Program, the HUD-Title VI
Program, the USDA, SBA, FHA and BIA Loan Guarantee Programs to
do this.
Since our inception, we have provided approximately $1.5
billion in capital for loans in Indian Country. We believe our
consistent, intentional service to Indian Country makes us
uniquely qualified to testify before this Committee. Through
our experiences, we can provide the Committee with success
stories of what really works and what needs to be fixed.
The BIA Commercial Loan Guarantee Program is truly the only
guaranteed loan program that can be widely used for nearly any
need on tribal lands. The program could become a vital source
of growth and development of Native America if five things were
addressed.
First, is to fund the maximum loan commitment authority
annually. Typically, it is funded about 20 to 30 percent of the
maximum authorization. This year is a prime example of the
problem. The BIA is already out of commitment authority.
Second, is to fix the loan guarantee. The loan guarantee is
not even in the same league as the SBA and the USDA loan
guarantee and thus, it is not respected by many financial
institutions and limits participation by banks in what would
otherwise be an attractive market.
The guarantee needs to be strengthened so that it creates a
secondary market for the guarantee portion of the loans. Viable
models exist in other government programs such as the SBA and
the USDA.
Third, would be to fix the TSR problem. The BIA must
address this problem immediately. It has a detrimental effect
on all forms of real estate lending on reservations. Until this
issue is fixed across all of Indian Country, no true economic
expansion will occur.
Fourth, is to create accountability within the BIA Loan
Program. It needs to function at much higher level to become a
viable catalyst for access to capital.
Fifth, is that banks should be allowed to secure additional
forms of collateral to cover the unguaranteed portion of the
loan that are not required to be shared with the BIA in the
event of default.
The HUD-184 Indian Home Loan Program is perhaps the best
thing Congress has ever created for Native Americans. This
program is a model that works for Native America. Sadly, the
First Americans have the least amount of home ownership of any
segment of our society. The HUD-184 Program is changing this
fact.
The program has helped thousands and thousands of Native
Americans become homeowners, but perhaps as many as 200,000
homes are still needed on reservations alone. The economic
impact of satisfying this need could reach as much as $40
billion on the U.S. and Indian Country economies.
Think of this to picture that. The City of New Orleans has
200,000 homes. The demand is high, the need is great and the
opportunity for real economic impact is unquestionable. The
program is not perfect, the Office of Native American Programs
at HUD has a huge shortage of manpower and that must be
addressed. The program is also in desperate need of technology
so that it can continue to function at a high level and meet
the demands of an expanding program.
The HUD ONAP Title VI Guarantee Loan Program is an amazing
program to help Native American tribes build more housing. To
date, only 68 projects have been funded. We believe a great
deal more marketing and training is necessary to raise
awareness of this program. The financial impact of this program
could be significant in Indian Country.
I thank you for the opportunity to testify before the
Committee. I pray this testimony proves to be a valuable source
of information for you.
[The prepared statement of Mr. Hill follows:]
Prepared Statement of Ross A. Hill, Founder/President/CEO, Bank2
Introduction
Chairman Barrasso, Vice Chairman Jon Tester and Members of the
Committee, thank you for inviting me to testify today on Accessing
Capital in Indian Country.
My name is Ross Alan Hill, and I am the Founder, President and CEO
of Bank2.
Bank2 is a small community bank headquartered in Oklahoma City, OK,
with total assets of approximately $118 Million. Bank2 is 100 percent
owned by the Chickasaw Banc Holding Company and the Holding Company is
100 percent owned by the Chickasaw Nation. The Holding company was
formed in 2001 and the Bank began operations in January of 2002.
Bank2's mission is to ``Build Better Lives'' with a direct focus on
Chickasaw tribal members and on Native Americans across the entire
country. We have customers with loans or deposits in all 50 States. Our
customer base consists of consumers, small businesses, medium size
businesses, tribes and tribal housing authorities.
Bank2 has provided capital for commercial purposes to individual
Native Americans, Native American businesses, tribes and tribal housing
authorities since our inception. Bank2 has been active in providing
capital for housing and commercial ventures to individual Native
Americans, Native American housing authorities and to tribes since
2004.
We have utilized numerous Federal Government programs to assist us
with these efforts, including the HUD-184 Home Loan Program, the HUD
Title VI Loan Program, the USDA, SBA, FHA and BIA Loan Guarantee
Programs.
Since our inception, we have provided approximately $1.5 billion
dollars of capital in the form of loans to Indian country. In each of
the past 6 years, over 80 percent of all of our loans have been made to
individual Indians or tribal entities. Just this year we have made
loans to tribes, tribal housing authorities and individual Native
Americans totaling $41 million dollars. We anticipate closing an
additional $20 million in loans during the next 30 days.
We have provided capital in the form of loans for many different
businesses including; trucking companies, an oil field servicing
company, a forest firefighting company, a coffee house, an auto body
shop, an oil lube shop, a natural gas distribution company for rural
Oklahoma and Arkansas, an art gallery, a real estate holding company
and a commercial development company. We have made loans to various
Native American housing authorities for the construction of apartments,
new maintenance facilities, office buildings, housing developments and
rental units. We have financed thousands of home loans for Native
Americans in all 50 states and on tribal trust lands.
We have received numerous awards for this activity including the
``Access to Capital Award'' in 2011 presented by the U.S. Department of
Commerce Minority Business Development Agency and the Oklahoma Native
American Business Enterprise Center. Bank2 was recognized by the
prestigious American Banking Journal as the number one community bank
in 2009 and the number three community bank in 2010 based upon
earnings. Bank2 was named one of the ``Top Places to Work in Oklahoma''
in 2013 and 2014.
We believe our consistent and intentional service to Indian country
makes us uniquely qualified to testify before this committee. Through
our experiences we can provide this committee with success stories of
what really works and what needs to be fixed. In many of these
situations, we believe we know what is necessary to fix the problem(s).
We have made Indian and Indian country loans from Alaska to Florida
and from Hawaii to Maine. I have personally visited every tribal
headquarters in Oklahoma and hundreds across America. We do not claim
to know everything about Native America, but we do believe we can offer
a great deal of input about what works and what is broken, especially
concerning government guaranteed lending designed to provide access to
capital in Indian country.
We pray our testimony proves to be very valuable to this Committee.
BIA Commercial Loan Guaranty Program
Eligible Borrowers
Tribes
Housing Authorities
TDHES/Alaska Corp.
Individual Enrolled Native American
Native American Owned Business (51 percent or more)
The Purpose of the Program
The purpose is to encourage eligible borrowers to develop viable
Indian businesses through conventional lender financing. The direct
function of the Program is to help lenders reduce excessive risks on
loans they make. That function in turn helps borrowers secure
conventional financing that might otherwise be unattainable.
Funds may be used for:
Business loans
Operating capital
Equipment purchases
Business refinance
Lines of credit
Real estate
Construction
Positive Aspects of the Program:
Designed specifically to benefit Native American businesses
and individuals
Typically works well on smaller loan sizes and start ups
Offers a 90 percent guaranty
Helps tribes to promote economic development on and off of
reservations
Promotes economic opportunity for American Indians, Indian
tribes and Alaska Natives while protecting trust resources
Interest rates and terms are similar to conventional
commercial loans
Examples of BIA success stories:
2-New Native American Business Loans
--$350,000 loan to provide working capital for government contracts
on a start up business. The business was to provide firefighting
equipment and man power to fight forest fires for the U.S. Forest
Service. A start up business is typically a hard loan to make for a
bank because of the failure rates, but the BIA guaranty allowed us to
help fund the start up and provide working capital for the business to
operate and grow. This particular customer had gone to 16 other banks
seeking financing before arriving at Bank2. Bank2 along with the BIA
helped make this business idea a reality. Today this is a thriving
business.
--$375,000 loan to provide capital for the purchase of furniture,
fixtures and equipment for a restaurant. Restaurants also are typically
hard to finance as the failure rate exceeds 80 percent. This combined
with the fact it was a new business start up made this loan most
difficult to approve. The use of the BIA guaranty allowed us to make
this loan and provide the capital needed to start the restaurant.
Negative Aspects of the Program:
Often takes several months to gain approval of loans
Slow turn times for TSR's
Larger loans must go through multiple approval levels
The approval process and time frames are not clear
No secondary market for the guaranteed portion of the loans
Program capacity is not sufficient to meet the demand
BIA loan guaranty fund is out of money for this year even as
you read this testimony
Examples of BIA problems:
3-New Native American Businesses Not Able to Secure a BIA Loan
--$477,000 loan to purchase a sports bar. Our customer applied
through BIA in late February of 2014. We received a preliminary
approval in early April. A few weeks later we received an email stating
that ``. . .the Division Chief (for the BIA) wants all requests to go
to a committee,'' but the date and time of the committee meeting had
not been determined. This was a purchase transaction and thus had
contractual time lines to which must be adhered. The contract had time
constraints of which the BIA was fully aware. The BIA ignored the time
constraints of the contract. The borrowers asked the bank to make the
loan directly to them without the BIA guarantee otherwise the Native
American borrowers would lose the business opportunity. The bank
complied but the borrowers were forced to provide the bank with
considerable additional collateral and this created a hardship on the
borrower. Bank2 and the customer were able to close the transaction
within the contractual time frame. Again, restaurants are a high risk
business and if the BIA would have responded on a timely basis, the
loan could have been made with the BIA loan guarantee and would not
have created a hardship on our Native American customers.
--$2,100,800 loan to refinance an auto body shop business property
and equipment. The Native American customer insisted upon using the BIA
loan program to refinance his business. We actually warned the customer
using the BIA loan program could be a mistake because of the length of
time and the uncertainties surrounding the approval process for larger
loans. After months of attempting to secure a BIA loan approval and
guaranty we suggested to a very frustrated Native American that we
change the request to an SBA loan. Even though the loan was large and
complex, the SBA approved the loan in short order and we closed the
loan.
--$9 million dollar loan for the purchase and operation of a rural
natural gas distribution system by a Native American. The bank was
forced to use the USDA loan program even though the loan guaranty
percentage was less, due to the size and complexity of the loan. In
fact, many times we are forced to use other government guaranteed loan
programs because there is no secondary market for BIA guaranteed loans.
Problems with BIA Guarantee Limits Access to Capital:
Some background on the secondary market issue:
We have talked with three different secondary market buyers and all
have agreed that in a nut shell, the structure of the BIA program
limits the ability to enforce the guarantee. One of our primary outlets
for the secondary market told us that the BIA has acknowledged that
this is not likely to change. According to our outlet, ``. . .while the
BIA realizes that the development of a secondary market is
congressionally mandated, the functionality of that market is not a
primary concern of the BIA.''
There remains a problem with the requirement for the lender to
submit any claim on the guarantee and limits the bank's ability to sell
BIA loans in the future. It is unlikely that this issue will disappear
in the near future without this committee's actions. This is primarily
due to the fact that the BIA has the right to review the loan once the
claim is submitted for payment by the lender and then determine whether
or not the guaranty is valid. Intentionally, the vetting process is
nowhere near that of the SBA or USDA at the time the loan is made. We
believe the BIA may be trying to increase the likelihood that the tribe
(or tribal member) will be able to obtain the loan, which on the
surface maybe a good thing for Native Americans and their businesses.
However, this also means that the BIA reserves the right to review the
process at the time the claim is made and deny the claim. Thus, the BIA
guaranty is not unconditional. Consequently, without this committee's
actions to require the BIA to fix or change their processes and their
guaranty to mirror those of the SBA and the USDA and satisfy the
Congressional mandate, it is unlikely to create a functional secondary
market for the BIA loans. Thus access to capital on reservations and
tribal trust lands will continue to be restrained. If this committee
truly wants to increase capital for commercial purposes in Indian
country, a change in process to mirror that of the USDA or SBA program
would enable a secondary market to be established and if properly done,
would not impede the mission of the BIA which is to provide funding for
tribes and tribal members.
Why it works and why it doesn't:
Why it Does Work: Smaller loans that are not time sensitive can be
approved at local levels and have worked well for us in the past. The
BIA's flexibility in getting the loans approved helps Native Americans
and their businesses. SBA and USDA do not loan on trust lands;
therefore, the BIA may be the only option for these loans.
Why it Does Not Work: The vast majority of loan requests are time
sensitive, if you have a program such as the BIA program that does not
recognize this fact, most requests will never make it to closing.
Additionally, the larger loan requests appear to be the ones that fall
out or move to other programs because the current system is not
efficient. The time sensitive and larger loans often don't have the
flexibility to wait and go through what can be a lengthy approval
process. The larger loans require a loan guaranty because many of these
lenders are small banks and need the loan guaranty to avoid violation
of regulatory lending limits. Additionally, many banks desire to earn
income by selling off the guaranteed portion of commercial loans on the
secondary market as described above. The BIA loan guaranty does not
afford this opportunity to banks and thus limits the capital available
for Indian country. Remember, the BIA loan guaranty is the only one
that will cover loans on tribal trust lands.
Recommendations
BIA guaranty on tribal lands should be increased to 95
percent
Separate non shared collateral should be permitted to cover
non guaranteed percentage similar to the Title VI program
During the approval process BIA should review and approve
the lenders capacity for reporting and monitoring
For lenders with approved reporting and monitoring, BIA
assumes lenders reps and warrants for monitoring requirements
during the life of the loan
Increase staffing and improve technology across the country
to accommodate the increased demand for TSRs, recording of land
documents, surveys, environmental (particularly on allotted
lands) and business loans
Annually fund an adequate amount to meet the demand of the
program
Fix the guaranty so that the guaranteed portion of the loan
can be sold in the secondary market
Require the BIA to report semi-annually to this committee on
the progress they have made to fix the many problems they are
creating for tribal lending
HUD-184 Home Loan Program
Why there is a need for the program
Housing related spending is estimated to be 17.6 percent of
GDP. \1\ Obviously, housing is a huge part of the U.S. economy.
---------------------------------------------------------------------------
\1\ CoreLogic. Housing Related Spending Makes Up 17.6 Percent of
GDP, http://www.corelogic.com/blog/authors/molly-boesel/2013/11/
housing-related-spending-makes-up-176-percent-of-gdp.aspx#.VXr7o00o7cs,
Accessed: June 10, 2015.
1996-2003 study indicated 90,000-200,000 units were needed
to house Native Americans who were homeless or lived in
overcrowded or substandard dwellings. \2\
---------------------------------------------------------------------------
\2\ Cooper, Kenneth J. Housing Shortage Forces Native Americans to
Use FEMA Trailers, America's Wire Maynard Media Center on Structural
Inequity, http://americaswire.org/drupal7/?q=content/housing-shortage-
forces-native-americans-use-fema-trailers, Accessed: June 10, 2015.
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41 percent of housing on reservations is considered
inadequate, compared to 6 percent nationwide.
The legislature deplored the fact that there are 90,000
homeless or under-housed Indian families, 30 percent of Indian
housing is overcrowded and less than 50 percent is connected to
a public sewer. \2\
About 40 percent of on reservation housing is considered
inadequate and living conditions on the reservations have been
cited as ``. . .comparable to Third World.'' \3\
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\3\ Native American Aid. Living Conditions, http://
www.nrcprograms.org/site/PageServer?pagename=naa_livingconditions,
Accessed: June 10, 2015.
Overcrowded homes, or homes with more than one occupant per
room, are common on Native American lands. Of the homes on
Native American lands, 8.8 percent are crowded compared to 3.0
percent nationwide. Although crowding is partially linked to
stronger kinship ties that exist within Native American
communities, it also highlights a serious shortage of safe,
affordable housing. A 2006 study on homelessness on tribal
lands in Minnesota found that 99 percent of doubled up
responders, or individuals staying in another individual's
house, would ``prefer to be in their own housing if they could
find or afford it.'' Doubling up is often a last resort. \4\
---------------------------------------------------------------------------
\4\ American Indian Relief Council. Living Conditions, http://
www.nrcprograms.org/site/PageServer?pagename=airc_livingconditions,
Accessed: June 10, 2015. Wilder Research. Homeless and Near-Homeless
People on Northern Minnesota Indian Reservations (Saint Paul: Wilder
Research, 2009), http://www.wilder.org/Wilder-Research/Publications/
Studies/Homelessness%20in%20Minnesota,%202009%20Study/
Homeless%20and%20Near-
Homeless%20People%20on%20Minnesota%20Indian%20Reservations,%20Full%20Rep
ort.pdf, Accessed: June 10, 2015.
Homeownership is the single largest source of wealth
creation for Americans. Fully 31 percent of American wealth is
in home equity, and Americans of color have 61 percent of their
wealth in home equity. \5\
---------------------------------------------------------------------------
\5\ The Greenlining Institute. Economic Equity Homeownership,
http://greenlining.org/issues-impact/economic-equity/homeownership/,
Accessed: June 10, 2015.
The Purpose of the Program
The purpose of HUD-184 Indian Home Loan Guarantee Program is to
provide a home mortgage specifically designed for enrolled American
Indians and Alaska Native families, Alaska Villages, tribes, or
tribally designated housing entities. HUD-184 loans can be used, both
on and off native lands, for new construction, rehabilitation, purchase
of an existing home or refinance.
Because of the unique status of Indian lands being held in trust,
Native American homeownership has historically been an underserved
market. Working with an expanding network of the private sector and
tribal partners, the HUD-184 Program endeavors to increase access to
capital for Native Americans and provide private funding opportunities
for tribal housing agencies with the HUD-184 Program.
Funds may be used for:
Single Family to a quad plex
Construction
Purchase
Refinance
Professional homes such as doctors, teachers, executives,
etc.
Retirement senior independent living
Group homes
Supportive housing
Student housing
Positive Aspects of the Program:
Designed specifically to benefit Native America's access to
capital for home ownership
Office of Loan Guarantee within HUD's Office of Native
American Programs, (ONAP) guarantees the HUD-184 home mortgage
loans
Loans are underwritten by the Lender and/or HUD-184 office
Loan Guarantee Certificates are issued by ONAP on behalf of
HUD
Loans are made to enrolled Native Borrowers
Guaranty is 100 percent, this encourages lenders to serve
the Native communities
This increases the marketability and value of the Native
assets and strengthens the financial standing of Native
communities
Collateral consists of one real estate property per loan
Single family up to a four plex
Homes can be on fee simple or tribal lands
Loan terms and rates are similar to other Ginnie Mae loans
not to exceed 30 years in length
Loans are credit qualifying assumable
LTV is 97.25 percent with a 1.5 percent guarantee fee
No prepayment penalties
Examples of HUD-184 Success Stories:
New Native American Multi Unit Home Projects
--465 Tribal Home Loan Project. We have closed and funded over 120
HUD-184 home loans for one tribe. We have over 100 more in the pipeline
to be completed over the next 90 days. The program is a long term lease
with the tenant owning the home at the end of the lease. The tenant
donates an acre of land. This provides the opportunity for a tribal
member to build a brick 3-4 bedroom home on fee simple land across the
tribe's geographic territory. Usually, the home is built on family land
but the family has not had the income or credit capacity to construct a
home. It has simply been beyond their means to construct a home. So the
tribal housing authority can utilize the HUD-184 loan program and
borrow the money, lease the home to the individuals which provides most
of the benefits of homeownership. Once the loan has been paid in full,
the tribe transfers ownership of the home to the tribal member. The
tribal member's net worth takes a giant leap forward since they now own
the asset. They have financial security and peace of mind. For the
first time in their lives they own a home and possess personal wealth.
--28 Low/Moderate and Senior housing projects. Another example was
a project we completed building 7 quad plexes in Alaska. This
affordable housing project was part of a multi funded, multiple purpose
project. The community consists of affordable housing, senior housing,
single family homes and some maintenance buildings. The funding for the
quad plex buildings was very complicated and consisted of Alaska Energy
Grant Funds, NAHASDA, and a HUD-184 loan. These buildings are a
combination of low income and market rate with some units being
handicapped accessible. The ONAP office worked diligently with the bank
to complete funding for the project. In fact, all parties worked as a
cohesive team to accomplish this project. In our minds, it was a model
for cooperative/creative funding to bring capital to Indian country and
provide affordable housing.
Examples of Individual Home Loans
Late last year we completed a home loan for an Alaskan Native
living above the Arctic Circle.
We have used the single close HUD-184 home loan to help Native
Americans build homes on many reservations and on fee simple land.
We have closed thousands of home loans for Native Americans across
the country.
Negative Aspects of the Program:
Intermittent refinance opportunities
Understaffing at ONAP
Slow turn times for TSR's from BIA
Slow turn times for LGC's
Slow turn times on claims paid
Program shutdowns
Manual process/lack of technology from ONAP
Examples of HUD-184 Failures:
Moratorium of Refinancing
During the period from October 1, 2012 to April 4, 2014 (550 days)
Native Americans with HUD-184 home loans on fee simple land were not
permitted to refinance their home loans through the HUD-184 program.
This was during an extremely low rate environment. ONAP said that they
were forced to stop allowing refinances due to being out of loan
commitment authority. We argued that HUD already had the loan on their
books and the borrowers would simply be refinancing the current balance
at a lower rate. Therefore, the HUD-184 program did not have any more
exposure. In fact, it would have been just the opposite because the
borrowers payments would be lower, thus enhancing their ability to
repay the loan. HUD would not have any more exposure to loan guaranty
amounts and what exposure HUD did have would be reduced by allowing the
rates to be lowered. Plus, the HUD-184 program would receive a
refinance fee from the borrower.
This was a huge disservice to Native American borrowers. We have
calculated that it cost, just our Native American customers
approximately $45,391,207 in additional interest. One can only image
what this cost all Native Americans in the HUD-184 program. I believe
it could top $200 million dollars.
We worked diligently with ONAP, congressional representatives, The
National Congress of American Indians and anybody else that would
listen to the problem. No one seemed to be able to fix what I believe
to be a very, very simple solution. It makes me ask, why?
Slow turn times for TSR's from BIA
In the Yerington, Nevada area, the BIA is unable or unwilling to
issue final TSR's. They state there is an ongoing Congressional audit,
due to errors in the legal descriptions on their leases and ultimately
their mortgages and Title Status Report (TSR). Unfortunately, the BIA
issued many initial TSR's with which lenders used to close loans. Now
lenders are unable to receive final TSR's and that prevents lenders
from filing the loan notes and mortgages. Without a final TSR or filed
note and mortgage ONAP is unable to issue a Loan Guarantee Certificate.
Multiple lenders have these issues. Bank2 currently has three loans in
a pool that are three years old and considered severely delinquent by
Ginnie Mae. Many lenders are in this situation. Bank2's senior
management has worked with senior management from ONAP to try and
resolve the issue with BIA. Thus far, the BIA has refused to fix the
issue. We are experiencing this issue in other BIA offices as well.
Discussions with other lenders indicate they are having the same issues
and some have indicated they have suspended lending on tribal trust
lands because of the BIA. Likewise, Bank2 is unable to continue to make
loans in many tribal trust land areas because the BIA will not resolve
the issues. The people hurt are the hundreds, if not thousands of
Native Americans that want to buy a home but cannot do so because the
BIA will not issue final TSRs. As a result this is limiting access to
capital in Indian country and perpetuating poor housing conditions on
many reservations.
Slow turn times in the ONAP office paying claims
The claim filing process is a manual paper process. All submissions
are sent via FedEx to HUD versus an e file process. FHA and VA allow e
filing. With the reduction in staffing and paper files getting shifted
around to different desks and/or physical locations, ONAP has lost or
misplaced files repeatedly.
Of the claims paid in 2013 and 2014, the average time of payment
was 168 and 79 days respectively. HUD-ONAP commitment is to pay claims
in 45 days.
Once a claim has been processed there is no reimbursement
documentation sent to the lender. This is very confusing any time
amounts are adjusted with no explanation.
Delays in processing claim payments and corrections to guarantees
create problems with delinquency ratios and remaining in compliance
with GNMA.
Compliance issues could affect GNMA's willingness to grant
commitment authority which would hinder the lenders ability to lend to
Native Americans.
Why it works and why it doesn't:
Why it Does Work: ONAP has a dedicated and knowledgeable staff.
They are small in numbers but great in commitment, expertise and
tenure. The program has a 97.75 percent LTV and is 100 percent
guaranteed loan for the lender. It is flexible enough to work well with
the vastly different Native American housing programs, yet specific
enough in its scope to avoid massive amounts of minutia. The staff
understands the transactional side of a home purchase so most loans are
able to close. Tom Wright has been with the program since inception and
provides strong leadership and corporate knowledge to his staff.
Why it Does Not Work: ONAP is extremely understaffed, underfunded
and is decades behind in technology. Lenders hear horror stories about
their peers being stuck with loans on tribal lands on which they can't
get LGC's or TSR's. This puts the lender at risk for a 100 percent loss
on large loans. Banks can no longer assume such risk. The BIA is
largely responsible for these problems.
The process is broken. It is still 100 percent manual from start to
finish and is extremely labor intensive. In a highly regulated
environment, banks are unwilling or unable to justify the extra
employee expense and risk to offer the program.
Recommendations:
Increase staffing for ONAP. There are very dedicated and
knowledgeable staff currently at ONAP but there is zero chance
to operate efficiently with the limited number of staff they
have currently
Invest in technology. It is difficult to understand why this
remains one of the only loan programs that requires a complete
manual process. Specifically, issuance of case numbers, loan
guaranties and payment of claims
Develop a better government to government process with ONAP,
BIA and tribes for acquiring TSR's early in the loan process
Require the BIA to provide TSR's on a timely basis
consistent with what a title company would provide in the
market place
Require the BIA to report semi-annually to this committee on
the progress they have made to fix the many problems they are
creating for tribal lending
Develop a better government-to-government process with ONAP,
BIA and tribes for delinquent loans
Allow proven lenders to ``self issue'' firm commitments like
FHA
Allow proven lenders to ``self pay'' claims--automate the
case number process like FHA
ONAP Title VI Guaranteed Loan Program
Eligible Borrowers
Tribes
Tribal Housing Authorities
THDE's that are recipients of NAHASDA Grant Funds
The Purpose of the Program
The purpose of the Title VI loan guarantee program is to assist
IHGB recipients (borrowers) who want to finance additional grant
eligible construction or development at today's costs. Tribes can use a
variety of funding sources in combination with Title VI financing, such
as low income housing tax credits. Title VI loans may also be used to
pay development costs.
With the flexibility of the Title VI program, tribes can structure
their loans to meet the requirements of their project and negotiate a
variety of repayment terms with the lender. Loan terms can range up to
20 years, and payments may be made monthly, quarterly, or annually.
Additionally, interest rates can be fixed, adjustable or floating, and
are based on an index.
How Funds may be used:
Low to moderate income housing
Indian Housing Assistance
Housing Development includes infrastructure, 1-4 units and
multifamily
Housing Services
Housing Management Services
Crime Prevention and Safety Activities
Model Activities (with HUD approval)
Positive Aspects of the Program
Benefit tribes and lenders. Tribes benefit by building more housing
at today's costs and using the loan to leverage additional funds from
other sources and improved financial services from lenders and permit
flexible financing terms. Additionally, tribes are not required to use
land as collateral for loans.
Likewise, lenders benefit from administering Title VI loans. Some
of these benefits include: limited risk exposure, reduced costs,
increased loan marketability and improved opportunities to market
financial services and credit towards meeting community reinvestment
goals.
Guaranty is 95 percent the lender is allowed to collateralize an
additional 5 percent with separate collateral that applies first to the
lender. This is typically a Certificate of Deposit (or other cash
deposit) resulting in a loan that is 100 percent covered and has
minimum risk to the bank.
Collateral is the pledge of future IHBG funds. The tribe, housing
authority or TDHE leverages IHBG funds to finance affordable housing
activities today by pledging future grant funds as security for
repayment of the guarantee obligation to HUD for their 95 percent
guaranty. The lender is allowed to have additional collateral separate
from the IHBG funds such as a CD for their 5 percent that is not
guaranteed. This is negotiated with the tribe. The additional
collateral is the only asset pledge to the loan.
Loan terms can be fixed rate and/or variable up to 20 years. Often
the Construction period can be an adjustable rate and then fixed for
the remaining amortization. Pre payment penalties are allowed and
typical. (Match funding) not assumable.
Examples of Title VI Success Stories
--$7 Million dollar loan to a tribe on the west coast (closing
6.18.15) The project is providing funding for an on reservation, 45 low
income housing units (various types) for senior housing, supportive
housing and transitional housing (defined as transitioning housing
preparing from rental to home ownership), a community center and
related buildings. Bank2 will utilize the Title VI loan program to
provide a 20 year market rate interest loan. In addition, plans call
for the Title VI to be combined with normal HUD-184 single close home
loans on the reservations.
Another example (in the discussion stages) is for senior housing on
a reservation using the HUD-184 program. The concept includes several
quad plexes on adjoining lots. This loan format would be creating a
senior community on the reservation using the lender's fund and not
government funds. This approach allows all income levels to live in the
senior housing units.
Negative aspects of the program
Slow turn times from BIA for TSR's
Narrow scope of the program
Why it Does Work:
HUD has a dedicated and knowledgeable employee that is devoted to
the program. The program has a 95 percent guarantee and allows the
lender to collateralize the additional 5 percent. Like the 184 it is
flexible enough to work well with the vastly different Native American
low income housing programs, yet specific enough in its scope to avoid
massive amounts of minutia. There has never been a loss on a Title VI
loan.
Why it Does Not Work:
The program is connected to low income housing and collateralized
by NAHASDA funds. This puts the lender at risk on the guarantee if
proper oversight and monitoring of NAHASDA reporting are not completed.
Mixed use properties can be problematic if they serve non low income
members of the community. The program is too small. Since 1996 only 68
Title VI loans have funded. The need far outweighs this number.
Recommendations:
More Tribal and Lender Training and Education
Explore additional collateral sources other than NAHASDA
funds including AR, investments, cash and or other chattel. The
impact would allow tribes to expand the purpose of the program
beyond affordable housing to include more traditional economic
development.
Other General Recommendations
Environmental reviews are required on all loans on tribal lands in
some form. Many of the tribes have environmental staff or departments
trained to complete this requirement. However, on allotted lands it can
fall to the BIA. This can create delays and additional expense to the
borrower. The requirements are different for different agencies. More
confusing are the different requirements for various regions of the
same agency. Lenders and loan guarantee programs would benefit from
standardized environmental requirements across all government lending
agencies is needed.
BIA TSR issues affect all three programs upon which my testimony
has touched. The problems created by the lack of speed and
responsiveness of the BIA have a dramatically negative impact to the
economic well being of Indian country. It must be addressed and
corrected. We believe without some sort of accountability the problem
will not be corrected. We also believe market place Service Level
Agreements (SLA's) should be established, monitored and real
consequences should exist if SLA's are not met. This is too important.
The BIA needs to get it right for Indian country and for lenders. Ask
yourself this question: Would you put up with the issues the BIA
creates?
Kill the Red Tape on issues that clearly make no sense and actually
cost the American tax payers huge sums of money. Following are two
loans that illustrate this point.
Examples
Bank2 has a loan that was in foreclosure. While in foreclosure the
home burned and was a total loss. The insurance company issued a check
to both the borrower and Bank2. The borrower refused to sign the
insurance check for $97,000 and hired an attorney. They made an offer
to sign the insurance check over to Bank2 if Bank2 would forgive the
outstanding balance of the loan (approximately $7,000) and allow the
customer to retain the land valued at $5,000. Bank2 asked HUD to
approve the offer that would have resulted in a $7,000 loss to the
American tax payers. It took ONAP over a year to come to the final
decision that they were unable to approve the offer. The only recourse
Bank2 has is to continue with the foreclosure process, raze the home to
the ground once it receives the property and submit a claim to HUD. At
that point the claim is estimated by Bank2 and our attorneys to exceed
$50,000. The inability of the Director of ONAP to accept the offer from
the borrower will result in American tax payers paying an additional
$43,000 in claims. Unfortunately this story doesn't stop there. We have
been advised ONAP cannot accept vacant land; Bank2 will be required to
sell the property before submitting our claims. This will undoubtedly
add more expense to the claim. This type of red tape causes undue
burden on banks and unnecessary expense on tax payers.
Another example is a HUD-184 single close home construction loan in
California. The customer passes away prior to completion of
construction. Her son wants to complete construction and HUD agrees to
allow Bank2 to make the advances from the escrow account to complete
the home. Upon completion, the son wanted to assume the loan, as is
allowable by state law as the heir. However, the son previously
defaulted on his own HUD-184 loan and HUD won't approve his assumption
of the outstanding loan. Additionally, HUD approves excess construction
funds to be applied to the mortgage as payments until resolution with
the borrower's son is found. Meanwhile, the tribe considered first
right of refusal, but was unsure whether they would implicate
themselves by evicting the son, in the legal issues with rights of
heirs. Ultimately, the son filed suit against Bank2 and created
additional legal fees to add to the mounting expenses surrounding the
unpaid mortgage, misapplication of loan proceeds at the direction of
HUD, and indecision due to uncertainty on the part of all parties
involved.
Clarity needs to exist regarding jurisdiction and recourse. Red
tape and confusion are inherent to the homes on Native American lands.
With the additional time and effort involved in dealing with these
challenges, increased cost occurs with no offset other than capital
that would otherwise be allocated to housing. Lenders are hesitant to
provide loans when outcomes similar to the examples above or worse
occur with no foundation of how to take appropriate action. ONAP must
be free to have contingency plans for life. There are much better
remedies to these issues than law suits that add considerably to
customer and lender frustration, and to tax payer expenses.
Provide adequate funding for adequate staffing of programs. We feel
most of the problems with the HUD-184 program stem from the ONAP office
being under funded from a staffing standpoint. Without question the
staff works hard and is dedicated to the program but there is only so
much a handful of people can do. The program has grown but the staff
level has not grown and thus it has created many problems as outlined
in this testimony.
In the case of the BIA guaranteed lending program, we have reasons
to believe that at least part of the problems have to do with limited
staffing or staffing that is not dedicated to the loan program.
Conclusion
We are committed more than ever to meeting the capital needs of
Native America. It is a worthy cause. We believe if the programs we
have testified about were properly funded, staffed and held
accountable, much of the access to capital problems in Indian country
would be alleviated. We pray the Committee will take the appropriate
steps to ensure these things are done.
I would like to express my sincere gratitude to the committee for
allowing me to testify. This was a great honor and a unique
opportunity.
The Chairman. Thank you very much, Mr. Hill. I assure you
that it is.
Mr. Desiderio, I will call on you next, please.
STATEMENT OF DANTE DESIDERIO, EXECUTIVE DIRECTOR, NATIVE
AMERICAN FINANCE OFFICERS ASSOCIATION
Mr. Desiderio. Thank you, Chairman Barrasso, Vice Chairman
Tester, Senator Hoeven and Senator Franken.
My name is Dante Desiderio. I am member of the Sappony. I
am pleased to be here as the Executive Director for NAFOA, a
national organization representing tribal governments in
economic development.
We can state confidently access to capital and access to
effective capital impacts all tribes at every stage of
development. While the need for capital to flow freely into
Indian Country is great, existing Federal capital programs have
failed to drive economic growth and development that is
profoundly needed in Indian Country. We think it is time to
take a different look at these programs and ask ourselves why
they are not working to reach their full potential.
I want to start by looking at two programs that are
actually working. The first program is the Indian Loan
Guarantee Program. We have heard from two bankers about the
value of that program. I want to bring up a couple of points of
why that works and maybe why we should use that as a model for
other programs.
First, it acts as an important bridge between the private
sector banks that are willing to lend to Indian Country and the
tribes that have difficulty securing capital. It also works
because it is a tract of money for both tribes and banks. It
has longer term loans that are more suitable for any government
and it is an attractive loan for the private sector because of
the guarantee. However, the program is not reaching its
potential because the total amount of Federal funds budgeted is
around $7 million or $8 million for all of Indian Country.
Another program that is working but falling short of
meeting its potential is the Native American CDFI Assistance
Program at the Department of Treasury. The program has been
successful for important reasons that can serve as a guide for
future capital policy.
First, Treasury set aside the Native program from the
larger CDFI program. The Native CDFI program provides flexible
capital that is targeted to serve the local needs of each
tribal community. Finally, the capital program is paired with
technical assistance that helps build economic and business
capacity in the tribal communities. The program works but
again, its entire budget is around $15 million for all of
Indian Country.
I also want to use my time to take a look at two additional
programs that are actually not working for Indian Country but
are well funded. Combined, these credit programs represent over
$10 billion in Federal investment.
The first is the New Markets Tax Credit Program which
allocates $3.5 billion in tax credit funding for community and
economic development. Tax credits serve as a key role for
tribes. Tribal governments generally issue debt and tax credits
act similar to an equity investment for a portion of the
project.
This makes more projects feasible, makes projects more cost
effective and it is much easier for tribes to attract private
investment. This all sounds great for tribes but the tribes
have largely been left out of the $3.5 billion Federal program.
We received word yesterday that the Chickasaw Nation became
the first Native-focused entity to receive an allocation in the
past three years. Congratulations to Chickasaw and regrets to
the rest of Indian Country that did not get their awards.
The other Treasury tax credit program that leaves out
tribes is the $6.7 billion Low Income Housing Tax Credit.
States submit their housing priorities in the form of a
qualified allocation plan for approval from the IRS. Then the
Federal Government allocates the funds directly to the States
with no method for tribes to receive a direct allocation.
The experiment of leaving tribal needs to the States has
categorically failed. Tribal governments have the longest
housing waiting lists in the Country and the highest housing
need. We need to have that program give direct allocations to
the tribal governments.
Capital programs for developing nations are viewed by the
World Bank and the International Monetary Fund as long term
investments, investments that build trade, international
relations and long term prosperity for both the entities of the
nations that receive the funds and those nations that
contribute the funds. Congress should view Federal capital
programs for Indian Country in the same lens. When tribes
succeed, local economies prosper and the investment pays
dividends back to the Federal Government.
I want to conclude my remarks by simply stating our goal
coming into this hearing. Congress should increase their
investment in developing all stages of tribal government
economies, one, by fully investing in the direct tribal
programs already working for tribes and two, by opening
existing Federal programs in tax credit and other lending
programs to tribes.
Thank you, Senators, for inviting NAFOA to testify. Thank
you for your commitment to Indian Country.
[The prepared statement of Mr. Desiderio follows:]
Prepared Statement of Dante Desiderio, Executive Director, Native
American Finance Officers Association (NAFOA)
Thank you for the invitation to provide testimony to the Senate
Committee on Indian Affairs (Committee). NAFOA thanks Chairman Barrasso
and Ranking Member Tester for your leadership of this Committee and
your interest in economic growth and development in Indian Country.
NAFOA, in its first few decades, was focused on building the
foundation for economic development for tribal governments. This work
focused on two necessary elements. The first was working to convince
banks, capital markets, and any institution, public or private, to lend
to tribal governments. The second was building strong accounting and
operational policies that made sense for tribal governments and
provided the necessary framework to attract private capital.
Both of these areas, access to capital and financial management,
remain a core part of NAFOA's work. However, NAFOA's role in growing
tribal economies has grown along with how tribal governments are
pursuing economic development. Tribal governments have come to view the
revenues derived from economic growth as a necessity to supplement or
fully fund vital programs and services. This tribal government reliance
on economic growth and development has made Congress and the
Administration's role in promoting growth and development much more
important as well.
The subject of today's hearing of access to capital comes at a time
when tribal governments from all across the country can attest with
experience that access to cost-effective capital that works for Indian
Country is lacking. It is lacking in both access and in being effective
in meeting its intended purpose.
This lack of effective access to capital is prevalent in tribal
governments in early stages of economic growth that need flexible and
initial seed capital and in tribal governments in advanced stages of
growth that need significant amounts of cost effective capital to fund
multifaceted projects. The lack of effective capital programs can
potentially impact every tribal government at any stage of growth. This
means financing for needed health care centers, tourism projects, and
infrastructure are delayed, not built to their full capacity, funded in
more costly ways, or never built at all.
NAFOA's testimony will identify some impediments and barriers
facing tribal governments when accessing capital. While identifying
impediments and barriers is helpful in understanding challenges, it
does not always offer a pathway forward to creating policy solutions.
Therefore, our testimony will also draw attention to existing capital
programs that are working for Indian Country and offer recommendations
that will allow capital to flow into Indian Country. Our
recommendations will fall along five main themes:
Creating parity between tribal governments and other
governments when accessing the capital markets.
Increasing funding and support for programs that are
working, including the Indian Loan Guarantee Program at the
Department of Interior and the Community Development Financial
Institutions Program at the Department of Treasury.
Demanding that existing federal programs that could work for
tribes change their structure to include tribal governments and
provide capital that is proportionate to the level of need.
Clearing the way for tribes to effectively participate in
the multi-billion dollar tax credit markets for housing and
development.
Creating incentives for banks to lend to emerging tribal
communities either directly or through partnerships.
The conversation on access to capital has to start with analyzing
challenges that are characteristic of tribal markets. Noting these
characteristics helps inform the private and public capital markets on
ways to effectively serve as good partners in capital formation for
tribal growth.
Distinctive Sovereigns
The first characteristic to recognize is that tribal governments
occupy a unique role among sovereigns. Tribal governments do not enjoy
full independence as a nation and do not fit neatly into the existing
categories of states, localities, authorities, or other sub-national
entities. This is especially problematic when it comes to accessing the
capital markets. This status or characteristic defines the capital
needs of tribal governments as nations and sovereigns. It also defines
the well-intended policies that often miss the mark in providing
capital to Indian Country by treating tribal governments as individual
lenders, commercial entities, or as a mixed governmental entity that
requires additional caution. This lack of clarity in federal policy
carries over to the private sector markets that view lack of clarity as
risk.
Government Revenue Generation Models
Tribal sovereigns are different from domestic sovereigns in regard
to their source of revenue generation. States and local governments
rely on sales, property, and other varied revenue schemes to fund
programs and services. This model to date has proven largely
ineffective for most tribal governments. A few tribes have customized
this model to work by collecting sales taxes from businesses recruited
to the reservation, however; this model has only worked for a very
small number of tribes located near population centers with the ability
to attract large retailers. In general, tribal governments have limited
tax bases with the inability to create a property tax on trust lands or
to tax populations with limited income.
As a result, tribes are forced to rely on revenues from
insufficient and decreasing federal programs and revenues derived from
economic development. Economic development for tribal governments
disproportionately carries greater significance among the family of
domestic governments, yet the focus on supporting and fostering capital
programs for economic growth for tribal governments has been
disproportionately underserved.
In general domestic sovereigns, such as states, municipalities, and
authorities rely on public financing to fund their capital budgets,
build infrastructure, and foster growth. The municipal or tax-exempt
debt market is one of the largest publicly-traded markets in the world.
The market size is a direct outcome from the demand investors have for
this type of debt. The interest received by investors is generally tax-
exempt making it highly attractive. The demand also keeps rates low
making it cost effective for state and local governments. The rates are
in effect subsidized by the federal and, at times, state governments.
In a glaring inequity, tribal governments do not have the same
access to this tax-subsidized tax-exempt market. Tribes are prohibited
from accessing the tax-exempt market for projects deemed to be outside
of what is termed ``essential government functions.'' Ironically, this
means that tribes are not able to use the public market for economic
development purposes--the greatest area of governmental need and the
main revenue generator for programs and service.
Recently, the Department of Treasury filed a report concluding this
inequity should be eliminated and that Congress should provide tribes
with broadly equal access to tax-free debt. A limited amount of
authority for tribes to issue tax-free debt for economic growth was
created in The American Recovery and Reinvestment Act; however, a
series of external factors like shorter-term issuances for economic
development purposes and additional requirements placed on the funds
has left a portion of this funding pool idle to date.
The tax-exempt rules regarding tribal access to capital serves as
an example of well-intended policy missing the mark. The assumption
that tribal government capital access should carry additional cautions
since the revenue model differed from other domestic sovereigns proved
to be bad policy. Adding provisions that restrict capital use or make
it more costly and time consuming don't work in the long run for tribes
and for the capital markets. Additional restrictions and unclear
definitions such as ``essential government functions'' create
uncertainty. The capital markets tend to either steer clear of or
charge a premium for uncertainty, making capital more costly or
inaccessible.
Congress should implement the recommendations submitted by
the Department of Treasury to provide tribal governments the
right to access the tax-exempt bond market on equal terms to
states. The recommendations would open the market for tribal
government use of tax-exempt debt for purposes of building
public works and creating economic development for public use.
The Role of Federal Capital in Early Development
Tribal governments, as nations, do not have access to a development
bank such as the World Bank or the International Monetary Fund as a
means to form capital for long-term infrastructure development and
economic growth. Instead, tribal governments rely on piecing together
and navigating the diverse and sundry Federal Government development
and capital programs in lieu of a development bank. Tribal governments
in early stage development use federal capital programs to transition
to the private markets.
The agencies that have a role in providing tribal governments with
access to capital include the Department of Treasury, Department of the
Interior, the Small Business Administration, the U.S. Department of
Agriculture, the Department of Housing and Urban Development and the
Department of Commerce. Within these agencies there are a number
bureaus, authorities, agencies, and programs having nuanced terms,
conditions, and intended uses.
Navigating the capital programs that serve Indian Country to find
the most suitable and cost effective solution is difficult. To be fair
to the multiple agencies that serve Indian Country, there have been
recent efforts to coordinate amongst agencies and refer tribal
governments to appropriate sources See Federal Funding Guide--Indian
Country. However, even with this coordination, there is a stark
realization that the amount of funding dedicated for tribal government
use is extremely limited. This is especially true when considering the
important role this capital plays in developing tribal economies and
fostering long term sustainable access to capital. An examination of a
few successful programs dedicated to early stage economic growth may
serve to illustrate this point.
The Department of the Interior, through its Indian Loan
Guarantee Program, serves as an important bridge in building a
relationship between private sector banks that are willing to
lend to Indian Country and tribes that have difficulty securing
capital. The program has long-term loans that are needed for
any government, an enviable default rate at fewer than two
percent, and an incentive in the form of a loan guarantee up to
ninety percent to minimize the risk to community banks willing
to lend to the tribal market. The guarantee also helps banks
make larger loans internally or with the help of other lenders.
This program serves an important role for initial and early
tribal government growth; however the total amount of federal
funds allocated for the program for lending is around $8
million. Even with a leverage of 10:1, it only provides $80
million in lending authority--for all of Indian Country.
The Department of Treasury, through its Community
Development Financial Institution Fund (CDFI), provides
flexible capital targeted to serve the local needs of tribal
communities through the Native American CDFI Assistance Program
(NACA). An element of the NACA program success is that funding
needs are determined locally by each community and the capital
serves the overlooked needs of small initial development. The
capital program is paired with technical assistance from the
CDFI which builds business and economic capacity. There are
currently around 70 Native CDFI's. This much-needed and highly-
successful program shares a $15 million allocation for all 70
CDFI's serving Indian Country averaging just over $200,000 for
each CDFI.
These two successful programs have a combined federal budget of $21
million. This commitment from the Federal Government to early stage
capital targeted to Indian Country is grossly underfunded. USDA
programs have increased funding more recently; however, the amounts
previously dedicated to tribal governments lagged the rest of the
population in simple per capita spending measurements.
Congress should increase funding for these two successful
programs significantly. The early stage development programs
are a lifeline for tribal economies mired in generational
economic stagnation and depression-era unemployment rates.
Public-Private Capital for Community Development
Tribes, as governments, often need greater amounts of funding for
development projects that have the ability to impact economic growth on
a larger scale. Federal support for this type of project becomes even
scarcer than early stage development capital. Tribes rely on federal
program support but do not have the ability to leverage federal program
revenue in the same manner as state governments since tribal
appropriations are considered discretionary federal spending. Thus,
while a state can go to the private market and leverage future tax and
program revenue, tribes cannot go to the same private markets and
leverage future federal funding. This is the case even when the federal
funding is in place of the same tax or revenue base that is used by
states.
In addition, capital programs that are specifically designed for
the purpose of leveraging and attracting capital to public projects
have left tribes out. Three programs in particular within the
Department of Treasury, representing billions in potential investment,
need to be fixed immediately to include tribes.
New Markets Tax Credits--The New Markets Tax Credit Program
(NMTC) falls under the CDFI Fund within the Department of
Treasury. The program is funded at $5 billion with $3.5 billion
in tax credit funding available annually. Tax credits serve an
important role for tribal governments since tribal governments
can only issue debt and tax credits act similar to an equity
investment for a portion of the project. This makes more
projects feasible, cost effective and much easier for tribes to
attract private investment. All of this sounds great for
tribes, but there has been no allocation for tribal Community
Development Enterprises (CDE) in the past two years. It is
inexcusable for a federal agency to exclude tribal governments
from billions in federal funding for community and economic
development. Treasury is expected to announce the next round of
funding imminently and tribes are concerned that it will be a
third straight year of being shut out.
Congressional oversight is needed to correct this omission.
Treasury has refused to consider a tribal set aside despite bi-
partisan letters from Congress specifically requesting a tribal
set aside. The agency has considered per-capita funding
allocations as a way of justifying their actions. However this
has never been an adequate method for meeting tribal government
or other government needs when it comes to community
development. Tribal populations are relatively small (not by
our own planning) and the needs of our governments tend to be
far greater than our respective tribal populations. The same
deference of need over population or per capita spending for
capital programs has been afforded to other governments
including rural states for its tax-exempt private activity bond
allocations. Wyoming's population is around five-hundred
thousand citizens. While other more populous states are granted
$95 per capita in allocation, Wyoming and other rural states
are granted the authority to use private activity tax-exempt
debt at allocation levels that are far greater than their
population at a minimum of $291,875,000. This example is a
clear recognition that the infrastructure and development need
of the state is often greater than its population--especially
in less populated areas. Tribes should be considered in the
same light. There has been no visible effort by the Department
of Treasury to accommodate tribal governments or accommodate
their substantial need.
The CDFI Fund also has another program, the CDFI Bond
Guarantee Program that has inadvertently left out tribal
governments. This program allocates $750 million in the form of
direct lending or relending to banks and CDFIs. The loans tend
to have lower rates and carry longer terms of up to almost
thirty years, making it a viable program for tribal
governments. Tribes were inadvertently left out of funding
initially when the CDFI Fund chose land as the preferred form
of collateral. This left little room for tribes unable to
collateralize loans using trust lands. The CDFI Fund has been
willing to include tribal comments and entertain alternatives
for tribes in an effort to make the program more accessible,
however; Congress should ensure that promise is kept and the
Bond Guarantee Program includes tribes.
Finally, the Department of Treasury, through the Internal
Revenue Service (IRS), has not ensured tribal access to the
Low-Income Tax Credit (LIHTC) Program. This federal program
passes money through to the states who submit a Qualified
Allocation Plan to the IRS for approval. There is no allocation
for tribal governments even though it is a federal program and
states often exclude tribal needs from their funding plans or
provide funding at levels that barely impact the overall tribal
need. This program holds great promise for meeting the
dramatically underfunded housing needs of tribal governments
who wrestle with the longest housing waiting lists and highest
housing needs in the nation. Given the need and the fact that
it is a federally-funded program, at a minimum, the IRS can
simply require states to include tribal needs in their
Qualified Allocation Plans or more to the point, the Federal
Government is neglecting its trust responsibility by bypassing
tribes altogether and should have a direct allocation for
tribes.
Congress, in its oversight role, should ensure tribes are
included in these multi-billion dollar capital programs. This
no-cost policy fix should ensure tribes receive funding
according to their need and in a manner that accommodates
tribal government characteristics. That means:
Congress should mandate a set-aside for tribal governments
in the New Markets Tax Credit Program of ten percent.
Congress should strongly encourage, and if necessary,
mandate that the CDFI Bond Guarantee Program accept the use of
third party guarantors and the use of tribal government
revenues to back loans given to tribes and tribal entities. For
example, Congress can ensure the program authorizes a tribal
government to back a loan to its housing authority using
separate economic or other program revenue as collateral.
Congress should change the Low-Income Housing Tax Credit
program by authorizing the program to fund tribes directly or
at the very least, grant bonus points for tribal housing
applicants in any state review process.
It is worth noting the funding gap between the programs directed to
Indian Country and two of the programs that leave Indian Country out.
The chart below is by no means inclusive of all direct funding
programs, but it is illustrative of the vast potential impact for
tribes if a nominal portion of the untapped existing federal program
funding where opened to tribal governments.
The chart represents the funding comparison of the Indian Loan
Guarantee Program (ILGP), the Native American CDFI Assistance Program
(NACA), the CDFI Bond Guarantee Program (BGP), the Low-Income Housing
Tax Credit Program (LIHTC), and the New Markets Tax Credit Program
(NMTC). The two tribal programs are included as the top most slivers in
the pie chart.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Ironically, the three large programs that make up the bulk of the
chart are within the Department of Treasury with two in the CDFI Fund.
The same CDFI Fund that houses the NACA program that has been so
successful at serving tribes by providing a set aside and capacity
building. Applying the same concepts of creating a separate tribal
program that accommodates tribal characteristics to the NMTC Program
and the Bond Guarantee Program seems like it should be an obvious fit
for the agency. Simply opening these programs to Indian Country would
be a significant accomplishment and one that should already exist.
Low-Income Tax Credits occupies the largest slice of the pie chart
in light blue. The annual expense of credits in 2014 was $6.7 billion
almost doubling the outlay of the New Markets Tax Credit Program shown
in purple on the chart. According to the Congressional Budget Office,
this outlay makes the LIHTC program one of the ten largest corporate
tax programs as indicated in the chart below.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The LIHTC are allocated across all 50 states based on population.
In 2012, each state received about $2.20 per person. This amount rises
each year with inflation. However, the LIHTC program also recognizes
that the housing needs of low-population states like Alaska and Wyoming
are often greater than the funding allows. The LIHTC program has
accommodated these governments by adding an allocation floor of
slightly over $2.5 million.
Congress has already seen the wisdom and results of
providing incentives in the form of tax credits to encourage
private investment in public works. The problem to date is that
tribal governments are sitting on the sidelines while
neighboring governments are making full use of the programs
worth billions in public community and infrastructure
development. This type of community and infrastructure
development is sorely needed by tribal governments to create
sustained growth. The investment is already being made and
accommodations are already being given to other governments--
Congress needs to act now before another year goes by with
tribes acting as spectators in federal capital programs.
Federal Investment
Capital programs for developing nations are viewed by the World
Bank and the International Monetary Fund as long-term investments.
Investments that build trade, build inter-national relations, and build
long-term prosperity for both the nations receiving funds and nations
contributing the funds. Congress should view federal capital and
incentive programs with the same lens. The same investment validation
that holds for the World Bank is also true for investments in tribal
economies. Tribal economies are often the core economic driver not just
for their tribal citizens, but for the surrounding communities and even
for entire regions.
Funding early stage capital programs and public-private incentive
programs has already proven to be successful in building businesses,
public-private partnerships, and capacity. Additional investment and
simple inclusion is needed.
We want to thank the Committee for all of its work on behalf of
Indian Country.
The Chairman. Thank you very much for your testimony. Thank
you all for testifying.
We are going to start with some questioning. I will start
with Senator Hoeven.
STATEMENT OF HON. JOHN HOEVEN,
U.S. SENATOR FROM NORTH DAKOTA
Senator Hoeven. Thank you, Mr. Chairman.
I thank you and the Ranking Member for holding this
hearing. I thank all of our witnesses for being here to
testify.
I have had an opportunity to work on individually-owned
Native American businesses on the reservation and also
tribally-owned. I would like you to address each from the
standpoint of capital needs or the most effective programs you
have run across in terms of how we help individually-owned
Native American businesses on the reservation and also tribal
enterprises. Both have capital requirements. I would like your
sense of what is most effective for each, thinking if we can
develop both, that certainly helps the overall economy on the
reservation.
Many individual-owned Native American businesses can
actually provide services to some of the larger tribally-owned
businesses. You want to have a good network of both. I would
like to understand what programs you think are most effective
for each, starting with Ms. Castillo.
Ms. Castillo. As I stated in my testimony, we look at a
broad spectrum of capital and financing opportunities because
there are different needs based on where you are in the growth
spectrum.
Take, for example, businesses. We look at capital from the
micro lending perspective, we look at capital from the
traditional banking perspective, we look at capital in terms of
capital investments, in terms of growth and that is why I
mentioned alternative capital opportunities.
Again, MBDA is focused on not just evaluating the capital
that is out there, but what capital is really needed by these
different firms and by these different organizations or
entities. We believe in knowledge transfer, as you pointed out.
Larger companies can be that source of not just mentorship and
technical assistance, but they can also be the source of
teaming.
Again, this is a capital access hearing but I also want to
underscore that capital access is just one of what we consider
to be three prongs of the issue which is access to capital,
access to contracts and access to markets.
I will tell you what has been most effective at the smaller
level. Micro lending can be that source of at least being able
to jump start a business. Again, if we want to focus on helping
businesses growth and thrive, we need to look at a much broader
perspective.
That is why our agency is looking at other alternative
sources of capital, even mergers and acquisitions type of
capital. We want to make sure we are looking at capital from a
growth perspective, not just in terms of starting but hopefully
in helping them thrive as well.
Senator Hoeven. Let me go to Mr. Desiderio next with the
same question. What are your thoughts in terms of what is most
effective for individual enterprises and tribally-owned
enterprises?
Mr. Desiderio. I am really glad you brought this up,
Senator Hoeven. This is a very important distinction when we
look at Federal policies that are going to try to develop
tribal economies versus Federal policies that are going out to
individually-owned Native businesses.
Tribal governments are much different and need much longer
term capital, much more patient capital. We do not have the
ability to go to the market and raise equity, so we rely on
long term, patient capital to grow enterprises. It is a much
different role.
The tribal governments are looking at those enterprises to
fund programs and services. We should be extending these long
term capital programs, these windows. There are some programs
that are underfunded like the Indian Loan Guarantee Program.
That is open to Native businesses and tribal governments and
goes out to almost 30 years.
The bond guarantee within Treasury can also but we have
been left out of that pool of money. USDA provides some of
capital for infrastructure development but it is very difficult
to navigate and pull together those programs to develop
infrastructure for the individual businesses to locate on the
reservation.
I just want you to keep in mind these are two different
functions. The long term patient capital is needed to build the
infrastructure and the tribal businesses to provide those
program services, even the telecommunications infrastructure
that is needed for business development.
Senator Hoeven. I want to come back to Mr. Hill and Mr.
Watchman. What do you need to provide money on the reservation?
Do you need loan guarantees? Do you need regulatory relief?
What do you need to put your capital out there in Native
American businesses on the reservation?
Mr. Hill. I believe the BIA Loan Guarantee Program, if it
were to function at a high level, would provide much of what is
needed for Native America, businesses, both private and tribal,
on reservation. The program is not adequately funded, nor is it
administrated properly.
Senator Hoeven. I have to stop you there. Not funded
adequately. I have used the BIA loan program, so I understand
more funding, more resources allocated but your next statement
was what, that it is not administered properly? What is the
impediment there?
Mr. Hill. The BIA is not very accountable to their customer
or to the banks. The process for approval is subject to
individual offices and subject to different edicts handed down
from Washington from time to time. The process is not one that
can be counted on, nor is it one that can be counted on in a
timely basis.
Senator Hoeven. How would you fix it?
Mr. Hill. My written testimony gives some great examples of
how to fix that. It needs to be accountable. They need to have
a service level of accountability to their borrowers. Most of
these transactions, many of these, are time sensitive. Without
any accountability to the approval process, it is almost
impossible to complete a time sensitive transaction.
Senator Hoeven. You have specifics in your testimony?
Mr. Hill. Yes, sir.
Senator Hoeven. Thank you. I am going to look at that.
I understand I am over my time, so I will stop there. Thank
you, Mr. Chairman.
The Chairman. Thank you, Senator Hoeven.
Senator Franken.
STATEMENT OF HON. AL FRANKEN,
U.S. SENATOR FROM MINNESOTA
Senator Franken. Thank you, Mr. Chairman and Mr. Co-
Chairman for this very important hearing.
I am sorry, Ms. Castillo, but I came in after your
testimony. But from the three of you, I was hearing that the
BIA Loan Guarantee Program is underfunded. Mr. Hill just talked
about it being badly administered. It is hard to get more
funding for a program that is badly administered.
What I am hearing is that $7 million is next to nothing and
sort of embarrassing, I think. Of the number of programs
mentioned, I heard the CDFI Assistance Program. I wanted to ask
Mr. Desiderio about that.
Bois Forte Band of the Ojibwe is located at the top of
Minnesota close to the Canadian border. With some technical
assistance grants, the Band set up a credit union. I think it
was the only new credit union chartered in 2013. The credit
union is now working on getting its certification as a Native
CDFI.
Could you walk us through an example of how a Native CDFI
works on the ground and how it addresses the community's
capital needs?
Mr. Desiderio. The Native CDFIs are established in tribal
communities or in communities they are set to service. For
example, if they are setting up in South Dakota and want to
focus on small business development, they have the flexibility
to focus on the need of that community and also provide
technical assistance. There is some funding set aside for that.
That is really why the program works because it is left up
to the communities to determine their needs and also gives
technical assistance to help the borrowers along. The funding
is an issue with the CDFI.
Senator Franken. Every year, I write the Appropriations
Committee asking for more funding.
Mr. Desiderio. We have 70 Native CDFIs that if you average
it out, it is about $200,000 each, which is not enough for
technical assistance and loans.
Senator Franken. Mr. Watchman, in your testimony, you
talked about the need for more funding. How would that
translate for support for economic development in Indian
Country?
Mr. Watchman. The way I look at it is that because commerce
and activity in Indian Country is under trust land, that is
always a challenge. In order to do a conventional loan, you
need credit enhancement. That is where the loan guarantee
programs help to do it.
As a former banker, you go into a situation and look at
trust land, there are many different obstacles. As a bank, you
have many different checklists you have to follow, so trying to
reconcile the tribal court and title to land makes it
challenging.
At the end of the day when you risk rate a credit, it risk
rates very high in terms of very risky. The BIA Loan Guarantee
Program and HUD programs help to enhance the credit. I am also
on the board of the Native American Bank. It helps us to lend
to Indian Country.
The issue you have, for example, an individual Indian
borrower on a reservation is confined and subject to tribal
laws, so they cannot say we want to waive tribal law and use
the State law. That cannot be done.
On the tribal side, in many cases, for big commercial
loans, a tribe can say, we are going to provide a waiver and we
are going to waive our tribal laws and use a State law. In many
cases, credit enhancement is needed so that more loans can be
done. That is how I look at it.
Senator Franken. There are bands of tribes in my State that
have a great need for capital. Because of that, they would be
considered a high credit risk but that is exactly why they need
the capital.
I know I am out of time but can I take a little bit longer?
Mr. Hill, you talked about TSR. I visited a couple of
tribes in Arizona and that seemed to be a big issue, making
sure the title is resolved on these homes. Can you explain what
the problem is and why this is so important to solve? Very
often who owns these homes is in question, right?
Mr. Hill. That is true. I am not sure I can explain the
problem adequately. Essentially, we have trouble getting clear
title to the property. If any of you were to buy a home or to
try to buy a business and buy the real estate the business sits
on, you go to a title company and they issue a title commitment
and the bank is ready to close because there is clear title.
The BIA is struggling to provide the clear title and it is
their responsibility. In my written testimony, I actually ask
if you could imagine being in that situation yourself, what
would you do about it. That is the situation on many
reservations today. There are two stories in my written
testimony that go into great detail about this.
Without a title commitment, without proof they own that
property and it can be obligated, we cannot close a transaction
and get a guarantee on the loan. Without the BIA addressing
this problem and making it a serious matter and fixing their
ability to issue those title commitments, most loans will not
be completed and funded that could be.
Senator Franken. Would everyone agree that is something
that needs to be addressed? Mr. Desiderio?
Mr. Desiderio. It does. It does need to be addressed. It is
an issue. Some tribes have been very progressive in taking that
on. The issue of titling and the issue with a lot of these
other infrastructure issues is where the Federal programs come
in to really deal with a lot of this.
The capital programs should be enhancing all that and
building infrastructure and getting the long term debt we need
to do that. It is an issue and there are other issues besides
the titling that we have to work through as well.
Senator Franken. Thank you. I would like to thank all the
witnesses, especially Mr. Desiderio.
The Chairman. Thank you, Senator Franken.
Senator Tester?
STATEMENT OF HON. JON TESTER,
U.S. SENATOR FROM MONTANA
Senator Tester. Thank you, Mr. Chairman.
First of all, I want to thank all of you for your
testimony. I think it is very important that this Committee
hears the financial capital challenges in Indian Country.
As I look in the crowd, there is a tremendous group of
tribal leaders out there who just do an incredible job on each
and every one of their reservations and quite frankly, a lot of
folks who look from a more global standpoint. We thank you all
for being here for this hearing.
I will start with you, Ms. Castillo, and kind of move down
the line. The Minority Business Development Agency provides
many services to minority-owned firms and technical assistance
to institutional networking. Which services do tribes use the
most?
Ms. Castillo. I believe they use all of our services. I
will start with access to capital but also access to contracts.
It is okay to have the capital, but you need to have the
customers and the clients. That is where I think there are a
lot of opportunities.
As a matter of fact, we started a Federal procurement
center here in Washington, D.C. to help MBEs be able to access
Federal contracts. Let us not forget the private sector. It is
helping them understand how to compete for a contract, how to
respond to the contract and how to be successful with the
contract.
Senator Tester. I appreciate that. Minority business
includes a lot of different groups. What percentage of your
work is done with Native Americans?
Ms. Castillo. I would say that at least 30 percent or more
is done with Native Americans.
Senator Tester. How much of your work is done with Native
tribes that are non-gaming?
Ms. Castillo. I do not have the exact number.
Senator Tester. I would like to get that.
Ms. Castillo. I would be delighted to provide that.
Senator Tester. I do not mean to establish ranks of Native
Americans but the truth is that it seems to me that gaming
tribes, because they have some capital to work with, it makes
up for a lack of capital coming from this end, have a few more
advantages.
Ms. Castillo. Senator, our Bridgeport, Connecticut MBDA
center actually hosted a conference to bring participants to
look at Native American businesses beyond gaming. I wanted to
highlight that because part of our work is to diversify
industries in which Native American firms are participating.
Senator Tester. As long as we are going down that line,
what kind of outreach do you do? Do you expect tribes to come
to you or do you actively pursue them?
Ms. Castillo. We do both. As a public servant, I travel the
Country extensively and so do our business centers which are on
the ground doing outreach directly with the different
businesses, as well as the different organizations
participating in RES national as well as RES D.C. here.
I would also tell you that we work very closely with the
different offices of the members on this Committee to make sure
that we can leverage those outreach opportunities.
Senator Tester. Mr. Watchman, you started your testimony
talking about the fact that Indian Country needs to have a
business friendly environment, reasonableness with their
governance, a uniform commercial code, solid dispute resolution
and predictability.
You can tell me if you do not know if you don't. How many
tribes meet those targets?
Mr. Watchman. We all know there are over 550 tribes. All
have their distinct government and different governing laws.
Senator Tester. All of this has to be done under the
sovereignty overlap.
Mr. Watchman. I will say very few.
Senator Tester. That is exactly what I figured you probably
would say, which means there is a lot of opportunity for
success.
You are sitting here and there is a fellow sitting right
behind you that is pretty good at this stuff. What kind of work
are you able to do to be able to help educate tribes on how to
develop a business friendly environment, all the things you
listed? What kind of capacity do you have to help tribes?
Mr. Watchman. The National Center for American Indian
Enterprise Development actually started four decades ago to try
to help Indian entrepreneurs and Indian tribes get into
businesses. We do have the platform.
Senator Tester. What are your limiting factors?
Mr. Watchman. Capital. We are nonprofit.
Senator Tester. I have talked to you before and I applaud
the work you are doing. I think it is critically important
work. As I said yesterday, if you are waiting for us to fix
your problems, it is going to be a long wait. The truth is if
you can help with this governance issue, I think it can help a
lot.
I want to go to you, Mr. Hill. How big is your bank?
Mr. Hill. About $118 million in total assets.
Senator Tester. How much of your loans are off reservation?
Mr. Hill. I do not have that number. The majority would be,
I believe but I will get that.
Senator Tester. I wanted to make sure that there were some
off and some on. The majority you think is off reservation and
there are some that are on reservation.
Is your level of default on loans similar or is it worse in
Indian Country? Are they similar?
Mr. Hill. We have only had one default in Indian Country of
all the commercial loans we have made. It was on reservation.
The default rate is very, very low.
Our past due percentage is an industry leading percentage.
Eighty percent of all our loans or more over the past six years
have been to Native American borrowers on and off reservation.
Senator Tester. That is pretty darned good. Your regulators
must be pretty happy.
Mr. Hill. I hope so.
Senator Tester. Do you have a lot of problem with the
regulators?
Mr. Hill. No, sir.
Senator Tester. Get that on the record.
Mr. Hill. I have a lot of problems with all the many
regulations, not the regulators themselves.
Senator Tester. The TSR problem Senator Franken spoke of
and that you mentioned in your testimony, it is paralyzing.
Unless you have a clear title, you are done until you get it.
Whose problem is that? Is that BIA's problem or is that the
tribe's problem? Is it a little bit of each? We can get BIA off
the dime if we get the Chairman to prod them a little bit and
he would. The question is, maybe it is not their problem.
Mr. Hill. The vast majority of the problems we have
experienced, it has been the BIA's problem. Having to make
loans in all 50 States, home loans in particular, the BIA is a
problem and many times even concerning home loans much less
commercial loans.
Senator Tester. I am sorry for going over, Mr. Chairman.
Is it the fact they do not have the manpower to do the
research, or is it the fact there are so many fractionated
interests that you cannot find the people who own the land, or
is it both?
Mr. Hill. I think sometimes it may be both but I believe
there is just a lack of commitment at the BIA office to remedy
the problem.
Senator Tester. I certainly appreciate your testimony. I
think access to capital in Indian Country is an incredible
inhibitor to increase the economy and reduce poverty, and
reduce the necessity for the safety net programs at the Federal
level.
I want to say thank you for the work you are doing. I very
much appreciate it. We need to stay in touch to figure out how
we can empower you. You put down some pretty clear
recommendations. Hopefully, Mr. Chairman, we can work in a
bipartisan way as well, we always do on this Committee, to come
up with some solutions to help empower these guys to be able to
do their job to help the people sitting in the audience.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Tester.
Ms. Castillo, when I took a look at your written testimony,
you note that your agency has been engaged in expanding the
economic footprint of minority businesses and enterprises. Your
new access to capital team assists these enterprises in
pursuing alternative sources of capital such as venture
capital.
Could you talk about what strategies work best for
increasing capital for Indian businesses along these lines?
Ms. Castillo. I will go up to the elemental level which is
our 44 centers. It is being able to engage with the business
itself to be able to look at what is their current state of
affairs in terms of their financing, their customers, their
goods or services, being able to start a strategy for business
development or growth and being able to identify the capital
that is really needed.
It could be anything from a micro loan or a conventional
loan or something that could assist in terms of exporting and
leveraging those opportunities, whether it is Ex-Im Bank, OPEC
or others, but being able to assess and work with them very
closely. Again, we are focused on helping them grow and
succeed. It is more on the individual touch in terms of the
businesses.
The Chairman. That leads to the question of how much has
the capital acquisition increased for Indian businesses since
this access to capital team has been deployed?
Ms. Castillo. I do not have those numbers with me but I
would be delighted to work with your team to ensure we can give
you that.
The Chairman. We would like to have that information
because we want it to succeed.
Mr. Watchman, your written testimony noted that new market
tax credit allocations have helped finance projects in Indian
Country. None of the last two rounds of allocations went to
entities primarily or exclusively serving Indian Country.
Without these credits, the ability to access capital to
support and grow businesses, create jobs and sustain healthy
economies is diminished.
Can you elaborate on what barriers there are that inhibit
the allocation of tax credits to projects in Indian Country?
Mr. Watchman. There are several barriers. One is that there
are many CDEs out there, there are only a few that can actually
accept that but there is a big need out there. There is not a
lot of allocations to spread out to Indian Country.
I mentioned there are over 550 tribes. There are 70 or so
CDFIs and there are several CDEs. Their job is to help
facilitate capital. You have to get competitive. In some cases,
it is just a matter of what is written in the proposal and how
the readers like it and make their allocation. It is not an
easy fix.
I mentioned earlier that if this Committee and others in
the House can increase the appropriations not only to the tax
program but also the BIA and maybe recommending some set asides
to directly allocate to Native American or new market tax
credit providers. That is one way to help facilitate more
capital acquisition to Indian Country.
The Chairman. Mr. Hill, I wanted to follow up on your
written testimony and your answers to some of the questions
about the BIA delays or failures in issuing the final title
status reports.
These reports would identify trust land ownership interests
used to help secure home mortgage loans and guarantees and
without the final report, loans cannot be guaranteed. Access to
capital is then limited which results in poor housing
conditions on many of the reservations.
What kind of costs has Indian Country incurred due to these
delays or these failures?
Mr. Hill. I do not think I would be able to calculate a
figure for you, especially off the top of my head. I think the
cost is significant.
The restriction of capital is directly tied to the
restriction of capital to Native America. There is no question
about it.
The Chairman. Mr. Desiderio, your written testimony stated
that the cost effective capital that works for Indian Country
is lacking in both access and being effective in meeting the
intended purposes. You made that very clear.
You recommended creating incentives for banks to lend to
emerging tribal communities, either directly or through
partnerships. Can you elaborate a bit on what types of
incentives you think would be effective in increasing bank
participation in Indian Country?
Mr. Desiderio. Sure, and may I follow up on the new market
tax credit for the record?
The Chairman. Yes, please do.
Mr. Desiderio. There are a couple of things within
Treasury. The New Market Tax Credit Program falls within the
CDFI fund. This is the same CDFI fund that has found the wisdom
of doing a set aside for tribal governments because tribes are
unique.
That program is working really well but they failed to
create a set aside in the New Market Tax Credit Program. It is
not a matter of more appropriations, it is just a matter of
fitting in tribes.
There has been the argument of the Department of Treasury
using some per capital qualifiers for this and Indian Country's
need is always greater than our population, so that is not a
fair pool to put us in.
There is also the idea that Treasury farms out their
decision making by getting readers who are outside of Treasury
that do not always understand Indian Country. We would like
more Native participation in that process.
Finally, we also tried to advocate that tribes should be
put into the rural category which is less competitive. That
would give us a greater chance of getting some of those CDE
credits.
Those things can be done administratively. In the long
term, I think a set aside with the allocations would help. The
greatest need in the Country is for tribes, so it makes sense.
Just looking at incentives, the reason I brought up these
couple of programs that work for Indian Country is we do need
technical assistance on the ground. There are programs that
provide that but we also need guarantees to provide that
initial stage of capital.
If you look at Wyoming, Montana and the tribes in those
respective States, there have been tribes that set up
commercial codes and things like that but they really need seed
capital on the ground, initial capital and also they need to
make that transition from the public sector to the private
sector.
Those loan guarantees are the greatest incentive for that.
As was discussed before, that money is very well invested by
the Federal Government because it is leveraged and it would
help if we also had the ability to sell those loans in the
secondary market to clear the way for more loans.
That also would help in clearing up capital, clearing up
those guarantees and making that program work. The greatest
incentive is to really assure banks to take that first step
into Indian Country.
The Chairman. Thank you very much.
Senator Franken, any additional questions?
Senator Franken. No. The need in Indian Country is so
great. I wonder sometimes, the tribes that need it the most,
need economic development the most, are probably the worst
credit risks, in a sense, and there are tribes doing a lot
better than others, depending on where they are situated.
I want to make sure that the bands that need it the most
get the opportunity to do economic development on their land
because they have such high unemployment rates. They need
something and they need it the most.
I have something in mind for one of my bands that I would
like to get into but not here in the hearing.
I want to thank you all for the work you do. I am grateful
for your testimony. It would be nice if we could get some of
these places where BIA does not seem to have the focus or the
follow through, to get them to do it. Thank you.
The Chairman. Thank you, Senator Franken.
If there are no more questions for today, members may also
submit follow up written questions for the record. The hearing
record will be open for two more weeks.
I want to thank each of you for being here as witnesses
today. Thank you for your time and testimony.
The hearing is adjourned.
[Whereupon, at 3:24 p.m., the Committee was adjourned.]
A P P E N D I X
Prepared Statement of the National Congress of American Indians
The National Congress of American Indians is pleased to provide
comments regarding last Wednesday's hearing, entitled ``Access to
Capital in Indian Country.'' Indian tribal governments have a unique
status in our federal system recognized in the U.S. Constitution and
numerous federal laws, treaties and federal court decisions. American
Indian and Alaska Native tribes have a governmental structure, and have
the power and responsibility to enact civil and criminal laws
regulating the conduct and affairs of their members and reservations.
Tribes operate and fund courts of law, police forces, and fire
departments. Tribes provide a broad range of governmental services to
their citizens, including education, transportation, public utilities,
health, economic assistance, and domestic and social programs.
As such, access to capital is of great interest to NCAI and our
respective member tribes. This is because access to capital presents a
very real opportunity to protect and enhance the many governmental
functions and services provided by Indian tribes. Tribes are
continuously seeking new economic opportunities to attract businesses
and jobs to reservation lands, where unemployment rates consistently
rank among the highest in the Nation and the reality of little to no
outside business investment is far too real. Tribal access to financing
tools and capital markets is needed to make critical decisions
regarding citizens' needs, sustain economic growth, and provide
employment opportunities for tribal citizens and the surrounding
community.
In addressing the barriers to revenue generation in Indian Country,
it is critical that Congress acknowledge the unique problems and
challenges of Indian Country and more consistently recognize the
governmental status of Indian tribes. In expressing our views on
potential areas to improve access to capital, we do so as partners in
American growth and, like each of you, as elected governmental
representatives.
Areas Where Access to Financing Tools and Capital Markets can be
Improved:
Tribal Government Tax Exempt Bonds
Tribal Allocations of Clean Renewable Energy Bonds
(``CREBs'')
Set-asides for New Markets Tax Credit and Low Income Housing
Tax Credit
Integrated Planning for Infrastructure and Economic
Development
Tribal Government Tax Exempt Bonds
Recognizing that tribal governments should be treated on par with
state governments, Congress passed the Indian Tribal Governmental Tax
Status Act in 1982 to provide comparable governmental tax treatment to
tribes for federal tax purposes. \1\ Among other provisions, the Tribal
Governmental Tax Status Act, codified as section 7871 of the Code,
provides that federally recognized tribes are treated like states with
respect to tax exempt government bonds, with the following
restrictions:
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\1\ Title II of Pub. L. No. 100-203, 96 Stat. 2605 (1982).
An absolute prohibition on the issuance of private activity
bonds, except for certain tribal manufacturing bonds subject to
wage and employment tests that are virtually impossible for
---------------------------------------------------------------------------
modern manufacturing facilities to meet
Government bonds issued by tribes were required to meet the
essential governmental function test
``Essential governmental functions'' for this purpose were limited
to those functions ``customarily performed'' by state and local
governments with general taxing powers (e.g., schools, roads and
sewers).
The American Recovery and Reinvestment Act authorized $2 billion in
bond authority for a new category of bonds to be allocated amongst
Indian tribes, known as ``Tribal Economic Development (TED) Bonds.''
TED Bonds were intended to provide tribes with more flexibility to use
tax- exempt financing than is allowable under the current ``essential
governmental function'' standards as noted above. The TED Bonds are
dollar-limited to an amount too small to use for many projects, require
projects to be located on Indian reservations, and prohibit the
financing of gaming facilities. The law required Treasury to conduct a
study of the effectiveness of the new bonding authority, and to
recommend to Congress whether it should ``eliminate or otherwise
modify'' the essential governmental function standard for Indian tribal
bond financing. The Treasury study was completed in December 2011.
The core recommendation of the study was that Congress should adopt
the same standard for tribal government bonds as applies to
governmental bonds issued by State and local governments. The Treasury
Department clearly recommended repealing the ``essential governmental
function'' standard for Indian tribal governmental bond financing. The
study explains that it is making this recommendation ``[f]or reasons of
tax parity, fairness, flexibility, and administrability . . ..''
Treasury also recommended that Congress adopt what it called a
``comparable'' private activity bond standard so that Indian tribal
governments could issue some private activity bonds. Such bonds would
be subject to a national volume cap, and Treasury would be authorized
to make allocations among Indian tribal governments.
Treasury recommended that Congress limit Indian tribal bond
issuances in two respects: (1) No bonds could be used for gaming
projects, and (2) some kind of project location restriction would
apply. With respect to the latter, Treasury recommended that Congress
provide more flexibility for the financing of tribal projects than it
did for the TED Bonds under ARRA. Specifically, Treasury recommended
that tribal bonds be allowed to finance projects that are located on
Indian reservations, together with projects that both: (1) are
contiguous to, within reasonable proximity of, or have a substantial
connection to an Indian reservation; and (2) provide goods or services
to resident populations of Indian reservations.
TED Bonds present an enormous opportunity for tribal governments to
engage in revenue-generating development at a size that makes these
projects economically viable. When issuing tax-exempt bonds, investors
are willing to accept lower interest rates than they would on
comparable bonds subject to tax on interest. \2\ Because payments made
on TED Bonds are not taxable, the effective rate of return on a 7.7
percent taxable bond is the same as a 5 percent untaxed TED bond. \3\
This means that with TED Bonds, tribes are able to finance revenue-
generating projects at a fraction of the rate they would end up paying
over the long-term life of a non-exempt bond. However, because of the
unworkable restrictions placed on these bonds, most tribes are unable
to take advantage of the opportunity to finance projects at favorable
interest rates.
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\2\ See Treasury Department Fact Sheet: Tribal Economic Development
Bonds, available at http://www.treasury.gov/resource-center/economic-
policy/tribal-policy/Documents/
Tribal%20Economic%20Development%20Bonds%20Fact%20sheet%202014.pdf.
\3\ See Tax Exempt Bonds and Borrowing for Indian Tribes, Orrick,
Herrington & Sutcliffe LLP, available at http://www.nafoa.org/pdf/
10555_Tribal_Finance.pdf.
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In particular, NCAI has serious concerns about the ``project
location restriction''-even in its modified form as proposed by the
Treasury Department. The requirement that the financed project provide
``goods or services'' to reservation residents would limit the use of
tax-exempt debt for many tribal economic development projects. Further,
many tribes lack the reservation land base needed for revenue-
generating facilities or the land base is so remote that it would be
impossible to provide adequate services to their tribal communities
from that location. Tribes that have had their lands taken away, which
includes newly restored tribes and tribes located where population
density puts land possession at a premium, nonetheless have the same
demands on governmental services as tribes with large, local land
bases. The requirement for proximity to an Indian reservation would
also eliminate a tribe's ability to meet statewide government
contracting requirements.
Based on considerations of parity, tribal governmental bonds--as
distinguished from private activity bonds--should not be subject to a
``project location'' restriction of any type. It is our understanding
that state and local governments are not subject to any territorial
restrictions, except with respect to private activity bonds, such as
industrial development bonds, where they are subject to a ``substantial
connection'' test, which has been liberally interpreted by the IRS. The
``substantial connection'' test is illustrated in Private Letter Ruling
8442023 (July 12, 1984). In this ruling, the IRS permitted an
industrial development authority to finance a hotel approximately 10
miles outside its jurisdictional boundaries because the issuer was able
to show that there would be a direct, material benefit to the issuing
jurisdiction. This approach would provide Indian tribes with the
flexibility to finance nearby projects that directly benefit the tribe
as a whole. In sum, a ``substantial connection'' or ``nexus'' test
applies to state and local governments, and Indian tribal governments
should be accorded the same treatment.
Congress should remember that tribal governments do not have the
typical taxing base of state and local governments and their business
revenues are the core revenue base that enables tribes to become less
dependent on federal resources and address the enormous needs of their
respective communities.
Tribal Allocations of Clean Renewable Energy Bonds (CREBs)
Tribal governments are able to compete with state and local
governments for allocations of CREBs for energy development projects.
However, to date, no tribal government projects have received a CREB
tax credit allocations since the provision was enacted. As we have
suggested in the case of the New Markets tax credit, there should be a
set-aside for tribal projects under the CREBs provision.
Tribal Inclusion in Community Development Financial Institution (CDFI)
Fund Bond Guarantee Program
Under the CDFI Bond Guarantee Program, the Treasury Department
guarantees the full amount of bonds issued in support of CDFIs that
make investments for eligible community or economic development
purposes. These loans tend to have lower rates, and can be used for
activities that promote community revitalization and stability, job
creation, financial services, community facilities, housing and
businesses for the benefit of low-income people, and economic
development. While the CDFI Fund has expressed willingness to fund
tribal operations that meet the loan parameters, tribes have been
inadvertently left out due to the CDFI Fund's preferred use of land as
collateral, as most tribal land is held in trust by the federal
government. More efforts should be made to guarantee tribal access to
this program going forward.
Set-asides for New Markets Tax Credit and Low-Income Housing Tax
Credit
The New Markets Tax Credit (26 U.S.C. 45(D)) was established in
2000 to spur new or increased investments in operating businesses and
real estate projects located in low income communities. The program has
traditionally been a successful tool for attracting private capital to
Indian Country. However, neither tribal organizations nor Indian
reservation-focused applicants received a single dollar in the 2013 or
2014 rounds of NMTC funding. NCAI urges Congress to address this
problem by creating a set-aside for Indian reservation-focused
applicants and by amending 26 U.S.C. 45(D)(i)(6) to direct Treasury
to prescribe regulations to ensure that Indian reservations (as well as
non-metropolitan areas) receive an allocation of qualified equity
investments.
Similarly, the Low-Income Housing Tax Credit (LIHTC) is too
frequently unavailable to tribes. Indian tribes have great numbers of
low-income tribal members and long waiting lists of members who need
housing. Unfortunately, the LIHTC allocations are provided only to
state governments, who most frequently use criteria that benefit only
urban areas. We urge that a set-aside be created for tribal governments
to ensure that the needs of their citizens are met.
Integrated Planning for Infrastructure and Economic Development
Tribes may already use Native American Housing and Self
Determination Act (NAHASDA) funds for the basics of planning for
housing, including related infrastructure like water, power and sewage.
However, NCAI encourages Congress to provide greater resources for
integrated planning for economic development and jobs.
Because of separated federal funding streams, tribal planning
processes tend to silo into plans for housing, transportation, power,
telecommunications, environmental compliance, water and sewage. But at
the local level, this infrastructure has to be connected.
In addition, there is a growing emphasis on planning for economic
development and jobs and recognition of the importance of business
agglomeration. Industries tend to cluster in certain regions, and it is
important for tribes to plan and build businesses and jobs that
complement their existing strengths.
Tribal industries tend to cluster in certain areas such as:
Gaming/Hotel/Recreation/Entertainment
Agriculture, Oil & Gas, Timber
Commercial Real Estate
Government Contracting--638 and 8(a)
Retail--Indian owned and taxed businesses
Housing
Roads
Health Care
Education
Law Enforcement
Native Arts & Crafts
All of these industries need access to capital, and capital follows
well-developed plans for development that will generate revenues and
repay the loan. Thus, greater integration of housing and economic
development planning is needed to draw this much needed capital to
Indian Country.
NCAI looks forward to working with Congress in working to provide
greater access to capital in Indian Country.
______
Prepared Statement of Tribal D, Inc. (Tribal D)
Chairman Barrasso, Vice Chairman Tester, and Members of the
Committee:
Tribal D, located in a HUBzone on the Fort Hall Reservation in
Idaho, appreciates the opportunity to submit testimony for the record
of the Senate Committee on Indian Affairs in connection with the June
17, 2015, hearing on ``Accessing Capital in Indian Country.'' We
appreciate the Committee's attention to efforts to promote economic
development for Tribal governments.
Native American tribes are rich in heritage, human capital, natural
resources and self-determination. The challenge for most tribes is how
to integrate their vast resources to optimize their self-governance
objectives and access capital. Tribal D focuses on the most critical
aspects of tribal infrastructure and compliance to maximize efficiency
in program and economic development. We recognize that in order to make
sound policy and financial decisions we must first collect uniformly
gathered, reliable data to track progress over time in a format usable
to Tribes. For example, Tribal D provides capability to gather, real
time, data pertinent to member land allotments, appraisal information
and lease revenue. When rolled up, this kind of Tribal data provides
decision support for Tribal Land Use directors.
Furthermore, a reliable data collection and monitoring system that
tracks measurable outcomes supports Tribal governments in optimizing
their revenue, empowering their community, and sustaining profitable
businesses. With a thorough understanding of a particular situation,
and an understanding of data gathered, Tribal governments can better
understand how economic development has occurred, and then
strategically target their financial resources in order to access more
capital and to improve job opportunities within their Tribal
government.
Over the last decade several hearings have been held that conclude
that Tribes don't have the management information system capacity to
generate their own data. As a result they cannot accurately measure the
success of programs or completely understand the current economic
situation of their Tribal government's economy. Tribal D was developed
to address this limitation and assist Tribes in making the necessary
Investments to build their capacity and go after new capital and
business.
Tribal D echoes testimony that has been presented before this
community over the last decade that recognizes the role that data plays
in assisting Tribal governments in collecting reliable data that will
allow them to track progress over time. As data is collected, tracked,
and analyzed through simple, but informative digital dashboards, Tribal
governments can now use accurate data to analyze their performance and
the direction that they need to pursue to gain access to additional
capital.
Sustaining viable business and accessing capital on Tribal land is
critical for economic development for Native American communities.
Executive leadership teams overseeing tribal enterprises benefit when
they can monitor strategic plans for their businesses. In addition, by
understanding the data, Tribal leaders can hold their business managers
accountable for results. Integrating and understanding data helps
tribes set strategy and objectives for revenue, expenses, and
profitability to measure sustainable progress for tribal business.
In conclusion we believe with augmented management approaches and
pertinent data for decision support, Tribal Government objectives to
increase capital can be met. Tribal D looks forward to working with
this Committee on the important issue of helping Tribes create access
to capital.
______
Prepared Statement of Hon. Erma J. Vizenor, Chairwoman, White Earth
Nation
Dear Chairman Barrasso and Ranking Member Tester,
Thank you for holding the hearing recently on the very important
topic of Accessing Capital in Indian Country. With the high
unemployment rates at most large rural reservations across the nation,
this issue of providing more capital is critical for us to begin to
whittle down our unemployment numbers and continue to build the
economic growth of our reservations.
The White Earth Nation has a good, educated work force, but yet our
unemployment rate in reality we believe is well above 32 percent. Why?
Simply because we do not have enough jobs for people who want to raise
their families and continue to live on the reservation. How can we move
this issue forward? Provide federal tax incentives to businesses that
wish to move their current or future operations into Indian Country.
Many studies have been done on this issue and all point to the need
for jobs. We know the only way for economic viability in Indian Country
is for incentives to bring industry directly to the reservation. Like
so many other areas of this nation, we believe that once capital sees
the return on investment it will be provided from Indian Country, much
more will follow quickly.
At the White Earth Nation, we have many reports, research studies,
and various other tools to demonstrate the positive effects that can be
made to Tribal lands when capital is invested in these important
communities for the nation. Please let me know which documents you
need.
I look forward to any questions you or your Committee staff might
have regarding this issue.
The White Earth Reservation is located in northwestern Minnesota on
the eastern edge of the agriculturally-rich Red River Basin,
transitional agricultural/forested lands and forested lands.
Approximately 21,000 persons are enrolled members of the White Earth
Band with approximately 10,000 residing on or near the Tribal
reservation. Our tribe is heavily reliant upon the modest proceeds from
a Tribal casino and federal grant programs to sustain basic Tribal
services. Casino and public sector jobs in services, education and
government largely employ our people.
With a 32 percent unemployment rate, limited business development,
and few job opportunities on the Tribal reservation much more needs to
be done. To date a lot of Tribal efforts have been successfully
directed at basicTribal government infrastructure for community
facilities, and delivery of services. More still needs to be done in
that area, but also with infrastructure in support of economic
development. Recently we have had conversations with well-respected
international site selection consultants that have confirmed that we
need to invest in building and site infrastructure that is attractive
to multi-national firms that have the ability to bring in the number of
jobs that are needed. At the other end of the spectrum--with
considerable evidence in Indian Country that small business
entrepreneurship holds the best promise for family economic
advancement--additional resources are needed in that area also.
What is common to both ends of the spectrum--large firm and small
entrepreneur--is that the business infrastructure does not exist--the
designated land, land ownership control, sewer/water/road
infrastructure--apart from a small industrial park in Mahnomen that has
about 10 acres remaining. Financial resources are needed in support of
this development effort.
Of the approximate 990,000 acres within the boundaries of our
Tribal reservation only about 10 percent are directly controlled by the
Tribal government and are mainly underlying our Tribal village housing
projects or are wildlife areas, with a significant portion of the rest
in private--non-Native ownership--competing for use as agricultural
land within the Red River Valley or in forested areas as recreational
home sites, timber areas. So the challenges are daunting.
With grant funds from the ICDBG program of HUD we are starting the
construction of a Workforce Development Center situated in one of our
Tribal villages adjacent to our Tribal workforce development offices.
Recent evidence with a DOL-funded Pathways Out of Poverty training
program has confirmed that in order to be successful in training and
employing our youth we need to do training on-reservation and that we
must have supportive services--transportation, day care, etc. available
rather than to expect them to successfully commute to off-reservation
training venues. Likewise it is evident that we also need to have jobs
available on-reservation to a much greater extent than acknowledged
previously.
With the federal New Market Tax Credit program there had been hope
that this program via at least one project in our area would have
resulted in significant jobs and been a catalyst for others as this
program was meant to serve low income areas such as ours. That project
failed based upon factors out of our control--65 modest paying jobs--
that never materialized.
Another related challenge is that with very few sizable industrial
facilities--one--on our Tribal reservation it is near impossible to
successfully finance larger industrial buildings as their value is
approximately one-half, if even that, of the construction cost, when
appraised after construction, due to the uncertainty regarding value if
the property were to be liquidated by a lender. The previously-
mentioned failed New Market Tax Credit project would have bridged this
gap if it had been successful.
As I stated earlier we are heavily reliant upon the modest net
revenues of our Tribal casino and reoccurring non-competitive and
competitive federal grants. So when it comes to ``Accessing Capital in
Indian Country'' I would offer the following requests/recommendations
to Congress:
Continue, strengthen and expand funding for the Native
American set-aside within the USDA Rural Business Development
Grant program--this importantly provides for funding smaller
scale projects
Continue the New Market Tax Credit program with more
attention focused on Tribal projects driven by Native Americans
and providing more incentive for successful Tribal projects
Provide incentives to private sector financiers doing
business on or near Tribal reservations for the benefit of
Native business development/employment
Restore federal tax credits for businesses engaged in
development of new facilities and jobs on Tribal reservations
Continue and strengthen the funding of Native Community
Development Financial Institutions technical assistance, seed
funding
Expand the Tribal Promise Zone program to allow more Tribes
to participate or provide for a similar program to the Promise
Zone program and prior Empowerment Zones, Enterprise
Communities, to increase and focus the delivery of federal
resources to high unemployment Tribal areas of the U.S.
[all]