[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
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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.
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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.
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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\
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\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).
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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\
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\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.
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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.
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\3\ The Code uses the term ``qualified employees''. See Internal
Revenue Code Section 45A.
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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;
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* 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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