Fiscal Year 2007 Budget Request - Indian Programs STATEMENT OF JAMES CASON ASSOCIATE DEPUTY SECRETARY AND ROSS O. SWIMMER SPECIAL TRUSTEE FOR AMERICAN INDIANS BEFORE THE SENATE COMMITTEE ON INDIAN AFFAIRS ON THE FISCAL YEAR 2007 PRESIDENT’S BUDGET REQUEST FOR INDIAN PROGRAMS February 14, 2006 Good afternoon, Mr. Chairman, Mr. Vice Chairman and Members of the Committee. My name is Jim Cason and I am the Associate Deputy Secretary of the Department of the Interior (Department). With me today is Mr. Ross Swimmer, Special Trustee for American Indians at the Department. We are here today to discuss the Department’s fiscal year (FY) 2007 budget for Indian programs. Our budget request is consistent with the President’s goal to reduce the deficit while providing quality services to Indian Communities. Before we get into specifics of our respective budgets, we would like to highlight several accomplishments. We have: Since 2001, built ten new schools, with 27 more currently in design or under construction. Generated over 6,464 jobs during the past four years through the Bureau of Indian Affairs (BIA) Loan Guarantee and Insurance Program. Reengineered trust business processes and successfully converted the legacy systems at the Southern Plains Region to integrate information technology (IT) systems for title, leasing and trust fund accounting during 2005. This region will serve as the model for the implementation of the Fiduciary Trust Model at all other BIA regions. Continued our focus on enhancing Indian trust beneficiary services by placing three of the 50 Fiduciary Trust Officers in urban locations, and opening the toll-free Trust Beneficiary Call Center, which received over 75,000 calls in its first year and freed up over 3,800 hours of time to agency staff to focus on other program responsibilities. Acquired a total of 202,775 fractionated interests in land, the equivalent of 228,837 acres, through the Indian Land Consolidation Project (as of December 31, 2005). The President has proposed a $10.5 billion budget for the Department. The FY 2007 budget request for the BIA is $2.2 billion, which is $52.4 million below the FY 2006 enacted budget. Of that total amount, the Operation of Indian Programs account is funded at $1.97 billion, an increase of $4.4 million. In an effort to improve budget and performance integration, the BIA, after consultation with the Tribes, presented the Operation of Indian Programs account in a restructured format. The revised structure groups budget programs by function rather than organization. The new format facilitates budget analysis as programs can be viewed comprehensively to understand the breadth of each program. In the previous budget structure, funding for the same program could appear in several different locations in the budget. The new structure strengthens performance measure by grouping program elements that impact the same performance goals. The budget request for the Office of the Special Trustee for American Indians (OST), which includes funding for the Office of Historical Trust Accounting (OHTA), is $244.5 million, an increase of $21.7 million or 10 percent above the FY 2006 enacted level. This is a reduction of $3.7 million to OST’s operating budget and an increase of $25.4 million to Indian Land Consolidation. The FY 2007 request will support ongoing activities administered by OST and OHTA to improve beneficiary services, continue implementation of the Fiduciary Trust Model (FTM), expand Indian land consolidation efforts, and continue historical accounting activities. Over one-half of OST’s budget is pass-through funding that directly supports BIA land consolidation activities and other Department programs, such as the historical accounting. The remaining funds support OST’s operating expenses. The FY 2007 request reflects an overall decrease in OST’s operations funding from FY 2006 due to cost savings achieved. The FY 2007 budget request for Indian Affairs continues the Department’s commitment to reform trust management and provides increases to strengthen Indian self-determination, enhance education, address law enforcement issues, and support the development of energy resources in Indian country. The Unified Trust Budget -- Fulfilling Trust Responsibilities Congress designated the Department as the trustee for one of the most complex and diverse governmental land trusts ever established. The Department manages approximately 56 million acres of land held in trust. Over ten million acres belong to individual Indians and nearly 46 million acres are held in trust for Indian Tribes. On these lands, the Department manages over 100,000 leases for individual Indians and Tribes. Leasing, use permits, land sale revenues, and interest, all of which total over $300 million per year, are collected for approximately 277,000 open individual Indian money accounts. About $500 million per year is collected in 1,450 tribal accounts for some 300 Tribes. In total, the Department manages retained deposits of approximately $3 billion in tribal funds and $400 million in individual Indian funds. The $1.7 billion that the Department has used in managing trust programs over the past four years brings the Department’s ten-year expenditure in trust management, reform and improvement to $3.4 billion. The 2007 budget request would provide an additional $536 million investment in these programs, including a net program increase of $30.2 million over the FY 2006 enacted level. The Cobell v. Norton (Cobell) litigation that has been pending since 1996 has had a profound effect on the Department, including the budget for Indian programs. For example, and as you may be aware, on January 26, 2006, Interior sent out a letter to tribal leaders advising them of an unexpected decrease in financial resources, which could affect program activities, due to a ruling in the Cobell case. In response to plaintiff’s motion for attorney fees pursuant to the Equal Access to Justice Act, the U.S. District Court issued an Order requiring prompt payment of a “total Interim Fee Award” of just over $7 million to plaintiff’s attorneys. This was not a planned expense. As these funds must come from already appropriated funds, Interior considered a range of options to comply with the Court’s Order. We eventually utilized several sources of funds to pay the fee award: the BIA contributed $3 million ($2 million from an account used to reimburse tribal attorney’s fees, and about $1 million generated by a 0.1% across-the-board retention of program funds); the OHTA contributed $2 million; OST contributed $300,000; and, the Department of the Treasury contributed the balance of about $1.766 million. For FY 2007, the Secretary has requested funding to fulfill her trust responsibilities and meet the requirements of ongoing litigation within a budget that is fiscally responsible. We look forward to working with this Committee in pursuing a resolution to this costly litigation. During this Administration, we have closely examined how we manage individual Indian trust land and individual Indian money (IIM) accounts, and made organizational and programmatic changes that reflect a better understanding of the fiduciary trust responsibility owed to beneficiaries. The Department now spends millions of dollars a year to keep track of individual interests in Indian trust lands and to manage, collect, and distribute revenue from them. (This is separate from the costs associated with litigation of the Cobell case.) In our trustee-delegate capacity, the Department must administer its fiduciary trust responsibility in a manner that differs from private sector practices. For example, the government must manage every account with equal care, regardless of the size of the account. Clearly, the costs of managing accounts with as little as one cent in them far exceed the benefits that accrue to the beneficiaries of those accounts. This issue does not arise in the private trust banking industry because individuals pay for trust services and obviously would refuse to continue a trust relationship where fees are significantly higher than the revenues generated by their trust asset. The Department is currently exploring various regulatory and statutory changes that would introduce some common sense into the management of Indian trust assets and help eliminate the wasteful and illogical costs associated with de minimus accounts. The FY 2007 unified trust budget includes funding to continue historical accounting, to support the re-engineering and reorganization of trust programs, to continue eliminating the backlog of unresolved probate cases and to consolidate fractioned interests in allotted lands. These issues are explained below: Historical Accounting – In 1994, Congress passed the American Indian Trust Fund Management Reform Act of 1994. The Act requires the Secretary of the Interior to “account for the daily and annual balance of all funds held in trust by the United States for the benefit of an Indian Tribe or an individual Indian, which are deposited or invested pursuant to the Act of June 24, 1938 (25 U.S.C § 4011 (a)).” The Department is currently involved in the Cobell litigation, and approximately 31 tribal lawsuits associated with the management of Indian trust funds. On November 15, 2005, the United States Court of Appeals for the District of Columbia Circuit issued a ruling that vacated a February 23, 2005, structural injunction imposed by the District Court in the Cobell litigation that called for an alternative transaction-by-transaction accounting for all transactions back to 1887, and was expected to cost from $10 to $12 billion. The Court of Appeals ruling specifically sanctioned the use of statistical sampling as part of the IIM historical accounting. We are pleased the Court of Appeals upheld the position of the Department, and that our detailed and comprehensive plan to conduct a statutorily-mandated historical accounting was supported by the decision. On January 6, 2003, as ordered by the court in the Cobell litigation, the Department filed The Historical Accounting Plan for Individual Indian Money Accounts (IIM). At the time of filing, the plan had an estimated cost of $335 million using both transaction-by-transaction and statistical sampling reconciliation techniques to develop assurances of the accuracy of the statements of account. The historical accounting addresses three distinct types of IIM accounts: judgment and per capita IIM accounts, land-based IIM accounts, and special deposit accounts. Interior is considering modifying its January 6, 2003 accounting plan, based on the information now available from the work of the past three years, and the recent Court of Appeals decision vacating the District Court’s structural injunction. The process will consider lessons learned from work already completed, removal of the structural injunction, statistical sampling parameters, and accounting costs. As of December 31, 2005, OHTA had reconciled more than 50,000 judgment and over 15,000 per capita accounts of the 99,500 judgment and per capita accounts (including some with no balance). OHTA has mailed over 12,000 historical statements of judgment and per capita accounts to individual Indian account holders and former account holders. By motions filed on March 25, 2005, the Department has been seeking permission to mail an additional 28,000 historical statements of account are ready to be sent to account holders. By the end of 2006, OHTA will reconcile an additional 16,500 judgment accounts and 6,500 per capita accounts – bringing the total of reconciled judgment and per capita accounts to about 88 percent. Through December 31, 2005, OHTA also has resolved residual balances in over 9,500 of the nearly 21,500 special deposit accounts, identifying the proper ownership of more than $48 million belonging to individual Indians, Tribes, and private entities. By the end of 2006, OHTA expects to identify the proper ownership of nearly $50 million (cumulative) in residual special deposit account balances. Despite claims that few records exist, our work to collect, image and store records at the American Indian Records Repository (AIRR) over the past few years has demonstrated that far more records exist than anyone anticipated when the accounting began. Of the estimated 300-400 million pages of records at AIRR, OHTA also has imaged, coded and loaded into the Accounting Reconciliation Tool (ART) more than nine million pages of relevant fiduciary trust records representing over 634,000 documents in support of IIM accounting, and reconciled nearly 8,000 land-based IIM transactions using the ART system. OHTA has also determined variance rates and dollar differences in accounts for the electronic records era (approximately 1985 through 2000) as a result of the Litigation Support Accounting Project completed in fiscal year 2005. This project involved reconciliation work on high-dollar transactions (those equal to or in excess of $100,000), and on a national sample of transactions (statistically selected from those under $100,000) in land-based IIM accounts. A report on the project was delivered to OHTA on September 30, 2005, that included these findings: o Over 99 percent of the random sample of transactions have been reconciled to the supporting documentation for all twelve BIA Regions. o Statistically, no evidence was found to suggest that the under- and over- payments occurred at different rates. Under-payments and over-payments can occur on both the debit and credit side of the ledger, and while there is a higher overall error rate on the credit side of the ledger, under- and over-payments occurred at the same rate, and distribution of the difference amount is statistically equivalent. These findings, along with other accounting efforts, identify no evidence of systemic accounting failures or fraud. The Department proposes $56.4 million in 2007 for historical accounting. This amount will provide approximately $39.0 million for IIM accounting and $17.4 million for tribal accounting. This amount may be revised depending on the outcome of any further court rulings in the Cobell case or Congressional action. Thus far, the Department has expended more than $100 million in its historical accounting effort and has found ample evidence that most monies collected for individual Indians were distributed to the correct recipients. Fiduciary Trust Model – The OST budget continues to provide funding to implement the Fiduciary Trust Model (FTM) priorities, including: re-engineering the Department’s fiduciary trust business processes and universal support functions to ensure the fulfillment of fiduciary trust goals and objectives; and, reducing fractionated individual Indian trust land interests. The main emphasis of the FTM is to bring a beneficiary-focused approach to Indian trust management. For years, the Indian trust was treated like any other government program than as a trust in which the Department has a fiduciary duty to manage assets on behalf of beneficiaries. Coupled with the fractionation of Indian land, which generates more and more owners of smaller and smaller interests, this approach resulted in a gradual distancing of the trustee from the beneficiary. The FTM attempts to eliminate this distance by providing programs and personnel who will ensure that meeting the needs of beneficiaries is the driving force in how we conduct business. To help provide a stronger beneficiary focus, OST has added Fiduciary Trust Officers (FTOs) and Regional Trust Administrators (RTAs) to its staff. FTOs are the primary points of contact for trust beneficiaries at the agency level. They allow other Department staff to devote more time to process transactions, lease land, ensure lease compliance and prepare probates for adjudication. FTOs conduct beneficiary outreach meetings to provide information to the beneficiaries on the status of trust reform, and to answer their questions. OST employs about fifty FTOs and six RTAs with extensive backgrounds in fiduciary trust management. RTAs supervise the work of FTOs, oversee trust account management and coordinate trust activities with BIA regional directors. One very successful FTM initiative involves improving beneficiaries’ access to trust information. The toll-free Trust Beneficiary Call Center is a central resource for answering beneficiary questions, and giving prompt, reliable information. During the first year of operation, the Call Center handled more than 75,000 calls. We were able to address 90 percent of the inquiries during the initial call, leaving only ten percent to refer to trust officers for further action. This new level of efficiency in providing information to beneficiaries resulted in over 3,800 hours of employee time being freed up to the field to increase workload capacity in other program areas. In partnership with the Bureau of Land Management and the BIA, 12 specialized cadastral surveyors have been hired to provide services for tribal governments, individual Indians, and BIA employees concerning boundary surveys, land ownership, resource management, and other survey matters related to Indian trust and fee lands. The new surveyors will also provide assistance in partitions, legal description reviews, boundary inspections and water boundary issues. This is the first time cadastral surveyors will be based at the BIA regional offices, directly available to manage the backlog of survey issues and needs in Indian country. In 2005, a new Probate Hearings Division was created within the Office of Hearings and Appeals (OHA) dedicated exclusively to Indian probate adjudications. Combined with new probate business processes and focused efforts to distribute probate funds, we are working to address the probate backlog, streamline the current probate process and update trust information for improved beneficiary service. Also in 2005, the Department completed a successful systems and business process conversion project at the BIA’s Concho and Anadarko agencies in Oklahoma. At these pilot sites, the Department introduced improved systems to process work, substantially eliminate backlogs in recording vital information into the title system, and move to a more efficient distribution of probates. In addition, the Department has developed statements for all beneficiaries served by the two sites, which include more detailed information on their trust assets and trust income. These pilot agencies will now serve as the models for the next agencies to convert. Following the success of these initial conversions, the Department has embarked on an ambitious roll-out schedule to have all agencies converted to the new systems by the end of CY 2007, utilizing the lessons learned from the conversion and continued perfection of the process. Other agencies in the Southern Plains region completed their conversion and cleanup earlier this year. Phase One of a new "lockbox" procedure for collecting lease payments on Indian trust land is now fully implemented nationwide. The lockbox is a commercial processing center that receives, processes and deposits all remittances for trust land. This new procedure provides a number of benefits: the local BIA agency will not be required to handle receipts; there will be less risk of loss; a more timely deposit of funds in a beneficiary's account; and improved records and accountability of payments. Phase Two of the lockbox will be implemented as agencies convert to the integrated IT systems, and will allow for a funds receivable system that automatically generates payment invoices that are sent to lessees and distributes funds that are received. OST is regularly conducting beneficiary outreach at different agencies to provide information on trust reform and locate Whereabouts Unknown (WAU) account holders. OST recently hired a contractor to assist in locating WAU. As of December 31, 2005, there were 44,692 WAU accounts with a combined balance of about $64.3 million. Land Consolidation – The OST budget includes $59.4 million to continue the nationwide purchase of fractionated land interests through BIA’s Indian land Consolidation Program, an increase of $25.4 million from the FY 2006 appropriation. This level of funding will provide for the expansion of the acquisition program. Acquisition of these fractionated interests increases the likelihood of more productive use of the land, reduces the large numbers of small dollar financial account transactions, and decreases the number of interests that must be probated by the Department. This program will now focus on ten tribal reservations in five BIA regions, and will target specific tracts of land. As of December 2005, 202,775 individual Indian interests had been acquired – equivalent to 228,837 acres. The FY 2007 funding is anticipated to result in the acquisition of about 80,000 additional undivided interests. The Department will use this funding and the new tools provided by Public Law 108-374, the American Indian Probate Reform Act of 2004, which becomes effective on June 20, 2006, to further address fractionation. Contract Support This program supports the Department’s goal of serving communities by promoting American Indian and Alaska Native self-governance and self-determination by strengthening and stabilizing the administrative structures of tribes and tribal organizations currently contracting or compacting under the authority of Public Law No. 93-638, as amended, which authorizes Federally recognized tribes to contract or compact programs currently operated by the BIA. The BIA budget proposes an increase of $19.0 million to fully fund indirect costs for contracting Tribes. Full funding of contract support costs encourages tribal contracting and promotes progress in achieving Indian self-determination. Contract support funds are used by tribal contractors to pay a wide range of administrative and management costs, including, but not limited to, finance, personnel, maintenance, insurance, utilities, audits, communications, and vehicle costs. Indian Education BIA is one of only two agencies in the federal government that manages a school system, the other being the Department of Defense. Education is critical to ensuring a viable and prosperous future for tribal communities and American Indians. Our top priority is to provide quality educational opportunities. The school operations budget represents a continued commitment to the future of American Indian youth and supports the President’s commitment to “leave no child behind.” The FY 2007 budget request of $518.2 million for elementary and secondary school operations will support 184 schools and dormitories serving almost 48,000 students and resident only boarders. The $103.2 million the BIA requests for post-secondary schools will support two BIA and 24 tribal colleges and universities. Bureau-funded schools also receive funding from the Department of Education and other sources. In that regard, the BIA and the Department of Education continue to work together to improve service delivery of programs that benefit Indian students. The BIA is accountable for developing strategies, monitoring, and helping Bureau-funded schools achieve adequate yearly progress (AYP) targets. AYP is the accountability system under the No Child Left Behind Act (Public Law 107-110) that measures student proficiency in math, reading, and language arts. Student performance at BIA schools, while improving, remains lower than the national average. In school year 2004-2005, 30 percent of the BIA schools met the measure for AYP. BIA worked with Tribes and tribal school boards to develop a program improvement and accountability plan to improve the effectiveness of the education services provided in the Bureau-funded school system. The FY 2007 BIA budget includes $2.5 million to meet the objectives of the program improvement and accountability plan. The BIA is aligning education offices in the field and in headquarters in a more centrally coordinated organization. The program will provide the oversight necessary to promote progress in student achievement in all schools. The organizational structure establishes new leadership positions, placing senior executives in strategically located educational line offices to strengthen accountability. A mix of data, contract, and financial specialists will provide system-wide services allowing school administrators and teachers to focus on student needs. Funding for post-secondary education totals $103.2 million in the FY 2007 budget. The BIA budget includes funding for grants to 24 tribal colleges and universities (TCU), Haskell University and the Southwest Polytechnic Institution, at approximately the same level as FY 2006. BIA believes that juveniles temporarily detained in detention centers are less likely to repeat offenses if they have the opportunity to stay current with their academic instruction. The Indian education budget includes $630,000 to establish education programs for juveniles housed at the 20 Bureau-funded juvenile detention centers. The funding will support contracts that provide educational instruction to these students on an interim basis, as needed. The FY 2007 BIA budget request proposes to eliminate $16.4 million in Johnson-O’Malley (JOM) grants. JOM funds are distributed by the Tribes to address Indian student needs in local public schools. These grants are duplicative of other Federal and State assistance programs and do not address a focused goal for academic achievement. The elimination of these grants will allow the BIA to focus its resources on the requirements of the Bureau-funded school system, while also reducing redundancy with other Federal programs. Indian School Construction The FY 2007 budget request is $157.4 million for school construction and repair, $49.3 million below the FY 2006 enacted level. The budget will fund new projects while allowing the program to focus on building the schools already funded for construction. The BIA school construction program provides funding to replace, rebuild, and repair BIA funded schools so Indian children have safe and nurturing places to learn. Between FY 2001 and FY 2006, the President and Congress have provided $1.6 billion for the Indian education program, funding replacement of 37 schools and major facility improvement and repair projects at 45 schools. Of the 37 replacement schools funded between 2001 and 2006, ten of these have been completed and another 19 are scheduled to be completed in 2006 and 2007. Of the 45 major facility improvement and repair projects funded between 2001 and 2006, nine have been completed and 25 are scheduled to be completed in FY 2006 and FY 2007. The FY 2007 budget request includes $36.5 million for replacement school construction. These dollars will complete funding for the Muckleshoot Tribal School in Washington and fully fund the Denneshoto Boarding School in Arizona. The education construction account also includes $41.3 million for Facilities Improvement and Repair (FI&R) projects, and $50.7 million for annual maintenance. The FY 2007 budget proposes a new budget sub-activity, Replacement Facility Construction, to conform to the recommendations of the Inspector General’s report on the use of facility improvement and repair funds. This new sub-activity will fund replacement of individual buildings on school campuses when entire new school facilities are not needed. Often times, it is more economically prudent to replace a structure than to repair or rehabilitate it, but replacement of a structure is classified as construction, rather than facility improvement and repair. In FY 2007, the $26.9 million proposed for this sub-activity will fund the replacement of four buildings. Public Safety and Justice in Indian Country The BIA provides direct assistance to Tribes for law enforcement programs, including uniform patrol, criminal investigations, detention, and dispatch on approximately 56 million acres of Indian Country in 34 States. Law enforcement and security issues continue to mount in Indian Country even as solutions are attained. The Department of Justice (DOJ), under a joint DOJ-Interior initiative, has provided funding to build or expand 21 detention facilities in Indian country. In September 2004, the Office of the Inspector General (IG) released an assessment of Indian detention facilities which documented poor conditions at other Bureau-owned facilities. The BIA has responded to the IG report by expanding its detention center construction program. The FY 2007 budget continues to aggressively confront this issue by requesting $8.1 million for four major Facilities Improvement & Repair projects and several smaller projects to continue to bring Indian detention centers up to national standards. The FY 2007 BIA budget request also includes $4.5 million for law enforcement activities in Indian country. The increase includes $1.8 million to expand law enforcement programs in areas where violent crime is most severe and $2.7 million to staff, operate, and maintain the detention facilities built with DOJ funding that will be certified for occupancy in 2007. Economic Development High unemployment on reservations is one of the greatest challenges facing Indian Country. In recognition of the significant potential and benefits related to increased energy development on Indian lands, the FY 2007 budget proposes $2 million for Indian energy resource development as outlined in the Energy Policy Act of 2005 (Public Law 109-58). Funding includes $1.4 million for grants to Indian Tribes for energy development activities including energy inventories, feasibility studies, tribal energy resource agreements, training, and development of tribal energy codes. Funding also includes $600,000 for BIA oversight including approval of Tribal Energy Resource Agreements, and technical assistance. Resolving Land and Water Claims The $33.9 million BIA budget for Indian Land and Water Claim Settlements includes $23 million for two new settlements. The Snake River Water Rights Act of 2004 (Public Law 108-477) requires that the Department provide the Nez Perce Tribe and the State of Idaho $170.9 million to fund water supply, habitat restoration, and other purposes. The BIA portion of the settlement is $95.8 million over seven years. The FY 2007 BIA budget includes $14.8 million for payments to the Nez Perce Tribe Water and Fisheries Fund, Nez Perce Tribe Salmon and Clearwater River Basins Habitat Account, and the Nez Perce Tribe Domestic Water Supply Fund. The BIA budget also includes $7.5 million for the first of two payments for the Rocky Boy’s Water Systems Operation, Maintenance, and Replacement Trust Fund. The total authorization for the trust fund is $15 million. Reductions for the Colorado Ute, the Zuni, and Quinault Indian Nation land and water settlements which were completed or almost completed in FY 2006, totaling $23.1 million, offset the increase requested for the new settlements. These settlements resolve long-standing claims to water and land issues by Indian tribes. They are the result of negotiations between the tribes, the Federal government, and other interested parties that have been ratified by the Congress. While the specific provisions of each settlement differ, most contain multi-year funding commitments. Program Assessment Rating Tool Finally, I want to mention that, as part of the 2007 budget formulation process, the Housing Improvement, Indian Irrigation Operations and Maintenance, Dam Safety and Dam Maintenance, and the Guaranteed Loan programs within the BIA were evaluated using the Program Assessment Rating Tool. The assessment found the Housing Improvement program has had problems with management oversight, but has begun efforts to improve by developing standards to maintain program consistency in all regions. The Irrigation program was directed to develop an inventory of facility conditions, and the Dams program was found to collaborate effectively with other Federal, state, and tribal organizations for the safe operations of dams nationwide. The Guaranteed Loan program was found to address a specific and unique challenge to Indian country by providing financial services for small business development. Conclusion Mr. Chairman, thank you for the opportunity to appear before you today. We will be happy to answer any questions you may have.