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Statement of First Nations Development Institute, Longmont, Colorado
Thank you for the opportunity
to submit testimony for the record of this important hearing on whether
charitable organizations are effectively serving the needs of diverse
communities.
Our statement reviews the
involvement of First Nations Development Institute and other non-profit
organizations in serving the needs of American Indian people and reservation
communities. It then assesses the potential of non-profits to stimulate and
develop Indian reservation economies, and the role of traditional and
alternative philanthropic organizations in this effort. First Nations believes
that tribal government funded charities are poised to play a key role in
addressing the needs of Indian Country. Our statement concludes with a
call to Congress, especially the Ways and Means Committee, to enact corrective
tax legislation in order to remove barriers to the effective operation of
charitable organizations that are formed and funded by Indian tribal
governments. Such legislation is broadly supported and could be enacted at
virtually no revenue cost to the federal Treasury.
First Nations
Development Institute – 27 years of Successful American Indian
Reservation-based Development
First Nations Development
Institute is a national American Indian-led 501(c)(3) non-profit organization
that was founded in 1980. Through a three-pronged strategy of educating
grassroots practitioners, advocating systemic change, and capitalizing Indian
communities, First Nations Development Institute is working to restore Native
control and culturally-compatible stewardship of the assets they own – be they
land, human potential, cultural heritage, or natural resources – and to
establish new assets for ensuring the long-term vitality of Native communities.
First Nations was founded with the belief that: "when
armed with appropriate resources, Native peoples hold the capacity and
ingenuity to ensure the sustainable economic, spiritual, and cultural wellbeing
of their communities."
Throughout its 27-year
history, First Nations’ mission has been, not only to eliminate poverty, but to
build healthy and sustainable reservation economies. Although the reasons for
reservation poverty are multiple and complex, only solutions provided by Indian
people, for Indian people, through the control of their assets, and crafted by
their own development strategies, within the values of their own cultures, will
succeed. First Nations’ strategic intent has always been to be the leader in
empowering and training Indian leaders and Indian people in their ability to
control their assets and become self-sufficient and self-sustaining
communities.
First Nations Development
Institute sponsors a comprehensive range of economic development programs,
including programs that provide tribes and Native non-profits the training and
tools required to effectively organize and develop the institutional capacity necessary to become active partners in giving and receiving
philanthropic dollars. Recognizing the large cultural and funding gaps between
mainstream foundations and Indian communities, First Nations Development
Institute began its unique and innovative grant-making program in 1994. As of
August, 2007, First Nations’ grant-making program has given over $13 million
dollars to over 500 tribal and Native non-profit programs (this includes 515
grants to 331 organizations).
Always working to lead
the way in addressing Indian Country’s most pressing issues, First Nations
created and implemented its "Strengthening Native American Philanthropy"
(SNAP) program in 1995 to actively address the need for more information about
the emerging Native non-profit and grant-making sectors. Through SNAP, First
Nations has been able to perform innovative research and collect much needed
data related to American Indian controlled foundations including philanthropic
grant-making foundations sponsored by tribal governments. Through the
programmatic side of SNAP, First Nations has also provided five American Indian
foundations the support and start up assistance required to become long-term
self-sustaining organizations.
In 1994, First Nations
launched the First Nations’ Eagle Staff Fund, a grant-making and technical
assistance effort that brought together a collaboration of philanthropic
organizations interested in supporting Native economic development. In 1996,
after two full years of grant-making, First Nations assessed the applicants, as
well as those receiving grants and were surprised with the results. The
majority were Native non-profit organizations instead of the anticipated tribal
governments.
Emerging Non-Profit
Sector and Potential for Economic Development
Over the past 30 years,
the Native non-profit sector has grown significantly in size, scope and
effectiveness. First Nations’ own Native Asset Research Center (one of Indian
Country’s premier research organizations), in an effort to identify this
growing phenomenon so that they could conduct outreach, launched a two-year
study of the emerging Native non-profit sector. Based on 1995-96 IRS and
internal data sources, over 1,500 Native-controlled non-profit organizations
were identified.
This landmark First
Nations’ study, The Emerging Sector: Non-profits in Indian Country,
showed that almost 83% of the organizations responding (a 35% response rate)
were founded since 1970 as compared to 75% in the general society, indicating
younger Native organizations. And if the trend of Native non-profit start-up
were to continue through the second half of the 1990s as it had in the first
five years, then more Native non-profits will have been founded in the 1990s
than in any previous decade. (http://www.firstnations.org/
publications/TheEmergingSectorDraftApril2003_webversion.pdf)
The majority, or 51% of
the organizations, identified as being located in urban areas. However, 60% of
all organizations indicate they serve both an urban and a
rural/reservation-based constituency. This could indicate continuing close
links between urban and rural/reservation communities as well as the continuing
migration of Native peoples between rural/reservation-based communities and
urban centers. A closer look reveals that those groups that serve only a
rural/reservation-based constituency are of more recent origins than the
general group. This is an indication of a trend of more Native non-profits at
the reservation-level. This has significant implications for the economy of
reservations and the role and relationship with tribal nations.
Reservation-based non-profits
accounted for three percent of employment in the tribal economy. This is
compared to the overall U.S. economy where six percent of all employment is in
the non-profit sector. Given the average $250,000 in annual revenue, one can
begin to estimate the economic impact this growing sector plays in the Native
economy. These 1,500+ non-profits would represent $387.5 million in annual
economic impact. Using a dollar multiplier, which is presumably higher for
non-reservation based non-profits, elevates the impact of the Native non-profit
sector. Given that 46% of these non-profits are rural or reservation-based,
where dollar multiplier is typically not much higher than 1:1, the impact is
$178.25 million annually for reservation economies. An additional $209.25
million flowing to non-reservation/urban communities, where the dollar
multiplier is typically higher, (e.g. a conservative estimate of 2:1), makes
the economic impact attributed to the non-reservation non-profit sector of $418.5
million annually.
The overall impact of the
American Indian non-profit sector in 1994 was approximately $600 million
annually. Ten years later, we believe that the growth in the sector (based on
a conservative 5% annual growth rate) would place its economic impact approaching
$1 billion annually.
Potential to Meet
the Unmet Needs of Reservation Non-Profits
Despite the increased and
best efforts by Tribes to self-finance the emerging American Indian non-profit
sector, the sector continues to struggle to receive an equitable share of
public philanthropic dollars. According to the National Indian Gaming
Association, the vast majority of gaming operations engage in some form of
philanthropic activity, accounting for at least $100 million in 2004 alone. There are at least 53 Native-controlled grant-making
foundations in the nation, and the majority of them, or 33, are affiliated with
tribes (only 17 are gaming tribes). These 53 Native grant-making organizations
provide funding for a broad range of social, economic, educational, and
cultural programs.
Although there are a few
well-heeled national foundations that have clearly been leaders in providing
funding for American Indians, they stand nearly alone among their peers.
Multiple studies show a severe deficit in grant-making to American Indians, a
deficit that is out of proportion with the population and its needs.
A 1998 Foundation Center study found that the total foundation funding allocated to American Indians
from 1992 through 1996 varied between 0.5 and 0.9 percent of total
giving. More recently, a 2002 Foundation Center study confirmed this same
trend for the period 1997 through 2000, with funding allocated to American
Indians ranging between 0.5 and 0.8 percent of total giving. According to
Sarah Hicks and Miriam Jorgensen in “Philanthropy in Indian Country: Who is
Giving? Who is Receiving?”:
The
American Indian grantmaking by large U.S. foundations accounted for a mere
0.287 percent of independent, corporate, community and operating foundations’
overall grantmaking resources in 1989, a statistic which apparently rose to
0.302 percent in 2002…Even if it were possible to include grants under $10,000
and grants from smaller foundations in the analysis, it is unlikely that
grantmaking to American Indian issues totals any more than 0.5 percent of the
U.S. foundation sector’s overall resources. This percentage calls attention to
the substantial gap between the amounts of funding directed toward Native America (less than 0.5 percent) and the population size (1.5 percent of the total U.S. population). In the face of still other considerations – such as the proportion of American
Indians who are poor, tribes’ major institution-building and service provision
needs, and the sheer volume of innovative approaches to social and civic
concerns evolving in Native America – [the] lack of foundation engagement is
truly startling.
Even worse, a 1996 study
by Ewen and Wollock found that in many cases, funding by mainstream foundations
to Native issues “does not even go to Native people or organizations, but
rather to non-Indian museums or universities that study Indians.”
Foundation giving to American Indians in 2000, when reviewed by foundation
type, showed that private foundations gave 0.6 percent, corporate foundations
0.3 percent, and community foundations a mere 0.2 percent.
American
Indian foundations play an important role in directing philanthropic dollars
toward economic and social development projects in Native communities. Take
for example the Cherokee Preservation Foundation, which was established on
November 14, 2000, as part of the Second Amendment to the Tribal-State Compact
between the Eastern Band of Cherokee Indians and the State of North Carolina.
The Cherokee Preservation Foundation's purpose is to improve the quality of
life of the Eastern Band of Cherokee Indians and strengthen the western North Carolina region. The Cherokee Preservation Foundation is funded by gaming revenues
generated by the Eastern Band of Cherokee Indians. It is an independent
foundation that is not part of or associated with any for-profit gaming entity.
The Foundation’s focus is on project planning and capacity initiatives that
will enhance the Cherokee culture, facilitate economic development and job
opportunities, and improve the environment. The Foundation is helping the
Eastern Band of Cherokee Indians and its neighbors address challenges that
include the loss of jobs from manufacturing plant closures, potential
environmental degradation due to increased traffic and localized growth in
specific areas, the deteriorating growth of small and medium businesses in the
region, and a decline in visits from tourists to Cherokee cultural events and
institutions. Since Cherokee Preservation Foundation began making grants in
2002, it has awarded 375 grants totaling more than $30.7 million.
American
Indian charitable giving is needed to help fill in the deficit in non-Native
philanthropic giving in Indian Country. As noted above, however, most American
Indian non-profits are affiliated with Tribes and, as such, are hampered
because they do not enjoy the same status as other government sponsored
non-profits. The fix is simple, of negligible cost and simply makes good
sense. The problem and proposed solution are explained below.
A Fix to the Tax Code Is Needed to Foster Effective Native
Philanthropy
Due
to a glitch in the tax code, Indian tribal government support provided to
charitable organizations is not treated the same as federal, state, and local
government support. Further, tribal foundations structured
as "supporting organizations” are not treated the same
as foundations set up by units of federal, state, and
local governments. This failure to treat tribal government grants as
"public support" could result in a donee charity failing the public
support test and being classified as a private foundation.
In
this statement for the record, First Nations Development Institute provides the
background for the problem, as well as an explanation of two proposals: (1)
treating tribal government charitable funding as public support and (2)
treating tribal foundations as supporting organizations. These proposals are
not only good policy, they are also low-cost. A Joint Tax Committee revenue
chart shows that the proposals would cost only $1 million in foregone tax
revenues over 10 years. See Joint Committee on Taxation, May 20, 2004
“Estimated Budget Effect of H.R. 1528, The “Tax Administration Good Government
Act,” as Passed by the Senate on May 19, 2004” (Fiscal Years 2004-13). (http://www.house.gov/jct/x-35-04.pdf, the tribal philanthropy provision score is shown
at VII.2).
Background
When an Section 501(c)(3)
organization is formed, it is not only necessary to qualify as a charity in
order to secure and maintain tax-exempt status, it is also critical to
determine the sources of the charity's support in order to be classified as a public
charity as opposed to a private foundation. Why would one care about
"public charity" vs. "private foundation" status? For a
number of reasons, including the ability to utilize tax-exempt financing, to
receive grants from private foundations and certain other donors, and to
operate in the governmental arena without being subject to burdensome tax rules
aimed at regulating privately funded and controlled foundations.
Unfortunately, there is a
glitch in the Tax Code with respect to 501(c)(3) organizations (when such
organizations are formed under state or tribal law) if they are funded
primarily by Indian tribal governments or controlled by such governments.
While the Tax Code generally treats government grants and other funding as
"public support" (for purposes of classification of the supported
501(c)(3) as a public charity, it does not treat tribal government funding the
same as funding from the federal, state or local governments.
This omission was never
intended--it was simply that no one thought about the possibility of Indian
tribal governments providing funding for charities when this section of the
Code was drafted. Similarly, another route to public charity status--being
structured as a "Supporting Organization" to a federal, state, or
local government--is also technically closed to charities set up to support
tribal governments because of the failure of Section 7871 to address the public
charity status of tribal organizations.
To remedy this technical
glitch, First Nations Development Institute supports the two tax code
amendments briefly described below:
1. Treatment of Tribal Government Support as
"Public" Support
2. Treatment of Tribal Foundations as
"Supporting Organizations"
These
provisions have previously been included in a bill passed by the Senate. See
Section 153 of the Tax Administration Good Government Act (H.R. 1528, 108th
Congress, Senate-passed version). Passage of these provisions (scored in 2004
by the Joint Tax Committee as costing only $1 million in tax revenues over a
ten year period) is critical for all of those tribal governments who are
sponsors and funders of non-profit charities (e.g., health care clinics, health
and wellness centers, tribal museums and cultural centers).
First Nations calls upon Congress, especially the Ways and
Means Committee, to enact two conforming tax code provisions that would put
Indian tribal governments and the charitable organizations they form and
provide funding for on par with those charities funded and controlled by
federal, state, and local governments.
Explanation and overview of the two provisions:
1.
Tribal Government Funding Issue
Statute:
- Section 170(b)(1)(A)(vi) of the Internal
Revenue Code contains a "public support" test which can be met
through the receipt of grants from the "governmental units"
referenced in Section 170(c)(1).
- Section 170(c)(1) references state and
federal governments, but not tribal governments.
- Section 7871 (a Code section added by the
Tribal Governmental Tax Status Act) treats Tribal Governments as States for
other related purposes (e.g., deductibility of contributions under
Section 170), but not for the purpose of the public support test.
Analysis:
- If tribal support is not treated as
public support, tribal-funded foundations may experience difficulty obtaining
classification as a public charity.
- Although individual Tribes can avoid
private foundation classification by using an unincorporated fund for
grant-making, an incorporated charity funded exclusively by one tribe or
inter-tribal foundation funded by two or three tribes could have difficulty
qualifying as a public charity.
Legislative
Solution:
- Amend Section 7871 to provide
that tribes will be treated like states for purposes of determining support
under Section 170(b)(1)(A)(vi). See Section 153, H.R. 1528 (Tax
Administration Good Government Act) (108th Cong., as passed by
Senate on May 19, 2004).
- Note: H.R. 1528 was never
enacted because a House-Senate conference on the bill was not held.
2. Supporting Organization
Issue
Statute:
- Section 509(a)(3) accords public charity
status to organizations formed to support organizations described in Section
509(a)(1) or (2).
- Section 170(b)(1)(A) references Section
170(c)(1), which lists various governmental units (but not tribal governments).
- Section 7871 treats Tribal Governments as
states for charitable contribution purposes generally, but not for this
specific purpose.
Analysis:
- For the same reasons set forth in
Section B.1 above, organizations that meet the supporting organization test
because they are organized and controlled by a tribal government of a federally
recognized tribe should be treated as public charity.
Legislative
Solution:
- Amend Section 7871 to provide
that tribes will be treated like states for purposes of determining whether an
organization is described in paragraph (1) or (2) of Section 509(a) for
purposes of Section 509(a)(3). See Section 153, H.R. 1528 (108th
Cong., as passed by Senate on May 19, 2004).
In conclusion, First Nations’
research shows that public charitable organizations are generally under-serving
Native communities. This is a problem that must be addressed and First Nations
Development Institute thanks the Oversight Subcommittee for its efforts to
understand and assess the problem through this hearing.
Of particular importance
is to clarify that tribally-funded charitable organizations are treated the
same for tax purposes other government-funded foundations and public charities.
The Native non-profit
sector in Indian Country is finding its feet. In doing so, it is providing
much needed services that governments are not in a position to provide – domestic
violence assistance, alternative financing, counseling, entrepreneurship
training, etc. With private philanthropies' woeful under-investment in American
Indian communities, Tribes have no choice but to create and fund their own
charitable organizations. But once they take the steps necessary to create
high-impact, social-investment organizations, both tribal government donors and
donee organizations need to be assured that these critical institutions will
receive the same tax treatment as those found in the public and charitable
sectors outside of Indian Country.
Today, we ask you to
continue your support of American Indian people in rediscovering their right,
and their power, to hope, dream and succeed. Gunalchéesh (Thank you).
First Nations
Development Institute submits this statement exclusively on its own behalf, and
not on behalf of any individual, entity, or other organization. The Association on American Indian Affairs and the
National Congress of American Indians have worked with First Nations
Development Institute in developing the legislative proposals described herein.
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