Tribes need to prepare for inflationary future
By Dave Palermo, Today correspondent
Story Published: Mar 18, 2010
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.
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.
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