Should Indian tribes be able to sell tax-free bonds to finance development?
That’s what’s being pushed in Congress right now. They want the House Ways and Means Committee to allow them to sell bonds to finance golf courses, hotels, and other enterprises. At present, tribes can only issue tax-free bonds to fund essential government functions, like roads and sewers. States can issue bonds to support businesses, so why not Indian tribes?
One reason is bankruptcy. Municipalities and other government entities have a clear bankruptcy regime—it’s called Chapter 9. But tribal governments aren’t subject to US bankruptcy laws. When the Foxwoods mega-casino defaulted on its debt, it never went into bankruptcy, because the tribes are sovereign. That’s why they have their own traffic laws and police.
Until Congress sorts out how bonds will be treated if a business fails, they’d better not treat them like States. Because one of the ways people succeed in investing is by knowing what will happen if they fail.
Douglas R. Tengdin, CFA
Chief Investment Officer