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[Senate Hearing 107-488]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 107-488

                INDIAN FINANCING ACT AMENDMENTS OF 2002

=======================================================================

                                HEARING

                               BEFORE THE

                      COMMITTEE ON INDIAN AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                                   ON

                                S. 2017

TO AMEND THE INDIAN FINANCING ACT OF 1974 TO IMPROVE THE EFFECTIVENESS 
           OF THE INDIAN LOAN GUARANTEE AND INSURANCE PROGRAM

                               __________

                             APRIL 24, 2002
                             WASHINGTON, DC

80-119              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2002
____________________________________________________________________________
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                      COMMITTEE ON INDIAN AFFAIRS

                   DANIEL K. INOUYE, Hawaii, Chairman

            BEN NIGHTHORSE CAMPBELL, Colorado, Vice Chairman

FRANK MURKOWSKI, Alaska              KENT CONRAD, North Dakota
JOHN McCAIN, Arizona,                HARRY REID, Nevada
PETE V. DOMENICI, New Mexico         DANIEL K. AKAKA, Hawaii
CRAIG THOMAS, Wyoming                PAUL WELLSTONE, Minnesota
ORRIN G. HATCH, Utah                 BYRON L. DORGAN, North Dakota
JAMES M. INHOFE, Oklahoma            TIM JOHNSON, South Dakota
                                     MARIA CANTWELL, Washington

        Patricia M. Zell, Majority Staff Director/Chief Counsel

         Paul Moorehead, Minority Staff Director/Chief Counsel

                                  (ii)

  
                            C O N T E N T S

                              ----------                              
                                                                   Page
S. 2017, text of.................................................     2
Statements:
    Bono, Hon. Mary, U.S. Representative from California.........    11
    Campbell, Hon. Ben Nighthorse, U.S. Senator from Colorado, 
      vice chairman, Committee on Indian Affairs 

or appearing, Mary. It sounds like you are certainly doing your homework. Financing was never my long suit, although I was on the Banking Committee for a few years here in the Senate. But certainly it is very well needed, and I appreciate you appearing.

If you need to run, why go ahead. I will finish my statement and we will go 
ahead and take testimony, but I look forward to trying to move this bill 
through.

Ms. Bono. As do I, Senator. Thank you very much. Thank you all.

STATEMENT OF HON. BEN NIGHTHORSE CAMPBELL, U.S. SENATOR FROM COLORADO, 
               VICE CHAIRMAN, COMMITTEE ON INDIAN AFFAIRS

Senator Campbell. In 1974, 4 years after President Nixon issued his now-
famous special message to Congress on Indian Affairs, Congress passed the 
Indian Financing Act, which in turn created the Indian Loan Guarantee and 
Insurance Fund to provide Native Americans access to private money sources 
that would otherwise be unavailable.

Since Congress enacted this law, the Secretary of the Interior is 
authorized to ensure and guarantee the repayment of small business loans to 
qualified Native American borrowers issued by private banks and lenders. 
Oftentimes, these loans represent the first relationship tribal borrowers 
andng Act Amendments of 2002. Thank you.

Senator Campbell. Thank you for appearing, Mary. It sounds like you are 
certainly doing your homework. Financing was never my long suit, although I 
was on the Banking Committee for a few years here in the Senate. But 
certainly it is very well needed, and I appreciate you appearing.

If you need to run, why go ahead. I will finish my statement and we will go 
ahead and take testimony, but I look forward to trying to move this bill 
through.

Ms. Bono. As do I, Senator. Thank you very much. Thank you all.

STATEMENT OF HON. BEN NIGHTHORSE CAMPBELL, U.S. SENATOR FROM COLORADO, 
               VICE CHAIRMAN, COMMITTEE ON INDIAN AFFAIRS

Senator Campbell. In 1974, 4 years after President Nixon issued his now-
famous special message to Congress on Indian Affairs, Congress passed the 
Indian Financing Act, which in turn created the Indian Loan Guarantee and 
Insurance Fund to provide Native Americans access to private money sources 
that would otherwise be unavailable.

Since Congress enacted this law, the Secretary of the Interior is 
authorized to ensure and guarantee the repayment of small business loans to 
qualified Native American borrowers issued by private banks and lenders. 
Oftentimes, these loans represent the first relationship tribal borrowers 
andgly self- sufficient and economically vibrant communities.

Thank you again, Senator Campbell, for your leadership on this bill and for 
allowing me to testify today on the Indian Financing Act Amendments of 
2002. Thank you.

Senator Campbell. Thank you for appearing, Mary. It sounds like you are 
certainly doing your homework. Financing was never my long suit, although I 
was on the Banking Committee for a few years here in the Senate. But 
certainly it is very well needed, and I appreciate you appearing.

If you need to run, why go ahead. I will finish my statement and we will go 
ahead and take testimony, but I look forward to trying to move this bill 
through.

Ms. Bono. As do I, Senator. Thank you very much. Thank you all.

STATEMENT OF HON. BEN NIGHTHORSE CAMPBELL, U.S. SENATOR FROM COLORADO, 
               VICE CHAIRMAN, COMMITTEE ON INDIAN AFFAIRS

Senator Campbell. In 1974, 4 years after President Nixon issued his now-
famous special message to Congress on Indian Affairs, Congress passed the 
Indian Financing Act, which in turn created the Indian Loan Guarantee and 
Insurance Fund to provide Native Americans access to private money sources 
that would otherwise be unavailable.

Since Congress enacted this law, the Secretary of the Interior is 
authorized to ensure and guarantee the repayment of small business loans to 
qualified Native American borrowers issued by private banks and lenders. 
Oftentimes, these loans represent the first relationship tribal borrowers 
andor appearing, Mary. It sounds like you are certainly doing your 
homework. Financing was never my long suit, although I was on the Banking 
Committee for a few years here in the Senate. But certainly it is very well 
needed, and I appreciate you appearing.

If you need to run, why go ahead. I will finish my statement and we will go 
ahead and take testimony, but I look forward to trying to move this bill 
through.

Ms. Bono. As do I, Senator. Thank you very much. Thank you all.

STATEMENT OF HON. BEN NIGHTHORSE CAMPBELL, U.S. SENATOR FROM COLORADO, 
               VICE CHAIRMAN, COMMITTEE ON INDIAN AFFAIRS

Senator Campbell. In 1974, 4 years after President Nixon issued his now-
famous special message to Congress on Indian Affairs, Congress passed the 
Indian Financing Act, which in turn created the Indian Loan Guarantee and 
Insurance Fund to provide Native Americans access to private money sources 
that would otherwise be unavailable.

Since Congress enacted this law, the Secretary of the Interior is 
authorized to ensure and guarantee the repayment of small business loans to 
qualified Native American borrowers issued by private banks and lenders. 
Oftentimes, these loans represent the first relationship tribal borrowers 
andry. It sounds like you are certainly doing your homework. Financing 
was never my long suit, although I was on the Banking Committee for a few 
years here in the Senate. But certainly it is very well needed, and I 
appreciate you appearing.

If you need to run, why go ahead. I will finish my statement and we will go 
ahead and take testimony, but I look forward to trying to move this bill 
through.

Ms. Bono. As do I, Senator. Thank you very much. Thank you all.

STATEMENT OF HON. BEN NIGHTHORSE CAMPBELL, U.S. SENATOR FROM COLORADO, 
               VICE CHAIRMAN, COMMITTEE ON INDIAN AFFAIRS

Senator Campbell. In 1974, 4 years after President Nixon issued his now-
famous special message to Congress on Indian Affairs, Congress passed the 
Indian Financing Act, which in turn created the Indian Loan Guarantee and 
Insurance Fund to provide Native Americans access to private money sources 
that would otherwise be unavailable.

Since Congress enacted this law, the Secretary of the Interior is 
authorized to ensure and guarantee the repayment of small business loans to 
qualified Native American borrowers issued by private banks and lenders. 
Oftentimes, these loans represent the first relationship tribal borrowers 
and

    Edelman, Marcia Warren, economic development consultant, 
      National Congress of American Indians......................    15
    McGuire, Kevin, president, Palm Desert National Bank.........    22
    Minthorn, Les, treasurer, Board of Trustees, Confederated 
      Tribes of the Umatilla Indian Reservation..................    13

                                Appendix

Prepared statements:
    Edelman, Marcia Warren.......................................    29
    McGuire, Kevin...............................................    31
    Minthorn, Les................................................    27
    Thomas, Hon. Craig, U.S. Senator from Wyoming................    27
Additional material submitted for the record:
    Carl, Chester, chairman, Coalition for Indian Housing and 
      Development, letter........................................    33
    McGaughey, William H., senior vice president, Bank of the 
      West, letter...............................................    35

 
                INDIAN FINANCING ACT AMENDMENTS OF 2002

                              ----------                              

                       WEDNESDAY, APRIL 24, 2002

                                       U.S. Senate,
                               Committee on Indian Affairs,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m. in room 
485, Russell Senate Building, Hon. Ben Nighthorse Campbell 
(vice chairman of the committee) presiding.
    Present: Senator Campbell.

 STATEMENT OF HON. BEN NIGHTHORSE CAMPBELL, U.S. SENATOR FROM 
      COLORADO, VICE CHAIRMAN, COMMITTEE ON INDIAN AFFAIRS

    Senator Campbell. Good morning and welcome to the 
committee's hearing on S. 2017, the Indian Financing Act 
Amendments of 2002, legislation I introduced on March 14 of 
this year, joined by our chairman, Senator Inouye.
    [Text of S. 2017 follows:]
      
      

  

    Senator Campbell. I would like to extend a special welcome 
to our colleague and friend from the House side, Congresswoman 
Bono from California's 44th District. Congresswoman Bono has 
introduced H.R. 3407, the Indian Finance Act Reform Amendment, 
the House counterpart to the legislation that is before us 
today.
    Mary, thank you for appearing. I understand you have a 
10:15 a.m., meeting a very tight commitment, so I am going to 
forego my opening statement or finish it after you have made 
your presentation. If any other members show up while you are 
making it, I will ask them to do the same.
    With that, if you would like to proceed?

     STATEMENT OF HON. MARY BONO, U.S. REPRESENTATIVE FROM 
                           CALIFORNIA

    Ms. Bono. Thank you, Senator, for allowing me to go 
quickly. I do have something on the floor first thing, so I 
will run from here to there.
    I really want to thank you for the opportunity to testify 
before your committee on S. 2017, the Indian Financing Act 
Amendments of 2002, which is the Senate counterpart to my House 
legislation, H.R. 3407. Mr. Campbell, your leadership on the 
Senate legislation is to be applauded as its role in 
encouraging economic development on Native American lands will 
be crucial.
    With the enactment of the Indian Financing Act of 1974, 
Congress instituted the Indian Loan Guarantee and Insurance 
Fund. In turn, this law allowed the Secretary of the Interior 
to ensure and guarantee the repayment of small business loans 
to qualified Native American borrowers. These loans are unique 
in the Native American community in that they are issued by 
private lenders and provide not only financial assistance to 
tribes who may otherwise not be able to secure financing, but 
also the incentive for Native American-owned small businesses 
to invest substantially in their future.
    Being a former small business owner myself, I am aware of 
the many financial challenges a new enterprise faces in its 
first few years. Securing vital loans to finance a new business 
helps all individuals to realize their dreams of economic 
opportunity and independence. I also understand, however, that 
we must work to minimize Government small business intrusion, 
both on the regulatory level and on the fiscal level. S. 2017 
serves this need by providing a clear uniformity in lending 
that does not currently exist. Further, this amendment will 
come at no cost to the Federal Government.
    This legislation provides a strong path toward expansion of 
tribal lending as can be seen in the evolution of a similar 
loan guarantee program within the Small Business 
Administration. In particular, the passage of this legislation 
will help to encourage a stronger relationship between private 
lenders and the communities they assist. One of the important 
aspects of the SBA Revolving Loan Program is the Federal 
Government's guarantee of full repayment of the loan should the 
loan default. Currently under the BIA's existing Indian Loan 
Guarantee and Insurance Fund, a loan does not have this Federal 
Government guarantee, which is a disincentive for lenders to 
work with Native Americans looking to start their own 
businesses.
    S. 2017 will provide this notion of a guarantee of full 
repayment of the loans if a loan defaults. Further, smaller 
banks such as Palm Desert National Bank in California's 44th 
Congressional District, which I represent, are not easily 
accessible for financing tribal economies because of the 
existing law. S. 2017 will allow for liquidity in the loan 
process that provide smaller banks and investors the 
opportunity to rid themselves of the burden that a 30-year loan 
can have on the capital that they have on hand.
    Further, currently the secondary market investors are not 
offered uniformity in the way that they are able to pool their 
loans and then sell pieces of this pool. This tends to spread 
and minimize the risk of default among a number of investors. 
Thus, we are able to help both smaller banking institutions, as 
well as those tribes in lands in more rural areas of our 
country.
    I am encouraged by the prospect of employing the principles 
of entrepreneurship which the Indian Financing Act Amendments 
of 2002 offers to potential and current Native American small 
business owners. Only through the mutually beneficial 
relationship between the Interior Department and the private 
lending community and tribal entrepreneurs can we offer Native 
Americans the financial tools to help their tribal economies 
expand and flourish.
    Serious consideration and passage of legislation such as S. 
2017 and H.R. 3407 in the House will further encourage the 
growth of small businesses that empowers tribes an excites 
development and substantive growth. It is my hope that this 
committee will recognize the importance of this legislation 
being another key to allowing Native Americans across the 
country realize their potential to become increasingly self- 
sufficient and economically vibrant communities.
    Thank you again, Senator Campbell, for your leadership on 
this bill and for allowing me to testify today on the Indian 
Financing Act Amendments of 2002. Thank you.
    Senator Campbell. Thank you for appearing, Mary. It sounds 
like you are certainly doing your homework. Financing was never 
my long suit, although I was on the Banking Committee for a few 
years here in the Senate. But certainly it is very well needed, 
and I appreciate you appearing.
    If you need to run, why go ahead. I will finish my 
statement and we will go ahead and take testimony, but I look 
forward to trying to move this bill through.
    Ms. Bono. As do I, Senator. Thank you very much. Thank you 
all.

 STATEMENT OF HON. BEN NIGHTHORSE CAMPBELL, U.S. SENATOR FROM 
      COLORADO, VICE CHAIRMAN, COMMITTEE ON INDIAN AFFAIRS

    Senator Campbell. In 1974, 4 years after President Nixon 
issued his now-famous special message to Congress on Indian 
Affairs, Congress passed the Indian Financing Act, which in 
turn created the Indian Loan Guarantee and Insurance Fund to 
provide Native Americans access to private money sources that 
would otherwise be unavailable.
    Since Congress enacted this law, the Secretary of the 
Interior is authorized to ensure and guarantee the repayment of 
small business loans to qualified Native American borrowers 
issued by private banks and lenders. Oftentimes, these loans 
represent the first relationship tribal borrowers and the 
private commercial banks have ever had with each other. 
Oftentimes, these relationships are critical in helping to 
bring valuable economic development dollars to reservation 
lands.
    Although the need of capital in Indian communities far 
outstrips the amount, the Indian Loan Guarantee and Insurance 
Program has grown over the past 28 years to where it is now 
guaranteeing something like $75 million in loans annually to 
Native Americans. The Mortgage Finance News has recently 
reported that for housing finance alone, there is a $2.7 
billion pent-up demand in Native communities. The Native 
American Lending Study published in November 2001 by the 
Community Development Financial Institutions shows that there 
are great unmet needs in Native communities for capital and 
liquidity. Those unmet needs are holding back the growth of 
Indian economies.
    We often hear from Indian tribes, as well as lenders from 
across the country, who have told us that a major problem 
restraining their participation in the BIA's loan program is 
the lending institution's lack of liquidity once the loan is 
made. These small business loans tend to stay on the books for 
a long time. They are paid down, but not as rapidly refinanced 
as conventional loans. Therefore, a bank has its capital tied 
up in these loans and cannot easily turn around and use that 
capital again.
    The Indian Financing Act Amendments of 2002 direct the 
Secretary of the Interior to take steps to encourage the 
creation of an efficient secondary market for Native American 
loans or loan guarantees made by the Department of the 
Interior.
    We will go ahead and proceed with our witnesses. We will 
start with our second panel. That will be Les Minthorn, the 
treasurer of the Board of Trustees of Confederated Tribes of 
the Umatilla Reservation in Pendleton, OR, and Marcia Warren 
Edelman, economic development consultant for the National 
Congress of American Indians here in Washington, DC.
    Thank you, and if you would like to go ahead and start, 
Les, please do.

STATEMENT OF LES MINTHORN, TREASURER OF THE BOARD OF TRUSTEES, 
     CONFEDERATED TRIBES OF THE UMATILLA INDIAN RESERVATION

    Mr. Minthorn. Thank you.
    I have a prepared statement here, but I would just like to 
summarize.
    Senator Campbell. It will be included in the record.
    Mr. Minthorn. In 1969 in our community we had a firm here 
in Washington, DC called Ernst and Ernst that provided a study 
on some of the unmet needs and needs assessment of our 
reservation. In that study in 1969, it provided for a golf 
course, a hotel, and RV park, gas store and those kind of 
things in 1969. And you just mentioned the 1974 Indian 
Financing Act, and in 1975, the Indian Self-Determination Act 
came about. In 1994 on our reservation, IDRA was implemented in 
a small, modest way with a 100-machine facility. And in 1995, 
we were able, you know, 26 years later, to develop a 
relationship with our trustee to access this loan guarantee 
program. And as a result of that, we were able to secure a 
relationship with a bank that for those 26 years, you know, 
nothing really happened on our reservation until we had the 
loan guarantee program from the Interior Department that 
provided us with a $10-million loan guarantee.
    With that in hand, we were able to go ahead and do the 
search for an institution that would deal with this. In that 
search, we found that very few banks would talk to us, let 
alone negotiate on our facilities that we needed financing for, 
until we had a relationship built with a bank out of New 
Mexico. That bank was probably the first one that we had our 
teacher relationship with a bank on how to do the processing, 
the negotiation on loans, and actual closing of those 
documents.
    So we did have a learning curve there, but it took us a 
long time to develop that relationship with that banking 
institution because of our building blocks that we needed as a 
tribal government to develop that relationship, which has a lot 
to do with trust. If they do not understand you and do not 
understand the trust relationship, they tend to not want to do 
business, much less trust you when you present your needs 
assessment on a relationship for economic development.
    So in those timeframes, those 26 years until we had this 
relationship develop, that really what it did for us at 
Umatilla in Eastern Oregon where we are located, is open doors 
for other institutions. Once we had one bank deal with this on 
a $10 million loan guarantee, it provided then other 
opportunities for other institutions to follow that lead. So 
during those time frames, it was a very, I guess, cautious in 
the banking institutions to--a cautious mode on their part to 
deal with the Indian tribes.
    Our success with those things that started in 1969, the RV 
park is there. We have 100-unit park. We have an 18-hole golf 
course. We have 100-unit hotel. We have a cultural center. We 
have probably the second-largest--we are the second-largest 
employer in Umatilla County. The State of Oregon is the number 
one employer in our county. The tribe is the second-highest. We 
have probably about 500 people employed in these resorts that I 
just referred to--the casino, the golf course, the RV park and 
the cultural institute. And so the 1969 plan that was developed 
for us took us that long to achieve some means of economic 
development.
    As a result of that, we were able to move beyond that to 
the point where we refinanced all of those loans under that 
loan guarantee, with a bond issuance with another banking 
institution. So those loans ceased to exist with the loan 
guarantee attached to it in 1995, is when we created them. And 
then just recently we were able to, in 1999 with the bond 
issue, bring those to a close.
    So it did help us when we had utilization of that loan 
guarantee, but without it we would not have what we have here 
today that I am bringing to this table, the success that we 
have had had a lot to do with the Indian Loan Guarantee Program 
under the Interior.
    So for us, it is an opportunity to come here and express 
our support for this House and Senate bill that we have heard 
this morning, S. 2017 and, Senator Bono's testimony here on the 
House side. We support that because we were examples of how 
that actually helped us move from a holding position to being a 
player in economics. Without economics, the sovereignty, the 
things that we need for expressing our needs for our tribal 
government, you know, they kind of go as well on a holding 
pattern for some things that you need to do for your health, 
education and needs assessment of your organization.
    So I am here today to express our support for our 
organization and the Interior Department to move in that 
direction per your Senate bill here today, Mr. Campbell. Our 
attorney was involved with that timeframe, so if you have any 
specific questions, Dan Hester is here and he was an actual 
part of the negotiation team at that time when we worked with 
the Bank of New Mexico to put this thing together.
    So I have a prepared written testimony, but most of our 
elders refuse to read from the written, and they tell you to 
speak from the heart, and that is what I hope I have done here 
today.
    [Prepared statement of Mr. Minthorn appears in appendix.]
    Senator Campbell. Thank you. That is the way the committee 
feels, too, by the way. We appreciate your being here.
    Ms. Edelman, why don't you go ahead.

   STATEMENT OF MARCIA WARREN EDELMAN, ECONOMIC DEVELOPMENT 
       CONSULTANT, NATIONAL CONGRESS OF AMERICAN INDIANS

    Ms. Edelman. Good morning.
    My name is Marcia Warren Edelman. I am pleased to represent 
the National Congress of American Indians here today.
    I am going to go ahead and read from our testimony, just 
because I think it will give a comprehensive reflection of how 
NCAI feels.
    I would like to thank you first of all for your invitation 
to present this testimony on this very important piece of 
legislation, the Indian Financing Act Amendment of 2002. I 
would also like to thank the committee and their staff for the 
hard work that they do on behalf of the tribes and Indian 
people of this Nation. We appreciate the particular attention 
that the committee has given to the need for sustainable 
economic development in Indian country. S. 2017 represents an 
important element in this effort.
    As you well know, access to capital in Indian country is 
extremely limited, and this shortage of capital represents one 
of the primary barriers to comprehensive and lasting economic 
development in our communities. Despite these challenges, a 
growing number of Indian-run and/or tribally operated 
businesses in the United States has taken hold in recent years. 
Most of these Indian entrepreneurs and tribes must seek loans 
for the development of their businesses, as they do not have 
the financial means to finance a business themselves.
    Despite an increasing demand for loans, the lending 
community in Indian country is not vibrant. Sources of capital 
for development remain extremely limited as lenders, already 
tentative in their approach to Indian country due to 
jurisdictional complexities and in many cases a simple fear of 
the unknown, shy away from sinking large amounts of money into 
projects that will take a number of years for repayment. Such 
long-term loans tie up capital for lenders, limiting their 
ability to make loans to other applicants.
    Large loans for complex proposals, however important they 
may be to the enhancement of infrastructure and meaningful 
economic opportunity in Indian country, are extremely difficult 
to procure. I commend the committee and its leadership for 
recognizing this problem and introducing legislation designed 
to draw lenders into the economies of Indian country. This 
legislation offers an excellent opportunity to boost tribes and 
their members' ability to realize self-sufficiency by 
addressing the problems of liquidity in the current market of 
guaranteed loans to Indian borrowers.
    As you have found, the vast majority of lenders have not 
readily accepted the existing loan guarantees made available 
through the Secretary of Interior, likely because lenders are 
committed to having their capital tied up until repayment 
begins. Outside of Indian country, loan markets operate 
differently, and arguably more productively. Agencies like 
Freddie Mac and Fannie Mae, as secondary lenders, expedite the 
capital refill process by purchasing loans from the primary 
lenders. This secondary market does not affect the borrower, 
and allows a quick turnaround for the primary lender. In 
essence, the secondary lenders fronts the value of the loan and 
gives the primary lender more funds for outlay in other loans.
    We believe that creation of a similar secondary market for 
Indian country lending is a promising means to increase 
opportunities for Indian businesses to acquire capital, thereby 
strengthening the overall economic fabric of Indian 
communities. The key foundation of a vibrant economy is small 
business, particularly in the small rural communities that are 
generally representative of Indian country. By making the loans 
that are currently guaranteed by the Department of the Interior 
available for transfer, this legislation stands to greatly 
increase the flow of funds into new business in Indian 
communities and jump-start increasing economic self-sufficiency 
in Indian country.
    Secondary markets have proven to be an extremely successful 
means of stimulating lending in the context where they 
currently operate. For the last 17 years, the Small Business 
Administration has operated a secondary loan market for its 
loans and the results have been quite positive. The program 
provides lenders who might otherwise have been unable to 
participate in the loan market a simple process to follow for 
the transfer of loans. Increased numbers of lenders in the 
markets have in turn resulted in an increase in the amount of 
money available to those businesses seeking loans.
    Using the SBA program as a model, this legislation would 
open up the Department of the Interior guaranteed loans to the 
same process. We know that the market can work to benefit 
Indian country when the barriers that plague our economies are 
removed. This process, under the supervision and administration 
of a fiscal transfer agent, is a relatively simple and 
straightforward way to address one of the barriers we face.
    Additionally, the program operates at a very low cost to 
the Government, with fees for the transfer paid by the lenders 
who execute the transfer. Best of all, this program has only 
positive effects on the individuals seeking the loan. They have 
no need to worry about the transfer process and benefit by the 
availability of more capital. The legislation as currently 
drafted contains provisions for the Secretary of the Interior 
to promulgate regulations necessary to set up the secondary 
loan market, to contract with a fiscal transfer agent to carry 
out the registration and paying agent functions, and to issue 
acknowledgements of loan transfers. In implementing this 
requirement, we urge the Secretary to work very closely with 
tribal government representatives to develop final regulations 
to set up the market.
    We also urge the Secretary to contract with a fiscal agent 
familiar with transactions in Indian Country. We are always 
available to work with this committee and the Secretary to 
advise this process and contribute what we can to our mutual 
goal of helping Indian communities and individuals to thrive.
    The National Congress of American Indians supports S. 2017 
as an important means to inject capital into the economies of 
our tribes, thereby strengthening Indian economies and Indian 
communities. By approving this bill, the Senators on this 
committee will make another important step on the path to 
meaningful economic development for Indian country, with little 
impact on either Government spending or the bureaucratic 
process.
    Thank you for this opportunity to present testimony on 
behalf of NCAI and I welcome any questions you may have.
    [Prepared statement of Ms. Edelman appears in appendix.]
    Senator Campbell. Thank you.
    Mr. Minthorn, your tribe, the Confederated Tribes of the 
Umatilla Reservation, has come a long way since 1994, when you 
were largely dependent on Government grants. Did you have to 
change any tribal policies as you moved forward to become one 
of the largest employers in the county now?
    Mr. Minthorn. All of our rules and regs and procedures were 
kind of foreign to us as an Indian nation up through our 
development. But as we became more familiar with the workings 
of business, we have changed a lot of things. Primarily, when 
we were searching for self-governance, we were a Public Law 
280-tribe, and with our relationship with the State of Oregon 
we were able to have an executive order transfer that criminal 
jurisdiction back to the reservation, which created tribal 
courts, tribal police, juveniles. So we needed codes and that 
was the basis for all of the other code development and 
procedures for handling our grants and contracts to make us 
more accountable.
    And so as a result of our development into a small part of 
the responsibilities as a sovereign, we developed rules and 
regulations for our tribal courts, our health program, our 
education. And so we have developed many kinds of rules and 
regulations depending on the issue. So if you come to our 
reservation and work with one of our commissions or committees, 
we have policies and regulations regarding all of those. For 
finance, yes, we have what we call fiscal management policies 
that regulate how we are able to move cash through our system 
and how it is disbursed and accounted for. We have audits that 
cover all of the areas.
    So yes, a lot of things were changed policy-wise for our 
people. I am one generation removed from my parents, who are 
traditional people. And so this is a new thing for this 
generation to develop rules, regulations and procedures. We 
have them for almost every program that we contract for, and 
implement on behalf of our people.
    Senator Campbell. Well, I personally happen to think that 
you can develop standards to be able to move your tribe ahead 
in the 21st century and still be a traditional person at the 
same time.
    When you first were out trying to get capital from banks, 
what were some of the concerns they expressed when they turned 
you down?
    Mr. Minthorn. Primarily, the relationship dealing with our 
land, because in the traditional sense, you need collateral and 
most of the lands that we had were in trust. And the 
relationship that we had up until that point in time as a 
community was farm community. Most of our land is farmed. It 
has wheat crops on it--wheat and barley, peas. As far as the 
revenue for the tribal government by itself, we had very little 
revenue. The land was primarily owned by individual allotment 
owners. So the bulk of the wealth, the bulk of the ownership on 
our reservation was owned by individual alottees, not by tribal 
government.
    So from a collateral standpoint, we had no collateral. We 
had no business experience. We had not war chest from any 
settlements. We had no revenue to support our loan applications 
with these banks. So to make a long story short, no collateral, 
no loan.
    Senator Campbell. Is farming still an important part of the 
economy of your reservation?
    Mr. Minthorn. It is still the primary support source for I 
would say heirs of our original owners. Most of our ownership 
now is fractionalized because of the lack of wills being 
developed by elders because they did not want to use the paper. 
And so, yes, but the income is very small to the heirs who have 
inherited those parcels of land that were originally large.
    Senator Campbell. You mentioned you have a hotel, a golf 
course, some recreational facilities. The proceeds--your real 
viable business now--and the profits you have made, what are 
your primary objectives with them? Do you put them into 
education or per capita them?
    Mr. Minthorn. We have 15 percent of our revenues from the 
gaming facility are dividends. The remaining 85 percent support 
the essential governmental services as we define them, to 
support tribal government and its programs. And that is 
basically where all the revenue goes. It goes 85 percent of the 
net from the casino goes back into tribal programs--our health, 
our senior citizens, our education, our burial fund, youth, our 
tribal police. All of those things go back into what we are now 
learning these new terms--essential governmental services.
    Senator Campbell. I do not know the enrollment of your 
tribe.
    Mr. Minthorn. 2,300 right now.
    Senator Campbell. Well, it sounds like you have done really 
very well. If you were to offer advice of what you have gone 
through to other tribes, it just sounds to me like what you 
have done could be a model for a lot of other struggling 
tribes. What would you tell them in their first-ever attempts 
to raise capital?
    Mr. Minthorn. Find a way to secure--you have to understand 
when we deal with a non-Indian population that there is a lot 
of mistrust from the old days. I am sure you know that. But the 
people were very conscious themselves about having a 
relationship with people who would secure or want you to 
mortgage your land in exchange for money. They already went 
through that and lost a lot of our reservations through that 
means. And so as we learn from those hard experiences, my 
generation from my parents, we had to have a system that was 
going to deal with funds traveling through inputs and outputs 
and have rules on how the inputs and outputs were treated once 
the money was in transition.
    I think we have developed our internal system to do that. 
Fiscal management policies on our investments, we have, what do 
you call them, investment policy statements so that when we do 
have someone take care of our money for us that you have an 
investment policy out there that defines how much risk you are 
able to have and how much you can earn, so that you know that 
your money is always going to be there at the end of that 
investment period. But that all comes from the hard lessons of 
losing your resources. And so you have to look at yourself and 
know yourself because the banks are not our enemy. But if you 
fail to manage your funds in a manner that is going to repay 
your debts, you will lose and the banks will be your enemy. But 
the relationship that you have, you have to protect yourself in 
managing your funds, and that comes with the rules and 
regulations and procedures that we have for our financial 
dealings.
    If you can keep your house in order with your own money, 
you take care of your own money and you follow those rules and 
regulations and procedures for yourself and your own hard 
dollars, when you take the 2,300 members' money, you should 
follow those same rules, regulations and procedures because now 
you are risking your whole nation's assets. You certainly want 
to be very careful when you put any of that up.
    Senator Campbell. Well, good news travels and then dies 
somewhere in the future, but the bad news seems to have a life 
of its own. I think that some industries and maybe some 
institutions, too, have had something bad happen to them in 
working with tribes. Unfortunately, that taints the thing for 
all those other tribes. I know in some areas, I am just 
thinking of at Crow Reservation and at Shiprock, too, in New 
Mexico where industry has come in and built some facilities and 
then because of unstable government, ended up losing the 
facility. I think banks see things like that and of course then 
they worry about future lending. So it takes a while to 
establish a good working trust, as you mentioned, relationship 
with lending institutions, too. Apparently, you have done it 
very well.
    Thank you for your testimony.
    Ms. Edelman, I think NCAI is very fortunate to have you 
working with them because of your experience at the Commerce 
Department.
    Ms. Edelman. Thank you.
    Senator Campbell. Let me just ask you generally, how can we 
unlock the mystery of the capital markets to Indian people? Les 
mentioned traditional people which, you know, traditional 
people tend not to be well-steeped in the issues of financing. 
How do we make that connection or build that bridge?
    Ms. Edelman. I believe we should build the bridge by first 
identifying these issues as tools, not threats to sovereignty, 
not threats to traditional way of life, but actual tools to 
enable our tribal communities to achieve sustainability and the 
ability to preserve their culture. Doing that through 
education, and through information, such as the report the CDFI 
fund released recently on this issue, can enable those 
communities to get the information they need in order to start 
getting comfortable with what those particular issues are, and 
then applying them to their particular situation.
    I fully support Mr. Minthorn's comments on an investment 
policy and having those rules and regulations in place--
something that is understandable, foreseeable, and easily 
adhered to when those different issues come up on how to invest 
money or how to even address the issue of what ``finance'' 
means to a community, ranging from the individual to tribal 
enterprise level. So I think it is all about really taking 
these issues out of the context of, you know, ``is this 
traditional or not traditional''; ``is it buying into the 
larger society''. It is not--it is really a skill and it is a 
tool to enable these communities to survive on their own terms 
and to flourish on their own terms.
    Senator Campbell. One of the complaints we get at the 
committee is very often we will pass legislation that is 
intended to help Indian people. Somewhere between the time we 
pass it and the time it is implemented, it gets lost. And then 
we hear 2 years later that nobody told the tribes that they 
could avail themselves to this new act that is in place. It 
seems to me that NCAI can play a very, very important role 
because you do have a national convention and a mid-term 
convention, too. As it is now, do you have a role? Do you have 
a goal to try to increase the awareness of tribes to their 
opportunities through banking institutions or lending 
institutions?
    Ms. Edelman. Yes; very much so. In fact, it is interesting 
that you bring this up right now. Our mid-year session is 
focused solely on economic development. We have four tracks 
that we are addressing, one of which is finance. Another is 
marketing, business/economic development and the third is 
capacity building. What we are aiming to do, instead of having 
panel discussions where people basically will discuss the 
issues, we are aiming to provide training sessions which will 
give the attendees, skills and strategies that they can take 
back home with them to implement as they wish.
    NCAI sees its role right now really as a bridge between the 
different Indian business organizations, the Native-owned 
banking industry, and also mainstream banking and financial 
institutions. We aim to be a conduit of information and really 
a facilitator at this moment. We find it very important that 
this information get to tribes, but not just in paper form, not 
just in a form of talking heads, but something solid, something 
productive that could actually be implemented on the ground.
    Senator Campbell. I commend you for that. The focus is 
obviously on the tribes, but it is a two-way street. You have 
got to educate the lending institutions, too, about 
opportunities in Indian country. Does NCAI do anything along 
that line?
    Ms. Edelman. Yes; we will be developing policy papers that 
we will not only be sharing with Congress and the 
Administration, but also with private industry on what exactly 
you should expect in Indian country, what are the issues of 
importance are. From those, we will probably be developing 
information that will enable businesses and other institutions 
to deal better with tribes, not just in terms of the cultural 
awareness, but also the statistics and the facts that they need 
to know to minimize the so-called, if you want to call it, 
political risk of doing business in Indian country.
    Senator Campbell. I know it is very complicated. I visited 
a couple of times, I just happened to go home where I am 
enrolled, when the tribal council was dealing with some people 
about investments. The investments that were presented were 
very high-yield investments, but the investments, at least part 
of them, flew in the face of some of the traditional beliefs of 
the elder people. I know that is a difficult thing to deal with 
when you are trying to get the best yield you can and make the 
most money you can for the tribe, and at the same time now do 
something that is going to upset the things that they have 
learned from childhood that they ought to be protecting and 
careful about. I commend you for trying to work on both sides 
of that.
    One of the things that we have heard, too, is that lending 
institutions are worried about unstable Government, that as 
tribal councils change and directions change, sometimes the rug 
can be pulled out from under the lenders. Do you do anything at 
all to encourage good governance when you are doing these 
seminars?
    Ms. Edelman. Yes; as a matter of fact, our mid-year session 
again is going to be held in conjunction with the Harvard 
Program. I am sure you familiar with that.
    Senator Campbell. Yes; a very successful program.
    Ms. Edelman. Very successful. So we really want to come 
together with them as they go through their final process of 
selecting the awardees for this year, not only to increase 
awareness of this program for our member tribes, but also to 
give the potential awardees a chance to gain exposure. They are 
going to be going through their final process of presentations, 
and that will be open to the membership to come and listen to. 
So, in effect, we will be having case studies going on 
throughout our second day. I think that is, by example, it is 
just a better----
    Senator Campbell. Where is the convention?
    Ms. Edelman. It is in Bismarck, ND.
    Senator Campbell. Bismarck, ND.
    Ms. Edelman. Having those potential awardees there as 
examples, it is an excellent way for people to feel comfortable 
with the process.
    Senator Campbell. All right. I thank you both for 
appearing. Other members who are not in attendance, they may 
have some written questions they may submit to you.
    Thank you very much for being here.
    Ms. Edelman. Thank you.
    Senator Campbell. Our next panel will be just one person, 
Kevin McGuire, president, Palm Desert National Bank of Palm 
Desert, CA. It sounds to me you might have been invited by 
Congresswoman Bono.
    Mr. McGuire. That is correct.
    Senator Campbell. Very good. You can just proceed at your 
own speed, Mr. McGuire, and all your written testimony will be 
included in the record. So if you would like to abbreviate or 
diverge from that, that is fine.

  STATEMENT OF KEVIN McGUIRE, PRESIDENT, PALM DESERT NATIONAL 
                              BANK

    Mr. McGuire. My name is Kevin McGuire. I am the chairman 
and chief executive officer of Palm Desert National Bank in 
Palm Desert, CA.
    Palm Desert National Bank began making loans to Indian 
tribes and tribal entities in 1985. The projects with which we 
are currently involved are a tire recycling plant for the 
Cabazon Band of Mission Indians for $7.5 million. Most 
recently, we were the lender for an $18 million refinance and 
construction project for the Picuris Pueblo in New Mexico. We 
continue to actively seek opportunities to make loans of all 
sizes for economic enterprise and development in Indian country 
throughout the United States.
    As an Indian country lender, we have learned that while 
many economic development efforts in Indian country can be 
sparked with relatively small amounts of capital, many tribal 
development efforts require capital in the form of cash and 
loans that exceed the lending limits and loan concentration 
limits to which small- and mid-sized community banks are 
subject. Our experiences as a community bank lead us to 
conclude that the creation of the secondary market in BIA 
guaranteed loans will increase opportunities for lending in 
Indian country, without additional costs to the parties and 
with no additional cost to the Federal Government. An 
institutionalized secondary market in BIA guaranteed loans will 
facilitate the sale to investors of BIA guaranteed loans, 
putting capital back into the originating bank that then can be 
loaned again.
    Additionally, lenders will be able to originate more loans 
without violating laws and regulations that limit the amount 
banks may lend to a particular borrower, and that prohibit 
banks from having in their portfolios too many loans of a 
single type.
    If only large banks invested in Indian country, lending 
limits and loan concentrations would be less of an issue. 
However, community banks--those most familiar with Native 
American neighbors--make many of the loans earmarked for tribal 
economic development. Therefore, the constraints imposed by 
banking law lending limits and loan concentration limits are 
significant problems--problems that can be resolved by the 
passage of S. 2017.
    Since the current Indian Financing Act, BIA Guaranteed Loan 
Program permits lenders to transfer portions or all of BIA 
guaranteed loans they originate, why is creation of the 
secondary market necessary? There are two primary reasons. 
First, finding participants willing to purchase loans to tribes 
or tribal enterprises, whether or not they are guaranteed by 
BIA is very difficult and time consuming. This is because few 
lenders are familiar with the Indian Financing Act program or 
the benefits of lending in Indian country. As a result, 
closings are delayed and costs accelerate. We believe that the 
existence of an institutionalized secondary market will make 
selling tribal loans much easier.
    Second, there is already a secondary market for commercial 
loans, for example, SBA and USDA loans. Investors are familiar 
with and are comfortable purchasing loans from the existing 
programs. However, as it now exists, the Indian Financing Act 
Guaranteed Loan Program is structured differently than other 
government guaranteed loan programs. The differences and lack 
of familiarity make investors unwilling to invest in BIA 
guaranteed loans.
    The secondary market contemplated by S. 2017 is modeled 
after the existing SBA and USDA programs. The basic structure 
is the same. The risk to investors is the same. Hence, 
investors who have purchased loans from other government 
guaranteed programs will be likely also to purchase BIA 
guaranteed loans. At the same time, Federal dollars are at no 
greater risk than under the current BIA program because BIA 
will retain the right to look to the servicing lender to 
recover the losses that could have been avoided by proper 
pricing. Again, there is no additional cost to the Federal 
Government, and this puts the BIA program on the same level as 
the SBA and USDA program.
    The bottomline is that S. 2017 offers an opportunity for 
the private secondary market in commercial loans to work to 
increase capital for development of economic enterprise in 
Indian Country just as the secondary market in SBA guaranteed 
loans has increased the capital available to small businesses 
throughout the United States. We urge this committee to support 
this bill.
    Thank you very much for this opportunity. I am willing to 
answer any questions.
    [Prepared statement of Mr. McGuire appears in appendix.]
    Senator Campbell. Thank you.
    I have visited the tribes in your area--once at the 
invitation of Congresswoman Bono, in fact. And I have to tell 
you, I was really impressed with the tribes, including Cabazon, 
one of the tribes I visited down there, not only at their 
business acumen, but the ability to work with county and city 
government, too. There are a number of cooperative things that 
are going on down there I thought were just an absolute model 
of how Indians and non-Indians could work together and get 
along and do something that was of benefit to the whole 
community. And so I often use the tribes in your area as tribes 
who have really found a way to bridge that gap we were talking 
about with Ms. Edelman.
    Let me ask you a couple of questions about loans and 
portfolios. How long does a BIA guaranteed loan typically 
remains in your portfolio?
    Mr. McGuire. At this point in time, they stay in the 
portfolio the entire life of the loan, which can be as long as 
30 years.
    Senator Campbell. And what are the typical projects that 
they get loans for in your area? This is a big resort area.
    Mr. McGuire. This is a resort area--a tire recycling plant, 
and actually we do loans across the Nation for BIA programs, 
but in this case, a tire recycling plant. We are taking a look 
at a printing-type office, a truck stop/convenience store area 
for one of the tribes in a new area that has got a highway. We 
are looking at a strip center for one of the tribes also.
    Senator Campbell. Well, you obviously have found a way to 
work well with the tribes, if you are doing this across the 
country. Have you had any bad experiences?
    Mr. McGuire. I would say that we have probably loaned over 
$100 million to tribes across the Nation, and we virtually, 
with one small exception, have had nothing but very good 
experiences with those loans.
    Senator Campbell. I understand the loan default rate at the 
BIA program is between 6 and 7 percent. How does that compare 
with an industry lending, say, in commercial or home mortgages?
    Mr. McGuire. I would say that is on the high side.
    Senator Campbell. It is on the high side?
    Mr. McGuire. That is on the high side.
    Senator Campbell. I was going to ask Ms. Edelman this, but 
maybe she could chime in if she is interested, too.
    One of the problems is that banks may not be exposed to a 
whole variety of opportunities in Indian communities. That is a 
communication problem we have. Do you think the lending 
agencies, and in fact do you think NCAI or Indian country would 
support, for the lack of a better term, something along the 
lines of a joint development fund which would help tribes, the 
private sector and the banking community identify the 
opportunities that each offers and each needs?
    Mr. McGuire. From a banking standpoint, absolutely. I think 
we would encourage that as much as possible.
    Ms. Edelman. I can say so on behalf of NCAI, certainly.
    Senator Campbell. Basically, you are trying to do that now 
just to, as you can, with different seminars.
    Ms. Edelman. Exactly.
    Senator Campbell. Mr. McGuire, the amount of loans, the 
lending projects you have mentioned, your testimony involves 
pretty substantial loans--$7.5 million to $18 million 
respectively.
    Mr. McGuire. Correct.
    Senator Campbell. Are those typical of the kind you get 
involved with, from the standpoint of loan amount?
    Mr. McGuire. No; those are definitely on the higher side. 
Usually, these loans are capped at around $4.5 million to $5 
million, although there are exceptions. And the ones that we 
are looking at right now are in the $1 million to $3.5 million 
range, but we are also looking at a couple of them that are in 
the $10 million range.
    Senator Campbell. So you loan to tribes. Do you also loan 
to individual tribal members?
    Mr. McGuire. Yes; we do. We have done many individual loans 
over the last 15-18 years.
    Senator Campbell. What do they need, when they come to you 
for a loan, a tribal member, do they need a plan? They have to 
have an idea and have it pretty well fleshed out about what 
they would like to do? You do some feasibility analysis of it 
to see if it will work.
    Mr. McGuire. Absolutely. When they come to us for these 
types of loans, from an individual standpoint, we have made car 
loans, home improvements loans--just our normal loans across 
the board. As far as loans for economic development, those we 
have only done with tribes. But absolutely, they knew that they 
needed a plan. Absolutely, they do have to have a plan, or we 
can assist them with trying to put a plan together.
    Senator Campbell. You do assist them. They have a good 
idea; you have somebody on staff that you can help lay out the 
financial business plan.
    Mr. McGuire. We do, or we bring somebody else into the 
picture that is an expertise that can help them formulate this 
plan so that it becomes an acceptable loan program for both us 
and the BIA, because we look like we are protecting the BIA to 
some extent, because we are in there as partners with them and 
we do not want to have a default if it is at all possible.
    Senator Campbell. Good. Some of the things you mentioned 
that you have loaned money for--one you mentioned was a strip 
center. Does that mean mall, hopefully? [Laughter.]
    Mr. McGuire. Yes; that is a small mall with various stores 
along the road.
    Senator Campbell. Okay. All right. Well, I appreciate that. 
I have no further questions, and let me sigh with relief there 
with that answer.
    Mr. McGuire. Thank you very much. [Laughter.]
    Senator Campbell. With that, this hearing, the record will 
stay open for 2 weeks. If anybody has anything they would like 
to add in writing, just send that into the committee. We will 
include that in the record, too.
    This committee is adjourned. Thank you.
    [Whereupon at 10:48 a.m., the committee was adjourned, to 
reconvene at the call of the Chair.]
=======================================================================

                            A P P E N D I X

                              ----------                              

              Additional Material Submitted for the Record

=======================================================================

   Prepared Statement of Hon. Craig Thomas, U.S. Senator from Wyoming

    Thank you, Mr. Chairman. Throughout my time in Congress, I've heard 
tribal leaders in my State describe their frustration with the economic 
conditions on the Wind River Reservation. Unemployment, poverty, and 
lack of infrastructure are serious problems throughout Indian country. 
It is important for this committee to remain interested and committed 
to addressing these issues.
    As a former small business owner, I well understand the importance 
of creating incentives for small business development in Wyoming 
communities, particularly on the Wind River Reservation. My State's 
economic health is dependent on this kind of entrepreneurship. Creating 
opportunities to secure loans can go a long way toward helping small 
business, entrepreneurs, particularly those living in Native American 
communities.
    I know, for example, that both the Northern Arapaho and Eastern 
Shoshone Housing Authorities have been able to establish a Department 
of Housing and Urban Development program that allows local banks to 
issue loans to eligible tribal members. Clearly, increased home 
ownership and adequate housing are an inherent part of enhancing and 
building solid communities as well as sustaining economic growth. These 
tribes are to be commended.
    The Indian Financing Act of 1974 is a step in the right direction 
to help American Indians secure loans. However, since its creation over 
a quarter century ago--many of the same economic challenges remain. I 
am very interested to see how we can make this program more accessible 
to a larger population of Native Americans.
    Thank you Mr. Chairman. I look forward to hearing from our 
witnesses.
                                 ______
                                 

   Prepared Statement of Les Minthorn, Treasurer, Board of Trustees, 
         Confederated Tribes of the Umatilla Indian Reservation

    Mr. Chairman, my name is Les Minthorn and I am the treasurer of the 
Board of Trustees, the governing body of the Confederated Tribes of the 
Umatilla Indian Reservation [CTUIR]. It is a privilege and a pleasure 
for me to appear before the committee today to testify in favor of S. 
2017, legislation that will permit more tribes and individual Indians 
to take advantage of the BIA guaranteed loan program, as the CTUIR did, 
to achieve financial independence.
    The purpose of S. 2017 is to facilitate the sale of BIA guaranteed 
loans by the lending bank to the secondary market, along with 
transferring the guarantee of the United States to the purchaser of the 
loan. This will have the effect of permitting banks and other lending 
institutions participating in the BIA guaranteed loan program to make 
more such loans available to tribes and individual Indians. I will 
leave it to others with more experience in banking matters to address 
the mechanics of how S. 2017 facilitates the sale of such loans in the 
secondary market; I want to address the experience of the CTUIR with 
our BIA guaranteed loans as an indication of how the expansion of this 
loan program can benefit other tribes and individual Indians.
    On July 18, 2001, Assistant Secretary Neal McCaleb testified before 
this Committee on tribal good governance practices as they relate to 
economic development. In the course of his testimony, Mr. McCaleb made 
the following statement about the CTUIR:
    ``Another success story is told by the Confederated Tribes of the 
Umatilla Indian Reservation located in rural northeast Oregon. Their 
original economy was based upon agricultural and natural resources, 
primarily fishing, grain, and timber.
    Today the tribe has diversified into commercial developments such 
as a trailer court, a grain elevator, the Wildhorse Casino, a hotel, a 
RV park, a golf course, and a solid waste transfer station.
    The tribe is now the second largest employer in Umatilla County, 
following only the State of Oregon. Their operating budget has 
increased from $7.6 million to $94.2 million in the last 9 years.''
    We appreciate the recognition and kind words by Assistant Secretary 
McCaleb. Our government and our people have worked hard for the modest 
success we have achieved. The growth in our tribal budget in the past 
decade is due to two factors: First, the CTUIR has taken full advantage 
of the opportunity to contract for BIA and IHS programs under the 
Indian Self-Determination Act. Second, and much more importantly, the 
CTUIR has worked diligently to establish a diversified, self-sustaining 
Reservation economy. The BIA guaranteed loan program played a critical 
role in providing startup financing for three tribal enterprises that 
form the core of our economy.
    Prior to 1994, the CTUIR budget was derived almost exclusively from 
Federal grants and contracts. Only a handful of jobs outside of tribal 
government were available for tribal members and other reservation 
residents. The CTUIR had little tribal income that it could allocate 
pursuant to tribal priorities and without the strings attached to 
Federal funds. We knew that governmental jobs and programs were not 
enough to increase employment opportunities and to improve the 
financial future for our tribe and its members. Economic development 
was necessary to achieve these goals.
    The Umatilla Indian Reservation is bisected by Interstate 84--the 
major east/west highway from Portland to Boise. Because of our rural 
location, we knew our economy needed to take advantage of the freeway 
traffic. As far back as 1969, the CTUIR planned for the development of 
a destination resort at the base of the Blue Mountains offering a golf 
course, hotel, RV park, gas station and convenience store, and a tribal 
museum. Those plans languished for 25 years because the CTUIR was 
unable to secure the necessary financing. But recently, with the 
assistance of the BIA guaranteed loan program, our dreams have become 
reality.
    In November 1994, our small, temporary gaming facility opened, and 
in March 1995, moved into our larger, permanent casino. To diversify 
our economic enterprises and to increase the amenities available to our 
casino patrons, we needed a hotel, RV park and golf course. Attracting 
financing for these enterprises posed a difficult challenge. The CTUIR 
had few resources and little income it could pledge to secure repayment 
for loans for these enterprises. The fact that the enterprises were to 
be located on trust lands and were to be constructed and operated by a 
tribe with no experience in such enterprise development or operation 
made our quest for financing especially difficult. In fact, we were 
only able to attract financing because of the BIA guaranteed loan 
program authorized under the Indian Finance Act of 1974.
    Working with the agency and regional BIA offices, we received a 
$10-million loan guarantee. Pursuant to the loan guarantee, the United 
States guaranteed 90 percent of the loan and provided an interest rate 
subsidy to the tribe to lower financing costs in the critical first 3 
years of operations when our new enterprises were getting off the 
ground.
    If any member of the committee believes that a tribe with a BIA 
loan guarantee has the ability to get a bank loan for any enterprise, 
regardless of its feasibility, and on sweetheart terms, I'm here to 
tell you your belief is mistaken. We worked with the First Security 
Bank of New Mexico on our loans and learned valuable lessons in the 
process leading to the negotiation and closing of the loan 
transactions. We conducted market feasibility studies for each financed 
enterprise, we were required to pledge the full faith credit of the 
CTUIR to secure repayment of the loans and had extensive negotiations 
on loan terms addressing the construction and management of the 
financed enterprises. In other words, while the BIA loan guarantee made 
bank financing available, it didn't guarantee that we would get the 
loan. We were spared none of the rigors that other commercial borrowers 
are subjected to, which prepared the CTUIR for the realities of loan 
and bond transactions that followed.
    While I was not a participant in these loan negotiations, present 
with me today is our tribal attorney, Dan Hester, who was. In addition, 
the attorney for the First Security Bank of New Mexico, Nancy Appleby, 
is also present at the hearing today. I'm certain that both Mr. Hester 
or Ms. Appleby could explain in excruciating detail the process and 
terms associated with the loans if the Committee has any interest in 
exploring these issues further.
    The CTUIR BIA guaranteed loans closed in May [Hotel Loan] and 
December [Golf Course and RV Park Loan] of 1995. All three enterprises 
opened in 1996 and 1997. Later, the CTUIR financed and developed our 
tribal museum and educational facility, known as the Tamastslikt 
Cultural Institute, and have acquired and renovated the Arrowhead Truck 
Stop/Gas Station/Convenience Store to add to the enterprises and 
amenities of the Wildhorse Resort and to diversify our economic base 
and employment opportunities. Currently, the Wildhorse Resort, TCI and 
Arrowhead employ about 500 persons. Unemployment rates among CTUIR and 
other enrolled tribal members residing on the Umatilla Indian 
Reservation have been dramatically reduced--from 37 percent to 17 
percent--since Wildhorse Resort opened. Many tribal members who had 
gone away to be educated and stayed away to pursue employment 
opportunities that did not exist at home have returned to their 
reservation homeland and to unprecedented job opportunities and 
salaries.
    Even before the introduction of S. 2017, the CTUIR did its part to 
free-up BIA guaranteed loan resources. Taking advantage of our 
increased financial resources, our operating history of Wildhorse 
Resort enterprises, and an improved interest rate environment, the 
CTUIR issued taxable and tax-exempt bonds in 1999 to refinance the BIA 
guaranteed loans and other tribal commercial loans. But I hasten to add 
that the loan guarantees were absolutely essential for the initial 
development of our projects. Bonds are difficult to obtain for projects 
that are just on the drawing board, and for which no operating history 
exists. It was loans, secured with the guaranteed backing of our 
trustee, that provided the critical initial financing for the Wildhorse 
projects that are a reality today.
    The experience of the CTUIR with the BIA guaranteed loan program is 
a real success story. The BIA guaranteed loan program made loans 
available to our tribe that would not have been available without the 
guarantee of the United States. The CTUIR has seen its economic base 
expand to meet the needs of its people and to acquire the resources and 
expertise to explore other economic development and financing 
opportunities as our capability and resources permit. We have used this 
expertise in our pursuit of other economic development projects such as 
our proposed Wanapa natural gas-fired power plant, the expansion of our 
casino which is now nearly complete, the development of a reservation 
grocery store and the development and financing of housing to meet the 
needs of our growing and employed tribal membership.
    This committee has been a staunch and persistent proponent of 
Indian tribal self-determination. The Indian Self-Determination Act of 
1975, and its more recent amendments, have taken huge strides in that 
direction. However, tribes will not be fully self-sufficient and in 
control of their own destiny without economic development to employ 
their members and to provide tribal income to fund tribal programs. The 
BIA guaranteed loan program is an important tool available to tribes to 
develop their reservation economies for these purposes. The experience 
of the CTUIR under the BIA guaranteed loan program is an indicator of 
the critical role such loans can play. It is based on this experience 
that the CTUIR offers its strongest support for S. 2017 so that an 
increase in the availability of BIA guaranteed loans can have the 
beneficial impact on other Indian reservations as it has had on my 
reservation.
    Once again, Mr. Chairman, I very much appreciate the opportunity to 
testify before the committee on this important bill. I would be pleased 
to answer any questions that you or members of the committee may have 
of me.
                                 ______
                                 

   Prepared Statement of Marcia Warren Edelman, Economic Development 
           Consultant, National Congress of American Indians,

    Chairman Inouye, Vice Chairman Campbell, and other members of the 
committee, I would like to thank you for your invitation to present 
testimony on this very important piece of legislation, The Indian 
Financing Act Amendments of 2002. I would also like to thank the 
committee and their staff for the hard work they do in the interest of 
the tribes and the Indian people of this Nation. We appreciate the 
particular attention that the committee has given to the need for 
sustainable economic development in Indian country. S. 2017 represents 
an important element in this effort.
    As you well know, access to capital in Indian country is extremely 
limited, and this shortage of capital represents one of the primary 
barriers to comprehensive and lasting economic development in our 
communities. But despite these challenges, a growing number of Indian-
run and/or tribally operated businesses in the United States have taken 
hold in recent years. Most of these Indian entrepreneurs and tribes 
must seek loans for the development of their businesses, as they do not 
have the financial means to finance a business themselves.
    But despite an increasing demand for loans, the lending community 
in Indian country is not vibrant. Sources of capital for development 
remain extremely limited as lenders--already tentative in their 
approach to Indian country due to jurisdictional complexities and, in 
many cases, a simple fear of the unknown--shy away from sinking large 
amounts of money into projects that will take a number of years for 
repayment. Such long-term loans tie up capital for lenders, limiting 
their ability to make loans to other applicants. Large loans for 
complex proposals--however important they may be to the enhancement of 
infrastructure and meaningful economic opportunity in Indian country--
are extremely difficult to procure.
    I commend the committee and its leadership for recognizing this 
problem and introducing legislation designed to draw lenders into the 
economies of Indian country. This legislation offers an excellent 
opportunity to boost tribes' and their members' ability to realize 
self-sufficiency by addressing the problems of liquidity in the current 
market of guaranteed loans to Indian borrowers.
    As you have found, the vast majority of lenders have not readily 
accepted the existing loan guarantees made available through the 
Secretary of the Interior, likely because lenders are committed to 
having their capital tied up until repayment begins. Outside of Indian 
country, loan markets operate differently and arguably more 
productively. Agencies like Freddie Mac and Fannie Mae--as secondary 
lenders-expedite the capital-refill process by purchasing the loans 
from the primary lenders. This secondary market does not affect the 
borrower, and allows a quick turnaround for the primary lender. In 
essence, the secondary lender fronts the value of the loan, and gives 
the primary lender more funds for outlay in other loans.
    We believe that the creation of a similar secondary market for 
Indian country lending is a promising means to increase opportunities 
for Indian businesses to acquire capital, thereby strengthening the 
overall economic fabric of Indian communities. The key foundation of a 
vibrant economy is small business, particularly in the small, rural 
communities that are generally representative of Indian country: By 
making the loans that are currently guaranteed by the Department of the 
Interior available for transfer, this legislation stands to greatly 
increase the flow of funds into new business in Indian communities, and 
jumpstart increasing economic self-sufficiency in Indian country.
    Secondary markets have proven to be an extremely successful means 
of stimulating lending in the contexts where they currently operate. 
For the last 17 years, the Small Business Administration has operated a 
secondary loan market for its loans, and the results have been quite 
positive. The program provides lenders who might otherwise have been 
unable to participate in the loan market a simple process to follow for 
the transfer of loans. Increased numbers of lenders in the market have 
in turn resulted in an increase in the amount of money available to 
those businesses seeking loans.
    Using the SBA program as a model, this legislation would open up 
Department of Interior guaranteed loans to the same processes. We know 
that the market can work to benefit Indian country when the barriers 
that plague our economies are removed, and this process, under the 
supervision and administration of a fiscal transfer agent, is a 
relatively simple and straightforward way to address one of the 
barriers we face. Additionally, the program operates at a very low cost 
to the Government, with fees for the transfer paid by the lenders who 
execute the transfer. Best of all, this program has only positive 
effects on the individuals seeking the loan: They have no need to worry 
about the transfer process, and benefit by the availability of more 
capital.
    The legislation as currently drafted contains provisions for the 
Secretary of the Interior to promulgate regulations necessary to set up 
the secondary loan market, to contract with a fiscal transfer agent to 
carry out the registration and paying agent functions, and to issue 
acknowledgements of loan transfers. In implementing this requirement, 
we urge the Secretary to work very closely with tribal government 
representatives to develop final regulations to set up the market. We 
also urge the Secretary to contract with a fiscal agent familiar with 
transactions in Indian country. We are always available to work with 
this Committee and the Secretary to advise this process and contribute 
what we can to our mutual goal of helping Indian communities and 
individuals to thrive.
    The National Congress of American Indians supports S. 2017 as an 
important means to inject capital into the economies of our tribes, 
thereby strengthening Indian economies and Indian communities. By 
approving this bill, the Senators on this committee will make another 
important step on the path to meaningful economic development for 
Indian country, with little impact on either Government spending or 
bureaucratic process.
    Thank you for this opportunity to present testimony on behalf of 
NCAI, and I welcome any questions you may have.
                                 ______
                                 

   Prepared Statement of Kevin McGuire, Chairman and Chief Executive 
          Officer, Palm Desert National Bank, Palm Desert, CA

    My name is Kevin McGuire. I am the chairman and chief executive 
officer of Palm Desert National Bank in Palm Desert, CA.
    Palm Desert National Bank began making loans to Indian tribes and 
tribal entities in 1985. The projects with which we have been involved 
include a tire re-cycling plant for the Cabazon Band of Mission Indians 
for $7.5 million and most recently we were the lender for a $18 million 
refinancing and construction project for the Picuris Pueblo in New 
Mexico. We continue to actively seek opportunities to make loans of all 
sizes for economic enterprise development in Indian country throughout 
the United States.
    As an Indian country lender, we have learned that, while many 
economic development efforts in Indian country can be sparked with 
relatively small amounts of capital, many tribal development efforts 
require capital in the form of cash and loans that exceed the lending 
limits and loan concentration limits to which small- and mid-sized 
community banks are subject. Our experiences as a community bank lead 
us to conclude that the creation of a secondary market in BIA 
guaranteed loans will increase opportunities for lending in Indian 
country without significant additional cost to the parties and with no 
additional cost to the Federal Government.
    An institutionalized secondary market for BIA-guaranteed loans will 
facilitate the sale to investors of BIA guaranteed loans, putting 
capital back into the originating bank that then can be loaned again. 
Additionally, lenders will be able to originate more loans without 
violating laws and regulations that limit the amount that banks may 
lend to a particular borrower (a function of the bank's size) and that 
prohibit banks from having in their portfolios too many loans of a 
single type.
    If only large banks invested in Indian country, lending limits and 
loan concentrations would be less of an issue. However, community 
banks--those most familiar with their Native American neighbors--make 
many of the loans earmarked for tribal economic development. Therefore, 
the constraints imposed banking law lending limits and loan 
concentration limits are significant problems--problems that can be 
resolved by the passage of S. 2017.
    Since the current Indian Financing Act BIA guaranteed loan program 
permits lenders to transfer portions or all of BIA guaranteed loans 
that they originate, why creation of: A secondary market is necessary? 
There are two primary reasons.
    First, finding participants willing to purchase loans to tribes or 
tribal enterprises, whether or not they are guaranteed by BIA, is very 
difficult and time-consuming. This is so because few lenders are 
familiar with the Indian Financing Act program or the benefits of 
lending in Indian country. As a result, closings are delayed and costs 
escalate. We believe that the existence of an institutionalized 
secondary market will make selling tribal loans much easier.
    Second, there is already a secondary market for commercial loans 
(for example, the SBA, USDA and FARMER MAC programs). Investors are 
familiar with, and are comfortable purchasing loans from, the existing 
programs. However, as it now exists, the Indian Financing Act 
guaranteed loan program is structured differently than other Government 
guaranteed loan programs. The differences and lack of familiarity make 
investors unwilling to invest in BIA guaranteed loans.
    The secondary market contemplated by S. 2017 is modeled after the 
existing SBA and USDA programs. The basic structure is the same. The 
risk to investors is the same. Hence, investors who purchase loans from 
other government guaranteed programs will be likely also to purchase 
BIA guaranteed loans. At the same time, Federal dollars are at no 
greater risk than under the current BIA program because BIA will retain 
the right to look to the servicing lender to recover any losses that 
could have been avoided by proper servicing. Additionally, like in 
other programs, the fees of a fiscal transfer agent will be paid by the 
lender or the borrower, not the government.
    The bottomline, then, is that S. 2017 offers an opportunity for the 
private secondary market in commercial loans to work to increase 
capital for development of economic enterprise in Indian country, just 
as the secondary market in SBA guaranteed loans has increased the 
capital available to small businesses throughout the United States. We 
urge this committee to support this important bill.
    Thank you very much for the opportunity to address this committee 
and for your favorable consideration of S. 2017.

An Introduction to Kevin McGuire

    Kevin McGuire has served as the chairman and chief executive 
officer of Palm Desert National Bank since 1989, a position he came to 
after 14 years in commercial banking. In addition to heading the 
management team at Palm Desert National Bank, Mr. McGuire is an active 
community leader and serves on the Boards of Directors of a number of 
community and charitable organizations.
    Palm Desert National Bank is a locally owned and operated 
independent bank in Palm Desert, California. Its assets exceed $175 
million. The bank has been operation in California since 1981. Palm 
Desert National Bank is an active corporate citizen in its community 
and supports a number of local charities. Palm Desert National Bank has 
taken an active lead role in financing economic development projects in 
Indian County, and it is through Mr. McGuire's efforts that S. 2017 is 
now before the Senate Committee on Indian Affairs.
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