[Senate Hearing 107-488]
[From the U.S. Government Publishing Office]
S. Hrg. 107-488
INDIAN FINANCING ACT AMENDMENTS OF 2002
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON INDIAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
ON
S. 2017
TO AMEND THE INDIAN FINANCING ACT OF 1974 TO IMPROVE THE EFFECTIVENESS
OF THE INDIAN LOAN GUARANTEE AND INSURANCE PROGRAM
__________
APRIL 24, 2002
WASHINGTON, DC
80-119 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2002
____________________________________________________________________________
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COMMITTEE ON INDIAN AFFAIRS
DANIEL K. INOUYE, Hawaii, Chairman
BEN NIGHTHORSE CAMPBELL, Colorado, Vice Chairman
FRANK MURKOWSKI, Alaska KENT CONRAD, North Dakota
JOHN McCAIN, Arizona, HARRY REID, Nevada
PETE V. DOMENICI, New Mexico DANIEL K. AKAKA, Hawaii
CRAIG THOMAS, Wyoming PAUL WELLSTONE, Minnesota
ORRIN G. HATCH, Utah BYRON L. DORGAN, North Dakota
JAMES M. INHOFE, Oklahoma TIM JOHNSON, South Dakota
MARIA CANTWELL, Washington
Patricia M. Zell, Majority Staff Director/Chief Counsel
Paul Moorehead, Minority Staff Director/Chief Counsel
(ii)
C O N T E N T S
----------
Page
S. 2017, text of................................................. 2
Statements:
Bono, Hon. Mary, U.S. Representative from California......... 11
Campbell, Hon. Ben Nighthorse, U.S. Senator from Colorado,
vice chairman, Committee on Indian Affairs
or appearing, Mary. It sounds like you are certainly doing your homework. Financing was never my long suit, although I was on the Banking Committee for a few years here in the Senate. But certainly it is very well needed, and I appreciate you appearing.
If you need to run, why go ahead. I will finish my statement and we will go
ahead and take testimony, but I look forward to trying to move this bill
through.
Ms. Bono. As do I, Senator. Thank you very much. Thank you all.
STATEMENT OF HON. BEN NIGHTHORSE CAMPBELL, U.S. SENATOR FROM COLORADO,
VICE CHAIRMAN, COMMITTEE ON INDIAN AFFAIRS
Senator Campbell. In 1974, 4 years after President Nixon issued his now-
famous special message to Congress on Indian Affairs, Congress passed the
Indian Financing Act, which in turn created the Indian Loan Guarantee and
Insurance Fund to provide Native Americans access to private money sources
that would otherwise be unavailable.
Since Congress enacted this law, the Secretary of the Interior is
authorized to ensure and guarantee the repayment of small business loans to
qualified Native American borrowers issued by private banks and lenders.
Oftentimes, these loans represent the first relationship tribal borrowers
andng Act Amendments of 2002. Thank you.
Senator Campbell. Thank you for appearing, Mary. It sounds like you are
certainly doing your homework. Financing was never my long suit, although I
was on the Banking Committee for a few years here in the Senate. But
certainly it is very well needed, and I appreciate you appearing.
If you need to run, why go ahead. I will finish my statement and we will go
ahead and take testimony, but I look forward to trying to move this bill
through.
Ms. Bono. As do I, Senator. Thank you very much. Thank you all.
STATEMENT OF HON. BEN NIGHTHORSE CAMPBELL, U.S. SENATOR FROM COLORADO,
VICE CHAIRMAN, COMMITTEE ON INDIAN AFFAIRS
Senator Campbell. In 1974, 4 years after President Nixon issued his now-
famous special message to Congress on Indian Affairs, Congress passed the
Indian Financing Act, which in turn created the Indian Loan Guarantee and
Insurance Fund to provide Native Americans access to private money sources
that would otherwise be unavailable.
Since Congress enacted this law, the Secretary of the Interior is
authorized to ensure and guarantee the repayment of small business loans to
qualified Native American borrowers issued by private banks and lenders.
Oftentimes, these loans represent the first relationship tribal borrowers
andgly self- sufficient and economically vibrant communities.
Thank you again, Senator Campbell, for your leadership on this bill and for
allowing me to testify today on the Indian Financing Act Amendments of
2002. Thank you.
Senator Campbell. Thank you for appearing, Mary. It sounds like you are
certainly doing your homework. Financing was never my long suit, although I
was on the Banking Committee for a few years here in the Senate. But
certainly it is very well needed, and I appreciate you appearing.
If you need to run, why go ahead. I will finish my statement and we will go
ahead and take testimony, but I look forward to trying to move this bill
through.
Ms. Bono. As do I, Senator. Thank you very much. Thank you all.
STATEMENT OF HON. BEN NIGHTHORSE CAMPBELL, U.S. SENATOR FROM COLORADO,
VICE CHAIRMAN, COMMITTEE ON INDIAN AFFAIRS
Senator Campbell. In 1974, 4 years after President Nixon issued his now-
famous special message to Congress on Indian Affairs, Congress passed the
Indian Financing Act, which in turn created the Indian Loan Guarantee and
Insurance Fund to provide Native Americans access to private money sources
that would otherwise be unavailable.
Since Congress enacted this law, the Secretary of the Interior is
authorized to ensure and guarantee the repayment of small business loans to
qualified Native American borrowers issued by private banks and lenders.
Oftentimes, these loans represent the first relationship tribal borrowers
andor appearing, Mary. It sounds like you are certainly doing your
homework. Financing was never my long suit, although I was on the Banking
Committee for a few years here in the Senate. But certainly it is very well
needed, and I appreciate you appearing.
If you need to run, why go ahead. I will finish my statement and we will go
ahead and take testimony, but I look forward to trying to move this bill
through.
Ms. Bono. As do I, Senator. Thank you very much. Thank you all.
STATEMENT OF HON. BEN NIGHTHORSE CAMPBELL, U.S. SENATOR FROM COLORADO,
VICE CHAIRMAN, COMMITTEE ON INDIAN AFFAIRS
Senator Campbell. In 1974, 4 years after President Nixon issued his now-
famous special message to Congress on Indian Affairs, Congress passed the
Indian Financing Act, which in turn created the Indian Loan Guarantee and
Insurance Fund to provide Native Americans access to private money sources
that would otherwise be unavailable.
Since Congress enacted this law, the Secretary of the Interior is
authorized to ensure and guarantee the repayment of small business loans to
qualified Native American borrowers issued by private banks and lenders.
Oftentimes, these loans represent the first relationship tribal borrowers
andry. It sounds like you are certainly doing your homework. Financing
was never my long suit, although I was on the Banking Committee for a few
years here in the Senate. But certainly it is very well needed, and I
appreciate you appearing.
If you need to run, why go ahead. I will finish my statement and we will go
ahead and take testimony, but I look forward to trying to move this bill
through.
Ms. Bono. As do I, Senator. Thank you very much. Thank you all.
STATEMENT OF HON. BEN NIGHTHORSE CAMPBELL, U.S. SENATOR FROM COLORADO,
VICE CHAIRMAN, COMMITTEE ON INDIAN AFFAIRS
Senator Campbell. In 1974, 4 years after President Nixon issued his now-
famous special message to Congress on Indian Affairs, Congress passed the
Indian Financing Act, which in turn created the Indian Loan Guarantee and
Insurance Fund to provide Native Americans access to private money sources
that would otherwise be unavailable.
Since Congress enacted this law, the Secretary of the Interior is
authorized to ensure and guarantee the repayment of small business loans to
qualified Native American borrowers issued by private banks and lenders.
Oftentimes, these loans represent the first relationship tribal borrowers
and
Edelman, Marcia Warren, economic development consultant,
National Congress of American Indians...................... 15
McGuire, Kevin, president, Palm Desert National Bank......... 22
Minthorn, Les, treasurer, Board of Trustees, Confederated
Tribes of the Umatilla Indian Reservation.................. 13
Appendix
Prepared statements:
Edelman, Marcia Warren....................................... 29
McGuire, Kevin............................................... 31
Minthorn, Les................................................ 27
Thomas, Hon. Craig, U.S. Senator from Wyoming................ 27
Additional material submitted for the record:
Carl, Chester, chairman, Coalition for Indian Housing and
Development, letter........................................ 33
McGaughey, William H., senior vice president, Bank of the
West, letter............................................... 35
INDIAN FINANCING ACT AMENDMENTS OF 2002
----------
WEDNESDAY, APRIL 24, 2002
U.S. Senate,
Committee on Indian Affairs,
Washington, DC.
The committee met, pursuant to notice, at 10 a.m. in room
485, Russell Senate Building, Hon. Ben Nighthorse Campbell
(vice chairman of the committee) presiding.
Present: Senator Campbell.
STATEMENT OF HON. BEN NIGHTHORSE CAMPBELL, U.S. SENATOR FROM
COLORADO, VICE CHAIRMAN, COMMITTEE ON INDIAN AFFAIRS
Senator Campbell. Good morning and welcome to the
committee's hearing on S. 2017, the Indian Financing Act
Amendments of 2002, legislation I introduced on March 14 of
this year, joined by our chairman, Senator Inouye.
[Text of S. 2017 follows:]
Senator Campbell. I would like to extend a special welcome
to our colleague and friend from the House side, Congresswoman
Bono from California's 44th District. Congresswoman Bono has
introduced H.R. 3407, the Indian Finance Act Reform Amendment,
the House counterpart to the legislation that is before us
today.
Mary, thank you for appearing. I understand you have a
10:15 a.m., meeting a very tight commitment, so I am going to
forego my opening statement or finish it after you have made
your presentation. If any other members show up while you are
making it, I will ask them to do the same.
With that, if you would like to proceed?
STATEMENT OF HON. MARY BONO, U.S. REPRESENTATIVE FROM
CALIFORNIA
Ms. Bono. Thank you, Senator, for allowing me to go
quickly. I do have something on the floor first thing, so I
will run from here to there.
I really want to thank you for the opportunity to testify
before your committee on S. 2017, the Indian Financing Act
Amendments of 2002, which is the Senate counterpart to my House
legislation, H.R. 3407. Mr. Campbell, your leadership on the
Senate legislation is to be applauded as its role in
encouraging economic development on Native American lands will
be crucial.
With the enactment of the Indian Financing Act of 1974,
Congress instituted the Indian Loan Guarantee and Insurance
Fund. In turn, this law allowed the Secretary of the Interior
to ensure and guarantee the repayment of small business loans
to qualified Native American borrowers. These loans are unique
in the Native American community in that they are issued by
private lenders and provide not only financial assistance to
tribes who may otherwise not be able to secure financing, but
also the incentive for Native American-owned small businesses
to invest substantially in their future.
Being a former small business owner myself, I am aware of
the many financial challenges a new enterprise faces in its
first few years. Securing vital loans to finance a new business
helps all individuals to realize their dreams of economic
opportunity and independence. I also understand, however, that
we must work to minimize Government small business intrusion,
both on the regulatory level and on the fiscal level. S. 2017
serves this need by providing a clear uniformity in lending
that does not currently exist. Further, this amendment will
come at no cost to the Federal Government.
This legislation provides a strong path toward expansion of
tribal lending as can be seen in the evolution of a similar
loan guarantee program within the Small Business
Administration. In particular, the passage of this legislation
will help to encourage a stronger relationship between private
lenders and the communities they assist. One of the important
aspects of the SBA Revolving Loan Program is the Federal
Government's guarantee of full repayment of the loan should the
loan default. Currently under the BIA's existing Indian Loan
Guarantee and Insurance Fund, a loan does not have this Federal
Government guarantee, which is a disincentive for lenders to
work with Native Americans looking to start their own
businesses.
S. 2017 will provide this notion of a guarantee of full
repayment of the loans if a loan defaults. Further, smaller
banks such as Palm Desert National Bank in California's 44th
Congressional District, which I represent, are not easily
accessible for financing tribal economies because of the
existing law. S. 2017 will allow for liquidity in the loan
process that provide smaller banks and investors the
opportunity to rid themselves of the burden that a 30-year loan
can have on the capital that they have on hand.
Further, currently the secondary market investors are not
offered uniformity in the way that they are able to pool their
loans and then sell pieces of this pool. This tends to spread
and minimize the risk of default among a number of investors.
Thus, we are able to help both smaller banking institutions, as
well as those tribes in lands in more rural areas of our
country.
I am encouraged by the prospect of employing the principles
of entrepreneurship which the Indian Financing Act Amendments
of 2002 offers to potential and current Native American small
business owners. Only through the mutually beneficial
relationship between the Interior Department and the private
lending community and tribal entrepreneurs can we offer Native
Americans the financial tools to help their tribal economies
expand and flourish.
Serious consideration and passage of legislation such as S.
2017 and H.R. 3407 in the House will further encourage the
growth of small businesses that empowers tribes an excites
development and substantive growth. It is my hope that this
committee will recognize the importance of this legislation
being another key to allowing Native Americans across the
country realize their potential to become increasingly self-
sufficient and economically vibrant communities.
Thank you again, Senator Campbell, for your leadership on
this bill and for allowing me to testify today on the Indian
Financing Act Amendments of 2002. Thank you.
Senator Campbell. Thank you for appearing, Mary. It sounds
like you are certainly doing your homework. Financing was never
my long suit, although I was on the Banking Committee for a few
years here in the Senate. But certainly it is very well needed,
and I appreciate you appearing.
If you need to run, why go ahead. I will finish my
statement and we will go ahead and take testimony, but I look
forward to trying to move this bill through.
Ms. Bono. As do I, Senator. Thank you very much. Thank you
all.
STATEMENT OF HON. BEN NIGHTHORSE CAMPBELL, U.S. SENATOR FROM
COLORADO, VICE CHAIRMAN, COMMITTEE ON INDIAN AFFAIRS
Senator Campbell. In 1974, 4 years after President Nixon
issued his now-famous special message to Congress on Indian
Affairs, Congress passed the Indian Financing Act, which in
turn created the Indian Loan Guarantee and Insurance Fund to
provide Native Americans access to private money sources that
would otherwise be unavailable.
Since Congress enacted this law, the Secretary of the
Interior is authorized to ensure and guarantee the repayment of
small business loans to qualified Native American borrowers
issued by private banks and lenders. Oftentimes, these loans
represent the first relationship tribal borrowers and the
private commercial banks have ever had with each other.
Oftentimes, these relationships are critical in helping to
bring valuable economic development dollars to reservation
lands.
Although the need of capital in Indian communities far
outstrips the amount, the Indian Loan Guarantee and Insurance
Program has grown over the past 28 years to where it is now
guaranteeing something like $75 million in loans annually to
Native Americans. The Mortgage Finance News has recently
reported that for housing finance alone, there is a $2.7
billion pent-up demand in Native communities. The Native
American Lending Study published in November 2001 by the
Community Development Financial Institutions shows that there
are great unmet needs in Native communities for capital and
liquidity. Those unmet needs are holding back the growth of
Indian economies.
We often hear from Indian tribes, as well as lenders from
across the country, who have told us that a major problem
restraining their participation in the BIA's loan program is
the lending institution's lack of liquidity once the loan is
made. These small business loans tend to stay on the books for
a long time. They are paid down, but not as rapidly refinanced
as conventional loans. Therefore, a bank has its capital tied
up in these loans and cannot easily turn around and use that
capital again.
The Indian Financing Act Amendments of 2002 direct the
Secretary of the Interior to take steps to encourage the
creation of an efficient secondary market for Native American
loans or loan guarantees made by the Department of the
Interior.
We will go ahead and proceed with our witnesses. We will
start with our second panel. That will be Les Minthorn, the
treasurer of the Board of Trustees of Confederated Tribes of
the Umatilla Reservation in Pendleton, OR, and Marcia Warren
Edelman, economic development consultant for the National
Congress of American Indians here in Washington, DC.
Thank you, and if you would like to go ahead and start,
Les, please do.
STATEMENT OF LES MINTHORN, TREASURER OF THE BOARD OF TRUSTEES,
CONFEDERATED TRIBES OF THE UMATILLA INDIAN RESERVATION
Mr. Minthorn. Thank you.
I have a prepared statement here, but I would just like to
summarize.
Senator Campbell. It will be included in the record.
Mr. Minthorn. In 1969 in our community we had a firm here
in Washington, DC called Ernst and Ernst that provided a study
on some of the unmet needs and needs assessment of our
reservation. In that study in 1969, it provided for a golf
course, a hotel, and RV park, gas store and those kind of
things in 1969. And you just mentioned the 1974 Indian
Financing Act, and in 1975, the Indian Self-Determination Act
came about. In 1994 on our reservation, IDRA was implemented in
a small, modest way with a 100-machine facility. And in 1995,
we were able, you know, 26 years later, to develop a
relationship with our trustee to access this loan guarantee
program. And as a result of that, we were able to secure a
relationship with a bank that for those 26 years, you know,
nothing really happened on our reservation until we had the
loan guarantee program from the Interior Department that
provided us with a $10-million loan guarantee.
With that in hand, we were able to go ahead and do the
search for an institution that would deal with this. In that
search, we found that very few banks would talk to us, let
alone negotiate on our facilities that we needed financing for,
until we had a relationship built with a bank out of New
Mexico. That bank was probably the first one that we had our
teacher relationship with a bank on how to do the processing,
the negotiation on loans, and actual closing of those
documents.
So we did have a learning curve there, but it took us a
long time to develop that relationship with that banking
institution because of our building blocks that we needed as a
tribal government to develop that relationship, which has a lot
to do with trust. If they do not understand you and do not
understand the trust relationship, they tend to not want to do
business, much less trust you when you present your needs
assessment on a relationship for economic development.
So in those timeframes, those 26 years until we had this
relationship develop, that really what it did for us at
Umatilla in Eastern Oregon where we are located, is open doors
for other institutions. Once we had one bank deal with this on
a $10 million loan guarantee, it provided then other
opportunities for other institutions to follow that lead. So
during those time frames, it was a very, I guess, cautious in
the banking institutions to--a cautious mode on their part to
deal with the Indian tribes.
Our success with those things that started in 1969, the RV
park is there. We have 100-unit park. We have an 18-hole golf
course. We have 100-unit hotel. We have a cultural center. We
have probably the second-largest--we are the second-largest
employer in Umatilla County. The State of Oregon is the number
one employer in our county. The tribe is the second-highest. We
have probably about 500 people employed in these resorts that I
just referred to--the casino, the golf course, the RV park and
the cultural institute. And so the 1969 plan that was developed
for us took us that long to achieve some means of economic
development.
As a result of that, we were able to move beyond that to
the point where we refinanced all of those loans under that
loan guarantee, with a bond issuance with another banking
institution. So those loans ceased to exist with the loan
guarantee attached to it in 1995, is when we created them. And
then just recently we were able to, in 1999 with the bond
issue, bring those to a close.
So it did help us when we had utilization of that loan
guarantee, but without it we would not have what we have here
today that I am bringing to this table, the success that we
have had had a lot to do with the Indian Loan Guarantee Program
under the Interior.
So for us, it is an opportunity to come here and express
our support for this House and Senate bill that we have heard
this morning, S. 2017 and, Senator Bono's testimony here on the
House side. We support that because we were examples of how
that actually helped us move from a holding position to being a
player in economics. Without economics, the sovereignty, the
things that we need for expressing our needs for our tribal
government, you know, they kind of go as well on a holding
pattern for some things that you need to do for your health,
education and needs assessment of your organization.
So I am here today to express our support for our
organization and the Interior Department to move in that
direction per your Senate bill here today, Mr. Campbell. Our
attorney was involved with that timeframe, so if you have any
specific questions, Dan Hester is here and he was an actual
part of the negotiation team at that time when we worked with
the Bank of New Mexico to put this thing together.
So I have a prepared written testimony, but most of our
elders refuse to read from the written, and they tell you to
speak from the heart, and that is what I hope I have done here
today.
[Prepared statement of Mr. Minthorn appears in appendix.]
Senator Campbell. Thank you. That is the way the committee
feels, too, by the way. We appreciate your being here.
Ms. Edelman, why don't you go ahead.
STATEMENT OF MARCIA WARREN EDELMAN, ECONOMIC DEVELOPMENT
CONSULTANT, NATIONAL CONGRESS OF AMERICAN INDIANS
Ms. Edelman. Good morning.
My name is Marcia Warren Edelman. I am pleased to represent
the National Congress of American Indians here today.
I am going to go ahead and read from our testimony, just
because I think it will give a comprehensive reflection of how
NCAI feels.
I would like to thank you first of all for your invitation
to present this testimony on this very important piece of
legislation, the Indian Financing Act Amendment of 2002. I
would also like to thank the committee and their staff for the
hard work that they do on behalf of the tribes and Indian
people of this Nation. We appreciate the particular attention
that the committee has given to the need for sustainable
economic development in Indian country. S. 2017 represents an
important element in this effort.
As you well know, access to capital in Indian country is
extremely limited, and this shortage of capital represents one
of the primary barriers to comprehensive and lasting economic
development in our communities. Despite these challenges, a
growing number of Indian-run and/or tribally operated
businesses in the United States has taken hold in recent years.
Most of these Indian entrepreneurs and tribes must seek loans
for the development of their businesses, as they do not have
the financial means to finance a business themselves.
Despite an increasing demand for loans, the lending
community in Indian country is not vibrant. Sources of capital
for development remain extremely limited as lenders, already
tentative in their approach to Indian country due to
jurisdictional complexities and in many cases a simple fear of
the unknown, shy away from sinking large amounts of money into
projects that will take a number of years for repayment. Such
long-term loans tie up capital for lenders, limiting their
ability to make loans to other applicants.
Large loans for complex proposals, however important they
may be to the enhancement of infrastructure and meaningful
economic opportunity in Indian country, are extremely difficult
to procure. I commend the committee and its leadership for
recognizing this problem and introducing legislation designed
to draw lenders into the economies of Indian country. This
legislation offers an excellent opportunity to boost tribes and
their members' ability to realize self-sufficiency by
addressing the problems of liquidity in the current market of
guaranteed loans to Indian borrowers.
As you have found, the vast majority of lenders have not
readily accepted the existing loan guarantees made available
through the Secretary of Interior, likely because lenders are
committed to having their capital tied up until repayment
begins. Outside of Indian country, loan markets operate
differently, and arguably more productively. Agencies like
Freddie Mac and Fannie Mae, as secondary lenders, expedite the
capital refill process by purchasing loans from the primary
lenders. This secondary market does not affect the borrower,
and allows a quick turnaround for the primary lender. In
essence, the secondary lenders fronts the value of the loan and
gives the primary lender more funds for outlay in other loans.
We believe that creation of a similar secondary market for
Indian country lending is a promising means to increase
opportunities for Indian businesses to acquire capital, thereby
strengthening the overall economic fabric of Indian
communities. The key foundation of a vibrant economy is small
business, particularly in the small rural communities that are
generally representative of Indian country. By making the loans
that are currently guaranteed by the Department of the Interior
available for transfer, this legislation stands to greatly
increase the flow of funds into new business in Indian
communities and jump-start increasing economic self-sufficiency
in Indian country.
Secondary markets have proven to be an extremely successful
means of stimulating lending in the context where they
currently operate. For the last 17 years, the Small Business
Administration has operated a secondary loan market for its
loans and the results have been quite positive. The program
provides lenders who might otherwise have been unable to
participate in the loan market a simple process to follow for
the transfer of loans. Increased numbers of lenders in the
markets have in turn resulted in an increase in the amount of
money available to those businesses seeking loans.
Using the SBA program as a model, this legislation would
open up the Department of the Interior guaranteed loans to the
same process. We know that the market can work to benefit
Indian country when the barriers that plague our economies are
removed. This process, under the supervision and administration
of a fiscal transfer agent, is a relatively simple and
straightforward way to address one of the barriers we face.
Additionally, the program operates at a very low cost to
the Government, with fees for the transfer paid by the lenders
who execute the transfer. Best of all, this program has only
positive effects on the individuals seeking the loan. They have
no need to worry about the transfer process and benefit by the
availability of more capital. The legislation as currently
drafted contains provisions for the Secretary of the Interior
to promulgate regulations necessary to set up the secondary
loan market, to contract with a fiscal transfer agent to carry
out the registration and paying agent functions, and to issue
acknowledgements of loan transfers. In implementing this
requirement, we urge the Secretary to work very closely with
tribal government representatives to develop final regulations
to set up the market.
We also urge the Secretary to contract with a fiscal agent
familiar with transactions in Indian Country. We are always
available to work with this committee and the Secretary to
advise this process and contribute what we can to our mutual
goal of helping Indian communities and individuals to thrive.
The National Congress of American Indians supports S. 2017
as an important means to inject capital into the economies of
our tribes, thereby strengthening Indian economies and Indian
communities. By approving this bill, the Senators on this
committee will make another important step on the path to
meaningful economic development for Indian country, with little
impact on either Government spending or the bureaucratic
process.
Thank you for this opportunity to present testimony on
behalf of NCAI and I welcome any questions you may have.
[Prepared statement of Ms. Edelman appears in appendix.]
Senator Campbell. Thank you.
Mr. Minthorn, your tribe, the Confederated Tribes of the
Umatilla Reservation, has come a long way since 1994, when you
were largely dependent on Government grants. Did you have to
change any tribal policies as you moved forward to become one
of the largest employers in the county now?
Mr. Minthorn. All of our rules and regs and procedures were
kind of foreign to us as an Indian nation up through our
development. But as we became more familiar with the workings
of business, we have changed a lot of things. Primarily, when
we were searching for self-governance, we were a Public Law
280-tribe, and with our relationship with the State of Oregon
we were able to have an executive order transfer that criminal
jurisdiction back to the reservation, which created tribal
courts, tribal police, juveniles. So we needed codes and that
was the basis for all of the other code development and
procedures for handling our grants and contracts to make us
more accountable.
And so as a result of our development into a small part of
the responsibilities as a sovereign, we developed rules and
regulations for our tribal courts, our health program, our
education. And so we have developed many kinds of rules and
regulations depending on the issue. So if you come to our
reservation and work with one of our commissions or committees,
we have policies and regulations regarding all of those. For
finance, yes, we have what we call fiscal management policies
that regulate how we are able to move cash through our system
and how it is disbursed and accounted for. We have audits that
cover all of the areas.
So yes, a lot of things were changed policy-wise for our
people. I am one generation removed from my parents, who are
traditional people. And so this is a new thing for this
generation to develop rules, regulations and procedures. We
have them for almost every program that we contract for, and
implement on behalf of our people.
Senator Campbell. Well, I personally happen to think that
you can develop standards to be able to move your tribe ahead
in the 21st century and still be a traditional person at the
same time.
When you first were out trying to get capital from banks,
what were some of the concerns they expressed when they turned
you down?
Mr. Minthorn. Primarily, the relationship dealing with our
land, because in the traditional sense, you need collateral and
most of the lands that we had were in trust. And the
relationship that we had up until that point in time as a
community was farm community. Most of our land is farmed. It
has wheat crops on it--wheat and barley, peas. As far as the
revenue for the tribal government by itself, we had very little
revenue. The land was primarily owned by individual allotment
owners. So the bulk of the wealth, the bulk of the ownership on
our reservation was owned by individual alottees, not by tribal
government.
So from a collateral standpoint, we had no collateral. We
had no business experience. We had not war chest from any
settlements. We had no revenue to support our loan applications
with these banks. So to make a long story short, no collateral,
no loan.
Senator Campbell. Is farming still an important part of the
economy of your reservation?
Mr. Minthorn. It is still the primary support source for I
would say heirs of our original owners. Most of our ownership
now is fractionalized because of the lack of wills being
developed by elders because they did not want to use the paper.
And so, yes, but the income is very small to the heirs who have
inherited those parcels of land that were originally large.
Senator Campbell. You mentioned you have a hotel, a golf
course, some recreational facilities. The proceeds--your real
viable business now--and the profits you have made, what are
your primary objectives with them? Do you put them into
education or per capita them?
Mr. Minthorn. We have 15 percent of our revenues from the
gaming facility are dividends. The remaining 85 percent support
the essential governmental services as we define them, to
support tribal government and its programs. And that is
basically where all the revenue goes. It goes 85 percent of the
net from the casino goes back into tribal programs--our health,
our senior citizens, our education, our burial fund, youth, our
tribal police. All of those things go back into what we are now
learning these new terms--essential governmental services.
Senator Campbell. I do not know the enrollment of your
tribe.
Mr. Minthorn. 2,300 right now.
Senator Campbell. Well, it sounds like you have done really
very well. If you were to offer advice of what you have gone
through to other tribes, it just sounds to me like what you
have done could be a model for a lot of other struggling
tribes. What would you tell them in their first-ever attempts
to raise capital?
Mr. Minthorn. Find a way to secure--you have to understand
when we deal with a non-Indian population that there is a lot
of mistrust from the old days. I am sure you know that. But the
people were very conscious themselves about having a
relationship with people who would secure or want you to
mortgage your land in exchange for money. They already went
through that and lost a lot of our reservations through that
means. And so as we learn from those hard experiences, my
generation from my parents, we had to have a system that was
going to deal with funds traveling through inputs and outputs
and have rules on how the inputs and outputs were treated once
the money was in transition.
I think we have developed our internal system to do that.
Fiscal management policies on our investments, we have, what do
you call them, investment policy statements so that when we do
have someone take care of our money for us that you have an
investment policy out there that defines how much risk you are
able to have and how much you can earn, so that you know that
your money is always going to be there at the end of that
investment period. But that all comes from the hard lessons of
losing your resources. And so you have to look at yourself and
know yourself because the banks are not our enemy. But if you
fail to manage your funds in a manner that is going to repay
your debts, you will lose and the banks will be your enemy. But
the relationship that you have, you have to protect yourself in
managing your funds, and that comes with the rules and
regulations and procedures that we have for our financial
dealings.
If you can keep your house in order with your own money,
you take care of your own money and you follow those rules and
regulations and procedures for yourself and your own hard
dollars, when you take the 2,300 members' money, you should
follow those same rules, regulations and procedures because now
you are risking your whole nation's assets. You certainly want
to be very careful when you put any of that up.
Senator Campbell. Well, good news travels and then dies
somewhere in the future, but the bad news seems to have a life
of its own. I think that some industries and maybe some
institutions, too, have had something bad happen to them in
working with tribes. Unfortunately, that taints the thing for
all those other tribes. I know in some areas, I am just
thinking of at Crow Reservation and at Shiprock, too, in New
Mexico where industry has come in and built some facilities and
then because of unstable government, ended up losing the
facility. I think banks see things like that and of course then
they worry about future lending. So it takes a while to
establish a good working trust, as you mentioned, relationship
with lending institutions, too. Apparently, you have done it
very well.
Thank you for your testimony.
Ms. Edelman, I think NCAI is very fortunate to have you
working with them because of your experience at the Commerce
Department.
Ms. Edelman. Thank you.
Senator Campbell. Let me just ask you generally, how can we
unlock the mystery of the capital markets to Indian people? Les
mentioned traditional people which, you know, traditional
people tend not to be well-steeped in the issues of financing.
How do we make that connection or build that bridge?
Ms. Edelman. I believe we should build the bridge by first
identifying these issues as tools, not threats to sovereignty,
not threats to traditional way of life, but actual tools to
enable our tribal communities to achieve sustainability and the
ability to preserve their culture. Doing that through
education, and through information, such as the report the CDFI
fund released recently on this issue, can enable those
communities to get the information they need in order to start
getting comfortable with what those particular issues are, and
then applying them to their particular situation.
I fully support Mr. Minthorn's comments on an investment
policy and having those rules and regulations in place--
something that is understandable, foreseeable, and easily
adhered to when those different issues come up on how to invest
money or how to even address the issue of what ``finance''
means to a community, ranging from the individual to tribal
enterprise level. So I think it is all about really taking
these issues out of the context of, you know, ``is this
traditional or not traditional''; ``is it buying into the
larger society''. It is not--it is really a skill and it is a
tool to enable these communities to survive on their own terms
and to flourish on their own terms.
Senator Campbell. One of the complaints we get at the
committee is very often we will pass legislation that is
intended to help Indian people. Somewhere between the time we
pass it and the time it is implemented, it gets lost. And then
we hear 2 years later that nobody told the tribes that they
could avail themselves to this new act that is in place. It
seems to me that NCAI can play a very, very important role
because you do have a national convention and a mid-term
convention, too. As it is now, do you have a role? Do you have
a goal to try to increase the awareness of tribes to their
opportunities through banking institutions or lending
institutions?
Ms. Edelman. Yes; very much so. In fact, it is interesting
that you bring this up right now. Our mid-year session is
focused solely on economic development. We have four tracks
that we are addressing, one of which is finance. Another is
marketing, business/economic development and the third is
capacity building. What we are aiming to do, instead of having
panel discussions where people basically will discuss the
issues, we are aiming to provide training sessions which will
give the attendees, skills and strategies that they can take
back home with them to implement as they wish.
NCAI sees its role right now really as a bridge between the
different Indian business organizations, the Native-owned
banking industry, and also mainstream banking and financial
institutions. We aim to be a conduit of information and really
a facilitator at this moment. We find it very important that
this information get to tribes, but not just in paper form, not
just in a form of talking heads, but something solid, something
productive that could actually be implemented on the ground.
Senator Campbell. I commend you for that. The focus is
obviously on the tribes, but it is a two-way street. You have
got to educate the lending institutions, too, about
opportunities in Indian country. Does NCAI do anything along
that line?
Ms. Edelman. Yes; we will be developing policy papers that
we will not only be sharing with Congress and the
Administration, but also with private industry on what exactly
you should expect in Indian country, what are the issues of
importance are. From those, we will probably be developing
information that will enable businesses and other institutions
to deal better with tribes, not just in terms of the cultural
awareness, but also the statistics and the facts that they need
to know to minimize the so-called, if you want to call it,
political risk of doing business in Indian country.
Senator Campbell. I know it is very complicated. I visited
a couple of times, I just happened to go home where I am
enrolled, when the tribal council was dealing with some people
about investments. The investments that were presented were
very high-yield investments, but the investments, at least part
of them, flew in the face of some of the traditional beliefs of
the elder people. I know that is a difficult thing to deal with
when you are trying to get the best yield you can and make the
most money you can for the tribe, and at the same time now do
something that is going to upset the things that they have
learned from childhood that they ought to be protecting and
careful about. I commend you for trying to work on both sides
of that.
One of the things that we have heard, too, is that lending
institutions are worried about unstable Government, that as
tribal councils change and directions change, sometimes the rug
can be pulled out from under the lenders. Do you do anything at
all to encourage good governance when you are doing these
seminars?
Ms. Edelman. Yes; as a matter of fact, our mid-year session
again is going to be held in conjunction with the Harvard
Program. I am sure you familiar with that.
Senator Campbell. Yes; a very successful program.
Ms. Edelman. Very successful. So we really want to come
together with them as they go through their final process of
selecting the awardees for this year, not only to increase
awareness of this program for our member tribes, but also to
give the potential awardees a chance to gain exposure. They are
going to be going through their final process of presentations,
and that will be open to the membership to come and listen to.
So, in effect, we will be having case studies going on
throughout our second day. I think that is, by example, it is
just a better----
Senator Campbell. Where is the convention?
Ms. Edelman. It is in Bismarck, ND.
Senator Campbell. Bismarck, ND.
Ms. Edelman. Having those potential awardees there as
examples, it is an excellent way for people to feel comfortable
with the process.
Senator Campbell. All right. I thank you both for
appearing. Other members who are not in attendance, they may
have some written questions they may submit to you.
Thank you very much for being here.
Ms. Edelman. Thank you.
Senator Campbell. Our next panel will be just one person,
Kevin McGuire, president, Palm Desert National Bank of Palm
Desert, CA. It sounds to me you might have been invited by
Congresswoman Bono.
Mr. McGuire. That is correct.
Senator Campbell. Very good. You can just proceed at your
own speed, Mr. McGuire, and all your written testimony will be
included in the record. So if you would like to abbreviate or
diverge from that, that is fine.
STATEMENT OF KEVIN McGUIRE, PRESIDENT, PALM DESERT NATIONAL
BANK
Mr. McGuire. My name is Kevin McGuire. I am the chairman
and chief executive officer of Palm Desert National Bank in
Palm Desert, CA.
Palm Desert National Bank began making loans to Indian
tribes and tribal entities in 1985. The projects with which we
are currently involved are a tire recycling plant for the
Cabazon Band of Mission Indians for $7.5 million. Most
recently, we were the lender for an $18 million refinance and
construction project for the Picuris Pueblo in New Mexico. We
continue to actively seek opportunities to make loans of all
sizes for economic enterprise and development in Indian country
throughout the United States.
As an Indian country lender, we have learned that while
many economic development efforts in Indian country can be
sparked with relatively small amounts of capital, many tribal
development efforts require capital in the form of cash and
loans that exceed the lending limits and loan concentration
limits to which small- and mid-sized community banks are
subject. Our experiences as a community bank lead us to
conclude that the creation of the secondary market in BIA
guaranteed loans will increase opportunities for lending in
Indian country, without additional costs to the parties and
with no additional cost to the Federal Government. An
institutionalized secondary market in BIA guaranteed loans will
facilitate the sale to investors of BIA guaranteed loans,
putting capital back into the originating bank that then can be
loaned again.
Additionally, lenders will be able to originate more loans
without violating laws and regulations that limit the amount
banks may lend to a particular borrower, and that prohibit
banks from having in their portfolios too many loans of a
single type.
If only large banks invested in Indian country, lending
limits and loan concentrations would be less of an issue.
However, community banks--those most familiar with Native
American neighbors--make many of the loans earmarked for tribal
economic development. Therefore, the constraints imposed by
banking law lending limits and loan concentration limits are
significant problems--problems that can be resolved by the
passage of S. 2017.
Since the current Indian Financing Act, BIA Guaranteed Loan
Program permits lenders to transfer portions or all of BIA
guaranteed loans they originate, why is creation of the
secondary market necessary? There are two primary reasons.
First, finding participants willing to purchase loans to tribes
or tribal enterprises, whether or not they are guaranteed by
BIA is very difficult and time consuming. This is because few
lenders are familiar with the Indian Financing Act program or
the benefits of lending in Indian country. As a result,
closings are delayed and costs accelerate. We believe that the
existence of an institutionalized secondary market will make
selling tribal loans much easier.
Second, there is already a secondary market for commercial
loans, for example, SBA and USDA loans. Investors are familiar
with and are comfortable purchasing loans from the existing
programs. However, as it now exists, the Indian Financing Act
Guaranteed Loan Program is structured differently than other
government guaranteed loan programs. The differences and lack
of familiarity make investors unwilling to invest in BIA
guaranteed loans.
The secondary market contemplated by S. 2017 is modeled
after the existing SBA and USDA programs. The basic structure
is the same. The risk to investors is the same. Hence,
investors who have purchased loans from other government
guaranteed programs will be likely also to purchase BIA
guaranteed loans. At the same time, Federal dollars are at no
greater risk than under the current BIA program because BIA
will retain the right to look to the servicing lender to
recover the losses that could have been avoided by proper
pricing. Again, there is no additional cost to the Federal
Government, and this puts the BIA program on the same level as
the SBA and USDA program.
The bottomline is that S. 2017 offers an opportunity for
the private secondary market in commercial loans to work to
increase capital for development of economic enterprise in
Indian Country just as the secondary market in SBA guaranteed
loans has increased the capital available to small businesses
throughout the United States. We urge this committee to support
this bill.
Thank you very much for this opportunity. I am willing to
answer any questions.
[Prepared statement of Mr. McGuire appears in appendix.]
Senator Campbell. Thank you.
I have visited the tribes in your area--once at the
invitation of Congresswoman Bono, in fact. And I have to tell
you, I was really impressed with the tribes, including Cabazon,
one of the tribes I visited down there, not only at their
business acumen, but the ability to work with county and city
government, too. There are a number of cooperative things that
are going on down there I thought were just an absolute model
of how Indians and non-Indians could work together and get
along and do something that was of benefit to the whole
community. And so I often use the tribes in your area as tribes
who have really found a way to bridge that gap we were talking
about with Ms. Edelman.
Let me ask you a couple of questions about loans and
portfolios. How long does a BIA guaranteed loan typically
remains in your portfolio?
Mr. McGuire. At this point in time, they stay in the
portfolio the entire life of the loan, which can be as long as
30 years.
Senator Campbell. And what are the typical projects that
they get loans for in your area? This is a big resort area.
Mr. McGuire. This is a resort area--a tire recycling plant,
and actually we do loans across the Nation for BIA programs,
but in this case, a tire recycling plant. We are taking a look
at a printing-type office, a truck stop/convenience store area
for one of the tribes in a new area that has got a highway. We
are looking at a strip center for one of the tribes also.
Senator Campbell. Well, you obviously have found a way to
work well with the tribes, if you are doing this across the
country. Have you had any bad experiences?
Mr. McGuire. I would say that we have probably loaned over
$100 million to tribes across the Nation, and we virtually,
with one small exception, have had nothing but very good
experiences with those loans.
Senator Campbell. I understand the loan default rate at the
BIA program is between 6 and 7 percent. How does that compare
with an industry lending, say, in commercial or home mortgages?
Mr. McGuire. I would say that is on the high side.
Senator Campbell. It is on the high side?
Mr. McGuire. That is on the high side.
Senator Campbell. I was going to ask Ms. Edelman this, but
maybe she could chime in if she is interested, too.
One of the problems is that banks may not be exposed to a
whole variety of opportunities in Indian communities. That is a
communication problem we have. Do you think the lending
agencies, and in fact do you think NCAI or Indian country would
support, for the lack of a better term, something along the
lines of a joint development fund which would help tribes, the
private sector and the banking community identify the
opportunities that each offers and each needs?
Mr. McGuire. From a banking standpoint, absolutely. I think
we would encourage that as much as possible.
Ms. Edelman. I can say so on behalf of NCAI, certainly.
Senator Campbell. Basically, you are trying to do that now
just to, as you can, with different seminars.
Ms. Edelman. Exactly.
Senator Campbell. Mr. McGuire, the amount of loans, the
lending projects you have mentioned, your testimony involves
pretty substantial loans--$7.5 million to $18 million
respectively.
Mr. McGuire. Correct.
Senator Campbell. Are those typical of the kind you get
involved with, from the standpoint of loan amount?
Mr. McGuire. No; those are definitely on the higher side.
Usually, these loans are capped at around $4.5 million to $5
million, although there are exceptions. And the ones that we
are looking at right now are in the $1 million to $3.5 million
range, but we are also looking at a couple of them that are in
the $10 million range.
Senator Campbell. So you loan to tribes. Do you also loan
to individual tribal members?
Mr. McGuire. Yes; we do. We have done many individual loans
over the last 15-18 years.
Senator Campbell. What do they need, when they come to you
for a loan, a tribal member, do they need a plan? They have to
have an idea and have it pretty well fleshed out about what
they would like to do? You do some feasibility analysis of it
to see if it will work.
Mr. McGuire. Absolutely. When they come to us for these
types of loans, from an individual standpoint, we have made car
loans, home improvements loans--just our normal loans across
the board. As far as loans for economic development, those we
have only done with tribes. But absolutely, they knew that they
needed a plan. Absolutely, they do have to have a plan, or we
can assist them with trying to put a plan together.
Senator Campbell. You do assist them. They have a good
idea; you have somebody on staff that you can help lay out the
financial business plan.
Mr. McGuire. We do, or we bring somebody else into the
picture that is an expertise that can help them formulate this
plan so that it becomes an acceptable loan program for both us
and the BIA, because we look like we are protecting the BIA to
some extent, because we are in there as partners with them and
we do not want to have a default if it is at all possible.
Senator Campbell. Good. Some of the things you mentioned
that you have loaned money for--one you mentioned was a strip
center. Does that mean mall, hopefully? [Laughter.]
Mr. McGuire. Yes; that is a small mall with various stores
along the road.
Senator Campbell. Okay. All right. Well, I appreciate that.
I have no further questions, and let me sigh with relief there
with that answer.
Mr. McGuire. Thank you very much. [Laughter.]
Senator Campbell. With that, this hearing, the record will
stay open for 2 weeks. If anybody has anything they would like
to add in writing, just send that into the committee. We will
include that in the record, too.
This committee is adjourned. Thank you.
[Whereupon at 10:48 a.m., the committee was adjourned, to
reconvene at the call of the Chair.]
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A P P E N D I X
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Additional Material Submitted for the Record
=======================================================================
Prepared Statement of Hon. Craig Thomas, U.S. Senator from Wyoming
Thank you, Mr. Chairman. Throughout my time in Congress, I've heard
tribal leaders in my State describe their frustration with the economic
conditions on the Wind River Reservation. Unemployment, poverty, and
lack of infrastructure are serious problems throughout Indian country.
It is important for this committee to remain interested and committed
to addressing these issues.
As a former small business owner, I well understand the importance
of creating incentives for small business development in Wyoming
communities, particularly on the Wind River Reservation. My State's
economic health is dependent on this kind of entrepreneurship. Creating
opportunities to secure loans can go a long way toward helping small
business, entrepreneurs, particularly those living in Native American
communities.
I know, for example, that both the Northern Arapaho and Eastern
Shoshone Housing Authorities have been able to establish a Department
of Housing and Urban Development program that allows local banks to
issue loans to eligible tribal members. Clearly, increased home
ownership and adequate housing are an inherent part of enhancing and
building solid communities as well as sustaining economic growth. These
tribes are to be commended.
The Indian Financing Act of 1974 is a step in the right direction
to help American Indians secure loans. However, since its creation over
a quarter century ago--many of the same economic challenges remain. I
am very interested to see how we can make this program more accessible
to a larger population of Native Americans.
Thank you Mr. Chairman. I look forward to hearing from our
witnesses.
______
Prepared Statement of Les Minthorn, Treasurer, Board of Trustees,
Confederated Tribes of the Umatilla Indian Reservation
Mr. Chairman, my name is Les Minthorn and I am the treasurer of the
Board of Trustees, the governing body of the Confederated Tribes of the
Umatilla Indian Reservation [CTUIR]. It is a privilege and a pleasure
for me to appear before the committee today to testify in favor of S.
2017, legislation that will permit more tribes and individual Indians
to take advantage of the BIA guaranteed loan program, as the CTUIR did,
to achieve financial independence.
The purpose of S. 2017 is to facilitate the sale of BIA guaranteed
loans by the lending bank to the secondary market, along with
transferring the guarantee of the United States to the purchaser of the
loan. This will have the effect of permitting banks and other lending
institutions participating in the BIA guaranteed loan program to make
more such loans available to tribes and individual Indians. I will
leave it to others with more experience in banking matters to address
the mechanics of how S. 2017 facilitates the sale of such loans in the
secondary market; I want to address the experience of the CTUIR with
our BIA guaranteed loans as an indication of how the expansion of this
loan program can benefit other tribes and individual Indians.
On July 18, 2001, Assistant Secretary Neal McCaleb testified before
this Committee on tribal good governance practices as they relate to
economic development. In the course of his testimony, Mr. McCaleb made
the following statement about the CTUIR:
``Another success story is told by the Confederated Tribes of the
Umatilla Indian Reservation located in rural northeast Oregon. Their
original economy was based upon agricultural and natural resources,
primarily fishing, grain, and timber.
Today the tribe has diversified into commercial developments such
as a trailer court, a grain elevator, the Wildhorse Casino, a hotel, a
RV park, a golf course, and a solid waste transfer station.
The tribe is now the second largest employer in Umatilla County,
following only the State of Oregon. Their operating budget has
increased from $7.6 million to $94.2 million in the last 9 years.''
We appreciate the recognition and kind words by Assistant Secretary
McCaleb. Our government and our people have worked hard for the modest
success we have achieved. The growth in our tribal budget in the past
decade is due to two factors: First, the CTUIR has taken full advantage
of the opportunity to contract for BIA and IHS programs under the
Indian Self-Determination Act. Second, and much more importantly, the
CTUIR has worked diligently to establish a diversified, self-sustaining
Reservation economy. The BIA guaranteed loan program played a critical
role in providing startup financing for three tribal enterprises that
form the core of our economy.
Prior to 1994, the CTUIR budget was derived almost exclusively from
Federal grants and contracts. Only a handful of jobs outside of tribal
government were available for tribal members and other reservation
residents. The CTUIR had little tribal income that it could allocate
pursuant to tribal priorities and without the strings attached to
Federal funds. We knew that governmental jobs and programs were not
enough to increase employment opportunities and to improve the
financial future for our tribe and its members. Economic development
was necessary to achieve these goals.
The Umatilla Indian Reservation is bisected by Interstate 84--the
major east/west highway from Portland to Boise. Because of our rural
location, we knew our economy needed to take advantage of the freeway
traffic. As far back as 1969, the CTUIR planned for the development of
a destination resort at the base of the Blue Mountains offering a golf
course, hotel, RV park, gas station and convenience store, and a tribal
museum. Those plans languished for 25 years because the CTUIR was
unable to secure the necessary financing. But recently, with the
assistance of the BIA guaranteed loan program, our dreams have become
reality.
In November 1994, our small, temporary gaming facility opened, and
in March 1995, moved into our larger, permanent casino. To diversify
our economic enterprises and to increase the amenities available to our
casino patrons, we needed a hotel, RV park and golf course. Attracting
financing for these enterprises posed a difficult challenge. The CTUIR
had few resources and little income it could pledge to secure repayment
for loans for these enterprises. The fact that the enterprises were to
be located on trust lands and were to be constructed and operated by a
tribe with no experience in such enterprise development or operation
made our quest for financing especially difficult. In fact, we were
only able to attract financing because of the BIA guaranteed loan
program authorized under the Indian Finance Act of 1974.
Working with the agency and regional BIA offices, we received a
$10-million loan guarantee. Pursuant to the loan guarantee, the United
States guaranteed 90 percent of the loan and provided an interest rate
subsidy to the tribe to lower financing costs in the critical first 3
years of operations when our new enterprises were getting off the
ground.
If any member of the committee believes that a tribe with a BIA
loan guarantee has the ability to get a bank loan for any enterprise,
regardless of its feasibility, and on sweetheart terms, I'm here to
tell you your belief is mistaken. We worked with the First Security
Bank of New Mexico on our loans and learned valuable lessons in the
process leading to the negotiation and closing of the loan
transactions. We conducted market feasibility studies for each financed
enterprise, we were required to pledge the full faith credit of the
CTUIR to secure repayment of the loans and had extensive negotiations
on loan terms addressing the construction and management of the
financed enterprises. In other words, while the BIA loan guarantee made
bank financing available, it didn't guarantee that we would get the
loan. We were spared none of the rigors that other commercial borrowers
are subjected to, which prepared the CTUIR for the realities of loan
and bond transactions that followed.
While I was not a participant in these loan negotiations, present
with me today is our tribal attorney, Dan Hester, who was. In addition,
the attorney for the First Security Bank of New Mexico, Nancy Appleby,
is also present at the hearing today. I'm certain that both Mr. Hester
or Ms. Appleby could explain in excruciating detail the process and
terms associated with the loans if the Committee has any interest in
exploring these issues further.
The CTUIR BIA guaranteed loans closed in May [Hotel Loan] and
December [Golf Course and RV Park Loan] of 1995. All three enterprises
opened in 1996 and 1997. Later, the CTUIR financed and developed our
tribal museum and educational facility, known as the Tamastslikt
Cultural Institute, and have acquired and renovated the Arrowhead Truck
Stop/Gas Station/Convenience Store to add to the enterprises and
amenities of the Wildhorse Resort and to diversify our economic base
and employment opportunities. Currently, the Wildhorse Resort, TCI and
Arrowhead employ about 500 persons. Unemployment rates among CTUIR and
other enrolled tribal members residing on the Umatilla Indian
Reservation have been dramatically reduced--from 37 percent to 17
percent--since Wildhorse Resort opened. Many tribal members who had
gone away to be educated and stayed away to pursue employment
opportunities that did not exist at home have returned to their
reservation homeland and to unprecedented job opportunities and
salaries.
Even before the introduction of S. 2017, the CTUIR did its part to
free-up BIA guaranteed loan resources. Taking advantage of our
increased financial resources, our operating history of Wildhorse
Resort enterprises, and an improved interest rate environment, the
CTUIR issued taxable and tax-exempt bonds in 1999 to refinance the BIA
guaranteed loans and other tribal commercial loans. But I hasten to add
that the loan guarantees were absolutely essential for the initial
development of our projects. Bonds are difficult to obtain for projects
that are just on the drawing board, and for which no operating history
exists. It was loans, secured with the guaranteed backing of our
trustee, that provided the critical initial financing for the Wildhorse
projects that are a reality today.
The experience of the CTUIR with the BIA guaranteed loan program is
a real success story. The BIA guaranteed loan program made loans
available to our tribe that would not have been available without the
guarantee of the United States. The CTUIR has seen its economic base
expand to meet the needs of its people and to acquire the resources and
expertise to explore other economic development and financing
opportunities as our capability and resources permit. We have used this
expertise in our pursuit of other economic development projects such as
our proposed Wanapa natural gas-fired power plant, the expansion of our
casino which is now nearly complete, the development of a reservation
grocery store and the development and financing of housing to meet the
needs of our growing and employed tribal membership.
This committee has been a staunch and persistent proponent of
Indian tribal self-determination. The Indian Self-Determination Act of
1975, and its more recent amendments, have taken huge strides in that
direction. However, tribes will not be fully self-sufficient and in
control of their own destiny without economic development to employ
their members and to provide tribal income to fund tribal programs. The
BIA guaranteed loan program is an important tool available to tribes to
develop their reservation economies for these purposes. The experience
of the CTUIR under the BIA guaranteed loan program is an indicator of
the critical role such loans can play. It is based on this experience
that the CTUIR offers its strongest support for S. 2017 so that an
increase in the availability of BIA guaranteed loans can have the
beneficial impact on other Indian reservations as it has had on my
reservation.
Once again, Mr. Chairman, I very much appreciate the opportunity to
testify before the committee on this important bill. I would be pleased
to answer any questions that you or members of the committee may have
of me.
______
Prepared Statement of Marcia Warren Edelman, Economic Development
Consultant, National Congress of American Indians,
Chairman Inouye, Vice Chairman Campbell, and other members of the
committee, I would like to thank you for your invitation to present
testimony on this very important piece of legislation, The Indian
Financing Act Amendments of 2002. I would also like to thank the
committee and their staff for the hard work they do in the interest of
the tribes and the Indian people of this Nation. We appreciate the
particular attention that the committee has given to the need for
sustainable economic development in Indian country. S. 2017 represents
an important element in this effort.
As you well know, access to capital in Indian country is extremely
limited, and this shortage of capital represents one of the primary
barriers to comprehensive and lasting economic development in our
communities. But despite these challenges, a growing number of Indian-
run and/or tribally operated businesses in the United States have taken
hold in recent years. Most of these Indian entrepreneurs and tribes
must seek loans for the development of their businesses, as they do not
have the financial means to finance a business themselves.
But despite an increasing demand for loans, the lending community
in Indian country is not vibrant. Sources of capital for development
remain extremely limited as lenders--already tentative in their
approach to Indian country due to jurisdictional complexities and, in
many cases, a simple fear of the unknown--shy away from sinking large
amounts of money into projects that will take a number of years for
repayment. Such long-term loans tie up capital for lenders, limiting
their ability to make loans to other applicants. Large loans for
complex proposals--however important they may be to the enhancement of
infrastructure and meaningful economic opportunity in Indian country--
are extremely difficult to procure.
I commend the committee and its leadership for recognizing this
problem and introducing legislation designed to draw lenders into the
economies of Indian country. This legislation offers an excellent
opportunity to boost tribes' and their members' ability to realize
self-sufficiency by addressing the problems of liquidity in the current
market of guaranteed loans to Indian borrowers.
As you have found, the vast majority of lenders have not readily
accepted the existing loan guarantees made available through the
Secretary of the Interior, likely because lenders are committed to
having their capital tied up until repayment begins. Outside of Indian
country, loan markets operate differently and arguably more
productively. Agencies like Freddie Mac and Fannie Mae--as secondary
lenders-expedite the capital-refill process by purchasing the loans
from the primary lenders. This secondary market does not affect the
borrower, and allows a quick turnaround for the primary lender. In
essence, the secondary lender fronts the value of the loan, and gives
the primary lender more funds for outlay in other loans.
We believe that the creation of a similar secondary market for
Indian country lending is a promising means to increase opportunities
for Indian businesses to acquire capital, thereby strengthening the
overall economic fabric of Indian communities. The key foundation of a
vibrant economy is small business, particularly in the small, rural
communities that are generally representative of Indian country: By
making the loans that are currently guaranteed by the Department of the
Interior available for transfer, this legislation stands to greatly
increase the flow of funds into new business in Indian communities, and
jumpstart increasing economic self-sufficiency in Indian country.
Secondary markets have proven to be an extremely successful means
of stimulating lending in the contexts where they currently operate.
For the last 17 years, the Small Business Administration has operated a
secondary loan market for its loans, and the results have been quite
positive. The program provides lenders who might otherwise have been
unable to participate in the loan market a simple process to follow for
the transfer of loans. Increased numbers of lenders in the market have
in turn resulted in an increase in the amount of money available to
those businesses seeking loans.
Using the SBA program as a model, this legislation would open up
Department of Interior guaranteed loans to the same processes. We know
that the market can work to benefit Indian country when the barriers
that plague our economies are removed, and this process, under the
supervision and administration of a fiscal transfer agent, is a
relatively simple and straightforward way to address one of the
barriers we face. Additionally, the program operates at a very low cost
to the Government, with fees for the transfer paid by the lenders who
execute the transfer. Best of all, this program has only positive
effects on the individuals seeking the loan: They have no need to worry
about the transfer process, and benefit by the availability of more
capital.
The legislation as currently drafted contains provisions for the
Secretary of the Interior to promulgate regulations necessary to set up
the secondary loan market, to contract with a fiscal transfer agent to
carry out the registration and paying agent functions, and to issue
acknowledgements of loan transfers. In implementing this requirement,
we urge the Secretary to work very closely with tribal government
representatives to develop final regulations to set up the market. We
also urge the Secretary to contract with a fiscal agent familiar with
transactions in Indian country. We are always available to work with
this Committee and the Secretary to advise this process and contribute
what we can to our mutual goal of helping Indian communities and
individuals to thrive.
The National Congress of American Indians supports S. 2017 as an
important means to inject capital into the economies of our tribes,
thereby strengthening Indian economies and Indian communities. By
approving this bill, the Senators on this committee will make another
important step on the path to meaningful economic development for
Indian country, with little impact on either Government spending or
bureaucratic process.
Thank you for this opportunity to present testimony on behalf of
NCAI, and I welcome any questions you may have.
______
Prepared Statement of Kevin McGuire, Chairman and Chief Executive
Officer, Palm Desert National Bank, Palm Desert, CA
My name is Kevin McGuire. I am the chairman and chief executive
officer of Palm Desert National Bank in Palm Desert, CA.
Palm Desert National Bank began making loans to Indian tribes and
tribal entities in 1985. The projects with which we have been involved
include a tire re-cycling plant for the Cabazon Band of Mission Indians
for $7.5 million and most recently we were the lender for a $18 million
refinancing and construction project for the Picuris Pueblo in New
Mexico. We continue to actively seek opportunities to make loans of all
sizes for economic enterprise development in Indian country throughout
the United States.
As an Indian country lender, we have learned that, while many
economic development efforts in Indian country can be sparked with
relatively small amounts of capital, many tribal development efforts
require capital in the form of cash and loans that exceed the lending
limits and loan concentration limits to which small- and mid-sized
community banks are subject. Our experiences as a community bank lead
us to conclude that the creation of a secondary market in BIA
guaranteed loans will increase opportunities for lending in Indian
country without significant additional cost to the parties and with no
additional cost to the Federal Government.
An institutionalized secondary market for BIA-guaranteed loans will
facilitate the sale to investors of BIA guaranteed loans, putting
capital back into the originating bank that then can be loaned again.
Additionally, lenders will be able to originate more loans without
violating laws and regulations that limit the amount that banks may
lend to a particular borrower (a function of the bank's size) and that
prohibit banks from having in their portfolios too many loans of a
single type.
If only large banks invested in Indian country, lending limits and
loan concentrations would be less of an issue. However, community
banks--those most familiar with their Native American neighbors--make
many of the loans earmarked for tribal economic development. Therefore,
the constraints imposed banking law lending limits and loan
concentration limits are significant problems--problems that can be
resolved by the passage of S. 2017.
Since the current Indian Financing Act BIA guaranteed loan program
permits lenders to transfer portions or all of BIA guaranteed loans
that they originate, why creation of: A secondary market is necessary?
There are two primary reasons.
First, finding participants willing to purchase loans to tribes or
tribal enterprises, whether or not they are guaranteed by BIA, is very
difficult and time-consuming. This is so because few lenders are
familiar with the Indian Financing Act program or the benefits of
lending in Indian country. As a result, closings are delayed and costs
escalate. We believe that the existence of an institutionalized
secondary market will make selling tribal loans much easier.
Second, there is already a secondary market for commercial loans
(for example, the SBA, USDA and FARMER MAC programs). Investors are
familiar with, and are comfortable purchasing loans from, the existing
programs. However, as it now exists, the Indian Financing Act
guaranteed loan program is structured differently than other Government
guaranteed loan programs. The differences and lack of familiarity make
investors unwilling to invest in BIA guaranteed loans.
The secondary market contemplated by S. 2017 is modeled after the
existing SBA and USDA programs. The basic structure is the same. The
risk to investors is the same. Hence, investors who purchase loans from
other government guaranteed programs will be likely also to purchase
BIA guaranteed loans. At the same time, Federal dollars are at no
greater risk than under the current BIA program because BIA will retain
the right to look to the servicing lender to recover any losses that
could have been avoided by proper servicing. Additionally, like in
other programs, the fees of a fiscal transfer agent will be paid by the
lender or the borrower, not the government.
The bottomline, then, is that S. 2017 offers an opportunity for the
private secondary market in commercial loans to work to increase
capital for development of economic enterprise in Indian country, just
as the secondary market in SBA guaranteed loans has increased the
capital available to small businesses throughout the United States. We
urge this committee to support this important bill.
Thank you very much for the opportunity to address this committee
and for your favorable consideration of S. 2017.
An Introduction to Kevin McGuire
Kevin McGuire has served as the chairman and chief executive
officer of Palm Desert National Bank since 1989, a position he came to
after 14 years in commercial banking. In addition to heading the
management team at Palm Desert National Bank, Mr. McGuire is an active
community leader and serves on the Boards of Directors of a number of
community and charitable organizations.
Palm Desert National Bank is a locally owned and operated
independent bank in Palm Desert, California. Its assets exceed $175
million. The bank has been operation in California since 1981. Palm
Desert National Bank is an active corporate citizen in its community
and supports a number of local charities. Palm Desert National Bank has
taken an active lead role in financing economic development projects in
Indian County, and it is through Mr. McGuire's efforts that S. 2017 is
now before the Senate Committee on Indian Affairs.
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