Indian Issues
Observations on Some Unique Factors that May Affect Economic Activity on Tribal Lands Gao ID: GAO-11-543T April 7, 2011Indian tribes are among the most economically distressed groups in the United States. In 2008, the U.S. Census Bureau reported that the poverty rate among American Indian and Alaska Natives was almost twice as high as the population as a whole--27 percent compared with 15 percent. Residents of tribal lands often lack basic infrastructure, such as water and sewer systems, and sufficient technology infrastructure. Without such infrastructure, tribal communities often find it difficult to compete successfully in the economic mainstream. This testimony statement summarizes GAO's observations on (1) five broad categories of unique issues that may create uncertainty and therefore affect economic activity in Indian country and (2) tribes' use of special gaming and small business contracting provisions. It is based on prior GAO reports.
GAO's previous work has identified five broad categories of unique issues that may create uncertainty for tribes or, in some cases, private companies wishing to pursue economic activities on Indian reservations. Accruing land in trust. Having a land base is essential for tribal economic development activities such as agriculture, energy development, and gaming. However, a February 2009 Supreme Court decision has raised uncertainty about the process for taking land in trust for tribes and their members. Tribal environmental standards. The Clean Water Act, Safe Drinking Water Act, and Clean Air Act authorize the Environmental Protection Agency to treat Indian tribes in the same manner as states. In some cases, however, states are concerned that tribes with this authority may impose standards that are more stringent than the state standards, which could result in a patchwork of standards within the state and potentially hinder economic activity. Indian tax provisions. Tribes face uncertainties regarding the types of activities that they can finance with tax-exempt bonds. Also, in 2008, GAO reported that there were insufficient data to (1) identify the users of a tax provision that allows for accelerated depreciation of certain property used by businesses on Indian reservations and (2) assess whether the provision had increased economic development on Indian reservations. Obtaining rights-of-way. Securing rights-of-way across Indian land is important in providing Indian lands with the infrastructure needed to support economic activity. In 2006, GAO reported that obtaining rights-of-way through Indian lands was a time-consuming and expensive process. Legal status of tribes. The unique legal status of tribes has resulted in a complex set of rules that may affect economic activities. For example, Indian tribes have sovereign immunity, which can influence a business's decision to contract with a tribe. Also, the limitations imposed by federal law on Indian tribes' civil jurisdiction over non-Indians on Indian reservations can create uncertainties over where lawsuits arising out of contracts with tribes can be brought. In contrast to these unique issues that may pose challenges to economic activity in Indian country, some Indian tribes have taken advantage of special provisions for gaming and small business contracting. The National Indian Gaming Commission reports that tribal gaming operations generated $26.5 billion in revenue for 2009. However, not all tribes have gaming operations and the majority of the revenue is generated by a fraction of the operations. Similarly, Alaska Native Corporations (ANC) have been granted special procurement advantages. In 2006, GAO reported that obligations to firms owned by ANCs that participated in the Small Business Administration's 8(a) program increased from $265 million in fiscal year 2000 to $1.1 billion in 2004. We have ongoing work looking at the use of these special procurement advantages. This testimony statement contains no new recommendations.
GAO-11-543T, Indian Issues: Observations on Some Unique Factors that May Affect Economic Activity on Tribal Lands
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United States Government Accountability Office:
GAO:
Testimony:
Before the Subcommittee on Technology, Information Policy,
Intergovernmental Relations and Procurement Reform, Committee on
Oversight and Government Reform, House of Representatives:
For Release on Delivery:
Expected at 1:30 p.m. EDT:
Thursday, April 7, 2011:
Indian Issues:
Observations on Some Unique Factors that May Affect Economic Activity
on Tribal Lands:
Statement of Anu K. Mittal, Director:
Natural Resources and Environment:
GAO-11-543T:
GAO Highlights:
Highlights of GAO-11-543T, a statement before the Subcommittee on
Technology, Information Policy, Intergovernmental Relations and
Procurement Reform, Committee on Oversight and Government Reform,
House of Representatives.
Why GAO Did This Study:
Indian tribes are among the most economically distressed groups in the
United States. In 2008, the U.S. Census Bureau reported that the
poverty rate among American Indian and Alaska Natives was almost twice
as high as the population as a whole-”27 percent compared with 15
percent. Residents of tribal lands often lack basic infrastructure,
such as water and sewer systems, and sufficient technology
infrastructure. Without such infrastructure, tribal communities often
find it difficult to compete successfully in the economic mainstream.
This testimony statement summarizes GAO‘s observations on (1) five
broad categories of unique issues that may create uncertainty and
therefore affect economic activity in Indian country and (2) tribes‘
use of special gaming and small business contracting provisions. It is
based on prior GAO reports.
This testimony statement contains no new recommendations.
What GAO Found:
GAO‘s previous work has identified five broad categories of unique
issues that may create uncertainty for tribes or, in some cases,
private companies wishing to pursue economic activities on Indian
reservations.
Accruing land in trust. Having a land base is essential for tribal
economic development activities such as agriculture, energy
development, and gaming. However, a February 2009 Supreme Court
decision has raised uncertainty about the process for taking land in
trust for tribes and their members.
Tribal environmental standards. The Clean Water Act, Safe Drinking
Water Act, and Clean Air Act authorize the Environmental Protection
Agency to treat Indian tribes in the same manner as states. In some
cases, however, states are concerned that tribes with this authority
may impose standards that are more stringent than the state standards,
which could result in a patchwork of standards within the state and
potentially hinder economic activity.
Indian tax provisions. Tribes face uncertainties regarding the types
of activities that they can finance with tax-exempt bonds. Also, in
2008, GAO reported that there were insufficient data to (1) identify
the users of a tax provision that allows for accelerated depreciation
of certain property used by businesses on Indian reservations and (2)
assess whether the provision had increased economic development on
Indian reservations.
Obtaining rights-of-way. Securing rights-of-way across Indian land is
important in providing Indian lands with the infrastructure needed to
support economic activity. In 2006, GAO reported that obtaining rights-
of-way through Indian lands was a time-consuming and expensive process.
Legal status of tribes. The unique legal status of tribes has resulted
in a complex set of rules that may affect economic activities. For
example, Indian tribes have sovereign immunity, which can influence a
business‘s decision to contract with a tribe. Also, the limitations
imposed by federal law on Indian tribes‘ civil jurisdiction over non-
Indians on Indian reservations can create uncertainties over where
lawsuits arising out of contracts with tribes can be brought.
In contrast to these unique issues that may pose challenges to
economic activity in Indian country, some Indian tribes have taken
advantage of special provisions for gaming and small business
contracting. The National Indian Gaming Commission reports that tribal
gaming operations generated $26.5 billion in revenue for 2009.
However, not all tribes have gaming operations and the majority of the
revenue is generated by a fraction of the operations. Similarly,
Alaska Native Corporations (ANC) have been granted special procurement
advantages. In 2006, GAO reported that obligations to firms owned by
ANCs that participated in the Small Business Administration‘s 8(a)
program increased from $265 million in fiscal year 2000 to $1.1
billion in 2004. We have ongoing work looking at the use of these
special procurement advantages.
View [hyperlink, http://www.gao.gov/products/GAO-11-543T] or key
components. For more information, contact Anu K. Mittal at (202) 512-
3841 or mittala@gao.gov.
[End of section]
Chairman Lankford, Ranking Member Connolly, and Members of the
Subcommittee:
I am pleased to be here today to participate in your hearing on the
challenges of trying to increase economic activity in Indian Country.
Indian tribes are among the most economically distressed groups in the
United States. For example, in 2008, the U.S. Census Bureau reported
that American Indians and Alaska Natives were almost twice as likely
to live in poverty as the rest of the population--27 percent compared
with 15 percent. Residents of tribal lands also often lack basic
infrastructure, such as water and sewer systems, and sufficient
technology infrastructure, such as telecommunications lines that are
commonly found in other American communities. Without such
infrastructure, tribal communities often find it difficult to compete
successfully in the economic mainstream.
Our testimony today will cover (1) five broad categories of unique
issues that may create uncertainty and therefore affect economic
activity in Indian Country--land issues, tribal environmental
standards, Indian tax provisions, rights-of-way, and certain issues
related to the legal status of tribes--and (2) tribes' use of special
gaming and small business contracting provisions. This statement is
based on previously published work issued from December 2001 through
March 2011. See the list of related GAO products at the end of this
statement and other products cited for detailed descriptions of the
scope and methodology used to conduct our work. We conducted our work
in accordance with generally accepted government auditing standards or
GAO's Quality Assurance Framework, as appropriate to each engagement.
Background:
Tribal lands vary dramatically in size, demographics, and location.
They range in size from the Navajo Nation, which consists of about
24,000 square miles, to some tribal land areas in California
comprising less than 1 square mile. Over 176,000 American Indians live
on the Navajo reservation, while other tribal lands have fewer than 50
Indian residents. Some Indian reservations have a mixture of Indian
and non-Indian residents. In addition, most tribal lands are rural or
remote, although some are near metropolitan areas.
The federal government has consistently recognized Indian tribes as
distinct, independent political communities with inherent powers of a
limited sovereignty which has never been extinguished. To help manage
tribal affairs, tribes have formed governments or subsidiaries of
tribal governments including schools, housing, health, and other types
of corporations. The United States has a trust responsibility to
recognized Indian tribes and maintains a government-to-government
relationship with those tribes. As of October 2010, there were 565
federally recognized tribes--340 in the continental United States and
225 in Alaska.[Footnote 1]
According to tribal officials and government agencies, conditions on
and around tribal lands--including the lack of technology
infrastructure such as telecommunications lines--generally make
successful economic development more difficult. In addition, a 1999
Economic Development Administration (EDA) study that assessed the
state of infrastructure in American Indian communities found that
these communities also had other disadvantages that made successful
business development more difficult.[Footnote 2] This study found that
the high cost and small markets associated with investment in Indian
communities continued to deter widespread private sector involvement.
To help address the needs of Indian tribes, various federal agencies
provide assistance, including economic development assistance. The
Bureau of Indian Affairs (BIA) in the Department of the Interior is
charged with the responsibility of implementing federal Indian policy
and administering the federal trust responsibility for about 2 million
American Indians and Alaska Natives. BIA assists tribes in various
ways, including providing for social services, developing and
maintaining infrastructure, and providing education services. BIA also
attempts to help tribes develop economically by, for example,
providing resources to administer tribal revolving loan programs and
guaranteed loan programs to improve access to capital in tribal
communities. In addition to the support provided by BIA, other
agencies with significant programs for tribes include the Department
of Health and Human Services, which provides funding for the Head
Start Program and the Indian Health Service; the Department of Housing
and Urban Development, which provides support for community
development and housing-related projects; and the Department of
Agriculture, which provides support for services pertaining to food
distribution, nutrition programs, and rural economic development.
Some Unique Issues that May Affect Economic Activity in Indian Country:
Our prior work has highlighted five broad categories of unique issues
that have the potential to create uncertainty for tribes or, in some
cases, private companies wishing to pursue economic activities on
Indian reservations. Some of the issues that we have identified during
our past work include (1) accruing land in trust for tribes and
individual tribal members, (2) tribal environmental standards, (3)
Indian tax provisions, (4) obtaining rights-of-way, and (5) certain
legal issues that arise from the unique legal status of tribes. In
addition to these five issues there may be others, such as access to
financing, which may also hinder economic activity on Indian
reservations. The five broad categories should only be considered as
illustrative of some of the unique circumstances that exist in Indian
country, which tribes or other business entities will need to take
into account when they consider undertaking economic activities on
tribal lands.
Land in Trust Issues May Create Uncertainty:
Having a land base is essential for many tribal economic development
activities such as agriculture, grazing, timber, energy development,
and gaming. Since the early days of colonization, Indian lands have
diminished significantly, in large part because of federal policy. By
1886, Indian lands had been reduced to about 140 million acres,
largely on reservations west of the Mississippi River. Federal policy
encouraging assimilation in the late 1800s and early 1900s further
reduced Indian lands by two-thirds, to about 49 million acres by 1934.
In 1934, however, the enactment of the Indian Reorganization Act
changed the government's Indian policy to encourage tribal self-
governance.[Footnote 3] Section 5 of the act provided the Secretary of
the Interior with discretionary authority to take land in trust on
behalf of Indian tribes or their members. Trust status means that the
federal government holds title to the land in trust for tribes or
individual Indians. Once land is taken in trust it is no longer
subject to state and local property taxes and zoning ordinances.
[Footnote 4] In 1980, Interior established a regulatory process
intended to provide a uniform approach for taking land in trust.
[Footnote 5] Under the regulations, tribes or individual Indians who
purchase or own property on which they pay property taxes can submit a
written request to the Secretary of the Interior to have the land
taken in trust; if approved, the ownership status of the property
would be converted from taxable status to nontaxable Indian trust
status. Some state and local governments support the federal
government's taking additional land in trust for tribes or individual
Indians, while others strongly oppose it because of concerns about the
impacts on their tax base and jurisdictional control. Since 1934, the
total acreage held in trust by the federal government for the benefit
of tribes and their members has increased from about 49 million to
about 54 million acres.[Footnote 6]
We reported in July 2006 that BIA generally followed its regulations
for processing land in trust applications from tribes and individual
Indians to take land into trust, but had no deadlines for making
decisions on these applications.[Footnote 7] BIA generally responded
to our recommendations to improve the processing of such applications,
but this issue continues to create uncertainty in Indian country, in
part, because of a February 24, 2009, Supreme Court decision and
ongoing litigation. The Supreme Court held that the Indian
Reorganization Act only authorizes the Secretary of the Interior to
take land into trust for a tribe or its members if that tribe was
under federal jurisdiction when the law was enacted in 1934.[Footnote
8] The court did not define what constituted being under federal
jurisdiction but did find that a particular tribe, which was not
federally recognized until 1983, was not under federal jurisdiction in
1934. It is not clear how many tribes or pending land in trust
applications will be affected by this decision, but the decision
raises a question about the Secretary's authority to take land in
trust for the 50 tribes that have been newly recognized since 1960 and
their members.[Footnote 9] The Secretary's decisions to take land in
trust for two of these tribes--the Match-e-be-nash-she-wish Band of
Potawatomi Indians of Michigan and the Cowlitz Indian tribe of
Washington--have been challenged in court.[Footnote 10]
Having or securing the land does not lead to economic development if
that land sits idle. In the past we have reported on concerns about
idle Indian lands and BIA's process for leasing Indian lands,[Footnote
11] but we have not done any recent work on these issues.
Tribal Environmental Standards May Create Uncertainty:
The Clean Water Act, Safe Drinking Water Act, and Clean Air Act
authorize the Environmental Protection Agency (EPA) to treat Indian
tribes in the same manner as it does states,[Footnote 12] referred to
as TAS (treated as states),[Footnote 13] for the purposes of
implementing these laws on tribal lands. On the one hand, tribes want
to be treated as states and assume program responsibilities to protect
their environmental resources because they are sovereign governments
and have specific knowledge of their environmental needs. Tribes also
generally believe that TAS status and program authority are important
steps in addressing the potential impacts of economic development
affecting their land. On the other hand, in some cases, states are
concerned that tribes with program authority may impose standards that
are more stringent than the state's, resulting in a patchwork of
standards within the state and potentially hindering the state's
economic development plans.
In October 2005, we reported that since 1986, when Congress amended
the first of the three environmental laws to allow TAS status for
tribes, a number of disagreements between tribes, states, and
municipalities had arisen, over land boundaries, environmental
standards, and other issues.[Footnote 14] The disagreements had been
addressed in various ways, including litigation, collaborative
efforts, and changes to federal laws. For example, in City of
Albuquerque v. Browner,[Footnote 15] the city challenged EPA's
approval of the nearby Pueblo of Isleta tribe's water quality
standards, which are more stringent than those of New Mexico. EPA's
approval was upheld. In other disagreements, some tribes and states
have addressed the issues more collaboratively. For example, the
Navajo Nation and the Arizona Department of Environmental Quality
entered into a cooperative agreement that, among other things,
recognizes the jurisdiction of the Navajo Nation within its
reservation and establishes a plan to share the cost of pilot
projects. Regarding the use of federal legislation to address
disagreements, a federal statute enacted in August 2005, requires
Indian tribes in Oklahoma to enter into a cooperative agreement with
the state before EPA can approve a tribe's TAS request.[Footnote 16]
At the time of our October 2005 report, the Pawnee Nation was the only
Oklahoma tribe that had been awarded TAS status to set its own water
quality standards, and we have not conducted any more recent work on
this issue.
Uncertainties Regarding the Use of Selected Indian Tax Provisions:
The tax code has also been used to promote economic activity in Indian
country. We have reported on tax provisions regarding (1) the
uncertainties that tribes faced regarding the types of activities that
they could finance with tax-exempt bonds and (2) the impact of
accelerated depreciation provisions.
In September 2006, we reported on Indian tribal governments' use of
tax-exempt bonds under section 7871(c) of the Internal Revenue Code.
[Footnote 17] Section 7871(c), which was originally enacted in 1983,
generally limits the use of tax-exempt bonds by Indian tribal
governments to the financing of certain activities that constitute
"essential government functions."[Footnote 18] In 1987, section
7871(e) was added to the code to limit the essential governmental
functions standard further to provide that an essential governmental
function does not include any function which is not customarily
performed by state and local governments with general taxing powers.
To date the Internal Revenue Service has not issued regulations
defining essential government function.[Footnote 19] The lack of a
definition has created uncertainty among tribes regarding the types of
activities that they can finance using tax-exempt bonds. In addition,
this custom-based essential governmental function standard has proven
to be a difficult administrative standard and has led to audit
disputes, based on difficulties in determining customs, the evolving
nature of the functions customarily performed by state and local
governments, and increasing involvement of state and local governments
in quasi-commercial activities. In trying to determine what the
customary practices were of state and local governments that tribes
should be held accountable to, we reported that state and local
governments had provided financial support for a variety of
facilities, including rental housing, road transportation, parking
facilities, park and recreation facilities, golf facilities,
convention centers, hotels, and gaming support facilities.
Section 1402 of the American Recovery and Reinvestment Act of 2009
added a $2 billion bond authorization for a new temporary category of
tax-exempt bonds with lower borrowing costs for Indian tribal
governments known as "Tribal Economic Development Bonds" under section
7871(f) of the Internal Revenue Code to promote economic development
on Indian lands.[Footnote 20] In general, this new authority provides
tribal governments with greater flexibility to use tax-exempt bonds to
finance economic development projects than is allowable under the
existing essential governmental function standard of section 7871(c).
The Internal Revenue Service allocated the $2 billion of bond issuance
authority provided by section 1402 to 134 tribal governments in two
rounds. Furthermore, the act required the Secretary of the Treasury to
study the effect of section 1402 and report to Congress on the results
of the study, including the Secretary's recommendation regarding the
provision. According to the Treasury Department, the House Ways and
Means Committee and the Senate Finance Committee indicated that, in
particular, Treasury should study whether to repeal on a permanent
basis the existing more restrictive essential governmental function
standard for tax-exempt governmental bond financing by Indian tribal
governments under section 7871(c).[Footnote 21] The act required that
the study be completed no later than 1 year after enactment, which
would have made the deadline February 17, 2010. The Treasury
Department published a notice in the Federal Register in July 2010
seeking comments from tribal governments regarding the tribal economic
development bond to assist the department in developing
recommendations for the required study, but, to our knowledge, the
department has not yet issued the report to Congress. There is
continuing uncertainty in this area because it is unknown what the
Treasury Department may recommend regarding changes to section 7871(c)
and ultimately what changes, if any, Congress may adopt.
A second tax measure intended to promote economic activity in Indian
country is the Indian reservation depreciation provision, enacted in
1993. The provision acts as an incentive for investment on Indian
reservations because it permits taxpayers to accelerate their
depreciation for certain property used by businesses on Indian
reservations.[Footnote 22] The provision's special depreciation
deduction schedule permits eligible taxpayers to take a larger and
earlier deduction for depreciation from their business incomes than
they otherwise would be allowed, thereby reducing any tax liability.
Reducing tax liability earlier is an incentive for economic
development because having a lower tax payment today is worth more to
the taxpayer than having a lower tax payment in the future. However,
in June 2008, we reported that there were insufficient data to
identify users of the provision and assess whether the provision had
increased economic development on Indian reservations.[Footnote 23]
Obtaining Rights-of-Way Across Indian Land Can Involve Uncertainty:
Securing rights-of-way across Indian lands is an important component
of providing Indian lands with the critical infrastructure needed to
support economic activity. We have reported on the uncertainties that
telecommunication service providers and a nonprofit rural electric
cooperative have faced in trying to negotiate rights-of-way involving
Indian lands.
In January 2006, we reported that according to several
telecommunications service providers and tribal officials, obtaining a
right-of-way through Indian lands is a time-consuming and expensive
process that can impede service providers' deployment of
telecommunications infrastructure.[Footnote 24] The right-of-way
process on Indian lands is more complex than the right-of-way process
for non-Indian lands because BIA must approve the application for a
right-of-way across Indian lands. BIA grants or approves actions
affecting title on Indian lands, so all service providers installing
telecommunications infrastructure on Indian lands must work with BIA
or its contractor (a realty service provider) to obtain a right-of-way
through Indian lands.[Footnote 25] To fulfill the requirements of
federal regulations for rights-of-way over Indian lands and obtain BIA
approval, service providers are required to take multiple steps and
coordinate with several entities during the application process. These
steps must be taken to obtain a right-of-way over individual Indian
allotments as well as tribal lands. Several of the steps involve the
landowner, which could be an individual landowner, multiple
landowners, or the tribe, depending on the status of the land.
Specifically, the right-of-way process requires (1) written consent by
the landowner to survey the land; (2) an appraisal of the land needed
for the right-of-way; (3) negotiations with the landowner to discuss
settlement terms; (4) written approval by the landowner for the right-
of-way; and (5) BIA approval of the right-of-way application.[Footnote
26] One telecommunication service provider told us that an individual
Indian allotment of land can have over 200 owners, and federal
regulations require the service provider to gain approval from a
majority of them. The service provider stated that the time and cost
of this process is compounded by the fact that a telecommunications
service line often crosses multiple allotments. In addition, if the
service provider cannot obtain consent for the right-of-way from the
majority of landowners, the provider is forced to install lines that
go around the allotment, which is also expensive.
Rights-of-way can also be necessary to deliver energy to consumers. In
September 2004, we reported that the Copper Valley Electric
Association, a nonprofit rural electric cooperative, had been unable
to reach agreements with several individual Alaska Natives for rights-
of-way across their land.[Footnote 27] In 1906, the Alaska Native
Allotment Act authorized the Secretary of the Interior to allot
individual Alaska Natives a homestead of up to 160 acres.[Footnote 28]
We found 14 cases where conflict exists regarding Copper Valley's
rights-of-way within Native allotments. Resolution to a number of
these conflicts had been intermittently pursued since the mid-1990s,
but at the time of our report, only a few cases had been resolved
using existing remedies. Copper Valley had three remedies to resolve
these conflicts: (1) negotiating rights-of-way with Native allottees
in conjunction with BIA; (2) relocating its electric lines outside of
the allotment; or (3) exercising the power of eminent domain, also
known as condemnation, to acquire the land.[Footnote 29] We reported
that Copper Valley had ceased trying to resolve these conflicts
because it maintains that the existing remedies are too costly,
impractical, and/or potentially damaging to relationships with the
community. More importantly, Copper Valley officials told us that on
principle they should not have to bear the cost of resolving conflicts
that they believe the federal government had caused.
Section 1813 of the Energy Policy Act of 2005 required the Secretaries
of Energy and of the Interior to conduct a study of issues regarding
energy rights-of-ways on tribal land and issue a report to Congress on
the findings, including recommending appropriate standards and
procedures for determining fair and appropriate compensation to Indian
tribes for granting, expanding and renewing rights-of-way.[Footnote
30] Issued in May 2007, the study focused on rights-of-way for
electric transmission lines and natural gas and oil pipelines
associated with interstate transit and local distribution. The study
recommended that valuation of rights-of-way continue to be based on
terms negotiated between the parties and that if negotiations failed
to produce an agreement that has a significant regional or national
effect on the supply, price, or reliability of energy resources,
Congress should consider resolving such a situation through specific
legislation rather than making broader changes that would affect
tribal sovereignty or self-determination generally.
Certain Issues Related to the Legal Status of Tribes May Complicate
the Resolution of Disputes:
The unique legal status of tribes has resulted in a complex set of
rules that may affect economic development efforts. As we reported
earlier this year, as a general principle, the federal government
recognizes Indian tribes as "distinct, independent political
communities" with inherent powers of self-government.[Footnote 31]
Therefore, Indian tribes have sovereign immunity as well as plenary
and exclusive power over their members and territory subject only to
the limitations imposed by federal law. However, sovereign immunity
may influence a private company's decision to contract with an Indian
tribe and the limitations imposed by federal law on Indian tribes'
civil jurisdiction over non-Indians on Indian reservations may create
uncertainties regarding where lawsuits arising out of those contracts
can be brought.
Like the federal and state governments, Indian tribes are immune from
lawsuits unless they have waived their sovereign immunity in a clear
and unequivocal manner or a federal treaty or law has expressly
abrogated or limited tribal sovereign immunity. For example, the
Indian Tribal Economic Development and Contracts Encouragement Act of
2000 requires the Secretary of the Interior to approve any agreement
or contract with an Indian tribe that encumbers Indian lands for 7 or
more years; however, it prohibits the Secretary from approving the
agreement or contract unless it provides remedies for breaching the
agreement or contract, references a tribal law or court ruling
disclosing the tribe's right to assert sovereign immunity, or includes
an express waiver of sovereign immunity. If the tribe does not waive
its sovereign immunity in the agreement or contract, private companies
might be hesitant to undertake the work because they will not be able
to sue the tribe if any disputes arise. In addition to waiving
sovereign immunity in agreements or contracts on a case-by-case basis,
some tribes have formed separate entities to conduct business that are
not immune from lawsuits.
The Supreme Court has ruled that, as a general proposition, the
inherent sovereign powers of an Indian tribe do not extend to the
activities of non-tribal members.[Footnote 32] However, the Court has
also recognized two exceptions to this general proposition: (1) tribes
may regulate the activities of nonmembers who enter into consensual
relationships with the tribe or its members through commercial
dealing, contracts, leases, or other arrangements and (2) tribes may
exercise civil authority over the conduct of non-Indians on fee lands
within the reservation when that conduct threatens or has some direct
effect on the political integrity, economic security, or the health or
welfare of the tribe. In 2008, the Supreme Court ruled that a tribal
court did not have jurisdiction to adjudicate a discrimination claim
against a non-Indian bank brought by a company owned by tribal members
because neither of the exceptions applied.[Footnote 33] The court's
opinion focuses on the tribe's authority to regulate the bank's sale
of fee land it owned within the reservation rather than addressing
whether the tribal court had authority to hear the discriminatory
lending claim under the consensual relationship exception. However,
some private companies believe that this decision may not eliminate
all of the uncertainty as to the nature and extent of tribal court
jurisdiction that makes off-reservation businesses reluctant to trade
on Indian reservations or with tribal members who live on
reservations. For example, the brief filed by a railroad association
asked the court to adopt a brightline rule that tribal courts may not
exercise jurisdiction over claims against nonmembers absent clear and
unequivocal consent to tribal court jurisdiction. The association
argued that such a rule would ensure that litigation against nontribal
members will be addressed by a forum that the nonmember has agreed
affords acceptable law, procedure, and fundamental safeguards of
process and fairness.
Special Provisions for Gaming and Small Business Contracting:
In contrast to the unique issues that can cause uncertainty or pose
challenges to economic activity in Indian country, tribes can take
advantage of special provisions for gaming and small business
contracting. Indian gaming, a relatively new phenomenon, started in
the late 1970s when a number of Indian tribes began to establish bingo
operations as a supplemental means of funding tribal operations. In
1987, the U. S. Supreme Court ruled that state regulation of tribal
gaming would impermissibly infringe on tribal governments, thereby
barring state regulation of tribal gaming in states which did not
prohibit all forms of gaming.[Footnote 34] In response, the Indian
Gaming Regulatory Act of 1988 was enacted, which established a
regulatory framework to govern Indian gaming operations.[Footnote 35]
In section 2(4) of the act, Congress found that a principle goal of
federal Indian policy is to promote tribal economic development,
tribal self-sufficiency, and strong tribal government. To that end,
the act generally requires that the net revenues from tribal gaming
operations be used to (1) fund tribal government operations or
programs, (2) provide for the general welfare of the Indian tribe and
its members, (3) promote tribal economic development, (4) donate to
charitable organizations, or (5) help fund operations of local
government agencies. A tribe may distribute its net revenues directly
to tribal members, provided that the tribe has a revenue allocation
plan approved by BIA and meets certain other conditions.
According to the final report of the National Gambling Impact Study
Commission,[Footnote 36] gambling revenues have proven to be a
critical source of funding for many tribal governments, providing much
needed improvements in the health, education, and welfare of Indians
living on reservations across the United States. The National Indian
Gaming Commission reports that for 2009:
* 233 tribes operating 419 gaming operations generated $26.5 billion
in revenue (233 tribes represents about 40 percent of the 565
federally recognized tribes),
* the top 21 operations (or about 5 percent of all the operations)
generated 38.7 percent of all the revenues, and:
* the top 71 operations (or about 17 percent of all the operations)
generated 69.5 percent of all the revenues.
In addition, in 1986, a law was enacted that allowed Alaska Native
corporation (ANC)-owned businesses to participate in the Small
Business Administration's (SBA) 8(a) program--one of the federal
government's primary means for developing small businesses owned by
socially and economically disadvantaged individuals. This program
allows the government to award contracts to participating small
businesses without competition below certain dollar thresholds. Since
1986, special procurement advantages have been extended to ANC firms
beyond those afforded to other 8(a) businesses, such as the ability to
win sole-source contracts for any dollar amount. In April 2006, we
reported on the use of special procurement advantages by ANCs, and
found that 8(a) obligations to firms owned by ANCs increased from $265
million in fiscal year 2000 to $1.1 billion in 2004.[Footnote 37] In
fiscal year 2004, obligations to ANC firms represented 13 percent of
total 8(a) dollars. Sole-source awards represented about 77 percent of
8(a) ANC obligations for the six procuring agencies that accounted for
the vast majority of total ANC obligations over the 5-year period.
ANCs use the 8(a) program to generate revenue with the goal of
providing benefits to their shareholders, but the ANCs we reviewed did
not track the benefits provided to their shareholders specifically
generated from 8(a) activity. Thus, an explicit link between the
revenues generated from the 8(a) program and benefits provided to
shareholders is not documented. Benefits vary among corporations, but
include dividend payments, scholarships, internships, burial
assistance, land gifting or leasing, shareholder hire, cultural
programs, and support of the subsistence lifestyle. The special
procurement advantages for ANCs also generally apply to tribes and
Native Hawaiian organizations (NHO). To obtain more information on the
benefits these entities receive from participation in the 8(a)
program, SBA recently promulgated regulations that require each 8(a)
program participant owned by an ANC, tribe, or NHO to submit
information showing how the ANC, tribe, or NHO has provided benefits
to tribal or Native communities or tribal or Native members due to its
participation in the 8(a) program.[Footnote 38] The data submitted
should include information relating to funding cultural programs,
employment assistance, jobs, scholarships, internships, subsistence
activities, and other services provided by the ANC, tribe, or NHO to
the affected community. We have ongoing work looking at the use of
these special procurement advantages by ANCs, tribes, and NHOs.
Chairman Lankford, Ranking Member Connolly, and Members of the
Subcommittee, this concludes my prepared statement. I would be pleased
to answer any questions that you may have at this time.
GAO Contacts and Acknowledgments:
For further information about this testimony, please contact Anu K.
Mittal at (202) 512-3841 or mittala@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this statement. Jeffery D. Malcolm, Assistant
Director; Jeanette Soares, and Joe Thompson also made key
contributions to this statement.
[End of section]
Related GAO Products:
Department of the Interior: Major Management Challenges. [hyperlink,
http://www.gao.gov/products/GAO-11-424T]. Washington, D.C.: March 1,
2011.
Indian Country Criminal Justice: Departments of the Interior and
Justice Should Strengthen Coordination to Support Tribal Courts.
[hyperlink, http://www.gao.gov/products/GAO-11-252]. Washington, D.C.:
February 14, 2011.
Tax Expenditures: Available Data Are Insufficient to Determine the Use
and Impact of Indian Reservation Depreciation. [hyperlink,
http://www.gao.gov/products/GAO-08-731]. Washington, D.C.: June 26,
2008.
Federal Tax Policy: Information on Selected Capital Facilities Related
to the Essential Governmental Function Test. [hyperlink,
http://www.gao.gov/products/GAO-06-1082]. Washington, D.C.: September
13, 2006.
Indian Issues: BIA's Efforts to Impose Time Frames and Collect Better
Data Should Improve the Processing of Land in Trust Applications.
[hyperlink, http://www.gao.gov/products/GAO-06-781]. Washington, D.C.:
July 28, 2006.
Contract Management: Increased Use of Alaska Native Corporations'
Special 8(a) Provisions Calls for Tailored Oversight. [hyperlink,
http://www.gao.gov/products/GAO-06-399]. Washington, D.C.: April 27,
2006.
Indian Irrigation Projects: Numerous Issues Need to Be Addressed to
Improve Project Management and Financial Sustainability. [hyperlink,
http://www.gao.gov/products/GAO-06-314]. Washington, D.C.: February
24, 2006.
Telecommunications: Challenges to Assessing and Improving
Telecommunications For Native Americans on Tribal Lands. [hyperlink,
http://www.gao.gov/products/GAO-06-189]. Washington, D.C.: January 11,
2006.
Indian Tribes: EPA Should Reduce the Review Time for Tribal Requests
to Manage Environmental Programs. [hyperlink,
http://www.gao.gov/products/GAO-06-95]. Washington, D.C.: October 31,
2005.
Indian Economic Development: Relationship to EDA Grants and Self-
determination Contracting Is Mixed. [hyperlink,
http://www.gao.gov/products/GAO-04-847]. Washington, D.C.: September
8, 2004.
Alaska Native Allotments: Conflicts with Utility Rights-of-way Have
Not Been Resolved through Existing Remedies. [hyperlink,
http://www.gao.gov/products/GAO-04-923]. Washington, D.C.: September
7, 2004.
Welfare Reform: Tribal TANF Allows Flexibility to Tailor Programs, but
Conditions on Reservations Make it Difficult to Move Recipients into
Jobs. [hyperlink, http://www.gao.gov/products/GAO-02-768]. Washington,
D.C.: July 5, 2002.
Economic Development: Federal Assistance Programs for American Indians
and Alaska Natives. [hyperlink,
http://www.gao.gov/products/GAO-02-193]. Washington, D.C.: December
21, 2001.
[End of section]
Footnotes:
[1] 75 Fed. Reg. 60810 (Oct. 1, 2010); 75 Fed. Reg. 66124 (Oct. 27,
2010).
[2] Linda A. Riley, B. Nassersharif, and J. Mullen, Assessment of
Technology Infrastructure in Native Communities, a study based on a
survey of 48 Native communities, New Mexico State University, (Las
Cruces, N.Mex.: 1999), EDA project no. 99-07-13799.
[3] Act of June 18, 1934 (Indian Reorganization Act), ch. 576, 48
Stat. 984-988 (1934), codified as amended at 25 U.S.C. §§ 461-479.
[4] Department of the Interior regulations provide that zoning
ordinances do not apply to land in trust except as permitted by the
Secretary. 25 C.F.R. § 1.4.
[5] 25 C.F.R. pt. 151.
[6] The 5-million acre difference between these two figures represents
the net change of Indian land in trust from 1934. In addition to
Indian applicants seeking to have land converted to trust status,
Indian applicants can also seek to have land already in trust status
converted to fee status (which is subject to property tax) and tribes
and individual Indians can also lose trust lands through a variety of
means, including probate and foreclosure. These two processes result
in land "coming into trust" (referred to as acquisitions) and land
"going out of trust" (referred to as disposals). The regulations
governing taking land out of trust are in 25 C.F.R. pt. 152. For
example, for the calendar year ending December 31, 1997, BIA reported
acquiring about 360,000 acres and disposing of about 260,000 acres,
for a net increase in tribal and individual Indian trust acreage of
about 100,000 acres.
[7] GAO, Indian Issues: BIA's Efforts to Impose Time Frames and
Collect Better Data Should Improve the Processing of Land in Trust
Applications, [hyperlink, http://www.gao.gov/products/GAO-06-781]
(Washington, D.C.: July 28, 2006).
[8] Carcieri v. Salazar, 555 U.S. 379 (2009).
[9] For additional information on BIA's administrative process for
granting federal recognition and a list of newly recognized tribes see
GAO, Indian Issues: Improvements Needed in Tribal Recognition Process,
[hyperlink, http://www.gao.gov/products/GAO-02-49] (Washington, D.C.:
Nov. 2, 2001). Also see enclosure II of GAO, Indian Issues: BLM's
Program for Issuing Individual Allotments on Public Lands Is No Longer
Viable, [hyperlink, http://www.gao.gov/products/GAO-07-23R]
(Washington, D.C.: Oct. 20, 2006) and appendix II of GAO, Native
American Graves Protection and Repatriation Act: After Almost 20
Years, Key Federal Agencies Still Have Not Fully Complied with the
Act, [hyperlink, http://www.gao.gov/products/GAO-10-768] (Washington,
D.C.: July 28, 2010) for updated lists of new and restored tribes. The
Shinnecock Indian Nation of New York, the newest federally recognized
tribe, was recognized as of October 1, 2010. 75 Fed. Reg. 66124 (Oct.
27, 2010).
[10] Patchak v. Salazar, 646 F. Supp. 2d 72 (D.D.C. 2009), rev'd, 632
F.3d 702 (D.C. Cir. 2011) (remanding to district court for further
proceedings); Clark County v. Salazar, No. 11-00278 (D.C. Cir. filed
Jan. 31, 2011).
[11] GAO, Indian Programs: BIA's Management of the Wapato Irrigation
Project, [hyperlink, http://www.gao.gov/products/GAO/RCED-97-124]
(Washington, D.C.: May 28, 1997); GAO, Indian Programs: BIA Should
Streamline Its Processes for Estimating Land Rental Values,
[hyperlink, http://www.gao.gov/products/GAO/RCED-99-165] (Washington,
D.C.: June 30, 1999).
[12] Under these laws, EPA may authorize states to establish their own
standards and carry out a state program in lieu of the federal
program. State standards must meet or exceed federal requirements.
[13] The acts generally use the term "treat as states." EPA and most
Indian tribes prefer to use the term "treatment in the same manner as
a state."
[14] GAO, Indian Tribes: EPA Should Reduce the Review Time for Tribal
Requests to Manage Environmental Programs, [hyperlink,
http://www.gao.gov/products/GAO-06-95] (Washington, D.C.: Oct. 31,
2005).
[15] 97 F.3d 415 (10th Cir. 1996), cert. denied, 522 U.S. 965 (1997).
[16] Pub. L. No. 109-59, § 10211, 119 Stat. 1144, 1937 (2005).
[17] GAO, Federal Tax Policy: Information on Selected Capital
Facilities Related to the Essential Governmental Function Test,
[hyperlink, http://www.gao.gov/products/GAO-06-1082] (Washington,
D.C.: Sept. 13, 2006).
[18] Indian Tribal Government Tax Status Act, Pub. L. No. 97-473, §
202, 96 Stat. 2605 (1983), codified as amended at 26 U.S.C. § 7871(c).
[19] On August 9, 2006, the Internal Revenue Service published an
advanced notice of proposed rulemaking regarding the definition of
essential government function and solicited comments on a definition.
71 Fed. Reg. 45474 (Aug. 9, 2006).
[20] Pub. L. No. 111-5, § 1402, 123 Stat. 115, 351 (2009).
[21] 75 Fed. Reg. 39730 (July 12, 2010).
[22] 26 U.S.C. § 168(j). Indian reservation is defined as (1) Indian
reservations; (2) public domain Indian allotments; (3) former Indian
reservations in Oklahoma which are within the jurisdictional area of
an Oklahoma Indian tribe as determined by the Secretary of the
Interior and are recognized by the Secretary as eligible for trust
land status under applicable regulations in effect on the day of the
provision's enactment; (4) land held by incorporated Native groups,
regional corporations, and village corporations; (5) all land within
the limits of any Indian reservation under the jurisdiction of the
United States Government; (6) all dependent Indian communities; (7)
all Indian allotments, the Indian titles to which have not been
extinguished; and (8) any lands not within the limits of an Indian
reservation, part of a dependent Indian community, nor an allotment
which is either held by the United States in trust or held by any
Indian tribe or individual subject to a restriction by the United
States against alienation.
[23] GAO, Tax Expenditures: Available Data Are Insufficient to
Determine the Use and Impact of Indian Reservation Depreciation,
[hyperlink, http://www.gao.gov/products/GAO-08-731] (Washington, D.C.:
June 26, 2008).
[24] GAO, Telecommunications: Challenges to Assessing and Improving
Telecommunications For Native Americans on Tribal Lands, [hyperlink,
http://www.gao.gov/products/GAO-06-189] (Washington, D.C.: Jan. 11,
2006).
[25] The Indian Self-Determination and Education Assistance Act, as
amended, directs Interior, at the request of a tribe, to contract with
Indian tribes or tribal organizations to carry out the services and
programs the federal government provides to Indians. Therefore, as
authorized by the act, regional nonprofit corporations or tribal
entities can assume management of the realty function from BIA to
perform realty services for Indian lands. 25 U.S.C. § 450f.
[26] 25 C.F.R. § 169.3.
[27] GAO, Alaska Native Allotments: Conflicts with Utility Rights-of-
way Have Not Been Resolved through Existing Remedies, [hyperlink,
http://www.gao.gov/products/GAO-04-923] (Washington, D.C.: Sept. 7,
2004).
[28] Act of May 17, 1906 (Alaska Allotment Act), ch. 2469, 34 Stat.
197 (1906), repealed by Alaska Native Claims Settlement Act, Pub. L.
No. 92-203, § 18(a), 85 Stat. 688, 710 (1971).
[29] Lands allotted in severalty to Indians may be condemned for any
public purpose under the laws of the State or Territory where they are
located in the same manner as land owned in fee may be condemned, and
the money awarded as damages shall be paid to the allottee (25 U.S.C.
§ 357). Under Alaska state law a public utility may exercise the power
of eminent domain for public utility uses (Alaska Stat. § 42.05.631).
[30] Pub. L. No. 109-58, § 1813, 119 Stat. 594, 1127 (2005). Tribal
land is defined as any land or interests in land owned by any Indian
tribe, title to which is held in trust by the United States, or is
subject to a restriction against alienation under laws of the United
States.
[31] GAO, Indian Country Criminal Justice: Departments of the Interior
and Justice Should Strengthen Coordination to Support Tribal Courts,
[hyperlink, http://www.gao.gov/products/GAO-11-252] (Washington, D.C.:
Feb. 14, 2011).
[32] Montana v. United States, 450 U.S. 544 (1981).
[33] Plains Commerce Bank v. Long Family Land and Cattle Company, 554
U.S. 316 (2008). The non-Indian bank made operating loans to the
company owned by tribal members and accepted the deed to the company's
fee land inside the reservation but leased the land back to the
company, with an option to purchase it at the end of the lease. The
company did not exercise its option and the bank subsequently sold the
property to non-Indians. The company then sued the bank in tribal
court on a variety of claims, including claiming that the bank
discriminated against the company because it had sold the company's
land to non-tribal members on terms more favorable than those offered
to the company. The tribal court awarded the company an option to
purchase some of the land at issue, which effectively nullified the
bank's previous sale of that land to non-Indians.
[34] California v. Cabazon Band of Mission Indians, 480 U.S. 202
(1987).
[35] Pub. L. No. 100-497, 102 Stat. 2467 (1988), codified at 25 U.S.C.
§§ 2701-2721.
[36] The National Gambling Impact Study Commission, Final Report
(Washington, D.C.: June 18, 1999). The National Gambling Impact Study
Commission Act created the commission and required it to produce this
report. Pub. L. No. 104-169, 110 Stat. 1482 (1996).
[37] GAO, Contract Management: Increased Use of Alaska Native
Corporations' Special 8(a) Provisions Calls for Tailored Oversight,
[hyperlink, http://www.gao.gov/products/GAO-06-399] (Washington, D.C.:
Apr. 27, 2006).
[38] 76 Fed. Reg. 8222, 8264 (Feb. 11, 2011). Although the regulation,
13 C.F.R. § 124.604, requires reporting by each participant in the
8(a) program, the preamble to the regulation states that only parent
corporations and not the individual subsidiary 8(a) participants will
be required to submit this information. Generally, the new regulation
became effective on March 14, 2011. However, SBA decided to delay the
benefits reporting requirement to further study how the requirement
could best be implemented without imposing an undue burden on ANCs,
tribes, and NHOs. SBA has delayed the implementation for at least 6
months and noted that further delay may be necessary if the
refinements to the requirement take longer than 6 months. 76 Fed. Reg.
8222, 8236 (Feb. 11, 2011).
[End of section]
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