[Senate Hearing 115-254]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 115-254

   BUILDING TRIBAL ECONOMIES: MODERNIZING TAX POLICIES THAT WORK FOR 
                             INDIAN COUNTRY

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

                                HEARING

                               before the

                      COMMITTEE ON INDIAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            NOVEMBER 1, 2017

                               __________

         Printed for the use of the Committee on Indian Affairs






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                          U.S. GOVERNMENT PUBLISHING OFFICE 

30-362 PDF                     WASHINGTON : 2018 

















                      COMMITTEE ON INDIAN AFFAIRS

                  JOHN HOEVEN, North Dakota, Chairman
                  TOM UDALL, New Mexico, Vice Chairman
JOHN BARRASSO, Wyoming               MARIA CANTWELL, Washington
JOHN McCAIN, Arizona                 JON TESTER, Montana,
LISA MURKOWSKI, Alaska               AL FRANKEN, Minnesota
JAMES LANKFORD, Oklahoma             BRIAN SCHATZ, Hawaii
STEVE DAINES, Montana                HEIDI HEITKAMP, North Dakota
MIKE CRAPO, Idaho                    CATHERINE CORTEZ MASTO, Nevada
JERRY MORAN, Kansas
     T. Michael Andrews, Majority Staff Director and Chief Counsel
       Jennifer Romero, Minority Staff Director and Chief Counsel
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
                            C O N T E N T S

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                                                                   Page
Hearing held on November 1, 2017.................................     1
Statement of Senator Cortez Masto................................    29
Statement of Senator Daines......................................    35
Statement of Senator Franken.....................................     4
Statement of Senator Heitkamp....................................    31
Statement of Senator Hoeven......................................     1
Statement of Senator Moran.......................................    25
Statement of Senator Murkowski...................................    27
Statement of Senator Udall.......................................     2

                               Witnesses

Desiderio, Dante, Executive Director, Native American Financial 
  Officers Association...........................................    13
    Prepared statement...........................................    15
Marrs, Carl, CEO, Old Harbor Native Corporation..................     5
    Prepared statement...........................................     6
Onnen, Hon. Liana, Chairwoman, Prairie Band Potawatomi Nation....     7
    Prepared statement...........................................     9

                                Appendix

Begaye Hon. Russell, President, Navajo Nation, prepared statement    39
Mandan, Hidatsa and Arikara Nation (MHA Nation), prepared 
  statement......................................................    40
National Congress of American Indians, prepared statement........    44
Response to written questions submitted by Hon. Jon Tester to:
    Dante Desiderio..............................................    60
    Carl Marrs...................................................    62
    Hon. Liana Onnen.............................................    58

 
                      BUILDING TRIBAL ECONOMIES: 
         MODERNIZING TAX POLICIES THAT WORK FOR INDIAN COUNTRY

                              ----------                              


                      WEDNESDAY, NOVEMBER 1, 2017


                                       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 Hoeven, 
Chairman of the Committee, presiding.

            OPENING STATEMENT OF HON. JOHN HOEVEN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    The Chairman. Good afternoon. Thanks to everyone for 
attending.
    I will call this oversight hearing to order.
    Today's hearing is entitled Building Tribal Economies: 
Modernizing Tax Policies that Work for Indian Country. The 
Committee will examine the obstacles that Federal tax policies 
present to tribal economic growth and infrastructure 
development.
    In 2012, this Committee held an oversight hearing on the 
same issue to hear from tribes about how Federal tax policies 
have burdened their ability to practice the principle of tribal 
self determination. Now, five years later, we are still looking 
at many of those concerns.
    Overburdening tax policies, layers of regulations and a 
fundamental misunderstanding of how the Unites States interacts 
with tribes on a government-to-government basis continue to 
stymie tribal economic development. Tribes and their 
communities face numerous other barriers to economic 
development, some of which we may not be able to change such as 
remote locations, in some cases, of tribal homelands.
    As our Country prepares to undertake the most comprehensive 
tax reform effort since President Reagan was in office, this 
Committee must work to ensure that tribes are included in that 
effort. In so doing, we must be aggressive in our approach to 
overcome the additional barriers tribes face.
    That is why I have introduced S. 2012, the Tribal Economic 
Assistance Act of 2017, the TEA Act, along with Senators 
Murkowski and Heitkamp as co-sponsors. I want to thank both of 
them.
    This legislation removes the regulatory obstacles that 
prevent tribal access to a number of tax incentives for 
community investments. The bill also makes permanent important 
tax credits that will entice private investment in tribal 
businesses and communities like the Indian Employment Tax 
Credit and the Accelerated Depreciation Tax Credit.
    The Act will also facilitate infrastructure development on 
the reservation by providing incentives for new market tax 
credit project proposals that will take place in tribal 
communities. This bill would also encourage private/tribal 
partnerships to fund important school construction projects in 
tribal communities.
    Finally, the bill will eliminate the burdensome government 
essential functions test that has limited tribes from issuing 
public financing tools like tax exempt government bonds.
    Also, two other bills were recently introduced involving 
Indian tax. Senator Moran introduced S. 1935, the Tribal Tax 
and Investment Reform Act of 2017. In a moment, I will turn to 
Senator Moran to discuss the provisions in his bill.
    Finally, Senator Murkowski has introduced S. 1698, the 
Settlement Trust Improvement Act of 2017 along with Senator 
Sullivan as a co-sponsor. I will also offer her the opportunity 
to discuss the provisions within her bill.
    Today I look forward to hearing from our witnesses on how 
the proposals in these tribal tax bills as well as others will 
work to support tribes.
    I also want to thank my colleagues, Senators Hatch and 
Widen for their work on behalf of Indian Country as many of the 
Indian tax provisions discussed today fall within the Finance 
Committee jurisdiction.
    Before turning to our witnesses, I want to ask Vice 
Chairman Udall for his opening statement.

                 STATEMENT OF HON. TOM UDALL, 
                  U.S. SENATOR FROM NEW MEXICO

    Senator Udall. Thank you so much, Chairman Hoeven. Thank 
you for holding today's hearing on tax reform in Indian 
Country. It is very timely and we expect House Republicans to 
release their tax legislation tomorrow but without any 
consultation with Indian Country. While we are still waiting on 
details, what we know about the House Republican tax plan shows 
little promise for Native communities.
    The Republican budget calls for $1.5 trillion in cuts over 
ten years to pay for their tax breaks, but the Majority is not 
sharing where those spending cuts will come from. Medicaid and 
Medicare are prime targets and those programs provide a 
lifeline for many in Indian Country. The Majority's plan could 
very well force big cuts to the Indian Health Service and the 
Bureau of Indian Education. These important agencies are 
already severely underfunded.
    The United States has a trust obligation to provide health 
and education services to tribes. These critical programs 
should not be sacrificed for tax cuts to the wealthy. Many 
tribes have a saying that the decisions we make today should 
consider the impacts for seven generations to come, a very wise 
saying.
    With this tax cut bill, the Majority is failing to take 
into account Indian Country's views on issues of national 
importance. Today's hearing provides the Committee with an 
opportunity to hear tribal voices about what tax reform should 
look like. I think this is a good step.
    I hope we can work together on real, bipartisan tax reform 
for our Nation that includes Indian Country. For years, Indian 
Country has repeatedly emphasized three principles for tax 
reform: parity, certainty and consultation.
    With regard to parity, tribal governments and State and 
local governments are similar in many ways. They provide their 
communities with access to medical care and education, fund law 
enforcement agencies and provide for the general welfare.
    Yet, when it comes to taxes, tribes are treated 
differently. Tribes cannot access tax exempt bonds in the same 
way States and localities are allowed. Unlike States, tribes 
cannot garnish Federal tax returns of parents who owe child 
support, and families of Native Americans special needs 
children may not be eligible for the same tax benefits received 
by other families with non-Native special needs children.
    These are just a few of the examples of the inequitable 
treatment of tribes in the Tax Code. We could go on and on with 
many other examples. This unequal treatment between the tribes 
and the States does more than just stifle economic growth in 
Indian Country and hurt Native American families. It diminishes 
the very core of tribal sovereignty and the exercise of self-
governance.
    The second principle is certainty. Taxation of business in 
Indian Country is complex and, at times, unpredictable. Part of 
the complication is State taxation of activities on tribal 
lands. This prevents tribes from raising their own tax revenue 
and reinvesting in their own communities.
    It undermines tribal authority, strains budgets and diverts 
valuable resources away from tribal communities. In years past, 
Congress provided businesses located in Indian Country with 
short term tax credits for capital investments and for 
employing Indians. This helped provide some temporary relief.
    We need to take a hard look at how we can make tax credits 
permanent. This includes low income housing tax credits, an 
issue my colleague, Senator Cantwell, has championed.
    The third and most important principle is tribal 
consultation. Tax reform should provide broad benefits across 
society not focus on giving massive tax breaks to the top 1 
percent. It should go through the regular order, not this fast 
track, back door process.
    I am particularly disappointed that the Administration 
could not bother to send a witness for this hearing to discuss 
its signature issue of tax reform.
    With that, Mr. Chairman, thank you so much for calling 
today's hearing and providing us an opportunity to discuss how 
tax reform can work for all of Indian Country.
    Thank you very much.
    The Chairman. Are there other opening statements?
    Senator Franken.

                 STATEMENT OF HON. AL FRANKEN, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Franken. Thank you, Chairman Hoeven and Vice 
Chairman Udall for holding this hearing today to examine how 
the Tax Code affects tribal communities.
    I know the Chairman, along with Senators Heitkamp and 
Murkowski, recently introduced a thoughtful bill to help spur 
economic development in tribal areas. Mr. Chairman, I would 
like to work with you on that issue.
    However, given the time we have for today's hearing, it is 
impossible to ignore the tax bill the House Republicans are 
releasing tomorrow, if they do release it tomorrow. I 
understand a witness from the Department of Treasury was 
scheduled to testify today but his appearance was canceled in 
light of the imminent release of the Republican tax bill. I 
urge Chairman Hoeven and Vice Chairman Udall to schedule a 
future hearing with an Administration witness on this issue 
prior to Senate consideration of such a major tax policy 
change.
    I believe we need a fair and simpler tax code. That is why 
Democrats have said that any tax cut bill should be focused on 
working families instead of giving huge tax cuts for the top 1 
percent of income earners as the Vice Chairman just said.
    That is why I am a co-sponsor of legislation to make it 
easier for Americans to file their taxes by giving them the 
option of a free automated filing process. Based on the tax 
framework the Republicans released in September, experts have 
projected their plan would cost $2.4 trillion which would be 
added to the national debt. Eighty percent of the tax cuts 
would go to the top 1 percent of income earners and very little 
for low income and middle income families.
    As many tribal communities struggle with a lack of funding 
for infrastructure development, school construction and health 
care, to me it is unconscionable to be adding trillions of 
dollars to the national debt in order to fund tax cuts for the 
wealthy without addressing these other serious issues. I hope 
this hearing will be a reminder of why we need a bipartisan 
approach to tax reform that addresses the real needs of tribal 
communities and not the corporate focus partisan process that 
the Republicans are currently pursuing.
    Thank you again, Mr. Chairman.
    The Chairman. Do other members have opening statements they 
would like to make?
    [No audible response.]
    The Chairman. Hearing none, we will proceed with our 
witnesses. Our witnesses today are: Mr. Carl Marrs, Chief 
Executive Officer, Old Harbor Native Corporation, Anchorage, 
Alaska; The Honorable Liana Onnen, Chairperson, Prairie Band 
Potawatomi Nation, Mayetta, Kansas; and Mr. Dante Desiderio, 
Executive Director, Native American Financial Officers 
Association in Washington, D.C.
    Welcome to all of you. Thanks for coming.
    Mr. Marrs, please proceed.

  STATEMENT OF CARL MARRS, CEO, OLD HARBOR NATIVE CORPORATION

    Mr. Marrs. Thank you, Chairman Hoeven, Vice Chairman Udall 
and members of the Committee. Thank you for inviting me to 
testify today.
    My name is Carl Marrs. I am proud to say I am an Alaska 
Native. Over the past 45 years, I have served the Alaska Native 
community in various roles and offices. I am presently the CEO 
of Old Harbor Native Corporation.
    My purpose here today is to testify in support of S. 1698, 
the Settlement Trust Improvement Act. In addition, I also 
support the Tribal Economic Development Assistance Act and the 
Tribal Tax Investment Reform Act.
    Congress enacted the Alaska Native Claims Settlement Act, 
ANCSA, in 1971 to accomplish a full and just settlement of the 
aboriginal land claims of Alaska Natives. Section 2 of ANCSA 
mandated that this settlement be accomplished in conformity 
with the real economic and social needs of Natives. ANCSA 
required Alaska Natives to form corporations.
    Almost immediately, it became apparent that the corporate 
form did not always address the real economic and social needs 
of Natives. In 1988, Congress enacted various amendments to 
ANCSA in Public Law 100-241 which authorized Alaska Native 
corporations to establish settlement trusts which would have 
two main purposes: first, to exist as permanent institutions to 
hold and manage Native land assets in perpetuity; and second, 
to provide for the health, education and economic welfare of 
individual Natives.
    The purposes are tribal in nature. The holding and managing 
of Native lands in perpetuity is one of the most basic of 
tribal functions. Alaska Natives who are beneficiaries of the 
settlement trust are also tribal citizens.
    Settlement trusts were intended to make ANCSA's aboriginal 
land settlement multigenerational. Unfortunately, Public Law 
100-241 did not address the significant tax issues the 
settlement trust presents.
    Congress added Section 646 to the Tax Code in 2001 so that 
Native shareholders do have phantom income. When assets are 
transferred to the settlement trust, the trust itself rather 
than the beneficiaries, pays the taxes. These provisions allow 
settlement trusts greater flexibility to invest and retain 
assets for the long term.
    The Tax Code remains a road block for the use of settlement 
trusts. Old Harbor is one of the few Native corporations that 
established and maintains a settlement trust so I am very 
familiar with the following detrimental tax issues.
    First, assets must be transferred to a settlement trust on 
an after-tax basis. Second, the tax treatment is uncertain if a 
Native corporation assigns its right to receive certain ANCSA 
cash payments to a settlement trust. Lastly, if appreciated 
assets, including Native land, are transferred to a settlement 
trust, immediate gain will be triggered to the transferring 
Native corporation.
    S. 1698 addresses these issues. First, the bill provides 
certain tax treatments when a Native corporation assigns ANCSA-
required payments to a settlement trust. Second, it allows 
Alaska Native corporations to elect whether or not to deduct 
contributions to a settlement trust. The settlement trust would 
have income in the same amount as the deduction claimed by the 
Native corporation.
    Third, S. 1698 provides that there is no income or gain 
recognition to a Native corporation when property is 
transferred to a settlement trust. This will greatly facilitate 
the Native lands into trust.
    I also want to comment briefly on S. 2012 and S. 1935. I 
support these bills which affect Alaska Native lands because of 
the Indian Employment Credit, the accelerated depreciation and 
the New Market Tax Credit which apply to lands owned by village 
and regional corporations.
    Also, S. 1935 clarifies that tribal charities are to be 
treated the same as charities controlled by other governmental 
entities for purposes of deduction of contributions. This 
parallels the deductions that S. 1698 permits for contributions 
to settlement trusts.
    In conclusion, I know the Committee is aware that Alaska 
Natives are rich in culture and tradition, but have very 
limited economic means. These three bills help address this 
imbalance.
    I thank the Committee for the opportunity to testify. I 
would be pleased to answer any questions the Committee may 
have.
    Thank you.
    [The prepared statement of Mr. Marrs follows:]

  Prepared Statement of Carl Marrs, CEO, Old Harbor Native Corporation
    Chairman Hoeven, Vice Chairman Udall, and Members of the Committee, 
thank you for inviting me to testify today. My name is Carl Marrs. I am 
proud to say that I am an Alaska Native and that over the past forty 
years, I have served the Alaska Native community in various roles and 
offices. I am presently the Chief Executive Officer of Old Harbor 
Native Corporation.
    My primary purpose today is to testify in support of S. 1698, the 
Settlement Trust Improvement Act of 2017. In addition, I also support 
S.___, The Tribal Economic Assistance Act of 2017 and S. 1935, the 
Tribal Tax and Investment Reform Act of 2017.
    Congress enacted the Alaska Native Claims Settlement Act (ANCSA) in 
1971 to accomplish ``a fair and just settlement'' of the aboriginal 
land claims of Alaska Natives. Section 2 of ANCSA mandates that this 
settlement should be accomplished ``in conformity with the real 
economic and social needs of Natives.'' ANCSA required Alaska Natives 
to form corporations to participate in the settlement. Almost 
immediately, it became apparent that the corporate form did not always 
address ``the real economic and social needs of Natives.''
    In 1988, Congress enacted various amendments to ANCSA in Public Law 
100-241. Public Law 100-241 authorized Alaska Native Corporations to 
establish ``Settlement Trusts,'' which would have two main purposes:

    First, to exist as permanent, Native-oriented institutions 
        to hold and manage Native land assets in perpetuity.

    Second, to provide for the health, education and economic 
        welfare of the individual Natives who are the Settlement 
        Trust's beneficiaries.

    These purposes are tribal in nature: the holding and managing of 
Native lands in perpetuity is one of the most basic of tribal functions 
and the Alaska Natives who are beneficiaries of Settlement Trusts are 
also tribal citizens. In other words, Settlement Trusts were to be an 
important vehicle in making ANCSA's aboriginal land settlement multi-
generational.
    Unfortunately, Public Law 100-241 did not address the significant 
federal tax issues that Settlement Trusts present. Congress added 
section 646 to the Tax Code in 2001 so that Native shareholders do not 
have ``phantom income'' when assets are transferred to a Settlement 
Trust and so the Trust itself, rather than the Native beneficiaries, 
pays the taxes on the Trust income even if that income is distributed 
to the beneficiaries. These provisions allow a Settlement Trust greater 
flexibility to invest and retain assets for the long term.
    Section 646 has been helpful, but in my experience the Tax Code 
remains a road block to the use of Settlement Trusts. Old Harbor is one 
of a few Native Corporations that have been able to establish and 
maintain a Settlement Trust, so I am very familiar with the following 
detrimental tax issues. First, assets must be transferred to a 
Settlement Trust on an after-tax basis. Second, the tax treatment is 
uncertain if a Native Corporation assigns its right to receive certain 
ANCSA cash payments to a Settlement Trust. Lastly, if appreciated 
assets (including Native lands) are transferred to a Settlement Trust, 
immediate gain will be triggered to the transferring Native 
Corporation.
    S. 1698 addresses these aforementioned issues. First, the bill 
provides certain tax treatment when a Native Corporation assigns ANCSA-
required payments to a Settlement Trust. Second, S. 1698 allows an 
Alaska Native Corporation to elect whether or not to deduct 
contributions to a Settlement Trust. The deduction would be the amount 
of any cash transferred, and if property is transferred, the deduction 
is limited to the amount of the Native Corporation's basis in the 
property. The Settlement Trust would have income in the same amount as 
the deduction claimed by the Native Corporation. Third, S. 1698 
provides that there is no income or gain recognition to a Native 
Corporation when property is transferred to a Settlement Trust. This 
will greatly facilitate transfers of Native lands into Trusts.
    I also want to comment briefly on S.___, the Tribal Economic 
Assistance Act of 2017 (``TEA Act'') and S. 1935, the Tribal Tax and 
Investment Reform Act of 2017. I am whole-heartily in favor of the 
changes that would be made by these bills, which are aimed primarily at 
lower 48 Tribes and their reservations. However, these bills also 
favorably affect Alaska Natives and their lands. This is because the 
Indian Employment Credit of section 45A, the accelerated depreciation 
provisions of section 168(j), and the New Markets Credit of section 45D 
all apply to ``reservations'' as defined in section 3 of the Indian 
Financing Act, and section 3 defines ``reservations'' to include lands 
owned by Village Corporations and Regional Corporations. Also, S. 1935 
clarifies that tribal charities are to be treated the same as charities 
controlled by other governmental entities for purposes of deduction for 
contributions. This parallels the deduction that S. 1698 permits an 
Alaska Native Corporation for contributions to a Settlement Trust.
    In conclusion, I know that the Committee is aware that Alaska 
Natives are rich in culture and tradition but have very limited 
economic means. These three bills help address this imbalance. I thank 
the Committee for the opportunity to testify and would be pleased to 
answer any questions the Committee may have.

    The Chairman. Thank you, Mr. Marrs.
    Chairperson Onnen.

    STATEMENT OF HON. LIANA ONNEN, CHAIRWOMAN, PRAIRIE BAND 
                       POTAWATOMI NATION

    Ms. Onnen. Good afternoon.
    I am Liana Onnen, Chairwoman, Prairie Band Potawatomi 
Nation. I thank you for the opportunity to testify before you 
today.
    Today's hearing is especially significant as tax reform for 
Indian Country truly gets to the heart of your efforts to 
strengthen tribal governments and improve our members' quality 
of life. We appreciate the timeliness of this hearing, given 
the current overarching discussions on tax reform.
    In September, the Republican leadership released its United 
Framework for fixing the Tax Code. It pointed out that too many 
in our Country are shut out of the dynamism of the U.S. 
economy. The United Framework proposes to establish a fairer 
system that levels the playing field.
    Unfortunately, tribes are among those who have been shut 
out of the economic opportunities available to others. We value 
this Committee's work to level the playing field and let us in. 
It is important to remember that when tribal economies thrive, 
our neighboring communities thrive with us.
    The Prairie Band Potawatomi is an economic engine for our 
region in Kansas. We employ nearly 1,300 employees, 725 of 
which are non-tribal members whose wages and taxes contribute 
directly to our surrounding communities. Our governmental 
revenues that we generate from our gaming facility, other 
enterprises and our taxing authority make our government 
possible.
    Many of our tribal programs serve tribal and non-tribal 
community members. However, we could do far more if Congress 
were to eliminate barriers to tribal economic development and 
act to modify tax incentives to attract private investment to 
tribal communities.
    The bills we discuss today are vital to leveling the 
playing field for tribes. They will remove obstacles and 
improve opportunities to attract investment and create jobs. 
They will help us be stronger economic engines for not only our 
reservations, but also our regions.
    We welcome legislation offered by Chairman Hoeven and other 
members of this Committee, including S. 1116 and S. 2012. We 
especially appreciate and support Senator Moran's introduction 
of S. 1935. This bill will spur much needed economic 
development on Indian lands, promote tax fairness and 
strengthen tribal self determination.
    S. 1935 will address the disparity for tribes and the 
issuance of tax exempt bonds. Unlike State and local government 
bond issuances, the Tax Code limits tribal tax-exempt bonds to 
projects that meet the requirements of the Essential Government 
Functions test. This distinction has limited our ability to use 
tax exempt financing.
    State and local governments can use tax-exempt bonds for 
projects that generate new revenues such as convention centers 
and public recreational facilities. Yet, we could not have used 
tax-exempt bonds for our golf course, which was built eight 
years ago. The Treasury Department has found the tribal 
limitation unfair and recommended that tribes have full parity 
with States with tax exempt bond financing, including private 
activity.
    S. 1935 will reveal the Essential Government Functions test 
and permit tribes to issue private activity bonds. This 
promotes fairness for tribes in the Tax Code and will enable us 
to accelerate time frames for commercial development and 
opportunities.
    S. 1935 will also allow tribes' child support enforcement 
agencies to access the Federal Parent Locator database 
available to State child support agencies. While we are very 
fortunate to have a good relationship with Kansas on this 
issue, direct tribal access to the Federal database is a matter 
of governmental parity and will enhance tribes' ability to 
enforce the law without undue burdens.
    S. 1935 will also recognize tribal court determinations of 
a child having special needs for purposes of the Adoption Tax 
Credit as opposed to having the tribal member adoptive parents 
go to State court for such a determination. Our adoptive 
families should have the benefit of receiving this tax credit 
through a tribal court determination.
    In conclusion, the Prairie Band Potawatomi Nation strongly 
supports S. 1935. It recognizes tribal sovereignty and promotes 
strong tribal governments and economies. Through passage of S. 
1935, tribes will be better positioned to contribute to and 
benefit from the opportunities available in the U.S. economy.
    It will help level the playing field for tribes with regard 
to economic development and job creation. We encourage this 
Committee to fully embrace S. 1935 and to work with the Senate 
Finance Committee to include it in a larger tax reform effort.
    Tribes' tax priorities have been on hold for decades. We 
appreciate the Committee making sure that tribes are at the 
table now as tax reform works its way through Congress. We will 
be counting on you to continue to work with us to make sure 
tribes are included in the final tax product.
    Thank you again for your work. I would be happy to answer 
any questions you may have.
    [The prepared statement of Ms. Onnen follows:]

   Prepared Statement of Hon. Liana Onnen, Chairwoman, Prairie Band 
                           Potawatomi Nation
Introduction
    On behalf of the Prairie Band Potawatomi Nation (PBPN), I thank you 
for the opportunity to testify at this important hearing. This 
Committee is charged with addressing a multitude of significant issues 
that affect tribes and our people, from public safety to health care to 
everything in between and beyond. Our Nation thanks you for your work 
on these matters and for scheduling this hearing today.
    Tax issues in Indian Country go to the heart of our efforts to 
improve the quality of life for our members. We especially appreciate 
the timeliness of this hearing, given the overarching discussions on 
tax reform. Last month the Republican Leadership released its ``United 
Framework'' for fixing the Tax Code. It pointed out that ``too many in 
our country are shut out of the dynamism of the US economy. . .'' and 
proposes to establish a ``fairer system that levels the playing 
field.'' This Committee knows that Indian tribes and our communities 
are among those who have been shut out. We appreciate that Committee 
Members have introduced legislation to level the playing field. 
Specifically:

    Chairman Hoeven and Sen. McCain have introduced S.1116, the 
        Indian Community Economic Enhancement Act of 2017. This bill 
        responds to the challenges we face in Indian Country by 
        identifying and removing obstacles to economic development.

    Senator Moran's Tribal Tax Reform and Investment Act of 
        2017 (S. 1935) will spur much-needed economic development on 
        Indian lands, promote tax fairness, strengthen tribal self-
        determination and recognize tribal sovereignty. The PBPN 
        extends a special word of thanks to Senator Moran for 
        introducing this important bill.

    Chairman Hoeven, along with Senator Murkowski and Senator 
        Heitkamp, introduced S. 2012, the ``Tribal Economic Assistance 
        Act of 2017''.

    Senator Cantwell (along with Senate Finance Committee 
        Chairman Hatch) introduced the Affordable Housing Credit 
        Improvement Act of 2017 (S. 548).

    We thank each of you and all Members of this Committee for your 
leadership in working with us to seek a fairer system. We count on you 
to ensure that tribal governments and our communities are the partners 
and the beneficiaries of this tax reform effort. As you know, our tax 
priorities have been on hold for decades. We remain hopeful that the 
bills you have introduced demonstrate a true commitment to prevent 
Indian Country from being left behind in the current tax reform effort.
    PBPN's experience shows that when tribal economies thrive, our 
members and the surrounding communities all benefit. PBPN has been an 
economic engine for our region in the State of Kansas. We employ more 
than 170 tribal members and 125 non-members in our tribal government. 
Our Entertainment Corporation employs more than 700 people, and nearly 
600 of those are non-members. The majority of the non-tribal members we 
employ live off-reservation and their wages and taxes contribute 
directly to surrounding communities. Meanwhile, our casino and golf 
course attract more than 110,000 visitors per month to our Reservation.
    Many of the programs the PBPN provides and funds through tribal 
government revenues are for both members and non-members, thereby 
enriching the cultural, social, recreational and educational 
opportunities available in our region. Countless organizations host 
events at our 18hole golf course, our Elders Programs is available for 
all seniors, and our Boys and Girls Club provides exciting activities 
not only for our tribal member youth but also for those nearby our 
Reservation. The revenues we generate from our casino, our tribal sales 
tax and our tribal cigarette tax make these programs possible.
    PBPN, however, could do far more if Congress eliminates barriers to 
tribal economic development and acts to modify tax incentives to 
attract private investment to tribal communities. The majority of 
projects the Nation has completed have been almost entirely financed 
through our own enterprises taxes and federal appropriations. With 
greater ability to attract private partners we could concurrently 
finance and operate a wider variety of projects, programs and 
enterprises. We believe the bills that the Committee Members have 
introduced are vital to accomplishing these objectives as described in 
greater detail below.
Tax Reform and Tax Parity
    S.1116, the ICE Act, recognizes the fundamental problem for tribes 
in the tax arena: tribal governments are not treated in the same manner 
as states or local governments under the Federal tax code. This lack of 
parity and our limited access to tax incentives has impaired our 
economic development and restrained our ability to create jobs in our 
communities. As this Committee's report on S. 1116 points out, Indian 
Country faces ``disproportionate barriers'' to economic development. 
Unemployment, even in the best of times, is still more than twice the 
national average. S.1116, S. 1935 and S. 2012 provide tools that remove 
some of these barriers and improve opportunities to attract investment 
and create jobs.
    Tax-exempt financing. This Committee's report on the ICE Act (S. 
1116) points out that the ``lack of parity in treatment of an Indian 
tribe as a governmental entity under Federal tax law . . .impedes. . 
.the ability of Indian tribes to raise capital through issuance of tax 
exempt debt. . .and benefit from other investment incentives accorded 
to State and local governmental entities.'' This is so true and the 
situation needs to be rectified. S. 1935 and S. 2012 both seek to level 
the playing field regarding tax-exempt financing. Under current tax 
law, Indian tribes may finance the construction of roads, schools and 
other governmental infrastructure projects with tax-exempt bonds. Yet, 
unlike state and local government bond issuances, the tax code limits 
tribal tax-exempt bonds to projects that meet the requirements of the 
essential governmental function test.
    This distinction has limited our ability to utilize tax-exempt 
financing. Although state and local governments use tax-exempt bonds 
for projects that generate new revenues such as convention centers and 
public recreational facilities, we could not use tax-exempt bonds for 
our golf course. Such tax-exempt financing would enable us to 
accelerate the timeframe for development of business and commercial 
development opportunities. Moreover, we have long discussed plans to 
develop lands we own adjacent to US Highway 75. This location with its 
highway access offers tremendous commercial potential, but without the 
financing tools that are available to state governments, PBPN is at a 
disadvantage to access funding to move ahead with development. Clearly, 
the playing field is not level when states and local governments can 
issue tax-exempt bonds for these projects, but tribal governments 
cannot.
    For this reason, we welcome S. 2012's repeal of the essential 
government functions test as an important step in promoting tax 
fairness between tribal and state governments. Indeed, the Treasury 
Department's 2011 Report to Congress found the tribal ``essential 
governmental function'' limitation unfair and difficult to administer. 
In that report, Treasury also recommended that tribes should have full 
parity with states with tax-exempt bond financing, including private 
activity bonds. Sec. 3 of S. 1935 contains terms that would repeal the 
essential government functions test and permit tribes to issue private 
activity bonds. We encourage the Committee to embrace the tax fairness 
provided by S. 1935.
    Governmental Pension Plans. A similar disparity in the tax code 
creates unfair burdens for tribal governments with regard to our 
governmental pension plans. State government pension plans are exempt 
from ERISA requirements. However, the ``essential governmental 
function/commercial activity'' limitation for tribal plans in the tax 
code means that tribal government employees engaged in the Tribe's 
revenue generating activity may not be eligible for governmental plan 
status. As a result, PBPN, like other tribes that choose to establish 
governmental plans. as permitted under the tax code, is still required 
to administer two separate benefits plans: an ERISA-exempt governmental 
plan for all employees performing essential governmental functions and 
a commercial ERISA-compliant plan for our employees who work in our 
gaming facility. As you know, our casino is not operated as a private 
business. It is a government operation that raises revenue pursuant to 
the Indian Gaming Regulatory Act and must spend its revenues only in 
accordance with federal law. Requiring tribes to meet standards that do 
not apply to any other government is unfair and fails to recognize the 
sovereign status of tribes. S. 1935 would correct this problem and 
establish fairness, simplicity and efficiency in the administration of 
government employee benefits plans.
    Correcting other disparities. S. 1935 corrects several other 
disparities in the federal tax code to provide tribes the same benefits 
and tools available to states, including those with respect to the 
treatment of tribal foundations and charities, child support 
enforcement, and the adoption tax credit. \1\
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    \1\ I want to note other legislation has been introduced in the 
Senate (S. 1309), which would provide tribal governments the same 
option that state and local governments have to enter into agreements 
with the Social Security Administration to provide Social Security and 
Medicare coverage to tribal government officials.
---------------------------------------------------------------------------
    S.1935 would ensure that charitable organizations formed to support 
tribal governments would be treated the same as charitable 
organizations formed to support state and local governments. There is 
no basis for treating such organizations differently. Currently, it is 
difficult for tribes to raise funds for separate nonprofit 
organizations for charitable purposes. PBPN currently makes substantial 
contributions to charitable organizations in our surrounding region 
through the charitable giving program of the Nation. We have not 
created a public charity that seeks tax-exempt donations and private 
foundation support. However, the Nation might consider doing so should 
the law be changed. The changes proposed by S. 1935 would ensure parity 
of tribal governments with state and local governments in this respect 
and facilitate tribes' efforts to raise charitable contributions from 
foundations, corporations and individual donors.
    A. 1935 would also allow tribes' child support enforcement agencies 
to access the Federal Parent Locator database that is available to 
state child support agencies and to offset tax refunds of individuals 
who owe past due child support. The PBPN government has had a child 
support enforcement office for five (5) years. We are fortunate to have 
an effective collaborative working relationship with the child support 
enforcement department of the State of Kansas. However, direct tribal 
access to the federal database, is urgently needed by many tribal 
governments not only as a matter of governmental parity but as a matter 
of smart government. It will enhance tribes' means to enforce the law 
in a manner that minimizes administrative burdens.
    Section 7 of 1935 is another provision that properly acknowledges 
the governmental status of Indian tribes. This section would recognize 
tribal court determinations of a child having special needs for 
purposes of the adoption tax credit. Today, adoptive parents must 
receive such a determination from a state court before they can benefit 
from the tax credit. The PBPN tribal court has presided over twenty-two 
(22) adoptions in the past five (5) years with three currently pending. 
Despite the Mandate of the Indian Child Welfare Act to give full faith 
and credit to the public acts, records, and judicial proceedings of 
Indian tribes, a special needs determination must be made by a state 
court in order for an adoptive parent to receive a federal adoption tax 
credit. To require tribal members to leave the jurisdiction of tribal 
court to venture to a state court for an adoptive proceeding, creates 
confusion over jurisdictions and seems to require proceedings that the 
ICWA was enacted to avoid. By acknowledging the validity of tribal 
court determinations, S. 1935 is consistent with. 25 C.F.R.  1911 by 
giving the same recognition to tribal court determinations as that 
afforded to state court. There likely has been a real disparity here 
where tribal member adoptive families may not have had the benefit of 
receiving this tax credit that has been available to other eligible 
families adopting through state court.
    PBPN strongly supports S. 1935 because it helps to level the 
playing field so tribal governments have resources to encourage private 
investment in Indian Country while it reduces administrative burdens in 
the same manner as provided to states under the Tax Code. Treating all 
governments in the federal system the same way promotes fairness, 
uniformity, reduces bureaucracy, prevents inconsistent treatment and 
avoids unintended consequences. We also stand behind S. 1935 as it 
recognizes tribal sovereignty, self-determination and promoting strong 
tribal governments and economies. Through passage of S. 1935, tribes 
will be better positioned to contribute to and benefit from the 
dynamism of the US economy. We encourage this Committee to fully 
embrace S. 1935 and work with the Senate Finance Committee to advance 
it into law as part of the larger tax reform effort.
Tax Incentives and Economic Development
    For years, Tribal Leaders have pointed out that tax code provisions 
to promote economic development do not address the needs and 
opportunities in Indian Country. As a result, Indian Country has been 
left behind by a system of incentives that sends capital, investment 
and jobs to others but leaves tribal governments without. By this 
hearing, this Committee is doing its part to engage with Tribes as the 
current tax reform process accelerates.
    The bills introduced by Members of this Committee demonstrate that 
you understand that the existing tax incentives need to be improved to 
better secure investment in reservation infrastructure and commerce. 
While improvements are needed to protect Indian Country from being left 
further behind, I urge this Committee to be mindful that from our 
experience investing in Indian Country not only helps the tribes, but 
their surrounding communities as well.
    I want to stress that in order to enhance prospects for economic 
development and job creation in Indian Country, this Committee's 
engagement with the tax-writing Committees is vital. The ``United 
Framework'' for fixing the Tax Code expressly preserves only the 
Research & Development Tax Credit and the Low-Income Housing Tax 
Credit. That Framework leaves it to the discretion of the tax-writing 
Committees whether to retain other tax credit programs. PBPN and other 
tribes are raising our voices to urge those Committees to retain and 
improve the effectiveness of the existing tax credits applicable to 
tribal communities. I would like to encourage your support for 
retaining several tax credit programs along with modifications that 
will make them more effective for Indian Country.
    Low-Income Housing Tax Credit (LIHTC). PBPN welcomes the United 
Framework's retention of the LIHTC even though, as a practical matter, 
most tribal communities have been left behind with regard to the 
allocation of the LIHTC. As you know, American Indians face some of the 
worst housing and living conditions in the United States. Forty percent 
of housing on Indian reservations is substandard (compared to 6 percent 
outside of Indian Country) and nearly one-third of homes on 
reservations are overcrowded. Yet, with the LIHTC allocated to state 
agencies based on population, as opposed to need, there is no incentive 
or regulation requiring state agencies to consider tribal projects in 
their IRS approved Qualified Allocation Plans. In our experience, even 
where the credit is available the private investor may still be 
unwilling or unable to put up the financing. Indian Country needs 
congressional action to amend the LIHTC so that a greater portion of 
the available federal tax credits are allocated specifically to tribal 
communities and that investors have incentives to partner to develop 
affordable housing in Indian Country. The Affordable.Housing Credit 
Improvement Act of 2017 (S. 548) provides an incentive for states while 
reducing the burden on states when using their existing allocations for 
tribal housing.
    New Market Tax Credit (NMTC). The design of the NMTC Program is 
intended to make more projects feasible and cost effective by making it 
easier for tribes to attract private investment. In practice, however, 
relatively few tribal communities have benefited from this Program that 
has delivered some $70 billion in tax credit authority nationwide. PBPN 
believes that now is the time to improve the NMTC, not abandon it. We 
support S. 2012 that directs the Secretary of Treasury to provide 
tribal projects with ``Priority'' status for the allocation of NMTCs. 
We welcome House bill H.R. 3129, the Aiding Development of Vital Assets 
in Native Communities and Environments (``ADVANCE'') Act, which creates 
additional incentives for allocating the NMTC to projects in tribal 
communities. We encourage you to press for improvements to the NMTC 
that will make it effective for delivering needed projects in Indian 
Country.
    PBPN supports S. 2012 language that would make permanent the 
Accelerated Depreciation Business Property on an Indian Reservation Tax 
Credit and the Indian Employment Tax Credit. These two tax credit 
programs are underutilized in tribal communities due to their status as 
short-term temporary measures (that have been approved periodically 
along with the other tax provisions passed as part of a ``tax 
extenders'' package). If made permanent, accelerated depreciation would 
provide an outstanding mechanism to attract capital-intensive projects 
on reservations and can bring high-skilled jobs to Indian communities. 
Additionally, cash saved in taxes can be reinvested in the business or 
in employees. \2\
---------------------------------------------------------------------------
    \2\ We note that the ``United Framework'' proposes to repeal the 
depreciation schedules to allow immediate expensing of investment in 
capital equipment. The ``United Framework'' proposal does not change 
the depreciation rules on new structures. If accelerated depreciation 
in Indian Country is retained (permanently, or at least as long as the 
immediate expensing rule applies), we believe the accelerated 
depreciation incentive for investment in Indian Country could become 
quite useful. An investor could put in a new building/facility in 
Indian Country (and receive accelerated depreciation) and be able to 
immediately expense any investment in equipment that is put into that 
building. We would certainly seek to tap into this combination of 
benefits as we explore possible developments on our lands adjacent to 
US Highway 75.
---------------------------------------------------------------------------
    Simplifying, expanding, and making permanent the Indian Employment 
Tax Credit would lead to greater use of the credit, thereby helping to 
increase employment rates and promote economic growth in Indian 
Country. S. 2012 would make the credit permanent, which is a vital step 
forward. PBPN also recommends the Committee consider modifying the tax 
credit formula as recommended by the National Congress of American 
Indians (NCAI) and the Native American Finance Officers Association 
(NAFOA).
Business Partners and Investor Face Multiple Layers of Taxation in 
        Indian Country
    Even when tribal governments succeed at obtaining investment and 
partnerships with the private sector to generate revenues to provide 
services in our communities, outside jurisdictions may seek legal 
loopholes to divert or tax these revenues. This Committee's report on 
the ICE Act (S. 1116) includes a discussion of the adverse impact of 
multiple layers of taxing jurisdiction over economic development on 
Indian lands. The uncertainty as to whether an outside tax applies or 
not in itself can prove to be a deal breaker for economic development 
in our communities. Moving forward with discussions and negotiations 
with business entities that desire to do business with the Prairie Band 
requires a level of certainty regarding the business entity taxing 
climate.
    The Nation supports the Department the Interior's efforts to 
document the economic harm caused by multiple layers of taxation on 
tribal lands through its Indian Trader Act regulatory effort. We 
encourage this Committee to engage in exploring legislation that would 
eliminate this uncertainty and ensure that those revenues generated in 
tribal communities are reinvested there and are not subject to the 
jurisdiction of outside governments, who spend those revenues in off-
reservation locations that do not benefit tribal communities.
Conclusion
    Thank you for your consideration and support. I look forward to 
working with you to advance these vital efforts for investment and job 
creation in tribal communities.

    The Chairman. Thank you.
    Mr. Desiderio.

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

    Mr. Desiderio. Good afternoon, Senators.
    My name is Dante Desiderio, a member of the Sappony, a 
tribe located on the border of North Carolina and Virginia.
    I am also the Executive Director for NAFOA. NAFOA had its 
start in trying to convince capital markets to come into Indian 
Country and also trying to organize a financial management 
system that worked for tribal governments. Today, we are 
honored to represent the broad economic interests of tribal 
governments all across the United States and the Alaska Natives 
in their homelands as well.
    I want to start my testimony by thanking the Senate 
Committee on Indian Affairs for hosting a hearing on 
Modernizing the Tax Policies to Work for Indian Country. This 
hearing is both needed and timely since it falls in the same 
week the House of Representatives is introducing their version 
of tax reform for the United States.
    We are counting on this Committee to ensure tax policies 
that promote growth for tribal governments are included in our 
national effort. Congress has an important role in making sure 
programs meet basic needs for tribes.
    Typically, this is done through the discretionary budget 
process. Each year it gets more and more difficult, leaving 
education, health care and housing needs underfunded or unmet. 
While Congress has to continue funding these needed programs, 
it is time for Congress to start thinking seriously about 
investing in Indian Country.
    There are strong examples of economic and political 
organizations around the world that view infrastructure build 
out, capacity building, technical assistance, government 
financing and grants as worthwhile, nation-building investments 
that pay long term dividends not just for the nation that 
receives these investments, but for the surrounding nations as 
well.
    For example, the World Bank invests in infrastructure 
development, provide grant and government financing and 
technical assistance as part of that investment. The United 
Nations provides assistance to regional economies. The Economic 
Commission for Africa provides assistance for contract 
negotiations, planning and policy development.
    If the goal of Congress is to support self-governance for 
tribal nations, then we must move more aggressively towards 
making similar investments in Indian Country. Modernizing tax 
policy is a great start. It is recognition that tribal 
governments need effective tax and finance policies to move 
their nations forward. It is also recognition that prior 
policies have not worked as well as intended.
    NAFOA would like to urge Congress to take the lessons of 
failed economic policies to create better ones. Our testimony 
submitted for the record supports the legislation introduced in 
various bills by members of this Committee. Senator Hoeven's 
bill, Senator Moran's bill and Senator Cantwell's bill in 
Finance that deals with the critical housing issues are all 
supported by our organization.
    Our testimony also considers past policies and offers three 
structural considerations that should be part of policymaking 
in Congress and the Administration. The first, and most 
difficult, consideration asks the question, how well does 
policy accommodate for the tribal economic model?
    Tribal governments utilize economic development to fund 
government programs in lieu of tax revenue. Tribal lands do not 
build collateral or support a tax base in the same manner as 
other governments or other nations.
    Therefore, applying the policies which ask for the same 
matching requirements, the same collateral sources and the same 
revenue streams will never be as effective as intended. We have 
to find a solution that takes these realities into account.
    The second structural consideration for economic policy in 
Indian Country is direct funding. Passing Federal funds along 
with the Federal trust responsibilities to the States simply 
has not worked. The funding that should go to tribal 
governments does not get into Indian Country. Tribal 
governments are different and they should be accommodated.
    The third structural consideration is the idea that 
economic policies should defer to tribal government autonomy 
and planning as a policy goal. A study recently concluded that 
tribes that exercise greater sovereignty have more success in 
building sustained economies regardless of the type of 
development. Policies should defer to autonomy and support 
capacity building to build that autonomy. This also means that 
policies that have limitations or are not on par with other 
governments should be immediately amended. This includes ending 
the Essential Government Function test.
    Indian Country has been united around these modest and 
overdue proposals for a long time, sometimes for decades. 
Collectively, these capital incentives, financing activities 
and credits offered in these various bills would all work to 
solve some of the most difficult issues preventing consistent 
and sustained growth in Indian Country. Congress has a unique 
opportunity to make a significant difference at this critical 
time for tribes and the communities that surround tribal 
governments.
    Thank you for the opportunity to represent tribal interests 
in tax reform.
    [The prepared statement of Mr. Desiderio follows:]

   Prepared Statement of Dante Desiderio, Executive Director, Native 
                American Financial Officers Association
Introduction
    NAFOA, in representing the economic interests of over one hundred 
tribal governments, has a clear mission to build and grow tribal 
government economies. We do this by developing capacity building 
programs for youth and professionals, by advocating for effective 
economic policy solutions, and by bringing together partners needed to 
promote economic activity including the academic, government, and 
private sectors. There are many other non-governmental organizations 
that strive to grow specific economies across the U.S. and national 
economies around the world. However, Indian Country remains one of the 
most challenging economic areas to effectively address.
    There are hundreds of tribal governments spread throughout the 
United States. They are represented in every region and have been 
shaped by different histories and defined by different cultures. This 
geographic and cultural diversity is a great statement for the survival 
of Native peoples. However, the varied governmental and economic 
entities make it difficult to develop general economic policies that 
will broadly impact the growth of tribal economies. More important, for 
economic development purposes, every tribal government and Alaska 
Native Corporation (ANC) has been and continues to be greatly 
influenced by long-standing federal policies designed with the admiral 
goal of protecting tribal assets with limited thought given to growing 
tribal assets and economies. Land restrictions that do not build 
collateral or a tax base, along with approval processes that often 
deter development are the inadvertent outcome of protective policies.
    The rich tribal government diversity and limiting federal policy 
structures are a reminder of how challenging it is to address the 
economic interests of tribal governments with general or borrowed 
solutions. Indian Country has experienced well-intended policies that 
have not worked as intended, not because they were not good solutions, 
but because they were structured or implemented incorrectly. This leads 
naturally to the question any policy maker or advocate should be asking 
before developing a solution: What considerations or structures are 
needed for economic policy to be effective in Indian Country? The 
answer to this question is important as the nation considers tax reform 
and is looking for policies that will effectively drive economic 
activity.
Structures for Modernizing Tax Policies
    There are three structural considerations that will have the 
greatest impact when developing or amending federal-Indian economic 
policy. These structural considerations are inter-related with one 
supporting the others. The first and most difficult is how well does 
the policy accommodate for the tribal economic model. Tribal lands do 
not build collateral or a tax base in the same manner as other 
governments. Policies attempting to ask for the same matching 
requirements, collateral sources, and revenue streams will never be as 
effective as intended.
    Matching requirements for the Native CDFI programs place a strain 
on the program and they threaten many CDFI's with failure. Indian 
Country is the most under-capitalized sector in the American economy. 
Even with successes in the grassroots CDFI programs in creating 
grassroots community development, we still witness banks and other 
lending organizations sit on the sidelines. A good example can be found 
in South Dakota where CDFI's can take credit for the local economy 
growing faster than the surrounding region. In other communities, this 
would success would mean an influx of capital and banking services. 
However, this has not occurred for the tribal community. Matching 
requirements need to be flexible and waived for tribal governments and 
for those entities that serve tribal communities.
    Collateral requirements and revenue streams that back debt should 
also be flexible. The CDFI Bond guarantee in the Department of Treasury 
stands as an example of a well-intended program that failed Indian 
Country by insisting that land be the preferred form of collateral. 
This left tribal governments out of a program that should have had a 
significant impact on community development. Changes have since been 
made to the program, but it highlights the idea that collateral and 
revenue backing a loan for tribal governments may mean lease 
agreements, enterprise revenue, or more important, government revenue 
which may be safer than debt secured by traditional means.
    In no way is this suggesting that the protectionist policies 
regarding land status should be changed, but merely suggesting that 
policy should accommodate for this economic feature.
    The second structural consideration for economic policy in Indian 
Country is direct funding. This has less to do with simply setting 
aside money for tribes and more to do with the process in which awards 
are made, and subsequently, how decisions are made after the awards are 
received. An example of both the process and subsequent awards can be 
found in the Low-Income Housing Tax Credit program. States now receive 
a 100 percent set aside of the federal funds available for housing. 
Indian housing needs are often not included in the Qualified Allocation 
Plans submitted by the state housing authorities, meaning tribes need 
to rely on states serving tribal citizens over their own citizen and 
political interests. The process of excluding tribes from the 
application process and the subsequent practice of relying on state 
governments has not worked at the expense of meeting the greatest 
housing need in the nation.
    Finally, economic policy for Indian Country needs to have local 
autonomy and planning. Tribal government economies and needs are too 
diverse and influenced by local cultural and political considerations 
for general policies to work in all cases. General policies tend to 
help those governments get started, but also manage to hold back those 
governments that want tailored and creative solutions to grow their 
economies.
    Solutions that require consideration of the tribal government 
economic model, direct funding, and support of local autonomy and 
planning work best and are an effective use of taxpayer funds. The 
HEARTH Act and self-governance contracting are excellent examples of 
modernized policies that have created a greater sense of autonomy. The 
lost opportunity from expecting that tribes will fit other funding 
criteria and priorities, or that states will consistently act as 
federal stewards is unrealistic and proven untrue.
    Tax policy in Indian Country can be an effective case study when 
well-intended economic policies fail to include direct funding, place 
unnecessary restrictions on autonomy, and are developed with the 
expectation that land and other collateral assets among entities is 
equal. With the benefit of hindsight, tribal governments are ready to 
take advantage of national tax reform to amend ineffective tax policy 
and correct oversights.
    Our testimony will focus on the following tax policies that address 
the creation of incentives designed to secure capital, authorize 
greater autonomy of financing activities and benefits, and fix 
unintended omissions.

        1.  Eliminates of the essential government function language in 
        tax-exempt debt and pensions that impedes government financing 
        and autonomy.
        2.  Directly fund tribal governments in New Markets Tax 
        Credits.
        3.  Include tribal housing needs in Low-Income Housing Tax 
        Credits.
        4.  Provide certainty to the accelerated depreciation and 
        Indian employment investment incentives.
        5.  Provide specific fixes regarding adoption tax credits, 
        Kiddie tax, and tribal charity formation.

    Tribal governments rely on economic development to create much-
needed jobs, fund government programs and services, and ensure the 
continuation of cultural and ceremonial practices. The reliance on 
economic revenue streams for government functions means the recommended 
policy fixes will be both meaningful and necessary.
    Indian Country has been united around these modest and overdue 
fixes for a long time--in some cases decades. Congress has a unique 
opportunity to make a significant difference for tribes and the 
communities and regions surrounding tribal governments.
Government (Public) Financing
    Indian Country is left with limited options when it comes to public 
financing since tribal governments are the only governments limited to 
using public financing for only essential governmental functions. Even 
projects that are deemed essential for other governments have been 
disqualified and interpreted to mean any project that generates 
revenue. Housing, marinas, and even health care facilities jointly 
developed by tribal and other communities have been deemed non-
essential because they produce revenue or interpreted differently for 
tribes. Every state, municipality, and city has the authority to 
utilize unquestioned essential and economic or private activity bonds.
    Congress and the Administration have both reached the same 
conclusion on the of limitations of relying on public financing for 
only essential functions. In 2011, at the request of the Senate 
Committee on Finance, the Department of Treasury issued a report 
confirming their views on the limitation. The following statement from 
the report captures their conclusion.

         ``The Treasury Department recommends repealing the existing 
        essential governmental function standard for Indian tax-exempt 
        bond financing under 7871(c).''--Report and Recommendations to 
        Congress regarding Tribal Development Bond Provision under 
        Section 7871 of the Internal Revenue Code

        [See Treasury report.]

    The same Congress that issued the required the Treasury report 
attempted to apply a temporary fix by authorizing a $2 billion in 
Tribal Economic Development Bonds. Caps placed on the amount a tribe 
could utilize along with additional administrative hurdles made the 
bonding pool unattractive for tribal governments. Limitations meant two 
different sets of financings with different terms and expenses for the 
same project. Initial caps were lifted and tribes have been drawing on 
the financing; however, the pool will be depleted soon since only 
approximately $500 million remains today. Once the overall bond volume 
cap is exhausted, it can only be reauthorized by an act of Congress.
    Public financing should be used to fund a majority of tribal 
government projects. Instead, the ill-defined limitation of financing 
only essential projects has made the financing tool the exception. This 
has serious consequences for development. Tribal governments have 
become accustomed to issuing commercial debt or accessing the private 
investors instead of relying on longer-term, cost-effective public 
debt. For commercial debt, this is analogous to trying to finance a 
house with a car loan. The loan repayment is much higher, shorter term, 
and has the effect of making typical government projects needed for 
community development unaffordable.
    Tribes should have the autonomy to utilize the same public 
financing as other governments with the same rules and conditions. 
Establishing limitations on financing has failed at every turn. NAFOA 
supports the provisions offered by two Senate bills (S. 1935 and S. 
2012) that repeal the essential governmental functions for tribal 
government financing.
Government (Public) Pensions
    Similarly, since the passage of the Pension Protection Act (PPA) in 
2006, the strict essential government function tests have forced tribes 
to adopt separate pension plans for government and ``commercial'' 
activities, doubling the cost of compliance and creating smaller plans 
with less bargaining power. It should be noted that the added cost and 
administration ultimately hurts the participants who are forced to 
switch plans even when working for the same employer and receive less 
in benefits since the costs are higher to maintain and administer 
multiple plans.
    State and local governments do not face the essential government 
function test for their pension plans. These activities are recognized 
by the federal government as necessary in the raising of revenues for 
public purposes and plans covering these employees retain their 
governmental status. Tribal plans, on the other hand, are so 
restrictive they lose their governmental plan status if the employee is 
engaged in an activity that resembles a ``commercial'' activity even if 
it is deemed an essential government function.
    The current state of the law under the PPA adds layers of 
inconsistent regulations to tribal plans that no other employment group 
must contend with, with no corresponding incentives for tribes to offer 
such programs. Tribal governments should have the autonomy of providing 
retirement benefits to their government employees.
    NAFOA supports eliminating the essential government function 
language for government pension plans included in S. 1935 and S. 2012 
to ensure tribes are subject to one set of rules like all other 
employers.
Public-Private Partnerships--Tax Credits
New Markets Tax Credits
    The New Markets Tax Credit (NMTC) program within the CDFI Fund at 
the Department of Treasury has held the greatest promise for community 
development in Indian Country. By encouraging external investment in 
tribal projects, tribal governments could use the credits to build 
necessary infrastructure, schools, businesses, and government 
buildings. Unfortunately, the funding has rarely made its way into 
Indian Country. Only one Native CDE has received a funding allocation 
of $20 million of the $15 billion available over the last three years. 
Other CDE's only occasionally funded tribal projects over the same 
period.
    This lack of direct funding for a program that has so much 
potential in Indian Country is unacceptable and, with the severe need, 
a missed opportunity can only be viewed as tragic. The program offers 
two of the three impact conditions for successful economic policy. It 
defers to local autonomy and planning and provides the collateral to 
help with additional financing. However, the program failed to fund 
tribal projects directly. Ironically, within the same CDFI Fund agency 
at Treasury, the directly-funded Native CDFI Program has proven to be 
one of the more successful capital and grassroots economic programs in 
Indian Country.
    Examples of successfully-funded programs stand as exceptions and 
reminders of the program's potential. There is substantial evidence 
that the NMTC has encouraged private sector investment to jump-start 
economies, build community structures, and create jobs. Here are a few 
measurable impacts:

    North Dakota: Spirit Lake Sioux, Turtle Mountain Band of 
        Chippewa Indians
    --Project: Built a new K-12 school (old school threatened by a 
        floodplain)
    --Summary: Ninety percent of the Minnewaukan School District's 
        students in rural North Dakota are members of the Spirit Lake 
        Sioux Tribe or Turtle Mountain Band of Chippewa Indians. The 
        NMTC provided $3.4 million in equity to this $13.2 million 
        project. The community worked with a CDE to save quality jobs 
        in a highly distressed small town and helped the community 
        adapt to the natural disaster of Devil's Lake flooding.

    Washington: Confederated Tribes of the Colville Reservation
    --Project: Government Service Center
    --Summary: The Confederated Tribes of the Colville Reservation used 
        NMTC to centralize critical services and provide an economic 
        shot-in-the-arm to the capitol of Nespelem. Three CDEs 
        partnered to provide an allocation that resulted in $6 million 
        of the overall $44 million project. Concentrating high-quality 
        jobs in Nespelem will boost the local economy and provide 
        easier access to jobs and services for tribal members in 
        Washington State.

    Montana: Crow Tribe
    --Project: Little Big Horn College's Wellness Center
    --Summary: Little Big Horn College, located on the Crow Tribe 
        reservation, secured an NMTC allocation to build a health and 
        wellness center that increases student retention and 
        achievement. NMTC provided $2.3 million toward this $10 million 
        project that helps hard-working students build pathways out of 
        poverty.

    Oklahoma: Chickasaw Nation and Cherokee Nation
    --Project: Carl Albert Multi-Purpose Facility
    --Summary: The Chickasaw Nation partnered with a CDE of the 
        Cherokee Nation to use NMTC to transform a shuttered I.H.S. 
        hospital in Ada, OK. Now known as the Carl Albert Multi-purpose 
        facility, the project provides employment, education and health 
        services. NMTC provided $5 million out of an overall $40 
        million project budget to catalyze additional development in 
        this highly-distressed community.

    Alaska: Multiple Alaska Native Villages
    --Project: TERRA Northwest/broadband
    --Summary: TERRA Northwest has brought broadband to rural Alaska 
        Native communities by partnering with the telecommunications 
        provider GCI and a CDE. Hospitals, schools, and homes in the 
        community are now connected to the high-speed Internet that is 
        the foundation of our modern economy.

    New Mexico: Pueblo of Laguna
    --Project: Water infrastructure
    --Summary: The Pueblo of Laguna, located in New Mexico, was in a 
        water crisis. By working with a CDE, the tribe raised $2 
        million that leveraged a total of $7 million in infrastructure 
        investment. The tribe can now provide higher quality education, 
        public safety and economic development to the members it 
        serves.

    Without tax credit programs, tribes will be challenged to attract 
investment that can serve as collateral for community development. We 
urge Congress to include direct funding for tribal governments under 
the NMTC program with at least a five percent set aside for tribal 
governments. Terms like priority or preference will be helpful, but 
only if they are defined and carry meaning. In addition, it is 
important that tribal governments are included early in promising ideas 
such as the Move America Bonds and Credits jointly drafted by Senator 
Wyden and Senator Hoeven. This creative economic policy can potentially 
offer tribal governments an excellent opportunity to build our 
communities using both public financing and private investment through 
credits.
    Finally, NAFOA recommends that the Native CDFI program permanently 
waive matching requirements and increase program funding to ensure 
continued reach and positive impact in Indian Country. This is being 
done intermittently and should be permanent.
Low-Income Housing Tax Credit
    The lack of housing in tribal communities remains a serious problem 
in Indian Country that effects socio-economic conditions. According to 
the Census Department, Indian Country has the highest occupancy per 
household and the longest housing waiting lists. The Minneapolis 
Federal Reserve's Center for Indian Country Development considers 
housing one of four areas that impede economic development and 
community stability. Despite the outsized role housing plays in 
creating stability and jobs in Indian Country, the Low-Income Housing 
Tax Credit (LIHTC) program is underutilized and only periodically 
successful in Indian Country.
    The LIHTC is the primary source of financing for the construction 
and preservation of affordable housing on tribal lands as land 
restrictions and collateral is an issue. The LIHTC provides the private 
market with greater incentives to invest in affordable housing. The 
Internal Revenue Service (IRS) allocates housing tax credits to 
designated state agencies--typically state housing finance agencies--
which, in turn, award the credits to developers of qualified projects. 
The LIHTC provides a viable source of infrastructure that could be used 
to benefit tribal communities. For example, the Blackfeet Nation was 
able to obtain nearly all of the $5 million project cost to build 
energy efficient homes that were designed for the unique weather 
challenges in Montana.
    However, as allocations are awarded to state agencies and are based 
on population, as opposed to need, there is no incentive or regulation 
requiring state agencies to consider tribal projects in their IRS 
approved Qualified Allocation Plans. In fact, the incentive for states 
is often contrary to serving tribes since states often seek to 
prioritize their own state-run housing program objectives before 
considering tribally-run housing programs.
    NAFOA encourages Congress to support the Affordable Housing Credit 
Improvement Act of 2017 (S.548) introduced by Senator Maria Cantwell 
(D-WA) and Orrin Hatch (R-UT). The bill designates tribal government 
communities as ``Difficult to Develop Areas,'' making housing 
developments automatically eligible for a 30 percent boost to increase 
investment of LIHTC. The bill also requires states to consider the 
needs of Native Americans when allocating tax credits.
    The needed solution helps build a fundamental infrastructure for 
tribal governments and improves the quality of life for tribal 
communities. This call to action on housing is best described by 
Senator Maria Cantwell, former Chair of the Senate Committee on Indian 
Affairs and member of the Senate Committee on Finance when she recently 
stated:

         ``It is important for our colleagues not to get stymied over 
        the next several months as we discuss proposals for tax reform 
        and infrastructure and not to take action on this issue because 
        we don't know how we will afford it. What we can't afford is 
        the rising number of Americans who can no longer afford rent or 
        homeownership. We need to make sure there is a roof over their 
        head so they can be a productive part of our economy.''

         ``Out of all the housing programs, the Low-Income Tax Credits 
        program is the best for low-income individuals. There is no 
        comparison from Section 8 to HUD to LIHTC. It encourages 
        private-public sector support and community.''
Investment Incentives
    While improvements to public financing for tribal governments, New 
Market Tax Credits, and Low-Income Housing Tax Credits will help build 
tribal communities and develop economies from within; investment 
incentives will help attract external business partnerships and jobs to 
tribal communities. The Accelerated Depreciation incentive coupled with 
a revised Indian Employment Tax Credit, can help bring significant and 
needed investment to Indian Country. Both incentives have been 
implemented in the past, and both have been ineffective--not for policy 
reasons, but because they were implemented ineffectively.
    In the past, the incentives were part of the so-called ``Indian 
extenders'' that were only renewed for a one or two-year period and 
were mostly delayed and made retroactive. This made them unreliable for 
tribes to effectively use when trying to attract large, multi-year 
projects and unreliable for businesses trying to analyze the value of a 
partnership. In addition to being intermittently renewed, the Indian 
Employment Tax Credit was difficult to administer and lacked any 
provision to increase the salary and health expense eligible for a 
credit. Furthermore, the base year to qualify is fixed to the base year 
1993, requiring employees to trace Indian employment back to the 
original date. This makes it unworkable for any new businesses that 
want to hire Indians and receive the credit.
    NAFOA recommends making these valuable investment incentives 
permanent to encourage economic partnerships and to address the high 
unemployment rate in Indian Country. It is worth Congress investing in 
these incentives to keep jobs here in America and encourage the hiring 
and skill-building of Native people.
Correct Prior Oversights--Tribal Charity Formation, Adoption Tax 
        Credit, Social Security, and Kiddie Tax
    Tax policies that lack parity between tribal governments and state 
and local governments can be seen in the formation of charities, 
adoption of children with special needs, and in the opportunity for 
elected leaders to opt in to the social security system. Additionally, 
technical fixes are needed in some areas that were overlooked and 
impact many of the governance and administrative functions at a tribe.
Tribal Charity Formation
    For all Americans, charities can be a vehicle for advancing 
education, defending human rights, and responding to other social needs 
of the community. Generally, there are two choices of how a 501(c)(3) 
can be classified, either as a public charity or a private foundation. 
Public charities receive advantages over private foundations: higher 
donor tax-deductible giving limits, the ability to attract support from 
other public charities and private foundations, and less lengthy and 
complex 990 tax returns.
    Under current law, tribal governments can form a 501(c)(3) as a 
private foundation only. Private foundations restrictive regulations 
that can double compliance costs annually. Meanwhile, support from 
state and local governments are treated as ``public support'' for 
purposes of public charity classification.
    NAFOA supports provisions that treat charitable organizations 
formed to support tribal governments the same as organizations formed 
to support state and local governments. NAFOA supports H.R. 3138, which 
amends the Internal Revenue Code and treats charitable organizations 
formed to support tribal governments the same as organizations formed 
to support state and local governments.
Adoption Tax Credits for Children with ``Special Needs''
    The current tax law creates disparity in adoptions as parents who 
adopt children who are non-Native American and designated as ``special 
needs'' can claim a tax credit, while parents who adopt children who 
are Native American ``special needs'' cannot. The lack of immediate 
access to the credit hinders adoption efforts and burdens families who 
must for pay court costs, adoption and attorney fees, and travel 
expenses. NAFOA encourages the Senate to support adoptive parents by 
treating tribes as states for the purposes of determining special needs 
children. NAFOA supports H.R. 3138, which addresses the lack of parity 
between states and tribal governments by amending the Internal Revenue 
Code by treating tribes as states. This inclusion will grant the 
appropriate recognition to tribes in determining ``special needs 
children''.
Social Security Fairness
    Unlike state and local government elected leaders, council 
leadership at tribal governments do not have the ability to opt-in to 
social security coverage for services performed. NAFOA supports S.1309, 
the Tribal Social Security Fairness Act, which provides parity between 
tribal governments and state and local governments. The Act allows 
tribes to ``opt-in'' to Social Security coverage for their otherwise 
excluded tribal council members.
Kiddie Tax
    The ``Kiddie tax'' was designed to prevent income shifting between 
wealthy parents and their children. It provides a higher tax rate of 
unearned income based on the parent's tax bracket. This tax not only 
burdens minors and young adults with an inappropriately high tax rate, 
it also imposes compliance burdens on large numbers of taxpayers 
receiving relatively small amounts of government support. Ironically, 
tribal members who choose to attend college full-time are burdened by 
these higher tax rates well into young adulthood, which creates a 
perverse incentive with respect to higher education. NAFOA recommends 
amending the Internal Revenue Code to exempt tribal government 
distributions from the Kiddie tax.
Conclusion
    Tax reform provides us with an opportunity to modernize policies. 
Individually, these policies have the potential to impact economic 
growth in tribal communities. However, when taken together these 
capital incentives, financing activities, and credits would all work 
together to solve some of the most difficult issues preventing 
consistent and sustained growth. Tribes would have a reliable tax 
credit program and public financing mechanism for larger community 
infrastructure and development needed to sustain growth. By having 
reliable pro-growth tax incentives like the Indian Employment tax 
credit and accelerated depreciation on property, equipment, inventory, 
and other common business investments, tribal governments could 
encourage new business growth, help existing businesses, and generate 
new jobs that will create a ripple effect of revitalization and growth.

    The Chairman. Thank you to all our witnesses.
    We will now start five-minute rounds of questioning.
    Starting with you, Mr. Marrs, can you elaborate on how 
tribal communities would benefit from greater access to the New 
Market Tax Credit Program?
    Mr. Marrs. The New Market Tax Credit Program is designed to 
provide a source of private funds for development of low income 
communities. However, there is an annual limit on the amount of 
the credit. Under the current law, this annual limit is to be 
allocated on a priority basis to various locations.
    Present law does not directly prioritize lands of Alaska 
Natives or the lower 48 Indians for the credit even though 
Alaska Natives and Indians are, in economic terms, among the 
poorest of the poor in this Country.
    The result has been that the New Market Tax Credit Program 
has not come to our lands. Without the New Market Tax Credit 
being applicable to our lands, those who would bring economic 
growth through the creation of economic development entities 
take their development money and go elsewhere.
    Indians and Alaska Natives have no less of a need for 
economic development than others in low income areas. In many 
cases, our need is far greater. I support the TEA Act, S. 2012, 
because it adds our Alaska Native and Indian lands as priority 
areas for allocation of New Market Tax Credits. This, I 
believe, will encourage creation of economic development 
entities which, in turn, will bring much needed private capital 
and higher paying jobs to our Native and Indian lands.
    I am not alone in this. The Alaska Federation of Natives 
has repeatedly sought to obtain expansion of New Market Tax 
Credits because of the very positive impact it will have on our 
Native and Indian lands throughout the Country. It is a great 
piece of legislation.
    The Chairman. This is for both Mr. Marrs as well as 
Chairperson Onnen. Can you talk about how repeal of the 
Essential Government Function test can facilitate outside 
investment in infrastructure development for Indian Country, 
particularly in areas like Alaska and Kansas where you may have 
a more remote situation?
    Ms. Onnen. I will start with that one.
    As you say, Kansas being in a rural area, it is often 
difficult to attract investors. Where we could really benefit 
from the elimination of the Essential Government Function test 
is in our ability to enter partnerships with the private sector 
to build, design, operate or maintain an infrastructure asset.
    We all know you can build roads, sewer systems and things 
like that under the Essential Government Function test. But we 
need to have our horizons broadened with more opportunities 
given to us that are given to other governments and States. We 
are simply looking for parity on those issues.
    The Chairman. Mr. Marrs.
    Mr. Marrs. Mr. Chairman, in addition to that, a test from 
Section 7871 makes it easier for tribal entities, both in 
Alaska and in the lower 48, to issue tax exempt bonds which in 
turn helps provide necessary funds to spur economic development 
in rural tribal communities.
    Our Village of Old Harbor is mainly made up of a small 
fishing fleet. We have all been working for a number of years 
to economically enhance that village so we do not have this 
outflow of our tribal members to the bigger cities.
    Over time, there is deterioration of our members from those 
villages. Eventually, they get so small, there goes the school, 
there goes the village, and there goes the culture. These kinds 
of changes give us some hope for economic development and are a 
priority not only to us but I think should be to all American 
Indians where you can entice investors and money to help you 
develop.
    In our case, we need a fish plant that will continue to 
provide high-paying employment for our people in the village. 
Through the help of Senator Murkowski, Senator Sullivan and 
others we have extended our runway, built a new dock and a new 
harbor dredged.
    We need a hydro system in place and a fish plant. These 
things help us get to providing solidarity among our tribal 
members to stay in those villages. That is where they want to 
live. They do not want to move out but they do not have a 
choice.
    The Chairman. Mr. Desiderio, programs like the Accelerated 
Depreciation Incentive and the Indian Employment Tax Credit are 
temporary. My question is, does that make a difference in terms 
of attracting these larger, multiyear projects, the fact they 
are temporary versus permanent? Can you comment on what impact 
that has on attracting projects?
    Mr. Desiderio. In addressing the incentives to try to get 
tribes to attract outside investment, we have the Indian 
Employment Tax Credit, the Accelerated Depreciation and Indian 
Coal Tax Credit. Those are necessary for a very important 
reason. There are a lot of other approval processes that take 
longer time periods for outside investors to come in and get 
the same energy projects done in Indian Country or other large-
scale projects.
    We need an extra incentive to attract that capital to 
reward patience for dealing with Indian tribes and dealing with 
the approval process. Right now, tribes should be using the 
incentives to attract that outside investment but they are not 
really on the table for us. If you can imagine in negotiation 
saying, we might be able to have you take advantage of this if 
it gets retroactively renewed, which has been the case for the 
last several years.
    Tribes cannot really offer that at the negotiating table 
and the companies take it anyway if they are doing business 
with Indian Country. The idea of the uncertainty of having 
these renewed every year or having these sporadically or 
retroactively renewed really does not create any kind of 
certainty for a company to make the decision to do business 
with Indian Country.
    The Chairman. Thank you.
    Vice Chairman Udall.
    Senator Udall. Thank you so much, Mr. Chairman. Again, 
thank you for the hearing.
    Before I start my questioning, let me recognize President 
Russell Begaye with the Navajo Nation, which most people know 
is the largest tribe in the Country in three western States. He 
has been a real national leader on education, health care and 
the well being of Navajo people. It is good to see you here, 
President Begaye and your trusty assistant, Jackson.
    Congress must be able to walk and chew gum at the same 
time. Yes, we can pass a bipartisan tax package and yes, we can 
fully fund our tribal trust obligations at the same time. Those 
are not mutually exclusive goals.
    Mr. Desiderio, can you discuss the importance of fully 
funding programs and increasing investments in Indian Country?
    Mr. Desiderio. Certainly, Senator.
    The point I was making in the oral testimony about 
investing in Indian Country is a view on how we should be 
looking at Indian Country and the role of Congress in making 
sure we are building economic success in Indian Country.
    Right now, if you think about the agency that is most 
represented in Indian Country, the Bureau of Indian Affairs at 
the Department of the Interior, if you look at what they have 
for investing in Indian Country, there are two examples. They 
have the Indian Loan Guarantee Program.
    Every year, with the support of this Committee, that is 
renewed but we struggle with the renewal or the appropriated 
amount. We have $8 million to share for all of Indian Country 
for a loan guarantee program. That is not enough to really 
impact building a tribal economy. That is one of the few 
investments made into Indian Country.
    We also have the Native CDFI Program that is great for 
building grassroots businesses but at $20 million for all of 
Indian Country, it is not enough. It is a necessary component 
but we are looking beyond that.
    If you look at the New Market Tax Credit or the Bond 
Guarantee Program at Treasury, those are significant resources 
that should be finding their way into Indian Country but they 
are not.
    The investment in Indian Country for $20 million in 
Treasury for the CDFI Fund or $8 million for the Loan Guarantee 
Program is not enough for us to take seriously the idea that we 
need to build tribal economies.
    Senator Udall. A promising development over the past decade 
is the use of these New Market Tax Credits as mentioned today. 
These tax credits hold tremendous potential to spur investments 
in Indian Country.
    In my State, the Pueblo of Laguna was able to leverage 
these credits as part of a $70 million water and wastewater 
project but it seems like the well has dried up. Over the last 
three funding cycles, only one tax credit allocation was given 
to a Native CDE, $50 million out of $7 billion allocation for 
projects in Indian Country.
    Mr. Desiderio, what recommendations do you have for this 
important program so that we can get these tax credits flowing 
to projects in Indian Country?
    Mr. Desiderio. It is actually a little worse than that. I 
think it is $15 billion that has been given out over the last 
three years. Indian Country got $20 million which is .04 
percent or something like that.
    Senator Udall. That is appalling.
    Mr. Desiderio. Yes, again, it is not enough.
    The Tax Credit Program, there are a couple of reasons for 
this. One of the big reasons it is not getting to Indian 
Country is because we have people coming from the CDEs that 
serve other communities that lead these grant applications for 
CDEs. They do not understand Indian Country. For us, this is 
Treasury farming out their trust responsibility and letting 
others who are not familiar with Indian Country decide what is 
going to happen with these tax credits.
    The important part about these tax credits, like the Laguna 
Pueblo, is that it makes capital feel comfortable coming to 
Indian Country. We also have that collateral that we do not 
normally have from land assets that comes in and offers 20 to 
25 percent collateral that we can leverage, take out loans and 
make these projects feasible.
    We have heard from tribes for years on this. Our 
recommendation is to have something set aside. The New Market 
Tax Credit sits inside the same agency as the Native CDFI 
Program. They have set-asides for tribal governments. It is one 
of the most successful programs we have in Indian Country.
    We do not have to look too much further than that and say 
we need a set-aside. This is Federal money. Right now, States 
have a 100 percent set-aside for Federal money. We are asking 
for a 5 percent set-aside for tribal money.
    We also realize these are complicated and complex 
transactions. Having some funds of the set-aside go to towards 
technical assistance to build tribal autonomy, to build 
capacity, which is what economic development doest, is really 
necessary for some of these programs to be effective.
    Senator Udall. That is a very good suggestion.
    Thank you, Mr. Chairman.
    The Chairman. Senator Moran.

                STATEMENT OF HON. JERRY MORAN, 
                    U.S. SENATOR FROM KANSAS

    Senator Moran. Mr. Chairman, thank you very much.
    Thanks to you and Senator Udall for hosting this hearing. 
The timeliness is such that it may create an opportunity for us 
to have leverage in including a number of these tax provisions 
in any tax bill the Senate may consider. We ought to make 
certain the things we learn in this hearing and our goals with 
tax changes that affect tribal members ought not be ignored as 
we have a debate about the U.S. Tax Code.
    I want to thank Chairwoman Onnen for being here today and 
making the trip from Kansas. I appreciate her perspective and 
her leadership here in Washington, D.C., and especially back 
home. With her involvement in NCAI, she has a great opportunity 
to provide us with insight, knowledge and experience. Thank you 
very much.
    I want to go back a few years. Senator Heitkamp and I 
introduced the Tribal General Welfare Exclusion Act. In 2014, 
it became law. I want to give any of our witnesses a chance to 
tell us, despite the passage of that legislation, if it is not 
living up to its hopes, if that is the case, and what are we 
still missing from that piece of legislation before I turn to 
the topic of the bills currently pending before this Committee.
    Does anyone have any requests or suggestions for us in 
regard to implementation of welfare exclusion? Lots of people 
behind you have suggestions.
    Mr. Desiderio. I will start while they are gathering their 
thoughts.
    The general welfare is an important piece of legislation. 
It is one of the fundamental shifts in Federal policy to be 
able to recognize that tribal governments have a role in 
preserving cultural and ceremonial practices and also being 
able to serve our own citizens' needs based on our cultural 
idea of what need means. In that way, it has been an amazing 
piece of legislation to recognize that.
    I think one of the more obvious issues to come out of that 
is the Treasury-Tribal Advisory Committee, which was part of 
that legislation. It has been a couple of years and it is still 
not established. We are waiting on one final appointment from 
that.
    That committee has been going around Indian Country 
listening and gathering their thoughts on how to advise the 
Secretary of Treasury on tax items for Indian Country. Until 
that is formed, we cannot address some of these other issues 
like educating the IRS enforcement on tribal issues.
    We also are experiencing a lot of momentum on tribes 
setting up their own general welfare plans and running with 
ideas of how, for example, to pay utility bills in the winter 
for those families in need and setting up exciting programs, I 
think, for Indian Country to consider. Until all that plays out 
and we get rules from Treasury and this Committee in place, we 
are still in the waiting period of having all of that settle. 
Overall, the legislation is a great recognition of tribal 
culture and decision making.
    Senator Moran. So we need the advisory committee totally 
formed. People whisper in my ear just as they do in yours. We 
had a discussion, as the hearing began, on how many positions 
are still left unfilled. I guess you have answered that 
question. I think we know where that is and we need to increase 
the encouragement to fill that position. We will do that.
    Then what you are telling me is once those recommendations 
are done, that committee can meet and provide advice to the 
Treasury Department and will be better able to fulfill the 
mission and the goals of general welfare exclusion legislation. 
Did I understand that correctly?
    Mr. Desiderio. Absolutely, and not just general welfare. 
The law is broad enough to advise the Secretary on all tax 
matters related to Indian Country. With some of the other 
issues we are talking about today, we have the ear of the 
Secretary on tribal issues.
    Senator Moran. Thank you.
    Anyone else? Chairwoman Onnen.
    Ms. Onnen. I just want to also echo the sentiment. In my 
opinion, the importance of the Tribal Advisory Committee being 
in place really is about communication and education. That will 
actually facilitate progress that was built into the General 
Welfare Exclusion Act.
    You laid a wonderful groundwork that I have seen actually 
have true impact on my tribal members back home. I just want to 
see that continue to grow and expand. Communication means 
understanding. The more understanding we have, the better off 
we are all going to be.
    Senator Moran. Thank you very much.
    My time has expired. I will try to talk about the current 
legislation in the next round if there is one.
    Mr. Chairman, thank you.
    The Chairman. Senator Franken.
    Senator Franken. Thank you, Mr. Chairman.
    Chairwoman Onnen, you are a former Regional Vice President 
of the National Congress of American Indians. I understand that 
earlier this year, NCAI adopted a resolution raising 
significant concerns about the Trump Administration's budget 
proposal.
    In particular, NCAI pointed out, ``The fiscal year 2018 
budget request contains $300 million in cuts to the Indian 
Health Service with reductions in almost every other category 
which will mean less services and poorer health for American 
Indians and Alaska Natives.'' Further, they said the 
President's ``reduction in funding for housing construction and 
the elimination of successful competitive grant programs such 
as the Indian Community Development Block Grant will generate 
more unmet housing needs.''
    Chairwoman Onnen, do you agree that the proposed cuts in 
the President's budget would have a negative effect on tribal 
populations?
    Ms. Onnen. Thank you for that question, Senator.
    I think the easy answer to that question is, without a 
doubt, cuts that significant are going to impact tribal 
programs and the ability of tribes to provide services to their 
programs. The truth of the matter is I think everyone in this 
room knows that tribal programs are woefully under-funded 
anyway. To cut funding in this manner is definitely going to 
make things more difficult for tribes to be able to administer 
programs and take care of their people in the way they need to.
    Senator Franken. Don't you think rather than a $2.4 
trillion tax cut, of which 80 percent goes to the wealthy, the 
President should be investing in programs that provide health 
care and housing?
    Ms. Onnen. I think at least everyone at this table would 
like to see more investment in housing and health care. You 
guys know more about finding balance than probably I ever will, 
with any luck, but I think finding balance is the trick here.
    Everyone has needs, everyone has demands and everyone needs 
services. To take this back around, would that be fabulous? It 
would be. It would be great to have that funding and have it 
put into tribal programs.
    However, if the case is that we cannot do that, this is why 
we come to this table today to talk about these types of issues 
so that we can have some economic independence to create these 
things for ourselves. The fact of the matter is we do not 
always know how that is going to roll down. That is hundreds of 
years of history.
    We are trying to build our own economies ourselves to be 
sustainable. I don't want to let anyone off their trust 
responsibility. I believe true sovereignty really comes when 
tribes can also take care of themselves in addition to the 
United States upholding its trust responsibility.
    Senator Franken. Thank you.
    Mr. Marrs, I have been an advocate of the New Market Tax 
Credit Program which has successfully spurred a wider range of 
innovative economic development activity in my State of 
Minnesota, both in cities and rural areas, yet they have not 
been used very much for projects on tribal lands. Are there 
unique challenges that have prevented the tax credits from 
being used for projects in tribal areas? What can be done to 
address those challenges?
    Mr. Marrs. I think the problem has been that we have never 
been able to get Indian lands or Alaska Native lands 
prioritized into the system. Therefore, we do not get that 
quality we need for investment in our own developments.
    To begin with, it is hard to raise money. It helps when an 
outside firm can come in and recapture some of the tax base. We 
find it just about impossible to get new development money 
because in rural Alaska, we are so far removed from everything 
and a lot of the reservations in the lower 48 are not in 
populated areas. It is hard to get that investment.
    The way the New Market Tax Credit is now written I think 
will boost that effort on behalf of investors out there to come 
in and work with us. That is why we see it as an important 
piece. Even though it is not directly related to Alaska Natives 
and our lands, the way it is written, the Alaska Natives can 
benefit from it as the lower 48 tribes do. We really appreciate 
that effort.
    Senator Franken. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Senator Murkowski.

               STATEMENT OF HON. LISA MURKOWSKI, 
                    U.S. SENATOR FROM ALASKA

    Senator Murkowski. Thank you, Mr. Chairman.
    Mr. Chairman, I appreciate your introduction of the TEA Act 
along with Senator Heitkamp. I think it is good. As Senator 
Moran has noted, it is timely. I, too, hope much of what is 
being discussed today, whether your legislation or the 
legislation we have introduced to the settlement trusts, will 
find their way into a larger tax package.
    I do think it is important. The messages we have heard here 
today need to be reinforced. We do not want to leave out our 
Indian or Alaska Native populations when it comes to taxes and 
tax reform. Thank you for what you are doing with that.
    I know my staff has been in contact with your staff on a 
few recommended technical changes within your legislation, 
making sure we are including all the intended groups within the 
auspices of the TEA Act. I look forward to working with you on 
that.
    Mr. Marrs, thank you for being here today. Thank you for 
speaking to S. 1698. I do think this is an important piece of 
legislation that really works to ensure ANCSA is operating as 
intended to help directly provide for the health, education and 
economic welfare of individual Alaska Natives who will benefit 
from these settlement trusts.
    We talk a lot about the need and effort to make sure that 
indigenous Alaskans, under the land claims, see benefits that 
are multigenerational, which is the term we use. I appreciate 
the opportunity we have had to work with you on legislation now 
before the Committee to help ensure we do see these benefits 
pass from one generation to the next. It has certainly been one 
of my longstanding goals as well as yours.
    From your perspective, experience and history with ANCSA, 
can you explain how this bill, S. 1698, can really help to 
ensure the benefits are available for future generations?
    Mr. Marrs. As you well know, we operate a little 
differently because we were required to do corporations. We are 
not on reservations; we don't have Indian Country. In 1971, our 
shareholders were locked in. If you were a Native after 1971, 
you just were a Native not belonging to anything.
    Senator Murkowski. Can you repeat that? I don't think 
people understand that.
    Mr. Marrs. When the Claims Settlement Act passed, if you 
were born prior to December 18, 1971, you were eligible to 
become a member of that corporation. If you were born after 
that, you did not get anything.
    Over time, Congress has tried to change that. There is a 
law on the books that allows these corporations and their 
shareholders to bring in what they call ``after-borns,'' those 
born after 1971.
    A lot of the corporations are not doing that. We have these 
sort of lost members, except for the fact that they are all 
members of the tribal organizations. But the tribal 
organizations in Alaska, much like the lower 48, don't have a 
lot of income to help support their tribal members.
    The idea here is a bridge for being able to put land in 
perpetuity in these trusts so that all of the future 
generations participate in those lands. Even though they may 
not be trust lands as Indian Country, they are sacred lands.
    It also allows us to be able to put in money. In this case, 
we are asking to be able to contribute money and assets pre-tax 
to these trusts that do pay a tax on their income, not as 
heavily as you get on the corporate side, but they still pay a 
tax.
    They, in turn, help support the individuals and also 
support tribal cultural programs and education. There are a 
myriad of things we can do through those. If you think about 
the corporations formed under State law, you have a duty to 
those shareholders as a corporation. If we are putting off too 
much money on projects out there, we are subject to a 
shareholder derivative suit on the other side.
    We need a mechanism to be able to move assets to take care 
of the whole, not just those born prior to 1971. There has sort 
of been a sea change in the fact that I think corporations are 
now realizing our job should be there supporting the tribal 
efforts because those are the important programs to our 
indigenous people.
    I guess that is probably why I have been working on this 
trust legislation so long. To me, it is one of the bridges that 
makes this whole thing work for the long-term interests of all 
our shareholders.
    Senator Murkowski. I appreciate that explanation. I think 
it is important that we were able to incorporate that as part 
of the record because I do think it is not well understood that 
with ANCSA and the establishment of the corporations, you have 
those born pre-1971 and then you have the afterborns.
    How you ensure there is a bridge is probably the most apt 
term, as you stated, to address those future generations of 
Alaska Natives. This is a mechanism, one designed, I think, 
fairly and openly that can help facilitate that.
    I thank you for your good work on this. I look forward to 
hopefully putting this into play with the assistance of my 
colleagues here. Thank you for that.
    The Chairman. Senator Cortez Masto.

           STATEMENT OF HON. CATHERINE CORTEZ MASTO, 
                    U.S. SENATOR FROM NEVADA

    Senator Cortez Masto. Thank you.
    I appreciate the conversation today. Thank you to all of 
you for joining us in this candid conversation.
    Just so I can be clear, you all support S. 2012, S. 1935 
and S. 1698 in their entirety, correct? Is that a yes from all 
of you?
    Mr. Desiderio. We support the legislation, absolutely. We 
are cautious on terms like priority unless they are defined. 
They seem to be interpreted in different ways. That goes to the 
New Market Tax Credit. We would rather have set-asides and 
would rather be a bit more aggressive.
    Senator Cortez Masto. Supported with the caveat that you 
have talked about today, the changes you would like to see?
    Mr. Desiderio. Absolutely.
    Senator Cortez Masto. Thank you.
    Have you or any of your tribal members, that you are aware 
of, been involved with the Administration or Republican members 
of Congress in the current discussion on tax reform, what it is 
going to look like and how it is going to impact your tribal 
communities? That would be a question for you all.
    Ms. Onnen. You are asking about our membership back at 
home?
    Senator Cortez Masto. Correct.
    Ms. Onnen. Honestly, I would say that probably the average 
tribal member is not probably engaging in these conversations. 
I have been a tribal leader for three years and an employee for 
15 years, and I am still wrapping my mind about the layers and 
multitude of things that are in the way. So I don't think the 
average tribal member fully understands what taxation really 
means to them and the barriers in front of them. That is my 
honest opinion. I come before you to try to be their voice. 
That is my job.
    Senator Cortez Masto. Okay. Have any of the others been 
involved in consultation with the current Administration or 
with the members of Congress on current tax reform that is 
going on right now?
    Mr. Desiderio. We were involved in a meeting with the White 
House talking through some of these same issues we are 
discussing today and some other concerns and different members 
of Congress. However, like a lot of people, we are not certain 
where this is going to go.
    Senator Cortez Masto. You know more than I do. That is why 
I ask, because I am curious. I would hope that your discussion 
today and the concerns you have today are being incorporated 
somehow in the tax reform discussion happening amongst, 
unfortunately, just some of my colleagues and not all of us, 
which is frustrating to me because I sit on Indian Affairs and 
this is an incredible Committee and we work in a bipartisan 
manner. We work together on so many things.
    I do not understand why that is not permeating throughout 
this tax reform discussion that is happening right now that is 
going to impact millions of people, hardworking families, and 
tribal members across this Country. It is frustrating to me. It 
is not how it is supposed to work here in Congress.
    I did not come to the United States Senate to be shut out 
of this discussion when I have to represent tribal members in 
my State and many people across this Country. I appreciate your 
comments today. I too am advocating that the discussion we had 
and how we assist tribal communities with economic development, 
economic improvement and families, that we are going to be 
addressing your concerns in this tax reform package.
    With that said, I am curious. You talked about economic 
independence, talked generally about how we spur and invite 
larger economic development in tribal communities, but can you 
talk to me about recommendations to ensure that tax reform also 
primarily benefits working families in Indian Country? What 
should we be looking at to benefit working families in Indian 
Country when it comes to tax reform?
    Mr. Desiderio. When you are parsing over the information 
that has been released so far, there is the idea that the head 
of household is deleted in the conversation. Indian Country has 
probably the highest rate of single parents. I think that is 
something we are really concerned about that really impacts a 
lot of families in Indian Country.
    The other issues that would be helpful are the child care 
tax credit which is actually a credit which will be helpful for 
Indian Country, as well as the elder or adult care. We often 
have high occupancy in the households taking care of both 
generations. Those things are very helpful. We would like to 
see those go forward.
    Our concern and I think the reason we are here is to be 
able to build jobs back home. When you look at the housing tax 
credit, that really is meaningful for not just building housing 
in Indian Country, but putting a lot of local people to work. 
Those things are meaningful.
    The New Market Tax Credits usually builds these 
institutions that serve those families, so all those things are 
meaningful in getting us the financing, like every other 
government, to be able to finance some of these projects to 
bring jobs to our communities. It is important for the middle 
class and everyone in the community.
    Senator Cortez Masto. Thank you so much for your comments 
today.
    I notice my time is up, Mr. Chairman.
    The Chairman. Senator Heitkamp.

               STATEMENT OF HON. HEIDI HEITKAMP, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Heitkamp. Thank you, Mr. Chairman.
    This is always an area of incredible frustration for me 
because I believe that every time the words ``State and local 
government'' appear in the Code, we should also read ``tribal 
government,'' and think about what that means and that the 
parity just does not exist.
    There are some egregious examples that we have been working 
to try and change like the bill I introduced that has been put 
in Senator Moran's Tribal Tax and Reinvestment Act, which 
basically if you get an adoption tax credit, you don't get it 
if a tribal court ordered it. That is ridiculous. If you have a 
government pension plan and you are running a pension plan at a 
tribal-owned business, you have to maintain a separate pension 
plan.
    Chairman Hoeven and I were very involved in the Bank of 
North Dakota. All the employees of the Bank of North Dakota had 
State retirement benefits. They did not have to have a separate 
plan.
    I can go down these, tribal foundations and charities, 
excise taxes, kiddie taxes, taxes on health care professionals 
where we are basically taxing the benefit that we provide for 
employment. I can go on and on and on.
    I am a huge supporter, maybe at even a much higher level, 
than Senator Cantwell from Washington has put in her bill for 
the tax credits. Anyone who has done any housing work, which we 
did in the State of North Dakota, knows those tax credits are 
the most significant program. If they simply go to the States 
and there is no direct requirement for parity or including 
those in tribal governments, that is incredibly frustrating.
    I want you to know that we are going to look very closely 
at any kind of tax rewrite to try and see if we are going to 
fix these problems we know exist as a result of the failure of 
people to understand, who do not have Indian Country in their 
jurisdiction, that tribal governments should not take a back 
seat to State governments.
    With that said, one of the concerns I have is exactly what 
you mentioned which is a lot of the benefit, if the benefit 
shifts to those who are the wealthy among us, a lot of Native 
families will be left behind.
    You talked about the child credit and the child care 
credit, neither one is refundable right now. If you have the 
earned income tax credit, that is refundable, which means that 
you get it whether you have a tax liability or not. We are 
going to look very closely at the demographics of tax reform to 
see if, in fact, there is a huge disadvantage for those people 
who are working poor, which is a huge category of folks who 
work on the reservations.
    I am curious about the balance that we are going to have to 
achieve which is giving tax relief and not blowing up deficit. 
Already, we know we are under funding treaty responsibilities 
with appropriations.
    How do you square all that? If you could draw a line and 
say we are watching this, yes, but if it means we are going to 
lose a commitment in NAHASDA, a commitment in Indian Health, 
that really does not benefit Indian Country. How many of you 
have thought about that tradeoff?
    Mr. Desiderio. That is such a great point to bring up. I am 
not sure if we need to have this either/or idea for this.
    We had this discussion lately with dynamic scoring and 
having these things pay for themselves through the growth of 
the economy. We do need the treaty obligations and the Federal 
trust responsibility.
    I am not sure why Indian health care is a discretionary 
expense. Military health care is not. Let us move on the 
different side of the balance sheet when talking about the 
obligations that are some of the highest obligations in the 
land.
    We are looking at the idea of balancing or investing and 
using the idea of dynamic scoring. These are investments. This 
is my main point in the oral testimony. We are making 
investments in Indian Country. These infrastructure 
investments, we did not choose the lands we are on, so we have 
to bring infrastructure into these rural and remote 
communities.
    We have to have a way of building these communities and a 
different way of looking at this on the international level of 
building that infrastructure to create those jobs and to create 
the sustained economies and, as the Chairwoman mentioned, for 
tribes to be able to pursue economic development, create these 
opportunities and build a better quality of life for their 
citizens.
    I think the argument of saying do we choose the investment 
or these obligations, the investment seems to float now and 
then between an obligation and dynamic scoring. We need these 
investments. They are going to pay returns in the long run.
    Senator Heitkamp. I am out of time but I do want to point 
out when you look at the budget, which was passed, which 
foretells what is going to happen in tax reform, there are some 
pretty serious cuts in that budget that will have a pretty 
dramatic effect on the ability of people to own homes and the 
ability of people to survive. While I would agree with you that 
we are being offered a false choice, why should it be one or 
the other, we might want to be really careful about how this 
progresses.
    The Chairman. Senator Moran, did you have additional 
questions you would like to ask or comments?
    Senator Moran. Yes, I would, Mr. Chairman. Thank you.
    How often does the Essential Government Function prohibit 
something from happening? Is there an application of the IRS 
that says this is an essential government function and then it 
is denied? What is the process whereby we figure out this type 
of project does not qualify?
    Ms. Onnen. I am going to give you a real-life application 
from my tribe. The Essential Government Functions test, what it 
looks like or feels like from a tribal perspective sometimes 
depends on who comes out and talks to you about it, how they 
interpret it, how they develop it and how they want to apply 
it.
    We could get someone who comes out and tells us this does 
not meet the Essential Government Functions test, you cannot do 
this. Literally, we can have someone come out three years later 
who says, yes, this does meet it. It is very arbitrary.
    Senator Moran. Both of those individuals you are talking to 
are an IRS agent or somebody who should have the authority to 
make that decision?
    Ms. Onnen. Yes. It becomes very arbitrary. Again, we are 
talking uncertainty. How can we know what we can or cannot do 
if it depends on the day and who shows up?
    Senator Moran. Do you have an example of what has been 
denied as not essential government?
    Ms. Onnen. When we go back to that conversation, it does go 
back to pension plans and that kind of thing we were working 
through. We got a yes and then we got a no and then it was a 
no. We have had to go back and forth ourselves just because of 
a local IRS person. I am just saying.
    Senator Moran. Mr. Desiderio, is there data on this issue 
of rejection? If you went to the IRS and said, what have you 
said yes to, what have you said no to, and does that kind of 
data exist?
    Mr. Desiderio. I think first that would be a great question 
for the Committee to ask the Internal Revenue Service. That 
data is important.
    Initially, about six years ago during 2004 and 2006, the 
IRS was examining or auditing almost every issue that came out 
of a tribal government. That had the effect of really killing 
the tax-exempt debt market for tribes.
    Keep in mind the definition of the Essential Government 
Function test is anything that is customarily performed by 
State and local governments. Parking garages, golf courses, 
convention centers, things customarily performed, were 
disqualified by the Internal Revenue Service.
    The other part of that is lately if you gather that data 
and look at it now, tribes have been drawing on the tribal 
economic development bonds that were set-aside in the Recovery 
Act, the $2 billion. There is about $500 million left and we 
are going to be out of that.
    Instead of going through all the hassle of hiring the 
attorneys and bond counsel and getting the financial firms and 
all the administrative costs queued up only to be turned down, 
the safer route is just to go to the economic development bond 
pool and get your tax-exempt debt that way.
    Senator Moran. That is a really good point, Mr. Desiderio. 
The circumstance would be, you would spend a lot of money only 
to be rejected. Therefore, you may not ever make the 
application; you will find a different route, perhaps more 
expensive to accomplish.
    Mr. Desiderio. We have the largest financial firms that 
frequently come to our organization. They used to have separate 
divisions that just did tax exempt debt including tribes. They 
are all gone. This market has effectively been squashed.
    Senator Moran. On that topic, one of the things we need to 
think about in this broad topic my colleagues want to talk 
about, tax reform, is the tax-exempt status of interest on 
these financial instruments we are talking about.
    There is another way we could end up. We could get you to 
be treated the same only to discover that the tax treatment of 
those bonds is no longer the same as it is today or tomorrow.
    There is a broader topic here when we talk about what 
happens to the tax reform. We may be able to end the issue of 
essential government benefits, programs or functions, only to 
see that it does not matter because the Tax Code has been 
altered in how it treats governmental financing.
    The final question I would ask is on the topic of pensions. 
You maintain two types of pension plans, government employees 
and so-called commercial employees. I understand the 
circumstance under which that arises.
    Is there any estimate of how much money, administrative 
costs, would be saved by being able to administer a 1A pension 
plan?
    Mr. Desiderio. We looked into this for joint tax. Our 
organization had come through the 5500s they required, ERISA 
compliance records, of about 350 tribes that maintained the 
401(k) or the commercial type plans.
    Those are the same tribes or a lot of the same tribes who 
also have a government plan. You can see how big it is to have 
that many trying to do the right thing for their employees. The 
administrative costs are one thing but it also costs the 
employee.
    If you are working in the tribal government and go to work 
for a commercial entity or another entity within the tribe that 
might be perceived as commercial, you have to switch plans and 
go back and forth. It does not really help the employer either.
    The definition of essential government function test in 
pension plans is even more restrictive than in tax exempt debt. 
Even if it is deemed an essential government function test, if 
the employee is doing anything that is commercial, it is 
disqualified. It is even more restrictive than the tax-exempt 
debt.
    Senator Moran. Are these plans administered beyond a 
particular tribe? Are there economies of scale in which an 
organization provides the management of those pension plans 
across a greater number of tribes?
    Mr. Desiderio. No, those are mostly done on a tribe-by-
tribe basis.
    Senator Moran. Thank you all very much for your testimony.
    Mr. Chairman, thank you.
    The Chairman. Senator Daines.

                STATEMENT OF HON. STEVE DAINES, 
                   U.S. SENATOR FROM MONTANA

    Senator Daines. Thank you, Mr. Chairman and Vice Chairman 
Udall.
    Thank you for coming to testify today.
    When you think about the State of Montana, you may not 
think about coal but we do in Montana. In fact, Montana has 
more recoverable coal than any State in the United States. We 
are about sixth in production and first in potential. In fact, 
we boost about having a quarter of the Nation's coal reserves.
    In fact, our Crow Reservation sits on top of an estimated 9 
billion tons of coal, that is with a B. However, unemployment 
on the reservation currently sits at around 50 percent. Without 
coal production, it would skyrocket to around 80 percent.
    In fact, earlier this year, this very Committee heard 
testimony from the Chairman of the Crow Tribe, A.J. Not Afraid, 
on how vital this tax credit is to sustain his people. It does 
not take a seasoned elected official to understand the 
importance of coal to the Crow Nation. Last year, I held an 
energy summit in Billings, not far from the Crow Reservation. 
We had some protesters break in at the very end of the meeting.
    We had a panel at that time and I was moderating. We had 
the prior chairman of the Crow Tribe, Mr. Old Coyote; we had 
some union leaders; and we had workers from the mine talk about 
how vital coal is to the people there. These protesters broke 
in with a big sign that said, ``Keep It in the Ground.'' My 
staff panicked and said good grief, what are we going to do. We 
just continued to move forward with this great conversation we 
had.
    There was a 12-year-old, Kevin Old Coyote's daughter, a 
wonderful young woman. She quietly walked around to the back of 
the room. She met the protesters face-to-face and said, ``If 
you keep it in the ground, my people will starve.'' The 
protesters quietly folded up their signs and walked out. It 
took a 12-year-old young woman from the Crow Tribe to 
articulate the truth to these protesters.
    That is why I have authored legislation to make the Indian 
Coal Production Tax Credit permanent. I am glad to have co-
sponsors, Senators Tester, Heitkamp, and Barrasso, all of whom 
serve on this Committee.
    I know you mentioned it briefly earlier, Mr. Desiderio, but 
what do you see as the benefits of the Indian Coal Production 
Tax Credit?
    Mr. Desiderio. I am glad you brought this up. The Navajo, 
Crow and others, we are not picking and choosing what resources 
we have on our lands to develop. We want to try to support the 
resource development if a tribe chooses to do that.
    It is really important, with all the different difficulties 
and approval processes that go into doing business in Indian 
Country, that we have some incentive for outside interests to 
come in and help tribes develop their resources.
    The Indian Coal Tax Credit is important but I would go a 
bit further than that. These are multimillion dollar, multiyear 
projects that need to be built out. This accelerated 
depreciation goes along with that in setting up those 
structures and allowing those companies to come in and take an 
accelerated depreciation or write-down those assets quicker.
    That goes along with the production tax credit of $2 per 
ton for coal and also the Indian Employment Tax Credit is 
helpful as well.
    When you take those three together as an incentive for 
somebody to come in, tribes can actually use those incentives 
at the negotiating table and the companies can actually rely on 
those, it makes a big difference.
    Right now, it is not an effective use to have these 
deferred or retroactively renewed. No one can rely on them on 
either side of the table.
    Senator Daines. We definitely need to play for the long 
game here considering the significant capital investment 
required to make this all work. Anyone who sees one of these 
operations is usually struck by two things.
    One is how amazing the reclamation is. To the naysayers out 
there about what it means to mine coal in a place like Montana, 
when they see the reclamation and how beautiful the countryside 
is post-mining, they usually walk away profoundly changed. 
Second is the size of the equipment out there.
    Given the regulatory barriers to energy development in 
Indian Country, do you see this tax credit as essential, you 
alluded to this, to leveling the playing field for coal 
production in Indian Country?
    Mr. Desiderio. Again, this is a tax credit that will affect 
a few tribes but your point in your introductory comments is 
really important to those tribes. This is a very important tax 
credit.
    Senator Daines. As you said, you do not get to pick.
    Mr. Desiderio. We do not get to pick.
    Senator Daines. Indian Country did not get to pick what was 
in their lands. They got that picked for them.
    Mr. Desiderio. Right.
    Senator Daines. That is another issue. The Crow Tribe, to 
their credit, they look at all the above, energy kind of 
portfolio. They have hydro potential, wind potential and they 
have great coal potential.
    I think it comes back to a sovereignty issue as well, self-
determination. Let us develop our lands. We will do it in a 
responsible way.
    I am out of time. Thank you, Mr. Chairman.
    The Chairman. Vice Chairman Udall.
    Senator Udall. Thank you, Mr. Chairman.
    We have heard from a number of tribes about problems 
associated with taxation and jurisdiction, including from the 
MHA Nation and the Navajo Nation in my home State. While tribes 
have been clear about the certainty they need over taxation and 
jurisdiction, the Administration has been all over the map.
    Mr. Desiderio, what would you like to see the 
Administration do to address taxation and jurisdiction in a way 
that provides certainty to tribal businesses and State and 
local jurisdictions?
    Mr. Desiderio. This is a real important issue for Congress 
to address. This is nothing short of the constitutional 
obligation of Congress to regulate trade among the Indian 
Nations. This is a constitutional charge to support the 
certainty of jurisdictions in tribes.
    To that end, I think it is incumbent for the Administration 
to continue taking up the Trade or Act regulations and have 
Congress support that effort. We want to make sure that any 
trade inside Indian Country is and should be tax exempt. We 
also want to make sure that tribes are developing their own 
codes, commercial codes, to be able to participate in trade and 
commerce.
    I think as we work through this, it would be very helpful 
for Congress to remain engaged and serve that role in 
regulating trade with Indian Country.
    Senator Udall. Congress first passed the Indian Employment 
Tax Credit to create jobs in tribal communities but this 
important tax credit expired in 2016. In addition to extending 
the Indian Employment Tax Credit, Mr. Desiderio, did you have 
any recommendations for updating and expanding the credit in a 
manner that would increase its deployment thereby promoting 
economic development and job creation on Indian reservations?
    Mr. Desiderio. The first thing is that the compensation 
that is eligible for a credit is too low. It does not 
accommodate low and moderate income today. Since 1993, that has 
changed. We need compensation level updated.
    The compensation level also includes the cost of health 
care. We need to make sure that is included as well when we are 
updating it.
    Finally, there is a provision in there that you have to 
prove back to 1993 that you have had those Indian employees. If 
there are any additional employees, you only take the increase 
in compensation. We need that updated to state something like 
the last three years so people can actually take advantage of 
it.
    Senator Udall. Thank you. This has been an excellent panel. 
Thank you for being with us.
    I yield back, Mr. Chairman.
    The Chairman. Senator Heitkamp.
    Senator Heitkamp. Thank you, Mr. Chairman.
    I just want to make one point for the record because I 
think it is important. We worked on the Essential Government 
Benefit with Senator Moran and this Committee.
    A great example that led to the introduction of our bill 
was the example of burials or blankets or traditional 
ceremonial expressions that were very culturally significant 
and very much essential tribal outreach. Yet, it was ignored by 
the IRS.
    We need to make sure this consultation process works and 
that we understand what might be an essential government 
function for a tribal entity is different perhaps than what 
would be an essential government function for a State 
government.
    That is why we did the bill. It is really important that 
the cultural differences are reflected in the definition. 
Consultation is critical. We are going to follow up with the 
IRS, find out where the consultation is, and continue to work 
to try and bridge these cultural differences in terms of how we 
address essential government functions.
    The Chairman. If there are no more questions today, then 
members may submit follow-up questions for the record. Of 
course, we would ask you to respond to those. The hearing 
record will be open for two weeks.
    Again, I want to thank all of the witnesses for coming 
today. We appreciate very much your very good testimony. Thank 
you so much.
    With that, we are adjourned.
    [Whereupon, at 4:05 p.m., the Committee was adjourned.]

                            A P P E N D I X

  Prepared Statement of Hon. Russell Begaye, President, Navajo Nation
    I would like to thank Chairman Hoeven, Vice-Chairman Udall, members 
of the committee, and staff for holding an oversight hearing on the 
economic state of Indian Country. I would like to thank Senator Hoeven 
for introducing S. 2012 and cosponsors Senator Murkowski and Senator 
Heitkamp for signing on to the bill. I appreciate the timeliness of 
this bill, especially since the House released H.R. 1, the Tax Cuts and 
Jobs Act, with no mention in that bill of tribal tax reform. I greatly 
appreciate this committee for stepping up and advocating on behalf of 
Indian Country during this pivotal moment in national tax reform.
    The Navajo Nation is 27,000 square miles of rural reservation 
located in three states, Arizona, New Mexico, and Utah. It is roughly 
the size of West Virginia with an on-reservation population of 164,000. 
The Navajo Nation Government and Enterprises are the biggest employers 
on the reservation, yet we still have an unemployment rate of 44 
percent.
    Based on a 2012 survey conducted by the Navajo Nation Department of 
Economic Development, 80 percent of Navajo consumers purchase their 
groceries off the Navajo Nation. About 75 percent of Navajo consumers 
will drive more than 50 miles to procure items. This survey highlights 
the problem of the severe lack of businesses on the reservation. The 
lack of businesses, in turn, contributes to our unemployment rate of 
about 44%--a telling number for the Navajo Nation.
    The Navajo Nation seeks to find common ground for tribal tax reform 
that will foster economic growth and encourage a self-sustaining Navajo 
population. One of the primary barriers in developing our reservation 
economy is the lack of tax incentives to attract private investment 
within communities. The TEA Act provides the incentive to outside 
investors and encourage them to invest in our economies-thereby 
creating more jobs within our communities. Therefore, I offer my full 
endorsement of S. 2012, the Tribal Economic Assistance Act, with 
special attention directed to following provisions:
Section 2. Treatment of Indian Tribes as States with Respect to Bond 
        Issuance
    The Navajo Nation seeks to incentivize private investment in our 
tribal communities by issuing tax exempt bonds. However, the 
``essential government function test'' has severely limited the Navajo 
Nation's ability to issue these bonds. State and local governments do 
not have to adhere to the same requirements as tribes to issue tax 
exempt bonds. As a sovereign nation, the Navajo Nation deserves the 
same parity as state and local governments. I support this section of 
the bill.
Section 3. Making Permanent the Indian Employment Credit & Depreciation 
        Rules for Business Property on Indian Reservations
    As previously mentioned, the Navajo Nation seeks to incentivize 
private investment. Codifying the Indian Employment Credit and 
Depreciation Rules for Business Property on the Navajo Nation is a 
great way to attract private investors. Due to our political and land 
status, starting a business on the Navajo Nation requires more capital 
than most other economic development projects. Making these tax credits 
permanent will allow investors to turn a profit- without it, private 
investors will take their business elsewhere. I support this section.
Section 4. New Market Tax Credit Priority for Tribal Corporations and 
        Investment on Reservations
    The New Market Tax Credit (NMTC's) will benefit the Navajo Nation's 
economic development projects, because we have little to no access to 
capital. As mentioned above, our unemployment rate is 44 percent, and 
the Navajo Nation would like to expand our economic projects to hire 
more community members (tribal members and non-members), while 
continuously improving our economy. We seek to develop more Navajo 
entrepreneurs with this incentive as well as the Small Business 
Administration's Small Business Development Centers. I support this 
section.
                                 ______
                                 
   Prepared Statement of the Mandan, Hidatsa and Arikara Nation (MHA 
                                Nation)
I. Introduction
    Chairman Hoeven, Vice Chairman Udall and Members of the Senate 
Committee on Indian Affairs, the Mandan, Hidatsa and Arikara Nation 
(MHA Nation) appreciates the opportunity to provide this testimony for 
the Committee's Oversight Hearing on ``Building Tribal Economies: 
Modernizing Tax Policies that Work For Indian Country.'' Modernizing 
federal tax policies is one of the most important issues facing the MHA 
Nation and all of Indian Country today. Federal tax policy for Indian 
Country must catch up with modern and successful federal policies 
supporting tribal sovereignty and self-determination.
    Current federal tax policy limits tribal economic development. 
Tribes need the same authorities that every other government uses to 
maintain infrastructure, fund our government and support economic 
activity on our reservations. The MHA Nation supports legislation that 
would modernize tribal tax policy, including, S. 1935, the Tribal Tax 
and Investment Reform Act, and S. 2012, the Tribal Economic Assistance 
Act.
    In addition, the MHA Nation asks that the Committee address the 
single biggest drain on tribal economies--state dual taxation of tribal 
economic activity. For too long state governments have been allowed to 
tax economic activity in Indian Country, thereby depriving tribes of 
the ability to tax the same activity without facing the risk that a 
dual tax will kill the activity being taxed. Tribes should have primacy 
when it comes to taxation of economic activity in Indian Country. 
Keeping tax revenues on Indian reservations allows for reinvestment and 
improvements that further support economic activities that benefits 
surrounding communities, including states. When states drain tax 
revenues from tribal governments and our reservations, tribal economies 
cannot grow or sustain themselves, and surrounding communities suffer.
    State interference in energy and economic development on our Fort 
Berthold Indian Reservation demonstrates the need for trade and tax 
policies to catch up with federal selfdetermination laws and policies. 
In short, state dual taxation limits economic growth on and around 
Indian reservations and prevents Indian tribes from exercising full 
self-determination over their lands and resources. Without changes to 
these policies, tribal economies will never have the support needed and 
we will continue to be heavily reliant on federal budgets for tribal 
programs.
II. The U.S. Constitution and Treaties with Indian Tribes Provide Basis 
        for Legislation Eliminating State Dual Taxation
    The Committee only needs to look to the U.S. Constitution and the 
Federal government's treaties with Indian tribes for authority to pass 
legislation affirming the exclusive authority of Indian tribes to tax 
activities on our reservations and to eliminate state dual taxation. 
The United States Constitution provides: ``The Congress shall have 
Power . . . To regulate Commerce with foreign Nations, and among the 
several Sates, and with the Indian Tribes; . . .'' U.S. Constitution 
Art. I, Sec. 8, Cl. 3. This broad and exclusive authority to regulate 
trade with Indian tribes provides no room for state taxation of Indian 
tribes.
    Many treaties between the United States and Indian tribes included 
and affirmed this same authority. For example, the MHA Nation and its 
component tribes entered into treaties with the United States that 
reflect the federal government's exclusive authority to regulate trade 
with Indian tribes. These treaty provisions establish a bilateral trade 
relationship between the United States and the MHA Nation to the 
exclusion of state and local governments. These treaties also protect 
the MHA Nation from depredations, which includes official depredations 
as well as attacks, plundering, robbery and looting, by non-Indians.
    In 1825, the Mandan, Hidatsa and Arikara Tribes each separately 
entered into peace treaties with the United States that specifically 
set out the federal government's exclusive role in regulating trade 
with them. For example, the Mandan treaty provides:

         All trade and intercourse with the Mandan tribe shall be 
        transacted at such place or places as may be designated and 
        pointed out by the President of the United States, through his 
        agents; and none but American citizens, duly authorized by the 
        United States, shall be admitted to trade or hold intercourse 
        with said tribe of Indians.

         . . . 

         [And,] the United States agree to admit and license traders to 
        hold intercourse with said tribe, under mild and equitable 
        regulations; . . . .''

         TREATY WITH THE MANDAN TRIBE, 7 Stat., 264, Art. 4 and 5 (July 
        30, 1825). Treaties with the Hidatsa and Arikara Tribes 
        included identical provisions to the one above.

    Similarly, in the 1851 Treaty of Fort Laramie, the MHA Nation 
reserved the Fort Berthold Indian Reservation and its lands, waters and 
resources for the benefit of the MHA Nation and its members--this 
reservation of benefits excluded non-Indians and state governments. The 
treaty specifically prohibits non-Indians from taking the MHA Nation's 
resources for their own benefit. The treaty states:

         In consideration of the rights and privileges acknowledged in 
        the preceding article, the United States bind themselves to 
        protect the aforesaid Indian nations against the commission of 
        all depredations by the people of the said United States, after 
        the ratification of this treaty.

         TREATY OF FORT LARAMIE, 11 Stat. 749, Art. 3 (Sept. 17, 1851).

    The U.S. Constitution and treaties with Indian tribes are the 
supreme law of the land. These foundations of the U.S. legal system 
provide the basis for legislation that affirms the exclusive authority 
of Indian tribes to tax activities on their reservations and to 
eliminate state dual taxation.
III. Impact of State Dual Taxation on the MHA Nation
    As you know, the MHA Nation and our Fort Berthold Indian 
Reservation is in the middle of one of the most active oil and gas 
plays in the United States. While the MHA Nation, individual Indian 
allottees and non-Indian landowners within our Reservation have 
benefited from this economic activity, more than half of the tax 
revenues from these activities went to the State of North Dakota. The 
loss of these revenues prevents the MHA Nation from keeping up with 
road repairs and improvements, law enforcement, housing, health care, 
elder care, environmental management and much more.
    In addition, the loss of these tax revenues prevents the MHA Nation 
from investing in our future. Without these revenues, the MHA Nation is 
not able to invest in infrastructure that would bring long-term 
benefits and economic development to the Reservation including gas 
gathering facilities, a gas fired power plant, an oil refinery, and 
economic development zones. Without these revenues our communities and 
resources suffer the impacts of energy development and get few of the 
benefits.
    Development in the Bakken Formation is expected to last another 35 
more years. Oil and gas development at this level will provide income, 
tax revenues and energy resources that will grow our Reservation, State 
and National economies. Currently, production on the Fort Berthold 
Indian Reservation represents about 18 percent of all the production in 
North Dakota and about 2 percent of all the production in the United 
States. Maintaining and expanding this development opportunity requires 
a stable business environment and ensuring that the MHA Nation will be 
able to retain the tax revenues needed to sustain this growth.
    As oil and gas development began to grow in the Bakken Formation on 
the Fort Berthold Indian Reservation, the MHA Nation reluctantly 
entered into a tax agreement with the State of North Dakota to prevent 
state dual taxation of tribal resources and the loss of this 
development opportunity. In the years before the tax agreement was 
signed, development surrounded the Reservation just over the border. 
Only after the MHA Nation agreed to give up more than half of the tax 
revenues from oil and gas development on our Reservation, and avoid 
threats of state dual taxation, did significant production begin on the 
Reservation.
    Near the beginning of development on the Reservation, in the last 
half of 2008, almost $5 million was collected in tax revenues from the 
Reservation, including both Indian and non-Indian lands. Under the tax 
agreement with the State, 69 percent of these revenues, about $3.5 
million, were distributed to the State, and 31 percent of the revenues, 
about $1.5 million, were distributed to the MHA Nation. Thus, while 
population, employment, truck traffic, law enforcement and regulatory 
needs began dramatically increasing on the Reservation, the MHA Nation 
was already behind and more than two-thirds of the taxes collected left 
the Reservation for State coffers. Few of these millions in tax 
revenues ever return to the Reservation.
    Over the five-year period from 2008 to 2013, about $838 million was 
collected in tax revenues from the Reservation. Under the tax 
agreement, 58 percent of the revenues, about $486 million, were 
distributed to the State, and 42 percent of the revenues, about $351 
million, were distributed to the MHA Nation.
    Over the entire eight-year period from 2008 to 2016, about $2.276 
billion was collected in tax revenues from the Reservation. Under the 
tax agreement, more than half of these revenues, about 51 percent, were 
distributed to the State. The MHA Nation received less than half, about 
49 percent, of the tax revenues from oil and gas development on its 
Reservation. Thus, not only was the MHA Nation not able to keep 100 
percent of the tax revenues from within its jurisdiction, the MHA 
Nation received less than half of these tax revenues.
    In addition, a variety of other issues related to the tax agreement 
and the regulatory environment diminished the benefits the MHA Nation 
is able to realize from its resources. First, because development on 
Indian trust lands was slower to get underway than development on non-
Indian trust lands, in the early years of the tax agreement the formula 
for dividing tax revenues benefited the State more than the MHA Nation. 
In other words, when oil and gas prices were at their highest, 
development on Indian trust lands lagged behind other areas, and so did 
the tax revenues flowing to the MHA Nation. This resulted in the MHA 
Nation not having adequate budgets early on to address the rapid 
increases in energy and economic activity on the Reservation.
    Second, production on Indian lands only increased as development in 
the Bakken matured and oil and gas prices leveled off and even began to 
decline. Production on Indian lands was delayed during the time it took 
to get the tax agreement into place, staff up and train federal 
agencies to permit oil and gas development on Indian lands, and for 
limited drilling rigs and equipment to move from activities on non-
Indian lands to Indian lands. Thus, the MHA Nation's share of tax 
revenues under the agreement was beginning to increase just as oil and 
gas prices began to fall. Because of delays in the taxing and 
regulatory environment, the MHA Nation was not able to capture the 
market at its highest.
    Third, with declining oil and gas prices in recent years, the State 
acted unilaterally to lower the overall tax rate. As a result, even 
with production on Indian lands well underway, the taxes earned from 
each oil and gas well are declining. The MHA Nation estimates that the 
State's unilateral action to lower the tax rate will cost the MHA 
Nation about $700 million over the next 20 years.
    While North Dakota maintains a rainy day Legacy Fund from oil and 
gas tax revenues with a balance around $4 billion in 2017, the MHA 
Nation estimates that its budget shortfall for the past 10 years was 
more than $1.95 billion. For the next 10 years, we estimate that we 
will need about $3.6 billion to develop our governing infrastructure, 
maintain physical infrastructure and keep up with growth on the 
Reservation.
    In the area of housing the MHA Nation has an immediate need of $270 
million for housing and $160 million for housing related 
infrastructure. Over the next 10 years, we anticipate needing $1.17 
billion for housing growth and replacement, and $234 million for 
housing related infrastructure. New housing development will also 
require about $76 million in rural water infrastructure to provide 
municipal, residential and industrial water supplies. We also need to 
expand our solid waste facilities. Over the next 10 years we anticipate 
needing $150 million for solid waste facilities expansion.
    We currently need about $215 million to cover road construction 
needs and anticipate needing $1.185 billion over the next 10 years to 
maintain Reservation roads. Roads maintenance and upgrades are needed 
to provide safe communities and to support commercial and energy 
activities. Recent estimates for new road construction to meet 
industrial standards are about $4.5 million a half mile. In addition, 
over the next 10 years we anticipate needing $365 million for 
transportation improvements and safety.
    To take care of our increasing populations we also need to expand 
our existing health care clinic. We currently need $70 million to 
expand our clinic.
    With increased populations we also have increased need for law 
enforcement. We currently estimate needing about $10 million to meet 
existing law enforcement needs, $10 million for our Drug Enforcement 
Agency, and $75 million for social services and public safety. In 2016, 
our law enforcement personnel handled almost 14,000 calls. Each year 
the demand on our law enforcement officers continues to increase. From 
2015 to 2016:

    arrests rose from 30 to 103;
    methamphetamine seizures rose from 220 grams to 1037 grams;
    illegal use of prescription pill cases rose from 14 to 870;
    missing children reports rose from 0 to 16; and,
    missing person reports rose from 0 to 5.

    Fortunately, on March 31, 2017, we were able to complete a new 
Public Safety and Judicial Center on a budget of $17.2 million. The 
Center provides space for law enforcement, communication, a 911 call 
center and tribal courts. To operate the Center we will need an annual 
budget of $9.5 million.
    To address the increase in drug related crimes and social problems 
we are developing a Drug Treatment Facility. We expect to complete the 
Facility in May 2018 on a budget of $24.8 million. The Facility will 
provide residential treatment. To operate the Facility we will need an 
annual budget of $5.25 million. Over the next 10 years we anticipate 
needing $240 million for drug enforcement.
    To provide for our elders we are also developing an Assisted Living 
Facility. Completion is expected in April 2018 on a budget of $8.5 
million. To operate the Facility we will need an annual budget of $2.4 
million.
    Finally, it is important to note that increased energy development 
also brings a need for increased human capital within tribal 
government. While the federal government asks tribes to take on more 
oversight and responsibilities for trust resources, federal proposals 
lack the funds tribal governments need to hire and train staff. 
Eliminating state dual taxation would be one way to help ensure that 
tribal governments have the funds needed to take on these 
responsibilities. To provide regulatory staff and resources to oversee 
oil and gas development on our Reservation under current laws we need 
$20 million immediately and anticipate needing $234 million over the 
next 10 years to staff and support regulatory offices.
    Many of these physical and governmental infrastructure needs could 
have been fulfilled with the more than $1 billion taken by the State 
from oil and gas tax revenues on the Reservation from 2008 to 2016. 
Without these tax revenues, the MHA Nation is increasingly dependent on 
federal programs and agencies. We are also not able to invest in 
economic development that would provide long-term opportunities and 
growth on our Reservation.
VI. Loss of Tax Revenues Prevents MHA Nation Economic Development
    Due to a lack of tax revenues the MHA Nation has not been able to 
invest in and support our Reservation economy in the same manner as 
other governments support their economies. The MHA Nation has a number 
of plans for economic expansion, but those plans stay on the drawing 
board. The MHA Nation is seeking to development value added 
opportunities that increase the benefit of each dollar of economic 
activity on the Reservation.
Natural Gas Gathering, Processing and Power Plant
    Currently, a significant portion of the natural gas being developed 
on the Reservation is flared, i.e., wasted, due to a lack of 
infrastructure to capture, gather and distribute or use that gas. From 
2008 to 2017 about 98 million MCF of natural gas has been flared on the 
Reservation. This gas has a market value of about $563 million that 
could have benefited energy companies, the MHA Nation, individual 
Indian allottees and non-Indians within the Reservation. In addition, 
approximately $101 million in royalties and about $62 million in tax 
revenues could have been earned from this gas.
    The MHA Nation has plans to capture, develop and market its natural 
gas resources. The MHA Nation has done economic and feasibility studies 
for a gas gathering facility, a gas processing plant and a gas fired 
power plant. These facilities would be developed through our energy 
company Missouri River Resources. We estimate about $130 million is 
needed to develop the gas processing plant and $110 million is needed 
for the gas gathering system.
Oil Refinery
    About 10 years ago, the MHA Nation began planning to construct the 
first oil refinery on Indian lands and one of the first refineries to 
be built in the United States in decades. This $400 million project 
remains on the drawing board. An oil refinery would increase the value 
of oil resources developed on our Reservation. We could be refining jet 
fuel to sell to nearby Minot Air Force Base. If we had been able to 
develop this refinery, from 2018 to 2025, we estimate that the MHA 
Nation would have earned about $368 million in net income.
Irrigation
    The MHA Nation has plans for a $150 million irrigation facility to 
replace our farmlands flooded by the construction of the Garrison Dam 
and Reservoir. In 1948, the federal government flooded in excess of 
155,000 acres of our Reservation, including our prime agricultural 
lands. Before the flood, MHA had a prosperous agriculturally based 
economy. That economy was ruined when the bottomlands were taken. The 
federal government promised to provide irrigation when those lands were 
taken and we have petitioned Congress to appropriate the necessary 
funds. While a significant portion of this irrigation project remains a 
federal responsibility, with tax revenues from our oil and gas 
development, the MHA Nation could begin the process of recovering our 
agricultural economy.
Expansion of Missouri River Resources
    We have plans for the expansion of our tribally owned energy 
company, Missouri River Resources (MRR), but MRR is under-capitalized. 
While we have leases for a number of wells, MRR does not have the 
resources needed to drill these wells and increase production. In 
addition to the tax revenues that have been taken by the State, 
additional funding is needed for federal loan guarantees and Tribal 
Economic Development (TED) Bonds to increase the investment capital 
available in Indian County. The rules governing TED Bonds also need to 
be clarified so that Indian tribes can use bonding authority in the 
same manner as ever other state and local government.
V. Conclusion
    The MHA Nation strongly supports the tribal tax reform proposals 
included in S. 1935 and S. 2012, however, nothing deprives the MHA 
Nation and other tribes of the resources we need to promote tribal 
energy and economic development, self-sufficiency, and 
selfdetermination than the state dual taxation of our resources and 
businesses. Legislation is needed to affirm tribal taxing authority and 
eliminate state dual taxation. Existing authority within the U.S. 
Constitution and treaties with Indian tribes provides a clear basis for 
such legislation. Without a clear statement, tribal economies will 
continue to be undermined by state attacks on reservation economic 
development. The MHA Nation appreciates the opportunity to testify and 
stands ready to assist the Committee on this important issue.
                                 ______
                                 
    Prepared Statement of the National Congress of American Indians
    Chairman Hoeven, Vice Chairman Udall, and members of the Committee, 
we appreciate the opportunity to provide testimony on this critically 
important topic. As Congress considers the most significant tax reform 
since 1986, we have a shared responsibility to ensure federal tax 
policy provides tribal governments the same opportunities as other 
governments and promotes economic development and jobs in Indian 
Country. Currently, the Tax Code does not afford tribal governments 
many of the benefits, incentives, and protections available to state 
and local governments. This inequity significantly handicaps tribal 
authority to provide much needed government revenue for tribal programs 
and infrastructure and prevents economic growth on tribal lands. Tax 
reform is a unique opportunity for Congress to promote tribal 
sovereignty, selfdetermination, and self-sufficiency. Therefore, we 
want to specifically thank the Chairman, Senator Murkowski, Senator 
Heitkamp, and Senator Moran for introducing tax legislation for Indian 
Country. We hope your leadership on this issue will lead to tribal tax 
priorities being included in tax reform.
Key Principles of Tax Parity for Tribal Governments
    All tribal proposals will need to adapt to fit within the larger 
framework that is under development, but certain fundamental principles 
will remain:

    The United States Constitution recognizes tribal 
        governments as sovereigns

    The power to tax is an essential and necessary instrument 
        of self-government

    Tribes have a responsibility to regulate conduct on Indian 
        lands

    Tribes provide a broad range of governmental services: 
        education, health care, public safety, and infrastructure 
        needed to support economic development

    Like states, tribal governments are not taxable entities so 
        they can retain and use their revenues for governmental 
        purposes

    Tribal governments must be treated with parity in all areas 
        of tax policy

    As sovereign governments, Tribes must have the authority:

    --to generate tax revenue free from overlapping state taxation

    --to create incentives for business development and job creation

    --to access government financing tools

    --to make decisions for promoting the health and welfare of 
        citizens

    -- to promote certainty of jurisdiction, certainty to capital 
        markets, and certainty in tax policy to enhance economic growth

Summary of Tribal Tax Reform Priorities
    Provide Tax Parity to Tribal Governments. There is bipartisan 
legislation (H.R. 3138) in the House that would provide tax parity for 
tribal governments in the following areas. A Senate companion (S. 1935) 
was recently introduced by Senator Moran.

    Tax-Exempt Bonds. Unlike other governments, tribes can only 
        use tax-exempt bond financing for ``essential government 
        functions.'' The IRS has interpreted this standard to exclude 
        tribal economic development activities even though state and 
        local governments routinely use tax-exempt financing for 
        development projects. This limitation on tribes greatly 
        inhibits infrastructure deployment and economic growth. 
        Chairman Hoeven recently introduced a bill (S. 2012) with 
        Senators Murkowski and Heitkamp that would provide tribal 
        parity with respect to tax-exempt governmental bonds.

    Government Pension Plans. Unlike other governments, the Tax 
        Code requires tribes to have separate types of pension plans 
        (government and private) based on an employee's job activities. 
        Consequently, only tribes incur the monetary and compliance 
        costs of maintaining two separate pension plans. Tribal 
        governments must be able to operate a single, comprehensive, 
        government pension plan for all their employees.

    Tribal Foundations and Charities. Charities funded or 
        formed by tribal governments do not enjoy the same tax 
        treatment as those funded or formed by state and local 
        governments. This disparity makes it difficult for tribes to 
        form charities and leverage tribal resources to raise 
        charitable donations from outside donors.

    Tribal Child Support Enforcement Agencies. Like state 
        agencies, tribal child support enforcement agencies should have 
        access to federal parent locator services and the ability to 
        garnish federal tax returns to enforce past due child support 
        obligations.

    Indian Adoption Tax Credit. Currently, families that adopt 
        special needs children in tribal court are ineligible for tax 
        benefits available to families that adopt special needs 
        children in state court. Federal tax policy should treat tribal 
        court orders the same as state court orders for purposes of 
        classifying an adoptive child as special needs. In addition to 
        the broader bills, identical pieces of bipartisan legislation 
        have been introduced in the Senate (S. 876) and the House (H.R. 
        2035). Entitled the Tribal Adoption Parity Act in both 
        chambers, the bills would ensure that adoptive parents who 
        adopt special needs children in tribal courts receive the same 
        support as adoptive parents who adopt special needs children in 
        state courts.

    Excise Taxes. Tribal governments are not treated the same 
        as state and local governments for a variety of excise tax 
        exemptions, which diverts resources from government services 
        for tribal citizens. Tribes should be treated the same as 
        states for purposes of exemption from federal excise taxes.

    Provide Tax Incentive Parity for Indian Health Service Health 
Professionals. Indian Health Service health professionals are 
ineligible for tax incentives available to other public sector health 
professionals. The Indian Health Service should have the same 
recruitment and retention tax incentives as other public sector health 
systems. During the 114th Congress, bipartisan legislation was 
introduced in both the Senate (S. 536) and House (H.R. 1842) to provide 
tax status parity for IHS programs.
    Exempt Tribal Distributions from the ``Kiddie Tax''. Due to a flaw 
in the Tax Code, distributions from minors' trust funds established by 
tribal governments are subject to taxation at the rate of a minor's 
parents, resulting in an unintended disincentive to attend college. 
Correcting this would provide fairness to Indian youth and families 
receiving benefits from tribal funds.
    Provide Tribal Leader Social Security Parity. Currently, tribal 
leaders do not even have the option to participate in the Social 
Security program, making retirement planning after a lifetime of public 
service significantly more difficult. Authorizing tribes to enter 
Section 218 agreements would ensure tribal leaders have the same 
opportunities to plan for retirement as state and local government 
officials. Bipartisan legislation has been introduced in the Senate (S. 
1309) and the House (H.R. 2860) that would add a new section to the 
Social Security Act that would enable tribes to enter agreements with 
the Commissioner of Social Security--like state and local governments 
under Section 218 of the Social Security Act.
    Simplify, Expand, and Make Permanent the Indian Employment Tax 
Credit. Congress passed the Indian Employment Tax Credit to create jobs 
in tribal communities. Simplifying, expanding, and making permanent the 
Indian Employment Tax Credit would increase its deployment, thereby 
promoting economic growth and job creation on Indian reservations. 
Chairman Hoeven recently introduced a bill (S. 2012) with Senators 
Murkowski and Heitkamp that would make permanent the Indian Employment 
Tax Credit.
    Increase New Markets Tax Credits Deployment in Indian Country. 
Increasing deployment of NMTCs for projects in Indian Country through a 
set-aside or other incentives would spur investment in infrastructure, 
promote economic development, and create jobs in tribal communities. 
The ideal solution would include creating a set-aside in the NMTC 
program for CDEs that primarily invest in Indian Country projects. 
Bipartisan legislation (H.R. 3129) entitled, the Aiding Development of 
Vital Assets in Native Communities and Environments Act (the ``ADVANCE 
Act''), has been introduced in the House and would create incentives to 
encourage NMTC applicants to commit to making investments in Indian 
Country and ensuring that at least one CDE whose primary mission is to 
fund projects within or that benefit Indian Country receives an 
allocation each round. Additionally, Chairman Hoeven recently 
introduced a bill (S. 2012) with Senators Murkowski and Heitkamp that 
would provide priority status for NMTC allocations for tribal 
enterprises and reservation investments.
    Increase Low-Income Housing Tax Credits Deployment in Indian 
Country. Congress should treat tribes as states for LIHTC allocations, 
establish a tribal set-aside, and adjust the Tax Code to increase 
deployment of the tax credits in Indian Country. The LIHTC program 
could provide much needed private investment in affordable housing in 
tribal communities. A bipartisan bill, the Affordable Housing Credit 
Improvement Act of 2017 (S. 548), has been introduced in the Senate. 
The bill would do the following to encourage private investment in 
affordable housing in tribal communities: (1) require states to 
consider the affordable housing needs of Native Americans in their 
QAPs; and (2) modify the definition of DDA to automatically include 
projects in an Indian area, making these projects eligible for enhanced 
credits.
    Make Permanent Accelerated Depreciation for Indian Country. 
Accelerated depreciation allows investors and business owners to 
accelerate the depreciable rate applied to equipment and personal 
property associated with economic activity on Indian lands. This tax 
incentive is an effective tool for attracting new business development 
and job creation in Indian Country. Making it permanent would provide 
certainty that the incentive will remain available and thus, further 
spur investment in tribal communities. Chairman Hoeven recently 
introduced a bill (S. 2012) with Senators Murkowski and Heitkamp that 
would make permanent Accelerated Depreciation for Indian Country.
    Create Tribal School Construction Bonding Accounts. The American 
Recovery and Reinvestment Act created tax credit bonds that may be 
issued by tribes for school construction. However, without the capital 
outlay, the majority of tribal schools cannot use this funding avenue. 
Chairman Hoeven recently introduced a bill (S. 2012) with Senators 
Murkowski and Heitkamp that would establish an escrow account that 
would allow tribes to utilize these tax credit bonds.
Tax Cuts Must Not Lead to Budget Cuts for Tribal Programs
    NCAI passed an important resolution during our 2017 Mid-Year 
Convention calling for the Equitable Treatment for Tribal Nations in 
Congressional Tax Reform (Res. #MOH-17-011 attached). This resolution 
has served a key role in bringing together tribal governments and our 
partner tribal organizations in a coordinated effort on tax reform.
    However, NCAI also recently passed a resolution calling for Full 
Funding of the Federal Trust Responsibility and Ensuring the United 
States has the Revenue to Finance Federal Commitments in Tax 
Legislation (Res. #MKE-17-012 attached). Taken together these two 
resolutions reflect the tension that tribal leaders face in supporting 
the tax reform effort. Due to insufficient funding and services by 
federal agencies, Native communities have suffered severe social, 
economic, and environmental harms at a rate far in excess of other 
communities. Indian tribes across the nation have been forced to spend 
large amounts of scarce tribal funds to support the services that 
should have been provided or paid for by the United States. Deficit-
financed tax cuts that lead to potential austerity cuts would affect 
all Americans but would disproportionately impact American Indians and 
Alaska Natives who rely on federal funding of the trust responsibility 
as well as social programs.
    We urge the Committee to consider the impacts to American Indians 
and Alaska Natives if the federal budget is cut to reduce future 
deficits caused by tax cuts. Cuts to federal treaty and trust 
obligations coupled with cuts to mandatory programs, such as Medicaid 
and SNAP, could greatly outweigh the benefits of tax reductions. NCAI 
urges Congress to uphold the federal treaty and trust obligations and 
ensure that in the wake of tax reform, the U.S. Government will have 
the revenue needed to meet its commitments to Indian Country now and in 
the future.
Details of Tribal Proposals for Tax Reform
1. PROVIDE PARITY IN TAX-EXEMPT BOND RULES FOR TRIBAL GOVERNMENTS
Current Law
    Under current law, state and local governments are eligible to 
issue two basic kinds of taxexempt bonds: (1) governmental bonds and 
(2) qualified private activity bonds. Bonds are generally treated as 
governmental bonds if the bond proceeds are used predominantly for 
State or local governmental use or the bonds are secured or payable 
predominantly from State or local governmental sources of repayment. 
This two-part test is referred to below as the ``state/local government 
standard''. In addition, qualified private activity bonds may be issued 
by state and local governments to finance different specified types of 
eligible facilities and programs subject to various rules.
    In the case of Indian tribal governments, the landscape of tax-
exempt bond rules is generally very different. Other than through a 
volume-limited provision for Tribal Economic Development Bonds 
(``TEDBs'') contained in the American Recovery and Reinvestment Act and 
codified in Section 7871(f), Indian tribal governments are allowed to 
issue tax-exempt bonds only to finance facilities that serve an 
``essential governmental function.'' See Section 7871(c). While neither 
the statute nor any IRS regulation affirmatively defines what 
constitutes an ``essential governmental function,'' Section 7871(e) 
warns that the term ``shall not include any function which is not 
customarily performed by State and local governments with general 
taxing powers.''
Reasons for Change
    While it is clear that Indian tribes may finance reservation roads, 
schools, and sewers with taxexempt bonds, the essential governmental 
function test has severely limited the ability of tribes to utilize 
tax-exempt financing to fund projects in which state and local 
governments have become increasingly active--e.g., energy production 
and distribution facilities, convention centers, parking and 
transportation facilities, as well as tourist accommodations and public 
recreational facilities located on tribal lands.
    Tribes are seeking to diversify their revenue sources, provide 
economic opportunity for their citizens, and develop their local 
economies. Tribes urgently need parity with state and local governments 
in tax-exempt bond rules to ensure that they will continue to be able 
to finance critical infrastructure and economic development. The 
overall volume cap on TEDBs (originally $2 billion, now approximately 
$550 million) could be exhausted within the next 12 months. See https:/
/www.irs.gov/tax-exempt-bonds/published-volume-cap-limit-for-tribal-
economicdevelopment-bonds.
    Using the ``state and local government'' standard has at least 
three advantages: (1) the state/local government standard is more 
administrable than the essential governmental function test, (2) as a 
policy matter, Indian tribal governments should not be treated 
differently than state and local governments, and (3) the private 
business use test (or, alternatively the private payment test) should 
be sufficient for ensuring that tax-exempt bond proceeds are used 
appropriately. \1\
---------------------------------------------------------------------------
    \1\ As noted above, the state/local government standard is met if 
either 90 percent or more of bond proceeds are used for governmental 
use (the ``private business use'' test), or 90 percent or more of debt 
service is payable or secured from governmental payments or property 
(the ``private payment'' test).
---------------------------------------------------------------------------
2. PROVIDE PARITY FOR TRIBAL GOVERNMENT PENSION PLANS
Current Law
    The Code and Employee Retirement Income Security Act (ERISA) have 
separate federal pension plan requirements for governmental and private 
employers. Originally, the definition of ``governmental plan'' in these 
laws was silent regarding Indian tribes--creating considerable 
uncertainty for tribal governments. Given their status as sovereigns 
under federal law, Indian tribes sought clarification of the Code and 
ERISA to ensure parity with all other governments in the United States.
    In response to Indian Country, Congress included provisions in the 
Pension Protection Act of 2006 (PPA) to address tribal pension plans. 
Unfortunately, last minute negotiations by the House and Senate 
conferees resulted in the inclusion of language limiting tribal 
government status based on ``essential government function'' and 
``commercial activity'' tests that do not apply to any other 
governments.
Reasons for Change
    Requiring tribes to meet standards that do not apply to any other 
government is unfair and fails to recognize the sovereign status of 
tribes. Moreover, this compromise has resulted in tribes being subject 
to both private sector and government sector rules at the same time 
depending on what an employee may be doing at any given moment. As a 
result, Indian tribes that want to preserve government status are 
forced to have separate plans for different types of employees--
doubling the cost of compliance and reducing tribal bargaining power 
because of decreased plan size. In the last 10 years, federal agencies 
have published no guidance on how to operate or coordinate these two 
types of tribal plans, making true compliance impossible. Additionally, 
state and local government employees engage in a variety of 
activities--like running lotteries--that could be categorized as 
``commercial''. Yet these activities do not jeopardize the governmental 
status of state and local government pension plans. Tribal governments, 
like state and local governments, should be able to operate a single, 
comprehensive, government pension program for all of their employees.
3. PROVIDE PARITY FOR CHARITIES FUNDED BY OR FORMED TO SUPPORT INDIAN 
        TRIBAL GOVERNMENTS
Current Law
    Every Section 501(c)(3) charitable organization is treated as 
either a public charity or a private foundation. Public charity 
classification is generally based on an organization's sources of 
funding or support. See Section 509(a)(1) and (2) of the Code. It may 
also be based on whether the organization was formed to support a 
particular type of organization, such as a state or local government. 
See Section 509(a)(3). Section 7871(a)(1) does permit Indian tribal 
governments to receive tax deductible charitable contributions so long 
as they are used for exclusively public purposes, but the Code fails to 
address the public charity status of Section 501(c)(3) organizations 
that are established or funded by Indian tribal governments. 
Accordingly, there are two areas in which tribal charities are not 
treated the same as those funded or controlled by state and local 
government:

    While support from state and local governments is treated 
        as ``public support'' for purposes of public charity 
        classification, financial support from an Indian tribal 
        government is not treated as support from a governmental 
        entity.

    While organizations formed to support state and local 
        governments are treated as ``supporting organizations'' for 
        purposes of public charity classifications, the status of 
        organizations formed to support Indian tribal governments is 
        unclear.

Reasons for Change
    The lack of parity between tribes and other governments under the 
public charity classification rules makes it difficult for Indian 
tribes to form and fund Section 501(c)(3) nonprofit organizations. As a 
result, tribal governments often operate foundations as unincorporated 
funds or divisions of the government. While such tribal charitable 
funds work well if fully funded by the tribal government, they are not 
effective vehicles for leveraging tribal resources and raising 
additional charitable dollars from private foundations, corporations, 
and individual donors. Both the House and Senate have addressed this 
issue in previous legislation, but for reasons unrelated to the merits 
of the proposal, corrective legislation has never been enacted. The 
proposal has been previously scored by Joint Tax Committee as involving 
a negligible impact on federal tax revenues.
4. PROVIDE PARITY FOR TRIBAL CHILD SUPPORT ENFORCEMENT AGENCIES
Current Law
    Tribes cannot directly access two important federal child support 
enforcement tools. Section 453 of the Social Security Act governs the 
Federal Parent Locator Service. This program helps authorized persons 
locate any individual: (1) who is obligated to pay child support; (2) 
against whom child support obligations are sought; (3) ``to whom such 
[a child support] obligation is owed''; or (4) ``who has or may have 
parental rights with respect to a child''. See Section 453(a). The 
definition of authorized person includes state Child Support 
Enforcement (CSE) agencies but not Tribal CSEs. See Section 453(c).
    The Federal Income Tax Refund Offset program is governed by the 
Social Security Act and the Internal Revenue Code. Section 664 of the 
Social Security Act and Section 6402(c) of the Code authorize the 
Department of the Treasury to withhold from tax refunds amounts owed 
for past due child support payments. Section 664 and Code Section 
6402(c) reference only state CSEs but not tribal CSEs.
Reasons for Change
    All 50 states operate CSEs. Currently, 62 tribes have their own CSE 
programs. Like state CSEs, tribal CSEs are responsible for ensuring 
that children receive the support that is owed to them. Accordingly, 
they provide services that include attempting to locate custodial and 
non-custodial parents, establishing child support orders, and 
distributing payments, among others.
    Despite tribes having the same obligation as states to protect 
children in their communities, tribes lack access to the Federal Parent 
Locator Service and Federal Income Tax Refund Offset Program. This lack 
of parity greatly reduces their ability to ensure parents fulfill their 
obligations to Native children and that these children receive the 
support that is owed to them.
5. PROVIDE PARITY FOR TRIBAL COURT ORDERS FOR PURPOSES OF THE ADOPTION 
        TAX CREDIT
Current Law
    Congress created the Adoption Tax Credit to mitigate the financial 
burden experienced by families adopting children and incentivize 
adoptions of children who might otherwise be difficult to place in 
adoptive homes. The Adoption Tax Credit allows parents to claim a 
credit of up to $10,000 adjusted for inflation ($13,460 in 2016). 
Parents who adopt a child with ``special needs''--as determined by a 
court with jurisdiction over the adoption--are eligible to claim the 
full adoption tax credit without having to document qualified upfront 
adoption expenses. Other adoptive parents must demonstrate actual 
expenses to claim the credit.
    Currently, Section 23 of the Code only allows states to designate 
children as ``special needs''. Considerations ``include: age; 
membership in a minority or sibling group; ethnic background; medical 
condition; or physical, mental, and emotional handicaps.''
Reasons for Change
    Indian tribes have jurisdiction over adoption proceedings involving 
Indian children. Yet, tribes were not included in the Code language 
that provides authority to make ``special needs'' determinations. This 
oversight makes it more difficult for families adopting Indian children 
who have ``special needs'' to establish their eligibility for the 
support Congress intended to provide. The National Indian Child Welfare 
Association has estimated that several hundred Indian children and 
their adoptive families are unable to access the Adoption Tax Credit 
each year.
6. PROVIDE TRIBAL GOVERNMENTS PARITY REGARDING EXCISE TAX EXEMPTIONS
Current Law
    Tribal governments are not treated the same as state and local 
governments for a variety of excise tax exemptions. Due to omission in 
the Code, Indian tribes are not exempt from many excise taxes from 
which states are exempt. Additionally, where the Code does provide 
exemptions for tribes, it imposes standards--such as the essential 
governmental function test--that are not also applicable to state and 
local governments. See IRS Revenue Ruling 94-81.
Reasons for Change
    Tribes should be treated equal to states for purposes of exemption 
from federal excise taxes. Like states, Indian tribes are sovereign 
governments that must ensure the health, safety, and wellbeing of their 
citizenship. Accordingly, tribes operate and fund courts of law, police 
forces, and fire departments. Tribes also provide a broad range of 
governmental services to their citizens, including education, 
transportation, public utilities, health care, economic assistance, and 
domestic/social programs. As is the case for other governments, tribal 
government revenue is essential for fulfilling obligations to tribal 
communities. However, the disparate treatment of tribal governments for 
purposes of exemption from federal excise taxes impairs the ability of 
Indian tribes to meet the needs of tribal citizens.
7. EXTEND TAX EXEMPT STATUS TO SCHOLARSHIPS AND STUDENT LOAN REPAYMENT 
        FOR IHS HEALTH PROFESSIONALS
Current Law
    Currently, scholarships and loan repayments are regarded as taxable 
income under the Internal Revenue Code. There are three exceptions:

    Section 413 of P.L. 107-16 excludes from taxation tuition, 
        fees, and other related cost payments by the National Health 
        Service Corps (NHSC) and F. Edward Herbert Armed Forces Health 
        Professions Scholarships and Financial Assistance Program 
        scholarships.

    Section 108(f)(4) of the Code excludes from taxation funds 
        received through the NHSC Loan Repayment Program authorized 
        under 338B(g) of the Public Health Service Act or a state loan 
        repayment program described in section 338I of the Public 
        Health Service Act.

    Section 3401(a)(19) excludes NHSC loan repayment from 
        federal employment tax. IHS programs are not included in these 
        exceptions, so IHS Health Professions Scholarships and loan 
        repayment awards are taxed under the Code.

Reasons for Change
    IHS provides services to underserved, rural communities and has 
difficulty recruiting health care professionals. The IHS Health 
Professions Scholarship and IHS Loan Repayment Program are effective 
tools that help IHS recruit dentists, physicians, dental hygienists, 
and nurses.
    However, IHS is at a disadvantage when compared to other public 
health service care providers because the benefits received under the 
IHS Health Professions Scholarship and IHS Loan Repayment Program 
constitute taxable wages. To address this inequity and remain 
competitive, IHS pays the taxes assessed on recruitment benefits 
provided to its health professionals. While this ensures IHS can 
recruit and retain health professionals, it consumes resources that 
could be used to hire additional staff. Providing IHS recruitment 
benefits the same tax status as those offered by other public providers 
would reduce staffing issues at IHS and thereby improve health services 
in Indian Country.
8. EXEMPT TRIBAL GOVERNMENT DISTRIBUTIONS FROM THE ``KIDDIE TAX''
Current Law
    The purpose of the ``Kiddie Tax'' is to discourage wealthy parents 
from shifting incomeproducing assets to their children in lower tax 
brackets. Section 1(g) of the Code defines and applies the Kiddie Tax 
broadly. The broad scope of Section 1(g) has the unintended effect of 
imposing tax penalties on all tribal government distributions of more 
than $2,100 to tribal youth and young adults. The Kiddie Tax is 
applicable to tribal youth until age 19 and tribal young adults until 
age 23 when they are enrolled in school.
Reasons for Change
    Applying the Kiddie Tax to tribal government distributions is 
contrary to the purpose of the Kiddie Tax. Tribes are immune from 
income taxation. So, unlike the wealthy parents who sought to avoid 
paying their taxes, tribal governments are not motived by tax 
avoidance.
    Penalizing tribal youth and young adults for receiving tribal 
government distributions is also unfair because it results in doubling 
or tripling their tax rates. It also creates perverse incentives for 
Native youth to drop out of school. For example, if a 21-year-old 
Native student receives $9,000 from a part-time job, she pays federal 
income tax at a rate of 10 percent. But if she receives that $9,000 as 
unearned income from her tribe, and her parents' taxable income is 
$75,000, the IRS applies the Kiddie Tax so that her $9,000 in tribal 
funds is taxed at her parents' top rate of 25 percent, not 10 percent. 
If her parents make a combined total of $227,000, her $9,000 is taxed 
at her parents' top rate of 33 percent, not 10 percent. And so on, up 
to the top rate of 39.6 percent.
    The proposal would amend Section 1(g) of the Code to expressly 
exclude the transfer of funds by a tribal government to young tribal 
members. This can be accomplished by adding the following as a new 
subparagraph (8) to Code Section 1(g):
    ''(8) None of the provisions of section 1(g) apply to any 
distribution made by an Indian tribal government, or by a grantor trust 
established by an Indian tribal government with respect to which such 
government is the owner (within the meaning of sections 671 to 679), to 
an enrolled member of the Indian tribe.''
9. PROVIDE TRIBAL LEADERS THE SAME ACCESS TO SOCIAL SECURITY AS OTHER 
        GOVERNMENT OFFICIALS
Current Law
    Federal law originally exempted state and local governments from 
Federal Insurance Contribution Act (FICA) taxes (which include Social 
Security taxes). As a result, state and local government employees were 
not eligible for Social Security coverage because they were not 
contributing to the program. To address this issue, Congress eventually 
amended the Social Security Act to permit states to elect to provide 
FICA coverage under ``Section 218'' agreements. \2\
---------------------------------------------------------------------------
    \2\ In the 1990s, policy again changed, including state and local 
government employees in Social Security unless they had coverage under 
a Section 218 agreement or a qualified public retirement system.
---------------------------------------------------------------------------
    The IRS does not treat Indian tribes as governments for FICA 
purposes because the definition of State in the Social Security Act 
does not expressly include Indian tribes. Consequently, tribes cannot 
elect coverage through Section 218 agreements.
    This classification has been problematic for tribal government 
officials. In Revenue Ruling 59- 834, the IRS determined that services 
performed by members of tribal councils do not constitute employment 
for FICA purposes, and therefore, any amounts earned are not wages. So, 
while tribal council members must pay income taxes under federal law, 
they do not have the option to pay into and receive benefits from the 
Social Security program.
Reasons for Change
    Currently, tribal leaders do not even have the option to 
participate in the Social Security program, making retirement planning 
after a lifetime of public service significantly more difficult. 
Authorizing Indian tribes to enter Section 218 agreements would ensure 
tribal leaders have the same opportunities to plan for retirement as 
state and local government officials.
    The Department of the Treasury, the IRS, and the Social Security 
Administration have looked at possible administrative solutions to this 
issue. However, they have concluded that a legislative fix is 
necessary.
10. SIMPLIFY, EXPAND, AND MAKE PERMANENT THE INDIAN EMPLOYMENT TAX 
        CREDIT
Current Law
    The Indian Employment Credit is designed to be an incremental 
credit that encourages employers to hire Native Americans and promote 
economic activity in tribal communities. It is equal to 20 percent of 
the excess of eligible employee qualified wages and health insurance 
costs (up to $20,000) over the amount of such wages and costs incurred 
by the employer in 1993 (the ``base year''). An eligible employee \3\ 
is an enrolled member (or the spouse of an enrolled member) of an 
Indian tribe, who performs substantially all of the services within an 
Indian reservation, and whose principal residence is on or near the 
reservation in which the services are performed. Qualified employees 
must have wages that do not exceed an inflation-adjusted amount, 
currently set at $45,000. Additionally, the credit is not available for 
any employee whose on-reservation services are provided to or within a 
casino. The maximum credit available is $4,000 per eligible employee.
---------------------------------------------------------------------------
    \3\ The Code uses the term ``qualified employees''. See Internal 
Revenue Code Section 45A.
---------------------------------------------------------------------------
    The Indian Employment Credit expired for tax years beginning after 
December 31, 2016.
Reasons for Change
    Simplifying, expanding, and making permanent the Indian Employment 
Credit would permit greater deployment of the credit, thereby helping 
to increase employment rates and promote economic growth in Indian 
Country. Specific reasons for change are as follows:

    Simplifying the Credit. Because over 20 years have elapsed 
        since the base year of 1993, the current formulation adds 
        needless complexity and impacts employers in disparate ways. 
        For example, if an employer incurred no eligible reservation 
        employee qualified wages or health insurance costs in 1993, the 
        employer's Indian Employment Credit during the current year 
        would be the maximum tax credit of $4,000 per eligible 
        employee. But if the employer had reservation employees in 
        1993, it would only be able to take a credit equal to the 
        increase in wage and related costs over those incurred in 1993. 
        Thus, updating the base year would address this disparity and 
        restore the incremental feature of the credit. It would also 
        eliminate the need for taxpayers to maintain tax records much 
        longer than normally required. Updating this provision has been 
        regularly supported by the Treasury Green Book.

    Expanding the Credit. Tribal government and non-profit 
        employers regularly employ tribal members in Indian Country. 
        Expanding access of the credit to these entities would further 
        promote hiring and economic growth in Indian Country.

    Making the Credit Permanent. Originally enacted in 1993, 
        the Indian Employment Credit has been extended numerous times. 
        Often, extension of the credit has been retroactive or near the 
        expiration date, creating uncertainty for employers regarding 
        the availability of the credit and potentially limiting the 
        incentive the credit provides for employers to employ Indian 
        tribal members. Making the credit permanent would eliminate 
        uncertainty and create more private investment in tribal 
        communities.

    The proposal would do the following:

    Permanently extend the Indian Employment Credit and modify 
        the base year from 1993 to the average of qualified wages and 
        health insurance costs for the two tax years prior to the 
        current year.

    Expand the income tax credit to include up to $30,000 in 
        qualifying wages and health insurance costs per eligible 
        employee and raise the cap on the permissible wages per 
        eligible employee from $45,000 to $60,000. The credit 
        percentage will remain at 20 percent, thus resulting in a 
        maximum income tax credit of $6,000 per eligible employee.

    As an alternative to the income tax credit for certain 
        governmental and nonprofit employers, provide a payroll tax 
        credit for tribal government employers and Section 501(c)(3) 
        organizations operating on Indian reservations. The payroll tax 
        credit will be applied to reduce the applicable employer's 
        share of federal payroll taxes for an eligible employee. The 
        maximum credit available to a governmental or nonprofit 
        employer will be $6,000 per eligible employee, but in many 
        cases, it will be less because the employer's share of payroll 
        taxes is only 6.2 percent of the wage base. The payroll tax 
        credit will have no impact or effect on the employee's payroll 
        tax credits (for Social Security or Medicare purposes), and it 
        can only be taken by tribal governmental employers (as defined 
        in Section 3306(u) of the Code) or organizations operating on 
        an Indian reservation that have been recognized by the IRS as 
        exempt from tax under Section 501(c)(3).

11. INCREASE DEPLOYMENT OF NEW MARKETS TAX CREDITS FOR PROJECTS IN 
        INDIAN COUNTRY
Current Law
    The New Markets Tax Credit (NMTC) program is a flexible mechanism 
to attract investment in economically distressed communities, including 
Indian lands. The Department of the Treasury's CDFI Fund implements the 
NMTC program. Community Development Entities (CDEs) apply annually to 
the CDFI Fund for allocations of tax credits. The application process 
is competitive, and the CDFI Fund scores applications to determine 
which CDEs receive an allocation. CDEs that receive allocations 
consider and award tax credits to individual projects. Congress 
extended the NMTC program through 2019 when it approved the tax 
extenders package in December 2015.
Reasons for Change
    The NMTC program could greatly help tribes engage in community and 
economic development, as access to capital is a significant issue in 
Indian Country. In the past, tribes have used these credits for 
projects such as health clinics, administration buildings, and other 
infrastructure projects. Tribes have increasingly expressed interest in 
expanded deployment in Indian Country. Historically, however, few NMTC 
projects have been funded in tribal communities. The most recent award 
cycles are no exception. In calendar years 2015-2016, $7 billion of tax 
credits were awarded to 120 CDEs. Only one entity that primarily funds 
projects in Indian Country received an allocation of $50 million. 
Tribal communities are receiving less than one percent of the 
investment arising from the NMTC program.
    The tribal proposal would spur investment and create jobs in Indian 
Country by increasing deployment of NMTCs for projects in Indian 
Country. The ideal solution would include creating a set-aside in the 
NMTC program for CDEs that primarily invest in Indian Country projects.
    Doing so would greatly increase private investment for 
infrastructure and other projects that would facilitate economic growth 
in tribal communities.
    Another solution would include creating incentives to encourage 
NMTC applicants to commit to making investments in Indian Country and 
ensuring that at least one CDE whose primary mission is to fund 
projects within or that benefit Indian Country receives an allocation 
each round.
12. PROVIDE TRIBES DIRECT ACCESS TO AND A SET-ASIDE FOR LOW-INCOME 
        HOUSING TAX CREDITS
Current Law
    The Low-Income Housing Tax Credit (LIHTC) program is one of the 
largest corporate tax programs administered by the federal government, 
and it is intended to reduce financing costs, thereby incentivizing the 
expansion of the supply of affordable housing. The LIHTC program 
authorizes states, U.S. possessions, and the District of Columbia to 
issue tax credits to developers that construct, rehabilitate, or 
acquire rental housing for low-income households. Tax credits are 
allocated based on population, as determined in the most recent census 
estimate released by the Bureau of the Census before the beginning of 
the calendar year the credit ceiling is set. In 2016, the federal 
government allocated $2.35 per person to states with a minimum 
allocation of $2,690,000.
    State Housing Finance Agencies (HFAs) issue the tax credits to 
developers based on IRSapproved Qualified Allocation Plans (QAPs). 
Developers then generally sell the credits to investors for equity in 
the project. Enhanced credits are available for projects in difficult 
to develop areas (DDA) and qualified census tracts (QCT).
Reasons for Change
    There is great need for affordable housing in Indian Country. HUD 
estimates that 33,000 housing units would need to be built to eliminate 
overcrowding in Indian Country and another 35,000 would be needed to 
replace existing physically inadequate housing units. Addressing these 
housing needs would cost $33 billion. The Indian Housing Block Grant 
program has helped address some of the shortfall but additional 
resources are necessary. The LIHTC program could provide much needed 
private investment in affordable housing in tribal communities.
    Unfortunately, the benefits of the LIHTC program have largely not 
reached Indian Country. This is because tribes cannot receive an 
allocation of tax credits directly. Instead, tribes must apply to state 
HFAs for an allocation and in most cases, state HFAs have not made 
affordable housing on Indians lands a priority in their QAPs. 
Additionally, there is no incentive or regulation requiring state 
agencies to consider tribal projects in QAPs. Instead, states tend to 
focus on urban areas and often view tribal housing needs as a federal 
issue (even though LIHTCs are federal tax credits). Tribes also have 
difficulty meeting certain state QAP requirements because of 
complications related to the status of Indian lands.
    So, although Native Americans are counted in state populations for 
purposes of allocating tax credits, Native American communities are 
receiving very little benefit from the LIHTC program.
    The tribal government proposal would expand on the advances in S. 
548 to help Indian tribes leverage private investment to meet their 
housing needs by making the following changes to the LIHTC program:

    Amend Section 42 of the Code to treat Indian tribes as 
        states for purposes of allocating tax credits.

    Establish a set-aside of tax credits for projects in Indian 
        Country.

    Adjust the income calculation formula to use the national 
        average median income in lieu of the area average because in 
        many areas of Indian Country, local area incomes are too low to 
        benefit actual low-income housing users.

    Make tribes eligible to receive tax credits directly and 
        transfer the credits to the building manager or developer 
        through a long-term lease to accommodate the unique status of 
        Indian trust lands.

Conclusion: Creating a New Standard of Economic Opportunity in Indian 
        Country
    Economic development and job creation has been the leading concern 
of tribal leaders throughout the country for many decades. NCAI 
strongly encourages Congress to take action on all of the fronts that 
we have identified above. Taken together, we can dramatically change 
the economic environment on Indian reservations. This effort will bring 
jobs to Indian communities, and also make significant contributions to 
health, public safety, productivity, and the well-being of our people. 
We thank you in advance, and look forward to continuing our joint 
efforts immediately.

    ATTACHMENTS

    The National Congress of American Indians Resolution #MOH-17-011
  title: equitable treatment for tribal nations in congressional tax 
                                 reform
    WHEREAS, we, the members of the National Congress of American 
Indians of the United States, invoking the divine blessing of the 
Creator upon our efforts and purposes, in order to preserve for 
ourselves and our descendants the inherent sovereign rights of our 
Indian nations, rights secured under Indian treaties and agreements 
with the United States, and all other rights and benefits to which we 
are entitled under the laws and Constitution of the United States, to 
enlighten the public toward a better understanding of the Indian 
people, to preserve Indian cultural values, and otherwise promote the 
health, safety and welfare of the Indian people, do hereby establish 
and submit the following resolution; and
    WHEREAS, the National Congress of American Indians (NCAI) was 
established in 1944 and is the oldest and largest national organization 
of American Indian and Alaska Native tribal governments; and
    WHEREAS, Congress is considering reform of the federal tax code to 
promote economic growth, reduce burdens of compliance, and increase 
fairness; and
    WHEREAS, Tribal Nations must be included in national tax policy 
because under the current Internal Revenue Code, Tribal Nations are 
left without many of the benefits, incentives, and protections provided 
to state and local governments. This inequity significantly handicaps 
tribal authority to provide much needed government revenue for tribal 
programs and prevents economic growth on tribal lands; and
    WHEREAS, tribal proposals will need to be adapted to fit within the 
larger framework that is under development, but certain fundamental 
principles will remain:

    The United States Constitution recognizes tribal 
        governments as sovereigns;

    The power to tax is an essential and necessary instrument 
        of self-government;

    Tribes have responsibility to regulate conduct on Indian 
        lands;

    Tribes provide a broad range of governmental services: 
        education, health care, public safety, and infrastructure 
        needed to support economic development;

    Like states, tribal governments are not taxable entities, 
        so they can retain and use their revenues for governmental 
        purposes;

    Tribal governments must be treated with parity in all areas 
        of tax policy; and

    As sovereign governments, tribes must have the authority 
        to:
    --generate tax revenue free from overlapping state taxation;
    --create incentives for business development and job creation;
    --access government financing tools;
    --make decisions for promoting the health and welfare of citizens; 
        and
    --promote certainty of jurisdiction, certainty to capital markets, 
        and certainty in tax policy to enhance economic growth; and

    WHEREAS, Congress is considering the elimination of depreciation 
schedules from the tax code in order to permit businesses to deduct the 
cost of capital investments in the year they are made. This change in 
tax policy would effectively eliminate the benefits of accelerated 
depreciation, one of the few tax incentives for business development in 
Indian country; and
    WHEREAS, the Low-Income Housing Tax Credit (LIHTC) is the largest 
resource for creating affordable housing in the United States today, 
but Tribal Nations must apply to state government LIHTC programs, and 
many states use criteria that benefit only urban areas--thus ignoring 
the unmet low-income housing needs of Indian country; and
    WHEREAS, in 2000, Congress established the New Markets Tax Credit 
(NMTC) to spur investment in low-income communities, but despite the 
potential of the NMTC program to enhance Indian country economic 
development and create jobs in underserved Native communities, in the 
last three funding cycles, only one Native American Community 
Development Entity has received funding under the NMTC program; and
    WHEREAS, NCAI supports fair and equitable inclusion of Indian 
tribes in tax reform and will work cooperatively with all Tribal 
Nations and intertribal organizations to secure passage of such 
legislation.
A. Provisions for Tribal Government Tax Parity
    NOW THEREFORE BE IT RESOLVED, that the National Congress of 
American Indians supports the enactment of the Tribal Tax and 
Investment Reform Act, and urges that it address important issues in 
tax parity including:
    1. Tribal Government Tax-Exempt Bonds. Under federal tax rules 
generally applicable to government debt, tribal governments may issue 
tax-exempt bonds only for ``essential government functions'' and are 
prohibited from issuing ``private activity bonds.'' * The IRS has 
declined to view economic development as a governmental function, even 
though state and local governments frequently use tax-exempt financing 
for development projects;
---------------------------------------------------------------------------
    * The only exception for tribal governments is the limited quantity 
of Tribal Economic Development Bonds available through an allocation 
process administered by the IRS. The available volume of TEDBs is 
likely to be depleted within the next 12 months, and will be wholly 
inadequate to allow Tribal Governments to rebuild infrastructure.
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    2. Tribal Government Pension Plans. Under current law, Tribal 
Nations must maintain two separate types of employee pension plans--a 
government plan for tribal employees performing essential government 
functions and a separate plan for tribal business employees. Tribal 
governments, like state governments, should be able to operate a 
single, comprehensive, government pension program for all of their 
employees, regardless of their functions. Tribal governments should 
also be eligible to offer 457 plans currently reserved for state and 
local governments;
    3. Tribal Foundations and Charities. Tribally-controlled and funded 
foundations and charities do not enjoy the same public charity 
classification as foundations and charities controlled and funded by 
state or local governments;
    4. Tribal Child Support Enforcement Agencies. Tribal child support 
enforcement agencies need authority to access parent locator services 
and enforce child support orders through claims against federal tax 
refunds of parents with past due obligations;
    5. Indian Adoption Tax Credit. Adoption is widespread throughout 
Indian country. Under current law, the IRS cannot recognize tribal 
court orders determining the `special needs' of adoptive children. This 
provision is needed to permit adoptive parents of Indian children to 
receive tax credits on par with other adoptive parents whose children's 
special needs have been determined by state courts;
    6. Extend Tax Benefits Granted to Doctors Employed by Indian Health 
Service Facilities. Specific tax benefits (such as exclusion from 
income for the forgiveness of student loan debt) are available to most 
doctors employed in the public sector but not to those employed by the 
Indian Health Service or tribal healthcare systems. These facilities 
need the same incentives for practitioners to bring their skills to 
Indian country as other public health facilities;
    7. Support Legislation to Exempt Tribal Government Distributions 
from ``Kiddie Tax'' Provisions. Due to a flaw in the tax code, 
distributions from minors' trust funds established by tribal 
governments are subject to taxation at the rate of a minor's parents, 
resulting in an unintended disincentive to attend college. Correcting 
this would provide fairness to Indian youth and families receiving 
benefits from tribal funds;
    8. Provide Tribal Governments with the Same Excise Tax Exemptions 
as Provided to States. Due to an omission in the tax code, tribal 
governments are not treated equal to state and local governments for a 
variety of excise tax exemptions: (i) excise taxes on luxury passenger 
vehicles, special fuels, and heavy trucks and trailers; (ii) 
manufacturing excise taxes, including the Gas Guzzler Tax; (iii) 
communications excise taxes, (iv) wagering excise taxes, (v) Harbor 
Maintenance Tax; (vi) occupational taxes on persons in the business of 
wagering, (vii) taxes on distilled spirits, wine and beer, (viii) taxes 
on certain firearms, and (ix) and the Structured Settlement Factoring 
Tax; and
    9. Tribal Leader Access to Social Security Benefits. In 1957, the 
IRS determined that amounts paid to elected tribal government officials 
are not considered ``wages'' under the Federal Contributions Act and 
thus are not eligible for Social Security benefits. This IRS ruling 
causes elected tribal officials (particularly those with many years of 
tribal service) to potentially receive reduced Social Security benefits 
or be completely ineligible to receive those benefits. Congress should 
adopt the Tribal Social Security Fairness Act and amend Section 218 to 
permit tribal governments the same option that state and local 
governments have to enter into agreements with the Social Security 
Administration to provide Social Security and Medicare coverage to 
tribal government officials; and
B. Extension and Modification of Tax Provisions Aimed at Economic 
        Development
    BE IT FURTHER RESOLVED, that NCAI urges Congress to simplify, 
expand, and make permanent the Indian Employment Tax Credit. Specific 
changes include:

    1. Modify the base year from 1993 to the average of qualified wages 
and health insurance costs for the two tax years prior to the current 
year;
    2. Expand the income tax credit to include up to $30,000 in 
qualifying wages and health insurance costs per eligible employee and 
raise the cap on the permissible wages per qualified or eligible 
employee from $45,000 to $60,000; and
    3. Provide a payroll tax credit for tribal government employers and 
Section 501(c)(3) organizations operating within Indian country; and
C. Set-Asides for Low-Income Housing and New Markets Tax Credits
    BE IT FURTHER RESOLVED, that NCAI supports enactment of Low-Income 
Housing Tax Credit legislation provided that the legislation includes 
the following Indian country provisions:
    1. Indian nations and tribes should be treated as states for 
purposes of Low-Income Housing Tax Credit allocation, and Congress 
should establish a set-aside of Low-Income Housing Tax Credits for 
Indian country;
    2. Indian tribes should be authorized to use the national average 
median income in lieu of the area average because in many areas of 
Indian country local area incomes are too low to benefit actual low-
income housing users; and
    3. Indian tribes should be eligible to receive the Low-Income 
Housing Tax Credit directly and transfer it to the building manager or 
developer through a long-term lease to accommodate the unique status of 
Indian trust lands; and
    BE IT FURTHER RESOLVED, that NCAI supports legislation that would 
spur investment and create jobs by providing increased deployment of 
New Markets Tax Credits for projects in Indian country, including the 
Aiding Development of Vital Assets in Native Communities and 
Environments Act (or the ``ADVANCE'' Act), and a set-aside in the New 
Markets Tax Credit program for Indian nations; and
D. Addressing State Taxation with Regulatory Action and Congressional 
        Action
    BE IT FURTHER RESOLVED, that NCAI calls upon the Secretary of the 
Interior to move forward with updating and revising the Indian Trader 
Regulations to address state taxation of Indian country value, 
commerce, economic activity, Indian energy development, and Indian 
natural resource production, and to recognize the original, inherent 
sovereign authority of Indian nations and tribes to regulate Indian 
commerce; and
    BE IT FURTHER RESOLVED, that NCAI calls upon Congress to fulfill 
its obligation under the Commerce Clause of the United States 
Constitution to confirm the original inherent sovereign authority of 
tribal nations to regulate all commerce that occurs on tribal lands, 
and to recognize nation-to-nation commerce; and
    BE IT FURTHER RESOLVED, that NCAI also urges Congress to address 
state taxation of Indian country value, commerce, economic activity, 
Indian energy development, and Indian natural resource production, and 
areas such as leased property, personal property, oil & gas, sales 
taxes, and remote sales; and
    BE IT FURTHER RESOLVED, that NCAI calls upon Congress to enact 
incentives and tax credits for renewable and conventional energy 
development in Indian country; and
    BE IT FURTHER RESOLVED, that Congress and the Administration should 
seek the guidance of the Treasury Tribal Advisory Committee established 
under Public Law 113-168 on tax reform issues; and
    BE IT FINALLY RESOLVED, that this resolution shall be the policy of 
NCAI until it is withdrawn or modified by subsequent resolution.
    CERTIFICATION
    The foregoing resolution was adopted by the General Assembly at the 
2017 Midyear Session of the National Congress of American Indians, held 
at the Mohegan Sun Convention Center, June 12 to June 15, 2017, with a 
quorum present.
        Brian Cladoosby, President
    ATTEST:
        Aaron Payment, Recording Secretary
                                 ______
                                 
    The National Congress of American Indians Resolution #MKE-17-012
title: calling for full funding of the federal trust responsibility and 
     ensuring the united states has the revenue to finance federal 
                     commitments in tax legislation
    WHEREAS, we, the members of the National Congress of American 
Indians of the United States, invoking the divine blessing of the 
Creator upon our efforts and purposes, in order to preserve for 
ourselves and our descendants the inherent sovereign rights of our 
Indian nations, rights secured under Indian treaties and agreements 
with the United States, and all other rights and benefits to which we 
are entitled under the laws and Constitution of the United States and 
the United Nations Declaration on the Rights of Indigenous Peoples, to 
enlighten the public toward a better understanding of the Indian 
people, to preserve Indian cultural values, and otherwise promote the 
health, safety and welfare of the Indian people, do hereby establish 
and submit the following resolution; and
    WHEREAS, the National Congress of American Indians (NCAI) was 
established in 1944 and is the oldest and largest national organization 
of American Indian and Alaska Native tribal governments; and
    WHEREAS, the United States of America funds health and social 
service programs for the benefit of all Americans, including Social 
Security, Medicare, Medicaid, Supplemental Nutrition Assistance Program 
(SNAP), as well as annually appropriated programs specifically for 
tribes such as the Indian Health Service (IHS), Bureau of Indian 
Affairs (BIA), and others; and
    WHEREAS, federal social programs, including Social Security, 
Medicare, Medicaid, SNAP, unemployment insurance, Temporary Assistance 
for Needy Families (TANF), the Earned Income Tax Credit, and the 
refundable component of the Child Tax Credit provide important benefits 
to Indian Country; analysis by the Center on Budget and Policy 
Priorities shows that 90 percent of such benefits go to the elderly, 
seriously disabled, or members of working families as opposed to able-
bodied, working-age Americans; and
    WHEREAS, part of the trust responsibility includes basic 
governmental services in Indian Country, funding for which is 
appropriated in the discretionary portion of the federal budget; as 
governments, tribes must deliver a wide range of critical services, 
such as education, workforce development, and first-responder and 
public safety services, to their citizens; and
    WHEREAS, the House FY 2018 Budget Resolution would advance the most 
comprehensive tax overhaul in three decades and which would require 
Congress to cut entitlement programs by at least $203 billion over ten 
years; and
    WHEREAS, the FY 2018 Senate Budget resolution would fast track a 
tax overhaul by authorizing an increase of $1.5 trillion in debt over 
the coming decade using the procedural tool of reconciliation; and
    WHEREAS, the $1.5 trillion in tax cuts over ten years would be 
deficit-financed which would increase pressure for reducing the federal 
budget for programs ranging from health care, education, 
transportation, scientific research, community development, housing, 
with such cuts leading to adverse consequences for lower- and middle-
income families and long-term growth; and
    WHEREAS, under the Senate budget plan, the Senate Finance Committee 
would receive a reconciliation instruction to produce legislation that 
would increase the deficit by not more than $1.5 trillion over ten 
years, which means that the Finance Committee could cut taxes by more 
than that amount as long as it cut entitlement programs under its 
jurisdiction--such as Medicaid, Medicare, and Supplemental Security 
Income--enough to reduce the net cost to $1.5 trillion; and
    WHEREAS, the Senate plan also calls for $632 billion in budget 
reductions to non-defense discretionary programs over the 2019-2027 
period, which includes the funding for the federal trust responsibility 
as well a range of public services such as law enforcement, 
environmental protection, infrastructure, and others; and
    WHEREAS, due to insufficient funding and services by federal 
agencies, Native communities have suffered severe social, economic, and 
environmental harms at a rate far in excess of other communities, 
including inequitable incidence of disease, unemployment, suicide, 
substance abuse, domestic abuse, violence, flooding, and wildfires; and
    WHEREAS, as a further consequence of federal actions and inactions, 
Indian tribes across the nation have been forced to spend large amounts 
of scarce tribal funds to support the services that should have been 
provided or paid for by the United States; and
    WHEREAS, deficit-financed tax cuts that lead to potential austerity 
cuts would affect all Americans, but would disproportionately impact 
American Indians and Alaska Natives (AI/AN) who rely on federal funding 
of the trust responsibility as well as social programs; and
    WHEREAS, policymakers should consider the distributional impacts to 
households as well as American Indians/Alaska Natives if the federal 
budget is cut in the future to reduce deficits caused by tax cuts; the 
cuts to federal treaty and trust obligations coupled with cuts to 
mandatory programs such as Medicaid and SNAP could leave AI/AN people 
and low- and middle-class households worse off, even with some tax 
reductions.
    NOW THEREFORE BE IT RESOLVED, that the National Congress of 
American Indians (NCAI) calls for Congress to uphold, in any tax 
legislation, the federal treaty and trust obligations that are funded 
in the appropriations process, as well as ensure that the U.S. 
Government has the revenue to finance existing federal commitments and 
meet critical national needs now and in the future; and
    BE IT FURTHER RESOLVED, that this resolution shall be the policy of 
NCAI until it is withdrawn or modified by subsequent resolution.
    CERTIFICATION
    The foregoing resolution was adopted by the General Assembly at the 
2017 Annual Session of the National Congress of American Indians, held 
at the Wisconsin Center in Milwaukee, WI, Oct 15, 2017--Oct 20, 2017, 
with a quorum present.
        Jefferson Keel, President
    ATTEST:
        Juana Majel Dixon, Recording Secretary
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Jon Tester to 
                            Hon. Liana Onnen
    First, I must express our disappointment that the Tax Cuts and Jobs 
Act does not include any of Indian Country's requested tax priorities. 
We appreciate the Committee's November 1, 2017, hearing as it provided 
an opportunity to identify and discuss the beneficial tribal tax bills 
that Committee Members had introduced and co-sponsored during the 
current Congress. For our Nation, we were especially interested in S. 
1935, the Tribal Tax Reform and Investment Act and S. 2012, the Tribal 
Economic Assistance Act, S. 1935. The witness testimony in that hearing 
underscored the need for parity so that the tax code would properly 
recognize tribes as governments and treat them like it treats other 
governments in the federal system. Witnesses also highlighted the need 
for amendments that would help tribes overcome obstacles to economic 
development on our lands. Both S. 1935 and S. 2012 included provisions 
that would do just that. The hearing gave us hope that these provisions 
and perhaps others from Indian Country would be included in this 
session's sweeping tax legislation. We are aware of your efforts to 
include these provisions for Indian Country and we sincerely thank you. 
We are, however, deeply disappointed with the end result. We hope you 
will commit to continuing to work with us to enact the tax provisions 
tribes need to further economic development and self-determination.

    Question 1. What are challenges of growing economies in Native 
communities that are exacerbated by current tax policy?
    Answer. One of the central problems with current tax policy is that 
in many instances the Internal Revenue Code fails to treat tribal 
governments as it treats state and local governments. As a result, 
tribes have to operate within narrow constraints or satisfy additional 
burdens to carry out the same functions state and local governments 
perform under more streamlined procedures with considerable 
flexibility. In some cases, the tax code even denies tribal governments 
the ability to exercise governmental powers that other governments use 
as routine practices. A prime example is the issuance of tax-exempt 
bonds, a significant government tool to accomplish economic and 
community development projects. Unlike state and local governments, 
tribal governments are limited to issuing tax-exempt bonds only for 
what the IRS interprets to be ``essential government functions''. Thus, 
while state and local governments can use such bonds for convention 
centers, public recreational facilities and similar development 
projects, which create jobs and generate revenues, tribes cannot do the 
same unless we can prove to the IRS's satisfaction that such projects 
constitute essential government functions. Removal of the essential 
government test for tribes to issue tax-exempt bonds would allow us to 
diversify our economies and accelerate timeframes for much-needed 
business and commercial development on our lands. This would help our 
Nation be an even better economic generator for our region. Development 
in Indian Country benefits neighboring communities. Our experience has 
shown that successful investment in Indian Country is a win for all 
neighboring governments, not just the tribal government.
    We thank Chairman Hoeven and Senator Moran for their concerted 
efforts to remove the essential government function test for tribes. 
Both S. 1935 and S. 2012 include the provision to outdated and unfair 
restriction. S. 1935 also includes language that would permit tribes to 
issue private activity bonds, which would provide yet another tool to 
help us develop our lands, create jobs and raise the quality of life 
for our members.

    Question 2. Have there been any tax policies that have produced 
unintended consequences? What have the impact of those been? Is there a 
path to correct?
    Answer. The application of the essential government functions test 
for tribes in the pension plan arena has caused financial and 
administrative burdens for tribal governments. This may be an 
unintended consequence of Congress not fully treating tribal 
governments as governments in the tax code. The result of this in this 
instance is that tribes that choose to establish government pension 
plans as permitted under the code, must administer two separate plans: 
an ERISA-exempt governmental plan for all employees performing 
government functions and an ERISA-compliant plan for employees who work 
in tribal government gaming facilities. State and local governments do 
not have to do the same. This is administratively burdensome and costly 
for tribes. Mostly, however, it is also an affront to the recognition 
of tribes as governments. Tribal gaming facilities are government 
operations which raise government revenues that tribes put toward their 
tribal programs to serve their members. This should be recognized, and 
the essential government functions test should be repealed in this 
arena. This would save tribes unnecessary and duplicative costs and 
acknowledge tribal sovereignty at the same time. S. 1935 would make the 
necessary changes.
    Another unintended consequence is that tribal members who adopt 
special needs children would be required to obtain a determination from 
a state court before they can take advantage of a lawful adoption tax 
credit. This unworkable tax code provision must be changed. This policy 
fails to recognize tribal sovereignty. Further, the provision is 
unfeasible for tribal member adoptive parents of an Indian child as it 
would require those adoptive parents to file state court proceedings 
that the Indian Child Welfare Act was enacted to avoid. Giving the same 
recognition to tribal court determinations as state court 
determinations of special needs for purposes of the adoption tax credit 
is in line with ICWA and tribal sovereignty. S. 1935 would make the 
necessary changes to the law to address this issue.

    Question 3. How can we ensure proper implementation of tax policies 
that impact tribes? What are important structures that need to be put 
in place or enhanced to ensure proper implementation?
    Answer. The Tribal General Welfare Exclusion Act (Pub. L. No. 113-
368; 26 U.S.C. 139E), which you both helped enact, created the Treasury 
Tribal Advisory Committee (TTAC) to ensure the proper implementation of 
tax policies that impact tribes. Section 3(b)(1) of the Tribal General 
Welfare Exclusion Act states that the TTAC ``shall advise the Secretary 
on matters relating to the taxation of Indians.'' Further, Section 
3(b)(2) of that Act requires the Secretary to develop (in consultation 
with the TTAC) training and education programs for IRS field agents 
with respect to ``Federal Indian law and the Federal Government's 
unique legal treaty and trust relationship with Indian tribal 
governments. . . .''.
    The TTAC, therefore, is a vital mechanism in the Treasury 
Department that supplements Government-to-Government consultation. Six 
of the seven members of the TTAC have been appointed. Yet, three years 
after Congress established the TTAC, the TTAC has not begun its work 
because Senator Hatch has not finalized his assigned appointment and 
the Treasury Department has refused to convene the TTAC until all seven 
Committee members have been appointed. To this effect, we ask you to 
encourage your colleague, Senator Hatch, to quickly place his nominee 
on the TTAC. We also ask you to encourage the Treasury Department to 
convene the TTAC in the meantime. Certainly, the TTAC should be 
functioning and it could be providing needed counsel to the Department 
today. Further, we ask you and the Senate Committee on Indian Affairs 
to monitor the work of the TTAC and, particularly, the responses from 
the Administration to the TTAC's recommendations and requests.
    We also think that this Committee should continue to hold oversight 
hearings on tax issues affecting Indian Country and engage in the 
legislative process to address tax code anomalies and inconsistencies 
that deprive tribal governments and their citizens of opportunities 
available to other governments and citizens in the United States. This 
Committee's active involvement in tax issues will ensure not only 
proper implementation of tax policies that impact tribes, but also 
proper development of the policies and laws we need to further our 
self-determination and progress toward providing for our members.

    Question 4. What are the barriers to investing in Indian Country--
especially for our large, land-based tribes?
    Answer. Central barriers to investing in Indian Country include: 
(1) businesses are uncertain about the tax landscape in Indian Country 
and (2) the lack of clear, substantial incentives for businesses to 
make the decision to invest in Indian Country rather than elsewhere. 
Generally, large land-based tribes are ones with abundant resources and 
potential, but also difficult logistics (associated with remote areas) 
and a lack of capital for bringing projects to fruition. We need to 
work on tax provisions that not only provide tribal governments the 
tools to launch businesses and spur economic development themselves, 
but also provisions that facilitate partnerships with the private 
sector. Our reservations have resources and man-power. There is no 
reason corporate America should not be looking to us more for business 
ventures.
    To make this happen, however, we need to ensure corporate America 
about the tax rules that apply in Indian Country and make sure such 
rules provide an attractive landscape for investing. In terms of the 
latter, we need to make the Indian Employment Tax Credit permanent and 
expanded. We also need to make the Accelerated Depreciation Business 
Property on Indian Reservation Tax Credit permanent. These are 
important tax features to entice businesses to operate on our lands and 
use our members in their workforces. We ask the Committee to work to 
include these provisions in any extenders package that moves in 
Congress. We also support creating a set-aside in the New Market Tax 
Credits for entities that primarily invest in Indian Country projects. 
Provisions to this effect should be included in any tax legislation 
going forward.
    In terms of addressing any hesitation by businesses to invest in 
Indian Country because of uncertainty about which tax rules apply and 
how they apply, we note the Department of the Interior's efforts to 
document the economic harm that results from multiple layers of 
taxation on tribal lands. We ask the Committee to ensure that the 
Department releases its report on the Trader Act regulatory effort. We 
need to continue to work on this issue. We also ask the Committee to 
explore legislation to eliminate the uncertainty about which tax laws 
apply and to make sure that revenues generated in Indian Country are 
not subject to outside jurisdictions' taxes, but reinvested on our 
lands.
    Finally, we think it would be useful for the Committee to host a 
roundtable between businesses leaders from corporate America and Tribal 
Leaders. This would provide a good platform for important dialogue 
about changes in law and policy to attract businesses to invest on 
tribal lands and collaborate with Tribes. It would also provide an 
opportunity for business leaders who are hesitant to commit in Indian 
Country to have their questions answered.
Conclusion
    I thank you again for the opportunity to provide information on 
behalf of the Prairie Band Potawatomi Nation. We have long been engaged 
in the tribal tax reform effort, as changes in the tax code are 
necessary to facilitate much-needed economic and community development 
on our lands. In addition to the foregoing and the issues discussed in 
my written and oral testimony for this hearing, we support the 
proposals presented in the National Congress of American Indians' 
Resolution MOH-17-11 .
    Please do not hesitate to contact me if you have further questions. 
We look forward to working with you to make sure that Congress enacts 
the tax provisions needed for Indian Country.
    Leaving Indian Country out of the Tax Cut and Jobs Act, 
unfortunately, was leaving us behind. Our nations have abundant 
resources and innovation to offer. We ask this Committee to work with 
us to include our tax provisions in law so that we can work toward 
realizing our potential for the good of our members and America 
overall.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Jon Tester to 
                            Dante Desiderio
    I am glad this Committee is taking up the issue of modernizing tax 
policies that work for Indian Country and hearing from leaders how this 
impacts their communities. I am concerned with the timing, considering 
Republicans have planned to release their tax plan today with little 
input from anyone, especially consultation with folks from Indian 
Country.
    Question 1. What are the challenges of growing economies in Native 
communities that are exacerbated by current tax policy?
    Answer. Current tax policy does not accept or understand the role 
tribal governments have in building their economies or in the necessary 
role economic revenue plays in providing tribal services. We can 
clearly look back at prior tax policy and see that it is broken for 
tribes because of restraining policies that only apply to tribal 
governments or because tribal incentives are only partially 
implemented. For example, the trillion-dollar tax-exempt debt market 
used by every other government as the primary source for financing 
community development is effectively unusable for growing tribal 
governments since its use is limited to specific government functions. 
The program is great for schools and infrastructure, but tribes do not 
have the ability to repay the debt unless there is economic growth 
which is an excluded use for tribes. Housing is also a restricted use 
for tribes and to make matters worse tribes are often excluded from 
housing tax credits--a federal program implemented by states.

    Question 2. Have there been any tax policies that have produced 
unintended consequences? What have the impact of those been? Is there a 
path to correct?
    Answer. The tax policy that can be held out as having unintended 
consequences is the accelerated depreciation and Indian coal tax 
incentives. These incentives should have a significant impact on 
Montana tribes, but they are inconsistently, and at times, 
retroactively renewed. The unintended outcome is that tribes can't rely 
on using the incentives to negotiate partnerships and discount capital 
investments. The investors and external partners end up using them 
anyway when they are finally renewed from one year to the next with 
little or no benefit to tribes.

    Question 3. How can we ensure proper implementation of tax policies 
that impact tribes? What are important structures that need to be put 
in place or enhanced to ensure proper implementation?
    Answer. Tribal governments need to be included in tax policy in a 
way that accommodates their economic model and considers their capital 
needs. Tribal governments have come to rely on economic development as 
a way to fund programs and services. This is a different model and has 
been one of the successful outcomes of self-determination. Tax-exempt 
debt should be open for tribes to finance projects that create revenue. 
This is ``essential'' for tribal governments. Tribes currently use 
short term debt to fund long term government projects. This is 
equivalent to using a car loan to buy a house.
    Securing significant capital necessary to sustain projects and fund 
projects that will build an economy should also be a key consideration. 
This means moving beyond just financing a business. The loan guarantee 
programs should be funded at a level to meet the need for tribal 
governments to grow and tribes should be included directly in tax 
credit programs such as housing, new markets, and consistently renewed 
incentives.

    What I have heard from Montana and across the country is that there 
is too much uncertainty in Indian Country and they don't have faith in 
the security of their investment.

    Question 4. What are the barriers to investing in Indian Country--
especially for our large, land-based tribes?
    Answer. Uncertainty is the greatest impediment to growth in Indian 
Country. There is uncertainty surrounding the definition and 
enforcement of terms like ``essential government function'' when it 
comes to use of government capital. There is uncertainty on the renewal 
of incentives formed to attract investment such as accelerated 
depreciation or the coal tax credit. There is uncertainty on taxing 
jurisdiction which is a necessary component for building a diverse 
economy that is less reliant on high margin businesses. This means the 
businesses that provide lower margins and create more jobs are 
disadvantaged. Tax policy should be directed toward relieving 
uncertainty by providing capital markets enough in incentives to 
overcome the obstacle.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Jon Tester to 
                               Carl Marrs
                               
                               
                               
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