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Position Your Tribal Community as a New Market

Tex Hall
3/15/12

Late last month the U.S. Treasury announced $3.6 billion in New Markets Tax Credit (NMTC) allocations. Now the dust has settled and project sponsors—cities, counties, private developers, non-profits and others—are positioning their projects to take advantage of NMTC financing. Now is the time for tribal leaders to do the same. As a Tribal Chairman I am always looking for new ways to attract outside capital to my reservation and neighboring community. I can use the NMTC to offer an incentive that makes my tribe's lands stand out to potential private investors.

The NMTC was just replenished, but it remains a very scarce resource. In fact, unless Congress acts to re-authorize the program this ninth annual allocation will be the last. That means project sponsors—Tribes, non-profits serving Native communities, Alaska Native Corporations, Native Hawaiian groups, individual Native Entrepreneurs—must move quickly to tap this resource. Tribal leaders need to discuss NMTC re-authorization in all of their conversations with Congress. Also, moving quickly to take advantage of NMTC opportunities in Indian Country will create even more NMTC availability for tribal economic development projects. In other words, what in NMTCs we don't use, we may lose.

When seeking NMTC financing, Indian country has a built-in advantage: community development entities (CDE)—the organizations that receive the NMTC allocations and direct them to projects—have strong incentives to work in rural areas. That’s of course Indian Country. Tribes can use the NMTC as an incentive to do the following: attract outside employers to locate on your reservation, complete a project-in-progress that has a funding gap, obtain working capital or construction financing for a new tribal business or a new tribal community facility or infrastructure project. CDEs are actively seeking rural projects. You can use your rural location to attract NMTC interest and then use the NMTC financing to create new development and employment opportunities for your people and for your off-reservation neighbors.

Organizations across Indian country have already used the NMTC to do amazing things. By working with CDEs like Travois New Markets (Travois.com) and NMTC investors like US Bancorp Community Development Corporation, Indian Ventures and Wells Fargo Bank, Tribes, Alaska Native groups and Native Hawaiian organizations have built businesses, community facilities and infrastructure. Those project sponsors, Little Big Horn College for example, get the benefit of a private sector transaction (quick delivery of funding) with the oversight of a federal community development program (the Treasury monitors CDEs and holds them accountable to their project communities).

If you are working on a tribal governmental or business project and you need gap financing, operating capital or capital to purchase an asset, find a CDE that is willing to work with you now. Assemble the right team—get your attorney on board with the concept early in the process. When you engage with a CDE and NMTC investor, make your expectations and goals clear at the outset. Make sure your partners understand, in the case of a tribal government, that you are balancing the need for funding and the long-term goal of preserving and promoting Indian sovereignty. This includes everything from incorporating the proper dispute resolution language into any NMTC agreements that respects your sovereignty, all the way to ensuring the proposed investment will create jobs and build wealth in your community.

As you explore this program, you might run into people who think the program is too complicated or ill-suited for use in Indian country. There are a few important things to understand. First of all, even though the NMTC is part of the federal tax code, tax-exempt entities like tribal governments and non-profits serving Indian people can still benefit from the program. The NMTC investment takes place between the NMTC investor (Indian Ventures, for example) and the CDE (Travois, for example). The tribal project is a recipient of the funds but does not enter into a partnership or corporate entity with the NMTC investor. This is important. If one of your goals is to maintain 100% Tribal ownership over a venture, the outside capital coming into your project will not change that ownership percentage. Second of all, you may be thinking that your Tribe has had trouble seeking private financing in the past, so how would a private financing system like the NMTC be any different? CDEs and NMTC investors have a mandate and a mission to provide capital to your rural, reservation community on terms that are more favorable and affordable than non-NMTC financing. For example, if your project has a loan-to-value ratio or debt-service-coverage ratio that is out of line with typical private investor expectations, the NMTC can still accommodate your project.

Notwithstanding the strides Indian Country has made in true last few decades in the capital markets, outside investors may already have a fixed perception, or misperception, of your tribe and its affiliated entities in terms of credit "worthiness." You can use the NMTC to change that perception—raising private capital and pushing your loan request, investment inquiry or project proposal to the top of the stack. In turn, the NMTC can get your tribal projects completed, your buildings built and your reservations improved, and your people to work.

Tex Hall is an experienced business and government leader who currently serves as the Chairman of the Mandan, Hidatsa and Arikara Nation. He serves on the Travois New Markets advisory board and has served on other CDE advisory boards in the past.

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beaver's picture
You say, "If one of your goals is to maintain 100% Tribal ownership over a venture, the outside capital coming into your project will not change that ownership percentage." That is incorrect. The instant you invite outside capital, you lose control and the White capitalists assume the control. I know there is much lobbying and pressure to open up Indian Country to capitalists. But the biggest mistake we can make is to invite White capitalists onto Indian land. We should learn from what happened when we opened up Turtle Island to White traders. If we don't remember our mistakes, we are condemned to repeat tragic history. Your editorial is quite dangerous!
beaver