This is a risk averse marketplace and the players will not be interested in dealing in tribal bond issues until they are educated through experience. As a result of the federal trust status of tribal lands and associated natural resources mortgages credit liens cannot be imposed on such lands. Thus as tribally owned assets they are unavailable to use as collateral to secure tribal bond issues. The great majority of tribes do not have in place a property tax system or other types of local government tax programs that are comparable to non-tribal local governments. Such revenues represent the most common form of security for local government public purpose bond issues and are used as a predictable and verifiable source of repayment.
Federal law recognizes a right of sovereign immunity from suit on behalf of tribal governments.
Thus, a tribal bond purchaser will be aware that should there be a default on the part of a tribe in making timely payments, they will not be able to sue the tribe to attach other assets or garner other sources of income. In light of the foregoing analysis, it is clear that tribal governments would benefit greatly from federal assistance in support of tribal bond issues. Even when tribal councils are willing to assume the significant level of debt associated with bond issues for infrastructure financing, a function that many tribal leaders believe is primarily a federal responsibility, formidable obstacles remain. On the other hand, if the federal government were to back up tribal bond issues with federal guarantees or some other form of credit enhancement, most of these obstacles could be overcome. The bond market would recognize that a federal guarantee would effectively protect against a risk of loss of capital advanced to the tribal bond issuer.