A Forward-Thinking Focus on Infrastructure Builds Tribes’ Economic Stability

Right now, infrastructure is a hot issue that is being discussed by city, county and even country leaders. That’s because government officials and policymakers know that sufficient infrastructure has always been a key factor in attracting and retaining business interests.

Tribal leaders are also concerned about infrastructure, but their focus is not just on obsolescence; it’s on having the basic infrastructure in the first place. The Energy Information Administration estimates that 14% of households on Native American reservations have no access to electricity, 10 times higher than the national average. In Arizona Native Nations like the Hopi and Navajo, 40% of the Reservations’ homes do not have running water. Moreover, according to the 2015 FCC Broadband Progress Report, 85% of rural tribal members lack access to 25 Mbps/3 Mbps broadband.

While cities, counties and states can rely on property and business owners to generate tax revenue for schools, roads, communications, water and electric systems, Native American reservations do not have this same revenue stream since the land on which they live is held in trust by the Federal Government, not owned by their residents. This means reservations must attract sustainable industry activities that will create the funds to build the basic physical and organizational structures and facilities necessary for the operation of their communities. Some of the Native American communities that embraced gaming have been able to start to provide some of the needed services and facilities in their communities, but the need is great and the cost is enormous. What’s more, no one can guarantee the future of gaming on reservations and for Native Nations that are remote or cannot square gambling enterprises with their culture, ways to build their infrastructure remain elusive.

Forward-thinking tribes are looking for ways to diversify their industries to ensure their self-sufficiency and some have been successful despite innate location challenges. For example, although the Mississippi Band of Choctaw Indians Reservation is scattered over 10 counties, this tribe has been able to put together a diversified portfolio of manufacturing, service, retail and tourism enterprises that has helped them reinvest more than $500 million in economic development projects in Mississippi. Likewise even though the Ak-Chin Indian Community does not sit on a major interstate, it has been able not only to expand its recreation attractions, but also to create a transportation hub for its industrial park, Santa Cruz Commerce Center, with the purchase and improvement of the former Phoenix Regional Airport, now renamed the Ak-Chin Regional Airport. Even before its most recent economic development activity, the Community’s economic impact was estimated at nearly $437 million in 2010.

Despite tribes’ drive to become self-sufficient, many non-Natives begrudge the assertion of tribal sovereignty, misconstruing that “reservations are just welfare states funded by the Federal Government.” Even the introduction of gaming is seen as a form of economic assistance provided via federal dispensation of “special rights” to Native Americans. According to a 2004 Harvard University Faculty Working Paper entitled, “Myths And Realities Of Tribal Sovereignty: The Law And Economics Of Indian Self-Rule” by Professor of International Political Economy Joseph P. Kalt, and Professor of Law Joseph William Singer, “When the U.S. took 98 percent of the land in the continental U.S. from Indian nations, it made certain promises in return. The payments made by the U.S. under its general trust obligation and in various government programs are making good on those promises. Indians and Indian tribes receiving such payments are not welfare recipients; they are the original owners of the land in the United States and the benefits provided by the Federal Government are properly understood as mortgage payments the U.S. is making in return for rights to use tribal land.” The fact remains that in 2016 nearly 1 in 3 Native Americans live below the federal poverty line.

Hand-in-hand with this misperception about tribal sovereignty is the myth that Native Americans do not pay taxes. This is not true. American Indians pay federal income taxes regardless if they work and live on a reservation; regardless if they live off-reservation and work on-reservation; or regardless if they work and live off-reservation. Only tribal members who live and work on reservations are exempt from state taxes (in the same way that California cannot tax residents who live and work in Arizona), but tribal governments pay FICA, unemployment and Social Security taxes on the earnings of their employees. They also pay property tax on any land not held in trust by the Federal Government. While tribal governments do not pay taxes on their revenues, they do make substantial payments in lieu of taxes under the hundreds of tax and gaming compacts.

Some tribes have started to impose their own tax policies on their reservations to shore up the short gap for infrastructure needs, but it is a delicate balance. “We want to keep our reservation attractive for new business interests,” said Ak-Chin Treasurer Brandon Peters. “That’s why our Industrial Park Board works with the Council and other departments to customize leases and make the process of locating here as easy as possible.”

In the final assessment, diversifying industry in order to build infrastructure in Native Nations is not just about building facilities. It is about building a Nation that is secure in its own self-determination.

Water plays a key role in economic development for Native American communities

Managing water resources here in the arid Southwest has always been an issue. For the most part, annual rainfall and runoff from snowpack in the mountains have never been enough by themselves to meet the demand of burgeoning economic activity and ever-growing populations, even before the recent drought and climate change began to impact the environment.

Many metro area governmental agencies, water experts and utilities have been working for decades to plan for long-term water sustainability and the result has been the development of a diverse portfolio of water resources, a unique water banking system and reclamation water programs that have mostly averted the full-on water crisis that Arizona’s western neighbor, California, is now experiencing. For some Native American communities, however, the need is still acute. In the Navajo Nation, for example, 40% of the homes are without running water. In fact, vast areas of the Navajo and Hopi Reservations must haul in weekly allocations of water.

Land and water have long been at the heart of Arizona Native American communities, since many of them depended on agriculture as a way of life. In fact, there is archeological evidence that as far back as 300 B.C., the Hohokam people who inhabited the region, hand-dug a network of canals to divert spring runoff to irrigate their fields. These early O’odham ancestors provided the basis for the formation of some of today’s present day tribes such as the Tohono O’odham, Salt-River Pima Maricopa, Ak-Chin, and Gila River Indian Communities.

As frontier settlement pushed West, tribes were partitioned off in reservations and the rivers that were the lifeblood of these reservations were often diverted upstream for new settlements and economic endeavors. On the reservations, crops died, people starved, and tribes sank into poverty. Without the government structure or personal ownership of houses and land, most tribal members had no way to attain outside capital or commercial loans to build infrastructure or start businesses that would pull themselves out of poverty. In addition, Native Americans were not granted the right to vote until 1948, so when many water and land allocations were being made, tribal members had no voice in the process.

It wasn’t until the 1960’s that the American Indian Civil Rights movement inspired tribes to assert their own self-determination. That’s when the most resolute tribes forged ahead to elect their first tribal councils and write their initial constitutions. By building institutions of self-government that were culturally appropriate to the particular Native American community, tribes finally had the foundation to assert their self-governing power to increase their chances of creating sustainable economic development.

Ak-Chin was one of the first Arizona Native American communities to do this and to settle their water rights, which guarantees a water allocation to the Reservation. The creation of government coupled with the water rights settlement spawned the formation of its first enterprise, Ak-Chin Farms, which has grown to one of the largest farming operations in the country. It has also increased the tribe’s capacity to diversify its industries. Other Arizona tribes have also settled their water rights, but many tribes have been unable to complete the process and this hinders their economic development progress.

Non-Natives often attribute the poverty that exists in most Native American communities to alcoholism, lack of education or even lack of ambition, but these societal problems are merely symptoms of a deeper issue: without water, economic development is impossible and without economic development, tribes cannot emerge from poverty.

Managing water resources dates as far back as Native Americans’ earliest ancestors. Water scarcity made tribes adapt farming methods, modify living circumstances and it made most Native Americans appreciate this precious resource in a way that is often taken for granted by other Americans. It is why Native Nations look for ways to adapt technology, build the infrastructure and attract the green industry that will share our vision. Because this is not just an issue about water sustainability; it is about sustainability of our people.

The advantages of locating a commercial building on Native American land

When looking for new sites, food processing facilities typically want to be in operation in 6-12 months. To reduce the time involved, companies often limit their search to sites with existing buildings that can be retrofitted, but may be less than ideal in the long-term.

Concentrating a site search only on conventional locations may lead companies to overlook the truly unique advantages offered by Native American reservations. Many federally-recognized tribes can offer unparalleled tax advantages, incentives, and project fast-tracking abilities that most states, counties and municipalities simply cannot. Any hesitancy may come from a lack of understanding of how reservations work. Still, not all tribes operate the same way or offer the same infrastructure.

If considering a Native American location for a supply-oriented food processing facility, one consideration is the availability of the commodities used in the manufacturing process. Locating near the type of crop or supply chain production used in manufacturing can significantly lower your procurement costs. In addition, in areas where there are other agricultural endeavors, there is often ready workforce availability and training resources already in place.

If your food processing business is demand-oriented, a location near consumers helps to mitigate the costs of transportation and distribution. In this case, you will want to look for reservations that are not too isolated and that have ready access to transportation corridors.

Ever-changing food industry trends can be a more determinant factor than even access to raw materials or consumers. This can mean securing a flexible site that can quickly adapt to changes in design to accommodate new regulation; new food safety issues; implementing automation; and achieving greater energy efficiency. Most Native American communities will not have an existing building to occupy. However, if the reservation has an in-house development and approval process to speed projects to market, even a build-to-suit facility can be completed in a short timeframe.

According to Billy Hickman, Vice President of Operations of Hickman’s Family Farms and a Santa Cruz Commerce Center tenant since 2003, this is what attracted their enterprise to the Ak-Chin Indian Community’s industrial park. “Their ability to craft a customized lease allowed us to amortize construction costs over the length of a long-term lease and have a facility built to our specifications in just 10 months,” said Hickman. “We’ve been able to expand two more times since our initial construction, too.”

Finding a tribe with the same industry or cultural focus can also lead to some creative synergy. “When we needed to find a solution for dealing with our chicken waste, we were able to create a reciprocal agreement with the tribe, ” said Hickman. “Now we provide it to Ak-Chin Farms as fertilizer for growing the crops we need to feed our flocks.”

Other areas of concern for food processors are water availability and utility costs. While Arizona tribes just like all cities and counties must be prudent in their water usage, some tribes have settled their water rights, which has guaranteed their allocation, while some have yet to do so. In addition, if a tribe owns its own utilities, costs can be significantly lower than off-reservation locations.

Given the location characteristics that are important for food manufacturing firms and what Native American reservations can offer, there is good reason not to limit your search to conventional choices. In any case, how fast you could potentially grow by expanding your location options is certainly food for thought.

10 things to ask before starting a business on tribal land

In order to assess whether or not your business or development project is a good fit for a tribal location, here are 10 key questions to ask the tribal representative:

  1. What cultural traditions and values are important to your tribe as it relates to economic development?

Most tribes will entertain projects that align with their customs and principles, and affords them the greatest opportunity for self-sufficiency. Reservations are not dumping grounds for projects that would not be approved in neighboring cities or counties. In addition, while some tribes may focus on developing entertainment venues, others will look for greater diversification. Ask what business enterprises would be compatible with their Community.

  1. How is your reservation property held in trust? Do you have allotted lands or does your reservation belong to the tribe as a whole?

Some tribes have allotted lands, which means you could have many owners who have to sign-off on a lease before development can proceed, which can add time and cost. On other tribal lands, the land is wholly owned by the tribe. However, even those with allotted lands can already have an agreement with individual owners that will allow the tribe to negotiate leasing opportunities on their behalf.

  1. What is your lease process? Who oversees leases and handles approvals?

In some cases, the first point of contact could be an economic development group, industrial park board or leasing manager; sometimes it is handled through a department like Planning or Education; and other times, the Council must be contacted directly. A few tribes have created an approval process that is similar to any municipality, taking a project submittal through legal, financing, planning & zoning and finally through the Tribal Council for final approval.

  1. How long does the process typically take?

On average, most tribes will say lessees should add at least 20% more time for consensus-building and approvals. Smaller tribes with solid government leadership can usually be more nimble and quick to respond.

  1. How long are your leases?

A maximum 99 year land lease is offered by some tribes while others do recurring 25-year term leases. Depending on the benefit to the local economy, customized lease terms can be negotiated.

  1. What is the BIA’s involvement in lease approvals?

Under the HEARTH act, tribes were given the ability to control their own leases as long as they applied and were approved by the Bureau of Indian Affairs (BIA). The Ak-Chin Indian Community, for example, was the first Arizona tribe to do so.

  1. What financing options are available for new construction or tenant improvements on existing buildings?

A tribe may have the financial ability to wrap capital costs and TIs into a long-term lease. This means you could put your initial capital into operations rather than tying it up in land purchases and development.

  1. What taxes and/or exemptions apply to my business on your Reservation?

There is no uniform tax code among tribes, but tribes have the ability to create their own tax policies and levy their own taxes on certain activities. Depending on the nature of your business, you may qualify for certain exemptions, so it’s best to consult your tax advisor and work with the tribe’s financing department.

  1. Do you own your own utilities? If so, what are their rates?

To make sure you are comparing apples to apples, be sure to ask for a utility analysis to compare rates with other area utilities. Though the base rate may look comparable, on-reservation utilities may not include certain taxes and adders, which can add up to substantial savings. This is true for Ak-Chin Energy Services, according to Beth Mundell, owner of Fyrestorm Cheer and a Santa Cruz Commerce Center tenant since 2013. “We LOVE Ak-Chin Energy Services for keeping our rates so low!” she said. “It really makes a big difference in our operating expense.”

  1. How are disputes handled?

Tribes can offer a limited waiver of sovereign immunity, so that disputes can be handled by arbitration rather than in a tribal court.

Understanding the right questions to ask is critical to any successful site selection process and given the right environment, a Native American location might be the best answer.

Tips for opening a business on Arizona’s Native American reservations

In Arizona, there are 22 federally recognized Native American tribes, communities, or nations, which encompass thousands of acres of land and ample opportunity for many private businesses to develop or locate on a reservation. Yet, many commercial developers, realtors and site selectors are unfamiliar with the process and potential benefits. Here are the basics:

Can I Buy Land on a Reservation for My Project?

Native lands cannot be bought and sold. They are owned by the federal government and held in trust for the different Native American tribes. Therefore, non-Native businesses that are looking to locate on a reservation must enter into a land lease or build-to-suit lease arrangement with the tribe.

Until recently, the Bureau of Indian Affairs (BIA) on behalf of the Secretary of Interior, had to approve all leases on reservations, but with the passing of the HEARTH Act in 2012, tribes were given the ability to control their own leases once a tribe applied and was approved.

Is Development Similar on All Reservations?

Each Native American tribe operates like its own country. Each has its own tribal government structure, sets its own tax policies, and has its own development process. On some reservations, for example, tribal members can possess individual parcels or allotted lands. What this means for business owners and developers is that if their project impacts any allotted lands, they have to get the individual owners to sign-off before a development project can proceed. The location itself may make it worth the wait, but it can add time and cost.

For instance, in the Salt River Pima Maricopa Indian Community (SRPMIC), much of the Community’s property fronting the Loop 101 is allotted land. It is not unusual to have 150 (and often more) individual owners that have to agree to the lease terms. Consequently, a typical timeframe to secure a lease at SRPMIC will take about 18-24 months. On other reservations like the Ak-Chin Indian Community, there are no allotted lands. All reservation property belongs to the Tribe as a whole and its use is governed by the Tribal Council, which means a developer can start and complete projects much faster. When Ak-Chin committed to building its $50 million multi-tainment center, for example, it was designed and built in 14 months.

Isn’t Ownership Preferable to Leasing?

While ownership might be preferable when the market is good and values are increasing, if the Great Recession of 2008 taught business owners anything, it is that real estate can tie up a lot of operating capital in a depreciating asset and it isn’t always easy to sell when you need quick access to funds. As Steve Jaffe, the Chief Investment Officer for BH Properties, a Los Angeles-based commercial real estate investment firm, said, “Many business owners have also come to see the ‘light’ that owning their own real estate is a drain on their ability to grow their business.”

Leasing on a reservation can have distinct advantages over ownership. First, you eliminate the large initial capital outlay for land purchase. Moreover, some tribes will roll your construction costs into a long-term lease so you can amortize your development costs over the duration of your lease. Instead of tying up a large portion of your operating capital that may or may not appreciate, you use your capital to get your company growing immediately.

Are there other advantages to locating on tribal lands?

Other benefits of tribal locations may include tribal employment incentives, tax exemptions, as well as savings on utilities and public safety, especially if these services are tribally-owned. Again, every tribe is unique, so ask about their tax policies. Your business may not only be qualified for tribal exemptions, but also State and federal incentives.

How do I allay the doubts of wary company executives?

The best way to dispel fears is to talk with current tenants about their experience. When Brent Scott, VP and General Manager of M&S Equipment, a 10-year tenant in Ak-Chin’s industrial park, Santa Cruz Commerce Center, was asked this question, he said, “We had never leased in our company’s history. We were a little nervous to do so. I can tell you honestly that Ak-Chin has been great to work with. They took the time and effort to listen to our concerns and wishes and structured a lease that works well for us and our style of business.”

It just goes to show with a little basic understanding, tribal locations can provide great opportunities for businesses.