by Joseph P. Kalt and Jonathan B. Taylor

Prof. Joseph P. Kalt is Co-Director of the Harvard Project on American Indian Economic Development, Kennedy School of Government, Harvard University; Jonathan B. Taylor directs American Indian projects at The Economics Resource Group, Inc., Cambridge, MA.

Led by Sen. Slade Gorton (R.-Washington), Chair of the Senate Interior appropriations subcommittee, a push is on in Congress that would strike a major blow at the only policy that has produced progress in this century on the perennial problem of poverty in Indian Country: tribal self-governance and the accompanying government-to-government relationship between tribes and the Federal Government. Fueled by the publicity that surrounds the success with gaming of a handful of the countrys 500+ tribes, Gorton's proposal would "means-test" federal funding of tribal governmental functions.

The Federal Government does not have a record to be proud of when it comes to the problems of economic and social despair on America's Indian reservations. For almost two centuries, federal policy essentially treated Indians on reservations as dependents, with the federal authorities and bureaucracies calling the shots on everything from where kids went to school to when and where a tree could be harvested.

The results? By 1990, American Indians on reservations were the poorest minority in America. Unemployment across all reservations averaged close to 50%, pushing to 85% in some places. On most reservations, what little employment did exist was only in the public service sector of schools, law enforcement, health care, and the like. Under these conditions, it is not surprising that almost every indicator of social distress -- poverty rates, suicide rates, death by disease and accident, teenage pregnancy, and so on -- placed reservation Indians practically off the charts when compared to other American citizens. The advent of gaming on reservations has not appreciably altered this scene. The number of tribes hitting big-time success in gaming is in single digits.

The sorry history of U.S. Indian policy is well enough known that it has become a folklore founded in fact. The folklore is used by non-Indian Americans who are into guilt to justify paternalistic policies that haven't worked. What is not widely understood is that, beginning with first steps in the Nixon and Ford Administrations, federal policy started a slow turn toward a new direction: self-governance.

Self-Determination Works

Over the last two decades, Indians on reservations have fought to re-establish long-lost powers of self-rule. Governed by constitutions, tribes now have powers akin to those of the U.S. states, including powers to make rules and regulations, to wield law enforcement and judicial authority, to tax, and -- like states -- to run gaming operations.

Even prior to the gaming that has attracted so much attention in the 1990s, the evidence became clear that self-rule is the indispensable first ingredient needed to turn reservation economies around. Indeed, it was under the federal policy of self-determination that took hold in the 1970s and 80s that certain tribes began to break out of the pack of impoverishment. They did this by escaping the stranglehold of federal development planning and creating the investment environment needed to develop export-based economies.

The Mississippi Choctaw, for example, built the Hong Kong of Indian Country on the strength of manufacturing industries -- from auto parts to greeting cards -- that now make the Tribe among the very largest employers in Mississippi. Not only are tribal members working, but more than 6,000 white and black workers commute to work at the Tribe's businesses. The Mississippi Choctaw run their own affairs*their own schools, their own laws, their own courts, their own business policies. The result is an environment that the capital markets trust.

The Salish and Kootenai Tribes of the Flathead Reservation in Montana have also competed successfully in the market to attract investors. They've done it by creating a rule of law, including an intertribal "supreme" court, that should be the envy of every emerging democracy in the world. The result is a thriving private sector economy based in agriculture, recreation, and tourism. The Flathead reservation was off and running years prior to the arrival of gaming as an option.

At the Fort Apache reservation in Arizona, the White Mountain Apaches' first-class ski resort, multi-million dollar saw mill, and premier outdoor recreation businesses are the economic anchors for thousands of Apache and non-Indian jobs. When these were threatened by federal intrusion on endangered species grounds, the never-retreat Apaches built their own environmental management systems. Under a model government-to-government agreement, these have enabled the Tribe to displace federal managers.

The stories of economic success in Indian Country share at least one common ingredient. In case after case, the defining trait of the successful tribes is their aggressive assertion of their rights to govern themselves. In particular, they are marked by de jure and de facto replacement of outside federal decision makers with their own governmental capacity. There is not a single case of sustained economic development in Indian Country where the tribe is not in the decision-making driver's seat. As the world has learned from Central and Eastern Europe, outside authorities are really lousy at planning and developing an economy of people who want to govern themselves.

Gorton's "Success Tax"

How ironic it is that federal policy may now be directed at handicapping effective and stable tribal governments. If one cannot distinguish between individual American Indians and American Indian tribal governments, or if one likes to imagine that allAmerican Indians are junior Donald Trumps rolling in income from gaming operations, the Gorton means-testing proposal might sound sensible. In fact, however, it amounts to nothing more than a tax on tribal governments which are successful in pursuing the interests of their citizens.

As a matter of federal policy, a state government that enters the gambling industry with a high-stakes lottery is not means-tested when it comes to allocating basic federal funding for governmental services. To date, tribal governments have been similarly treated. In both cases, policy has recognized that, to the extent that a state or tribe is carrying out basic governmental functions such as law enforcement or environmental protection, federal policy ought to encourage these governments to be effective. This has been a key component of the government-to-government essence of U.S. federalism.

Consider the illustration provided by one state's lottery -- California. Through its gaming enterprise, the government of California takes in net income on the order of three-quarters of a billion dollars per year. All of the net proceeds are earmarked for education, yet federal dollars allocated to the State Government are not means-tested, even for the relatively rich and lottery-rich State of California. Instead, if California's investment in education pays off in a healthier economy and higher incomes, the Federal Government stands ready with its income taxes to catch its share of the returns.

American Indians stand in the same relationship to the Federal Government. To the extent that monies from tribal governments' gaming or other operations show up as income to individuals and businesses, such income is subject to federal income taxes. Moreover, individual Indian citizens are subject to means testing, just as are other Americans, when it comes to food stamps, housing subsidies, and other nationwide welfare programs.

Means-testing tribal governments makes no sense at all if one is concerned about the well-being of American Indian people. In and of itself, a tribal government's (or a state government's) revenues from gaming, natural resource leases, or any other set of operations provide no assurances as to how well its citizens are living. High revenues in a jurisdiction with a very low standard of living may help, but can't be said to cure, centuries of social and economic deprivation. In fact, it is not surprising that, even on reservations with relatively strong economies, the social legacy of deprivation is proving hard to erase.

To date, the government-to-government basis for federal funding of tribal (and state) governmental functions has provided positive incentives for reinvestment of tribal government income, since passing tribal earnings out as cash subjects them to taxation. The Gorton proposal would replace this with disincentives to effective and efficient governmental operations. A tribe might as well go easy on holding down costs since higher net incomes would subject the tribe to Gorton's "success tax." Of course, this is precisely the kind of effect of federal Indian policy that tribes have been bucking in the era of self-governance. By penalizing successful and effective tribal government, the Gorton proposal would be a sad step backward for the only thing that has worked in Indian Country -- letting people govern themselves.

Date: 03 Sep 1997