Tribes need to prepare for inflationary future

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NEW ORLEANS – American Indian tribes achieving unprecedented economic progress in the past decade now must brace themselves for future inflation, delegates attending a recent Native American finance conference were warned.

“Never in history have tribes had revenue growth and access to investor capital the way they did in 2001 – 2007,” William Lomax, a citizen of the Gitxsan Nation and president of the Native American Financial Officers Association, told delegates at NAFOA’s annual conference held March 16 – 17. “Now we face the stark realization that revenues can fall and investors and banks can be fickle.

“Given the amount of money (the federal government) has been pumping into the system, it is only a matter of time before inflation takes off. It might be one year, three years or five years, but I’m sure it is coming.”

Tribal leaders who historically have kept government assets in money markets and other “ultra conservative” investments need to be more creative, Lomax told the more than 600 conference attendees.

“Tribes should be looking at a wide range of investments including hedge funds, private equity, foreign investments, commodities as well as plain vanilla stocks and bonds. These are all investment vehicles the wealthiest and most experienced investors use.

“Tribes now have the financial wherewithal to play in this end of the market. Now we need to continue to build the financial acumen to be able to make wise investment choices.”

While loan defaults by tribal government enterprises are far fewer than non-Indian businesses, the sovereign status of indigenous nations has left investors apprehensive about dealing with tribes.

Eugenio J. Aleman, vice president and senior economist for Wells Fargo Bank, told conference delegates that economic recovery from a recession that cost the nation some 8.4 million jobs would be slow and arduous.

“The economy will be very, very weak for the foreseeable future.” He predicted inflationary trends would begin late this year and through 2011.

Particularly hard hit by the recession were the 227 tribes and Alaska Native villages operating government casinos that for the first time enabled the tribes to benefit from bank and investment capital. The approximately 440 tribal casinos in 28 states generated nearly $27 billion in 2008.

But about 50 casinos operated by small enrollment tribes in urban areas generated 70 percent of the revenue. Most tribal casinos on larger reservations in the Great Plains and Southwest United States are small, even marginal operations.

For the first time since passage of the Indian Gaming Regulatory Act of 1988 revenue growth was stagnant in 2008. The more lucrative urban casinos have begun seeing “a sustained drop in revenue,” Lomax said. “Those furthest from urban centers appear to be suffering most with some seeing revenue declines of 30 percent and more.”

While loan defaults by tribal government enterprises are far fewer than non-Indian businesses, the sovereign status of indigenous nations has left investors apprehensive about dealing with tribes.

“This has raised a very serious issue about tribal access to capital going forward,” Lomax said. With the advent of the tribal default, he said many banks and investors are staying out of the market altogether.

NAFOA President Bill Lomax (left) poses with Cherokee Nation Businesses Director of Strategic Investments Jay Calhoun, Cherokee Principal Chief Chad Smith and NAFOA Vice President VaRene Martin.

The defaults are also generating concern that indigenous governments would be tempted to grant dangerous, precedent-setting waivers to their sovereignty in exchange for access to investor capital.

A recent, pre-recession Harvard University study showed economic growth on tribal reservations increasing at a rate three times the national average. But most tribes still remain mired in cyclical poverty. While the nation suffered from a 10 percent unemployment rate, most tribes have never experienced single-digit unemployment.

“For many non-gaming tribes a 10 percent unemployment rate would be fantastic,” Lomax said.

Economists have not been able to gauge what impact the recent recession has had on the non-gaming segment of the nation’s tribal government economy, estimated at $13 billion to $20 billion.

Margo Gray-Proctor, a citizen of the Osage Nation and chairwoman of the National Center for American Indian Enterprise Development, said large reservation and non-gaming tribes suffered from the downturn in the construction industry. She said there were signs, however, of renewed growth.

‘We are now in a position where the well-being of non-Native population has a serious impact on tribal revenues’ -William Lomax, Native American Financial Officers Association president

Gray-Proctor said there were indications that the slowdown in gaming is prompting tribes to be more aggressive in diversifying their economies beyond casinos, hotels and tourism. She said there has also been a renewed effort at tribal joint ventures.

Lomax said tribal leaders need to develop long-term strategies for economic development with the goal of creating diversified, sustainable economies.

“Tribes need to be proactive and define the types of investments they are willing to participate in rather than be reactive and only look at investments that come to their door.” Tribes also need to develop the capability to analyze joint venture opportunities and perform the required due diligence on potential business partners.

The federal government needs to provide tribes with larger allocations of tax-exempt bond financing. “The allocations generally are too small to issue bonds and not all tribes have the credit to get bank funding,” Lomax said.

He called for the creation of a tribal municipal bond authority similar to those formed for non-Indian municipalities. “State municipal bond authorities allow cities to come together to issue bonds. This lowers the cost of capital because it allows for larger bond issuances. Because there are several projects in each issuance there is some diversification which allows for a better bond rating.”

Few tribes in the 20th century had any significant wealth to be affected by the general economy.

“We are now in a position where the well-being of non-Native population has a serious impact on tribal revenues,” Lomax said. “With any luck, the economic recovery will take hold and tribes will be in a position to bring their revenue streams back up.

“When that happens,” Lomax told tribal leaders at the conference, “I hope you will take the opportunity to use the resurgence to make long-term investments for your community and diversify away from gaming.”

Dave Palermo is an award-winning writer, editor and media consultant. He can be reached at dgpalermo@aol.com.