Indian Self-Determination Contracting

During GAO's review of contract support costs for tribal self-determination contracts, many tribal officials said that they had diverted funds from economic development opportunities to cover shortfalls in federal funding. For fiscal year 1998, the Bureau of Indian Affairs and the Indian Health Service calculated that they owed the Oglala Sioux an additional $1.5 million in contract support funding that they were unable to provide because of limited appropriations. Contract support costs are intended to cover the expenses tribes incur in managing contracted programs, such as social services, hospitals and clinics, road maintenance, law enforcement, and forestry. This testimony discusses the different categories of contract support costs; the extent of, and reasons for, increases in contract support costs in recent years; and four alternatives for funding these costs.

GAO noted that: (1) the Bureau of Indian Affairs and the Indian Health Service commonly refer to three categories of contract support costs: (a) indirect costs; (b) direct contract support costs; and (c) startup costs; (2) indirect costs are costs for a tribe's common support services, such as accounting; (3) direct contract support costs are costs for activities that are program-related but for which the tribe does not receive program funds, such as workers' compensation; (4) finally, startup costs are costs for one-time expenses incurred in beginning a program, such as the costs of computer hardware and software; (5) tribes' allowable contract support costs tripled from 1989 through 1998, increasing from about $125 million to about $375 million; (6) this increase occurred for two principal reasons: (a) the total costs of tribally contracted programs--upon which contract support costs are based--have increased; and (b) the total cost to tribes of administering their self-determination contracts has increased; (7) although the amounts appropriated for contract support costs have increased over the past decade, they have not increased as fast as the support costs, resulting in funding shortfalls; (8) for fiscal year 1998, for example, the shortfall between appropriations (almost $280 million) and allowable contract support costs (about $375 million) was about $95 million; (9) projections of future contract support costs are difficult to calculate because the number of programs for which tribes will choose to contract in the future is uncertain, as is the amount of funding they will receive; (10) the impasse over whether to provide full funding for contract support costs or limit these costs continues in Congress; (11) to assist Congress in its deliberations over how to resolve the impasse over contract support costs, GAO presented four alternative funding approaches, each of which can be considered individually or combined with the others; (12) these alternatives range from providing appropriations sufficient to fund tribes' allowable contract support costs each year to amending the act to remove the provision for funding contract support costs separately from and in addition to a program's direct costs and instead provide a single, consolidated contract amount; (13) each of the alternatives has advantages and disadvantages; (14) three of the four alternatives have the advantage of controlling future increases in contract support costs; and (15) a disadvantage of these same three alternatives is that they would require legislative changes to the act's funding provisions.