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90–371 PDF 2003

S. HRG. 107–991

CAPITAL INVESTMENT IN INDIAN COUNTRY

HEARING

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

OF THE

COMMITTEE ON

BANKING, HOUSING, AND URBAN AFFAIRS

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

ON

CAPITAL INVESTMENTS IN TRIBAL COMMUNITIES, FOCUSING ON EXPANDING TRIBAL LAND HOMEOWNERSHIP, OVERCOMING BARRIERS

TO CAPITAL ACCESS ON TRIBAL LANDS, AND RELATED FINDINGS OF

THE NATIVE AMERICAN LENDING STUDY

JUNE 6, 2002

Printed for the use of the Committee on Banking, Housing, and Urban Affairs

(

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

PAUL S. SARBANES, Maryland, Chairman

CHRISTOPHER J. DODD, Connecticut

TIM JOHNSON, South Dakota

JACK REED, Rhode Island

CHARLES E. SCHUMER, New York

EVAN BAYH, Indiana

ZELL MILLER, Georgia

THOMAS R. CARPER, Delaware

DEBBIE STABENOW, Michigan

JON S. CORZINE, New Jersey

DANIEL K. AKAKA, Hawaii

PHIL GRAMM, Texas

RICHARD C. SHELBY, Alabama

ROBERT F. BENNETT, Utah

WAYNE ALLARD, Colorado

MICHAEL B. ENZI, Wyoming

CHUCK HAGEL, Nebraska

RICK SANTORUM, Pennsylvania

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

JOHN ENSIGN, Nevada

STEVEN B. HARRIS, Staff Director and Chief Counsel

WAYNE A. ABERNATHY, Republican Staff Director

MARTIN J. GRUENBERG, Senior Counsel

DARIS MEEKS, Republican Counsel

JOSEPH R. KOLINSKI, Chief Clerk and Computer Systems Administrator

GEORGE E. WHITTLE, Editor

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

TIM JOHNSON, South Dakota, Chairman

ROBERT F. BENNETT, Utah, Ranking Member

ZELL MILLER, Georgia

THOMAS R. CARPER, Delaware

DEBBIE STABENOW, Michigan

CHRISTOPHER J. DODD, Connecticut

JACK REED, Rhode Island

EVAN BAYH, Indiana

JON S. CORZINE, New Jersey

JOHN ENSIGN, Nevada

RICHARD C. SHELBY, Alabama

WAYNE ALLARD, Colorado

RICK SANTORUM, Pennsylvania

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

NAOMI G. CAMPER, Staff Director

MICHAEL NIELSEN, Republican Professional Staff

(II)

CONTENTS

THURSDAY, JUNE 6, 2002

Page

Opening statement of Senator Johnson ................................................................. 1

Prepared statement .......................................................................................... 32

Opening statements, comments, or prepared statements of:

Senator Sabarnes .............................................................................................. 3

Senator Carper ................................................................................................. 15

WITNESSES

Franklin D. Raines, Chairman and Chief Executive Officer, Fannie Mae ......... 5

Prepared statement .......................................................................................... 33

Rodger J. Boyd, Special Assistant to the Director, Community Development

Financial Institution Fund, U.S. Department of the Treasury ........................ 15

Prepared statement .......................................................................................... 38

J.D. Colbert, President, North American Native Bankers Association ............... 18

Prepared statement .......................................................................................... 45

William V. Fischer, President, American State Bank, Pierre, South Dakota .... 20

Prepared statement .......................................................................................... 46

Michael B. Jandreau, Chairman, Lower Burle Sioux Tribe, South Dakota ....... 22

Prepared statement .......................................................................................... 48

Elsie Meeks, Executive Director, First Nations Oweesta Corporation ............... 23

Prepared statement .......................................................................................... 50

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Letter submitted by John Yellow Bird Steele, President, Oglala Sioux Tribe

to Senator Johnson, dated May 31, 2002 ........................................................... 53

Statement of the Coalition for Indian Housing and Development ...................... 58

(III)

(1)

CAPITAL INVESTMENT IN INDIAN COUNTRY

THURSDAY, JUNE 6, 2002

U.S. SENATE,

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS,

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

Washington, DC.

The Subcommittee met at 10:02 a.m. in room SD–538 of the

Dirksen Senate Office Building, Tim Johnson (Chairman of the

Subcommittee) presiding.

OPENING STATEMENT OF SENATOR TIM JOHNSON

Senator JOHNSON. The hearing will come to order.

Today, we are holding a hearing on Capital Investment in Indian

Country. I want to thank all of the witnesses in attendance at today’s hearing for providing testimony on the critically important

issue of bringing more capital investment to Indian Country. Also,

I am encouraged by the number of people in the audience who obviously have an interest in what we are doing. In particular, I would

like to thank, and note, that John Steele, President of the Oglala

Sioux Tribe in South Dakota is here today. President Steele is testifying this afternoon before the Senate Energy and Natural Resources Subcommittee on Water and Power, and I am pleased that

he is able to join us here this morning for this important Banking

Subcommittee hearing.

In spite of the recent economic downturn and some uncertainty

in the capital markets, most Americans can look forward to continued prosperity. However, an important segment of the population—

about 2.7 million Native American and Native Hawaiian people living in the United States—have never fully shared in America’s

wealth and economic growth. In order to resolve this disparity and

create meaningful and sustainable economic growth, we need to

continue to look at innovative strategies and draw, not only on the

resources of Federal and State governments, but also private capital markets.

Part of the reason that I wanted to hold this hearing under the

auspices of the Financial Institutions Subcommittee is to emphasize the importance of access to private sources of capital. I wanted

this hearing to be less focused on Government subsidies, although

they are important, and more focused on the role that private financial intermediaries can have in creating and sustaining a viable

economic infrastructure on Indian Lands.

Consider the following statistics. According to the U.S. Department of Commerce, unemployment rates on Indian Lands in the

continental United States range up to 80 percent, compared to 5.6

2

percent for the United States as a whole. Census data also show

that the poverty rate for Native Americans during the late 1990’s

was 26 percent, compared to a national average of 12 percent. In

fact, overall, Native American household income is only three-quarters of the national average.

This disparity is particularly evident in my home State of South

Dakota, where Native Americans represent over 8 percent of our

State’s population. While the overall State economy is relatively

strong with, for example, a low 3.1 percent unemployment rate, the

Native American population continues to suffer. South Dakota

counties with Indian reservations are ranked by the U.S. Census

Bureau as among the most impoverished anywhere in the United

States.

In light of this unacceptable economic disparity, I believe it is important to address this issue in a comprehensive manner. And at

this hearing, we will consider such issues as mechanisms for providing small business capital, means for fostering the growth of

Native American-owned financial intermediaries, incentives for

financial institutions to provide services on Indian Lands, ways to

encourage personal savings, and vehicles for improving financial

literacy.

In essence, the purpose of this hearing is to explore what this

Committee can do to facilitate and expand the private-sector economy in Indian Country. To accomplish this, tribes and enrolled

members in the reservations must have access to private capital

and the wherewithal to put it to good use.

Presently, I am working with my colleagues in Congress on an

array of initiatives to promote capital investment in Indian Country, including the Native American Small Business Act that creates

a statutory Office of Native American Affairs and establishes a related assistance program, reauthorizing the Native American Housing Assistance and Self-Determination Act to allow low-income

housing tax credits to work more effectively with block grants, cosponsoring the Indian Financing Act amendments which will create

a secondary market for small business loans, sponsoring the Indian

School Construction Act, which establishes a pilot program under

which eligible Indian tribes have the authority to issue bonds to

fund construction. Also, one provision in the American Indian Welfare Reform Act expands tribal authority to issue taxexempt private activity bonds for residential rental properties,

qualified mortgage bonds and, in some circumstances, enterprise

zone businesses. I am a proponent of broadening the availability of

individual development accounts, or IDA’s. And, finally, I want to

mention the Wakpa Sica initiative, which a number of us are working hard to make a reality, including, notably, two of today’s witnesses, Chairman Michael Jandreau and Bill Fischer of South Dakota. One of Wakpa Sica’s goals is to improve the court system on

the reservation to facilitate private-sector lending.

There is a great deal more that can be considered and I look forward to hearing any thoughts and ideas from the distinguished

panels that we have here today.

I have one more thought, however. And that is the concept of

tribal sovereignty needs to remain central to the integrity of the

reservations, and we must do everything that we can to protect

3

that tribal sovereignty. I am concerned about the viability of sovereignty in the long run, if we do not succeed in laying the groundwork for a viable private-sector economy on Indian Lands through

initiatives such as the ones that we are going to discuss today.

I am pleased that the Chairman of the Senate Banking Committee can be with us this morning. I know that he is under a

great deal of pressure with conflicting obligations that he is going

to have to attend to. But I think it speaks to the significance of the

issues that we are dealing with today that Senator Sarbanes would

be here.

And I would recognize the Chairman for any opening statement

that he might have.

STATEMENT OF SENATOR PAUL S. SARBANES

Senator SARBANES. Thank you very much, Senator Johnson.

First, I want to commend Senator Johnson for holding this hearing on what I consider to be a very important topic of capital investment in Indian Country.

In fact, one of the top priorities of this Committee under my leadership has been the challenge of bringing all Americans into the financial mainstream. And I thank Senator Johnson for continuing

that effort and focusing attention on the initiatives being undertaken by the Government, financial institutions, and others, to address the historic and geographic barriers that leave large segments of the Native American population outside of the financial

mainstream.

We want to address this problem. And Senator Johnson’s initiative in launching these hearings is extremely important in trying

to accomplish that objective.

We actually have learned from a series of hearings at the Full

Committee level that access to capital and credit are essential for

Americans seeking to fully participate in our increasingly complex

financial services system.

Native American communities have been particularly impacted

by the lack of access to wealth-building capital and equity investments. Rural Native Americans suffer high rates of poverty and

homelessness. They have a severe shortage of decent housing, as

well as very low homeownership and small business ownership

rates.

Now these ownerships, both of homes and businesses, serve to

stabilize communities and to fuel economic growth all across our

country. It is important that we address, as Senator Johnson is

doing with this hearing, the situation on Indian Lands.

Native Americans that do gain access to credit often pay exorbitant rates and fees charged by predatory lenders, which is an issue

that this Committee has paid increasing attention to.

Federal initiatives, such as the Community Development Financial Institutions Fund, the low-income housing tax credit, laws such

as the Community Reinvestment Act, have encouraged partnerships between Government, financial institutions, investors, and

nonprofit organizations. And they have resulted in improvements

in many Native American communities. However, much more work

needs to be done.

4

For instance, we need to encourage more banks to locate on or

near Native American reservations. We need innovative financing

techniques to make mortgage lending easier on Indian Lands, incentives to encourage more business development, many of the

things which Senator Johnson mentioned in his opening statement

which he is working on in the Congress.

Now, a comprehensive study conducted by the Department of the

Treasury’s Community Development Financial Institutions Fund,

the report of the Native American Lending Study, has identified

many of the key barriers to accessing capital and equity investment

on Indian Lands.

We think this study should prove useful as policymakers, financial institutions, investors and others continue to seek solutions to

the special problems of underserved Native American communities.

I want to express my appreciation to the witnesses who have

agreed to appear here today. I know they bring a wealth of knowledge to today’s hearings and I am very pleased that Frank Raines

is here because it is my understanding that Fannie Mae has made

a significant commitment in terms of investment to help Native

Americans become homeowners on tribal lands, and I look forward

to hearing about that.

But, again, I close by commending Senator Johnson for his leadership and his commitment to this issue and to our general objective here in the Subcommittee of bringing more Americans right

into the economic mainstream of American life.

Thank you very much.

Senator JOHNSON. Thank you, Senator Sarbanes.

Our first panel consists of Mr. Frank Raines, Chairman and CEO

of Fannie Mae. Mr. Raines has been a friend to Senator Daschle

and myself, and South Dakota, and has shown his sensitivity to the

problems we have in rural parts of America by his personal visit

to South Dakota and the establishment of a Fannie Mae office in

our very small State, which has done remarkable work.

I appreciate, Mr. Raines, your participation in today’s hearing. I

also want to express my appreciation for the work being done in

my home State by Bob Simpson, Director of Fannie Mae’s partnership office in South Dakota. In particular, I am encouraged to hear

about the work that he has been doing with Roger Campbell, Executive Director of the Oglala Sioux Tribe Partnership for Housing,

to build new, affordable housing stock in the Pine Ridge Indian

Reservation.

Mr. Raines has been Chairman and CEO of Fannie Mae since

1999. Prior to that, he distinguished himself as Director of the Office of Management and Budget during the Clinton Administration.

His career has spanned the public and private sector, giving him

a unique perspective on public and private sector collaboration, a

perspective that is invaluable in helping to address the Nation’s

housing needs.

Welcome, Frank, to the Committee today and thank you for your

willingness to participate in this important hearing.

5

STATEMENT OF FRANKLIN D. RAINES

CHAIRMAN AND CHIEF EXECUTIVE OFFICER, FANNIE MAE

Mr. RAINES. Thank you very much, Chairman Johnson and Senator Sarbanes for this opportunity to allow me to describe Fannie

Mae’s efforts to expand homeownership among Native Americans

and on tribal lands.

I have submitted written testimony for the record, which I would

like to summarize this morning.

Senator JOHNSON. Your testimony will be placed in the record.

Mr. RAINES. Thank you. And also, thank you for accommodating

me in allowing me to go first in the panels today.

Fannie Mae’s mission is to expand homeownership, with a special focus on helping underserved Americans overcome their unique

barriers. Our role among financial institutions which sets us apart

is that we provide private capital to all communities at all times

under all economic conditions at the lowest rates in the market. By

expanding homeownership, Fannie Mae can help to strengthen

families, communities, the economy, and the Nation as a whole.

June is National Homeownership Month. It is a time to celebrate

the American Dream. But also to rededicate ourselves to those who

have been denied the Dream. And Native Americans face some of

the toughest barriers to homeownership of all.

Their homeownership rate, which estimates range from 33 percent to 55 percent, not only is significantly below the 68 percent

national average, but many of the homes are barely livable. And

according to a 1999 estimate by the Treasury and HUD, while

about 38,000 families on tribal lands had enough income to qualify

for a mortgage, only 471 actually had a mortgage.

Poverty and unemployment create significant barriers to Native

Americans obtaining conventional credit. So do the regulatory and

legal complexities of lending on Native American lands. It is a

rough irony when the very laws that protect Native American

lands actually prevent Native Americans from benefiting fully from

that land. Fannie Mae can help resolve this paradox. By expanding

homeownership for Native Americans, we can not only provide

these families with better housing, but also the power to raise capital, accumulate wealth, and build a more secure financial future.

The solutions are not simple. Expanding Native American homeownership begins with listening to and responding to tribal leaders

and members. And we need the best ideas and cooperation of the

public, private, and nonprofit sectors.

So let me thank this Committee for your leadership on this matter, and also recognize the work of the Housing Subcommittee in

general, and that of Senators Reed and Allard in particular, for advancing the cause of housing.

Let me underscore Fannie Mae’s commitment to work with Congress, Native American tribes, the Bureau of Indian Affairs, HUD,

and USDA, as well as mortgage lenders and other housing leaders,

to increase homeownership opportunities for Native Americans.

Fannie Mae has also learned a great deal from working with the

speakers on the next panel, Chairman Jandreau and Elsie Meeks.

In fact, it was in cooperation with Elsie Meeks that Fannie Mae

has made a 5-year, $3 million commitment to the Pine Ridge Reservation. Under our Pine Ridge plan, for example, we have invested

6

$250,000 in venture capital to develop 14 single-family homes and

$100,000 to help create a revolving loan fund for more new home

construction. We have also invested $500,000 in the Lakota Fund,

the community development financial institution that is helping to

create small business loans and new jobs at Pine Ridge, the first

step in creating new homeowners.

Fannie Mae’s approach to serving the Native American community is broad, multifaceted, and comprehensive. And let me describe

the full range of our efforts so far.

Our first formal effort with tribal communities began in 1994, with our trillion-dollar commitment, our pledge to provide $1 trillion to help 10 million underserved Americans to own or rent a

home.

As part of this plan, we created our Native American Housing

Initiative and made a commitment to purchase HUD- and USDAguaranteed mortgages on tribal lands. Then in 2000, we launched

a more formal strategy as part of our new $2 trillion American

Dream commitment to serve 18 million underserved families.

As part of this plan, we pledge to provide at least $350 million

to serve 4,600 Native American families. Through these commitments, over the past 4 years, Fannie Mae has provided over $6 billion for over 50,000 Native American families. And we have provided over $174 million to serve 1,900 families specifically on reservation and trust land.

We also set a goal to establish partnerships with at least one

hundred tribes on tribal and trust lands. These partnerships are

crucial. Since Fannie Mae does not originate mortgages, we need

to help mortgage lenders understand and overcome the hurdles to

lending on tribal lands.

Our tribal partnerships provide this knowledge, and in the first

quarter of this year, we surpassed our goal establishing 113 partnerships across the country.

What we have learned from our partners is that we need more

than just capital and commitment to make a difference for Native

American homeownership. We also need to tear down the barriers

that keep our housing capital from reaching and benefiting Native

Americans.

And let me describe these barriers and what we are doing about

them.

First, we address the shortage of affordable housing on tribal

lands. We are working with tribes to finance new housing construction using low-income housing tax credit investments, collateralize

revenue bonds, and HUD-guaranteed loans. Our investments in the

low-income housing tax credits alone have helped create 156 new

units of housing last year and we have another 232 units in the

pipeline this year. We have also developed a secondary market option for HUD-guaranteed development loans to ensure a ready

source of liquidity for these loans.

Second, we work to overcome financing barriers. We are working

with lenders to tailor mortgage products for tribal members who

lack the resources or background to qualify for traditional financing. We have also designed legal documents and agreements to

help tribes establish the formal financial infrastructure to support

mortgage lending on trust and restricted land. Through these iniVerDate 11-MAY-2000 13:26 Nov 13, 2003 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 90371.TXT SBANK4 PsN: SBANK4
7

tiatives, we can now offer our special community lending products

on tribal lands. These reduce the cash needed for the downpayment

and closing costs and ease income requirements and loan-to-value

ratios. These products also work with tribally provided homebuyer

education, downpayment assistance, and intervention for borrowers

who might get behind. To deliver our lending products, we now

have relationships with 60 mortgage lenders to serve tribal lands,

including Countrywide Home Loans, First Mortgage Company, J.P.

Morgan Chase, Wachovia Corporation, and Washington Mutual.

These lenders should be applauded for their efforts to reach and

serve tribal lands.

Third, we work to overcome the legal barriers. Trust land is inalienable. It is generally subject to the jurisdiction and laws of the

tribe, which is protected by sovereign immunity. Tribal sovereignty

generally entails the right to govern, adjudicate disputes, and be

immune from lawsuits. While some tribes have fully developed

commercial codes, others maintain a tribal council or executive

body as a legal enforcement mechanism. And some smaller tribes

have no court system at all. As a result, mortgage lenders have had

concerns about enforcing obligations on sovereign lands, and market data to determine property values is scarce. The legal complexities of sovereignty diminish market values, and contracts cannot

be enforced without the approval of the Federal Bureau of Indian

Affairs. Addressing such legal impediments is not easy, since each

tribe is sovereign and acts independently. Recognizing these difficulties, Fannie Mae has worked closely with individual tribes

throughout the country to accommodate the differences in legal regimes in a manner that supports mortgage lending on their lands,

while acknowledging and supporting tribal court jurisdiction over

such lending. Recently, Fannie Mae modified its legal policies to

eliminate our requirement that tribes make limited waivers of their

sovereign immunity. We also will provide for the mutual consent

to tribal court jurisdiction over conventional lending.

Fourth, we work to share best practices. Each tribe may have

unique housing needs and solutions. But as a nationwide leader in

affordable housing, Fannie Mae has the opportunity to help tribal

communities share their knowledge and experience with others.

We are working to create an open dialogue between individual

tribes in an attempt to gain greater understanding of each tribe

and the challenges it faces. We recently made a major investment

and created an ongoing dialogue with tribes and lenders through

our Native American Business Council, which will work to expand

our capacity to make tangible investments that increase affordable

housing opportunities on Native American lands. This past April,

we convened the Northern Great Plains Native Housing Summit.

We brought housing officials from 18 Native American tribes in the

Northern Great Plains together with representatives from the

North Dakota Indian Affairs Commission and the North Dakota

Housing Finance Authority, the South Dakota Tribal Affairs Commission, and the USDA Rural Development Agency, in addition to

the Federal Reserve Bank, in Minneapolis, and the National American Indian Housing Council.

Finally, we need to overcome the information barriers. Many Native Americans have little experience with banking, credit reportVerDate 11-MAY-2000 13:26 Nov 13, 2003 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 90371.TXT SBANK4 PsN: SBANK4
8

ing, and loan qualification process and standards, and must obtain

credit through nontraditional means. And many are not aware of

how to qualify for the safest and the cheapest financing available

to them. As a result, Native Americans have the highest conventional loan denial rate of any ethic group—over 43 percent. As you

might imagine, Native Americans are particularly vulnerable to

predatory lending, which locks borrowers into a financial crisis.

One survey found that 68 percent of Native Americans reported

paying predatory rates for installment loans.

Improving financial literacy can help. Separate and apart from

my position as the head of Fannie Mae, I serve as Chairman of the

Fannie Mae Foundation, which is solely funded by Fannie Mae,

and the foundation is focused on how best to provide financial education to Native American communities.

Most recently, the Fannie Mae Foundation has joined with the

First Nations Development Institute to develop a financial literacy

curriculum specifically tailored for Native Americans, one that embraces native traditions and values.

Since publication, the foundation has distributed over 18,000 copies of the curriculum and has sponsored train-the-trainer workshops in 30 different tribal communities.

These efforts are just the beginning of what we can and will do,

and there is a long way to go. But with Fannie Mae’s capital, commitment, and partnerships with lenders, tribal communities, and

national leaders such as the Members of this Subcommittee, as

well as the efforts of nonprofits like the Fannie Mae Foundation,

we will make even greater progress toward tearing down the barriers and expanding homeownership, and all of its blessings to the

Native American community.

I look forward to working with you and once again, let me thank

you, Chairman Johnson, and Senator Sarbanes, for the leadership

that you have shown.

Thank you for the opportunity to be here today to discuss perhaps one of the most critically important issues facing homeownership in the Nation.

And I would be happy to answer any questions that you might

have.

Senator JOHNSON. Thank you, Mr. Raines. It is an excellent

statement.

I think that you touched on a key point in making reference to

trust lands. There are certain benefits that come from trust status

of land, obviously. But, also, there have been historically some

problems, in the sense that housing on that trust land then is not

so easily collateralized for non-Indian financial institutions to lend

for construction or improvement of that housing.

You indicated that you have worked with individual tribes to get

around those issues. I would assume that the Federal Government

could probably do more in terms of upgrading the resources available for tribal judicial systems, as well as improvement of codes.

But is there anything more that we should be doing to facilitate

the collateralization of lending into Indian Country, particularly

where there is trust land involved, that respects the sovereignty of

the tribe, and yet, at the same time, is realistic for purposes of our

nontribal lenders that want to be involved?

9

Mr. RAINES. Well, this is a major development issue around the

world. The experience around the world is that if people cannot

either own land or have the ability to borrow against that land,

then investment doesn’t follow. And so, this is a critical issue on

trust lands.

I think you mentioned one area where the Federal Government

can be helpful, and that is support for judicial systems within

tribes. As they develop a clear commercial code and clear systems

for adjudicating commercial disputes, then I think more lenders

will follow our lead and respect these courts as a means to adjudicate their contracts. So assistance in that area to establish these

codes and court systems I think would be helpful.

Also, the Bureau of Indian Affairs has an important role in the

protection of trust lands and they are an integral party to all mortgage transactions. We have to get from them a land title certificate

that, in order to know who owns the land and to enforce any contract, there has to be approval of that contract ahead of time.

Facilitating that process and making it easier, and streamlining

that would go a long way to encouraging additional lending on tribal lands.

The important issue here is to allow the individual homeowner

to obtain a mortgage without putting the tribal land in any danger

of moving out of Native American hands.

And I believe if we work on this, particularly at the tribe level,

that we can resolve it. But it will require enormous resources to assist the tribes in doing that and the cooperation of the Bureau in

permitting a higher volume of transactions to occur.

Senator JOHNSON. How should we measure our efforts to bring

housing opportunities to Indian Country?

I understand that there are disparities in mortgage-lending reporting involving subprime and manufactured housing loans. I

wonder if you could elaborate a bit on these disparities and indicate to us how Fannie Mae measures the success of its efforts in

Indian Country.

Mr. RAINES. The numbers that we have come from the HMDA

data collected through the Fed. That data has many problems, but

the least reliable is that in nonmetropolitan areas, in rural areas

where most of the tribes are located.

So, we really do not have a good base of information. And if we

can improve the reporting in those areas, I think that would go a

long way.

We at Fannie Mae, we look to ensure that the families are obtaining credit that they qualify for and the lowest-cost credit for

which they qualify. And when we see statistics such as I recited

that so many families on tribal and trust lands have the income

to qualify for a mortgage, but, nevertheless, have not been able to

obtain one, that to us is a measure of our lack of success in our

target.

But as well, the percentage of lending that comes from nontraditional sources on these lands is also troubling because it is

typically higher cost. And that higher cost lending acts like a

tax on these families. Where they are paying more for credit

than they need to pay, that is really stripping wealth out of these

communities.

10

And so, we need to get more conventional lenders doing business

within the Native American community so that the only source of

credit is not high-cost, subprime lenders or vendor financing, which

in some cases leaves people impoverished because if they bought a

manufactured home, and that home has depreciated the moment it

has left the lot of the dealer, and it doesn’t last as long as the loan,

that is not a healthy process as well. An enormous amount of work

needs to be done on the manufactured housing side, not just for

Native Americans, but for many people who live in rural areas

where manufactured housing is housing. There is no other significant housing construction going on.

We are working in both these areas, but having the two tests—

are people getting the credit for which they qualify, and are they

getting the lowest-cost credit for which they qualify?

Senator JOHNSON. Do the mortgages that Fannie Mae acquires

for Native American homeowners count toward the affordable housing goals that HUD establishes for you?

Mr. RAINES. The affordable housing goals are focused primarily

on income levels and location. And if the Native American family

falls below the median income, then it would qualify. If they did

not have income at that level, then it would not.

Again, it depends locationally, whether or not it falls within the

areas that HUD has designated.

So some do, and indeed, I assume that most would qualify on the

income side given the very low-income levels that we find among

Native Americans.

Senator JOHNSON. Thank you, Mr. Raines.

Senator Sarbanes.

Senator SARBANES. Well, Mr. Chairman, I do not have a question

to ask Frank Raines, but I do want to make this observation.

I am very struck by the innovative and imaginative thinking that

Fannie Mae has brought to this situation. As I understand it, you

have been able to work out an approach that gets around the sovereign immunity, or accepts the sovereign immunity situation and

then works out a way of dealing with that in order to go ahead and

extend credit.

And I commend you for that because many have looked at that

and said, ‘‘well, we are just not going to bother,’’ and obviously,

there are ways to do that and you have found such a way.

I do think that this emphasis on trying to develop tribal court

jurisdictions is important so you do have a commercial code in

which disputes can be resolved.

But clearly, Fannie Mae has been out ahead of most everybody

I think in this regard. And it seems to me that you are establishing

some very important precedents on how we might be able to move

forward to address these very serious concerns.

I just wanted to register that for the record.

Mr. RAINES. Thank you, Senator Sarbanes.

We found on these issues that there are no easy solutions. One

of the benefits of our partnership offices is that we have people on

the ground now who really can work on these problems individually. And we are now working with over a hundred different

tribes to try to resolve them because each tribe is different. So the

11

efforts to say there is a magic solution, we found does not work,

that we really have to work with each tribe.

But the benefits are so astounding. When you see, as I saw at

Pine Ridge, new homes going up, it is not just that those families

got new homes, but the aspiration of others, that they too could

have a new home because they look and say, ‘‘well, gee, I have

known them my whole life and I think I could do that, too.’’

You get this multiplier effect going. And so, it is worth it to put

in the time and the effort to try to craft solutions, as hard as they

may be. But if we can craft them, then our lenders can follow behind us. We simply decided that no one else is going to put in that

time and effort, so we had to do that. But our goal then is to encourage more and more lenders to come in and then we will get

even more creativity and we will get their efforts and their commitment. And working with the tribes who I think are focusing more

and more on the importance of homeownership as part of their

overall development strategy, it has been very encouraging. So, we

are looking forward to making enormous progress over this decade

where we have committed over $300 million to the effort.

Senator JOHNSON. Mr. Raines, would you elaborate just a bit on

what is unique about lending to Native American lands versus your

lending or the mortgages you purchase, for low-income people in

general? What is unique? We have talked a little bit about the

trust land situation. But are there lessons to be learned about getting low-income people into their own housing and upgrading their

housing, that are applicable to Indian Country? And are there

other issues that are just so unique to Indian Country, that there

are no lessons to be learned?

Mr. RAINES. Many of the lessons we know because the same

problems affect Native Americans that affect other Americans.

Income level is the single largest determinant of the ability to

own your own home and the economic opportunities on reservations

have not generally been good. So, the ability to get a job that can

pay sufficiently to be able to afford and own standard housing is

a problem.

Native Americans face that because the income levels are quite

low. But that is a problem that is shared with others. Doing homeownership and housing generally in rural areas is difficult, and

doing lending there is difficult, in part, because it is hard to find

what are the comparables? How much is the house worth, because

there just are not that many houses that you can look to.

And if you do not have a vibrant housing market, you can get

wide variations in the appraised value of the property. And if the

contract value is one thing and the appraised value is another because the only transaction was a transaction that occurred two

towns over or three miles away, you often have difficulties in rural

lending because of that.

Also, Native Americans suffer again similar problems to others

in rural areas because banking infrastructures have not been there.

Having sufficient competition for their business with community

banking has been difficult, although we are making progress there

as well as Native American banks are now beginning to expand

and coordinate their own efforts.

12

Those things affect Native Americans in the same way that they

affect other Americans. The impact, though, is much more grave

because the economic condition of Native Americans is not as high.

The special problems that relate to the tribal lands are particularly devastating because the unique thing about the United States

is that we have such a highly developed property loss system, that

it allows us to have competition for home mortgages anywhere in

the country.

Fannie Mae, for example, if we are in any community in the

country, on an automated basis, we can appraise that house. We

can approve the borrower through our technology, and we know

what the legal rights are of the contract that we have entered into

because it has been well tested throughout the system.

That has helped the United States to have the best mortgage

system in the world. Many of the features of our property system

do not exist elsewhere.

Indeed, there is an economist who has written a book called,

‘‘The Mystery of Capital,’’ named DeSoto, who says this is the key

difference between development in the United States and in the

northern capitalist countries, and those of people elsewhere in the

world—the lack of a formal property system on which you can rely

and where people know their property is protected, and then they

can borrow against it if they want to start a machine shop or start

a small business, they can build equity. For the average American,

they have far more money in their home than they have in the

stock market.

This legal system has been a bulwark for the rest of the country.

It is just developing in Indian Country because there just has not

been the need for the formal property systems that has been the

case outside.

That is why it is so critical to develop that, to eliminate that barrier, because that is the most radically different circumstance. And

that is why it is so hard for lenders and others to apply their normal systems here.

And that is why we have dedicated ourselves to building up those

systems, and I think it is going to affect not just homeownership.

I believe it will open the spigot to capital generally.

When we find a methodology by which the sovereignty is respected and in which that respect for sovereignty leads to an assurance as to the legal outcome on contracts, I think that will open

up the spigot of capital on tribal lands.

Homeownership is a good place to start. And if we can make it

work here, it will help in other parts of economic development.

Senator JOHNSON. Well, I think that point is well taken. Our

tribes and individual tribal members tend to have land as one of

their key assets. But it has also been one that they have not been

able to leverage for purposes of additional investment. And that

has had catastrophic consequences.

The thrust of our hearing today has to do with the capitalization

and the development of private sector in Indian Country. But I

think that leading off with you and Fannie Mae and a focus on

what are we doing about housing, is I think very appropriate.

13

Because as you note, for most Americans, their chief source of

economic growth, of prosperity, is the equity that they acquire in

their home, which then may be used for other spin-off purposes.

In Indian Country, all too often, there are no beauty shops, barber shops, shoe repair, coffee shops, and the kinds of small businesses that you would expect a population of that size to sustain

for a number of reasons, but among them being a lack of capital

to get started.

And I think that if we could make great progress on the housing

side, I think not only will it result in significant improvement in

the quality of life of a lot of people, but it also will be the spark

or the foundation, I believe, for expanded private economic activity

that will at least begin to take hold in Indian Country, which I believe is so essential if we are going to break this cycle of dependency and exclusive reliance on Government programs.

So, I think it was very appropriate that we led off this hearing

today with your testimony and what Fannie Mae is doing. I thank

you for being here today.

Senator Sarbanes, do you have anything further?

Senator SARBANES. [Nods in the negative.]

Senator JOHNSON. Thank you. I know that you have great demands on your time. We will be in continuing contact with you and

your people at Fannie Mae.

Mr. RAINES. Thank you very much.

Senator JOHNSON. Thank you, Frank.

Our second panel—and I would caution that we are anticipating

a vote at around 11:00 a.m. And so, we may have to take some

time off and come back again.

But our second panel consists of: Mr. Rodger Boyd, who is currently Special Assistant to the Director of the Community Development Financial Institutions Fund, Department of the Treasury. He

designed, directed, and managed the Fund’s Native American lending study, which he will discuss today. He also initiated the Fund’s

Native American Technical Assistance and Training Program to encourage the establishment of financial institutions on Indian

Lands.

Previously, he had held positions in the offices of Commissioner

of Indian Affairs, Bureau of Indian Affairs, Assistant Secretary of

Indian Affairs, Department of the Interior, and has worked for

Members in the U.S. Congress.

Working for the Navajo Nation, he established and directed the

tribe’s governmental affairs office in Washington, DC and was Executive Director for the Division of Economic Development.

And we thank Mr. Boyd for joining us.

Mr. J.D. Colbert is a founder of the North American Native

Bankers Association and serves as the Association’s President and

Executive Director. He has had a long and extensive background

in banking and Indian finance issues.

Mr. Colbert’s special expertise is as the Chief Executive Officer

and Director of Independent Community Banks. His expertise covers asset quality, bank investments, interest rate risk management, Community Reinvestment Act, bank holding company issues,

marketing, and tribal minority banking opportunities.

14

Mr. Colbert has been a speaker on banking issues at conferences

sponsored by the Office of the Comptroller of the Currency, the

Federal Deposit Insurance Corporation, the Oklahoma Bankers Association, the American Bankers Association, and numerous Indian

economic development conferences.

Mr. Bill Fischer is President of American State Bank of Pierre,

South Dakota, and Chairman of the ASB Bank Holding Company.

Mr. Fischer has been President of American State Bank since

1983, and Chairman of the ASB Bank Holding Company since

1988. He has extensive experience lending in Indian Country. He

has been involved in numerous business and community activities

in Pierre. These include serving as board member for the South

Dakota Chamber of Commerce and Industry, serving as Treasurer

of the South Dakota Health Education Facilities Authority, as well

as serving as a board member in the Wakpa Sica Historic Society.

Mr. Fischer is a long-time friend and confidante to both Senator

Daschle and me and we very much appreciate that.

Mr. Mike Jandreau is Chairman of the Lower Brule Sioux Tribal

Council. He has been a rancher since the 1960’s, involved in tribal

politics since 1972. He has been Chairman of the Tribal Council for

most of the past 29 years, and has been agent for economic and social change for the tribe through development projects such as the

Lower Brule Employment Enterprises, the tribe’s farm corporation,

the Lower Brule propane plant, and the Golden Buffalo Casino.

Mike has done an extraordinary job. He is an example of tribal

leadership continuity for the Lower Brule, and it has been enormously beneficial to that particular tribe.

Ms. Elsie Meeks is Executive Director of the First Nations

Oweesta Corporation. First Nations is a national financing intermediary that offers technical assistance and capital to assist native communities, establish community development financial

institutions.

Previously, she was active in the development of the Lakota

Fund, a nationally known small business and micro enterprise loan

fund located on the Pine Ridge Indian Reservation.

Welcome to all of you to our Subcommittee this morning. This is

a very distinguished panel which we have the good fortune of having. And I would certainly recognize Chairman Sarbanes for any

comment that he might have on this panel.

Senator SARBANES. Senator Johnson, I apologize to you and the

panel, but there are a lot of conflicting engagements and I am

going to have to excuse myself.

But before I leave, I wanted to thank the panel for the very substantial and significant contribution you are making toward considering this issue.

I have had a chance to look through your statements and we

very much appreciate the obvious time and effort that went into

preparing them.

There is a good deal of analysis there that I think will be extremely helpful to us as we seek to deal with this issue under Senator Johnson’s leadership. And I just wanted to register that before

I excused myself.

Mr. Jandreau, let me just say to you, I liked the way you put the

problems and then put the solution. That is a very nice way to

15

* This report is held in Senate Banking Committee files.

present this. And I worked through that and that is extremely

helpful to us.

But I apologize that I am not going to be able to stay for the

panel, and Mr. Chairman, I again commend you for holding this

hearing and for bringing this focus and attention to this important

issue.

Senator JOHNSON. Thank you, Senator Sarbanes. The statements

are excellent and are being reviewed by staff, obviously, on both

sides of the aisle on the Subcommittee and is invaluable to us.

Thank you, Senator Sarbanes, for your participation.

Senator Carper of Delaware has joined us.

Senator Carper, do you have any remarks that you would like to

share with us?

COMMENTS OF SENATOR THOMAS R. CARPER

Senator CARPER. Thank you, Mr. Chairman. We have no Indian

housing in Delaware. We do have Indians, and they have housing,

but it is not what we traditionally think of as Indian housing.

I am grateful for the witnesses for being here and we look forward to your testimony. Thank you for pulling us all together.

Senator JOHNSON. Thank you, Senator Carper.

We will begin the second panel with Mr. Boyd. Again, I caution

that we could have a vote and we may have to take a short recess

and come back.

But we will begin with Mr. Boyd. Your full statements will be

placed into the record, so choose as you will to either summarize

or to read from your statement. But be assured that the full statement is in fact in the record.

Mr. Boyd.

STATEMENT OF RODGER J. BOYD

SPECIAL ASSISTANT TO THE DIRECTOR

COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND

U.S. DEPARTMENT OF THE TREASURY

Mr. BOYD. Thank you, Senator Johnson, and Members of this

Subcommittee. I greatly appreciate the opportunity to appear here

today to discuss some of the issues on capital investment in Indian

Country.

I would request that in addition to our statement being put into

the record, that the Native American Lending Study Report* also

be submitted.

Senator JOHNSON. That will be placed into the record.

Mr. BOYD. Thank you. When Congress authorized the CDFI

Fund, the enabling legislation required the Fund to implement the

Native American lending study on lending and investment practices on Indian reservations and other lands held in trust in the

United States. The Fund’s Native American lending study was undertaken for the purpose of examining the barriers to accessing

capital in Indian Country.

I will not go into all the details of this. I would like to just skim

over some of the major facts and findings that we had and to disVerDate 11-MAY-2000 13:26 Nov 13, 2003 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 90371.TXT SBANK4 PsN: SBANK4
16

cuss briefly some of the process that we went through to obtain the

information that we had.

To assist us, we did 13 regional workshops throughout the country and worked with various stakeholders whom we sincerely appreciate that they took the time and the effort to spend that time

with us over the duration of our study.

One of the things that I think was confusing to a lot of people

when we began to look at the issue is that they thought that we

were just going to concentrate on housing, which is one of the

major issues, and as was discussed by the earlier panelist.

Our study also looked at, in addition to mortgage lending, small

and large business lending, consumer loans and infrastructure development on Indian reservations. So it was pretty expansive.

In all of our findings, we developed 17 major barriers to accessing capital in Indian Country. And as some examples, the legal infrastructure, and I think that was discussed a little bit earlier,

such as uncertainty of tribal commercial laws and regulations, government, that being Federal and tribal operations, such as cumbersome conflicting Federal programs and regulations, and poor

understanding by financial institutions of tribal sovereignty and

sovereign immunity.

There were barriers, the limited use of trust land as collateral,

as you have pointed out, Senator, and financial and physical infrastructure also was a great aspect of not allowing greater access to

capital. And that is, the limited number of financial institutions

that exist on reservations or even near reservations.

I think at one point we, in our financial survey that we conducted, 33 percent of tribal responses had to travel more than 30

miles to have any financial services near their reservations. And of

course, there were education and cultural issues—the lack of

knowledge of experience with the financial world on the part of the

Native American community, and lack of technical assistance and

resources, and some very basic differences between the Native

American and banking cultures.

We established in the lending study a roadmap, a platform in

which I hope that Members of Congress can use, certainly that the

financial institutions can use and that the Native American community can use.

In the study, the way we laid it out is that we presented some

remedies and recommendations. Certainly, those recommendations,

very briefly, were to enhance the tribal legal infrastructure,

strengthen tribal courts, create alternative collateral options for

trust lands, establish a public/private Native American equity fund,

increase the number of financial institutions on or near Indian

Lands, develop financial products and services that will meet the

needs of Native American depositors and borrowers, expand financial literacy education opportunities for Native Americans, and expand technical assistance and training.

We also did not want to just talk about the issues and the problems out there because there are a number of things that are going

on throughout the country that I think are helping to overcome

some of these barriers.

17

And in our study, what we tried to do is approach that in a way

that would provide examples, both at the Federal level, the tribal

level, and on financial institutions as to what was going on.

The Department of Justice and the BIA as an example have a

current funding technical assistance and training program to assist

tribal court systems.

There are several options for creating additional financial institutions. Some tribes are beginning to convert revolving loan funds as

an example and setting them up as for-profit or nonprofit loan

funds, and they in turn, apply for certification through our program, through the CDFI Fund Program, and that will give them

greater access to capital that they can then leverage.

A number of tribes have just outright purchased banks, which is

another process. And to assist that whole process at the CDFI

Fund, we have instituted the Native American CDFI Technical Assistance Program because we found that there are a lot of tribal

people that are not quite sure what kind of financial institutions

that they would like in the community.

So through this technical assistance grant program, they can obtain grants from us to help create those financial strategic plans

and ultimately, to create their own community-based financial institutions, then come back to us for further funding.

Also, we found that one of the real important aspects, as I think

the previous panelist mentioned, all the various tribes are different. You cannot approach this issue thinking that one resolution

is going to resolve such a massive problem. But we also believe

that by looking at regional concepts and regional approaches, is

also going to be very effective.

As an example, the Native American Development Corporation,

located in Montana, is a corporation that is providing capital to Native American businesses both in Montana and Wyoming.

The Native American Lending Group, Inc., is a nonprofit, multitribal CDFI in New Mexico, which is a very unique situation because a lot of the Pueblos are very small. They cannot create a

good market for traditional financial institutions. So they have set

up one CDFI to service 18 Pueblos in northern New Mexico, and

we think that that is going to be very effective.

In closing, Senator, we have discovered that it is going to take

the movement and the actions of many different stakeholders to

make this happen. And certainly, that includes the Federal Government, Federal agencies, financial institutions, and tribal governments. And as sovereigns, they certainly can do many things to

help create better access to capital.

Senator JOHNSON. Thank you, Mr. Boyd.

I would note as an aside, also, welcome to Chairman Tom

Ranferance of the Flander Ti Sioux, who has joined us here as well

today, and has provided extraordinary leadership for his particular

tribe.

I would note for the panel members that we are using a 5-minute

clock. The Chairman is being fairly liberal about enforcing this, but

at the same time, try to keep somewhat within that framework.

Mr. Colbert.

18

STATEMENT OF J.D. COLBERT, PRESIDENT NORTH AMERICAN NATIVE BANKERS ASSOCIATION

Mr. COLBERT. Good morning, Chairman Johnson, and Committee

Members. I appreciate your concern regarding capital access in Indian Country and I applaud your efforts to effect greater change.

I am here this morning as President of the North American Native Bankers Association. NANBA is an association of commercial

banks and other regulated financial institutions owned by Indian

tribes.

Our mission is the provision of credit, mortgage lending, and financial services in Indian Country. And particularly, we think that

one of the best ways to effect that mission is to put tribes in control

of the issues surrounding capital access by virtue of owning financial institutions.

Lack of Native ownership of financial institutions continues to be

a major impediment to greater capital access. This has been identified in numerous studies in the past and more particularly, by the

fine work that Mr. Boyd and the CDFI Fund recently completed.

To underscore the point in Indian Country, right now, there are

approximately 23 regulated financial institutions in Indian Country

that are owned by Indian tribes and/or individually enrolled tribal

members. There are eight commercial banks owned by tribes, nine

commercial banks owned by individual Indians, and about six community development credit unions. So only 23 to serve approximately 560 Federally recognized tribes and over 2.7 million individual Indians. Clearly, there is a great disparity between those

numbers and the demographics of Indian Country.

Presently, there is at least one piece of legislation on the books

that could help effect change on this point. In August 1989, Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act, generally known as FIRREA. Section 308 of

FIRREA established at least three salient public policy goals. One

was to preserve the number of minority-owned financial institutions. The second was to promote and encourage creation of new

minority-owned financial institutions. And three was to provide for

training, technical assistance, and educational programs.

As indicated by the paucity of Native-owned financial institutions

and minority-owned institutions in general, I think the will of the

Congress as expressed by Section 308 has been frustrated by the

Federal bank regulatory agencies who have the primary responsibility for implementing this Congressional mandate. In fairness,

there has been some recent positive developments on behalf of the

Federal bank regulatory agencies. The Federal Reserve Bank of

San Francisco has conducted various sovereign lending workshops.

The FDIC recently adopted a revised policy statement on minorityowned institutions which expands the scope of their activities. And

the Office of the Comptroller of the Currency, with NANBA’s assistance, published ‘‘A Tribal Guide to Bank Ownership.’’

I certainly welcome these efforts. However, they do not directly

address what I think is the key goal of Section 308, which has to

do with promoting and encouraging the creation of new minorityowned institutions. And I personally have not seen much, if any,

effort that could be reasonably construed as meeting that goal on

the part of the Federal bank regulatory agencies.

19

NANBA has been active on that point. We held a conference 2

years ago called Tribal Ownership of Banks. We had about 150

attendees, I think something like 20–25 tribes attended. To my

knowledge, that conference, whose goal was specifically to create

additional Native-owned banks, to my knowledge, that is the only

conference ever held with that goal in mind for Native America.

And indeed, it may stand as the only conference ever held in the

history of the United States whose goal was to see the formation

of new, minority-owned institutions.

I would like to see Congress provide some motivation, if you will,

to put some teeth into Section 308, and to see that the Federal

bank regulatory agencies actively work toward seeing the creation

of new, minority-owned institutions. I think the Federal bank regulatory agencies are in a unique position to be a catalyst to help

make that happen.

One specific suggestion is that they might take up on the work,

follow the work of NANBA with regard to additional conferences

such as the one we held, to kind of help get the word out to Native

Americans and the minority community generally.

I think also the regulatory agencies are in a unique position to

act as a catalyst to help bring together some mentoring opportunities between some of the Nation’s larger banks, and some of the

new ones that might be spawned in Indian Country.

I also would like to address one other area briefly that has to do

with bond financing in Indian Country. Obviously, Indian Country

badly needs to access capital investment through bond financing.

I think one particular way to stimulate this important sector of the

capital markets for Indian Country is for Congress to consider

amending the Securities Act of 1933, to allow Indian tribal governments the same exemption from registration requirements that

State governments, county, and local jurisdictions enjoy with regard to the issuance of tax-exempt bonds.

Presently, in order to access the mainstream bond markets,

tribes are forced to go through the rather costly, time-consuming,

and expensive registration process. Not surprisingly, tribes avoid

this registration process and instead turn to the private placement

markets, which generally, among other things, require much higher

coupon rates and interest payments on the tribes’ issuances than,

as opposed to the regular mainstream bond market.

And to the extent that the Congress should see fit to allow tribes

the same exemption from registration by amending the 1933 Securities Act, I think a couple other things would need to be implemented to really put some teeth into that. One would be to amend

the Internal Revenue Code of 1986, to allow tribes to issue private

activity bonds, in the same manner as State and local governments

are presently able to issue private activity bonds. In addition, I

think we would need to exempt tribes under certain circumstances

from the so-called volume cap requirements of Section 146 of the

Internal Revenue Code.

I think by providing Indian tribal governments with equal footing as that enjoyed by State and local governments with respect to

private activity bonds will greatly stimulate the flow of capital to

Indian Country for a wide variety of purposes, of housing and small

business development. Also granting this exemption to Indian

20

tribes from the volume cap restrictions will result in tribes not having to request a private activity allocation from a State government

who may be unwilling or unable to grant such allocation due to the

fact that Indian tribal governments obviously are not a political

subdivision of the State.

That concludes my statement, Mr. Chairman. I would be pleased

to entertain any questions or comments.

Senator JOHNSON. Thank you, Mr. Colbert, and we will come

back to questions at the conclusion of the entire panel’s discussion.

Mr. Fischer, welcome.

STATEMENT OF WILLIAM V. FISCHER

PRESIDENT, AMERICAN STATE BANK

PIERRE, SOUTH DAKOTA

Mr. FISCHER. Thank you. Before I give my statement, I would

like to tell you how pleased I am to be here to address this long

overdue, most important subject. It is imperative that we figure out

a way to bring private-sector capital into Indian Country.

Good morning, Mr. Chairman, Ranking Member, and Members of

the Subcommittee. Thank you for the opportunity to appear here

today. My name is William Fischer. I am President of the American State Bank, a $90 million independent commercial bank located on the Missouri River, in the center of the State. I am a

third-generation South Dakotan. My grandfather arrived in South

Dakota in 1884. I am here to testify from my position as a commercial bank in central South Dakota, Indian Country, for the past 36

years.

South Dakota is not unique from other States in having Indian

reservations located within its boundaries. We have nine reservations in South Dakota. Three of these reservations are located

within my lending area.

There have been numerous studies, some commissioned by Congress and other independent studies done addressing lending in Indian Country. Recently, there as a workshop held in Rapid City,

South Dakota, sponsored by the U.S. Treasury on lending in Indian

Country. Also, the FDIC, out of Kansas City, has been working

with the Cheyenne River Sioux Tribe Reservation since 1996, regarding lending in Indian Country. I have attached a letter from

an individual at the Kansas City Fed to be a part of my testimony.

First, let me address what I feel are some obstacles to lending

in Indian Country. Instability of tribal reservation government.

There are no checks and balances. Virtually all tribal governments

are legislative, executive, and judicial combined, and thus, virtually

no check and balance. Constant turnover, inexperience, and the

lack of consistency in tribal governments. Economics, lack of financial education and economic knowledge. A general lack of unified

tribal vision, planning, and business experience. Lack of understanding of tribal sovereignty and sovereign immunity. State and

Federal regulations and bureaucracy. A lack of basic economics and

credit knowledge at the enrolled members’ level. Each reservation

has its own specific laws and no degree of uniformity of tribes dealing with economic issues, like Uniform Commercial Code. The tendency to insist on tribal members to manage tribal businesses when

the members have no experience in managing this type of business

21

venture. The general tendency to try and run managed businesses

without accurate financial accounting records.

Now let me address some of the practices that the American

State Bank has implemented to overcome some of these obstacles.

Know the tribe or the tribal member wanting to borrow the money.

Establish a professional relationship with an attorney and accountant familiar with tribal law. Follow a basic credit criteria—credit,

capacity, and collateral—that is used throughout the industry.

Know the tribe, its officers, its council, issues, and history. Realize

that very few customers, Indian or non-Indian, are entrepreneurs

and thus, should we lend money to such a venture, we must allocate the time and special attention to assisting and ensuring the

venture has an even chance to succeed. Tribes and tribal members

do not need more examples of failure. American State Bank has

been very active in positioning itself in understanding the issues of

concern on the Cheyenne River Sioux Tribe reservation. We have

one employee, Bob Claire, who serves on the Four Bands’ community loan fund at Cheyenne River.

Now let me address legislative and regulatory remedies that I

think would help facilitate flow of income in Indian Country. Promote tribal governing system that better separates legislative,

executive, and judicial systems and thereby, provide a check and

balance and stability. Better separation of economics from political

decisions. Needs to be a better working relationship between the

BIA and the tribes, working for a betterment for all parties involved. Promote establishment of 1-, 3-, 5-, and 10-year economic

development plans whereby necessary, hire the best managers to

implement these plans. Managers for tribal business should be the

very best that there are available, whether they are Indian or nonIndian, with built-in incentives to enforce successful and profitable

operation. Implement a series of courses at high school and posthigh school level to promote good business practices. Let us reconsider loan guarantees for commercial loans that are made in Indian

Country. Let us consider tax incentives for loans to be made in Indian Country.

Thank you very much for this important hearing. I am very

pleased to try and answer any questions you might have.

Let me conclude by quoting Bobbie Whitefeather. ‘‘I know what

we need to do. All the ingredients are there. We just need to put

the pieces together. The challenge is, are tribes ready, is Congress

ready, and the Administration willing to provide or create necessary, receptive environments and support to enable Native nations to prosper?’’

I also have handed out to Jack Taylor a statement from Stewart

Sarkozy-Banoczy of the Four Banks Community Fund. He will give

that to you afterwards.

I will try and entertain and answer any questions that you might

have.

Thank you.

Senator JOHNSON. Thank you, Mr. Fischer.

The testimony of the first three panelists I think is excellent and

I am looking forward to an opportunity to question and elaborate

a bit on their testimony.

22

The last two witnesses I think will be interesting as well because

they bring on-the-ground insight as tribal members themselves as

to capital formation and economic development in Indian Country.

I am told that we have only a few minutes remaining to cast a

vote on cloture on the supplemental appropriations bill. I assume

that Mr. Carper would like to vote on that as well.

I will recess this hearing momentarily to run across the street,

cast that vote, and then return as promptly as possible in order to

continue this hearing.

And we will be back very soon. Bear with us. I apologize for this,

but this is one of those things that is beyond our control at the

moment.

[Recess.]

Senator JOHNSON. We are back and we will resume testimony.

And we are about to come to Chairman Jandreau.

Mr. Jandreau.

STATEMENT OF MICHAEL B. JANDREAU

CHAIRMAN, LOWER BRULE SIOUX TRIBE, SOUTH DAKOTA

Mr. JANDREAU. Thank you, Chairman Johnson. It is with great

appreciation that I have the opportunity to address the Subcommittee.

You have my statement and I will try to summarize the statement because I believe that our statement will become a part of the

record.

Senator JOHNSON. Your full statement will be part of the record.

And so, you may summarize or proceed however you choose.

Mr. JANDREAU. I would like to talk about some practical problems that affect us as tribes and individual members of tribes who

attempt to access financing.

I listened with great interest to the first witness as he spoke

about the things that Fannie Mae is able to do.

The irony of what happens, not only with Fannie Mae, but with

Section 184 and the rest of these programs is the tribe becomes the

underwriting authority for that whole process, that truly building

credit is not being effectuated in enough of a real manner.

Most of the programs that are there for tribes to access utilizing

commercial industry, banking, et cetera, always requires the tribe

to underwrite, and thereby jeopardizing or putting at risk the entire tribe’s assets for the development of individual commercial industry of any magnitude. And it has to be of some magnitude if it

is going to be sustainable.

We need to look at those things, as Mr. Colbert pointed out, that

are currently within the law that impede the tribes in their relationship with commercial industry, and allow a study by Indians

with Congress and with people in the industry to be accomplished

so that the real overall solutions can be accomplished.

There are so many things out there that at some points we are

able to access. At Lower Brule, we have been able to do things because, somehow, there is a feeling that I am not going to go away

or die or anything. We all know that is a reality.

It needs to be so that anyone in tribal government, any tribe has

the same and equitable access. It cannot be just built on the idenVerDate 11-MAY-2000 13:26 Nov 13, 2003 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 90371.TXT SBANK4 PsN: SBANK4
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tification of the leadership and the idealism that respective tribe

presents.

In order to sustain ourselves and to develop our reservations as

we truly should, the whole infrastructure has to be dealt with. And

at the risk of plugging something we have been working on, the

whole idea of Wakpa Sica, and that project, is about doing that

effort.

But I believe in the interim, there has to be a panel of Indian

experts and financial, a panel of Indian political persons who deal

with financial institutions, and people from Congress and the Administrations to really work on this project and to develop the entire solutions, because this is no easy answer.

As you can see, we have tried in my testimony to identify some

of the problems and our projected solutions.

But we could go on with volumes and volumes of paper identifying those solutions. But without a comprehensive process to pull

this all together and to say, this is what we are going to go forward

with, I do not believe that we are going to accomplish very much.

And there are some sincere people in the different financial processes in the Federal Government. But so many times, there are

regulations, there is lack of capital, there is lack of guarantee levels, that are happening during that period of time to really do a

lot to solve the problem overall.

So, I guess that is my basic statement. Thank you.

Mr. JOHNSON. Well, thank you, Chairman Jandreau. I want to

acknowledge as well President John Yellowbird Steele has joined

us here as well from the Oglala Sioux Tribe in South Dakota, and

we are pleased to have him in attendance as well.

Ms. Meeks, welcome.

STATEMENT OF ELSIE MEEKS

EXECUTIVE DIRECTOR

FIRST NATIONS OWEESTA CORPORATION

Ms. MEEKS. Thank you. I am very appreciative that you have invited me here and thank you for holding this hearing. I guess

Chairman Steele is here to keep me honest.

[Laughter.]

I work for First Nations Oweesta Corporation now, which was

launched by First Nations Development Institute. We were

launched to help Native communities access financial capital

through the development and/or expansion of community development financial institutions. We provide technical assistance and

training to Native communities to start these, and I will call them

Native CDFI’s.

Part of our effort, too, and this is just part of our effort, as

Franklin Raines mentioned, is, along with Fannie Mae, we have

developed a consumer financial literacy curriculum. It is called,

Building Native Communities—Financial Skills for Families. We go

out and do trainers of training sessions so that people from the

communities can learn how to use this curriculum and provide it

to their community members.

So, we think that generations now have to have financial skills

to help them make decisions about personal finance and credit, and

that is a serious economic barrier for many Native communities.

24

We are also the facilitator of the Native American Financial Literacy Coalition, and we are helping to overcome that barrier by

supporting efforts to improve financial literacy and education and

awareness in Indian Country.

My experience was really with the Lakota Fund to begin with.

And my experience and that of First Nations really has showed us

that tribes need institutions at the local and regional level to help

form capital and provide technical assistance to their members.

Tribes and communities need to develop their own institutions, to

build their own wealth, and to build their own management capability. And Native CDFI’s can provide capital for a number of

things, including businesses, land acquisition, homeownership, consumer loans, and community development projects, and all of these

help to create a healthy economy. Native CDFI’s can also leverage

grants from foundations, bank loans, and other sources of capital

to bring into their community. And most importantly, they really

work to build the capacity of their community members to improve

their credit and to develop and manage management experience in

business.

As I said before, my experience in the community development

financial institution field began in 1985 with the development of

the Lakota Fund, which was started by First Nations Development

Institute, the organization I now work for. The Lakota Fund is a

private, nonprofit, Native CDFI on the Pine Ridge Reservation.

And I think most people are aware that Pine Ridge has been one

of the poorest reservations in the Nation, and that the problems

that persist there have gone on for many years. But despite that,

the Lakota Fund is widely regarded as one of the most successful

private-sector initiatives in Indian Country. And for the first 10

years that we were in operation, we never had one dime of Federal

funding. This was all from private sources—foundations, socially

responsible investors that believed that we could do the job.

When we first started lending, 85 percent of our borrowers had

never had a checking or savings account. Seventy-five percent had

never had a loan and 95 percent had never been in business.

We were started with the mission of small business lending. If

anybody had told us how hard this was, we would probably have

never done it.

But the Lakota Fund now lends in amounts up to $200,000. We

started at $10,000, was our limit. We have—they have—I have to

say they because I do not work with them any longer—have a loan

fund capital of $31⁄2 million from foundations, corporations, and

private investors.

They provide training and technical assistance. They have loan

loss rates of less than 10 percent. They have developed an IDA savings program, a low-income tax credit housing project. They operate a tribal business information center.

Now, lending in that environment, I mean, it really begs the

question, how could we do it when banks and other lenders could

not seem to? And I think it can be summed up in the fact that we

wanted to. We wanted to change our community, and that is what

a lot of other Native CDFI’s, why they get started, is because it

really is too hard for banks to make these kinds of loans. These are

all start-up businesses, to sometimes first-time borrowers.

25

And so, there really needs to be a mechanism in place on the

local level that can allow people their first access to credit and

their first step into business. And that is what a lot of Native

CDFI’s do.

There has been many valuable lessons learned from the Lakota

Fund. This was not easy and we made lots of mistakes, honest mistakes, and a lot of missteps. But these lessons really have helped

other Native communities develop their strategies around lending.

And I have listed some of the strategies and some of the lessons

learned in the written testimony. Chief among those is keep politics out of the lending decisions, and that is really important. Then

just building good operating systems and policies and adhering to

that. And being model organizations.

There is a lot of other organizations now starting and a lot of

other Native CDFI’s starting. The Navaho Partnership for Housing,

the Oglala Sioux Tribal Partnership for Housing are both organizations that are looking at starting—well, they are promoting homeownership, but out of desperation, in both cases, they have had to

develop small CDFI’s to provide some of the gap financing.

The Partnership for Housing has actually made some direct

mortgages that—it is an alternative form of flexible financing until

these loans can get through the land issues, the collateral issues,

and then they can be sold to conventional lenders.

I want to say one thing about the role of the CDFI fund. Rodger

Boyd addressed that here and talked about the NACTA—the Native American Component for Technical Assistance. I do not know

that he said that there were 47 applications for that, and that is

to help tribes develop CDFI’s.

I think 47 is a phenomenal figure, and that is just in the first

round. So, I think it shows the importance of the CDFI fund and

the NACTA program.

There is not a single other agency that I know of that really

helps tribes, that has focused on helping tribes set up CDFI’s, and

they are so important.

And I want to close by giving just a brief example of an instance

of the Oglala Sioux Partnership for Housing and the reasons that

these CDFI’s can be so important.

They also operate a self-help housing program that up to 10 families a year get together and build their own homes. And it is really

just a wonderful program.

But throughout this process, then they are trying to get financing, get the houses mortgages. And they have used the USDA

Rural Development 502 loans, or tried to.

But, for one person, a single mother. Her credit was good. She

had always worked. She wanted to build her home on her own

homeland. There were only four people that owned interest in that

land. And that complicated it more.

If it had been tribal land, it wouldn’t have been nearly as difficult. But because of that—and really, the problem lay within

rural development’s lawyers that needed absolute certainty.

And the partnership for housing was able to make that loan, just

do their own flexible financing, because they had reasonable certainty that she would pay the loan back. She had agreements from

the other family members.

26

That is just one instance, but I can go on forever about the kinds

of projects that these CDFI’s have been able to do and the importance of the CDFI fund.

Thank you.

Senator JOHNSON. I have one question for Mr. Boyd and Mr.

Fischer.

You both observed that one of the things we need to be doing is

paying some attention to the quality of the legal code and the legal

system so that it has credibility, both on and off the reservation,

whether it be an Indian lender or a non-Indian lender.

Congress has been reluctant to impose on the tribes a separation

of powers between the executive and judicial branches. The tribes

are sovereign, and so that is their choice to make relative to that

issue.

But given your experience and watching the tribal legal systems

develop over the years, is it your belief that getting the politics out

of a tribal legal system and having some separation between the

executive and the judicial system, is that a recommendation that

you would make generally to tribes who are looking at ways to attract the confidence of lenders for investment in their reservations?

Mr. Boyd, any comments about that?

Mr. BOYD. Yes, Mr. Chairman. As a matter of fact, in our study,

that was one of our recommendations. We broke down the recommendations into three distinct areas—making recommendations

to tribal governments, to financial institutions, and to Federal

agencies.

In the recommendations to tribal governments, we clearly began

to see and picked up throughout all the workshops that we did

throughout the country that this is a big issue, that the lenders

needed some kind of stability. They needed to be able to work with

tribes in a uniform way, so that the more uniform commercial

codes that could be developed, more consistency that could be developed within the tribal systems. And certainly, as tribal

sovereigns, they have that authority and that jurisdiction to do it.

So, we strongly encouraged tribes to seriously look at that as

their contribution to lowering some of these barriers to accessing

capital.

Senator JOHNSON. Mr. Fischer, I know that you concur that

these are decisions for the tribes themselves to make in terms of

the nature of their legal system. But you have taken a very active

interest in creating an environment where perhaps an appellate

system could be created. It is obviously up to the tribes themselves

to make those decisions. But you have paid some attention to legal

systems in Indian Country.

Any further elaboration on that, in your experience?

Mr. FISCHER. Senator, I truly believe that it needs to be separated. I think the mere fact that we are here today substantiates

that it is not working or it is not working to its potential.

I truly believe that if Indian Country is to develop to its highest

and best use, that something has to be changed. You have to build

some credibility into it.

I know one of the things that has happened at Cheyenne River

is they have incorporated the State Uniform Commercial Code. We

do quite a bit of business up there as far as ranchers and farmers

27

are concerned. It gives us comfort. But definitely, there are classic

examples where every 2 or 4 years, depending on the term of the

chairman and the council, everything turns over.

Now, one of the unique features of Lower Brule is that hasn’t

happened. And because of that, there is quite a bit of credibility

with creditors and outside people with regards to that it is going

to be the same as is, or should be. On the other hand, we all know

about the example of the Bell Farm situation at Rosebud that got

very complicated.

I do think that some separation, some check and balance needs

to be incorporated. I certainly understand the sovereignty. But, on

the other hand, if, for some reason—it still can all be tribal. If

there is a reason that we can figure out a way to do it better,

easier—and that is one of the reasons why we, or I, am a champion

of the Wakpa Sica project with the tribal supreme court. I think

it is long overdue and I think it will benefit the tribes, as well as

people off the reservation. So it is a step.

I think, whether it is in banking or whether it is in business, to

survive, you have to change. And that needs to be done, constructive change.

And so, I am. I am an advocate for separating, providing stability. And I think, as I mentioned this Sioux Supreme Court,

Wakpa Sica’s project, would be a step in the right direction.

It just is not working. It may have worked at one time, as far

as I am concerned, but it is not working now. We would like to go

and do business with enrolled members, do business with tribes.

On the other hand, there is a fine line between being a good guy

and a dummy, and we need to sort. The tribes need to make it as

comfortable for us, as well as we need to make it as comfortable

for them.

They have hundreds of millions of dollars of assets and all kinds

of potential. So we are looking for ways, and we think a change

would—I do not know what the right change is, Senator, but I do

think something needs to be addressed.

Senator JOHNSON. Very good, Mr. Fischer.

Mr. Colbert, you made reference to various kinds of Indian-run

or owned financial institutions. Given your observation over the

years, are we able to draw any conclusions at this point about

what kind of institution, what kind of bank, what kind of charter,

whether it is tribally owned or individually Native Americanowned, or whether it is a credit union versus a bank.

Any conclusions we can draw yet, from your observation, about

what seems to work best? Or are there no generalizations that can

really be drawn, given our experience to this point?

Mr. COLBERT. Yes, Mr. Chairman. I think that, I personally see

that—I would love to see the spectrum of financial institutions that

exist in the dominant society in effect be replicated where appropriate in Indian Country.

Certainly, I mentioned community development credit unions.

Those have been successful in certain jurisdictions. Regular commercial banks have been successful in other jurisdictions.

A lot of that is predicated on the readiness, willingness, and

ableness, if you will, of the owners and organizers of those institutions to meet the local needs.

28

Ultimately it depends, in large part, on what are the particular

financing needs of that particular community or reservation, and

then to begin to organize an appropriate type of financial institution around that need.

And it may be, for example—we have talked about some of the

community development financial institutions who are subjected to

the same degree of regulation as, let us say, banks or S&L’s might

be. I think, clearly, there is a role and a need for those.

So, in summary, Mr. Chairman, I would simply say that I think

we do need a range of financial institutions, all of which have pros

and cons to their particular type of charter or organization. But it

really depends on what do the organizers want to accomplish and

what market are they looking to serve?

Senator JOHNSON. Very good. Chairman Jandreau, it strikes me,

looking at the success that you have had in Lower Brule, that one

of the things you have been able to do is to get, by and large, to

get the politics out of the management of tribal businesses and enterprises in Lower Brule.

Where you have had local talent, you have utilized local talent.

Where that wasn’t available, you have not thought twice about

going outside the tribe and bringing in management skills for the

various enterprises that the tribe has run.

I wonder if you would comment about that. You have been chair

there for many years, and obviously, there has to be an enormous

amount of pressure on you to hire somebody’s son, daughter, or

cousin for a high position in this business or that enterprise going

on. How have you dealt with that and kept your eye on the quality

management of these enterprises?

Mr. JANDREAU. Basically, we have done that through the ability

to communicate with the people that—our reservation community

is not real large, as you know. Approximately 1,600 members live

on the reservation. And so, our ability has been to communicate

with different groups of leadership—elders, other significant individuals who are in leadership roles, either heads of large families

or things of that nature.

One of the things that we have found is that the more involved

that those segments of our population are with, and understanding

what our end-goals are, and being actually a part of creating those

end-goals, has been significant in allowing us to hire management,

whether it is our own tribal members or whether it is individuals

who possess the skills necessary from outside of our community,

to advertise for them and to interview them and to go through

the processes that are used nationwide, in trying to acquire good

management.

We will also create incentive programs for the individuals,

whether it is tribal members or nontribal members, so that their

end result is their productivity determines the expansiveness of

their salary range.

And we have found that very effective. We have found that has

created in the hearts and minds of people a greater desire to get

the right product accomplished.

I would like to go back to, though, one question that I heard you

ask Mr. Fischer. And that is in regard to the changing of the constitutions to allow for the separation of powers.

29

Although I do not disagree totally with that concept, I believe

that concept has to be done with the cultural relevance that is to

be expressed by that particular band or tribe, being a very significant part of it.

I have also found on Lower Brule in regard to both of the questions that you asked me and that you had asked them, that the

success of that is depending on the education that is provided to

the people who make the decision, and in the membership, and in

the governing body.

So that process, whether totally accepted or totally rejected, is at

least understood. And that makes all the difference in the world.

I guess maybe that sounds too simple.

Senator JOHNSON. Well, it strikes me as the same philosophy as

you used for your business management, that the tribe feels that

they have a stake in it, that it was their idea and they are the ones

who benefit from it. And the same would be true of any kind of

legal system reorganization, that it has to come from within the

tribe itself, I think is what you are saying, rather than we here in

Washington are going to tell the tribe, regardless of their culture

or traditions, how to run their legal system.

I think your point is very well taken.

Elsie, we could talk all day about your experiences. I am fascinated in part with your development of the Lakota Fund, which

is another financing mechanism. We talk about banks and credit

unions and things. But this has been another one that has been a

success story.

I wonder if you could tell us a little bit from your observations,

how do you set up a fund like that and allocate the loans in a

thoughtful, professional manner, require, I assume, business plans

of some kind from people who do not have a lot of experience with

business plans.

You do not become a source of money for everybody who woke

up one day and said, why don’t I do this or that? How do you keep

this from becoming some crony slush fund?

And then, last, how do you guarantee these loans? How do you

have any confidence that you will get repayment if in fact the business goes bad?

Ms. MEEKS. Well, those are all good questions and important

questions, that if any Native community or tribe is going to set up

a CDFI, they have to ask those same questions.

Those are the exact lessons we learned at the Lakota Fund. I

think Mike said it very well, that education is a big part of that.

And at the Lakota Fund, we had to find ways to make loans and

training was a big piece of that. If people did not know about business, we had to deal with the issue of how do we even help them

to understand the concept of what it means to be in business?

So, we provided a training program that was 10 weeks long that

people had to go through if they would even be considered for a

business.

Only a Native CDFR or CDFI could do something like that.

There had to be financing attached to it, at least the hope of financing. There has been the Tribal Business Information Centers,

which are important, that I think Congress has addressed recently.

30

But many of the tribes that I have talked to have those training

programs, but they do not have the financing available. So, at the

end of the business plan, there is nothing.

It is very important that I tell tribes in Native communities

everywhere that tribes can play a very important role in developing

these CDFI’s. They can provide financing. They can provide the

first step, as with the Four Bands case. The Cheyenne River Sioux

tribe actually hired a person out of their economic development office to set up the fund. But they developed a separate board.

I always tell communities, too, that it is very important to get

bankers on their board that have lending experience. We use them

extensively. We quit beating up on them after we understood all

the issues of lending.

So it is just all those lessons. And it is just building, it is really

building the market, building borrowers, building business people.

We realized that is what our key purpose was, was that we were

building a business foundation that had not been there before.

It has been a long, slow process, but now we have a number of

businesses at Pine Ridge. In fact, I look at Pine Ridge, despite its

few problems, and there is really a lot of people in business in Pine

Ridge, a lot of contractors, and I think a lot of that has come out

of the culture that the Lakota Fund has helped build.

Senator JOHNSON. I applaud the development of a chamber of

commerce at Pine Ridge.

Ms. MEEKS. Yes, that was another key issue.

Senator JOHNSON. I think that is a wonderful new development,

of people banding together to promote entrepreneurship and business development.

Well, let me say, I think that this has been a very valuable hearing. And I think the testimony here is going to be looked at with

great care by my colleagues and by staff.

I am a bit in a unique situation to be a Subcommittee Chairman

on this Banking Committee. I also serve, of course, on the Indian

Affairs Committee and on the Appropriations Committee.

And there is no question that the Federal Government cannot,

should not walk away from its trust and treaty obligations. We

cannot allow that to happen.

But, at the same time, if that is all we focus on, we will have

made a huge mistake. The symptoms of poverty and unemployment

will continue to bedevil us so long as we do not complement the

Federal Government IHS and BIA programs with a growing, blossoming private sector, with more Native American entrepreneurs,

with more tribally run enterprises, that is giving us revenue

streams both for the tribe and for individual Native American citizens. Until that happens, we will never have enough subsidized

housing and subsidized health care and subsidized this and subsidized that.

They are all important programs, but it has to be complemented,

I think, with a much more robust private capitalization and private-sector development in Indian Country. Otherwise, we are simply never going to get ahead of the curve of all the symptoms of

poverty and unemployment that we currently suffer.

Your testimony here today is going to be very useful to the U.S.

Senate as we begin to rethink our relationship, in a GovernmentVerDate 11-MAY-2000 13:26 Nov 13, 2003 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 90371.TXT SBANK4 PsN: SBANK4
31

to-Government relationship with our tribes, honoring and recognizing their sovereignty, and yet, rethinking in some ways what

needs to be done, what the full breadth of the relationship between

America as a whole and our Native peoples should be.

And so, I think that this has been a very useful hearing, and I

thank you for taking time and the distance that you have traveled

to join us here today.

And so, with that, the hearing is adjourned.

[Whereupon, at 12:05 p.m., the hearing was adjourned.]

[Prepared statements and additional material supplied for the

record follow:]

32

PREPARED STATEMENT OF SENATOR TIM JOHNSON

Good morning. I would like to thank all of the witnesses in attendance at today’s

hearing for providing testimony on the important issue of bringing more capital investment to Indian Country. Also, I am encouraged by the number of people in the

audience who, obviously, have an interest in what we are doing. In particular, I

would like to note that John Steele, President of the Oglala Sioux Tribe in South

Dakota is here today. President Steele is testifying this afternoon before the Senate

Energy and Natural Resources Subcommittee on Water and Power, and I am

pleased he is able to join us here this morning for this important Banking Subcommittee Hearing.

In spite of the recent economic downturn and some uncertainty in the capital

markets, most Americans can look forward to continued prosperity. However, an important segment of the population—the approximately 2.7 million Native American

and Native Hawaiian people living in the United States—has never fully shared in

America’s wealth. In order to resolve this disparity and create meaningful and sustainable economic growth, we need to continue to look at innovative strategies and

draw, not only on the resources of Federal and State governments, but also private

capital markets.

Part of the reason that I wanted to hold this hearing under the auspices of the

Financial Institutions Subcommittee is to emphasize the importance of access to private sources of capital. I want this hearing to be less focused on Government subsidies, although these are important, and more focused on the role that private

financial intermediaries can have in creating and sustaining a viable economic infrastructure on Indian Lands.

Consider the following statistics. According to U.S. Department of Commerce census data, unemployment rates on Indian Lands in the continental United States

range up to 80 percent, compared to 5.6 percent for the United States as a whole.

Census data also show that the poverty rate for Native Americans during the late

1990’s was 26 percent, compared to the national average of 12 percent. In fact,

overall, Native American household income is only three-quarters of the national

average.

This disparity is particularly evident in my home State of South Dakota where

Native Americans represent over 8 percent of the State’s population. While the overall State economy is relatively strong with, for example, a low 3.1 percent unemployment rate, the Native American population continues to suffer. South Dakota counties with Indian Reservations are ranked by the U.S. Census Bureau as among the

most impoverished in the United States.

In light of this unacceptable economic disparity, I believe it is important to address this issue in a comprehensive manner. At the hearing, we will consider issues

such as:

• mechanisms for providing small business capital;

• means for fostering the growth of Native American-owned financial intermediaries;

• incentives for financial institutions to provide services on Indian Lands;

• ways to encourage personal savings; and

• vehicles for improving financial literacy.

In essence, the purpose of this hearing, is to explore what this Subcommittee can

do to facilitate and expand the private sector economy in Indian Country. To accomplish this, tribes and enrolled members on the reservations must have access to private capital and the wherewithal to put it to good use.

Presently, I am working with my colleagues in Congress on a number of initiatives to promote capital investment in Indian Country:

• I recently sponsored The Native American Small Business Act that creates a statutory Office of Native American Affairs and establishes related assistance programs.

• I have played an active role in reauthorizing the Native American Housing Assistance and Self-Determination Act and have sponsored a bill to allow the low-income housing tax credit to work more effectively with block grants provided under

this program.

• I am a cosponsor of the Indian Financing Act Amendments, which will create a

secondary market for small business loans guaranteed by the Department of the

Interior.

• Since education is an important part of economic development, I have sponsored

the Indian School Construction Act which establishes a pilot program under which

eligible Indian tribes have the authority to issue bonds to fund the construction,

rehabilitation, or repair of tribal schools. Bondholders receive tax credits.

33

1 2000 Census data put Native American and Alaskan Native homeownership at 55.4 percent,

but other measurements list Native American homeownership at lower percentages; HUD and

Treasury’s One-Stop Mortgage Center Initiative’s A Report to the President published in October

2000 puts the rate at 33 percent, and a 1997 Census survey found that 46 percent of Native

American respondents reported owning a home.

• Also, one provision of the American Indian Welfare Reform Act expands tribal authority to issue tax-exempt private activity bonds. This would expand the use of

these bonds for residential rental properties, qualified mortgage bonds and, in

some circumstances, enterprise zone businesses.

• Relating more to family savings, I am a proponent of broadening the availability

of Individual Development Accounts (IDA’s). These accounts are savings accounts

maintained by low-income individuals where amounts deposited by the saver are

matched to some extent by the sponsoring organization. Funds saved in IDA’s

only can be withdrawn for education, starting a small business, or purchasing a

home. The Savings for Working Families Act, which I cosponsored, would provide

tax credits for organizations that sponsor IDA’s.

• Finally, I want to mention the Wakpa Sica initiative, which a number of us are

working hard to make a reality—including, notably, two of today’s witnesses,

Michael Jandreau and Bill Fischer. One of Wakpa Sica’s goals is to improve the

court system on the reservation to facilitate private sector lending.

I am sure there is much more that can be considered. I look forward to hearing

any thoughts you may have on other initiatives that can be undertaken to provide

greater access to capital in Indian Country and bring about a sustainable independent economic base for the future.

Let me add just one more thought before we hear from our distinguished panel

of witnesses: the concept of tribal sovereignty is central to the integrity of the reservation, and we must do everything we can to protect tribal sovereignty. I am concerned about the viability of sovereignty in the long run if we do not succeed in laying the groundwork for a viable private sector economy on Indian Lands through

initiatives like the ones we will discuss today.

—————

PREPARED STATEMENT OF FRANKLIN D. RAINES

CHAIRMAN AND CHIEF EXECUTIVE OFFICER, FANNIE MAE

JUNE 6, 2002

Thank you, Chairman Johnson and Members of the Committee. I want to thank

you for inviting me to testify on the state of homeownership on tribal lands and to

commend you, Chairman Johnson, for your leadership on this issue. Without the attention of Members of Congress, public and private sector efforts to expand homeownership opportunities to the Native American community would not be successful.

I am pleased to be here today to discuss Fannie Mae’s commitment to expanding

homeownership in tribal communities and the steps we are taking to overcome the

barriers to capital access on tribal lands.

As this Subcommittee is keenly aware, Fannie Mae’s mission is to expand homeownership, with a special focus on helping underserved Americans overcome their

unique barriers. Our role among financial institutions—and what sets us apart—is

that we provide private capital to all communities, at all times, under all economic

conditions, at the lowest rates in the market. Finding ways to create affordable

housing opportunities for Native American families living on tribal lands is one of

the toughest challenges to our mission. Native American families are one of the

most underserved, impoverished minority populations in the country. Native American homeownership rates are substantially below the national average, ranging between 33 percent and 55 percent,1 and Native Americans are six times more likely

than any other ethnic group to live in substandard or crowded housing. Stubbornly

high levels of poverty and unemployment are significant barriers to conventional

credit, as is the legal complexity of mortgage lending on Native American lands.

Fannie Mae has embraced this challenge, and we are committed to working with

Congress, Native American tribes, the Bureau of Indian Affairs, the Department of

Housing and Urban Development, the U.S. Department of Agriculture, mortgage

lenders, and other housing leaders to increase mortgage financing opportunities for

Native Americans. We believe firmly that our housing finance system can and must

do more to ensure that Native Americans have an equal opportunity to obtain mortgage financing.

34

Fannie Mae’s Commitment to Native American

Borrowers and Communities

Fannie Mae’s first formal effort with tribal communities began as part of our Tril- lion Dollar Commitment—a commitment to invest $1 trillion to serve 10 million underserved families—low- and moderate-income families, minorities, new Americans

as well as residents of central cities and urban areas. Through our Native American

Housing Initiative (NAHI) we committed for the first time to purchase HUD and

USDA guaranteed mortgages on tribal lands.

We increased our efforts to expand housing opportunities for Native Americans in 2000 with Fannie Mae’s American Dream Commitment—a 10-year, $2 trillion

pledge to increase homeownership rates and serve 18 million targeted families by

2010. This effort includes a formal strategy to address the unique housing needs of

Native Americans, one element of which is a commitment to invest at least $350

million to serve 4,600 families and to expand our network of partnerships to include

100 tribes on trust and tribally restricted land.

We are well on our way to achieving these goals. Here are some of our accomplishments:

• Over the past 4 years, we have helped over 50,500 Native American families purchase homes off trust lands, by providing more than $6 billion in affordable financing, and on reservation and trust land, we have invested over $174 million

to serve over 1,900 families;

• We have partnered with 113 tribes—exceeding our commitment to partner with

100 tribes;

• In 2001, we invested $81 million and purchased loans made to tribal members of

46 tribes, helping over 950 families, and in the first quarter of 2002 have continued to see expansion, with $38 million in loans to members of 42 tribes helping

over 400 families on reservation and trust land; and

• In 2001, we invested more than $12 million with the Enterprise Social Investment

Corporation and the Raymond James Indian Country Tax Credit Fund to develop

low-income housing tax credit business, which includes new construction for rental housing as well as rehabilitation of existing housing units in Native American

communities.

Overcoming Barriers

While delivering these quantifiable results is necessary and important, it is not

sufficient to achieving our goal to increase housing opportunities for Native Americans. Some of the most important work we and others have done, and will continue

to do, centers on building trust and developing relationships that will allow us to

be successful in these communities for the long run. That is why a fundamental

piece of our approach to serving this community has been working to build a lender

base that understands the challenges of tribal communities. The gains we have

made are made possible by working collaboratively with tribes and lenders to understand the needs of these communities and to overcome some of the barriers to capital access—and there are many—that block the economic development of Native

American communities.

I would like to share with you some of the issues Fannie Mae has faced in our

efforts to bring the American Dream of homeownership to first Americans, and what

we are doing to meet these challenges.

Economic and Infrastructure Barriers

The most stubborn barrier to capital access in Indian Country is the lack of economic opportunity. Poverty rates are 26 percent for Native Americans, over double

the national average of 12 percent. The unemployment rate for tribal communities

is 50 percent. The annual household income of Native American households is less

than $8,000. And, in many tribal communities, the economic base is negligible, leading to substandard infrastructure. Many Native American reservations and tribally

designated lands suffer from a limited housing stock and a lack of road and utility

infrastructure to support new housing.

Against this backdrop, it is not surprising that estimates of the Native American

homeownership rate range between 33 percent and 55 percent, well below the national rate of 67 percent, and that Native Americans are pessimistic about the lending process; a 2000 survey by the Treasury Department found that 65 percent of

tribal members viewed conventional home mortgages as ‘‘difficult’’ or ‘‘very difficult’’

to obtain. While it is not clear how many mortgages there are on Indian Lands that

are held in trust, a joint report by Treasury and HUD found that in 1999 there were

only 471 home mortgages on Indian Lands overall, even though an estimated 38,000

families residing on Indian Lands had sufficient income to qualify for a mortgage.

35

Obviously Fannie Mae cannot single handedly overcome these difficulties. As

Chairman Johnson and Members of this Committee recognize, the Federal Government must play a role in working with tribes to create self-sustaining economies by

bringing private companies and tribal governments together. Fannie Mae can help

by doing what we do best: developing the tools that expand access to homeownership. Homeownership is a key driver of economic growth and revitalization. It promotes commercial investments and infrastructure improvements, which in turn reinforce homeownership. By expanding homeownership for Native Americans, we can

not only provide families with better housing, but also with the power to raise capital, accumulate wealth, and build a more secure financial future.

Fannie Mae is taking a two-pronged approach to promoting homeownership in

tribal communities: first, by developing the right products to optimize Native American access to homeownership, and second, by expanding housing capacity on tribal

lands.

Product Development. Fannie Mae is working with our lender partners to tailor

lending products to meet the needs of tribal members who lack the resources to

qualify for traditional financing. In 1999, we launched our Native American Conventional Lending Initiative (NACLI), designed to make conventional lending possible

for Native Americans on tribal trust or otherwise restricted lands. Through this initiative, the full range of our low down payment mortgage product options, as well

as specific accommodations responsive to the unique circumstances of Native American borrowers, are available to lenders working on tribal lands.

Fannie Mae has also customized its suite of Community Lending mortgage products to respond to the unique needs of Native American communities. Our Community Lending products are designed to help borrowers overcome the two primary

barriers to homeownership—lack of down payment funds and qualifying income—

through lower cash requirements for down payment and closing, reduced qualifying

income requirements, and higher acceptable debt-to-income and loan-to-value ratios

than required for traditional conventional mortgages. To this product line we have

worked with tribes to add features such as homebuyer education, down payment assistance programs, and intervention programs for borrowers who get into difficulty.

As of the first quarter of 2002, we have established relationships with sixty lenders to make loans to Native Americans on tribal lands. Some of our major partners

include Countrywide Home Loans, First Mortgage Company, J.P. Morgan Chase,

Wachovia Corporation, and Washington Mutual.

Additionally, Fannie Mae uses automated underwriting to bring our most flexible

underwriting options to Indian Country. The Chickasaw and Choctaw Nation of

Oklahoma and the Aluetian Housing Authority in Alaska have developed the capacity, using our Desktop Originator technology, to act as a loan origination source, expanding availability of low down payment loans to tribal members.

Housing Capacity. Fannie Mae is partnering with public and private resources to

address some of the infrastructure challenges to expanding housing capacity. Fannie

Mae has worked with tribes to support new construction through investments in

low-income housing tax credit investments, collateralized revenue bonds and HUD

guaranteed Native American Housing and Self Determination Act (NAHSDA) Title

VI loans. Fannie Mae LIHTC investments helped create 156 units of housing in

2001, and we have an additional 232 units in the 2002 pipeline.

We have also begun developing a secondary market option for development loans

guaranteed by HUD under Title VI of NAHSDA, purchasing the only loan yet sold

in the secondary mortgage market—a $412,000 loan supporting the Pojoaque Corporation in New Mexico, and working with other partners to ensure a ready outlet

for loans originated under this program.

In South Dakota, Fannie Mae has made a 5-year, $3 million commitment to the

Pine Ridge Reservation, which includes a $250,000 venture capital investment to develop 14 single family homes and, in partnership with PMI and First Mortgage Co.,

a $100,000 revolving loan fund for more new home construction. As part of this commitment, we also invested $500,000 in the Lakota Fund, the Community Development Financial Institution that is helping to create small business and new jobs at

Pine Ridge—the first step to creating new homeowners.

I would also like to acknowledge the work of Elsie Meeks, the next panelist. It

was with her support and cooperation that Fannie Mae made this commitment, and

I would like to thank her for her work on this project.

Legal and Regulatory Barriers

Perhaps the greatest single obstacle to increasing homeownership in Indian Country is the legal framework governing tribal lands. Trust land is inalienable, being

subject to transfer restrictions imposed by Indian treaties, Acts of Congress and

proclamations of the Secretary of the Interior, and is generally subject to the jurisVerDate 11-MAY-2000 13:26 Nov 13, 2003 Jkt 000000 PO 00000 Frm 00039 Fmt 6621 Sfmt 6621 90371.TXT SBANK4 PsN: SBANK4
36

diction and laws of the tribe, which is protected by sovereign immunity. Tribal

sovereignty generally entails the right to govern, adjudicate disputes, and be immune from lawsuits. While some tribes have fully developed commercial codes,

others maintain a tribal council or executive body as a legal enforcement mechanism, and some have no court system at all. As a result many lenders have concerns

about the enforceability of contractual obligations and of the legal remedies available. Some lenders have been unwilling to provide capital in the face of such legal

uncertainty.

Even for those willing to lend, the legal environment creates many additional hurdles. For example, there is a very limited market from which lenders can obtain

data for the purposes of determining property values, and the restrictions against

alienation further diminish market values. In addition, the making of a home loan

on tribal land generally requires the tribe to be a party to the transaction and contracts related to the property that require the tribe to be a party are not enforceable

unless the Federal Bureau of Indian Affairs (BIA) approves the contract. The BIA,

as administrator of trust lands, also has to provide title status reports on land covered under any mortgage.

Addressing the legal issues such as tribal sovereignty and tribal court jurisdiction

is a prerequisite for increasing the flow of capital to tribal lands. But it is not an

easy task, since each tribe is sovereign and acts independently.

Tribal governments have recognized this and have taken steps to clarify tribal

sovereignty and sovereign immunity, particularly regarding business and housing

development, but resolving this issue requires partnership from the private and

public sectors. Fannie Mae has worked with HUD, the USDA, and Treasury to support tribes in creating standardized documents and model legal ordinances to support government guaranteed and conventional mortgage activity.

In fact, in April we made a major announcement that we hope will minimize what

has been a significant barrier to lending on tribal lands: Fannie Mae will no longer

require tribes to make limited waivers of their sovereign immunity and we will also

provide for the mutual consent to tribal court jurisdiction over conventional lending

initiatives on tribal trust land.

We believe that these modifications to our legal policy that simplify and streamline the implementation of appropriate structures for tribal governments will encourage our lender partners to expand their efforts to serve the Native American

community. Addressing this issue should go a long way toward building a better relationship between the lending community and tribal governments and improving

housing opportunities for Native Americans on tribal lands.

Communication Barriers

Another major barrier to homeownership in Indian Country has been simply communication. For years, Native American communities have been told how to solve

their problems but given few opportunities to participate in developing the solutions. Fannie Mae recognizes each tribe as its own sovereign nation, with unique

housing challenges and that a one-size-fits-all approach to expanding homeownership will not work with tribal communities.

As a result, we are working to create an open dialogue between individual tribes

in an attempt to gain greater understanding of each tribe and the challenges it

faces. In April 2002, we convened the Northern Great Plains Native American Housing Summit, which brought together housing officials from 18 Native American

tribes in the Northern Great Plains, representatives from the North Dakota Indian

Affairs Commission, the South Dakota Tribal Affairs Commission, the North Dakota

Housing Finance Authority, USDA Rural Development, the Federal Reserve Bank

of Minneapolis and the National American Indian Housing Council to build stronger

relationships and to improve communication among the various stakeholders. The

Summit included a financial literacy course, workshops on a variety of homeownership-related issues, and a strategic planning session to identify key areas of focus

for Fannie Mae and tribal leaders to work together to expand Native American

homeownership.

Information Barriers

The final barrier to capital access for Native Americans we have identified is education. Many Native Americans do not have banking relationships, and in many Native American economies, financial transactions have long been conducted in cash.

As a result, many Native Americans lack an understanding or familiarity with

banking, credit reporting, and loan qualification process and standards. And

unsurprisingly, they have difficulty obtaining credit through traditional means. Native Americans have had the highest conventional loan denial rate of any ethnic

37

group every year since 1994; in 1999 the conventional loan denial rate stood at 43.2

percent.

This lack of familiarity with bank practices and products also leaves many native

communities vulnerable to unscrupulous financial practices that undermine communities’ efforts to build financial assets. In 1999, the National American Indian Housing Council found that 68 percent of its survey respondents were victims of predatory lending.

One of the products that Fannie Mae has tailored to help those with impaired

credit is our Timely Payment Rewards mortgage. This product helps borrowers obtain affordable housing finance, while simultaneously helping to repair their credit.

Under this mortgage a borrower who makes 24 on-time mortgage payments is eligible for up to a 1 percent rate reduction, effectively saving them up to $60,000 over

the life of a $100,000 mortgage.

We believe that improving financial literacy can be a significant help. To this end,

Fannie Mae provides the sole funding for the Fannie Mae Foundation, for which I

also serve as Chairman. As a result of Fannie Mae’s financial support, the Foundation undertakes many activities to improve financial literacy of Native Americans.

Most recently the Foundation partnered with First Nations Development Institute

to develop a financial literacy curriculum entitled Native Communities: Financial

Skills for Families. This curriculum is dedicated to promoting economic understanding and personal financial literacy among American Indians. Released in November 2000, this curriculum provides training about financial products and personal financial management and is a unique tool to help Native Americans build

on their own knowledge and develop personal financial skills while embracing native traditions and values. Since its release, over 18,000 copies of the Building Native Communities workbooks have been distributed. In addition, the Foundation,

First Nations and its key partners—including the Federal Reserve, HUD’s Office of

Native American Programs, and the National American Indian Housing Council—

collectively have sponsored 33 ‘‘train the trainer’’ workshops in 30 different tribal

communities across the country, reaching 476 instructors who will offer financial

education courses to their tribal members.

In addition, the Foundation and its partners—the Enterprise Foundation, the

Ford Foundation, HUD, and the Neighborhood Reinvestment Corporation (NRC)—

announced 2 days ago that they will provide a grant of $200,000 to the National

Congress of American Indians to develop a national homeownership curriculum designed for Indian Country. This initiative will build on the One-Stop Mortgage Center Initiative developed by the Department of the Treasury and HUD whose purpose

was to identify barriers and promote homeownership opportunities in Indian Country. The materials will incorporate successful components of existing local programs

to create a national homeownership education model that is easily accessible to

tribes and tribal nonprofits nationwide.

Fannie Mae’s and Fannie Mae Foundation’s Ongoing Efforts to

Serve Native American Communities

Fannie Mae

Finally, I would like to briefly highlight for you some of the ongoing efforts of

Fannie Mae to expand homeownership in tribal communities. First, Fannie Mae is

moving aggressively toward the goal outlined in the $2 Trillion American Dream

Commitment of investing at least $350 million for 4,600 native families and expanding our relationships to 100 tribes for Native Americans on trust and tribally restricted land.

Second, we are continuing to collaborate with tribal communities and lenders to

build relationships necessary to overcome the barriers to capital access in Indian

Country. To this end, we have created an internal Native American Business Council, which will work to expand our capacity to make tangible investments that increase affordable housing opportunities on tribal lands throughout the country.

Some of the goals of this Council include the following:

• building a stronger lender base by educating lenders about the unique characteristics of lending to tribal communities;

• teaching tribes to leverage Federal resources to support the production of additional affordable housing units; these programs include Title VI, loan programs,

low-income housing tax credit, and the Mortgage Revenue Bond Program; and

• developing additional products appropriately tailored to the specific needs of each

tribe.

38

Fannie Mae Foundation

The Fannie Mae Foundation will continue its work on providing financial literacy

training to all Native Americans. It is also working on a comprehensive analysis of

the conditions of Native American tribal communities entitled Economic and Housing Development Conditions, Constraints, Strategies, and Data Sources in Indian

Country which will be published in 2003. This report, which will be a significant

advancement in the housing community’s understanding of the current economic

conditions on tribal lands, will include the following:

• a discussion of the legal issues surrounding lands held in trust by the Federal

Government, and their implications for mortgage lending and economic development on affected tribal lands;

• an examination of economic development conditions in Indian Country;

• an analysis of housing and homeownership conditions; and

• a qualitative examination of the data, which includes findings from interviews

and focus groups, and from case studies of housing and economic development

practices and challenges of the Navajo Nation in the southwestern United States

and of the Seminole Reservation in Florida.

I hope that with these commitments, Fannie Mae will begin to make progress in

expanding homeownership for Native Americans. We recognize we have a long way

to go, and we will continue to listen closely to Indian Country leaders. Combined

with our knowledge of mortgage finance, we believe that we can create long-term

partnerships with tribal leaders to address the tough housing and economic challenges facing Native American communities today.

I want to thank Senator Johnson for his leadership and for his commitment to

engaging in this process. He has shown immense dedication to serving the Native

American communities in his State. I know he has been a champion of developing

infrastructure in Indian Country and has been very active in helping tribal members efforts to revitalize their communities. I look forward to working with him to

make these changes happen.

Thank you, and I would be happy to answer any questions.

—————

PREPARED STATEMENT OF RODGER J. BOYD

SPECIAL ASSISTANT TO THE DIRECTOR

COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND

U.S. DEPARTMENT OF THE TREASURY

JUNE 6, 2002

Chairman Johnson, Senator Bennett, and Members of the Subcommittee, I am

Rodger Boyd, Special Assistant to the Director of the Community Development Financial Institutions (CDFI) Fund. I appreciate the opportunity to appear before you

today on behalf of the CDFI Fund. In addition to my current duties as Special Assistant, I served as the lead staff member for the Native American Lending Study

conducted by the CDFI Fund. I have been asked to specifically address the findings

of that study as they relate to the subject of this hearing, ‘‘Capital Investment in

Indian Country.’’

The Community Development Financial Institutions Fund is a Government corporation within the U.S. Department of the Treasury. The CDFI Fund’s mission is

to expand the capacity of financial institutions to provide capital, credit, and financial services in underserved markets.

When the Congress authorized the CDFI Fund under P.L. 103–325, the enabling

legislation required the CDFI Fund to undertake a study on lending and investment

practices on Indian Reservations and other lands held in trust by the United States.

The result, known as the Native American Lending Study (the Study), was undertaken for the purposes of meeting that Congressional mandate and examining the

39

1 ‘‘Indian Lands’’ are defined for purposes of the Study as lands owned by or under the control

of tribal governments including reservations, Indian Lands, and Alaska Native Villages. For

purposes of the Study, Alaska Native Villages have the definition ascribed by 43 U.S.C. 1602,

et seq. 2 ‘‘Hawaiian Home Lands’’ are defined for the purposes of the Study as trust lands held for

the benefit of Native Hawaiian people and are administered by the State of Hawaii’s Department of Hawaiian Home Lands. 3For the purposes of the Study, the term ‘‘Native Hawaiian’’ is defined as ‘‘a person having

origins in the original peoples of Hawaii’’, see Federal Register 58,781 (1997). ‘‘Native Hawaiian’’

is not a term that refers to a Federally recognized tribe. Inclusion of Native Hawaiians in the

Study does not confer or imply any specific, legally enforceable duties on the United States as

trustee that apply under certain circumstances when it manages tribal or individual Indian

property or resources. In addition, this study does not support or create any right enforceable

or cause of action by or against the United States, it agencies, officers, or any person. The CDFI

Fund’s experience with CDFI’s and prospective CDFI’s in Hawaii has suggested that Native Hawaiians face many of the same issues and barriers as Native Americans and Alaska Natives

in their attempts to access loans and investment capital. Accordingly, in 1999, the CDFI Fund

proposed to Congress to expand the Study beyond the original Congressional mandate to include

Native Hawaiian. The Senate Committee on Indian Affairs encouraged and supported the proposed expansion. We do not currently recommend that Congress enact any Federal Government

programs to provide special benefits to Native Hawaiians. The Study addressed various actions

that could voluntarily be undertaken by financial institutions and Native Hawaiian organizations. Any program targeting Native Hawaiians as a group is subject to strict scrutiny and of

questionable validity under the Constitution.

barriers to accessing capital and providing financial services on Indian Lands 1 and

Hawaiian Home Lands. 2, 3

The Issue

In the Community Development Banking and Financial Institutions Act 1994,

Congress found that ‘‘[m]any of the Nation’s urban, rural, and Native American

communities face critical social and economic problems arising in part from the lack

of economic growth, people living in poverty, and the lack of employment and other

economic opportunities.’’ Indeed, many communities located in Indian Lands face

economic and social challenges that place them significantly behind the rest of the

U.S. economy.

Study Approach

The Study was designed to produce a broad, if not necessarily exhaustive, qualitative review of the state of lending and investment on Indian Lands and Hawaiian

Home Lands. This was accomplished largely through input from many of the stakeholders involved in capital access issues on Indian Lands and Hawaiian Home

Lands. Simultaneously, the Study has attempted to supplement this review with

meaningful quantitative input and analysis. This was accomplished through the

CDFI Fund’s Financial Survey, the Equity Investment Research Report, and other

CDFI Research. Accordingly, the Study approach was designed not only to provide

a catalog of economic problems on Indian Lands and Hawaiian Home Lands by integrating the concerns and recommendations of those who are attempting to lead their

communities into the Nation’s economic mainstream, but to provide a statistical reporting as well.

To assist in accomplishing this, the CDFI Fund convened 13 regional workshops

and two national roundtable meetings involving tribal leaders and economic development professionals, Native American and Native Hawaiian business people, private investors and bankers, Federal regulatory officials, and Federal agency Government officials. The workshops discussed issues related to barriers to capital access

and identify possible remedies. The Fund developed this Study approach to gain the

knowledge and experience of these participants that have worked with these issues

on a day-to-day basis.

The workshops were complemented by the following research:

• The Financial Survey was administered to 851 tribal government housing and

economic development directors and 735 private financial service organizations

(FSO’s) located on or near Indian Lands or located in Hawaiian Home Lands to

identify the barriers to lending and provide financial services and to help develop

recommendations to address those barriers.

• An Equity Investment Research Report on Indian Lands and Hawaiian Home

Lands was developed to provide the background and recommendations for enhancing equity capital access. This research included discussions with equity market

participants, review of the relevant findings from the Financial Survey, and analysis of the findings from the workshops. In addition, a questionnaire was adminisVerDate 11-MAY-2000 13:26 Nov 13, 2003 Jkt 000000 PO 00000 Frm 00043 Fmt 6621 Sfmt 6621 90371.TXT SBANK4 PsN: SBANK4
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tered to participants in the Equity Investment Roundtable that provided useful

information about equity investment on Indian Lands and Hawaiian Home Lands.

The CDFI Fund’s research found that there exists a significant difference in the

amount of capital investment when comparing the rest of the United States to Indian Lands and Hawaiian Home Lands.

The Financial Survey and Equity Investment Research Report found the following

evidence of this historic under investment on Indian Lands and Hawaiian Home

Lands:

• 65 percent of Native American and Native Hawaiian respondents to the Financial

Survey report that conventional mortgages are ‘‘difficult’’ or ‘‘impossible’’ to obtain.

Home equity loans and construction and property rehabilitation loans are also in

short supply on Indian Lands and Hawaiian Home Lands.

• Business loans were rated as ‘‘impossible’’ to obtain by 24 percent of Native American and Native Hawaiian respondents to the Financial Survey and as ‘‘difficult’’

to obtain by 37 percent. Larger business loans, those over $100,000, are even

more difficult to obtain; 67 percent of said Financial Survey respondents rated

them as ‘‘difficult’’ to impossible to obtain.

• 66 percent of Native American and Native Hawaiian respondents to the Financial

Survey stated that private equity investments are ‘‘difficult’’ or ‘‘impossible’’ to obtain for Native American and Native Hawaiian business owners.

• 33 percent of Native American respondents to the Financial Survey indicated they

had to drive over 30 miles to ATM and bank branches.

• The Equity Research Report estimates the buying power of Native Americans is

about $35 Billion and estimated Indian Country revenue of $34 Billion for 2001.

• The Equity Research Report estimates that the investment gap between Native

American and Native Hawaiian economies and the United States overall totals

$44 billion.

Barriers to Capital Access

The Study identified 17 major barriers to capital access, relating to legal infrastructure, Government operations, economic, financial and physical infrastructure,

and education and cultural issues.

The Study identified one major barrier to capital access related to legal infrastructure:

1. Uncertain Tribal Commercial Laws and Regulations and the Absence of an

Independent Judiciary.

Three major capital access barriers were identified that are related to Government operations:

1. Cumbersome, Conflicting, or Ineffective Federal Programs and Regulations.

2. Uncertainty Generated by Changes in Tribal Government Leadership.

3. Poor Understanding of Tribal Sovereignty and Sovereign Immunity.

Five major economic barriers to capital access were identified:

1. Limited Use of Trust Land as Collateral.

2. Inflexible Bank Lending Rules and Regulations.

3. Lack of Capital, Collateral, and/or Credit Histories of Native Americans and

Native Hawaiians on Indian Lands and Hawaiian Home Lands.

4. Negligible Economic Base on Indian Lands and Hawaiian Home Lands.

5. Lack of Networking of Native-owned Businesses With Equity Investors.

There are two major capital access barriers related to financial and physical infrastructure:

1. Lack of Financial Institutions on or Near Indian Lands.

2. Lack of Physical and Telecommunications Infrastructure on Indian Lands or

Hawaiian Home Lands.

Six major capital access barriers related to education and cultural issues were

identified:

1. Lack of Knowledge or Experience With the Financial World on the Part of

Native Americans and Native Hawaiians.

2. Lack of Technical Assistance Resources.

3. Failure of Lenders and Investors to Understand Tribal Government or Legal

Systems.

4. Historical Absence of Trust Between Tribes and Banks.

5. Differences Between Native American and Native Hawaiian Cultures and

Banking and Investor Cultures.

41

6. Discrimination Against and/or Stereotyping of Native American and Native

Hawaiian Communities.

Remedies and Recommendations

Study participants identified a number of potential remedies and recommendations related to the major capital access barriers identified above.

Participants identified one recommendation related to the legal infrastructure

barrier cited above.

1. Enhance the Tribal Legal Infrastructure. Some Study participants recommended a strategy of creating a more pro-business legal environment on Indian

Lands, through such actions as:

• Establishment of a tribal legal infrastructure for business development, including

tribal commercial codes, foreclosure regulations, permitting processes, and general

regulatory frameworks,

• Development of zoning codes and land use plans, and

• Clarification of sovereignty and sovereign immunity, particularly regarding business and housing development.

Study participants identified four recommendations related to the three Government operations barriers.

1. Improve Tribal Planning Processes and Structures. Some workshop participants felt that tribal governments need to enhance their ability to establish, articulate and manage a clear and concise vision, to formulate policies and strategic

plans for overall economic development, and to cultivate the professional Government workforce necessary to implement such plans.

2. Separate the Goals and Management of Tribal Government From Those

of Tribal Business. Some workshop participants recommended separating the

management of business and Government, spinning off tribally owned enterprises

to a separate bodies for oversight and management, delegating privately owned

enterprise oversight to nonpolitical bodies, and clarifying the differences between

tribal government and corporate liability.

3. Strengthen Tribal Courts. Some actions recommended by Study participants

include:

• Increasing the skills and capacity of judges and judicial personnel regarding

lender and investor issues, and

• Establishment of enforcement procedures for, garnishment.

4. Streamline and Improve the Efficiency and Effectiveness of Certain Federal and State Programs Used By Native Americans and Native

Hawaiians. Many workshop participants expressed the need to accelerate the pace

of decisionmaking, reducing excessive requirements and paperwork, rationalizing

conflicting requirements and revising programs with overly restrictive entry guidelines, of certain State and Federal programs.

There were four remedies identified that relate to economic barriers.

1. Create Alternative Collateral Options for Trust Land. Workshop participants recommended recognizing and leveraging the value of trust assets; facilitating

development of trust land through alternative means of valuation and collateralization, such as the creation of leaseholds and master leaseholds; building equity

pools from trust lands and other resources; and converting traditional assets into

collateral.

2. Develop New Local and Non-traditional Mechanisms to Deliver Capital

on Indian Lands and Hawaiian Home Lands. Workshop participants suggested

that tribal governments should develop their capacity to orchestrate and leverage

all sources of capital, and financial institutions should develop new lending and financing products and revise underwriting criteria to meet the unique needs of Native American and Native Hawaiian markets, including the development of microlending programs for small businesses and securitization of oil and gas reserves and

timber. Workshop participants proposed two options for providing access to nontraditional sources of debt and equity capital:

• Develop tribal or intertribal CDFI’s, community banks, and other lending and investment institutions; and

• Create tribal or intertribal pools for loan guarantees, equity investments/venture

capital, microlending, and lending for housing and small business.

3. Increase Equity Investment on Indian Lands and Hawaiian Home

Lands. Equity Investment Roundtable participants suggested the following methods

42

of increasing equity investment in Native American and Native Hawaiian communities:

• Create industry sector specific incubators that provide management and technical

assistance to start-up businesses and that focus on the specific needs of Native

American and Native Hawaiian business owners,

• Use existing ‘‘angel investor’’ networks (for example—networks of investors who

provide start-up capital for new business, sometimes accompanied by technical expertise and contacts networks),

• Build an ‘‘angel’’ network that specializes in investments in Native Americanowned or Native Hawaiian-owned businesses,

• Create community development venture capital (CDVC) funds,

• Use existing corporate venture capital programs,

• Use State and city venture capital programs, and

• Form a public/private intermediary to direct funds into Native American and Native Hawaiian CDFI’s, businesses, or projects.

4. Establish a Native American/Native Hawaiian Equity Fund. To attract

equity investments in Native American and Native Hawaiian communities, workshop participants suggested that the Federal Government sponsor an equity fund

to help encourage private sector investors and public/private partnerships to invest

on Indian Lands and Hawaiian Home Lands.

Four recommendations related to the two financial and physical infrastructure

barriers cited above, were identified:

1. Increase the Number of Financial Institutions on or Near Indian

Lands. To provide Native Americans and Native Hawaiians greater access to financial services, a number of policies need to be considered, including:

• Creating more financial institutions, including CDFI’s, on Indian Lands, and

• Encouraging existing financial institutions that are not located on Indian Lands

to open branches on Indian Lands.

2. Develop Regional Financial Institutions. The workshop participants believed that regional partnerships and alliances are essential to overcoming barriers

to capital and credit access, and possible strategies include:

• Building on partnerships established with the CDFI Fund’s regional intertribal

cosponsors and holding follow-up forums similar to those conducted in the Study,

• Establishing information clearinghouses at the regional level on model financing

approaches, methods of accessing equity capital, and sources of training and technical assistance,

• Providing channels of information to Native American and Native Hawaiian communities so that they can adapt existing models to their unique cultural and community needs, and

• Establishing regional partnerships among banks, lending institutions, venture

capitalists, Federal agencies, and tribes/intertribal organizations.

3. Develop Financial Products and Services That Will Meet the Needs of

Native American and Native Hawaiian Depositors and Borrowers. Workshop

participants suggested that this could be accomplished by financial institutions

through the development of new lending and financing products, revised underwriting criteria more suited to the unique attributes of Native American and Native

Hawaiian communities, the creation of micro lending programs for small business,

and the creation of CDFI’s.

4. Create Innovative Strategies to Develop Physical Infrastructure on Indian Lands and Hawaiian Home Lands. Various initiatives were explored at the

workshops to facilitate development of a more adequate infrastructure system on

Indian Lands and Hawaiian Home Lands, including creation of partnerships with

private developers to plan for infrastructure development and development of an infrastructure investment strategy that utilizes available Federal resources and

encourages private partnerships to participate in the funding and development

process.

Study participants identified four recommendations related to the seven educational and cultural barriers.

1. Expand Financial Literacy Education Opportunities for Native Americans and Native Hawaiians. Workshop participants agreed that providing financial literacy education and personal finance education for Native Americans and Native Hawaiians can provide them with the means to participate in the contemporary

economy and that culturally appropriate financial literacy curriculum is available

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from various sources. Many existing CDFI’s regularly provide this type of training

in their communities.

2. Develop Entrepreneurship Programs for Native Americans and Native

Hawaiians. Workshop participants recommended that these programs include:

• Development of core materials on small business finance and entrepreneurship, • Establishment of teaching partnerships with tribal and nontribal colleges, financial institutions, CDFI’s, and nonprofits, • Incorporation of web-based training in the curriculum, and • Facilitation of funding and teacher recruitment through the private sector, tribes,

intertribal organizations, and Federal agencies.

3. Conduct Lender and Investor Education. Actions recommended by the

workshop participants include:

• Development of informational handbooks on issues such as tribal government

structures, sovereignty and sovereign immunity, and land status, • Creation of a directory of tribal credit officers, economic development officers, and

department heads and a directory of attorneys qualified to practice in tribal

courts, • Development of a marketing campaign that illustrates effective practices and success stories, initiation of educational outreach seminars by Native American and

Native Hawaiian communities for potential lenders and investors, and • Initiation of ‘‘road shows’’ focusing on investment opportunities on Indian Lands

and Hawaiian Home Lands.

4. Expand Technical Assistance and Training. From the workshops, several

initiatives were identified for increasing technical assistance and training on Indian

Lands and Hawaiian Home Lands:

• Provide Native Americans and Native Hawaiian business owners with technical

assistance related to developing business plans and proposals and other business

management needs,

• Help tribal governments develop a comprehensive strategic plan to meet development and financing needs,

• Assist lenders, investors, and potential business partners in developing an understanding of tribal laws, tribal enforcement capabilities, and lender rights, and

• Help lenders, investors, and potential business partners understand Federal programs, requirements, and application processes.

Examples of Initiatives and Programs

One of the important aspects of the Study was the identification by participants

of programs and initiatives that involve Government, the private sector, and tribes

to address the major barriers identified above. Each initiative identified below, designed to meet the needs of a particular community, may offer insights to other communities that can be adapted to meet the unique needs of other particular communities or regions.

For example, some tribes have enacted legislation to promote business development, tribal commercial codes, land use and planning codes, zoning codes, and laws

regulating corporate and business activity.

Workshop participants noted that lenders and investors are often reluctant to accept the jurisdiction of tribal courts to enforce financial contracts and, to address

this problem, suggested increasing the capacity of tribal courts to resolve commercial and financial disputes and to enforce commercial codes. Some initiatives are

currently underway:

• The Federal Bureau of Justice Assistance, Department of Justice, and Bureau of

Indian Affairs are currently funding technical assistance and training grants for

tribal court capacity building.

• The National American Indian Court Judges Association has established the National Tribal Justice Resource Center to assist tribes in strengthening methods of

self-government and to provide technical assistance for enhancing tribal justice

systems.

• The Tribal Court Clearinghouse has been created as a resource for tribal court

development, training, court review, code drafting, and training.

To provide Native Americans and Native Hawaiians greater access to financial

services, Study participants felt that a number of options need to be considered, including creating more financial institutions on Indian Lands and Hawaiian Home

Lands, expanding and/or rebuilding existing financial institutions on Indian Lands,

purchasing existing banks, expanding Native-ownership of financial institutions

through purchase or de novo creation of new institutions, and creating more CDFI’s.

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Workshop participants and CDFI Fund research identified the following examples

of successful initiatives:

• The Cheyenne River Sioux Tribe used an existing revolving loan fund to create

the nonprofit Four Bands Community Fund, which makes business loans. • In 1990, the Navajo Nation had only three bank branches and one ATM serving

a geographic area of 17 million acres. To increase the availability of financial

services on the reservation, the tribe entered into an agreement with Norwest

Bank (now Wells Fargo) to build four new branch banks with ATM’s, hire and

train Navajo personnel, and target financing to business startups and housing

development. • In all, nine tribally owned commercial banks, seven credit unions, and 14 loan

funds have been developed nationwide to serve Native American communities. • Hawaiian Community Assets, Inc. is developing a charter for the first Native Hawaiian-owned bank. • As of September 30, 2000, the CDFI Fund had made awards totaling nearly $27

million to 33 CDFI’s that provide some level of service to Native American or Native Hawaiian communities. • In fiscal year 2002, the CDFI Fund initiated its $5.0 million Native American

Technical Assistance program to assist Native American and Native Hawaiian

communities in establishing community based CDFI’s.

Workshop participants identified regional partnerships and alliances as essential

components to overcoming barriers to capital and credit access, and examples of successful regional initiatives include:

• The Native American Development Corporation is a CDFI that provides Native

American business communities in Montana and Wyoming with funds to create

jobs, develop long-term economic self-sufficiency, and facilitate access to capital.

Its Capital Loan Fund was initially capitalized with funding from banks, the Federal Government, First Nations Development Institute, and private corporations.

• The Native American Lending Group, Inc. is a nonprofit multitribe CDFI in New

Mexico that serves 19 Pueblo communities. It was created to provide tribes, businesses, and individuals access to private investment capital.

• Coastal Enterprises, Inc. is a nonprofit CDFI that serves low-income communities

in Maine and provides financial and technical assistance for development and expansion of certain targeted industries, small businesses, housing, and social services. CEI has established a partnership with the Penobscot Indian Nation to develop a CDFI to fund housing and business development.

Tribal leaders and private investors participating in the workshops suggested

strategies that relied on accessing capital sources that have not traditionally been

on the Native American investment ‘‘radar screen’’ and on expanding Native American awareness to include more equity and nontraditional financing and thus increase the likelihood of securing funding.

One example of an existing strategy captured significant workshop participant attention: Center of North America Capital Fund is an ‘‘angel’’ investor network and

investment fund in North Dakota that links two tribes—the Turtle Mountain Band

of Chippewa and the Spirit Lake Sioux—with investors. The CONAC Fund was

modeled after Minnesota’s Regional Angel Investor Networks Fund, a series of rural

investment funds formed by the Minnesota Investment Network Corporation.

The following are examples of public/private intermediaries cited by workshop

participants that direct funds to Native American and Native Hawaiian businesses:

• The Hopi Credit Association is a tribal loan fund that provides a bridge between

banks and tribal borrowers, obtaining funds from banks, handling all loan selection and servicing with tribal members. Participating banks thus gain a point of

entry to the tribal community, via a tribal loan fund that understands banking

needs, and tribal members are served directly by a credit union that understands

their needs.

• Another example is the Southern Ute Growth Fund, which uses a partnership approach and co-invests, using its growth fund and capital provided by outside investors, in a variety of growth opportunities.

Conclusion

Much of the progress in expanding access to capital was not achieved by tribal

governments, financial institutions, or Federal agencies acting alone. Rather,

progress often depended on these stakeholders acting together. One of the most important themes to emerge from the CDFI Fund’s research, workshops, and Equity

Research is the need to foster even greater coordinated activity among stakeholders.

For example, input of tribal or Native Hawaiian representatives to any review of

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the effectiveness of Government programs or policies would help to answer questions about community compatibility and relevance. Neither technical assistance nor

cultural education will have the desired effect unless tribes, Native Hawaiian communities, and FSO’s commit to such processes. Moreover, FSO’s, Government regulators, and tribes would all likely have to participate in attempts to create new loan

products and equity investment opportunities for Native American or Native Hawaiian communities.

—————

PREPARED STATEMENT OF J.D. COLBERT

PRESIDENT, NORTH AMERICAN NATIVE BANKERS ASSOCIATION

JUNE 6, 2002

Good Morning Mr. Chairman and Subcommittee Members. I am here today as

President of the North American Native Bankers Association, also known as

‘‘NANBA’’. NANBA is an association of commercial banks and other regulated financial institutions owned by Indian tribes. I appreciate the Subcommittee’s concerns

regarding Capital Investment in Indian Country and applaud your efforts to effect

greater capital access. Thank you for allowing me to make a brief statement before

this Committee.

Native Ownership of Financial Institutions

Lack of native ownership of financial institutions continues to be a major obstacle

to greater capital access in Indian Country. This lack of native-owned financial institutions has repeatedly been identified as an impediment to greater capital access.

For example, the Native American Lending Study conducted at the Community Development Financial Institutions Fund at the Department of the Treasury recently

identified the lack of native ownership of financial institutions as a major obstacle

regarding capital access.

With respect to regulated financial institutions, at present there are only eight (8)

tribally owned banks and another nine (9) banks owned by individually enrolled

tribal members in the United States. In addition, there are approximately six (6)

tribally owned community development credit unions. Accordingly, there are only 23

regulated financial institutions owned and controlled by native tribes or individuals

to serve over 560 Federally recognized Indian tribes and over 2,000,000 individual

Indians. Clearly there is a great disparity between the number of native-owned

banks and the demographics of Indian Country.

Presently, there is at least one piece of legislation currently on the books that

could be utilized to address this disparity. In August, 1989 Congress enacted the

Financial Institutions Reform, Recovery and Enforcement Act of 1989 known as

‘‘FIRREA.’’ Section 308 of FIRREA established at least three salient public policy

goals:

1. To preserve the number of minority-owned financial institutions,

2. To promote and encourage creation of new minority-owned financial institutions, and

3. To provide for training, technical assistance, and educational programs.

As indicated by the paucity of native-owned financial institutions, and minorityowned institutions in general, the will of the Congress as expressed by Section 308

of FIRREA has been frustrated by the lack of responsiveness of the Federal bank

regulatory agencies. At best this responsiveness could be described as ‘‘minimal,’’ at

worse, it could be described as disregarding this Congressional mandate.

In all fairness, there have been some recent positive developments with regard to

efforts made by the various Federal bank regulatory agencies to reach out to Indian

Country. For example, the Federal Reserve Bank of San Francisco has sponsored

various ‘‘Sovereign Lending Workshops,’’ the FDIC has recently adopted a revised

policy statement on minority-owned financial institutions that expands the scope of

their activities and the Office of the Comptroller of the Currency published, with

NANBA’s assistance, a booklet entitled A Guide to Tribal Ownership of a National

Bank.

While these and other efforts are most welcome in Indian Country they fail to directly address a key goal of Section 308: to promote and encourage the creation

of NEW minority-owned financial institutions (emphasis mine). The Federal

bank regulatory agencies, who have primary responsibility for implementing the

goals of Section 308, have done very little to actually increase the number of nativeowned banks.

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NANBA, however, has been active on this point. In July, 2000 NANBA hosted the

‘‘Tribal Ownership of Banks Conference.’’ The goal of the conference was to foster

the development of additional native-owned banks. We had approximately 150 people attend the conference with over 25 tribes represented. To my knowledge, the

NANBA conference was the first and only conference ever conducted to stimulate

the development of additional native-owned banks. Indeed, it may stand as the

ONLY conference ever held in the history of the United States that had the goal

of creating new Minority Owned banks.

I would suggest that the Congress might provide funding to allow an Interagency

Task Force of the Federal bank regulatory agencies to fulfill their Section 308 responsibilities by hosting a similar conference for Indian Country as well as for members of other minority groups. I would further suggest that such a conference be conducted for at least 3 years in a row to maximize its potential impact and outreach

efforts.

In addition, the various bank charter granting Federal bank agencies should work

with established Indian organizations such as NANBA to continually provide outreach, training and educational efforts to both expand the number of native-owned

financial institutions as well as to assist in the growth and development of existing

native institutions. We at NANBA stand ready to work together with the Congress,

the Administration and the Federal bank regulatory agencies to fully implement all

the public policy goals of Section 308 of FIRREA and especially the goal of creating

NEW native- and minority-owned banking institutions.

Bond Financing

In addition to the need for additional native-owned banks and financial institutions, Indian Country badly needs to access capital investment through bond

financing.

In order to stimulate access to this important sector of the capital markets, I

would suggest that the Congress consider amending the Securities Act of 1933 to

allow Indian tribal governments access to the same exemption from securities registration that State, county, and local governments currently enjoy with respect to

the issuance of tax exempt bonds.

Presently in order to access the mainstream bond markets tribes are forced to go

through an expensive and time consuming registration process. Generally tribes naturally avoid this process and will turn to the private placement market. This entails

paying higher yields on their paper than what could otherwise be expected in the

mainstream bond market.

To the extent that the Congress sees fit to so amend the 1933 Securities Act, I

would further suggest amending the Internal Revenue Code of 1986 to allow Indian

tribal governments to issue ‘‘private activity bonds’’ in the same manner as allowed

for State and local governments. In addition, I would suggest exempting tribes,

under certain circumstances, from the ‘‘volume cap’’ requirements of Section 146 of

the Internal Revenue Code.

By providing Indian tribal governments with equal footing as that enjoyed by

State and local governments with respect to the issuance of private activity bonds

it will greatly stimulate the flow of capital to Indian Country. Also, by granting an

exemption to Indian tribes, under certain circumstances, from the ‘‘volume cap’’ restrictions will mean that tribes will not have to request a private activity allocation

from a State government who may be unwilling or unable to grant such allocation

as an Indian tribal government is not a political subdivision of the State.

Closing

That concludes my statement. Thank You, Mr. Chairman and Subcommittee

Members for allowing me the opportunity to represent NANBA before this

Subcommittee. I will be pleased to entertain any questions or comments from the

Subcommittee.

—————

PREPARED STATEMENT OF WILLIAM V. FISCHER

PRESIDENT, AMERICAN STATE BANK OF PIERRE, SOUTH DAKOTA

JUNE 6, 2002

Good morning, Mr. Chairman, Ranking Member, and Members of the Subcommittee. Thank you for the opportunity to appear here today. My name is William V. Fischer. I am President of the American State Bank of Pierre, South Dakota, a $90 million independent commercial bank located on the Missouri River in

the center of the State. I am a third generation South Dakotan whose grandfather

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arrived here in 1884. I will be testifying from my position as a commercial banker

in Central South Dakota, Indian Country, for the past 36 years.

South Dakota is not unique from other States in having Indian Reservations located within its boundaries. We have nine reservations in South Dakota, three of

these reservations are located in our lending area.

There have been numerous studies compiled, some commissioned by Congress and

independent studies done over the past years regarding lending in Indian Country.

Recently, there was a workshop held in Rapid City, South Dakota, sponsored by the

U.S. Treasury on lending in Indian Country. Also, the FDIC out of Kansas City has

been working on the Cheyenne River Sioux Tribe Reservation since 1995 regarding

lending in Indian Country. (See attached letter from John P. Misiewicz of the Kansas City FDIC Office)

First let me address what I feel are some of the obstacles to lending in Indian

Country:

• Instability of reservation tribal form of government; • No checks and balances—the legislative, executive, and judicial are very interrelated and thus virtually one; • Constant turnover, inexperience and thus lack of consistency in tribal governments; • Economics—lack of financial education and economic knowledge; • A general lack of unified tribal vision, planning and business experience;

• Lack of understanding of tribal sovereignty and sovereign immunity;

• State and Federal regulations and bureaucracy;

• Lack of basic economics and credit knowledge at the enrolled members level;

• Each reservation has its own specific laws and policies with no degree of uniformity of tribes dealing with economic issues—for example UCC;

• The tendency to insist on tribal members to manage tribal businesses when the

members have no experience in managing this type of business venture;

• The general tendency to try and run (manage) businesses without accurate financial accounting records;

Some practices that American State Bank has implemented to overcome obstacles

of lending in Indian Country:

• Know the tribe and/or tribal member wanting to borrow money;

• Establish a professional relationship with an attorney and accountant familiar

with tribal law and the reservation involved;

• Follow basic credit criteria—character, capacity and collateral;

• Know the tribe, its officers, council, issues and history;

• Realize that very few customers, Indian and/or non-Indian, are entrepreneurs and

thus should we lend money for such a venture, we allocate time and special attention to assisting and ensuring the venture has an even chance to succeed—tribes

and tribal members do not need more examples of failure;

• American State Bank has taken a very active position in understanding the issues

and concerns on the Cheyenne River Sioux Tribe Reservation. One employee of

the Bank serves on the Four Bands Community Loan fund;

Legislative or regulatory remedies that I believe would be helpful to facilitate the

flow of capital to Indian Country:

• Promote a tribal governing system that better separates the legislative, executive,

and judicial systems and thereby provide check and balance, and thus stability;

• Better separation of economics from political decisions;

• Needs to be a better working relationship between the BIA and tribes . . . working for the better good of all parties involved;

• Promote establishment of 1, 3, 5, and 10 year economic development plans and

where necessary hire the best managers to implement them;

• Managers for tribal businesses should be the very best that are available whether

they are Indian or non-Indian—with built-in incentives for successful/profitable

operation;

• Implement a series of courses both at the high school and post high school levels

promoting good business practices;

• Let us reconsider loan guarantees for commercial loans that are made in Indian

Country;

• Let us consider tax incentives for loans that are made in Indian Country;

• Perhaps the Congress should at least establish pilot projects on each of these

ideas;

• Perhaps all Indian Reservations should be empowerment zones; or

• Possibly pick a few, well managed reservations, and make them into experimental

models, empowerment zone, to implement business practices;

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• And last but not least, fund the Wakpa Sica project #HR5528 and thereby establish a supreme court for the eleven tribes of the Great Sioux Nation—this is truly

the first step in bringing uniformity and creditability to a system that is very suspect by creditors.

Mr. Chairman, as you know, Federal Indian policy at this point is mostly a series

of programs that attempt to address basic human needs: education, housing, health

care, etc. They are very expensive and they have had mixed results, at best. Let

us try investing through private markets with the goal of creating an Indian private

sector, so that the human needs will not be as great or cost as much. As Chairman

Jandreau states in his testimony, unemployment in South Dakota is under 4 percent yet in Indian Country the unemployment rate is, on average, 75 percent. If the

Federal Government can drive that rate down by stimulating a private sector it will

save the Government a lot and be a good return on investment.

Thank you for convening this very important hearing. I would be pleased to answer any questions.

Let me conclude by quoting Bobby Whitefeather: ‘‘I know what we need to do. All

the ingredients are there. We just need to put the pieces together. The challenge

is, are tribes ready and is Congress and the Administration willing to provide or

create the necessary receptive environments and support to ’enable’ Native Nations

to prosper.’’—Bobby Whitefeather, Tribal Chairman, Red Lake Band of Chippewa

Indian, Minnesota.

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PREPARED STATEMENT MICHAEL B. JANDREAU

CHAIRMAN, LOWER BRULE SIOUX TRIBE, SOUTH DAKOTA

JUNE 6, 2002

Background

Chairman Johnson, Members of the Subcommittee, I would like to thank you for

providing me with the opportunity to testify on this extremely important issue. My

name is Michael B. Jandreau; I am the Chairman of the Lower Brule Sioux Tribe

in South Dakota. I have been Chairman for over 20 years. My tribe is located in

the Bureau of Indian Affairs’ Great Plains Region, which includes the 16 tribes in

North Dakota, South Dakota, and Nebraska.

As you know, Indian Country is facing many pressing issues that would make excellent topics for Congressional hearings. The Indian health care system is a prime

example. Indian communities in the Great Plains Region lead the country in almost

every negative health care statistic available. We have the lowest life expectancy of

any demographic group in the country, and alcoholism and diabetes are ravaging

our communities.

There are also pressing economic development needs. According to the 2000 Census figures, South Dakota Indian Reservations are home to 5 of the top 10 poorest

counties per capita in the entire United States. We have an average unemployment

rate of 75 percent on reservations throughout the Great Plains while a State like

South Dakota currently enjoys an unemployment rate of 3.4 percent. How can these

islands of poverty coexist with prosperous communities literally just down the road?

I believe this hearing can be a positive step toward answering that question.

Let me be clear. Improving Indians’ access to investment capital is one of the best

ways to solve the deep-rooted economic problems that exist on reservations across

South Dakota and the Northern Plains. Real economic development in Indian Country will, in turn, provide tribes with the resources they need to deal with the countless other challenges and difficulties plaguing our people. Government programs

currently provide for many of our basic needs, but if we are to break the cycle of

poverty that exists in Indian Country, we must establish a private sector in our Indian communities. And if we are to develop a private sector, we must have access

to capital. It is as simple as that.

Unfortunately, our Indian reservations face economic and social challenges that

place us at a distinct disadvantage. The lack of economic growth, poverty, and unemployment place us well behind the rest of the country. In addition, the lack of

access to capital and other financial services makes it almost impossible for tribal

leaders and individual entrepreneurs to have the necessary resources available to

assist in growing our local economies.

Specific Problems and Solutions

I know we are here today to focus on solutions—how to create and restructure

Federal programs so as to foster capital investment in Indian Country. For that reason, the Subcommittee must be made aware of the real obstacles to achieving this

goal, and how to overcome those obstacles. The barriers to capital access in Indian

Country cross an entire spectrum of issues: how tribal governments operate; the

perception among non-Indians that the legal systems in Indian Country are unstable or unreliable; the lack of adequate infrastructure; and cultural misunderstandings on both sides of the issue.

• Problem: Some tribal courts may seem as though they are not sufficiently independent of the executive branch of their tribal government. Additionally, the absence of codified tribal commercial laws and regulations may cause investors to

be hesitant to invest capital on Indian Lands.

• Solution: Provide tribes with adequate funding for court systems and proper staff

training. This will allow tribes to develop the expertise to create a legal infrastructure that supports successful business development.

• Problem: Existing Federal programs that have been developed to foster capital investment in Indian Country have been ineffective and conflicting. They do not

support the type of decisionmaking necessary for business to be completed in a

timely manner.

• Solution: Create a task force, comprised of tribal and government officials, and

banking experts, to evaluate the current laws and regulations and make recommendations to Congress for needed changes.

• Problem: Misunderstanding and mistrust of tribal sovereignty and sovereign immunity.

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• Solution: Provide funding and develop curricula to educate potential investors as

the business advantages that tribal immunity offers.

• Problem: Many bank lending rules and regulations are inflexible in dealing with

local banking institutions and their ability to lend.

• Solution: Provide more opportunities for secondary market development for guarantee loans such as Bureau of Indian Affairs and Small Business Administration

guarantee loan programs. The selling of these loans to secondary markets allows

smaller local banks the ability to free up cash that is available to be loaned again.

This will allow lenders to originate more loans without violating laws and regulations that limit the amount banks may lend to a particular borrower. This limit

is a function of the bank size and further prohibits banks from having to many

of the same types of loans in its portfolio.

• Problem: Many individual Indians lack the collateral and/or the personal credit

histories needed to secure loans.

• Solution: Develop or expand tribal or inter-tribal Community Development Financial Institutions (CDFI), community banks, and other lending and investment

institutions. Create tribal or inter-tribal pools for loan guarantees, equity investments/venture capital, offer microloans and lending for housing and small

business. Provide technical assistance opportunities for Indians to address their

credit histories.

• Problem: Most reservations have small economic bases and so, many of their communities’ basic financial needs cannot be met.

• Solution: Create incubators for Indian businesses, create a board of Indian business leaders to provide guidance for businesses looking to invest in Indian Country. Foster technical assistance between successful Indian businesses and new

emerging businesses, tap into current investment opportunities through Congressionally sponsored roundtables, create a Federal/tribal investment board that provides guidance to potential investors about investing in Indian Country.

• Problem: There is a limited opportunity for Indian businesses to network with potential investors. Because most reservations are located in rural areas, their access to those with capital to invest is limited at best.

• Solution: The Federal Government should sponsor an equity fund to help encourage private investment in tribal projects.

• Problem: Lack of financial institutions on or near Indian reservations.

• Solution: Examine current banking laws dealing with historically underserved

rural communities to see if changes are warranted to allow exceptions for reservations.

• Problem: Many homes on reservations lack the necessary physical and telecommunications infrastructure needed to properly encourage and support business

development.

• Solution: Expand current programs that provide funding for infrastructure development in rural communities and create financial incentives for private investment in Indian communities.

• Problem: Most Native Americans lack experience with the banking industry in

general. Therefore, they find the process of obtaining loans cumbersome and uncomfortable.

• Solution: Provide funding and incentives so the banking industry will work with

tribes to increase the financial literacy for Native Americans.

• Problem: Lack of technical assistance and training resources for financial literacy,

financial management, and entrepreneurship.

• Solution: Develop entrepreneurship programs for Native Americans that include

information on small business development and web-based training. These programs can be implemented through work with tribal colleges and universities.

• Problem: Lenders and investors do not understand tribal governments or their

legal systems.

• Solution: Conduct lender and investor education seminars that could include

handbooks on tribal government structure, sovereign immunity, tribal history,

and contact information to various officials.

• Problem: Historical misunderstanding and mistrust between tribes and lenders.

• Solution: More interaction between people and development of educational materials and forums.

• Problem: Discrimination and stereotyping of Native Americans.

• Solution: More interaction between people and development of educational materials and forums.

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Chairman Johnson, clearly I have identified more challenges than we can solve

today. But just the convening of this hearing has encouraged me and other elders

and tribal leaders. We want to work with you and the Congress to encourage the

development of capital markets on the reservations. We have tried to address some

of these problems through the creation of the ‘‘Wakpa Sica Reconciliation Place,’’

(Public Law 106–568). We thank you for your support for this project. As you know,

Wakpa Sica has several goals, including the establishment of a more reliable court

system in an effort to attract private capital.

Because of the trust relationship with the United States, I believe this effort must

be a creative partnership between tribes, private business and the U.S. Government

to work to find solutions and have proper legislation and regulations that provide

the incentives necessary, and the guarantees necessary, to direct private capital to

the Indian Country.

Out treaties are still sacred documents to Indian people. Tribal sovereignty is still

an important legal principle to Indian people. But I am convinced that if we are to

succeed in Indian Country we must have a strong private sector. Anything this important Committee can do to help would be greatly appreciated. Thank you. I would

be pleased to answer any questions.

—————

PREPARED STATEMENT OF ELSIE MEEKS

EXECUTIVE DIRECTOR, FIRST NATIONS OWEESTA CORPORATION

JUNE 6, 2002

Organizational Background

First Nations Oweesta Corporation (FNOC) was incorporated in December 1999

as a subsidiary corporation of First Nations Development Institute, a national organization that has been focused on assisting tribes and other native communities to

access, control, create, leverage, and retain financial assets. FNOC was launched to

enhance native communities access to financial capital through the development

and/or expansion of native community-based community development financial institutions. FNOC provides to qualified native community development financial institutions loan/investment capital, training, and technical assistance.

FNOC, in partnership with National Community Capital Association has developed a training curriculum, Developing Strong CDFI’s in Indian Country, to be delivered to tribes and native communities to assist them in organizing and implementing community development financial institutions. It has also, along with

Fannie Mae Foundation developed a consumer financial literacy curriculum, Building Native Communities, Financial Skills for Families. In addition to developing the

curriculum, FNOC has conducted numerous ‘‘train the trainers’’ workshops that

enable people employed at the local level to conduct the training in their own communities. As part of its effort to improve access to capital in Indian Country, First

Nations believes that the foundation of self-reliant, economically healthy communities—now and for future generations—are households empowered with financial

tools and skills. Lack of information about personal finance and credit is a serious

economic barrier for many native communities. As the facilitator of the Native

American Financial Literacy Coalition, First Nations is working to overcome that

barrier by supporting efforts to improve financial literacy education and awareness

in Indian Country.

Role of Native Community Development Financial Institutions (NCDFI’s)

Lack of access to capital and the lack of business and management experience are

among the chief barriers to economic and business development in Indian Country.

While there are needs for macrofinancing structures for infrastructure development

and large tribal enterprises, private, regional, and local financial institution are key

for Indian Country development.

• Tribes need institutions at the local and regional level to help form capital and

provide accessible technical assistance. Tribes and communities need to develop

their own institutions to begin to build their own wealth and management capability.

• NCDFI’s can provide capital for financing businesses, land acquisition, home-ownership and development, and community development projects. All help to create

a healthy economy.

• NCDFI’s leverage grants, bank loans, and other sources of capital into the community.

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• NCDFI’s can build capacity of tribal members to improve access to credit, buy

homes and develop and manage businesses.

My experience in the community development financial institution field began in

1985 with the development of The Lakota Fund which was started as a project of

First Nations Development Institute. The Lakota Fund is a private, nonprofit

NCDFI on the Pine Ridge Indian Reservation in South Dakota. Pine Ridge is one

of the poorest reservations in the Nation. Many are aware of the problems that have

persisted at Pine Ridge. Despite its environment The Lakota Fund is widely regarded as one of the most successful private sector initiatives in Indian Country.

It was also the first private, nonprofit microenterprise loan fund in Indian Country.

When The Lakota Fund began lending:

• 85 percent of its borrowers had never had a checking or saving account;

• 75 percent had never had a loan;

• 95 percent had no business experience.

The Lakota Fund now:

• lends in amounts up to $200,000;

• has a loan capital fund of $3.5 million from foundations, corporations, private investors, and governmental sources;

• provides training and technical assistance;

• they have loss rates of less than 10 percent;

• has been instrumental in starting the Pine Ridge Area Chamber of Commerce;

• has developed an IDA program;

• has developed a 30 unit low-income tax credit program;

• operates a Tribal Business Information Center.

How was The Lakota Fund able to do business lending in this environment when

banks and other lenders could not? Simply, The Lakota Fund as well as other

CDFI’s are able to take on more risk than banks and other regulated financial institutions. CDFI’s missions allows them to develop capacity among their borrowers.

Their mission is to develop the market in underserved and economically distressed

communities. Another important reason why most lenders have trouble lending in

Indian Country is the security and collateral issues, especially for home mortgages.

NCDFI’s can safely make concessions which allow them to provide flexible financing

for homebuyers.

Many valuable lessons were learned from The Lakota Fund’s experience. Lessons

that have helped develop strategies for start-up NCDFI’s such as Four Bands Community Fund on the Cheyenne River Reservation in South Dakota and others.

Lessons Learned

• Keep politics out of lending decisions.

• Develop and maintain good loan tracking system.

• Commitment to making borrowers accountable.

• Require investment from the borrower.

• Be a model organization.

• Responsible, disciplined, ethical staff/board.

• Develop good policies/adhere to policies.

• Develop good operating systems.

• Acquire annual audits.

Other examples of the critical need for NCDFI’s are the Navajo Partnership for

Housing, Inc. (NPH) and the Oglala Sioux Partnership for Housing (OSTPH). These

nonprofit homeownership organizations, operate on the Navajo Nation and the Pine

Ridge Indian Reservation, provide homebuyer education and assistance working

with lenders to first-time homebuyers. Almost out of desperation, both organizations

created small loans funds to fill the gap in lending market for interim construction

financing.

OSTPH has also, on several occasions, provided first mortgages to homebuyers.

In all cases, OSTPH had worked with USDA/Rural Development to obtain a 502

loan for the homebuyer but because of fractionated land issues the loan approval

was delayed beyond 2 years. OSTPH was left with no other options, but to provide

a first mortgage to the homebuyers. When and if the land issues are resolved,

OSTPH hopes to ‘‘sell’’ the loans to a conventional lender.

Although no lender would offer this type of loan product due to the perceived risks

of construction lending on the reservations, NPH and OSTPH were perfectly situated to make these loans as local intermediaries familiar with the market. Both organizations have plans to expand their loan fund to meet other types of financing

needs such as soft second mortgages and, eventually, first mortgages.

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Role of Banks in Community Development

Banks can be a partner in community development; they can offer valuable lending experience and can provide funding and investments. But, because banks and

credit unions are regulated financial institutions, they generally cannot be lenders

to the markets that are served by NCDFI’s. They cannot play the role as technical

assistance providers nor can they risk lending to primarily start-up businesses or

first time borrowers.

Role of the Department of Treasury’s CDFI Fund

Despite The Lakota Funds success, until recently, few native communities had

successfully developed and implemented NCDFI’s. This was due, in part, to the tremendous effort and funding needed for start-up. Several changes in the environment

has precipitated interest in NCDFI development: (1) The CDFI Fund has been instrumental as a catalyst for native communities to begin the development and implementation of NCDFI’s; (2) the knowledge of the CDFI field has grown substantially and, therefore, technical assistance for start-ups has improved. Some of the

NCDFI’s that have recently started are:

1. Four Bands Community Fund (Cheyenne River Sioux Tribe, South Dakota)

2. Lac Courte O’Reilles Credit Union (Wisconsin)

3. Four Direction Development Corporation (multitribe—Maine)

4. Affiliated Tribes of the Northwest Indians Revolving Loan Fund (Wasington)

5. Hochunk Community Development Corporation (Winnebago—Nebraska)

6. Valley Credit Association (Duck Valley—Nevada)

7. Hopi Credit Association (Arizona)

8. OST Partnership for Housing (Pine Ridge, South Dakota)

9. Navajo Partnership for Housing (Navajo Nation)

The CDFI Fund’s NACTA Program (Native American Component for Technical

Assistance) received an incredible 47 applications in the first round. This funding

allows tribes and native communities funding to start NCDFI’s. Tribes and native

communities must develop a 2-year proposal that articulates their plan from organizing a NCDFI to implementation.

The importance of the CDFI Fund in assisting native community development

financial institutions cannot be overstated. There has been or is no other single

agency that has created a focus for building community development financial

institutions in Indian Country. Because of my experience working in economic development over the past 20 years, I know of no other effort than private or regional

community development financial institutions that allow native people to develop

management and decisionmaking skills while building self-sufficiency. The CDFI

Fund has been effective in facilitating growth of NCDFI’s. It is important that Congress provide funding for the CDFI Fund in an amount of at least $125 million and

that at least $5 million be set aside for native communities to develop CDFI’s.

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