Native American tribes have long fought to assert their sovereignty as self-governing communities. And since the 1970s, the federal government has granted tribal governments much more autonomy to make their own policies and provide their own public services. But even with more self-determination, many reservations still struggle with high levels of unemployment and low standards of living.
Good governance is one of many important factors that will help promote Native American flourishing. But to govern well, tribal governments must first have enough revenue to provide basic goods and services. However, for reasons I’ll explain below, most tribal governments cannot generate sufficient funds through the traditional routes of taxation and federal grants. To raise the money they need, tribes must look to tribally owned businesses. These public-private partnerships are a way for tribes to exercise their self-determination more fully and provide opportunities for their people.
Generating Tribal Revenue and Promoting Economic Development
Tribes use federal grants and other federal moneys to fund a variety of basic government services, such as public housing, transportation and behavioral health support. Grants also fund economic development programs, such as broadband internet access, energy development and tourism promotion. However, this funding is often in short supply and usually covers only a fraction of tribal operating costs.
Tribes also generate revenue through taxation, including sales and excise taxes, but a limited tax base means that they usually can’t raise enough to meet their needs. For example, tribes take in only limited revenue from property taxes because much of their land is held in trust by the federal government and is thus exempt from these taxes. Likewise, most tribal governments often don’t levy income taxes on the reservation because unemployment and poverty rates among residents are relatively high and the potential tax base is low.
With this in mind, federal and tribal policymakers should increase tribes’ freedom to experiment with different kinds of entrepreneurial ventures by removing confusing and uncertain legal and regulatory barriers. Streamlining and simplifying federal and tribal laws and policies would increase the number of reservation-based enterprises, thus increasing tribal revenue as well as employment opportunities and standards of living.
On many reservations, the foundation for this development already exists. Indeed, tribal business ventures already span a variety of sectors, including tourism, energy, agriculture, forestry, manufacturing, telecommunications and, most notably, gaming. Tribally owned casinos not only directly generate income for the tribe, they also provide employment opportunities for reservation residents and increase traffic at other local businesses. On average, gaming improves the economic standing of reservations that invest in it. However, casinos don’t cure all economic woes, and their impact varies widely from tribe to tribe. Some reservations that have built casinos have experienced incredible economic growth, while others, especially those in remote areas, have seen only modest benefits.
The variability of gaming means tribal governments must establish alternative entrepreneurial ventures to boost local economies. One emerging business type is financial technology, or fintech, which provides customers with short-term loans, portfolio management and other online financial services. Some tribes, such as the Otoe-Missouria Tribe of Indians, have created successful fintech firms. Their online lending businesses make money for the tribe, create jobs and supplement gaming income. The Otoe-Missouria Tribe’s fintech and gaming companies fund most of its government operations. Without these businesses, the tribe would depend heavily on inadequate federal funding.
Other tribes have successfully expanded into a variety of other businesses. For example, the Confederated Salish and Kootenai Tribes of Montana’s Flathead Indian Reservation created a profitable electronics company that produces circuit boards and cables. The tribes also own and operate several other businesses in sectors such as gaming, banking, aircraft component repair and hydroelectric power generation, among others. These enterprises help finance the tribal government and provide employment for both tribal members and nonmembers.
Simplifying Federal and Tribal Policies
There are a number of potential barriers to creating and growing tribal enterprises that need to be removed. A good place to start is double taxation. Federal, state and tribal governments have overlapping, poorly defined limits on who can tax what and when on reservations, which makes the taxation of tribal businesses a complex, confusing and often unpredictable process. The potential of being taxed twice disincentivizes investment in reservation businesses and takes away from tribal revenue.
Tribal enterprises often contract with non-tribal enterprises, which state governments can tax. Tribes may also want to tax non-tribal enterprises, but they typically forgo these taxes to ensure double taxation doesn’t drive off-reservation businesses away. This means that the state government benefits from double taxation at tribal governments’ expense.
Additionally, the U.S. Supreme Court, by holding that state governments can tax minerals mined on reservations, has created an explicit dual taxation regime. This system causes tribes to lose billions of dollars in tax revenue. States can also tax wind and solar facilities on reservations, which similarly limits tribal revenue.
There are a number of ways Congress could solve this problem. For one, they could clarify the double tax burden legislatively. For example, Congress could grant exclusive tribal authority to tax natural resources derived from development on Indian lands. Alternatively, Congress could offer federal tax incentives to businesses operating on reservations. Any approach that Congress takes will have distinct benefits and tradeoffs, but regardless, policymakers need to realize that double taxation harms tribes already in economically vulnerable situations.
Another complicating legal factor is sovereign immunity, although here the situation has viable workarounds. The common-law sovereign-immunity doctrine insulates tribes from being sued unless Congress allows the suit to go forward. The courts have determined that tribal governments and their directly related entities, such as tribally owned businesses, have sovereign immunity—even if the businesses’ operations take place partially or completely off the reservation. Not surprisingly, some off-reservation entrepreneurs hesitate to engage with tribally owned businesses because they might not be able to sue if a contract is breached.
To remedy issues surrounding sovereign immunity, tribal leaders can choose to waive it, or negotiate its limitations, on a case-by-case basis. Many tribal officials choose to forgo immunity for tribal businesses to signal that they are trustworthy and reliable partners. But waiving immunity is controversial. Some tribal leaders believe it erodes the sovereignty they have been working toward, while others see the choice to waive as a sign of true self-determination.
Even if a tribe partially or fully waives immunity, there’s uncertainty regarding where a lawsuit would be adjudicated. In recent decades, many off-reservation businesses avoided interactions with tribal businesses because they perceived tribal courts as biased or untrustworthy. In more recent years, tribes and off-reservation businesses have worked around these perceptions by innovatively using neutral arbitration provisions. In these agreements, each side selects a party arbitrator, and the two arbitrators, in turn, select a third neutral arbitrator to adjudicate. The combined use of immunity waivers and arbitration agreements helps tribal officials, tribal businesses and off-reservation businesses cooperatively engage with each other.
Avoiding the Entanglement of Politics and Business
Tribal enterprises are not a panacea for the unemployment and poverty problems on reservations, and in some cases can do more harm than good. If business decisions and day-to-day politics aren’t carefully separated, tribal enterprises can become costly boondoggles that don’t benefit and even hurt the tribes they are meant to serve. When elected politicians make tribal business decisions, conflicts of interest and, in the worst cases, blatant corruption arise—as in 2020, when the former chairman of the Mashpee Wampanoag Tribal Council was arrested for bribery related to plans for building a tribally owned resort and casino.
Tribes should maintain separation between day-to-day business decisions and tribal politics. One way to do this is by establishing boards of directors and corporate charters that limit politicians’ power to interfere in business decisions. For example, many tribes have created their own laws and consumer protection policies for their companies, as well as gaming commissions to oversee casinos. Many successful tribal companies have their own boards that are separate from tribal councils to insulate business decisions from politics.
Finding long-term solutions to poverty on reservations requires curiosity and experimentation. There’s no simple recipe for economic development, and not every experiment will succeed—some tribal businesses will fail and must be allowed to do so. Regardless, tribal businesses, and the revenue they provide, are an undeniably important part of any plan to end poverty on reservations. Federal and tribal policymakers should do everything they can to facilitate a legal and regulatory environment that allows Native American communities the freedom to experiment with new types of economic ventures.