On January 24, 2008, Sen. Max Baucus, D-Montana, spoke during a news conference on the economy on Capitol Hill in Washington D.C. (AP Photos/Susan Walsh, File)

Setting the Table for Pro-Tribal Tax Policy

Rob Capriccioso
2/6/12

WASHINGTON— The U.S. Department of Treasury has released a report to Congress that supports granting the same kind of bonding authority to tribes as currently granted to states and localities. With this, the executive branch has taken a major step toward supporting increased finance opportunities for tribes.

The authority recommended by the department would allow tribal governments to issue tax-exempt bonds free of the Internal Revenue Service’s current restrictions that generally limit tribal tax-exempt financings. Under current rules, tribes can only use municipal bonds to finance projects with an “essential governmental function,” such as schools or water treatment facilities.

Treasury’s support comes after an experiment contained within the American Recovery and Reinvestment Act of 2009, which granted this type of authority to tribes for two years. Since the law was passed, tribes such as the Reno-Sparks Indian Colony, which opened a 65,000 square foot health facility in 2007, were able to utilize the bond financing incentives to develop their project further, aiding in both the health and economy of the reservation.

The ARRA experiment was a success, Treasury concludes in its report, although few tribes were prepared to take advantage of the terms. The IRS estimates that up to 97 percent of the $2 billion allocated to tribes under the law was not utilized.

Tribal officials say the lack of participation was due to a number of factors, including the economic downturn, the tight credit market, and prior Treasury guidance that led to a great deal of uncertainty in the tribal tax-exempt market. This uncertainty, they say, effectively deterred investor participation making it difficult for tribes to secure access to the tax-exempt market.

Notably, the authority granted to tribes under ARRA mandated that financed projects had to be on reservations and not involve gaming. Treasury continues to make the same recommendation on gaming, but it says that tribes should be able to use gaming revenues to repay or provide security for tax-exempt municipal bonds.

The department says that municipal bonds should be used to finance not only reservation projects, but also to finance those that are either nearby,  “have a substantial connection” to the reservation, or provide goods and services to reservation residents.

Treasury also challenges Congress to find ways to make the bonds more attractive to investors and to look for ways to secure or capitalize smaller tribal projects.

Tom Rodgers, a Blackfeet lobbyist with Carlyle Consulting, hails Treasury’s recommendations, noting that tribal governments have for almost a decade argued that they are unfairly held to a higher standard for bond issuance than states and localities.

“The excuses against tribes are slowly coming off the table,” Rodgers said. “The table is getting set to make this happen.”

Rodgers said that Treasury’s supportive report symbolizes the culmination of years of intense advocating from tribes on a not-well-understood financial issue that could lead to economic progress on many reservations.

The next big hurdle will be to get Congress to take note of Treasury’s report, and to support legislation to make it a reality.

Bill Lomax, president of the Native American Finance Officers Association, said the issue shouldn’t be partisan and, he noted that if it passes, the economies of not only tribes—but also the greater nation—would be served well.

“It is our hope that the Senate Committee on Finance and the House Ways and Means Committee will begin drafting legislation around these recommendations as soon as possible,” Lomax said. “This issue has enjoyed bi-partisan support in the past. With tax issues taking on a prominent role this year with a number of must-pass issues like the payroll tax and the extenders, we are hoping to work with Congress on moving this issue forward for tribes.”

Senate Finance Committee Chairman Max Baucus, D-Montana, is widely known by tribal leaders to be engaged on this issue, so the hope is that his enthusiasm will rub off on more colleagues.

House Republicans have previously fought the issue, arguing that financing gaming is a concern. The issue could come up again, but tribal advocates say it is navigable, especially in the current economic climate. Sen. Tom Coburn, R-Okla., has also been a recent foe of the tribal incentive.

The best selling point to Congress, according to some tribal leaders, is that this plan would only require a no-cost change in legislation at a time when legislators want to cut back on spending, yet still grow the economy.

“We have the momentum,” Rodgers said, “and now we have to close the deal.”

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