Subcommittee on Financial Institutions

Hearing on "Capital Investment in Indian Country."

Chairman Johnson, Members of the Committee, I would like to thank you for providing me with the opportunity to testify on this extremely important issue. My name is Michael B. Jandreau; I am the chairman of the Lower Brule Sioux Tribe in South Dakota. I have been chairman for over twenty years. My tribe is located in the Bureau of Indian Affairs’ Great Plains Region, which includes the 16 tribes in North Dakota, South Dakota and Nebraska.

As you know, Indian Country is facing many pressing issues that would make excellent topics for Congressional hearings. The Indian health care system is a prime example. Indian communities in the Great Plains Region lead the country in almost every negative health care statistic available. We have the lowest life expectancy of any demographic group in the country, and alcoholism and diabetes are ravaging our communities.

There are also pressing economic development needs. According to the 2000 Census figures, South Dakota Indian Reservations are home to five of the top ten poorest counties per capita in the entire United States. We have an average unemployment rate of 75 percent on reservations throughout the Great Plains while a state like South Dakota currently enjoys an unemployment rate of 3.4 percent. How can these islands of poverty coexist with prosperous communities literally just down the road? I believe this hearing can be a positive step toward answering that question.

Let me be clear. Improving Indians’ access to investment capital is one of the best ways to solve the deep-rooted economic problems that exist on reservations across South Dakota and the Northern Plains. Real economic development in Indian Country will, in turn, provide tribes with the resources they need to deal with the countless other challenges and difficulties plaguing our people. Government programs currently provide for many of our basic needs, but if we are to break the cycle of poverty that exists in Indian Country, we must establish a private sector in our Indian communities. And if we are to develop a private sector, we must have access to capital. It’s as simple as that.

Unfortunately, our Indian reservations face economic and social challenges that place us at a distinct disadvantage. The lack of economic growth, poverty, and unemployment place us well behind the rest of the country. In addition, the lack of access to capital and other financial services makes it almost impossible for tribal leaders and individual entrepreneurs to have the necessary resources available to assist in growing our local economies.

I know we are here today to focus on solutions – how to create and restructure federal programs so as to foster capital investment in Indian Country. For that reason, the Committee must be made aware of the real obstacles to achieving this goal, and how to overcome those obstacles. The barriers to capital access in Indian Country cross an entire spectrum of issues: how tribal governments operate; the perception among non-Indians that the legal systems in Indian Country are unstable or unreliable; the lack of adequate infrastructure; and cultural misunderstandings on both sides of the issue.

• Problem: Some tribal courts may seem as though they are not sufficiently independent of the executive branch of their tribal government. Additionally, the absence of codified tribal commercial laws and regulations may cause investors to be hesitant to invest capital on Indian Lands.
• Solution: Provide tribes with adequate funding for court systems and proper staff training. This will allow tribes to develop the expertise to create a legal infrastructure that supports successful business development.
• Problem: Existing federal programs that have been developed to foster capital investment in Indian Country have been ineffective and conflicting. They do not support the type of decision making necessary for business to be completed in a timely manner.
• Solution: Create a task force, comprised of tribal and government officials, and banking experts, to evaluate the current laws and regulations and make recommendations to Congress for needed changes.
• Problem: Misunderstanding and mistrust of tribal sovereignty and sovereign immunity.
• Solution: Provide funding and develop curricula to educate potential investors as the business advantages that tribal immunity offers.
• Problem: Many bank lending rules and regulations are inflexible in dealing with local banking institutions and their ability to lend.
• Solution: Provide more opportunities for secondary market development for guarantee loans such as Bureau of Indian Affairs and Small Business Administration guarantee loan programs. The selling of these loans to secondary markets allows smaller local banks the ability to free up cash that is available to be loaned again. This will allow lenders to originate more loans without violating laws and regulations that limit the amount banks may lend to a particular borrower. This limit is a function of the bank size and further prohibits banks from having to many of the same types of loans in its portfolio.
• Problem: Many individual Indians lack the collateral and/or the personal credit histories needed to secure loans.
• Solution: Develop or expand tribal or inter-tribal Community Development Financial Institutions (CDFI), community banks, and other lending and investment institutions. Create tribal or inter-tribal pools for loan guarantees, equity investments/venture capital, offer micro-loans and lending for housing and small business. Provide technical assistance opportunities for Indians to address their credit histories.
• Problem: Most reservations have small economic bases and so, many of their communities’ basic financial needs cannot be met.
• Solution: Create incubators for Indian businesses, create a board of Indian business leaders to provide guidance for businesses looking to invest in Indian Country. Foster technical assistance between successful Indian businesses and new emerging businesses, tap into current investment opportunities through Congressionally sponsored roundtables, create a federal/tribal investment board that provides guidance to potential investors about investing in Indian Country.
• Problem: There is a limited opportunity for Indian businesses to network with potential investors. Because most reservations are located in rural areas, their access to those with capital to invest is limited at best.
• Solution: The federal government should sponsor an equity fund to help encourage private investment in tribal projects.
• Problem: Lack of financial institutions on or near Indian reservations.
• Solution: Examine current banking laws dealing with historically under-served rural communities to see if changes are warranted to allow exceptions for reservations.
• Problem: Many homes on reservations lack the necessary physical and telecommunications infrastructure needed to properly encourage and support business development.
• Solution: Expand current programs that provide funding for infrastructure development in rural communities and create financial incentives for private investment in Indian communities.
• Problem: Most Native Americans lack experience with the banking industry in general. Therefore, they find the process of obtaining loans cumbersome and uncomfortable.
• Solution: Provide funding and incentives so the banking industry will work with tribes to increase the financial literacy for Native Americans.
• Problem: Lack of technical assistance and training resources for financial literacy, financial management and entrepreneurship.
• Solution: Develop entrepreneurship programs for Native Americans that include information on small business development and web-based training. These programs can be implemented through work with tribal colleges and universities.
• Problem: Lenders and investors do not understand tribal governments or their legal systems.
• Solution: Conduct lender and investor education seminars that could include handbooks on tribal government structure, sovereign immunity, tribal history and contact information to various officials.
• Problem: Historical misunderstanding and mistrust between tribes and lenders.
• Solution: More inter-action between people and development of educational materials and forums.
• Problem: Discrimination and stereotyping of Native Americans.
• Solution: More inter-action between people and development of educational materials and forums.

Chairman Johnson, clearly I have identified more challenges than we can solve today. But just the convening of this hearing has encouraged me and other elders and Tribal leaders. We want to work with you and the Congress to encourage the development of capital markets on the reservations. We have tried to address some of these problems through the creation of the "Wakpa Sica Reconciliation Place," (Public Law 106-568). We thank you for your support for this project. As you know, Wakpa Sica has several goals, including the establishment of a more reliable court system in an effort to attract private capital.

Because of the trust relationship with the United States, I believe this effort must be a creative partnership between tribes, private business and the United States Government to work to find solutions and have proper legislation and regulations that provide the incentives necessary, and the guarantees necessary, to direct private capital to the Indian Country.

Out treaties are still sacred documents to Indian people. Tribal sovereignty is still an important legal principle to Indian people. But I am convinced that if we are to succeed in Indian Country we must have a strong private sector. Anything this important Committee can do to help would be greatly appreciated. Thank you. I would be pleased to answer any questions.

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