Treasury Calls Congress to Action on Tribal Capital

Dante Desiderio

Congress all but guaranteed tribal finance to be a clear winner in the American Recovery & Reinvestment Act. Included in the Act were two provisions that held the promise of jumpstarting local tribal economies (or at the very least, providing relief) and leveling the public financing playing field that, for more than two decades, was clearly tilted heavily in the favor of any and every other local government or authority. Good intentions from Congress, however, ran squarely into harsh economic realities, past influences coming home to roost, and a steep learning curve that is trending in the right direction, but taking more time to work through.

The first provision in the Act was the substantial allocation of $2 billion in typically lower-cost tax-exempt bonding authority made available to tribal governments for economic development purposes. The intent was to spark economic development with open access to the same tax-exempt financing as state and local governments. Included in the authorized use of the allocation was the ability to refinance existing taxable debt. Economic development in this case meant everything except the direct financing of gaming facilities. The allocation was divided into two $1 billion pools and allocated over time.

According to the IRS, up to a stunning 95 percent or more of the initial allocation is still up for grabs and will be allocated this year under new guidelines for accessing the debt. New guidelines may be useful, but they don’t fully explain why tribes have been able to use only 5 percent in three years of what other governments call an essential financing tool. Why has such a small percentage been used to date? There is no one answer to the question and to make the allocation work, a number of factors need to be addressed.

An irony that can’t be overlooked is that the federal government finally leveled the playing field for tribes by opening up the bonding authority for tribes at the worst possible time. Granted, interest rates are historically low; however, the authority was granted during what turned out to be one of the deepest and longest economic downturns in our nation’s history. Adding to the irony is an extensive credit disaster that left banks and investment firms unwilling or unable to lend. Trying to secure debt in this environment is difficult enough; still, tribes had other difficulties to navigate.

The $1 billion pools of newly available capital were over-subscribed. The Department of Treasury responded by trying to accommodate all requests regardless of a tribe’s ability to secure credit or use the allocation any time soon. As a result, the most a tribe could utilize was about $30 million. This imposed cap added expense and legal obstacles for tribes needing more capital or wishing to finance multiple projects. This forced tribes to navigate different lenders or types of financing.

Finally, because of past actions by the IRS, the capital markets have largely stopped funding tribal economic development projects. The perceived risk and inconsistent private letter ruling on what constituted an essential government function made the market unattractive.

The good news from all of this is threefold. First, Treasury and IRS have been willing to fix some of the issues that have hindered access. New guidelines due out shortly should make it easier for tribes to access the capital and use it in a timely manner.

Second, the $2 billion in allocation does not expire, which means tribes will have access to the debt while the economy and credit markets heal.

Third, and probably most significant, is that the second provision in the Act offers the possibility of permanent relief beyond the $2 billion limited authorization for tax-exempt economic development bonds. The Department of Treasury has issued a report, as required in the Act, which strongly recommends that Congress get rid of the unfair essential government function test. This would be a noteworthy advance for tribes in itself, but Treasury has gone further in the report by challenging Congress to address the inability of tribes to access affordable capital and make the purchase of tribal bonds attractive enough to incent the tax-exempt debt market to come into Indian Country.

With the Department of Treasury challenging Congress to find solutions, it becomes incumbent upon us in the tribal community to make sure Congress gets it right. Getting it right means challenging Congress to use lessons learned by the tribes and agencies, ensuring existing barriers are removed in the law, and providing the right incentives to attract the public capital markets to tribal governments. After all, tribal governments rely on revenue from economic development more than most other governments.

Dante Desiderio currently serves as the Executive Director of the Native American Finance Officers Association (NAFOA). Established 30 years ago, NAFOA is a national non-profit organization providing leadership and resources needed for tribal leaders to direct economic growth and change. Prior to joining NAFOA, he served as the Director of Economic Policy for the National Congress of American Indians (NCAI). Dante is a member of the Sappony where he serves in an advisory capacity on issues related to community and economic development. He holds a Certified Financial Planner designation and a B.A. in political science and economics from the University of Maryland.

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ST. THOMAS - Former Gov. John Merwin, the first native Virgin Islander to be appointed governor in the territory, died Sunday at 91.A Republican, Merwin was elected to the V.I. Legislature as senator at-large in 1954, right after the adoption of the Revised Organic Act. He served two terms and then was appointed to the position of government secretary - the position which is now known as the lieutenant governor - by President Dwight Eisenhower in 1957.The next year, Eisenhower appointed Merwin governor. Sworn in the day before his 38th birthday, Sept. 26, 1958, Merwin served as the eighth appointed governor of the Virgin Islands, until he was succeeded by Ralph Paiewonsky in 1961. Merwin was born on St. Croix in 1921, the oldest boy in a family of six siblings. He attended grammar school in Antigua, the University of Lausanne in Switzerland and the University of Puerto Rico. He graduated from Yale University in 1943 before going into the Army, where he served in World War II as a captain of artillery.When he returned from war, Merwin went to law school, earning his degree from George Washington University.He started a law practice on St. Croix before he was called away to serve in the Korean War.Upon his return to the territory, Merwin began his political career.According to his younger brother, Robert Merwin, John Merwin spoke French and Spanish fluently and in his retirement wrote several books, including "The Bartered Virgins, The little mermaid of Copenhagen, Denmark," a history of the transfer of the Virgin Islands from Denmark to the United States, and a memoir titled "A Life of Friendships."In the territory, John Merwin was known as an attorney, a V.I. senator and governor, but he also worked in the international banking industry and the publishing industry for years after his political career ended. "He was very highly thought of by everyone in the community," Robert Merwin said.While governor, John Merwin was instrumental in the territory's economic development, particularly on St. Croix.Robert Merwin said his brother worked with the Rockefeller family when they acquired Caneel Bay on St. John and donated land to the Park Service.He also signed the contract to build the Frederiksted Deep Water Pier, which allowed the Hess oil refinery and the Harvey aluminum plant to set up shop on St. Croix. "He had a lot to do with helping the territory attract those businesses," Robert Merwin said.John Merwin also was an inspiration to many Virgin Islanders to go into politics, according to his brother. He appointed Melvin Evans as his Health commissioner and later convinced Evans to become a member of the Republican party so that he could be appointed governor.John Merwin worked closely with Frits Lawaetz and considered Ariel Melchoir Sr. an advisor, Robert Merwin said.Gov. John deJongh Jr.'s father and grandfather both worked under John Merwin's administration. John deJongh Sr. was his chief of staff, and Percy deJongh led the Finance Department."John Merwin was an important leader for the Virgin Islands who helped shape the political landscape at a crucial time in the territory's history," Gov. John deJongh Jr. said in a prepared statement. "He was a trailblazer in local politics who worked to bring native Virgin Islanders into positions of prominence within the government. His legacy was an important factor in our territory's progress toward greater autonomy and self-rule."Senate President Shawn-Michael Malone also issued a statement acknowledging John Merwin's service to the Virgin Islands. "On behalf of the members and staff of the 30th Legislature of the Virgin Islands, I join a saddened community in paying tribute to the notable public service of former Governor John D. Merwin who has left us after a lifetime of contributions to his native land in numerous fields of endeavor," Malone said.Delegate to Congress Donna Christensen said among his many accomplishments as governor, John Merwin worked to boost tourism in the Virgin Islands and was a strong supporter of representation of the Virgin Islands in the U.S. Congress."As the eighth appointed governor, he was our first native-born Crucian and he may be the first 'politician' to serve as Governor," Christensen said in a prepared statement. "He is remembered for his concern for the interests of local Virgin Islanders and the advancement of the territory."John Merwin came back to government service under Evans' administration, working with the V.I. Port Authority. He later returned to private law practice, which he turned over to former Judge Edgar Ross when he retired and moved to New Hampshire.In recent years, John Merwin was living in Ohio, where he died peacefully in his sleep Sunday morning, his brother said.He is survived by his son, John Merwin II; his wife, Marjorie; and several siblings. Robert Merwin said his brother will be interred in Milford, Conn., in the family plot in the spring. No services are planned at this time. In John Merwin's honor, Gov. John deJongh Jr. directed that flags on all Virgin Islands public buildings be flown at half-staff from today until sunset on the day of interment.- Contact reporter Aldeth Lewin at 714-9111 or email alewin@dailynews.vi.