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93–458 PDF 2004

S. HRG. 108–540

TRIBAL CONTRACT SUPPORT COST TECHNICAL

AMENDMENTS

HEARING

BEFORE THE

COMMITTEE ON INDIAN AFFAIRS

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

ON

S. 2172

TO MAKE TECHNICAL AMENDMENTS TO THE PROVISIONS OF THE

INDIAN SELF-DETERMINATION AND EDUCATION ASSISTANCE ACT

RELATING TO CONTRACT SUPPORT COSTS

APRIL 28, 2004

WASHINGTON, DC

(
COMMITTEE ON INDIAN AFFAIRS

BEN NIGHTHORSE CAMPBELL, Colorado, Chairman

DANIEL K. INOUYE, Hawaii, Vice Chairman

JOHN McCAIN, Arizona,

PETE V. DOMENICI, New Mexico

CRAIG THOMAS, Wyoming

ORRIN G. HATCH, Utah

JAMES M. INHOFE, Oklahoma

GORDON SMITH, Oregon

LISA MURKOWSKI, Alaska

KENT CONRAD, North Dakota

HARRY REID, Nevada

DANIEL K. AKAKA, Hawaii

BYRON L. DORGAN, North Dakota

TIM JOHNSON, South Dakota

MARIA CANTWELL, Washington

PAUL MOOREHEAD, Majority Staff Director/Chief Counsel

PATRICIA M. ZELL, Minority Staff Director/Chief Counsel

(II)
(III)

C O N T E N T S

Page

S. 2172, text of ......................................................................................................... 2

Statements:

Allen, Ron, chairman, Jamestown S’Klallam Tribal Council ........................ 11

Black, Charles, director, Office of Tribal Programs, Department of Health

and Human Services ..................................................................................... 7

Campbell. Hon. Ben Nighthorse, U.S. Senator from Colorado, chairman,

Committee on Indian Affairs ....................................................................... 1

Demeray, Ron, Director, Self-Determination Services, Department of

Health and Human Services ........................................................................ 7

Fenster, Herbert, Esq., McKenna, Long and Aldridge, LLP, Denver, CO ... 20

Grim, Charles, director, Indian health Service, Department of Health

and Human Services ..................................................................................... 7

Miller, Lloyd, Sonosky, Chambers, Sachse, Miller, and Munson, Anchorage, AK .......................................................................................................... 18

Sinclair, William A., director, Office of Self-Governance and Self-Determination, Department of the Interior ......................................................... 9

Smith, Chadwick, principal chief, Cherokee Nation ...................................... 13

APPENDIX

Prepared statements:

Allen, Ron .......................................................................................................... 27

Fenster, Herbert (with attachment) ................................................................ 36

Grim, Charles ................................................................................................... 29

Miller, Lloyd (with attachment) ...................................................................... 42

Sinclair, William A. .......................................................................................... 31

Smith, Chadwick .............................................................................................. 33

(1)

TRIBAL CONTRACT SUPPORT COST

TECHNICAL AMENDMENTS OF 2004

WEDNESDAY, APRIL 28, 2004

U.S. SENATE,

COMMITTEE ON INDIAN AFFAIRS,

Washington, DC.

The committee met, pursuant to notice, at 10 a.m. in room 485,

Senate Russell Building, Hon. Ben Nighthorse Campbell (chairman

of the committee) presiding.

Present: Senators Campbell, Inouye, and Murkowski.

STATEMENT OF HON. BEN NIGHTHORSE CAMPBELL, U.S.

SENATOR FROM COLORADO, CHAIRMAN, COMMITTEE ON

INDIAN AFFAIRS

The CHAIRMAN. The committee will come to order. We meet today

to receive testimony on S. 2172, the Tribal Contract Support Cost

Technical Amendments of 2004.

[Text of S. 2172 follows:]
2

1

II

108TH CONGRESS

2D SESSION S. 2172

To make technical amendments to the provisions of the Indian Self-Determination and Education Assistance Act relating to contract support

costs, and for other purposes.

IN THE SENATE OF THE UNITED STATES

MARCH 8, 2004

Mr. CAMPBELL introduced the following bill; which was read twice and

referred to the Committee on Indian Affairs

A BILL

To make technical amendments to the provisions of the Indian Self-Determination and Education Assistance Act

relating to contract support costs, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Tribal Contract Sup5 port Cost Technical Amendments of 2004’’.
3

2

•S 2172 IS

1 SEC. 2. AMENDMENT DETAILING CALCULATION AND PAY2 MENT OF CONTRACT SUPPORT COSTS.

3 The Indian Self-Determination and Education Assist4 ance Act is amended by inserting after section 106 (25

5 U.S.C. 450j–1) the following:

6 ‘‘SEC. 106A. CONTRACT SUPPORT COSTS.

7 ‘‘(a) OTHER FEDERAL AGENCIES.—

8 ‘‘(1) IN GENERAL.—Except as otherwise pro9 vided by law, an Indian tribe or tribal organization

10 administering a contract or compact under this Act

11 shall be entitled to recover its full indirect costs as12 sociated with any other Federal funding received by

13 the Indian tribe or tribal organization in accordance

14 with an indirect cost rate agreement between the In15 dian tribe or tribal organization and the appropriate

16 Federal agency.

17 ‘‘(2) NO ENTITLEMENT.—The right of recovery

18 under paragraph (1) does not confer on an Indian

19 tribe or tribal organization an entitlement to be paid

20 additional amounts associated with other Federal

21 funding described in that paragraph.

22 ‘‘(b) ALLOWABLE USES OF FUNDS.—

23 ‘‘(1) DEFINITION OF SECRETARY.—In this sub24 section, the term ‘Secretary’ means the Secretary or

25 head of any Federal agency providing funds to an

26 Indian tribe or tribal organization.
4

3

•S 2172 IS

1 ‘‘(2) USE OF FUNDS.—Notwithstanding any

2 other provision of law (including a regulation), an

3 Indian tribe or tribal organization that is admin4 istering a contract or compact under this Act and

5 that employs an indirect cost pool that includes

6 funds paid under this Act and other Federal funds

7 shall be entitled to use or expend all Federal funds

8 in the indirect cost pool of the Indian tribe or tribal

9 organization without the approval of the Secretary

10 in the same manner as is permitted under section

11 106(j).’’.

12 SEC. 3. AMENDMENTS CLARIFYING CONTRACT SUPPORT

13 COST ENTITLEMENT.

14 (a) AMOUNT OF CONTRACTS.—Section 105(c)(1) of

15 the Indian Self-Determination and Education Assistance

16 Act (25 U.S.C. 450j(c)(1)) is amended by striking the sec17 ond sentence.

18 (b) REDUCTIONS AND INCREASES.—Section 106(b)

19 of the Indian Self-Determination and Education Assist20 ance Act (25 U.S.C. 450j–1(b)) is amended in the matter

21 following paragraph (5)—

22 (1) by striking ‘‘the provision of funds under

23 this Act is subject to the availability of appropria24 tions and’’; and
5

4

•S 2172 IS

1 (2) by adding at the end the following: ‘‘In any

2 case in which contract support costs are not pro3 vided for, there are authorized to be appropriated

4 such sums as are necessary to pay those costs.’’.

5 (c) CONTRACT MODEL.—Subsection (c) of section

6 108 of the Indian Self-Determination and Education As7 sistance Act (25 U.S.C. 450l(c)) is amended in section

8 1(b)(4) of the model contract set forth in that subsection

9 by striking ‘‘Subject to the availability of appropriations,

10 the’’ and inserting ‘‘The’’.

11 (d) APPLICABILITY TO AGREEMENTS WITH THE

12 SECRETARY OF THE INTERIOR.—Section 408 of the In13 dian Self-Determination and Education Assistance Act

14 (25 U.S.C. 458hh) is amended by inserting before the pe15 riod at the end the following: ‘‘(including such sums as

16 are necessary to pay contract support costs, when not oth17 erwise provided for)’’.

18 (e) APPLICABILITY TO AGREEMENTS WITH THE SEC19 RETARY OF HEALTH AND HUMAN SERVICES.—Section

20 519 of the Indian Self-Determination and Education As21 sistance Act (25 U.S.C. 458aaa–18) is amended—

22 (1) in subsection (b), by striking ‘‘the provision

23 of funds under this title shall be subject to the avail24 ability of appropriations’’ and inserting ‘‘the provi25 sion of funds under this title (excluding contract
6

5

•S 2172 IS

1 support costs) shall be subject to the availability of

2 appropriations’’; and

3 (2) by adding at the end the following:

4 ‘‘(c) NECESSARY CONTRACT SUPPORT COSTS.—In

5 any case in which contract support costs are not provided

6 for, there are authorized to be appropriated such sums as

7 are necessary to pay those costs.’’.

8 SEC. 4. EFFECT ON OTHER LAW.

9 (a) IN GENERAL.—Except as provided in subsection

10 (b), this Act and the amendments made by this Act super11 sede any conflicting provisions of law (including any con12 flicting regulations) in effect on the day before the date

13 of enactment of this Act.

14 (b) EXCEPTION.—Nothing in this Act shall be con15 strued to alter in any manner the ruling of the United

16 States Court of Appeals for the Federal Circuit rendered

17 on July 2, 2003, in Thompson v. Cherokee Nation, 334

18 F.3d. 1075 (July 3, 2003).

Æ
7

The CHAIRMAN. Since President Nixon’s time Indian tribes have

shown that they are much better prepared than the Federal Government at providing services and programs to tribal members.

There is no question on that point. Our policy as the Congress is

to encourage more tribes to become contracting tribes, but frankly

they will not be willing to do so if they are not equipped with all

the tools and resources they need.

We will hear today from a commercial contract expert and, as he

will testify, in all other contracts that the United States enters

there is no question that the cost to carryout those contracts are

provided to the contractor. I think that tribal contractors should be

treated the same way.

I will enter my complete statement in the record so that we can

move along, because I have a time conflict this morning with a

markup in another committee. So we will go ahead and when Senator Inouye gets here we will make his opening comments.

With that, we will ask our first panel to be seated. That will be

William Sinclair, the director of the Office of Self-Governance and

Self-Determination from the Department of the Interior; and Dr.

Charles Grim, director of Indian Health Service for the Department

of Health and Human Services. I think what we will go ahead and

do is start with you, Dr. Grim, if we could. Your complete testimony, by the way, will be included in the record. I understand

Douglas Black will be here accompanying you, is that right?

Mr. GRIM. Yes, sir; and also Ron Demeray.

The CHAIRMAN. Mr. Demeray is also here accompanying you.

Okay. Why don’t you go ahead and proceed. Your complete testimony will be in the record, if you would like to abbreviate.

STATEMENT OF CHARLES GRIM, DIRECTOR OF INDIAN

HEALTH SERVICE, DEPARTMENT OF HEALTH AND HUMAN

SERVICES ACCOMPANIED BY DOUG BLACK, DIRECTOR, OFFICE OF TRIBAL PROGRAMS, DEPARTMENT OF THE HEALTH

AND HUMAN SERVICES; AND RON DEMERAY, DIRECTOR OF

SELF-DETERMINATION SERVICES, DEPARTMENT OF

HEALTH AND HUMAN SERVICES

Mr. GRIM. Thank you, Senator Campbell. I will do so.

As you indicated, I also have Doug Black, our director of the Office of Tribal Programs and Ron Demeray, our director of the SelfDetermination Services team in that same office, so that we can be

responsive to the committee’s questions.

Mr. Chairman, the IHS has testified previously before this committee on the importance of contract support costs, the promotion

of strong, stable tribal governments, and the provision of quality

health care. I come before you today in support of your continued

efforts to address CSC issues.

A little update on what the Indian Health Service is doing in

that realm. We continue to work with tribal leaders and their representatives on a regular basis to improve the administration and

allocation of contract support costs in the Indian Health Service.

We have had four CSC policies in the IHS since 1992. Each policy has been an improvement on its predecessor based on our accumulated experience and our ongoing discussions with tribes concerning the agency’s management of contract support costs. Earlier
8

this month, we met again with representatives of tribes to consider

several changes to our existing CSC policy that are intended to further improve the manner in which we manage contract support

costs.

Our CSC policy contains allocation procedures that are intended

over a period of time to reduce the disparity in CSC funding among

tribes in our system, without reducing CSC funding for tribes that

are still underfunded. The allocation procedures we use were developed once again in consultation with tribes to address the present

environment in which available contract support cost appropriations are insufficient to fund the total CSC need.

S. 2172 contains provisions that appear to legislate the full funding of contract support costs. At the crux of the CSC dilemma and

controversy are provisions in the Indian Self-Determination Act

that are seemingly in conflict with one another. The law directs the

Secretary to fund the full amount of need for such costs, while elsewhere in the act it provides that contract funding is subject to the

availability of appropriations. As a result, the IHS continues to be

involved in litigation over contract support cost issues that are

rooted in this confusion. In November, the Supreme Court will hear

arguments concerning this conflict in statutory interpretation.

S. 2172 attempts to address and ostensibly end the confusion

over CSC by amending the act to fully fund these costs. Although

I have been a strong advocate for increased contract support cost

funding throughout my tenure as director and throughout my career in the Indian Health Service, I am concerned about this provision. S. 2172 does not specify the sources of funding that will be

used to fully address the CSC need and I would be opposed to funding for CSC that comes from existing IHS appropriations for health

care programs and services and supersedes the other critical priorities for budget increases for all IHS-funded programs.

S. 2172 also contains a provision that reaches outside of the IHS

and BIA by allowing tribes to recover their full indirect cost needs

from awards made by other Federal agencies. This provision would

result in the diversion of limited program funds to administration

and create an inequity in treatment between tribal and non-tribal

grantees. The Department cannot support the requirements of this

provision.

In closing, I would again like to express my support for contract

support costs and the activities of this committee. Senator Campbell, I would also like to thank you for your efforts and achievements on behalf of Indian people as chairman of this committee.

I would like to complete my opening comments by emphasizing

that the IHS is committed to upholding, promoting and strengthening the principles of the Indian Self-Determination Act, the empowerment of tribal governments, and the government-to-government relationship that exists between Indian Nations and this

country.

Thank you for the opportunity to discuss S. 2172 and contract

support costs in the IHS. At this time, we are available to answer

any questions that you might have.

[Prepared statement of Mr. Grim appears in appendix.]

The CHAIRMAN. Thank you, Dr. Grim.

Mr. Sinclair, if you would go ahead and proceed.
9

STATEMENT OF WILLIAM A. SINCLAIR, DIRECTOR, OFFICE OF

SELF-GOVERNANCE AND SELF-DETERMINATION, DEPARTMENT OF THE INTERIOR

Mr. SINCLAIR. Yes, sir; thank you.

Good morning, Mr. Chairman. I am William Sinclair, director of

the Office of Self-Governance at the Department of the Interior. I

am pleased to be here today to impart the Department’s views on

S. 2172, to amend Public Law 93–638.

The Department supports developing strong tribal governments

by having contracts and compacts with over 90 percent of all Indian tribes and by funding contract support costs incurred by those

tribes. However, we are unable to support this bill.

As background, the original act requires that tribes who are contracting and compacting for services, or a program, receive full

Federal funding that the Secretary would have expended if the Secretary had provided the service directly.

In addition, the Secretary is required to provide contract support

costs to those contracting and compacting tribes to cover overhead

expenses incurred by those tribes in implementing the contracts

and compacts. For example, a tribe’s personnel or accounting operation that provides administrative support services to more than

one contract would be eligible for contract support.

In 1988, the Act was amended requiring the Secretary to provide

contract support funding for all administrative costs incurred by

contracting and compacting tribes. However, the act also says that

the provision of the funds are subject to the availability of appropriations, which leads us to our major concern with the bill. Section

three of the bill attempts to make contract support costs similar to

an entitlement by eliminating all references within the Act that

make payment of funds, quote, ‘‘subject to the availability of appropriations,’’ unquote.

Similarly, if the words ‘‘subject to the availability of appropriations’’ are eliminated in section 105(c)(1) of the act, then funding

for all programs included in compacts and contracts could be considered as an entitlement.

Section three of the bill also amends section 408 of the act which

authorizes appropriations of the act. The bill would add the following language: ‘‘Including such sums as are necessary to pay contract support costs when not otherwise provided for.’’ As Congress

has recognized, the BIA has many competing priorities that provide

necessary funding for many important programs and services for

Indian and Alaska Native communities. We believe that this language inappropriately singles out contract support as a high priority at the expense of other high priorities that tribal communities

have.

Beginning in 1994, Congress placed a legislative ceiling on the

amount the Department could use toward contract support costs.

The ceiling provision has continued to be included in each annual

Interior Appropriations Act. For fiscal year 2005, the statutorily

mandated ceiling that is being requested for contract support is

$133.3 million. Enactment of the ceiling is important as it reflects

the need to ensure that all Indian Affairs-related programs have

sufficient resources to carry out their responsibilities and functions.

We believe that there is some ambiguity created between the ceil-
10

ing provision contained in congressional appropriations language

and what is authorized by section 3 of the bill.

We recognize that the full funding of contract support costs remains a major issue for all parties involved in contracting and compacting Federal programs and services under the act. If S. 2172 is

enacted, the Department will be forced to reduce funding for equally important federal programs, some of which may be for inherently Federal functions and for programs and services directly to

tribes, and for programs and services included in contracts and

compacts. The latter would make the Department vulnerable to

costly and time-consuming litigation.

Section 2 impacts all Federal agencies including those who are

not testifying before the committee today. If enacted, this provision

would bind all Federal agencies to fully fund indirect costs at each

agency’s negotiated indirect cost rate. Implementation of this provision would most likely create some budgetary pressures on other

agencies and may discourage these agencies from engaging in contracting and compacting with Indian tribes in the future.

In addition, section two authorizes tribes to use indirect cost

funding for other uses not related to indirect administrative costs.

We are unclear as to the need for this provision because it implies

that full funding for all indirect costs is unnecessary.

Finally, section 4 attempts to supersede any conflicting provision

of the law. The effects of this provision are unknown as it appears

to attempt to override all previous appropriations and authorizing

statutes and Federal regulations governing tribal contracting and

compacting of Federal services and programs.

Mr. Chairman, funding for contract support remains a serious

issue for the Congress, the Administration, and Indian tribes, and

we would like to work with the committee and the tribes in addressing these concerns in the future.

This concludes my statement. If you have any questions, I would

be glad to answer them.

[Prepared statement of Mr. Sinclair appears in appendix.]

The CHAIRMAN. We will. My question is, if this is not the answer,

what is, to improve contracting and compacting since most tribes

certainly agree with it and have done very well in the attempts to

manage their own affairs? Clearly, a bill cannot become a law unless it is supported by the Administration, so I would hope as we

move along both of you are willing to work with our staff and try

and find something that can be a vehicle for change that is going

to benefit tribes.

I have to tell you, this will be my last trip. As you know, I am

going home. But it has always been a concern of mine that an

awful lot of agencies in Washington, it seems to me, are just scared

to death of any kind of change that might benefit tribes. They always give us this kind of doublespeak. They want to do things to

help Indian people, but when it comes right down to supporting a

bill that will help Indian people, somehow they find a reason to oppose the damn bill. I have never quite understood that.

If the Department of the Interior and the Indian Health Service

both are really, their mission under the legislation that empowered

them in the first place is to try to help Indians, we are not doing

a very good job of it. It is as simple as that.
11

Although I will not be here to fight the battle and Senator

Inouye will not be on the committee either next year, in our tenure,

he as chairman and me also following his leadership as chairman,

that is something we faced right from the beginning, that people

continually here in Washington tell us how much they want to help

Indians, then when you propose a bill that helps Indians, they finally want to dissect it in 17 different ways and, what do you

know, they have to come in an oppose the darn bill.

So I would hope that you are willing to sit down with staff and

try to find some middle ground where we can in fact help Indians

help themselves more. I will submit some of my questions in writing to you, if you would answer them when you can.

Thank you.

We will now move to the next panel. That will be Ron Allen,

chairman of the Jamestown S’Klallam Tribal Council from Washington; and Chadwick Smith, principal chief of the Cherokee Nation in Tahlequah, OK.

Gentlemen, as with the first panel, your complete written statement will be included in the record. I would appreciate it if you

would abbreviate some, and we will try to move forward. You already heard how the Administration feels about this bill. It is not

my belief and I know it is not a lot of the tribes’ belief, but we will

move along and hear you. Why don’t you go ahead and proceed.

Ron, nice to see you again here.

STATEMENT OF RON ALLEN, CHAIRMAN, JAMESTOWN

S’KLALLAM TRIBAL COUNCIL

Mr. ALLEN. Good to see you again, too, Mr. Chairman. It is always an honor and a pleasure to be here before this committee to

testify on behalf of NCAI and my tribe, the Jamestown S’Klallam

Tribe up in Western Washington.

This issue is clearly an important issue to the tribes. We could

not agree with you more in terms of the commitment that the Congress and the Administration should be making to the tribes to

help advance policies that have been 30 years old in terms of helping the tribes become more self-determinant and self-reliant. That

is an agenda that has been clearly articulated by this committee

many, many times over the years.

We are quite frustrated with this issue. I chair the Contract Support Task Force for NCAI and have helped champion our collective

political strategy effort to try to persuade the Congress and the Administration to close this gap. We firmly believe that the way that

the Federal Government is dealing with the tribes is a discriminatory policy. Nowhere else in this Government that deals with contracting of any other services or activities or functions with mainstream America in any venue do they treat contractors like they do

Indian tribes.

Without a doubt, it amazes us that as tribal governments, and

as Congress and Administration after Administration has promoted

that the tribes become self-reliant and do for ourselves, take care

of our own community, be able to manage all of these affairs from

public safety to natural resources and so forth, and yet they do not

completely fund the contractual expenses. Our minds are boggled.

Why?
12

We get GAO reports. We have conducted our own reports and

analyses of other institutions who also get Federal contract support. And yet we still do not find any consistency on how the Federal Government is dealing with this particular issue.

In the end, the bottomline is that tribes are having to subsidize

this activity to assure that as we are carrying out these functions

and that we are accountable showing we are responsible, and that

we are doing a good job. So the bills come in and the Federal Government is not paying their share, then who is? We have to do

that. Otherwise, we get penalized and get scrutinized for mismanaging Federal dollars in those activities, as if we are the problem.

We are not the problem. We have many successes. Self-governance and self-determination has been shown to be unequivocally

successful out there in our communities. Unfortunately, the Federal Government is not doing its part. We get a little frustrated

how the Administration and the Congress has played a bit of a

shell game for us. We go to the Administration and say, we want

you to submit a budget where you are going to fully fund 100 percent. They point the finger at the Congress, and then Congress

says, no, we do not want to pay 100 percent. We go to Congress

and say, what is going on? Why can’t we close this gap? There is

only so much money.

Well, the Administration does not submit a budget to us that

closes the gap, so they apparently do not believe it is a priority.

So we are going back and forth on this issue and not finding any

solution to it. NCAI and our tribes who have been working on this

issue unequivocally for a lot of years now believe that this bill can

help close the gap. It provides clear instructions to the Administration, you need to submit a budget to us that closes this gap and

treats the tribes in their governmental contracting relationship

with the Federal Government like all other contractors. You will

submit a budget and pay 100 percent. You will not cause the tribes

of having to go to court to try to get our remedy.

So here we are spending our own tribal money trying to get the

Federal Government to own up to its responsibilities, and yet the

Federal Government cannot seem to find a way to make that happen.

So we believe this bill goes a long way and we would hope that

we can move it or some variation of it along to provide that very

clear unequivocal direction. We think that we are doing a good job

out there in our communities. We do not believe the Federal Government can and ever will fully fund all the needs of our community. We have documented to this committee and others that there

is a huge amount of unmet needs in our communities. We do not

ever believe that gap will be closed, but at least with the existing

functions and programs that we are contracting out, at least with

those you could pay 100 percent and that would be a fair relationship with the tribes.

I will close. You have my testimony with some of the more specifics about our suggestions with regard to this bill, and this technical

amendment bill. But the issue for us, Senator, is how we are going

to close this gap and stop this discriminatory policy as it applies

to the Indian tribes. It is an atrocity. It is embarrassing and we
13

are just really frustrated that it still exists. We want a solution.

Right now, we are not finding anybody who is providing us a solution.

We appreciate your leadership and Senator Inouye’s leadership

to say, look, enough is enough; let’s solve this problem and get on

to other issues that are more important.

Thank you.

[Prepared statement of Mr. Allen appears in appendix.]

The CHAIRMAN. Thank you for that testimony.

Ron, I agree with you, tribes are not the problem. Washington

is the problem and some of us certainly recognize that. You know

as well as I do that discrimination against Indian people is not exactly new around this place or in many places in America.

Very frankly, I hope that Indian country really registers their

displeasure this November. Washington is the only game in town

for Indians anymore. You know that as well as I do. It just seems

to me what Indian people have got to do is get more active in public policy, not less active, because very clearly regardless of Administration, whether it is Republican or Democrat, there are people

and will continue to be people in Washington who are more concerned about taking away what is left in Indian country, rather

than helping Indians be self-sufficient. That is a sad commentary,

I have to tell you.

Thank you for your testimony.

Mr. Smith, nice to see you here. Thanks for being here.

STATEMENT OF CHADWICK SMITH, PRINCIPAL CHIEF,

CHEROKEE NATION

Mr. SMITH. Good morning, Chairman Campbell. I personally

want to thank you for your service to Indian country. We value

that. You are very special to us. We are sad to see you go.

My name is Chad Smith and I am the principal chief of the Cherokee Nation, a federally recognized Indian nation with over

244,000 citizens and 23 treaties with Great Britain and the United

States.

Before I talk about what I wanted to say, I found it very interesting from Mr. Sinclair’s position that apparently with self-governance contracts there is are different definitions. A self-governance

contract has a different definition than other kinds of contracts in

the private sector and with other Federal agencies, and an obligation does not have the same definition in Indian country as it does

in the rest of the contracting world. We found that a bit peculiar.

It seems like in Federal contracting there is one uniform definition

for contracting obligation.

Let me say, I am a student of history in Federal Indian policy.

It appears that every 20 to 40 years a pendulum swings, the pendulum of public sentiment and Federal policy. At one extreme, this

sentiment and policy is hostile to American Indian tribes. At the

other end of that swing, it allows tribes to determine their own destiny. Each hostile Federal policy has failed. There was extermination in the 1770’s; removal in the 1830’s and forced assimilation;

and in the 1890’s ethnocide; and in the 1920’s relocation; and termination in the 1950’s.
14

The one policy that has been successful is self-determination and

self-governance. This is one that each of us, Indian and non-Indian,

hold precious in our own lives, where we control and become responsible for our own futures.

The Cherokee Nation was one of the first tribes in the United

States to execute a self-determination contract with the original

1975 Self-Determination Act. In 1990, we were also the very first

tribe to execute a self-governance agreement under title III of the

Act.

Of course, pursuant to the act, we carry out a wide realm of services and sometimes folks ask what we do at the Cherokee Nation.

We tell them we do everything the United States does except raise

an army, from health care to social services to education.

Unfortunately, the nation’s progress has been severely impeded

by the Government’s not funding the required support costs as

mandated by this act. Since the time of the first self-governance

compact in 1990, the Cherokee Nation has never been fully funded

with the contract support cost as mandated by the Indian Self-Determination Act, which amounts to over $4.7 million a year for

these fixed costs. We cannot create these programs without the administrative tools provided by contract support cost.

As a result of the gross underfunding of these contracts, the nation has had to forego such substantial service to thousands of the

Indian people simply to cover the shortfall in the government funding. This compounds an already deficit funding level and required

us to ration basic health care and other services to our citizens.

This has worked a great hardship on our people, who must rely on

these programs and facilities for their basic health care, and that

is why I am here today.

I would like to share with you a brief story. It is a story about

a 42-year-old Cherokee man, a laborer, who has been suffering

chronic knee pain since 1995 and has been placed on multiple

medications to help reduce the pain and swelling, but they have

not been successful. His condition has continued to deteriorate, as

shown by his x-rays, which now shows bone-on-bone. He needs a

total knee replacement. This is not a service we can provide in our

outpatient clinics.

Referral was sent to a specialty care, but it was denied due to

lack of funding. This left this strong otherwise healthy man unable

to perform his job as a carpet layer. This man quickly lost his job

and his family was unable to pay its bills. The family turned to our

Human Services Department for emergency help, which provided

only limited relief. The family was ultimately forced to move in

with the wife’s parents, which added additional stress on his family. The husband became severely depressed due to being unemployed and living in constant pain.

A once-productive member of our community, this man now cannot provide for his family, play with his kids, or have a moment

that he is not in pain. Rather than being able to earn a living free

of chronic pain and being a contributor in the Cherokee community, this family must seek assistance from other resources.

We see these cases every day and I am sure you hear about

them. This situation could have been prevented had we had the resources to perform the knee replacement on this man, a simple sur-
15

gery, allowing him to work again. But knee replacements and similar procedures must be deferred, many times indefinitely, due to

heart attacks, strokes, and other immediately life-threatening conditions that demand higher priority for our limited funds.

The Cherokee Nation has tried to resolve these issues. We have

been to the court. The Supreme Court is going to be looking at this

in the next coming months. We do not believe this is the way to

resolve these situations.

How can we be asked to satisfy the performance of these contracts without full payment by the agencies? It is clear that reforms are needed and we strongly support S. 2172 and we applaud

the committee for including the provisions, especially in section

three, that are key to strengthening the mandate to fully pay contract support cost. This clause prevents us from not knowing up

front what the contract is going to be, how much we will have to

budget, how to manage those scarce resources. Nobody in the private sector would imagine going into contract open-ended, not

knowing what the amount and scope of the services would be, and

expected to subsidize that contract with their own funds or perform

less than what the requirements were.

It is often repeated in these hearings that the greatest threat to

the success of the Self-Determination Act is the failure to fully fund

contract support cost. On behalf of the Cherokee Nation, I can tell

you that the contract support funding has indeed been one of our

greatest problems that impeded our progress.

Thank you, Mr. Chairman. We strongly support your bill, S.

2172. It really is not a mundane, simple issue. It undermines the

whole idea of the relationship between this government and these

tribal governments. We believe that a contract should be a contract, an obligation should be an obligation, and these support costs

be fully provided for.

Again, thank you, Mr. Chairman.

[Prepared statement of Mr. Smith appears in appendix.]

The CHAIRMAN. Thank you for that testimony. I guess I am a little old-fashioned, but I believe that a nation’s word is like a person’s word. You give you word, you ought to keep it. If a nation

gives its word, it ought to keep it. You mentioned the hostile policies of the past have failed. We all recognize that. I have to tell

you, from my own perspective we have too many of our current

policies that are also failing because there are too many people still

looking for end-ways around implementing the policies. I think a

lot of that, very frankly, is driven by turf or emotion or money or

something else, but we are not doing the best we can for Indian

people. That is for sure.

Let me start with Ron, and maybe ask a couple of questions,

Ron. It seems to me that part of the reasoning for the Federal

agencies is so that the 638 contract tribes, that are bound by congressional appropriations, can kind of stand in the shoes of the

Federal Government. I know that contracting tribes can access the

GSA, for instance, their purchasing schedules. If a tribe purchases

a computer, as an example, a computer system, and 638 contract

funds are exhausted, who is responsible for that expense? The Federal Government or the tribes?
16

Mr. ALLEN. In our opinion, it is the Federal Government who is

responsible.

The CHAIRMAN. In your experience, what difference is there between a private government contractor and an Indian tribal government contractor?

Mr. ALLEN. There is no difference, Senator. There absolutely is

no difference.

The CHAIRMAN. So they ought to be treated alike? Is that your

position, too?

Mr. ALLEN. Exactly.

The CHAIRMAN. As it is mine.

Mr. ALLEN. We also believe that this issue is not just with the

BIA and IHS. It is with the Federal Government. This policy

should be consistent with regard to any contract that deprives a securer from any agency or department in the Federal Government.

The CHAIRMAN. Interior and Indian Health Service, excuse me,

the HHS claim that fulfilling the contract support cost agreements

they made will mean that they have to cut funding for direct service tribes. Do you agree with that?

Mr. ALLEN. To fully fund it?

The CHAIRMAN. They will have to cut funding for direct service

tribes.

Mr. ALLEN. Yes; if they were to redirect moneys that they have

available to fully fund contract support, that means that some programs, some activities somewhere will be diminished.

The CHAIRMAN. And what would be ways to make sure that those

tribes are not impacted?

Mr. ALLEN. We believe that legislation should make it very clear

that contract support should be fully funded for all activities, and

that on top of the program activities that are provided to the tribes,

that those moneys should be made available.

We believe that the Congress really does need to make sure that

it needs to increase the budget that it makes available for Interior,

for Indian Affairs, or IHS; that as they identify those activities, the

contract support just accompanies it. It should not diminish programs. The point I did not make earlier is that the way the policy

is administered right now, it means that we have to diminish programs. For us to administer these contracts appropriately and responsively, to do that and cover those costs, that means that they

come from the programs. The programs have to be diminished to

balance out that administrative responsibility.

The CHAIRMAN. Maybe I have it wrong, because finance is not my

strong suit. But it just seems to me that contracting, when the Federal Government gives direct funding through contracting to the

tribe, it is a more efficient use of taxpayer money. Because if we

filter it through all the process and then down to the tribe, there

is always some peeled off through salaries and all kinds of things,

travel, you name it.

So if we appropriate a dollar and we contract with the tribe and

give them that dollar, I know where that is going. I know what is

happening to it. But if we put it through the system, I often wonder how much of that dollar to the tribe actually gets to deal with

the problems they are facing.
17

I sometimes think that is why we get opposition, regardless of

whose Administration it is, is that they do not want to diminish

what they consider is part of their turf. But from a dollar and cents

standpoint, when we talk about whether contracting would save or

cost more, I think it is in the best interests of the taxpayer at large

to direct contracting to Indian tribes as we do with other entities.

Mr. ALLEN. We could not agree more. When we advanced selfgovernance throughout the 1990’s and said that we can manage

these programs and functions much better than the Federal Government, the deal was that the tribes should be able to negotiate

from the Federal Government every function and activity, every

function, all the way to the Secretary’s office, so that we could take

over everything we wanted to take over.

In principle, it started that way. But slowly but surely, they are

digging in their heels and they are retracting from it. So that is

becoming more and more challenging. Our success, both through

self-governance and title I contracting, has shown that the tribes

are more efficient. I can tell you, if we said no, we are sick and

tired of not being fully funded, and returned all the programs and

activities, the Federal Government would have one difficult time

taking over those programs. It would be a greater diminishment of

those services.

The CHAIRMAN. Yes.

Mr. SMITH. Senator Campbell, if I may?

The CHAIRMAN. Yes.

Mr. SMITH. It is not only efficiency. It is also effectiveness, with

the flexibility of the self-governance policy, it allows us to be responsive to our local needs. It helps us put a priority on the most

critical needs. It allows us to do strategic planning for decades to

come. So it is not only efficient, it is effective.

The CHAIRMAN. Yes.

Chief Smith, in your case, in your testimony you noted that the

Cherokee Nation had to forego substantial services because of the

CSC shortfalls. What were some of the services that you had to

forego?

Mr. SMITH. Health care, Indian child welfare, law enforcement,

anything that is under our self-governance policies through the Bureau of Indian Affairs or IHS.

The CHAIRMAN. You also noted in your testimony that the Cherokee Nation took over operation of the health programs in the early

to mid-1990’s. During that time, you did not receive any contract

support funding for those programs? Is that true?

Mr. SMITH. For that period of time, yes, sir.

The CHAIRMAN. Why would the Cherokee Nation take over those

programs if you were not going to receive the contract support

funding? And knowing that history, do you have plans to take over

more programs or not?

Mr. SMITH. Anytime we look at a program, as how we can best

can provide a service; not whose turf we are on, ours or yours or

the IHS; we have taken over those programs because we believe,

and we have been able to demonstrate, that we have done a better

job, more responsive, more effective, more efficient, created partnerships with local county governments, State governments, Federal agencies. We have a vested interest in making it successful.
18

The CHAIRMAN. I thank you for appearing and supporting this

bill. I know Senator Inouye will be also grateful for that. With only

70 days left of this session, and so many things backlogged, very

frankly I do not know if we are going to be able to make much

progress or not, but I would hope so. Whoever comes in to take our

seats, at the next term Senator McCain will be the chairman. As

you know, Ron, he can be a real tiger when he wants to and hopefully he will pursue this. If we cannot get it through, he will.

When I am back in the private sector, I certainly will try to make

it a priority of mine to make sure the Indian voice is still heard

here.

Thank you for appearing today. I appreciate it.

Mr. SMITH. Thank you, sir.

Mr. ALLEN. I would say, Mr. Chairman, Indian country is going

to be very active in the upcoming elections. We are going to make

it real clear where our priorities are and what we are going to be

seeking from presidential candidates to congressmen with regard to

where do you stand with regard to your relationship with Indians

and the Federal Government’s obligations to Indians. We will be

out there. Our voters will be out there.

The CHAIRMAN. Good. Glad to hear that.

The third panel will be Herbert Fenster, Esquire, McKenna,

Long and Aldridge of Denver; and Lloyd Miller, Sonosky, Chambers

from Anchorage, AK. Go ahead. Sit down there.

Nice to have you both here.

Why don’t we go ahead and start with Mr. Miller.

STATEMENT OF LLOYD MILLER, SONOSKY, CHAMBERS,

SACHSE, MILLER AND MUNSON, ANCHORAGE, AK

Mr. MILLER. Thank you, Mr. Chairman. It is an honor to be here

this morning.

The CHAIRMAN. You can also abbreviate and we will put your full

testimony in the record.

Mr. MILLER. Absolutely.

As this committee is all too aware from its frequent return to the

Indian Self-Determination Act, no single issue has plagued the success of the Indian self-determination policy more than underfunding contract support costs. For tribes that are running hospitals

and clinics and law enforcement programs, no other deficiency in

the Federal system plagues the successful implementation of those

contracts as much as the underfunding of contract support costs.

This committee said it in 1988. The single most serious problem

with implementation of the Indian self-determination policy is the

underfunding of contract support costs. The committee enacted

amendments to remedy that policy; that was the primary purpose

of the 1988 amendments.

The problem, however, is, as you have heard today, embedded in

the act itself. On the one hand, in 1988 Congress amended the act

to mandate that the Secretary, upon the approval of a self-determination, shall add to the contract the full amount of funds to

which the contractor is entitled, including, quote, ‘‘contract support

costs.’’ Congress even provided a remedy in court under the Contract Disputes Act for damages if there was insufficient payment.

But Congress also provided in the act that the agency’s payment
19

of contract amounts is subject to the availability of appropriations,

and appropriations have indeed been capped for the BIA since 1994

and for IHS since 1999.

This has created an untenable position, where Congress directs

the agencies to award contracts for specific sums that Congress

mandates be paid in full, but at the same time a later Congress,

acting at the agencies’ instigation due to insufficient Administration requests, also limits the legal availability of the appropriations

to pay the full amount.

Contractors are caught in the middle, fully performing their contracts to operate Federal programs, but with the agencies now regularly requesting insufficient appropriations to pay the very contracts it has signed. At the very time it is signing the contracts,

it is requesting insufficient funds to pay the contracts.

Indeed, as currently implemented, the contractors are now regularly kept in the dark about exactly how much they will be paid

in the contract year until the year is almost over and performance

is nearly complete.

I am here a little bit to talk about litigation. Litigation, as an alternative mechanism, has not proven to be efficacious, to say the

least. On the one hand, it is true that judgments have been awarded against the BIA largely for pre-1994 contract claims totaling

some $115 million in damages. But other cases have dragged on for

years and years. Most recently, we now have the two Cherokee

cases, one involving the Cherokee Nation, the other the Cherokee

Nation and the Shoshone-Paiute Tribes, and the 10th Circuit and

the Federal Circuit Court of Appeals have reached different conclusions. The Supreme Court will resolve the differences in the views

of the law reached by those two courts. This teaches us that litigation is not an efficient means of remedying the shortfall in these

contracts.

Worse yet, both for contractors and for the achievement of Congress’ goals, in the one case where the agencies’ appropriations

were actually capped by an appropriations Act, the court ruled that

the tribes’ contract amount, not just the agencies’ ability to pay it,

but the contract amount itself, was limited to the insufficient appropriations, even though the appropriations came in bulk and

there was no way for the tribe to know how much it had in its contract.

Against this backdrop, S. 2172 is a welcome development and a

necessary change. The measure will overcome the agencies’ excessive reliance on the clause and conform the act to other government contracting regimes where an insufficient agency appropriation never stands in the way of the fulfillment of a government

promise in a contract.

At the conclusion of my written testimony, I quoted at some

length Senator Inouye’s remarks in connection with the 1988

amendments. Those remarks reflected the committee’s goal at the

time once and for all to place tribal contractors on the same footing

as other government contractors. Time has shown that to achieve

that goal still requires the kind of reform proposed by S. 2172. In

this way, prompt payment of the contracts will no longer be dependent on the politics of the budget process, competing demands

within the agencies, or the fortitude of tribal contractors like the
20

Cherokee Nation to take on the United States of America in litigation.

Thank you, Mr. Chairman, for the opportunity to testify.

[Prepared statement of Mr. Miller appears in appendix.]

The CHAIRMAN. Thank you, Mr. Miller. Thank you very much.

Mr. Fenster.

STATEMENT OF HERBERT FENSTER, ESQUIRE, MCKENNA,

LONG AND ALDRIDGE, LLP, DENVER, CO

Mr. FENSTER. Yes, Senator; Mr. Chairman, I appreciate the opportunity to appear and speak before the committee. I want to

state right away that I have no expertise in Indian law. I appear

as an expert in government contract law in which I have had experience over more than four decades. That expertise includes Federal funding and cost allowability.

I think the best I can do in an oral statement to supplement my

written statement is to point out some analogies between Indian

contracting as it is seen here, and government contracting elsewhere. For example, the Department of Defense would never appear before a congressional committee and even suggest that its

contractors bear some of their overhead costs. That is unthinkable.

No defense contractor would agree to bear a substantial portion of

its overhead costs. Government contracting under the Federal acquisition regulations actually prohibits a contractor from doing so.

Similarly in civilian contracting, GSA would never go to IBM and

suggest to IBM that they provide computers partially at their own

cost by bearing their indirect expenses of manufacturing of those

computers. That is unthinkable.

Again, as my written testimony points out, it is not only illegal,

it is unconstitutional. It is unconstitutional for the executive

branch to go out and augment appropriations made by Congress by

forcing its contractors to bear some of those expenses.

A better example yet is Iraq today. Today in Iraq, the Department of Defense and the Department of State are contracting out

infrastructure support services. Infrastructure, health care services, schooling services are being contracted out to private enterprise. Why? Because it is far more effective to do it that way and

government cannot provide those services in the first place.

However, no suggestion is ever made that the contractors over

there in Iraq are going to bear some part of the cost, for example,

the indirect costs of providing those services. I want to tell you, Mr.

Chairman, that the indirect costs of providing those services are

enormous, often amounting to two or three times the direct costs.

Yet those contractors are being fully compensated and are earning

a profit on that work, as you can see from a lot of the very disparaging statements that are made about them in the news media.

Unless the Chairman has questions?

[Prepared statement of Mr. Fenster appears in appendix.]

The CHAIRMAN. Yes; several. You mentioned, I believe, it is unconstitutional to make contractors bear the over costs. Why isn’t it

unconstitutional to do that when they are forcing Indians to bear

the over costs? I am not a constitutional authority.

Mr. FENSTER. In that area, Mr. Chairman, I am an authority. It

is unconstitutional because article I, section 9, clause 7 of the Con-
21

stitution recites that no funds shall be drawn from the Treasury

other than by an appropriation. The General Accounting Office

[GAO] long ago held that to require a contractor to pay for part of

the costs of contracting for government services is to augment the

appropriation, in other words to go around the congressional opportunity to provide the funds.

The CHAIRMAN. If you cannot have the remedy through legislation like this bill I think is part of the remedy, what option do the

tribes have? Do they just have to go to court and sue the Federal

Government?

Mr. FENSTER. This may not be a popular answer, even among the

tribes, but the tribes’ option is to turn the services back to the Government to be performed. The Government is suggesting in its testimony today that if that happened, the inference is that it would

cost less. That is not true. We know from many experiences, including my written testimony reference to the FAIR Act, that it is far

more cost-effective to contract out those services. So the Government would achieve no good result by receiving the services back

to be performed.

The CHAIRMAN. You made reference to what we are doing in

Iraq, and I support our efforts in Iraq as just one Senator, but I

recognize the costs, too. It is amazing that there is so little accountability in some of these cost overruns in Iraq, and yet every dime

that potentially goes to American Indians we have everybody and

their brother around this place looking over their shoulders to see

how it is being spent.

Mr. FENSTER. Mr. Chairman, I think you raise a good point, and

that is accountability. There is no suggestion in any of the testimony today that these indirect costs are unreasonable. As a matter

of fact, the inference is that they are very reasonable. They are providing the services more cost-effectively than the Government could

do itself.

Similarly, in Iraq just by analogy, those contracts are all audited.

They are audited by the Defense Contract Audit Agency, by GAO.

Although there are a lot of disparaging remarks being made, there

is no suggestion based on any hard facts that those services are

being provided in Iraq for some outrageous sum. That is not the

case.

The CHAIRMAN. That is right.

Let me, before I ask some questions, Senator Murkowski has

joined us. Did you have an opening statement, Senator? Or did you

just want to listen and ask some questions yourself?

Senator MURKOWSKI. Mr. Chairman, thank you. I do not have an

opening statement. I do have just one quick question of Mr. Miller,

and that is it.

The CHAIRMAN. Why don’t you go ahead, then I will ask several

of mine.

Senator MURKOWSKI. Just very, very briefly, and I apologize that

I was not here for the previous testimony. Mr. Miller, if you could

just give me a quick summary, I guess, of the effect that the shortfall on the contract support cost has had on the tribal programs in

Alaska.

Mr. MILLER. Thank you very much, Senator Murkowski.
22

The effect of the contract support cost shortfall in Alaska is devastating. We are talking about a State where we experience thirdworld conditions, as the Senator knows, in many of the villages

where there is not enough safe drinking water even to assure

against communicable diseases. The contract support cost shortfall

in Alaska is the largest among all of the regions of the country in

terms of total contract support shortfalls, which today are projected

at $111 million.

The Alaska Native Tribal Health Consortium alone is short $11

million in its hospital operations in Anchorage. That number is duplicated for the Southeast Alaska Regional Health Corporation, the

Yukon-Kuskokwim Health Corporation, the Bristol Bay Area

Health Corporation. Virtually all of the corporations and tribal programs operating health care in Alaska with contracts with the Indian Health Service are severely underfunded.

It absolutely compromises their ability. The reason I say that is

because contract support costs, being audited, they are audited,

they have to be audited by a certified public accountant and the

audit has to be furnished to the government. Those audited costs

are fixed costs. They are the costs of insurance. They are the costs

of the audit itself. They are the costs of the financial management

system the tribe has to have.

The tribe, when it fails to receive the full amount from the agency, cannot go without incurring the costs. They have to pay that

bill. We heard this in the Cherokee Nation’s testimony. Since the

costs are fixed and the tribe has to pay it, there is no choice. It has

to come out of the program. There is simply no choice. So we have

a dollar-for-dollar reduction in programs.

Senator MURKOWSKI. So when you say that it has to come out

of the program, then, what specifically are we seeing, for instance,

when you spoke to the effect on the Tribal Health Consortium? If

it is coming out of the program, where are we seeing it?

Mr. MILLER. They have reduced their ability to purchase contract

health care services. They have reduced the services they can provide at the hospital itself. They have reduced their physician contracts that they would otherwise enter into. It can affect the entire

salary scheme of a tribal organization such that they cannot attract

the same caliber of people to work at the institution.

If the Senator would like, I can certainly provide a profile for

several of the corporations showing where the reductions are felt

and how that translates into services, if that would assist the committee.

Senator MURKOWSKI. Thank you. I appreciate that, Mr. Chairman.

Mr. MILLER. You are very welcome.

The CHAIRMAN. Thank you.

Thanks to both of you for your testimony. You heard Ron Allen

mention how frustrated he is. I think he voiced the opinion of an

awful lot of Indian people. You, Mr. Fenster, said you do not have

expertise in certain areas. After being here the number of years

that I have been here, I am convinced we do not need so many people with expertise. We need more people with a good heart who

have a real commitment to fairness. That is what we do not have.

We have too many people that get frankly totally embroiled in the
23

legalese when they ought be reading the good book more than the

law books, it seems to me, when we are trying to do what is right

for people.

In any event, let me ask both of you, or at least Mr. Miller, a

couple of questions. As a result of the CSC shortfalls, Indian tribes

may not find it feasible to take over certain programs or services

and forego the contracting. Do you consider that an acceptable response to the shortfall program, just turning it back?

Mr. MILLER. It is not an acceptable response, but it is a predictable response.

The CHAIRMAN. Maybe the only one.

Mr. MILLER. It is the only response. In fact, today new contracting has stopped dead in its tracks. There is virtually no tribe in

the country that will take on the operation of a new program with

IHS or any significant program with the BIA. Maybe that is the

way the agencies want it, but that is certainly what they have

achieved.

The CHAIRMAN. I am inclined to think so.

Mr. MILLER. I want to emphasize that it is the agencies that

have achieved it. We heard this morning Mr. Sinclair testify that

the BIA budget request for 2005 is $133 million. The problem is

that it is $50 million short. That is not something to be proud

about.

The CHAIRMAN. No; I have to plead a little bit guilty myself on

that because I am on the Appropriations Committee. But if I am

not mistaken, out of this 15-person committee, I think there are

three, Senator Inouye and I do not know who else, Senator Johnson

and myself that are all on Appropriations, but I think I am maybe

the only one on Interior Appropriations, but maybe there are just

one or two of us on Interior Appropriations. Of course, most Indian

money goes through there.

When you think of 100 Senators and then 435 on the other side,

the numbers do not favor us very well when we try to add money.

Even people from both sides of the aisle that try and do that, we

are numerically such a small number that we just cannot get everything we want. But we fight the good battle every year, as you

know. I know we do not come up with either the expectations or

what is needed to resolve some of the problems in Indian country.

Mr. MILLER. This is why I think the reform reflected in the bill

is so important. We cannot count, and it does not matter the Administration, Democratic or Republican, we cannot count on the

agencies or OMB to submit to the Congress a funding request that

will include full funding for these contracts, although they will always fully fund the Defense Department and GSA contracts. We

cannot.

In that environment, it has nothing to do with partisan politics;

only Congress has the answer. Only Congress can turn their hands

by enacting legislation that makes it clear that in the absence of

full appropriations, they will be sued and successfully. By golly,

under that kind of pressure, the agencies and OMB will make a

proper request that can be considered by the Congress.

The CHAIRMAN. Congress itself is an animal that responds to

pressure, too, as you probably know. I think the unfortunate reality

is that Indian country is still very small as a voting group. That
24

is the pressure they have to bring to bear sooner or later, like everybody else in the country has already learned.

Back in 1999, the GAO noted significant inconsistencies in applying its CSC policies at both the Bureau and the IHS. As I understand it, the IHS revised its CSC policies in 2001, but it is notably

different from the BIA. Has that revision helped the tribal contractors or not? What problems still remain? Are you familiar with

that, Mr. Miller?

Mr. MILLER. Very much so, Mr. Chairman.

The Indian Health Service policy is designed to deal with an

underfunding situation. The Indian Health Service has devised a

variety of means of allocating the misery among the contractors

who are not being fully paid.

Having said that, the Indian Health Service is doing a reasonable job in allocating an insufficient amount. The problem, of

course, is the insufficient amount, but putting that aside. The Bureau of Indian Affairs has devised an entirely different means, and

the means employed by the Bureau of Indian Affairs is such that

tribal contractors never know until the end of the year how much

money they are going to have to carry out the contract they have

just completed performing. That makes no sense.

So the BIA has been urged by tribes to develop a policy that

would closely mirror, if not replicate, the Indian Health Service policy. The Assistant Secretary for Indian Affairs now has under review a draft policy developed by a joint BIA-tribal work group. We

just met yesterday afternoon to go over that policy. We have agreed

to meet again in two weeks. So we are hopeful that the BIA will

improve its system so that at least there is predictability in the

current situation of underfunding until a bill like S. 2172 becomes

law.

The CHAIRMAN. I have always been one that believes that negotiating is better than litigating if you can avoid it. I know sometimes there is no other option. You heard me ask the previous

panel, what recourse is there? Should they just sue the government

or what, to try to resolve this impasse? Could you tell me what options you think are open to the tribal contractor? They have negotiated with the U.S. to carry out a program for services and then

found out that the CSC component of the negotiations turned out

not to be mandatory, but discretionary by the Government. What

options do they have if we cannot fix it through a bill that we have

before us?

Mr. MILLER. I think we cannot fix it with a bill like this. If the

appropriations continue heading in the direction they have been

heading—which is not only flat, but compounding the flat appropriations, rescissions that have actually reduced the amount of contract support cost in the last 2 years—if we keep heading in that

direction, I think we are in jeopardy of seeing wholesale retrocessions, the return of these contracted programs to the Federal Government.

Then you will have the scenario, Mr. Chairman, you described

earlier, where instead of one dollar going to the tribal community

to serve the tribal community, it is one dollar going to the BIA to

serve the tribal community, out of which we would be lucky if 20

cents actually got there. I think that would be a terrible setback
25

for the policy of Indian self-determination and the Congress should

not permit that to occur.

The CHAIRMAN. Yes; I have no further questions.

Senator Murkowski, did you have any further?

Senator MURKOWSKI. I do not, Mr. Chairman.

The CHAIRMAN. I may submit some in writing, though, because

I certainly appreciate your testimony and I find it very enlightening and certainly helpful to me.

Senator MURKOWSKI. Thank you. I am fine.

The CHAIRMAN. You have none.

I thank all the witnesses that appeared today. With that, the

hearing is adjourned.

[Whereupon, at 10:55 a.m., the committee was adjourned, to reconvene at the call of the Chair.]

(27)

1GAO/RCED–99–150, Indian Self-Determination Act: Shortfalls in Indian Contract Support

Costs Need to be Addressed, June 1999

APPENDIX

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

PREPARED STATEMENT OF W. RON ALLEN, CHAIRMAN, JAMESTOWN S’KLALLAM TRIBE

Chairman Campbell, Vice Chairman Inouye, and members of the Senate Committee on Indian Affairs, my name is W. Ron Allen and I am chairman of the Jamestown S’Klallam Tribe in Washington State. I also serve as Treasurer for the National Congress of American Indians and Chair of the NCAI National Policy Work

Group. on Contract Support Costs. It is an honor to present testimony in support

of S. 2172, a bill to make technical amendments to the contract support cost provisions of the Indian Self-Determination and Education Assistance Act.

NCAI is the oldest, largest, and most representative organization of American Indian and Alaska Native tribal governments and was founded in 1944 in response

to Federal termination policies and hostile legislation that proved devastating to Indian nations. To this day, NCAI remains committed to the restoration and exercise

of tribal sovereignty and the continued viability of all tribal governments. NCAI,

representing over 250 member tribes, has been particularly active in advancing solutions to the problems created by the chronic under funding of contract support

costs for those tribes and tribal communities that administer Federal Government

programs under the Indian Self-Determination Act.

Introduction

For the last 30 years, the promotion of tribal autonomy and self-governance has

been the hallmark of this Nation’s Federal Indian policy, the cornerstone of which

is the Indian Self-Determination and Education Assistance Act of 1975. The act authorizes tribes to enter into contracts or self-governance compacts to administer

Federal programs previously administered by the departments of Interior and

Health and Human Services for the benefit of tribal members. The well-documented

achievements of the self-determination policy for tribal communities have consistently improved service delivery, increased service levels, and strengthened tribal

governments and tribal institutions. Every Administration from Nixon to Bush has

embraced this policy and Congress has repeatedly affirmed it through extensive

strengthening amendments to the Self-Determination Act enacted in 1988 and 1994.

Long recognized by this committee, one of the greatest obstacles to the full implementation of the policy has been the consistent failure of the Bureau of Indian Affairs and Indian Health Service to fully fund the contract support costs required to

carryout Federal programs. A 1999 GAO study1 concluded with the finding that failing to fully reimburse contract support costs effectively penalizes tribes for exercising their self-determination rights, forces cuts to tribal programs in order to cover

the shortfall, and leads to partial termination of the Federal Government’s trust responsibility. As a matter of Federal contracting principle, tribal contractors, like all

other government contractors, should be promptly paid in full-payments not depend-
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ent on the politics of the budget process, the competing agency demands in OMB,

or the willingness of tribal contractors to litigate.

S. 2172 Contract Support Cost Technical Amendments

The NCAl Policy Workgroup on Contract Support Costs since its inception has offered several key recommendations, some of which we are pleased to find reflected

in S. 2172 and which are supported by NCAL The following summarizes our views.

1. Contract support costs must be fully funded.

The NCAI Policy Workgroup on Contract Support Costs issued this position as its

first and most important recommendation in its July 1999 final report, a recommendation also supported by the GAO June 1999 study. The shortfall in IHS contract support cost at year-end FY04 is $93 million; using the estimated flat. FY05

appropriation, at year-end FY05 the shortfall would be $111 million. For BIA, including the estimated direct CSC required per Ramah, Oglala, Zuni v. Norton, the

shortfall in contract support costs for FY03 is $45 million; at year-end FY04, the

BIA shortfall will by $48 million; at year-end FY05, the shortfall would be $50 million.

Contract support costs are a legal and contractual obligation of the Federal Government. Under funding contract support treats tribes as second-class contractors

and is unacceptable. Indian tribes ask nothing less than to be treated as other comparable government contractors.

Section 3 of the bill accomplishes this in two ways. First, the bill eliminates ambiguous provisions in the law which have been seized upon by the government as

a justification for under funding contract support costs. Second, section 3 exempts

contract support costs from the ‘‘subject to availability of appropriations’ provisions

in the Indian Self-Determination Act.

2. Congress should promote financial stability and efficiency in tribal

operations.

Section 2 addresses the fact that the indirect costs paid to tribes are pooled with

other Federal funds administered by a tribal contractor, and are spent out of single

account. This section of the bill reinforces subsection 106(i) and (j) of the Indian

Self-Determination Act by assuring that tribal funds pooled within a tribe’s indirect

cost pool may be spent under the same guidelines that apply to self-determination

funds. For instance, a tribal contractor can use self-determination funds to purchase

computer hardware without first securing advance agency approval. Once the selfdetermination funds are placed in a tribe’s indirect cost pool, however, the Office

of Inspector General suggests that the pooled funds cannot be used for new computer hardware because the pool also includes other Federal funds besides Indian

Self-Determination Act funds. Section 2 of S. 2172 clarifies that the self-determination rules regarding expenditure of funds set forth in subsections (i) and (j) of the

Act apply to the tribal expenditure of all other pooled Federal indirect cost funds

administered by a tribe under any other Federal statute. NCAI applauds this clarification that will put an end to a needlessly nonsensical approach.

3. Federal agencies other than BIA and IHS must finally conform their

practices to the government-wide Federal indirect cost system.

The failure of other Federal agencies besides the BIA and IHS to pay their appropriate share of indirect costs continues to place tribes administering Federal programs in a deplorable bind. Many other agencies refuse to adhere to the government-wide indirect cost rate set by each tribe’s Federal cognizant agency under

OMB Circular A–87 (usually, the Department of the Interior’s Office of Inspector

General).

Historically, the OMB indirect cost system has been the most reliable and sound

system for fairly determining each tribe’s prudent requirements for contract support. The NCAI Contract Support Workgroup found that past efforts to replace the

indirect cost system have failed in not accounting for programmatic differences,

sizes of tribes, geographical locations, and other variations in tribes and contracts.

Under the OMB indirect cost system, requirements are fixed by the tribe’s Federal

cognizant agency, the agency under which the tribe does the most contracting. The

accounting principles reflected in that agreement should then be binding on all

other Federal agencies. All branches of the Federal Government must respect the

indirect cost requirements for the system to work for tribal governments. NCAI supports the first provision in section 2 of S. 2172 that will remedy this long standing

accounting turmoil for tribes.
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1Funding awarded to tribes in fiscal year 2003 exceeded $1.5 billion while CSC funding provided was $269 million. 2Total negotiated CSC estimates in fiscal year 2003 were in excess of $350 million while funding appropriated for CSC was $269 million with an additional $16 million of tribal shares available for CSC.

Conclusion

The National Congress of American Indians strongly supports S. 2172 as a means

to affirming tribal autonomy, self-governance, as well as tribal accountability. We

commend the committee for its commitment to Indian country, our self-determination and self-governance rights, and to legislation that will promote tribes’ ability

to serve their members for generations to come. NCAI and its member tribes firmly

believe that these proposed amendments are consistent with this Congress’ and Administration’s agenda to enhance more independent and self-reliant communities.

Thank you for this opportunity to testify before your committee and I welcome any

questions you may have.

PREPARED STATEMENT OF CHARLES GRIM, D.D.S., M.H.S.A., ASSISTANT SURGEON

GENERAL, DIRECTOR, INDIAN HEALTH SERVICE

Mr. Chairman and members of the committee:

Good morning. I am Dr. Charles W. Grim, the director of the Indian Health Service. Today, I am accompanied by Douglas Black, director of the Office of Tribal Programs and Ronald Demaray, director, Self-Determination Services. The Department

of Health and Human Services [Department] is pleased to have this opportunity to

present testimony on S. 2172, the ‘‘Tribal Contract Support Cost Technical Amendments of 2004.’’ The bill before us today, S. 2172 seeks to address some of the more

significant problems that Tribes and the Administration have grappled with for several years—notably, the issue of contract support costs [CSC] funding.

Our position is clear: We believe strongly that CSC funding enables tribal governments and other tribal organizations contracting and compacting under the Indian

Self-Determination and Education Assistance Act [ISDEAA or Act] to develop the

administrative infrastructure critical to their ability to successfully operate their

health programs.

As the principal authors of the Indian Self-Determination and Education Assistance Act, this committee is well aware that a primary goal of the ISDEAA is to

maintain the ‘‘. . . Federal Government’s unique and continuing relationship with,

and responsibility to, individual Indian Tribes and to the Indian people as a whole

through the establishment of a meaningful Indian self-determination policy which

will permit an orderly transition from the Federal domination of programs for, and

services to, Indians to effective and meaningful participation by the Indian people

in the planning, conduct, and administration of those programs and services. In accordance with this policy, the United States is committed to supporting and assisting Indian Tribes in the development of strong and stable tribal governments, capable of administering quality programs and developing the economies of their respective communities.’’ [Section 3(b), ISDEAA]. One integral tool in carrying out that

policy is the provision of Tribal contract support costs. We believe the Department

has implemented this landmark legislation in a manner consistent with the intent

of the Congress when it passed this authority that reaffirms and upholds the government-to-government relationship between federally recognized Indian Tribes and

the United States.

At present, the share of the IHS budget allocated to tribally operated programs

is in excess of 50 percent of total IHS program funding. Approximately $1.5 billion

annually is now being transferred through self-determination agreements to tribes

and tribal organizations. Contract support cost funding represents approximately 19

percent1 of this amount, providing the average Tribe with approximately 81 percent2 of its total negotiated CSC amount. The assumption of programs by tribes has

been accompanied by significant downsizing at the IHS headquarters and Area Offices and the transfer of these resources to tribes.

Contract support costs are defined under the ISDEAA as an amount for the reasonable costs for those activities that must be carried out by the tribal contractor

to ensure compliance with the terms of the contract and prudent management. They

include costs that either the Secretary never incurred in his direct operation of the

program or are normally provided by the Secretary in support of the program from

resources other than those under contract. It is important to understand that, by

definition, funding for CSC is not automatically included in the program amounts

contracted by Tribes. The ISDEAA directs that funding for tribal CSC be added to
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the contracted program to provide for administrative related functions necessary to

support the operation of the health program under contract or compact.

The Department has been an active participant with tribes in furthering the Federal Government’s administration of CSC by developing a comprehensive CSC policy

to implement the statutory provisions of the ISDEAA. In fact, IHS and tribal representatives met earlier this month to further refine that policy and to discuss current issues associated with the funding of tribal CSC. Generally, tribes have been

supportive of the IHS and our efforts to implement the ISDEAA and to distribute

available CSC funding.

While we welcome the efforts of this committee to address these CSC issues, the

Department has serious concerns with this bill. The amendments proposed in S.

2172 are not simply ‘‘technical’’ amendments. These are proposed changes to current

law with far-reaching consequences for programs subject to the act and for all other

Federal programs that provide funding for Indian tribes. Because of the legislation’s

potentially far-reaching implications for Federal agencies not here today, we respectfully request that the committee keep the hearing record open so that such agencies

may submit written statements about issues relating to the bill.

At this time, I will share our key concerns with S. 2172.

Let me begin by stating that from the perspective of the Department and, I believe, that of the tribes, the single most significant aspect of this legislation is section 3(a)-(e) (Amendments Clarifying Contract Support Cost Entitlement). Provisions in titles I, IV, and V of the ISDEAA currently provide that funding for contract support costs is ‘‘subject to the availability of appropriations’’. Section 3 strikes

this ‘‘subject to. . . ’’ language and adds new language authorizing appropriations

for CSC. We assume from the section heading that the intent of these amendments

is to create an entitlement to full funding of contract support costs. We do not believe the amendments succeed in establishing an entitlement for this funding,

though they could be read as providing a priority for funding for contract support

costs over funding for other tribal programs. As a policy matter, we cannot support

the creation of a CSC entitlement, as it would address only one component of health

services to tribes and would benefit only those tribes that choose to contract. We

also believe the lack of clarity in this provision would result in further debate and

more litigation over tribal CSC.

We believe that section 3, even if it were amended to clearly accomplish its intent,

would result in significant adverse budget implications for IHS, tribes to whom IHS

provides health services, and other affected Federal programs. Contract support

funding, like all IHS funding, is categorized as domestic discretionary funding and

is, therefore, subject to annual appropriations.

This legislation would authorize the appropriation of full funding of CSC but the

level of CSC funding would appear to remain part of the discretionary budget. We

are concerned that additional dollars needed to provide full CSC funding would have

to come from existing or future appropriated IHS funds and supersede other critical

priorities for budget increases for tribal health programs, including funding for the

provision of critical health care services and maintenance of the IHS service delivery

infrastructure.

We believe that the costs of the funding under section 3, relative to the shifting

of funding away from other critical healthcare initiatives, would be prohibitive. For

example, funding the total negotiated CSC request in 2003 would have required an

additional $65 million. When Congress authorized the ISDEAA, it wisely directed

that CSC funding, indeed the funding for all ISDEAA programs, is ‘‘subject to the

availability of appropriations’’. Striking that language from the ISDEAA, as proposed in S. 2172 would create budgetary confusion and place the provision of direct

health care by both the tribes and the IHS at great risk. For these reasons, the Department cannot support the amendments made by section 3.

Section 2 of S. 2172 reaches beyond IHS within the Department of Health and

Human Services and beyond the Departments of Health and Human Services and

the Interior by proposing a new section 106A(a) to the ISDEAA that refers to other

Federal agencies’ requirements to pay indirect costs [IDC]. The intent of this section

is to authorize Tribes to recover the full funding of their indirect cost need, consistent with their indirect cost rate agreement established with the cognizant Federal

agency. Again, we do not believe this amendment establishes this authority. For

those other Federal agencies, the intended requirement to fully fund CSC for their

programs would likely create significant budgetary and programmatic limitations by

diverting funds to pay for administrative costs. For example, non-IHS programs

within the Department of Health and Human Services would be required to pay

tribes full CSC at a rate exceeding other non-tribal grantees, and these increased

expenditures would reduce the amounts available for key programs such as the
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Head Start Program. The Department cannot support the intent to establish these

requirements under this proposed section.

We are also concerned about the potential conflict of proposed section 106A(a)(2),

which provides that additional amounts are not authorized to be paid under this authority subject to the ‘‘except as otherwise provided by law. . . ’’ proviso in section

106A(a)(1), and section 4(a) which provides that the provisions of this act supersede

any conflicting provision of law.

Section 106A(b) again reaches beyond IHS within the Department of Health and

Human Services and beyond the Departments of Health and Human Services and

the Interior by authorizing tribes to utilize funds provided by other Federal agencies

in accordance with section 106(j) of the ISDEAA. We ask whether it was the Committee’s intent to cite section 106(k) as opposed to section 106(j). Section 106(j) pertains to the authority of tribes to use funds provided under an ISDEAA award to

meet matching requirements under other Federal or non-Federal awards. Section

106(k) authorizes tribes to use ISDEAA funding, without the requirement of prior

Secretarial approval, for any of the twelve [12] specific costs listed. In any event,

the committee may wish to consult with the National Business Center in the Department of the Interior concerning the necessity or appropriateness of this proposed new section.

Section 4(a) provides that this legislation supersedes conflicting law, which raises

questions concerning its effect on annual appropriation language and the ‘‘[e]xcept

as otherwise provided by law’’ proviso in section 2.

Section 4(b) provides an exception to section 4(a) to require that the implementation of these amendments not be construed to alter the ruling of the U.S. Court of

Appeals for the Federal Circuit in the Thompson v. Cherokee Nation case, notwithstanding conflicting opinions in both the 9th and 10th U.S. Circuit Courts of Appeals. The committee should be made aware that the Cherokee decision, in the U.S.

Court of Appeals for the Federal Circuit and a related Cherokee decision in the 10th

Federal Circuit Courts of Appeals are under review by the U.S. Supreme Court.

The IHS is committed to Indian self-determination and we believe our record in

promoting the intent and spirit of the ISDEAA speaks for itself. We enthusiastically

support tribes in their varied efforts to assume programs under the ISDEAA. Our

goal is to work together in harmony rather than under the constant possibility of

litigation.

This concludes our comments on S. 2172, the ‘‘Tribal Contract Support Cost

Amendments of 2004.’’ Thank you for this opportunity to discuss contract support

costs in the IRS. We would be happy to answer any questions that you may have.

PREPARED STATEMENT OF WILLIAM SINCLAIR, DIRECTOR, OFFICE OF SELFGOVERNANCE AND SELF-DETERMINATION, DEPARTMENT OF THE INTERIOR

Good morning, Mr. Chairman and members of the committee. My name is William Sinclair, and I am the director of the Office of Self-Governance and Self-Determination at the Department of the Interior. I am pleased to be here today to present

the views of the Department of the Interior on S. 2172, a bill to amend Public Law

93–638, the Indian Self-Determination and Education Assistance Act of 1975 [the

act]. Although the Department supports funding contract support costs to assist federally recognized tribes in developing strong tribal governing institutions and to enhance their capacity to administer tribal programs, we cannot support this bill.

Over 90 percent of all federally recognized Indian tribes either contract individual

programs or compact Federal services pursuant to the act. As you stated, Mr. Chairman, upon the introduction of the bill, the Congress and the Executive branch have

‘‘embraced and expanded’’ tribal compacting and contracting. The Act was amended

in 1984, 1988, 1994, and again in 2000.

The original act required that the tribes receive the full amount of Federal funds

that the programs would have received had the Secretary continued to operate them

directly. This amount is often called the ‘‘secretarial amount.’’ As the program developed, tribes were concerned that they were not receiving amounts sufficient to cover

the full administrative costs of the programs. One of the reasons for this deficiency

apparently was that the ‘‘secretarial amount’’ required to be paid by the original

statute included only the funds that the Secretary would have provided to operate

the programs directly, and did not include additional administrative costs that the

tribes incurred in their operation of the programs, which the Secretary would not

have directly incurred (for example, the cost of annual financial audits, liability insurance, and other administrative requirements). These additional administrative or

other expenses related to the overhead incurred in the operation of the programs

are considered ‘‘indirect costs.’’
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Thus, Congress enacted the Indian Self-Determination Amendments of 1988 requiring that the Secretary provide funds to more accurately reflect all administrative costs incurred by contracting and compacting tribes. The amended statute provided, ‘‘[t]here shall be added to the [secretarial amount] contract support costs

which shall consist of an amount for the reasonable costs for activities which must

be carried on by a tribal organization as a contractor to ensure compliance with the

terms of the contract and prudent management.’’ However, there are exceptions to

this obligation of the government to pay full contract support costs. One of these

exceptions states that the provision of these funds is subject to the availability of

appropriations. 25 U.S.C. 450j-l(b).

Another exception provides that ‘‘the Secretary is not required to reduce funding

for programs, projects, or activities serving a tribe to make funds available to another tribe or tribal organization.’’ 25 U.S.C. 450j-l(b).

The issue raised in S. 2172 that is of most concern to the Department is in section

3 of the bill. Section 3 attempts to make contract support costs similar to an entitlement by eliminating all references within the act that make payment of funds ‘‘subject to the availability of appropriations.’’ It is also unclear if this section is also attempting to make all contracted and compacted programs similar to an entitlement

by also removing ‘‘subject to the availability of appropriations’’ from Section

105(c)(1) of the act. In essence, if section 3 were enacted it would attempt to make

all Federal programs contracted or compacted, and all contract support costs associated with administering these contracted and compacted programs non-discretionary.

Implementation of this provision would make the Department vulnerable to costly

and time consuming litigation as we could not fully fund all contracted and compacted programs, and their related contract support costs without significantly affecting other equally important Federal programs.

In addition, section 3 also amends the funding provision in section 408 of the act

to read, ‘‘In any case in which contract support costs are not provided for, there are

authorized to be appropriated such sums as are necessary to pay those costs.’’ As

Congress has recognized, the BIA has many competing priorities that provide necessary funding for and delivery of important services for federally recognized Indian

and Alaska Native Communities. Beginning in 1994, Congress has placed a legislative ceiling on the amount the Department could use toward contract support costs.

This ceiling provision has continued to be included in each annual Interior Appropriations Act. In fact, for fiscal year 2004 the statutorily mandated ceiling for contract support costs is $135,315,000. Enactment of this ceiling is important as it reflects the need to ensure that all Indian Affairs related programs have sufficient resources to carry out their responsibilities and functions.

We believe strongly that contract support cost funding enables tribal governments

to develop the administrative infrastructure critical to their ability to successfully

operate programs. However, if S. 2172 is enacted the Department will be placed in

the difficult position of having to reduce funding for other equally important Federal

programs, most likely those that are either inherently Federal functions or services

directly offered to Indian tribes. The practical reality is that services, such as those

administered by the Office of Federal Acknowledgement are inherently Federal and

cannot be contracted or compacted by federally recognized Indian tribes. The Department would be forced to reallocate funding and resources away from non fiduciary trust programs such as the Federal acknowledgment process to fully fund indirect costs for contracting and compacting tribes.

Section 2 impacts all Federal agencies, including those who are not testifying before the committee today. If enacted, this provision would attempt to bind all Federal agencies to fully fund indirect contract support costs at the level of each agency’s negotiated indirect cost rate agreement. Again, implementation of this provision

would most likely create significant budgetary pressures for other agencies, and may

discourage these agencies from engaging in contracting and compacting with Indian

tribes in the future.

In addition, section 2 authorizes tribes to use indirect cost funding for other uses,

not related to those of indirect administrative costs. We are unclear as to the need

for this provision. Section 2 implies that full funding for all indirect costs is not

needed, and that this funding is for other purposes not related to the indirect administrative cost of a specific contract or compact. Also, the Department agrees with

the Indian Health Service and seeks clarification as to whether section 106(k)

should have been referenced in this section.

Section 4 attempts to supersede any conflicting provision of law. The effects of

this provision are unknown as it appears to attempt to override all previous appropriations and authorizing statutes and Federal regulations governing tribal contracting and compacting of Federal services and programs. Finally, S. 2172 attempts
33

to prematurely circumvent a case that is currently pending before the Supreme

Court, Thompson v. Cherokee Nation, 334 F.3d. 1075 (July 3, 2003). The Court has

also granted certioraris on March 22, 2004, to hear another case on this issue from

the 10th Circuit, Cherokee Nation of Oklahoma and Shoshone-Paiute Tribes of the

Duck Valley Reservation v. Thompson, et al, 311 F.3d 1054 (10th Cir. 2002). The

Court will soon hear oral arguments on these cases and deliberate on the important

contract support cost issues raised in them.

Mr. Chairman, funding for indirect contract support costs remains a serious issue

for Congress, the Administration and Indian tribes. We would like to continue to

work with the committee and the tribes in addressing the concerns associated with

contract support costs.

This concludes my statement. I will be happy to answer any questions you may

have.

PREPARED STATEMENT OF CHAD SMITH, PRINCIPAL CHIEF, CHEROKEE NATION

Good morning Mr. Chairman. My name is Chad Smith and I am the principal

chief of the Cherokee Nation, a federally recognized Indian tribe of over 244,000 citizens, nearly one-half of whom live within the 7,000 square mile Cherokee tribal jurisdictional service area in Northeastern Oklahoma. The Cherokee Nation has approximately 1,800 tribal employees (making it one of the largest employers in

Northeast Oklahoma), nearly 45 percent of whom work in the Nation’s health services department.

The Cherokee Nation was one of the first tribes in the United States to execute

a self-determination contract under the original 1975 Indian Self-Determination Act

and in 1990 was also the very first tribe to execute a self-governance agreement

under title III of that act. Since 1994 all of our self-determination programs have

been administered under Self-Governance compacts with the Department of the Interior and the Department of Health and Human Services.

Pursuant to our compact with the Department of the Interior, we carryout a wide

array of Federal Government programs serving Indian people, including credit and

finance programs; agricultural, forestry and real estate services; tribal courts; social

services, Indian child welfare and housing improvement programs; a general assistance program; Johnson O’Malley education programs; law enforcement services; the

‘‘TEA–21’’ and related roads construction, planning and maintenance programs; Individual Indian Money services; higher education and adult education services; and

child abuse and early childhood wellness programs.

Under our Self-Governance compact with the Department of Health and Human

Services, the Cherokee Nation operates six rural outpatient clinics providing Indians with primary medical care, dental services, optometry, radiology, mammography, behavioral health services, medical laboratory services, pharmacy services,

community nutrition programs, and a public health nursing program. The Nation

also operates inpatient and outpatient ‘‘contract health’’ medical referral programs

for management of specialty care.

The Cherokee Nation has been able to make tremendous improvements to these

formerly Federal programs and services. The Self-Determination Act has allowed

the Nation to step forward, resume responsibility for its own affairs and make these

programs more responsive and accountable to the Cherokee people. This was clearly

the intent of the Indian Self-Determination and Education Assistance Act. Unfortunately, the Nation’s progress has been severely impeded by the Government’s failure

to fund required contract support costs as mandated by the Self-Determination Act.

This happened despite the Congress’ efforts to prevent such systematic underfunding of contract support costs by making several strengthening amendments to the

act in 1988 and 1994.

Since the time of our first Self-Governance compact with the Department of the

Interior in 1990, the Cherokee Nation has never been fully funded with contract

support costs as mandated by the Indian Self-Determination Act. The BIA neglects

to fund the Nation about a quarter million dollars in indirect costs annually, and

fails to pay us any ‘‘direct’’ contract support costs at all, estimated at $300,000 annually. As for the Indian Health Service, in 1992 and 1994, respectively, the Cherokee Nation began operating the Redbird Smith Health Center in Sallisaw, OK, and

the Wilma P. Mankiller Health Center in Stilwell, OK. In 1995, Cherokee Nation

began administering the W.W. Hastings Indian Hospital’s ‘‘contract health’’ medical

referral outpatient program, and in fiscal year 1997, the Cherokee Nation assumed

control of that facility’s ‘‘contract health’’ medical referral inpatient program. It may

come as a shock to this committee that at no time until September 1999 did the

Cherokee Nation ever receive any contract support funding for the operation of
34

these four multi-million dollar programs. Today, the Nation is funded at only 64

percent of its requirement for contract support for our IHS programs, a shortage of

$4.2 million per year. In total, the Nation is not funded for $4.75 million for these

fixed, contract support costs each year.

Because the Government has grossly underfunded these contracts, the Nation has

had to forego substantial services to thousands of Indian people, simply to cover the

shortfall in Government funding. This has worked a great hardship on people who

must rely on these programs and facilities for their basic health care, and that is

why I am here today.

Eight years ago Cherokee Nation tried to informally resolve its issues with the

Indian Health Service. When those efforts failed, in September 1996 we filed a formal claim under the Contract Disputes Act. More than 1 year later the claim was

denied in its entirety by the IHS, covering three different annual funding agreements for 1994 through 1996. We then took an appeal to the Interior Board of Contract Appeals, where we prevailed, and the case was upheld on appeal to the Federal Circuit Court of Appeals.

In 1999, we brought a second claim in Federal court in tandem with the Shoshone-Paiute Tribes of the Duck Valley Reservation, against the IHS for underpayments in 1997. The tribes did not prevail in this suit, nor did we prevail in our appeals to the 10th Circuit. Due to the inconsistency with the Federal Circuit, these

Cherokee cases have been recently approved for review by the Supreme Court. Despite the Nation’s commitment of significant resources to these multi-million dollar

claims, these efforts have yet to produce any relief for the Nation.

We do not believe that litigation is an efficient way to resolve funding problems.

Although litigation may be our only option for dealing with the past, the current

situation is untenable and cries out for attention from Congress.

The current system simply should not go on any longer. Neither the BIA nor IHS

pays full contract support costs even though all other Government contractors receive their full administrative overhead when they deal with the Federal Government. Although we make these agreements and take over significant responsibilities

from the Federal Government, the Nation is consistently treated as a second-class

contractor—a situation we believe to be unacceptable. Neither agency even requests

full contract support funding from Congress, at times because they haven’t the will,

and at other times because the Department or the Office of Management and Budget stands in the way. And, of course, there are other, competing demands on the

appropriations committees.

The contract support cost problem has caused severe financial strains on the

Cherokee Nation’s programs and facilities, as it has for many other tribes in the

country. What it means in real terms is that the Nation must reduce these critical

health, education and other programs to pay for these shortages. This compounds

an already deficit funding level, requiring us to ration basic health care and other

services to our citizens.

Given the conduct of the agencies and recent court decisions, it is clear that reforms are needed. Congress intended that tribes would be fully paid contract support costs if they agree to take over the administration of these Federal programs.

But that is not what has happened, and the courts have been slow to respond, if

at all. For this reason, the Cherokee Nation strongly applauds the chairman for his

leadership in introducing S. 2172.

S. 2172 addresses the most severe problems in the current contract support system in a thoughtful and carefully considered way, without demolishing the entire

foundation of the Indian Self-Determination Act. This is a key point, because the

basic contract support processes that are in place today-for instance the processes

for setting indirect costs and direct costs-are functioning well. Indeed, even the General Accounting Office has confirmed the integrity of the system. Rather, it is the

substantial impediments to executing that system that are the focus of S. 2172.

The Cherokee Nation strongly supports the enactment of S. 2172, and I would like

to pause to comment briefly on a few of the bill’s provisions.

First, we strongly support a reform included in section 2 to finally resolve the accounting quagmire created when the government-wide indirect cost rate is not followed by all government agencies. This accounting mess has led not only to an

under-calculation in indirect cost rates, but it has also severely strained the ability

of tribes to operate all their Federal programs across all agencies within OMB’s

guidelines. For nearly 20 years tribes have called for reform in this area, and finally, it appears that real reform is at hand.

We also applaud the committee for making clear in section 2 that existing statutory flexibility in the expenditure of self-governance funds, to best meet special or

unique local needs, continues when self-determination funds are pooled with other

funds in each tribe’s ‘‘indirect cost pool.’’ Obviously, funds in that pool lose their in-
35

dividual identity, and we are alarmed that the Office of Inspector General of the

Department of the Interior has taken the position that the flexibility expressed in

the Indian Self-Determination Act suddenly disappears once self-determination

funds are pooled with other Federal funds.

Most importantly, we strongly support the committee for its inclusion of provisions in section 3 that are key to strengthening the mandate to fully fund contract

support costs. The removal of the ‘‘availability’’ clauses will reduce the argument

that the Secretary lacks the authority to fully fund contracts negotiated under the

Act. Courts have at times interpreted the ‘‘availability’’ clauses to negate the mandate to fund contract support costs, an interpretation that effectively downgrades

our Government contracts, negotiated in good faith, to something more akin to a discretionary grant. The reforms in section 3 would help to remedy that problem.

4 It is often repeated in these hearings that the greatest threat to the success of

the Self-Determination Act is the failure to fully fund contract support costs. On behalf of the Cherokee Nation I can tell you that contract support funding has, indeed,

been one of the greatest problems that has impeded our progress. There is so much

more that we can do, and so much more that we must do, to meet the critical

health, education, economic and social needs of our citizens and all other Indians

eligible for our services. We are delighted to be able to carryout the Federal Government’s trust programs, delighted because history shows that we have the capacity

and vested interest to do a much better job than Federal bureaucracies. But our

ability to administer these programs successfully and to maximize delivery of high

quality services to Indian people, depends on having adequate contract support cost

funding.

Thank you Mr. Chairman, for the opportunity to testify in support of S. 2172.
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