[Senate Hearing 114-97]
[From the U.S. Government Publishing Office]





                                                         S. Hrg. 114-97

                  ACCESSING CAPITAL IN INDIAN COUNTRY

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

                                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

                              ----------                              


                        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.
---------------------------------------------------------------------------
   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\
---------------------------------------------------------------------------
    \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:
---------------------------------------------------------------------------
    \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 
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        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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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]