WASHINGTON - Unlike state and municipal governments, tribal governments
can issue tax-free bonds to finance only ''essential government
functions'' as defined by the Internal Revenue Service. In addition,
critics charge, the IRS defines essential government function for tribes
in tangled language.

Raymond Etcitty, a tribal tax authority and chief legislative counsel
with the Navajo Nation, said the definition raises doubts among
investors as to whether their investment in a tribal bond qualifies with
the IRS as tax-exempt financing.

Such doubts are known in capital markets as ''risk,'' and risk
translates to a higher interest rate on the money invested in the
purchase of a tribal bond. Without the better interest rates associated
with tax-exempt bonds, debt service becomes prohibitive, especially for
poorer tribes.

The sum of all this is to create barriers for tribes that want to access
capital markets by issuing bonds to build infrastructure, community
centers, economic development, housing, schools and health facilities,
according to witnesses before a subcommittee of the Senate Finance
Committee on May 23.

As a result, said Dr. Gavin Clarkson, of the University of Michigan,
capital needs of $50 billion a year go unmet in Indian country. Tribes
were issued less than 0.1 percent of all tax-exempt bonds in the United
States between 2002 and 2004, Clarkson said. The IRS audited
approximately 1 percent of more than 15,000 tax-exempt municipal bonds,
but audited 40 percent of direct tribal tax-exempt bond issuances and
100 percent of tribal ''conduit'' issuances (the latter can be thought
of in brief as ''indirect'' issuances).

Witnesses varied on whether the discrepancy is a result of an entrenched
national aversion to accepting tribes as governments or - as Wayne
Shammel, general counsel to the Cow Creek Band of Umpqua in Oregon,
pointedly insisted - of racism.

Sen. Gordon Smith, R-Ore., chairman of the Long-Term Growth and Debt
Reduction subcommittee, sought to avoid ''that word.'' But Smith pledged
not to avoid the problem at hand. Several times he committed Congress to
correcting it. ''I want to get this fixed, and we will pursue this
vigorously.''

Efforts to legislate tax-exempt bonding authority for tribal governments
faltered late in 2004, but not by much, surviving until late in the
legislative process when a committee chairman interpreted it as
''special treatment'' for tribes. As chairman of the Ways and Means
Committee in the House of Representatives, Rep. Bill Thomas, R-Calif.,
had the votes to impose his view.

A recurring theme of May 23 was that tax-exempt bonding authority is not
special treatment for tribal governments, but a way to level the playing
field.

Said Scott Schickli, an attorney with Orrick, Herrington & Sutcliffe LLP
in Portland, Ore.: ''I can't think of a tax advantage they have that
state governments do not have,''

Clarkson said, ''I think they're just asking to be treated the same.''

© 1998 - 2006 Indian Country Today. All Rights Reserved.