Reid Thomas

During a 2023 panel, Charlene Johnson, founder of Plenty Doors Community Development Corporation in Crow Agency, Montana, reflected that she sometimes wants to cry when she hears about all the federal resources available to her community. She fears they won’t be ready to take advantage of them.

Unfortunately, these fears are founded. The past few years have seen a historic influx of federal funds for tribal nations and Native communities, including $32 billion in the American Rescue Plan, $13 billion in the Bipartisan Infrastructure Law, and more than $720 million in the Inflation Reduction Act. And yet, as a recent paper observes, limited staff, expertise, and resources in these areas makes the process of identifying, accessing, and managing federal grants a significant challenge.

One area that often goes overlooked is treasury management, ensuring that the administration of the federal funds once received are compliant with the rules and optimized to meet the objectives of the tribe — without sacrificing their sovereignty.

The challenges facing tribes in managing federal funds

Native communities today face numerous issues as they seek to take advantage of federal funds. Capacity is the major roadblock, both when it comes to applying for funds and managing them once they’re in hand. As Jasmine Boyle, a representative of the Rural Alaska Community Action Program, told a Senate committee last year, some tribes have just one person fielding requests, compliance audits, and grant proposals from multiple federal agencies.

Others lack the capital to get projects off the ground. A cost-matching measure stipulated by a Department of Energy grant program would put one tribe, the Hopi, at risk of obliterating their general budget. And direct pay workarounds, which allow tribes to receive Inflation Reduction Act payments in lieu of tax credits (i.e., because they don’t have the tax liability against which these credits can be claimed), mean that tribes must finance and construct projects first, or partner with a private developer.

This presents additional obstacles, be it the lack of access to banks for loans — nearly 46 percent of people in Native-majority areas live in banking deserts — or the risk of sacrificing their sovereignty and control over the project.

Treasury management strategies are key

Fortunately, there are several capacity-building programs and other initiatives available to help tribes, including a 2023 executive order aimed at streamlining the application process and more investments in Native community development finance institutions (CDFIs).

But these are often aimed at the first phase — accessing the funds — rather than the second: that is, managing funds once they hit tribal bank accounts. This includes fiduciary obligations to the communities they aim to serve and government reporting requirements.

This is a longstanding problem that leaves tribes at risk of sacrificing their sovereignty. For instance, as outlined by the St. Louis Federal Reserve, tribes often become dependent on public revenues from nonrenewable resources, which are volatile and uncertain. Instead, these revenues and other project investments should be saved and invested in ways that safely reinvest in their communities.

That’s where effective treasury management comes in. When assessing prospective strategies and/or partners, tribal leaders should consider the following factors: Are you ready to comply with the stringent compliance and reporting rules that come with federal funds? Consider implementing regular internal audits, creating a monitoring system to ensure each dollar is spent according to its purpose and within designated timeframes, and appointing a project financial manager and/or compliance officer.

  • Compliance and reporting. Are you ready to comply with the stringent compliance and reporting rules that come with federal funds? Consider implementing regular internal audits, creating a monitoring system to ensure each dollar is spent according to its purpose and within designated timeframes, and appointing a project financial manager and/or compliance officer.
  • Cash flow and liquidity planning. Given the length of infrastructure-related timelines—and the fact that Tribes will likely need to be reimbursed after completion—it’s critical that they account for lag times between spending and reimbursement in cash flow forecasts. They should also establish reserves to safeguard against delays in disbursements or unexpected project costs. Doing so will reduce the need for short-term borrowing or reliance on external financiers, which can compromise sovereignty.
  • Deposits. As tribes collect federal funds and new revenue, it’s important that they deposit them with trusted banks — partners who will not only safeguard these funds and ensure competitive returns but reinvest them in their communities. For instance, good banking partners will be FDIC-insured and engaged with local players, like Native CDFIs. They should also be aware of innovative ways to actively invest in tribal areas, like leveraging the new revision to the Community Reinvestment Act, which encourages further support for Native communities and CDFIs. Finally, accomplishing this goal might involve multiple banking partners, which in turn may necessitate a comprehensive treasury management system.

New federal funds are creating sorely needed opportunities for Native communities. However, they come with challenges not only related to accessing capital but managing and protecting it once it’s received—ensuring it serves both the local community and meets requirements outlined by the institution that delivered the funds in the first place. An effective treasury management strategy can help.

Reid Thomas is Chief Strategy Officer at Ampersand, dedicated to addressing the distinct treasury management needs of financial institutions and depositors.

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