Northwest Indian Law & Business Advisor : Northwest Indian & Tribal Lawyer & Attorney : Williams Kastner Law Firm : Tacoma, Seattle, Portland

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On June 28, President Obama signed an executive memorandum which commits the government to expand the amount of broadband spectrum available for wireless communications. This follows on the release of the National Broadband Plan by the Federal Communications Commission and the Department of Commerce earlier this spring. The Plan will serve as the basis for the continued development and expansion of wireless communications. The F.C.C. issued action items within the National Broadband Plan which calls for the availability of 500 MHz of spectrum for broadband use within the next ten years. Approximately 300 MHz of the 500 MHz is in the high value spectrum between 225 MHz and 3.7 GHz where mobile use is prevalent. The time frame for making the high value spectrum available for commercial use is within the next five years.

Tribal economies are becoming increasingly dependent upon access to wireless communications such as cellular phones and wireless internet connectionsfor daily business operations. Greater access to broadband spectrum will be essential in providing more avenues for business transactions and economic growth. Wireless communication and internet service providers profit from broadband spectrum as it determines the rates which they can impose upon customers.

Currently, the National Broadband Plan allows for the creation of a Native Nations Broadband Task Force, Office of Native American Affairs, and an increase in mobile communication opportunities within tribal communities. Both this Plan and the Communications Act lack a clear and defined strategy to develop broadband capabilities within tribal communities. One way for tribal entities to increase their bidding power is by utilizing the Tribal Lands Bidding Credits available to them. This tool grants significant discounts to companies bidding on radio spectrum who will be providing improved telecommunications. Without more credits, however, the level of broadband penetration within tribal communities will likely fall by the wayside similar to the manner in which telephone service failed to reach a majority of Native American people. Tribal governments and tribal entrepreneurs have an opportunity here to persuade Congress to adopt tribal prerogatives when it comes to the development and expansion of broadband. The Plan will inevitably be considered by Congress in the near future and tribal broadband advocates should be in a position to influence future legislation. It may be advantageous for tribal governments and tribal entrepreneurs to advance the position that the F.C.C. should make certain spectrum available for sole source bidding by tribal governments and small and disadvantaged business concerns. This position would be similar to preferences in contracting awarded under the Section 8a program.

While consultation with the F.C.C. regarding the Plan is an aspirational goal, the compressed time frame for the auctioning of high value spectrum will force tribal governments and tribal entrepreneurs to bid on spectrum without the F.C.C. having had ample time to develop a clear and defined policy under the Plan for Native Americans. When it comes to the regulation of broadband and net neutrality, tribes should be wary of the F.C.C. overreaching its regulatory authority. In the Comcast v. F.C.C. decision, the court of appeals held that the F.C.C. lacked the ancillary jurisdiction to regulate and impose punitive measures upon an internet service provider when it engages in network management over internet communications. Therefore, logic dictates that tribal governments and tribal entrepreneurs are the most informed and best suited advocates for the use of broadband spectrum within tribal communities.
 

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On March 19, 2010, the U.S. Senate presented S.1147, the Prevent All Cigarette Trafficking Act of 2009, or PACT Act, to the President to sign into law.  The bill sailed through Congress with little debate and provided no opportunity for Indian Country to submit its comments regarding the bill through the hearings process.  The PACT Act would modify the Jenkins Act.  Under the Jenkins Act, distributors of cigarettes are required to file records with state tax administrators when transporting cigarettes within a state or face sanctions for failure to comply with reporting requirements.  The PACT Act would now require common carriers transporting both cigarettes and smokeless tobacco in commerce to file information with states, federal, and tribal government authorities.  The PACT Act also requires common carriers and other transporters of these products to file records with the U.S. Attorney General in order to preserve their status as an approved compliant delivery seller.  These increased regulatory hurdles and record keeping rules will cost Tribal entrepreneurs and Tribal enterprises more money to maintain the records and adhere to reporting requirements.  The increased costs will undoubtedly end up in the price per pack of cigarettes and smokeless tobacco products raising the price paid by consumers.  This has the effect of leveling the price of Tribal products with the price charged by the big four tobacco companies and could wipe out the profit margin that small Tribal owned businesses need to compete in the tobacco market place.  The PACT Act prohibits the U.S. Postal Service from transporting cigarettes and smokeless tobacco products along with online sales.  These two methods of transporting and selling cigarettes and smokeless tobacco will effectively destroy the Tribal tobacco industry as their methods of delivery of Tribal tobacco products to the consumer is now strangled off.
 
Although the bill apparently maintains both state and tribal sovereign immunity from lawsuits, the PACT Act provisions allow state governments the ability to share information with the federal government in the event that states learn of non-compliance with the Act.  States would then have the ability to initiate a civil action against an offending party in U.S. District Court in order to enforce the provisions of the PACT Act.  The federal government would also have the ability to initiate its own civil and criminal actions against an offending party for violation of the requirements of the Jenkins Act as modified by the PACT Act.  In short, the implications of concurrent state and federal enforcement against tribal manufacturers, tribal distributors, tribal entrepreneurs, and tribal enterprises with the PACT Act could tip the scale against tribal governmental sovereignty to engage in commerce as a business entity or dictate its own requirements as a regulator.  Tribal governments would then face a choice between engaging in commerce and regulating tribal commercial transactions involving tobacco under Tribal law or facing the possibility of state and federal enforcement with the threat of a Jenkins Act proceeding if the state or federal authorities believe that a violation has occurred. 

Another area of concern is the non-compliant delivery sellers list that the PACT Act creates and that the U.S. Attorney General will be responsible for maintaining.  The list would be used by the U.S. Attorney General to promote enforcement of the Jenkins Act against carriers or other transporters of cigarettes or smokeless tobacco.  The Jenkins Act list looks  similar to the list of certified manufacturers maintained by each state as a result of the Master Settlement Agreement (MSA).  The MSA was a settlement between 46 state attorneys general and the big four tobacco companies (Tribes were not consulted or included in the MSA) in 1998 that was centered on recovering billions of dollars from the companies to cover health care and other costs for the treatment of conditions caused by smoking cigarettes.  As a result of the MSA, any non-participating manufacturer (who was not one of the big four tobacco companies) of cigarettes must register with each state and pay a specified amount of money into an escrow account (which arguably would include Tribal entities since they are considered a non-participating manufacturer).  Failure to register and pay the amount of escrow required for inclusion on state lists of certified tobacco manufacturers under the MSA can result in a manufacturer’s product being deemed contraband by state officials and seized.  The Jenkins Act appears to be an effort on the part of state governments to have a new federal compliant delivery seller list which is similar to the MSA certified tobacco manufacturer list. The federal list will act as a lynchpin to imploring federal authorities to bring Tribal entities in line with state MSA related statutes, which are clearly inapplicable to Tribal entities or governments.  States and Tribes which have tobacco compacts in place will have to determine if the PACT Act changes the equation with regard to reporting requirements and enforcement authorities.  Interested parties should weigh in with the White House soon as the President still must sign the bill.

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The free market that is the Internet is a primary universal gateway for commercial transactions, including those in Tribal economies. The Internet provides access to Indian Country patrons and customers and may be the only way to reach rural Indian businesses. The free market created and maintained by the Internet could soon be a federally regulated digital environment where rates will be charged for data transferred on the Internet and restricted network access.

Domestic telecommunications policy within the United States has until now encouraged the largely unregulated expansion and modernization of Internet systems and applications to allow ready public access for commercial and other purposes. Yet now, telecommunications companies are stirring up a policy debate that could allow these entities to charge rates for data transmission based on the bandwidth used. Essentially, users would be forced to pay for access for all data transmitted via the Internet. Telecommunications companies are advocating a tiered pricing system, based on the bandwidth being used--a strategy which could lead to segregated pricing based upon content of the data being accessed or type of users accessing the data. The concept of pricing based upon content and users could be the next battleground in strategic competition for access to the broad markets provided by an open Internet.

The counter position is known as net neutrality--the advocates for which hold the position that the Internet must remain open and accessible. Net neutrality proponents fear that segregation of Internet data or access will impede a free market. In particular, they predict severe negative commercial effects if Internet access is regulated by the federal government, restrictions are placed on network performance by telecommunications providers, and/or users are assessed connection speed charges, Universal Service charges, or tiered charges based upon data or content transmission.

On October 22, 2009, the Federal Communications Commission entered the debate and issued a proposed rulemaking regarding Internet access. Under the federal Communications Act of 1934, as amended by the Telecom Act of 1996, Congress detailed an Internet policy rooted in preserving and further developing the vibrant and competitive free market that exists via the Internet. Through its proposed rulemaking, however, the FCC could set regulatory standards for, among other things, various pricing for access to the Internet.

In light of this debate, which will have enormous ramifications, tribes and businesses should begin to formulate strategic economic development plans that call for the creation of Internet Service Providers, Exchange Service Providers, broadband capabilities, and cable television ventures providing services to Indian communities and businesses. Before broadband capability has even reached all of Indian Country, tribal access to the Internet–and the commercial opportunity it brings to reservations–could soon be significantly restricted by federal policy and by telecommunications providers who seek to control the Internet. That is, unless tribal governments and businesses focus on this debate and begin exercising Indian Country’s political muscle. Tribes must actively monitor the FCC’s proposed rulemaking and the overarching net neutrality policy debate; better yet, tribes should comment on the rulemaking, which is available on the FCC’s web-site.

Indian Country can ill afford to be left on the other side of the digital divide.
 

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On September 10th, the Senate Committee on Indian Affairs published an Indian Energy Concept Paper regarding the future of energy development and efficiency in Indian Country. The Concept Paper identifies three strategic areas of concern: (1) antiquated laws and overbearing regulations that impede Indian energy development; (2) obstacles that prevent investment in Indian energy projects; and (3) Indian access to the transmission and distribution system to deliver energy.

Since the creation of Indian energy provisions in the Energy Policy Act of 2005, there has not yet been an Indian tribe that has successfully negotiated a Tribal Energy Resource Agreement with the Secretary of the Interior. Without Tribal ability to plan, develop and operate energy projects, the ability of the United States to fully access domestic energy resources – a matter of national security in terms of limiting reliance on foreign oil services – will be marginal. The Western, Indian-centric United States produces approximately 45% of the country’s renewable energy capacity and as such, Western states have policies that foster exploration, research and development of renewable energy projects.

Federal legislation should do the same. In particular, federal energy laws should provide Indian tribes and entrepreneurs to access to net metering, green energy credits, tax incentives, sales tax exemptions, rebates, low interest loans, and grant opportunities. All such solutions will help Indian energy developers capitalize projects.

Federal legislation should also bring a halt to the impediments of federal bureaucracy relative to Indian energy development. Tribal Energy Resource Agreements can be a useful tool to realize Indian energy plans, but only when they are negotiated with and approved by the Secretary in a timely manner. Congress should also consider how tribes can access the electric power grid, meaning whether and to what extent they must interface state utility regulatory agencies, recognizing the challenges that Indian utilities will have in negotiating contracts, tariffs and rates with state or local government.

It is widely believed that for Indian Country to achieve economic independence, tribal energy resources must be tapped. With proper federal facilitation, energy can and should power the future of Indian Country.
 

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In February 2009, the U.S. Supreme Court handed down a decision that sent shock waves throughout Indian country, which continue to reverberate. The Court’s Carcieri v. Salazar decision prohibits the Secretary of the Interior from taking land into trust on behalf of tribes who were not “under federal jurisdiction” when the Indian Reorganization Act was passed in 1934.

Before the IRA and in the wake of the Allotment/Dawes Act, Indian lands were pillaged by non-Indian homesteaders. Poor and desperate Indian landowners were cajoled if not coerced into selling their lands for pennies on the dollar. The IRA was enacted to prevent further unscrupulous alienation of Indian lands. To that end, Congress provided the Secretary of Interior with the authority to, among other things, restore reacquired Indian lands to federal trust status.

On September 24th, Senator Byron Dorgan introduced S.1703 to clarify Congress’s intent regarding the IRA; the bill has been called the “Carcieri fix.” Representative Tom Cole introduced companion legislation, H.R. 3697, on October 1st. Tribes and tribal members must review the legislation and request that their members of Congress support immediate passage of Senator Dorgan and Congressman Cole’s legislation. State, county and local government and anti-Indian gaming groups will certainly oppose the bills.

Tribal economic development, tribal land stewardship and tribal sovereignty at large all weigh in the balance of the Carcieri fix.
 

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U.S. Senator Claire McCaskill has reinforced her intent to reduce Indian Country’s access to the Small Business Administration 8(a) contracting program by legislating it to death. She proposes language that would severely reduce access to the program by economically underserved businesses operated by tribal governments and Alaska Native Corporations. The Senator’s Press Secretary was quoted as saying: “Reform in this area is going to happen. It’s not a matter of if, but a matter of when.”

The SBA oversees the 8(a) contracting program, the purpose of which is to allow minority small businesses, such as those owned by Tribes and ANCs, an opportunity to access and compete in the American economy. In July, Senator McCaskill chaired a Contracting Oversight Subcommittee hearing on contracting preferences for ANCs, to investigate the alleged abuses in the awarding, management and oversight of the 8(a) program insofar as Indian Country is concerned. She now appears poised to introduce legislation or language into legislation that would strangle the already tenuous access that ANCs and likely all other Tribal governmental businesses have to federal contracting opportunity – and thereby to the greater American economy and their own prosperity.

The 8(a) program already requires an intensive and intrusive process that Tribal companies and ANCs must undergo when seeking certification from the SBA. Tribal applicants must submit financial, tax and business formation documents, as well as consent to a sue and be sued clause, among other requirements to be eligible for federal contracts. In turn, the competitive contract award process utilizes predetermined methodology to ensure that the contracts are carried out efficiently and in satisfaction of the 8(a) program’s intent. Such intensive disclosure helps facilitate full transparency, accountability and efficiency by the Native business, and by the federal government. In short, federal rules governing the 8(a) program already address whatever concerns that Senator McCaskill and others have regarding federal award, management, and oversight of contracts to Tribal businesses or ANCs.

The Native American Contractors Association, National Center for American Indian Enterprise Development and National Congress of American Indians have all expressed interest in guiding this important Native business policy discussion. To that end, Indian Country should request that the Senate Committee on Indian Affairs conduct a hearing to explore the SBA 8(a) program’s tribal experience. Specific Native 8(a)-certified businesses should also immediately begin to formulate responses to this policy initiative, which, if enacted, may close the door on a vital federal program that has never fully been utilized by Indian Country.
 

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In February 2009, the U.S. Congress passed the American Recovery and Reinvestment Act of 2009. The intent of the $2.5 billion allocated to Indian Country through the ARRA was to spur domestic economic growth within Indian Country and mitigate the negative effects being experienced by the American economy at large – the likes of which had not been witnessed since the Great Depression of the 1930s.

Federal funding allowed under the Recovery Act would be delivered to its intended recipients utilizing current federal program delivery systems administered by federal agencies. Thus, any person, organization, or state, local or tribal government that desired to receive federal Recovery Act funds would have to apply for the funds directly with the federal agency charged with its delivery. Within Section 1511 of the Act, Congress placed provisions in the measure which would instill transparency and provide oversight for the responsible use of allocated federal recovery funds.

To those ends, Section 1512 requires that recipients of Recovery Act funds provide a report to the federal agency that granted them the funds, which details the projects and activities for which the funds were spent by the grantee. Under Section 1512(g), federal agencies are directed to coordinate with the Director of the Office of Management and Budget (OMB) in that regard. In February of 2009, the OMB Director issued a letter detailing the procedures that federal agencies would have to utilize in order to satisfy Recovery Act reporting requirements. The OMB takes the position that the Single Audit Act of 1984, 31 U.S.C. 7502(h) (2008) and a related OMB Circular, would require non-federal entities who receive ARRA funds, including tribal governments, to complete and file Single Audit reports with the Federal Audit Clearinghouse (FAC).

The OMB also stated that all Single Audit reports filed with the FAC for fiscal years ending September 30, 2009, would be made publicly available for inspection on the Internet through a link from www.recovery.gov. The OMB directed federal agencies to ensure that any award of Recovery Act funds would be contingent upon a recipients successful reporting under Section 1512.

What this means is that if a tribal government is awarded federal funds under the Recovery Act, it will be required to report its projects and activities according to Section 1512, file a Single Audit with the FAC, and shockingly, allow the FAC to publish all of the tribe’s Single Audit reports on the Internet.

Tribal financial statements and audits have always been guarded with the utmost confidentiality. Disclosing the financial affairs of a tribal government has disastrous implication, in terms of outside scrutiny and backlash. Not to mention there is no identifiable business interest which outweighs the necessity for tribal financial confidentiality. Unlike Wall Street firms who received ARRA monies and thus must stand accountable to the American People, tribes are governments.

Indian Country should be alarmed. Individual tribal governments receiving Recovery Act monies should immediately discuss the reporting requirements with the federal agency grantors, to determine whether and to what extent they are (or should be) satisfying OMB’s reporting, auditing, and publishing directives. Moreover, tribes should band together to challenge OMB’s assertion that highly sensitive and proprietary tribal governmental financial information be disclosed on the Internet or otherwise be made publicly available. Indian Country should insist that FAC publish only the information that is detailed in Section 1512, meaning only relative to the activities for which Recovery Act funds were received and used.

Tribal concerns should be immediately communicated to OMB Director Peter R. Orszag, and each Tribe’s Congressional Delegation.
 

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After months of anticipation, the IRS explained last week how tribes can take advantage of the new tax exempt Tribal Economic Development Bonds in its Notice 2009-51. Announcing a $2 billion volume cap, the IRS explained how it will allocate bond volume under IRC § 7871, and outlined the procedure and requirements for tribes to take advantage of the American Recovery and Reinvestment Act of 2009.

Most of the news is good. Traditionally, tribal governments have been hampered by the requirement that tax exempt bonds be used only to finance essential government functions. New § 7871(f) expands the scope of tax-exempt bond financed projects to most tribal economic development projects. Notably, the bonds may not be used to finance gaming facilities, or projects located outside of Indian reservations. The geographic requirement will prevent some tribes from being able to finance some off-reservation economic development, which will adversely impact those tribes with small land bases. That, however, might be the policy goal behind both the geographic requirement and the gaming exception.

Tribes need to have their applications in by August 15, 2009, to take advantage of the first $1-billion-tranche. The first allocation, of no more than $30 million per tribe, must be issued by December 31, 2010. In other words, those tribal governments wishing to take advantage of the Recovery Act should be filling out the bond applications now. Unless projects are relatively well-formed, it will be difficult to take advantage of the financing plan disclosure requirements.

Such financing plans must include:

• A reasonably detailed description of the plan of financing for the project, including all reasonably expected sources (e.g., a public offering through a named underwriter or a private placement to a named institution) and uses of financing, including financing from the Tribal Economic Development Bonds and from other sources;
• The status of all financing, including the name and addresses of all entities expected to provide any financing;
• The anticipated date of issuance of the Tribal Economic Development Bonds and any expected purchasers of the Tribal Economic Development Bonds;
• The sources of security and repayment for the Tribal Economic Development Bonds;
• The aggregate face amount of Tribal Economic Development Bonds expected to be issued for the project; and
• The issuer’s reasonably expected schedule for spending proceeds of the Tribal Economic Development Bonds.

Presumably, those tribes who have anticipated being able to take advantage of the first allocation will be positioned to provide the above information (and other required disclosures) ahead of the August 15 deadline. For those tribes who require more time, the deadline for the second allocation, which will include any amount of the first $1 billion in volume cap remaining, is January 1, 2010.

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In May 2005, Debora Juarez and I published an article in Indian Country Today titled, “Attracting Private Investment in Indian Country.” We wrote:

Tribal leadership has recently expressed some concern regarding the future of gaming and its governmental benefits. “Indian gaming will one day cease to exist,” Anthony Pico, Chairman of the Viejas Band of the Kumeyaay Indians from California was quoted as saying in a Reuters article aptly titled, “U.S. Indian tribes need to look beyond casinos.” Chairman Pico goes on to explain that the threatened expansion of non-Indian gaming, the over-saturation of the national gaming market, and public policy concerns about gambling addiction, are all factors that will sooner or later contribute to the demise of the $18.5 billion Indian gaming industry.

Chairman Pico’s wise foresight, from the perspective of California tribes who have operated governmental gaming operations since the 1970s, should be heeded by gaming tribes through the country. There were 15 gambling measures on the ballot in six states last November, which embody exactly the type of threat of expanded non-Indian gaming and market over-saturation that Chairman Pico speaks of. Fifteen states have conducted statewide prevalence studies on “problem gambling” and several states are considering legislation to combat gambling addiction, just as Chairman Pico eludes. As such, it is imperative that tribes expand their revenue sources beyond gaming and avoid placing all of their economic eggs in one basket.

Although some tribes have begun to devise ways to attract private investment and industry to the reservation, it has become more important than ever for Indian Country to create new economic opportunities that will withstand the volatile gaming market.

Even though Indian gaming has since grown to a $26.7 billion industry, the current global economic crisis and the resultant decline in may tribal casinos’ net revenues should cause Indian Country to increasingly “look beyond casinos.”

In 2005, a companion to our article was born: the Emerging Northwest Tribal Economies Seminar. The seminar, which was co-chaired by Lael Echo-hawk and I, was carefully designed to help inspire tribal leaders to look beyond casinos, and towards healthier, less politically volatile and perhaps more sustainable modes of tribal economic development. The seminar, which featured predominately Indian faculty members, was “by Indians, for Indians.”

Now half a decade later, we embark upon the 5th Annual Emerging Northwest Tribal Economies Seminar. On August 13 and 14, 2009, tribal leaders, business executives and advisors will again meet to teach, learn and discuss how to create long-lasting Indian economies.

Last year, consistent with notions of “buy Indian,” the seminar was moved from downtown Seattle to the Tulalip Resort Hotel in Quil Ceda Village, a federally-chartered municipality governed and operated by the Tulalip Tribes. The seminar returns to Tulalip again this year.

This year’s seminar, again co-chaired by Lael and I and as always “by Indians, for Indians,” will feature teaching and discussion of:

• Lessons from the Harvard Project on Economic Development
• Tribal Entity Formation & Protection
• Tribal Taxation Update
• Tribal Enterprise Financing
• Federal Appropriations Process: How Congress Can Aid Tribal Economic Development Efforts
• TERO Update
• Tribal Code Development & Entity Formation for Tribal Members
• Tribal Family-Formed Businesses
• Federal Contracting Opportunities for Tribal Small Businesses

For the first time, the seminar will feature a half day, on August 14, dedicated to issues of interest to individual Indian entrepreneurs and tribal small businesses, which are increasingly becoming a vibrant part of tribal economies and helping tribal governments look beyond casinos.