California bill seeks to allow tribal tax-exempt bonds

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SACRAMENTO, Calif. - A bill currently making its way through the California
Legislature seeks to allow tribal governments to issue tax-exempt bonds.
This is the second time through for such legislation. Last year, both
houses passed legislation allowing tribes to issue tax-exempt bonds, only
to be vetoed by Gov. Arnold Schwarzenegger.

Critics of the bill argue that it would not be of public benefit and would
allow tribes to issue the bonds for their own private enterprises.

"The basis of our opposition is that it's not limited to essential
government facilities and could be used for for-profit businesses," said
DeAnn Baker, a legislative representative for the California State
Association of Counties, which opposes the bill.

Sen. Dean Florez, D-Shafter, the sponsor of the bill, countered that
various governments are already using tax-exempt bonds for for-profit
projects. In fact, said Florez, the Sheraton Hotel in downtown Sacramento
was built using tax-exempt bonds and said that they have been used for a
variety of projects, including a gaming project in the form of a racetrack.

Florez said that tribal sovereignty is one of the main reasons that tribes,
like other governments, should be eligible for the tax-exempt bonds.

"I think that it brings parity to the types of things that [tribes] can
build like other governments," said Florez.

Jerry Burke, general manager for the California Statewide Communities
Development Authority, a joint powers authority representing over 400
California governments, said that the use of tax-exempt bonds for casinos
is expressly prohibited by federal regulations. However, he acknowledged
that the bonds could be used for peripheral tribal businesses surrounding
the casino.

Currently, tribes can only use tax-exempt bonds if they are funneled
through another issuing authority (which must be a governmental entity) or
a joint powers authority. This is known as "conduit financing."

In 2002 the California Statewide Communities Development Authority issued
$145 million in tax-exempt bonds to the Cabazon Band of Mission Indians.
However, that issuance has caused a fair amount of controversy and
confusion.

The federal government is now questioning the issuance of that bond, and
press reports indicate that the Internal Revenue Service is looking into
whether Cabazon had used the money for what they consider essential
governmental services.

"The federal law is extremely unclear and that is a big part of what the
issue is today," contended Burke.

In fact, the reason for the tax-exempt bonds is to help and encourage
governmental entities to fund public or quasi-public projects.

Burke said his agency typically receives requests for bonds on municipal
projects such as low-income housing and projects for nonprofit groups. He
said that the authority has issued bonds to Indian tribes before. Several
years ago, tax-exempt bonds were issued for an American Indian health
clinic in Sonoma County, which Burke said was "non-controversial."

The Cabazon bond went toward, among other things, building a tribal
convention center, hotel and shops. The only other tribe to receive
tax-exempt bonds similar to Cabazon's is the Seminole Tribe in Florida,
which also received the bonds for a tribal enterprise.

Though representatives of Cabazon could not be reached by press time, in
the 2002 Indian Country Today article "Cabazons request tax-free bonds to
fund resort project" (Vol. 22, Iss. 19), a tribal representative argued
that tribal projects are unlike that of a private project in that the
Cabazon tribal members receive public services from the money generated by
the tribal enterprise.

The bill is currently being heard in committee.