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Indian country offers rural anchor communities for equity under tax code

WASHINGTON - Gaming revenues have turned some Indian tribes into anchor communities for their impoverished rural regions. According to witnesses before the Senate Finance Committee on July 22, other nongaming tribes could fit that description, given equal treatment with states and municipalities under the tax code.

Instead, many well-informed Indian financial professionals insist, tribes have been left out of evolving tax law. The result, they say, is that states and municipalities can finance any form of economic development project with the advantages of tax exemption as governments, while the tax exemption of tribal governments - and the fiscal integrity of their projects - is compromised by adverse IRS definitions of ;'essential government functions.''

For tribal governments only, the tax exemption of development projects depends on their acceptance as ''essential government functions'' by the IRS, said Thomas C. Rodgers, a lobbyist with Carlyle Consulting in Washington. He added that the new Yankee Stadium and Torrey Pines Golf Course in San Diego, site of the recent U.S. Open championship tournament that has already entered golf lore by virtue of Tiger Woods' one-and-a-half-legged victory, were both financed with tax-exempt bonds.

Without equal treatment under the tax code, said committee member Sen. Charles Grassley, R-Iowa, the uncertainties of tax policy and IRS interpretation produce negative economic consequences for tribes or for anyone. Businesses can't plan ahead, investors can't bank on stable returns and communities can't realize the full benefits of development, he explained.

Wayne A. Shammel, general counsel for the Cow Creek Band of Umpqua Indians in Oregon, said unequal tax treatment also hinders investment in tribes, particularly the bond issuances that typically finance large development projects.

''Because of these disparities between the way tribal and nontribal debt issuers are treated, a structural instability is in the market so that Wall Street's trying to take more money out of the reservation because the government [through its tax policy] is telling them it's OK.

''They can charge us more money because the laws say that ... 'yeah, they're [tribes are] treated as governments, and we want that tax-exempt debt, we all find that's attractive investment. But we can also price you like you're in the high-yield market''' - that is, investors can charge high interest rates on tribal bonds they purchase because of the high risk of unfavorable tax treatment by the IRS, while enjoying tax-exempt returns on their investment in a government.

''In my belief, the local communities are suffering,'' Shammel said.

To the contrary, particularly given the condition of the U.S. economy, policymakers should consider tribes as anchor communities for their generally poor rural regions, he added.

''We have the ability, because of our commitment to our locality, to use our governmental status to help not only our own agenda but everyone around us. ... I don't pretend to speak for all Indian people, but tribes are not separatists. We're loyal Americans. We're here to be part of the country.''

Comity and cooperation between races became a paramount theme of the hearing. Sen. Max Baucus, D-Mont., who scheduled the hearing as chairman of the committee, began it with a quote from the Teton Lakota leader, Lone Man: '''I have seen that in any great undertaking, it is not enough for a man to depend simply on himself.' He was right. In economic policy, as in any great undertaking, we need to work together.''

Donald Laverdure, chief legal counsel for the Crow Nation, assured Baucus that tribes do not seek to become tax havens. Rather, equal treatment under the Internal Revenue Service tax code would make a place at the table for tribes to work with state and municipal officials, directing the use of resources. Otherwise, Laverdure said, ''When Congress doesn't specify [the tax treatment of tribes], the IRS and federal agencies will interpret narrowly'' - and most often to the detriment of tribes.

Dante Desiderio, economic development policy specialist for the National Congress of American Indians, called for equal treatment of tribes and states in tax-exempt bond issuances, accelerated depreciation of business assets on reservations, and enhanced tax incentives for Indian employment. He added that the committee should consider amending a recent Indian-specific complication in pension law, and authorize tribal governments to offer one pension protection plan - instead of one for tribal government employees and one for the employees of tribal enterprises, as at present.

Thoroughgoing witness testimony, along with a compilation of comparative tax-exempt bonding authority by Gavin Clarkson and an overview of Native-specific federal tax provisions by staff of the congressional Joint Committee on Taxation, made for a full hearing record.

Afterward, Russell Dick, treasurer of the Dunlap Band of Mono Indians in California, said equal treatment of tribes under the tax code would contribute to economic development, as savings on interest rates and profit from bond-financed projects are plowed back into local economies. That in turn would contribute to community reinvestment for both tribes and surrounding communities, he said.