Energizing Native economies: Tribes build corporate governance to spur investment and development
Some American Indian tribes are overhauling their corporate governance structures in order to facilitate energy projects and other economic development on tribal lands.
Published January 1, 2012 | January 2012 issue
Various studies over the past two decades have found that good tribal governance—and specifically, the separation of tribal courts and enterprises from tribal politics—contributes to economic success for American Indian communities. To note one prominent example, a 2003 report published by the Harvard Project on American Indian Economic Development (Harvard Project) found that tribes whose dispute-resolution body is separate from the tribal council have lower unemployment rates than other tribes.1/
It stands to reason that, on the flip side, tribes that lack effective, independent governance institutions may be missing out on economic development opportunities. That's a scenario witnessed multiple times by the staff of the U.S. Department of the Interior's Office of Indian Energy and Economic Development (IEED), who have seen energy- and mineral-related projects on tribal lands stall because the tribes didn't have the appropriate governance in place to attract outside investors.
Some tribes are overhauling their governance structures, particularly those pertaining to tribally owned businesses, in order to facilitate economic development. Their governance-building efforts, which are often undertaken with guidance and training from the Harvard Project or its sister organization, the Native Nations Institute,2/ are intended to enable not only energy- and mineral-related development on reservations, but also comprehensive development of tribal economies.
An entity, ideally
The IEED was created in 2007 through a reorganization that grouped the nonregulatory, technical assistance-oriented functions of the Department of the Interior's Bureau of Indian Affairs under one metaphorical roof. The office has four divisions that promote tribal economic development by providing consulting services or administering tribal loan guaranty and grant programs. Of the four, the Division of Energy and Mineral Development (DEMD) is best positioned to see how a lack of appropriate tribal governance can hinder investment and economic development.
The DEMD consists of about 30 geologists, engineers, and administrators who assist tribes and individual Indian landowners by studying the feasibility of pursuing renewable and conventional energy projects, sand and gravel mining, and mineral mining on Indian lands.
"We're essentially an office of free consultants that tribes can use," says Payton Batliner, an economic development specialist with the division.
Once a feasibility study is completed, DEMD staff members are happy to provide additional assistance to enable the tribe to pursue any identified opportunities. "We'll work with the loan guaranty program, we'll work with the lender, we'll work with private investors and development companies. We'll help the whole way of project development up until actually starting the business and operating it," Batliner says. However, a problem Batliner and his colleagues see over and over is that many potentially lucrative energy- and mineral-related projects never make it past the study phase because the tribe has no stable, independent entity that can shepherd the project through the development process.
"A lot of these projects just don't go anywhere because the designated project lead is part of a tribal government that's elected for maybe a two-year term. Then a new government is elected, and you have a new project lead who is basically at ground zero, as far as the project's development is concerned," Batliner says.
He notes that the problem isn't universal; some tribes are able to move projects along by keeping project leads in place for the duration, no matter which way the political winds blow. But ideally, "What we'd like to see is an entity," he says. "A business entity with some sort of legal framework that mirrors what potential investors would be looking for." He adds that the entity should operate independently from the tribal council, to shield it from potential political interference. And as a prerequisite, the tribe must have a corporate code and other appropriate business laws in place.3/
"We're not talking about taking away any authority of the government, but just creating a structure within that government that's stable, in terms of business operations and the timeline that business runs on, which is sometimes longer than tribal council terms," Batliner explains.
For tribes that don't have a stable, independent entity in place to move energy and mining projects forward, the missed opportunities may be enormous. Tribal lands hold vast potential for renewable and conventional energy development and mining projects. The U.S. Department of the Interior reports that the royalties alone for extracting fuels such as coal, natural gas, and oil from tribal lands were nearly $408 million in fiscal year 2010.4/
According to DEMD staff, some tribes have taken steps to build business entities and tribal government structures that can accommodate large-scale, long-term energy and mining projects. In doing so, they've paved the way for even broader economic development in their communities. They've also set examples that other tribes might benefit from as they consider their own development initiatives. Batliner and his colleagues point to two of the IEED's client tribes—one in far northern Minnesota, not far from the U.S.-Canada border, and one in far southwestern Texas, on the Rio Grande—as models of corporate governance building.
Creating an opportunity-based system
One of the DEMD's model tribes, the Red Lake Band of Chippewa Indians, is a community of some 10,400 members located on the Red Lake Indian Reservation in northern Minnesota. The tribe has undertaken a program of constitutional reform and nation rebuilding, following a best practices model designed by the Native Nations Institute. One major component of the reform and rebuilding has been a thorough restructuring of all tribally owned businesses.
For years, the Red Lake Band had been operating an assortment of enterprises, including a construction company, a convenience store, two supermarkets, and a propane distribution company, but none of them were flourishing.
"The companies weren't doing as well as they could have been because the proper structures and controls weren't in place," says Red Lake Economic Development Director Samuel Strong. As an example, Strong cites the fact that there was no system to track inventory and purchases at tribally owned retail stores, which hindered the tribe's ability to make appropriate, real-time business decisions.
Under a corporate restructuring that took effect in May 2011, all tribally owned businesses are now overseen by a business advisory board that is separate from the tribal council. The board's job is to maximize the efficiency of existing tribally owned businesses and identify new business opportunities. Board members include Strong and a mixture of corporate executives, tribal entrepreneurs, and community leaders who collectively have an array of business expertise.
The restructuring will enable Red Lake to further explore plans for tapping renewable energy sources on the reservation. An IEED representative recently conducted an assessment of Red Lake's wind, solar, and geothermal resources, and the tribe is now working with IEED on a proposal for a small-scale wind project that could get under way as early as this summer.
"That would allow us to fulfill our own energy needs on a smaller scale and then put together a possible large-scale energy development project where we could actually be selling energy back to the grid and making a profit off of it," Strong says.
Energy development is only one component of Red Lake's efforts. Another goal of the tribe's restructuring is to develop tribally owned enterprises that are certified as 8(a) firms, which means they could pursue a variety of government contracts.5/ Board members are also interested in assessing the potential for developing an ecotourism industry that would celebrate the culture and heritage of the tribe. At the heart of all the board's goals, from energy projects to tourism, is the idea of generating more income and opportunities for tribal members. "We'd like to really provide opportunities for the entire reservation," Strong says, "and create a system where people have not only jobs but careers."
When asked what lessons he's learned from Red Lake's experience with corporate restructuring, Strong stresses the importance of communication.
"Make sure everyone understands what your intentions are, and that you're not just trying to take things over," he says. "Make it clear that what you're doing is in the best interest of the entire tribe, and that this is how the business world works. You need an appropriate governance system that has the right kind of information and appoints the right kind of people to make good, sound business decisions."
Restructuring for a post-gaming economy
The second model tribe that DEMD members point to is situated more than 1,000 miles from the Red Lake reservation. The Ysleta Del Sur Pueblo is a 1,600-member community located in El Paso, Texas. The tribe was federally restored in 1987 and established gaming operations several years later—first bingo in 1993 and then a casino with slot machines in 1997. Once the casino was up and running, the tribe used some of the gaming proceeds to start other businesses, including a tobacco shop, a restaurant, a convenience store, and an oil distribution company. But the casino dominated the tribal economy. According to Patricia Riggs, Ysleta Del Sur's director of economic development, the pre-casino unemployment rate was around 50 percent. After the casino opened, unemployment dropped to 3 percent.
Several years after the casino began operating, the state sued Ysleta Del Sur on the grounds that the tribe's federal restoration act prohibited forms of gaming that are illegal in Texas. The courts sided with the state, and the casino was shuttered in 2002, leaving the tribe's gaming-dependent economy devastated. Riggs describes the atmosphere at the time as "stifling." Aside from the tobacco shop, which had taken off from the beginning, all of the tribally owned businesses were floundering. The tribe had been feeding the businesses with casino revenues, and now that the revenues were gone, it was clear the businesses were failing—but the tribe didn't want to admit it.
"I'd have to say that we were in denial," says Riggs. "Also, there were political ties to the businesses that made it difficult to change our business processes, so we just kept operating failing businesses."
Riggs and some concerned tribal leaders saw a need for a complete overhaul of Ysleta Del Sur's business and economic development activities. Prompted by a suggestion from the governor's office, Riggs contacted Jack Stevens, the acting director of the IEED, for assistance. The IEED then provided an education grant that enabled Ysleta Del Sur's tribal council and key directors to attend the Native Nations Institute's Nation Building training. The training spurred the tribe's leadership to undertake a series of governance-building steps. Riggs secured grants from other federal agencies, including the U.S. Department of Health and Human Services Administration for Native Americans, to support a tribal policy assessment and additional training. Within just a few years, the tribe established an economic development advisory committee, passed a corporate code, and established a development corporation called Tigua Inc. that is now 8(a)-certified and attracting federal contracts. And all of Ysleta Del Sur's tribally owned businesses are now in the black.
To shape its future activities, the tribe created a comprehensive economic development strategy that identifies ten goals, including workforce development, legal infrastructure development, asset building, and energy efficiency and renewable energy. On the renewable energy front, Ysleta Del Sur recently received a $170,000 grant from IEED to fund a feasibility study for a waste-to-energy project. The tribe is also interested in exploring opportunities related to solar and wind energy.
When reflecting on the tribe's journey, Riggs stresses the importance of honesty, consistency, and engagement. First, it was essential for the tribe to take an honest, unflinching look at its financial status and admit that its businesses were failing. Second, "You need to come up with a plan and stick to it, even if that means you find yourself saying the same things over and over," she says. Finally, "Community engagement is a big factor. You always need to find out who your key stakeholders are and keep them a part of the process."
Studying and building simultaneously
The experiences of Red Lake and Ysleta Del Sur demonstrate that reinventing a tribe's corporate governance structure is doable and that help and guidance are available along the way. These tribes now have the structures in place to pursue renewable energy projects, mining, and other large-scale operations that have the potential to boost tribal revenues and self-sufficiency.
Batliner and his DEMD colleagues are hoping that more tribes will undertake similar corporate governance-building efforts in order to take full advantage of the energy resources on tribal lands. They recognize that theirs is not the only federal agency to see potentially lucrative development projects stalled by tribal corporate governance issues; numerous other agencies that have a role in energy or economic development in Indian Country are in a similar position. The DEMD is interested in initiating discussions between those agencies and the tribes, legal advisors, and Native development institutes that have experience in building tribal corporate governance systems. In particular, the DEMD wants to explore the idea of conducting feasibility studies and building corporate governance simultaneously. That way, once the study phase is completed, all the necessary governance components would be in place and projects could move ahead.
As Batliner puts it, "Let's find everybody out there who works on these issues and get them together to talk about how we can implement governance changes while we're doing the studies. If you've got a feasibility study that's going on for 18 months, let's try to get a business structure in place during those months. That'll help the tribe, not only with this project but with any other type of business operation they would potentially want to undertake."
To join the discussion, contact the IEED at 202-219-0740, the DEMD at 303-969-5270, or Payton Batliner at email@example.com or 303-969-5270 x391.
1/ Miriam Jorgenson and Jonathan Taylor, What Determines Indian Economic Success? Evidence from Tribal and Individual Indian Enterprises, June 2003. The Harvard Project, an academic center housed in the John F. Kennedy School of Government at Harvard University, studies the characteristics of healthy tribal economies in order to determine what works and why. For more information, visit www.hpaied.org.
2/ The Native Nations Institute, an outgrowth of the Harvard Project, is housed in the Udall Center for Public Policy at the University of Arizona. It provides self-determination, self-governance, and development resources for Native nations. For more information, visit www.nni.arizona.edu.