W. RON ALLEN, VICE PRESIDENT
NATIONAL CONGRESS OF AMERICAN INDIANS
TESTIMONY BEFORE THE U. S. HOUSE OF REPRESENTATIVES
COMMITTEE ON RESOURCES
HEARING ON H.R. 4148, THE TRIBAL CONTRACT SUPPORT COST
TECHNICAL AMENDMENTS OF 2000
WASHINGTON, D.C.

Good morning Chairman Young and members of the House Committee on Resources. My name is W. Ron Allen, and I am the Chairman of the Jamestown S'Klallam Tribe located in Washington State. I am also the Vice President of the National Congress of American Indians (NCAI) and offer my testimony today in both capacities. It is an honor and a pleasure to come before the Committee to testify in support of H.R. 4148, a bill to make technical amendments to the contract support cost provisions of the Indian Self-Determination Act.

I. INTRODUCTION

Chief among those problems, as long recognized by this Committee, has been the consistent failure of the BIA and IHS to fully fund the contract support costs required to carry out these federal programs. That failure has penalized Native American communities-the real and ultimate victims of the shortfall-by forcing reductions in tribal programs in order to cover the federal government's responsibilities.

Since the early 1980s Congress has focused increasing attention on the contract support cost issue, and the related issue of indirect costs. Study after study has been undertaken by various committees of Congress, Inspectors General, NCAI, the General Accounting Office, tribal governments, and others, and reform legislation was enacted by this Congress in 1988, 1990 and 1994. Nonetheless, the heart of the contract support problem not only persisted, but worsened in the mid-1990s. Year after year the agencies would fail to fully request the requisite sums from Congress, and the paltry sums that were requested would be cut either at the Departmental level or by the Office of Management and Budget. Through Administration after Administration, and Congress after Congress, the hole got deeper and deeper, until a crisis was upon the tribes.

In response to this crisis, in 1998 the Appropriations Committees began to more aggressively probe into the contract support issue. In 1998, NCAI also launched a special nationwide task force to study in depth all aspects of the contract support cost issue, and to formulate recommendations for Congress. Simultaneously, Congress called upon the General Accounting Office to undertake an independent study of the matter. In June 1999 NCAI and the General Accounting Office each issued reports confirming the fundamental integrity of the contract support cost system in theory, as well as the extreme problems in practice facing tribal contractors as a result of the consistent under funding of those costs.

II. H.R. 4148 - CONTRACT SUPPORT COST TECHNICAL AMENDMENTS

1. Contract support costs must be fully funded. This was our first and most important recommendation, and it is a recommendation that was confirmed by the GAO's June 1999 study. It is simply not acceptable to shortchange tribes and the Indian people they serve by treating tribal contractors as second-class government contractors. It is not morally right, and in our opinion it is not legally right. Other comparable government contractors, correctly, are paid their general and administrative overhead associated with the services they provide to the United States. Indian tribes ask nothing less.

Section 3 of the bill accomplishes this result in two ways. First, the bill eliminates ambiguous provisions in the law which have been seized upon by the government as a justification for under funding contract support costs. Second, Section 3 makes a permanent appropriation to cover the full contract support cost requirement. As the Committee may be aware, there is ample precedent for the use of the "permanent appropriation" device in compelling circumstances. If such treatment is appropriate-as it is-in a wide array of federal housing programs for the poor, surely it is appropriate to meet the federal government's obligations to its Indian trust beneficiaries when tribes agree to step into the government's shoes and administer the government's programs.

2. Congress should promote financial stability and efficiency in tribal operations. BIA and IHS experimentation along these lines has already proven to be a success, and it is time to codify this experimental approach into statute. My own tribe has already been involved in such an initiative with the Indian Health Service, where all of our program dollars and contract support cost dollars are rolled into a single-base budget, and in future years our contract support cost requirements are not renegotiated, up or down. Such a system provides a tribe the ability to engage in long-term planning and to be assured of financial stability when making those plans.

We also agree that if Congress is going to fully fund the contract support cost requirement, Congress can certainly demand of tribes that they maximize their efficiencies and operations as much as possible. The consolidated funding approach reflected in Section 2 of the bill accomplishes these goals, and NCAI therefore fully endorses this approach.

These two recommendations, in NCAI's opinion, go hand in hand. So long as the federal government fully funds contract support costs, tribes can reasonably be asked to live within that budget under the strict rule specified in Section 2 of the bill. Full funding, though, is the key. Without it, the improvements and innovations that will come through the consolidated funding approach are simply not possible.

3. Federal agencies other than the BIA and IHS must finally conform their practices to the government-wide federal indirect cost system. Since the early 1980s tribes have continually conveyed to Congress the terrible bind created by the refusal of many agencies other than the BIA and IHS to adhere to the government-wide indirect cost rate set by each tribe's federal cognizant agency (which for most tribes, is the Department of the Interior's Office of Inspector General). The OMB indirect cost system is a sound and sensible system. But that system can only work as intended if all branches of the federal government respect the system.

Under that system, a tribe's indirect cost requirements are fixed by the tribe's federal "cognizant agency"-the agency with which the tribe does its greatest amount of contracting. The accounting principles reflected in that agreement are then binding on all other federal agencies. Unfortunately, most other federal agencies ignore a tribe's government-wide indirect cost agreement, sometimes due to conflicting statutory barriers though more often due to mere policy or regulatory barriers.

This is not a minor technical issue. Recently the federal government settled five years' worth of liabilities to Indian tribes for nearly $80 million-at that, a settlement that only covered the government's liability through 1993. The first provision in Section 2 of the bill finally closes the book on what has been an accounting nightmare for tribes.

4. OMB should issue a new circular specifically devoted to tribal governments. We also applaud the provision in Section 2 of the bill which will require OMB to issue a new circular exclusively devoted to the expenditure of federal funds paid to tribal governments under the Indian Self-Determination Act and other federal law. A similar provision was a part of the 1994 proposed Self-Determination Act reforms but, at the last minute, was deleted.

The need has remained. Although there are similarities between tribal governments and state and local governments, there are also significant differences, chief among them being the Indian Self-Determination Act itself. The existing OMB circular that is applied to tribal governments simply does not fit, and it is time that a new circular finally be developed.

H.R. 4148 also addresses several other technical matters that I would like to briefly note as follows:

Section 2 of the bill also directs that the responsibility within IHS for the negotiation of contract support costs be transferred from the Division of Financial Management to the Office of Tribal Programs. In its June 1999 report, the GAO expressed considerable concern with potential conflicts of interest at the Department of the Interior, but failed to consider the actual conflict present at IHS. Under the IHS system, the very individuals who are responsible for spending IHS's own money are also responsible for administering the contract support cost system. Obviously in that environment there will be the perception that the Division of Financial Management is cutting back on contract support costs in order to benefit the agency. Such suspicions were never present when contract support cost matters were administered by the Office of Tribal Programs, as was the case prior to 1996. Because of this prior experience, and because of the expertise that office has in the administration of tribal health programs, we support H.R. 4148's reform in this area.

We also support H.R. 4148's provision clarifying that direct contract support costs must be paid on all federal employees. As the Committee is aware from its oversight hearings last year, with little explanation and some embarrassment the Assistant Secretary for Indian Affairs acknowledged that the Bureau had failed over the years to even consider paying direct contract support costs, despite the statutory mandate to do so. Proposed new subsection (f) addresses this issue directly, while also emphasizing that direct contract support costs must be paid in connection with federal employees funded with third-party revenues (a common practice within IHS programs).

H.R. 4148 is written in the spirit of a compromise, and it is in that spirit that we also understand Section 4 of the bill, a provision which would double the amount of time the agencies have to plan to transition federal programs from federal administration to tribal administration. The Committee should understand, however, that under the original Self-Determination Act, the IHS and BIA had a mere thirty days to review and either award or decline a contract proposal. Under pressure from the agencies, this period expanded to ninety days in the 1994 amendments. While we question the wisdom of further enlarging this period, we have approached H.R. 4148 as a compromise measure, and in that spirit NCAI is supportive of the bill in its entirety, including this provision.

Finally, NCAI supports Section 5 of the bill which would improve the judicial remedies available under the Act in two ways. First, Section 5 would eliminate an inadvertent discrimination between tribes based simply upon their size. NCAI represents the interests of all tribes in the United States, and we therefore welcome this correction. Second, NCAI supports the provision for an additional financial penalty on agencies that wilfully fail to follow the mandates of the Act. For too many years, some agency personnel have simply disregarded the Act, knowing that tribes have few resources to challenge such actions. While such agency misconduct is, I am pleased to say, rare, when it happens it can have grave impacts on a tribe's social service, education or health care delivery system. Penalties should be reserved for rare situations. But when those situations arise, we agree that a penalty should be imposed.

III. RECOMMENDATIONS

First, the new OMB circular called for in the bill should be limited to Indian tribes. Many "tribal organizations" are organized as not-for-profit corporations under state law. Those corporations are governed by a different set of OMB circulars that apply only to such corporations. After consulting with those tribal organizations, NCAI does not believe there is any need to replace the current circular applicable to such organizations with a new circular.

Second, with fiscal year 2000 almost over and the need to plan for the funding consolidation set forth in Section 2, we recommend that the consolidation process commence in fiscal year 2003, rather than fiscal year 2002.

Third, we recommend that the bill consistently refer to contracts and compacts wherever the word "contract" is used.

Fourth, we recommend that current references in the bill to Titles III and IV of the Act be changed to be more general so that no further amendment will be necessary once new Title V is enacted as a result of passage of H.R. 1167.

Fifth, we recommend that the bill's reference to a "mature contractor" be changed to a "mature contract," consistent with Title I of the Act.

Sixth, we recommend that the reference to the Consumer Price Index be to the "national" CPI to avoid any confusion with local price indices.

Seventh, we recommend that the term "consolidated contract amount" be changed to "consolidated amount."

Eighth, we recommend that the bill language and accompanying report make clear that tribes remain free to administer multiple contracts, even if the dollar amount within each contract is consolidated.

Ninth, we recommend a technical correction to the indirect cost overpayment provisions of the bill.

Tenth, we recommend that "deconsolidation" of the consolidated amount occur not only when there is a substantial financial change of the kind described in the bill, but at any other time when the Secretary "for good cause" agrees. If an unforeseen event occurs that impacts a tribe's local economy, such as the disasters which occurred a couple of years ago in northern Florida as a result of a hurricane, deconsolidation should be available so that the tribal government and the federal government can work together to pick up the pieces and restructure as necessary.

Eleventh, we recommend a clarification in the section addressing the Office of Tribal Programs, so that it is clear that nothing in the role of that office is to impair implementation of the tribe's indirect cost rate agreement developed with its cognizant federal agency.

Twelfth, we recommend that a new subsection be added to the bill authorizing a joint BIA and IHS regulation on the determination of contract support cost amounts. For too many years, tribes have been caught between conflicting agency policies on contract support costs. We suggest that the timeline on such regulations be short, consistent with the successful model used in the 1994 amendments to Title I of the Act, and that the bill call for the regulations to be developed through the negotiated rulemaking process. As in Title I, we also recommend similar language regarding waivers under appropriate circumstances.

The language we propose to add is specifically intended not to authorize the Secretaries to adopt policies regarding the allocation of contract support funding. This is consistent with the bill, which will eliminate allocation issues by making provision for full funding of contract support costs. We recommend that the Committee only authorize regulations "relating to the determination of contract support cost entitlements."

Finally, we recommend that the bill include an effective date and an express provision stating that the bill overrides any conflicting provisions of law, including any conflicting provisions of regulations. While this may appear unnecessary to the Committee, our experience in the past has been that some agency attorneys try to argue that until regulations are promulgated, an act of Congress is not really law. Obviously, we want to foreclose any such creative arguments.

IV. CONCLUSION

Mr. Chairman, in closing, I want to convey the deepest appreciation of this Committee and my personal appreciation for the enormous commitment you have made to solving the contract support cost problem over the past two years. You have truly been a leader in this area, and you have worked hard to develop a sensible approach that balances tribal self-governance with tribal accountability.

When you introduced H.R. 4148, you spoke powerfully to the improvements made by Alaska tribal contractors and tribes all across the country in the administration of the federal government's programs. Clearly, dismantling the federal government by turning control back to the local people works, particularly in the context of government-to-government relations with Indian tribes. But you also noted that:

"When it comes to Native American contractors, the government thinks it's alright to change the rules, to break the contract, and to deny any liability regardless of the impact on the local people being served. Tribal contractors are made to be second-class contractors."

You then added: "This is not right, and the bill I introduce today will put an end to this practice." We agree with that statement and respectfully urge the Committee to move H.R. 4148 forward as swiftly as possible.

Thank you again for this opportunity to testify before your Committee and NCAI will be delighted to respond to any inquiries or clarifications from the Committee.

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