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GENERAL MEMORANDUM 11-062

GENERAL MEMORANDUM 11-062
Congressman Cole Introduces Bill to Strengthen Economic Development in Indian Country

On April 15, 2011, Representative Tom Cole (R-OK) introduced the Indian Country Economic Development Act, HR 1599. The bill takes a multipronged approach to addressing issues which inhibit economic growth and development in Indian Country. Many of these provisions would amend current law in such a manner as to treat tribal governments in a similar manner as state governments. Title IX of the bill, "Indian Tribal Development" creates a program similar to the "477 program" which allows tribes to combine funds from many federal agencies into an integrated plan with a consolidated budget. The bill has been referred to the Ways and Means Committee; the Education and the Workforce Committee; the Judiciary Committee; the Natural Resources Subcommittee on Indian and Alaska Native Affairs; and the Financial Services Subcommittee on Insurance, Housing and Community Opportunity.

TITLE I—AMENDMENT TO NATIONAL LABOR RELATIONS ACT

Title I would amend the National Labor Relations Act (29 U.S.C. § 152) to expand the list of the exclusions to the definition of "employer" to include: "any enterprise or institution owned and operated by an Indian tribe and located on its Indian lands." Currently, the only entities explicitly listed as excluded from the definition of "employer" are:

… the United States or any wholly owned Government corporation, or any Federal Reserve Bank, or any State or political subdivision thereof, or any person subject to the Railway Labor Act [45 U.S.C. 151 et seq.], as amended from time to time, or any labor organization (other than when acting as an employer), or anyone acting in the capacity of officer or agent of such labor organization.

TITLE II—FICA FORGIVENESS ON STUDENT LOANS

Title II would amend the Internal Revenue Code to exclude from gross income payments made to an individual enrolled in the Indian Health Service (IHS) Loan Repayment Program authorized by Section 108 of the Indian Health Care Improvement Act (IHCIA). This program offers financial assistance to individuals, especially Indians, to help maintain an adequate supply of trained health professionals for programs operated by IHS, tribes/tribal organizations and urban Indian organizations (I/T/U). IHCIA Section 108 authorizes IHS to pay up to $35,000 per year of loan repayment on behalf of the individual for each year of service he/she supplies to an I/T/U. In addition, IHS is authorized to pay the individual an additional sum to reimburse the tax liability the individual incurs on the value of the loan repayment made by IHS.

The proposed bill section would put the IHS Loan Repayment Program on the same footing as the National Health Service Corps Loan Repayment Program with regard to the tax liability of the individual participant. By excluding from gross income the IHS payments to the individual, the IHS would not have to expend additional funds to help the individual pay income tax, and thereby enable the agency to extend its loan repayment resources to more participants.

The provisions included in Title II should not be confused with the effort – not yet achieved – of tribal health advocates to make IHS scholarships non-taxable to the recipient. While such a provision was included in the IHCIA amendments reported by the Senate Indian Committee in 2009, it was stricken from the IHCIA component enacted into law as part of the Affordable Care Act.

TITLE III—STUDENT LOAN REPAYMENTS EXCLUDED FROM GROSS INCOME

Title III would exclude from gross income any amounts paid by the federal government through a student loan program on behalf of an employee of the Bureau of Indian Education (BIE) "whose responsibilities include working with or instructing students who attend schools overseen by such Bureau." Since this loan program is only available to federal government employees, it does not benefit employees of BIE-funded schools operated by tribes and tribal organizations.

TITLE IV—INDIAN TRIBAL GOVERNMENT PENSION PLANS

On August 17, 2006, the Pension Protection Act (PL 109-280) was enacted. It contained a provision which expanded the definition of "governmental pension plans," that is, pension plans operated by state and local governments, to include pension plans operated by tribal governments. The goal of the sponsors of the original bill was to allow tribes to enjoy the greater benefits, and lesser burdens, enjoyed by state and local governments' pension plans. However, while the bill was pending, it was amended in the House to distinguish between those tribal employees performing services classified as "essential government functions" and those tribal employees performing services classified as "commercial activities (whether or not an essential government function)." Pensions for tribal employees performing services classified as "commercial activities" were excluded from consideration as a tax qualified government plan. This distinction has created a burdensome two tier pension system for tribes to administer.

Since 2006 there have been several efforts to repeal the commercial activities clause. One of them was S 792, introduced in 2007 by Senators Gordon Smith (R-OR) and Jeff Bingaman (D-NM), which failed because it lacked the support of the chairmen of the House Education and Labor Committee (Representative George Miller, D-CA), and the House Ways and Means Committee (Representative Charles Rangel, D-NY). Title IV of Representative Cole's bill seeks to enact the original Smith-Bingaman legislative fix by including substantively similar language to amend the same sections of Internal Revenue Code and the Employee Retirement Income Security Act as S 792 would have done.
TITLE V—ISSUANCE OF TAX-EXEMPT BONDS

Title V addresses two longstanding issues related to tax-exempt bonds and tribally-issued securities. The bill would first provide tribes with the same flexibility as state and local governments to raise money through the sale of tax-exempt bonds to finance a wide array of projects. Current limitations imposed by the Internal Revenue Service (IRS) prevent tribes from issuing tax-exempt bonds for projects that are not deemed "essential government functions." State and local governments are not subject to that restriction. In a well-known case, the IRS denied tax status to bonds issued by the Agua Caliente tribe to finance a golf course. The issue has been the subject of previous legislation, unsuccessful except for the 2009 American Recovery and Reinvestment Act (ARRA) which removed the "essential government function" restriction for the issuance of a limited amount of tribal economic development bonds (but disallowed their use for gaming facilities.)

Title V of Representative Cole's bill follows the same path as ARRA and would remove the "essential government function" test for projects located on an Indian reservation and would continue the restriction on their use to finance gaming projects. Title V would also extend the exemption from registration provided to states and local governments who offer securities, to include tribal governments.

TITLE VI—TAX CREDIT FOR TECH COMPANIES IN INDIAN COUNTRY

Title VI would provide $3,000 per full-time employee in tax breaks to businesses, Indian-owned or not, located in Indian Country that supply high technology items to the United States, particularly the Defense Department, which are grown or made domestically or which are limited in availability in the U.S. or related to chemical warfare protective clothing.

TITLE VII—TRIBAL LEASES

Title VII of the bill would provide authority for tribal governments to grant surface leases for tribal trust lands without approval by the Secretary of the Interior. The bill would accomplish this by making a number of amendments to the basic federal statute authorizing leases of Indian trust lands, which is codified at 25 U.S.C. § 415. Subsection 415(e) currently provides that that the Navajo Nation has the authority to grant leases on its tribal trust lands without secretarial approval if it does so pursuant to tribal regulations that have been approved by the Secretary.

The bill would make this subsection applicable to any tribe that chooses to opt in. A tribe would opt in by adopting tribal regulations and submitting them to the Secretary for approval. The statutory standard for the approval of tribal regulations would be that they must be "consistent with the regulations of the Secretary" issued pursuant to subsection 415(a) "and any amendments thereto" and must "provide for an environmental review process." The Secretary would have 120 days to approve or disapprove the tribal regulations, but that time period could be extended by the Secretary.

The reference to the regulations of the Secretary issued pursuant to subsection 415(a) means the BIA leasing regulations codified at 25 C.F.R. part 162. As we have reported, the Department of the Interior is currently engaged in a project to make comprehensive revisions in 25 C.F.R. part 162. See General Memorandum 11-034 (March 18, 2011). We have no comment on what would be required for tribal regulations to be "consistent" with 25 C.F.R. part 162. Once tribal regulations have been approved, disputes alleging the failure of a tribe to comply with its regulations could be referred to the Secretary, after exhaustion of tribal remedies.

The amendments proposed in the bill would apply only to tribally-owned trust or restricted lands, not to individually-owned Indian lands. In addition, the bill would not apply to leases for the exploration, development, or extraction of any mineral resources.

We note that Title VII of the bill is quite similar in its purpose to a bill captioned the "Helping Expedite and Advance Responsible Tribal Homeownership Act" (the HEARTH Act). See General Memorandum 10-107 (August 20, 2010). While the HEARTH Act was not passed in the 111th Congress, it has been reintroduced in both houses in the 112th Congress: HR 205 (Representative Martin Heinrich, D-NM); S 703 (Senator John Barrasso, R-WY). The current Senate version of the Hearth Act would amend 25 U.S.C.§ 415 by adding a new subsection (h) that is quite similar to the provisions of subsection (e) as it would be amended by Title VII of HR 1599, as discussed above.

One difference between Title VII of HR 1599 and S 703 is that S 703 provides a little more detail regarding what tribal regulations would be required to provide in the environmental review process. Under S 703 the environmental review process would have to include: "the identification and evaluation of any significant effects of the proposed action on the environment" and a process "for ensuring that … the public is informed of, and has a reasonable opportunity to comment on, any significant environmental impacts of the proposed action" and the "tribe provides responses to relevant and substantive public comments on those impacts." S 703 also provides that a tribe may rely on the environmental review process of an applicable federal agency rather than its own process. As with Title VII of HR 1599, S 703 would authorize appeals to the Secretary after exhaustion of tribal remedies.

TITLE VIII—EXEMPTIONS FROM TITLE VI OF THE CIVIL RIGHTS ACT OF 1964

Title VIII would amend the Civil Rights Act of 1964 (42 U.S.C. § 2000d et seq.) to allow an Indian tribe to give employment preference to a member of its own tribe when making hiring decisions. The Equal Employment Opportunity Commission (EEOC) has taken the position that while the Navajo Nation may give hiring preference to Indians generally, the Nation may not limit hiring preferences to Navajos; i.e., the Nation must include Indians of other tribes as candidates in any preferences offered.

At present this important legal question is tied up in court on procedural technicalities, but when these are resolved the preference question will be ripe for the courts to decide one way or the other. There are indications that this question will eventually go all the way to the Supreme Court for final resolution, unless sooner resolved by passage of legislation such as Title VIII of the pending bill.

TITLE IX—INDIAN TRIBAL DEVELOPMENT

Title IX proposes the creation of a program to allow tribes to consolidate tribal resources with funding from one or more federal agencies in pursuit of targeted economic development programs. Its purpose is to foster community, economic, and business development in a manner that better achieves economies of scale, to develop procedures for joint tribal-federal financing, and to authorize agreements to finance tribal projects with combined assistance from at least one federal agency, a state, and at least one tribal agency or instrumentality.

In some ways the proposed program is similar to the Indian Employment Training and Related Services Demonstration Act (PL 102-477, as amended, 25 U.S.C. § 3401), which established a tribal employment and training program that allows tribes to combine funds from employment, training and related service federal programs from the Departments of the Interior (DOI), Health and Human Services (HHS) and Labor (DOL) into an integrated 477 Plan approved by the Secretary of the Interior, with a consolidated budget and a single, consolidated reporting system.

The Tribal Development program includes projects designed by tribes or tribal organizations "to improve the environment, a housing facility, a community facility, a business or industrial facility, or transportation, a road, or a highway," as well as other economic or business development components that "contribute materially" to carrying out such a purpose. Significantly, it encompasses programs from 16 federal agencies and is thus much broader in scope than the 477 program.

The DOI is designated as the lead agency to carry out the Tribal Development program, including identifying qualifying tribes to participate in a demonstration project for review and approval of initial applications. After demonstrating financial management and auditing capabilities, individual tribes or tribal organizations can submit a project application to the federal agency with the "primary federal program" affected by the proposed project, although it can combine related funding from programs administered by other federal agencies, described in a single budget for expenditure of the combined funds. Review of the application is coordinated with all the affected federal agencies and DOI. Tribes can request waiver of regulations or policies consistent with achieving project aims.

Detailed sections of the proposal outline the actions of federal agencies for coordinated review and approval of applications, and require adoption of uniform regulations, including review of potentially conflicting or inconsistent technical or administrative regulations regarding auditing, timing of payments and accountability for federal property necessary for the project.

The similarity of the proposal to the existing 477 program is instructive. Since its inception in 1992, the 477 program has been implemented by transferring the combined program funds to participating tribes through agreements under Titles I and IV of the Indian Self-Determination Education and Assistance Act (ISDEAA). Although streamlined funding through ISDEAA is an essential element of the success of the 477 program, ever since 2008 HHS and DOI have questioned whether such transfer is authorized by the 477 Act. The proposal for the Tribal Development program does not clarify how funding transfer is to occur. Another critical element of the 477 program's success is the provision for a consolidated budget and a single, consolidated reporting system. Recently, however, HHS has attempted to circumvent the single plan concept by requiring tribes to submit supplemental audits and documentation for specific programs included in 477 plans. The proposed Tribal Development program appears to require separate recordkeeping, auditing and reporting to each federal agency contributing funds to a project. These elements should be changed to be more user-friendly to tribes, or clarified to avoid the problems currently experienced by the 477 program.

Please let us know if we may provide additional information or answer questions on HR 1599, the Indian Country Economic Development Act.

# # #

Inquiries may be directed to:
Moriah O'Brien (mobrien@hobbsstraus.com)

Or by Title to:
Title I – Starla Roels (sroels@hobbsstraus.com)
Title II, III – Carol Barbero (cabarbero@hobbsstraus.com)
Title IV – Charles Hobbs (chobbs@hobbsstraus.com)
Title V, VI – Chris Stearns (cstearns@hobbsstraus.com)
Title VII – Dean Suagee (dsuagee@hobbsstraus.com)
Title VIII – Charles Hobbs (chobbs@hobbsstraus.com)
Title IX – Vernon Peterson (vpeterson@hobbsstraus.com)

Available Documents for Download ( any referenced attachments are included in download )


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